Commercial general liability (CGL) insurance explained

Whether you’re new to business or have owned your business for decades, you should always review and understand your Commercial General Liability policy—more commonly referred to as a CGL—annually with your insurance broker. Changes happen throughout the year in your business. Although it’s important to note these changes to your broker when they occur, your operations and coverage should also be reviewed annually.   

Even though the name CGL doesn’t change, there can be changes to what’s included or excluded in a CGL over the years as new trends develop. For instance, it’s a new and widely adopted practice to exclude cyber coverage on CGL policies. Cyber insurance was once seen as a “throw-in” coverage. Still, with cyber payouts increasing and cyber incidents becoming commonplace, it has been unsustainable for most insurance companies to continue offering this coverage without associated increases in premiums, what the insured pays. Therefore, most insurance companies have started charging a premium for this coverage.  

The sections of coverage that make up a CGL include: 

• Bodily injury and property damage 
• Products and completed operations 
• Personal and advertising injury 
• Medical payments 

Commonly, the tenant’s legal liability is also included. Before we get into coverages, let’s talk about the types of limits.  

Aggregate and per occurrence  

You should pay attention to two limits in your CGL policy. The first is the per occurrence limit, the top limit per incident that an insurance company will pay if a third party sues you. This generally includes legal fees, investigation costs, and the actual amount you could be found responsible for paying.   

The second important limit to pay attention to is the aggregate limit. This is the limit that the policy will cover in a single policy term. So, for instance, if your per occurrence limit is $2,000,000 and your aggregate limit is $5,000,000, the insurance company would not pay more than $5,000,000 in a policy term regardless of how many incidents have resulted in a suit throughout the year.   

Bodily injury and property damage  

This coverage is what most people think of when they think of commercial liability insurance. The bodily injury portion is the coverage that comes into play when a third party injures themselves on your property and sues the company for damages, such as a slip-and-fall.   

Property damage coverage kicks in when you have been negligent in the operation of your company and property damage occurs. For example, if you have a landscaping business and an employee breaks a window while driving over several large rocks while cutting grass, this coverage could come into play.  

Products and completed operations  

Products and completed operations liability intend to provide coverage for damages that have occurred because of a product your business made or an operation you completed. Common operations that require coverage would be in manufacturing or retail settings. Whereas common businesses requiring completed operations coverage are contractors and carpenters.  

While the job is underway, if an incident happens, causing injury to a third party or property damage, the coverage of bodily injury and property damage would be called upon. Still, completed operations come into play once the job is done and an incident happens, such as if a water leak occurred after a plumber has completed the job and the leak happened due to the plumber’s negligence.    

Products and completed operations can be a common exclusion, so consider whether this is included in your policy. If you see this is excluded, ensure to review this with your insurance broker, as there may be operations that you would have assumed were covered and fall under this section. Generally, this coverage is excluded because your operation falls outside the insurance company’s appetite, or the CGL needs to be the appropriate place to get that coverage.   

An example of operations that could fall outside of an insurance company’s appetite could be a retail store selling products made in a foreign country. Regulations and product standards may not meet Canadian manufacturing standards, and subrogating against a foreign manufacturer may be impossible. An example of an operation where a CGL isn’t the right place for completed operations coverage is an auto-mechanic. A CGL for an auto-mechanic would exclude products and completed operations because the liability associated with that type of operation is meant to be covered under the wording of a Garage Auto policy.   

Personal and advertising injury limit  

Think of personal injury as actions that could cause harm to a person’s reputation, such as libel, slander, false arrest, wrongful eviction, and invasion of privacy. An advertising injury is when libel or slander is used in the context of advertising.  

Medical payments limits  

This coverage can sometimes throw an insured off as it needs explanation. Medical payments coverage isn’t meant for the medical coverage of a person suing the business, like bodily injury coverage. Instead, this extension of coverage exists to attempt to avoid a suit.  

For instance, if a person were to slip and fall on your property and require an ambulance ride to the hospital, an insured could volunteer to pay the bill without admitting any negligence or wrongdoing. It’s more of a good Samaritan’s coverage to promote goodwill. It isn’t meant to be coverage to pay for serious or ongoing medical care.  

Tenant’s legal liability  

This is a common coverage extension in a CGL and should be paid close attention to if you rent a space. A tenant’s legal liability covers the business’s property as a renter. For example, if you rent a 1000-square-foot space in a 10,000-square-foot strip mall, and that strip mall would cost $10,000,000 to replace, you would be responsible for 1/10th of $10,000,000, which means you would want to have a $1,000,000 tenant’s legal liability limit.

This coverage would kick in if the unit were destroyed due to negligence in operating your business. If you were held responsible for damaging the entire building (for example, in a total loss fire), the property damage limit from the first section covered in this article would come into play. Therefore, if you are renting, the replacement cost of the entire building you occupy space in should be considered when choosing your property damage limit.   

Common exclusions  

An additional piece that a business owner should pay attention to is what’s excluded from coverage in the CGL. An example of some common exclusions is pollution and communicable diseases. The wording of pollution exclusions varies, but if you think you have an exposure to a release of pollutants, such as gasoline, be sure to talk to your insurance broker and ask if an Environmental Liability policy may be right to cover your risk exposure to this loss. In addition, an exclusion that may have gotten little attention before 2020 is the communicable disease exclusion. This excludes coverage if your business is sued for spreading a communicable disease, such as covid-19.  

Understanding and obtaining commercial general liability insurance is crucial to protecting your business from potential risks and liabilities. It protects against accidents, injuries, and property damage that could lead to substantial financial losses and legal troubles.  

By investing in the right CGL coverage, you can rest assured that your business is well-equipped to handle unforeseen incidents and claims. Our team of business insurance advisors can help you navigate the right coverage for your business. Ready to chat about your business insurance needs? Connect with us to get started or complete a quote.