2020/10/19
Curtis Killen

What damages are covered by commercial liability insurance?

We all make mistakes.

Nobody’s exempt from that — even the best companies have slip-ups from time to time.

As a business leader, you know that how you handle those mistakes is the most important thing.

For a business to limit the negative impact of its mistakes, it needs an insurance policy to save it from the endless time and money one of these incidents can wind up costing.

If the term commercial insurance is already giving you a headache, you’ve come to the right place, because we’re about to answer your business insurance questions by explaining exactly what you need and why you need it — in simple terms.

A waiter spills hot coffee on a customer. Your roofer inadvertently starts a fire that ravages a client’s building. A piece of furniture you manufactured fell on and injured a child.

These types of incidents can be a real pain, and when they happen, you need to cover your ass … ets. Cover your assets.

Commercial general liability insurance, known as CGL, is a must-have for your company.

It’s a policy that covers your costs when your business is responsible for tangible damage to another person or object.

That includes unintentional damage, and even includes incidents that only indirectly involve you or your business.

(Since CGL is limited to bodily harm and physical damage, we won’t be covering things like errors & omissions or directors & officers insurance in this post.)

Now that you know what you need, let’s take a look at exactly what CGL covers.

What is covered by commercial liability insurance?

A CGL policy covers tangible damage to a physical third party (a person or object) where the insured (your company) is deemed liable.

In other words, damage that can be proven and that is judged to be your fault where the client is now asking you to pay up.

There are many ways for a business to unintentionally cause harm in a way that would trigger a lawsuit and evoke the need for an insurance policy. 

Let’s say you’re a plumber and you’ve recently installed some pipes in a family’s home.

A few months after your visit, one of the pipes burst causing a flood in the basement, destroying valuable items.

Now, your client is coming after you to pay for the damages since they were the result of what they deem to be a faulty job on your part.

You didn’t mean to cause a flood — but it happened as a result of your work, so your commercial insurance has to cover the costs.

Lawsuits can come your way even in instances where none of your staff were present during the incident.

Say a potential hire visited your office for a job interview, and while there they tripped over a loose wire and hurt themselves.

The interviewee could come after you to cover medical bills since they were hurt on your property, which is your responsibility.

Scary, isn’t it?

Why do I need commercial liability insurance?

To make a long story short, it’s really easy to get pulled into a claim — even when you feel you had nothing to do with an incident.

Allow us to illustrate with a true story involving a KBD client, a restaurant owner in Montreal:

Last winter, a lady was walking in the parking lot of our client’s restaurant. A typical Montreal winter day, it was snowy and icy. And the lady slipped and fell.

The lady is now suing the restaurant for $160,000.

Here’s the twist: our client owns their restaurant, but doesn’t own the building.

They rent the space from a landlord.

As a tenant, our client is not responsible for snow removal or for maintenance of the sidewalks or parking lot.

And of course, they weren’t around to witness the lady’s fall. (It’s not like they stuck their leg out to trip her!) So they carry no responsibility, right?

WRONG!

The building owner, the snow removal company, and yes, the restaurant owner, are all now a part of the lawsuit and are being sued by the lady that was injured.

It wasn’t her fault that the parking lot hadn’t been maintained to a safe level — so why should she have to pay for the consequences?

She went looking for a scapegoat (or three) and our client was one of them.

You can understand it from her side.

But what many people don’t understand is this: whether you are at fault or not, as long as a plaintiff makes you a part of their lawsuit, you’ll have to hire a lawyer and defend yourself in court.

And that’s why you need CGL insurance.

A commercial general liability insurance policy takes the unwanted stress of fighting a lawsuit out of your hands.

Your insurance company will assign the case to one of their lawyers who will defend you in a court of law.

We hear many clients brush off claims against them with the notion that it wasn’t their fault, so who cares.

Don’t take it so lightly!

As soon as someone brings a lawsuit against you into court, you have become a defendant and you are required by law to respond to the plaintiff’s complaint.

If you don’t have liability insurance, you’re stuck hiring your own lawyer to defend you in court.

Don’t get bogged down in a situation that could set your business back and take you away from your work.

Get commercial general liability insurance so that you can brush off those unwanted claims. (Brush them off to your insurance company, at least.)

Types of commercial liability insurance

There are two types of CGL insurance coverage to be aware of: Occurrence and Claims-made.

The main difference between the two coverages has to do with the incident and the claim — and when each is filed.

Occurrence: covers claims where damage happens during a policy period. 

Most policies are occurrence-based, and with this policy, all that matters for your claim to qualify is that the damages happened while you had the policy in tact.

Say you suffered an accident while covered by CGL insurance, but you were relatively unscathed.

Then, after your policy expired, an injury exposed itself resulting from that accident and your condition worsened.

As long as the incident happened during your policy period, you can make a successful claim for the rest of your life.

Claims-made: only covers claims made while the insurance policy is active.

With a claims-made policy, it’s not enough for the damage to have occurred during the policy period; the claim must also be submitted while your coverage is active.

Let’s say you were involved in a car accident in 2016 while you were covered under a claims-made policy.

In 2018, you moved to a new insurance policy. And in 2019, you decided to file a claim related to the 2016 accident — while you’d be able to under an occurrence policy, not so with Claims-made coverage.

Exception: after cancelling your Claims-made policy, you can purchase what’s called tail coverage.

This add-on provides you with the ability to make claims retroactively back to the start of your original Claims-made coverage.

What’s not covered by commercial liability insurance?

While commercial general liability insurance protects you against bodily harm and physical damages, they don’t cover you for more abstract events, such as instances where your business provides poor service or bad advice.

The following coverages do not fall under your CGL policy and must be bought separately:

Cyber liability: Covers the losses that your company experiences due to, and helps you recover from, cyber attacks.

Professional liability: For professionals that offer services to their customers rather than a tangible product, and an error costs their clients money. (Also known as Errors & Omissions.)

Directors & Officers: Protects a board of directors from shareholders suing them in the event of a bad decision or poor management.

Wrap-up

Think of this post next time you catch yourself saying “That wasn’t my fault, so I don’t have to worry about it!”

A claim is a claim, and once you’re dragged in, only your insurance company can save you the financial and emotional headache of a long court battle.

You now know the types of claims that might come your way as a business owner, and how the right commercial insurance policy can save your bacon.

Avoid the pain in the assets.

Contact us and talk to a KBD commercial insurance broker about CGL insurance.

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