Those commercials on TV for plaintiffs attorneys are a not-so-subtle reminder that we live in litigious society and businesses must protect themselves from lawsuits. One essential protection for employers large and small is commercial general liability (CGL) insurance. CGL covers the cost of claims when a business is sued by someone for bodily injury, property damage or advertising injury.

Unfortunately, lawsuits against employers for negligence are on the rise. A report from Deloitte recently gave the Canadian commercial insurance general liability market a negative outlook, citing several trends that are driving up claims costs. Since 2019, the Canadian commercial insurance market has been a “hard market.” This means “the market entered a period of higher rates and reduced underwriting capacity for certain lines of business and/or geographies.”

According to Willis Towers Watson’s 2021 Insurance Marketplace Realities report, several factors are accentuating this hard market. They include more frequent and severe lawsuits (known as “social inflation”). This is a key reason why CGL carriers are under pressure to increase rates and tighten policy terms and conditions.

The upshot is that it’s more important than ever for businesses to have CGL insurance and to work with an insurance broker who can help them find the best coverage at the best rates.

What CGL covers

CGL covers many of the liability situations most companies encounter during their normal business activities. Coverage includes medical, property, legal, compensatory and punitive damages you must pay if you are found legally responsible for:

CGL limitations and what’s not covered

CGL policies provide some product liability coverage, too. However, if you manufacture or sell products, it may be best to purchase product liability insurance that covers product recalls. These policies cover claims associated with product defects, malicious tampering, contamination, mislabeling and deceptive marketing.

CGL doesn’t cover professional liability claims. For that, you would need a professional liability, or errors and omissions, policy. This type of policy covers negligent professional acts.

CGL doesn’t cover workers’ compensation, directors and officers liability, pollution liability or commercial auto liability either. These are covered by other types of liability insurance.

CGL policies have limits on what they will pay. Most have an occurrence limit and an aggregate limit. For example, if you have a $1 million/$2 million policy, your insurance will pay up to $1 million for a single claim and up to $2 million during the policy term.

If a claim exceeds the policy’s limits, you must pay the excess amount yourself. Excess insurance and commercial umbrella insurance are two ways to inexpensively add coverage to your underlying CGL policy. Your insurance broker can advise you on limits and the best way to increase them, if needed.

Pricing and other considerations

Ask your insurance broker about pricing a CGL policy that’s tailored to your industry and risk exposure. Your premiums will be based on the size and type of your business, your annual revenue, your location, the number of employees you have, your claims experience and the condition of your property. Your policy’s limits and the size of your deductible will also affect your cost. Adjusting these can save you money.

In addition, you may have the choice between a claims-made and an occurrence policy. With a claims made policy, the loss must occur and you must file the claim within the reporting period of the policy. If the policy is no longer in force, the claim won’t be paid. Purchasing an extended reporting period option can protect against future claims if you cancel the policy.

With an occurrence policy, you can file a claim at any time, as long as the loss occurred when the policy was in force. So, if a customer files a lawsuit a year after an accident occurred on your property, it would be covered if it happened during the policy period. Often, occurrence policies cost more than claims made policies because there is no time limit on filing claims.

Besides adjusting the limits and deductibles, there are several other ways you can save money on a CGL policy. You might consider a business owners policy (BOP) or commercial package policy (CPP), which combine into one policy many of the protections a business needs. By bundling the insurance, the overall cost is lower than if you purchased each policy separately. Your broker can help you decide what coverage you might need in a BOP or CPP, including commercial property and business income insurance.

You can also reduce your costs by minimizing your risk exposure. Creating employee training and awareness programs, reducing workplace hazards, and improving security are several ways to help lower your liability insurance costs.

CGL is a key coverage, and it may be required

A CGL policy is one of several coverages you need to protect your business. Some would argue it’s the most important commercial coverage, since businesses are so often sued and one lawsuit could bankrupt your operation.

There are instances where you may be required to have CGL insurance. These include when you are signing a lease for office space, signing a contract to do work for a client or another company, or applying for a license.

CGL doesn’t just make sense from a liability protection standpoint; it also demonstrates to your customers, business partners and creditors that you have insurance and are financially secure. Contractors often will ask you to name them as additional insureds on your CGL policy. This protects them when they are doing work for you.

Today, the rise in extreme weather events, steep legal fees, and huge jury awards are causing significant tightening in the CGL market. Carriers have raised rates and toughened their terms and conditions, making it more difficult for businesses to find affordable coverage.

These developments make it imperative to consult an insurance broker with expertise in business liability coverage. You want the confidence that your business is adequately covered but isn’t paying more than it should for this essential protection.

Is your current coverage AKC certified? As a small to medium-sized business owner in Alabama, you understand the importance of having Absolutely Killer Coverage (AKC) for your company’s protection.

Take advantage of our exclusive offer for a FREE 15-minute discovery call! Our team of expert insurance advisors will review your existing policies to ensure they meet AKC standards. We’ll handle the nitty-gritty details so you can focus on what matters most – running your business.

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