Does General Liability Insurance Cover Negligence?

General liability insurance is a foundational protection for businesses, shielding them from unforeseen events that can lead to significant financial strain. It helps manage risks associated with daily operations, providing security against common claims. Understanding its scope and function is important for business owners navigating commercial risk.

Understanding General Liability Insurance

General liability (GL) insurance, sometimes referred to as business liability insurance or commercial general liability (CGL), protects companies from third-party claims arising during normal business operations. Its primary purpose is to cover legal costs and payouts related to bodily injury, property damage, and personal and advertising injury to others. This coverage helps ensure a business does not face catastrophic financial losses from unexpected incidents. For instance, if a customer sustains an injury on a business’s premises, GL insurance can help cover their medical expenses and associated legal fees. This policy focuses on protecting the business when its actions, products, or services cause harm to non-employees or their property.

Understanding Negligence

Negligence in a business context refers to a failure to exercise the reasonable care that a prudent person would under similar circumstances, resulting in harm or damage to others. To establish negligence, four elements are typically considered: a duty of care owed by the business, a breach of that duty, causation linking the breach to the harm, and actual damages incurred by the injured party.

A business has a duty to act responsibly to prevent foreseeable harm to others, such as maintaining a safe environment for customers. A breach occurs when the business fails to uphold this duty, for example, by not addressing a known hazard. Causation means there is a direct link between the business’s failure and the resulting injury or damage. Finally, damages refer to the actual losses suffered by the injured party, which can include medical bills, lost wages, or property repair costs. Common examples include a customer slipping on an unmarked wet floor in a store or a business accidentally damaging a client’s property during service delivery.

How General Liability Insurance Addresses Negligence

General liability insurance typically covers claims arising from a business’s negligence, providing a financial defense. When a third party alleges that a business’s carelessness led to bodily injury, property damage, or reputational harm, GL policies are designed to respond. This coverage addresses two main components: defense costs and potential settlements or judgments.

The insurer pays for legal defense, investigations, and court costs, even if the business is ultimately found not liable. This includes attorney fees, expert witness fees, and other expenses incurred during litigation. The policy provides this defense coverage, which can be substantial, regardless of the outcome of the lawsuit.

If the business is found legally responsible for the negligent act, the insurer pays for damages, settlements, or judgments awarded to the injured third party, up to the policy limits. For example, if a customer is injured due to a premises hazard, the insurance can cover their medical expenses and any compensation awarded for their injuries. Similarly, if business operations inadvertently cause damage to a third party’s property, the policy can cover the repair or replacement costs. Coverage also extends to certain types of reputational harm, such as libel or slander, which may arise from negligent advertising or communication.

Common Exclusions and Limitations

While general liability insurance provides extensive coverage, it does not cover every type of claim, even if negligence is involved. Policies contain specific exclusions and limitations that define the boundaries of coverage. Understanding these exclusions is important for businesses to identify potential gaps in their insurance portfolio.

Common exclusions include:
Intentional acts: GL policies do not cover harm or damage deliberately caused by the business or its employees.
Professional negligence: Claims related to professional negligence, also known as malpractice, are typically not covered by general liability. These types of claims, which arise from errors or omissions in professional services or advice, usually require a separate professional liability (errors and omissions) insurance policy.
Injuries sustained by employees: These are typically addressed by workers’ compensation insurance.
Commercial vehicle accidents: These fall under commercial auto insurance.
Punitive damages: These are often excluded from GL policies by policy terms or state law.
Contractual liability: This is generally excluded unless specifically endorsed into the policy.
These exclusions highlight the need for businesses to consider a comprehensive insurance program beyond just general liability.

The Claim Process

When an incident occurs that might lead to a general liability claim, prompt and organized action is important. The claim process involves several steps:
Notify the insurance carrier as soon as possible after discovering the incident. Early notification allows the insurer to begin their investigation and can be crucial given potential statutes of limitations.
Do not admit fault or make any promises to the injured party regarding compensation.
Thoroughly document the incident, gathering relevant information such as photos, witness statements, and any applicable contracts or leases.
Maintain detailed records of all communications related to the incident.
Cooperate fully with the insurer’s investigation and legal defense efforts, providing all requested information to facilitate the claim’s resolution.