Most business owners and professional service providers purchase General Liability insurance because it is a very common requirement that they have it by the people they do business with. How many people actually understand General Liability insurance and what it is for?? I want to take a minute to walk through an example which will hopefully help us all understand it a little better. I think if we understand it a little better then we might have a greater appreciation for it, which will also help us to know why it can be so dang expensive!
For my made up example, I am going to use John's Manufacturing Co. John manufactures children's toys and ships them to various distribution outlets. EVERYBODY John wants to do business with is requiring him to provide them a certificate of insurance for General Liability which includes Products and Completed Operations. The retail outlets that sell his goods want to be Additional Insureds on John's policy. John has never had any problems with any of his toys and has never had a single complaint. So, let's address some of the questions as to why John needs to have this policy in place.
What does the General Liability policy cover?
This policy protects John's Manufacturing Company againt Bodily Injury or Property Damage arising out of his operations. Generally, defense costs are outside the limits of insurance so any claim or lawsuit that is brought against John's Manufacturing Co. for Bodily Injury or Property Damage will be defended by his insurance company until settled. Any idea how much those defense costs alone can add up to?? Then, any settlements will reduce his limits for the policy year accordingly.
Nothing has ever happened before. What could possibly go wrong? Here are a few scenarios:
A school class visits John's Manufacturing facility on a field trip. While touring the buildings, one of the students is badly burned by a piece of equipment. The students family brings a lawsuit against John's Manufacturing. This type of injury could happen at any business to any visitor. A slip and fall, a negligent employee, failure to block access to a dangerous area, etc. Your premises can be a huge liability exposure for your company.
A child is poisened by a chemical used in the paint on the toys and the family brings a lawsuit against John's Manufacturing because of the unsafe product. Does your business have any products/completed operations that could potentially harm somebody?
John hires an electrician to update some wiring in his building. During the process, the electrician starts a fire which burns a large portion of the neighboring building which belongs to another business. The other business sues the electrician AND John's Manufacturing for their damages. John's insurance company will defend him in this circumstance until a settlement is made. Is what might happen is that the business sues the electrician but finds out that they dont have proper insurance or their insurance is insufficient, then they drag John's Manufacturing into the lawsuit. This is where the importance of hiring quality subcontractors comes into play and getting insurance certificates from them naming you as an Additional Insured if they are going to perform some work or provide some product on your behalf. This is why we are all required by the people we do business with to carry our own insurance!
I hope this helps clarify the General Liability policy a little bit. I am happy to answer any questions or discuss certain circumstances with you individually anytime. Truth is, there is a wide range of exposures for any business or individual that provides a product or service. The examples are endless and some of the lawsuits/settlements that go through an insurance carrier would amaze you. Remember, your business and all of it's assets are at stake and in some instances you can personally be liable in these situations. As a side note, an Umbrella policy provides excess limits to your insurance policy in the event that you have a huge claim or your base limits are exhausted. It is not uncommon for us to insure our business clients with a $5,000,000 Umbrella Policy on top of their $1m/$2m General Liability limits but these Umbrella's can go up to whatever limits make you feel comfortable.
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