An Introduction to General Liability

Every establishment, large or small, retail or service, has a liability exposure. Naturally, some businesses have a higher claim potential than others. For example, an amusement park has far more exposure than a bakery, but how would each business ensure that all of their exposure is covered?

The General Liability policy (GL) covers the liability exposures found in all businesses and organizaitons, such as someone slipping and falling on their property, or the damage to someone else’s property caused by them or an employee. The General Liability policy also covers the defense costs of any lawsuits arising from these types of events. Essentially, it is a business’s primary defense against many unforeseen, often unpreventable, accidents.

What Determines the Proper Limit for the General Liability?

Setting a proper General Liability limit for a business highly varies. The best way to 'ballpark' the limit is to look at what the business is doing. Does this industry typically have a lot of claims? What is the claim severity for this type of business? Does the business have any special circumstances that increase or decrease its risk? It is imperative that you think of all the potential causes of a General Liability loss. The limit should then be set to adequately cover the total costs to defend and settle any suits that could come up or any damages that could be done.

Most any insurance agent will tell you that you can never have enough liability coverage. However, since most people can’t afford infinite coverage, you must carefully work with your agent to determine the proper GL level. Come claim time, it's always better to have too much coverage!

How Do the General Liability Limits Work?

Most General Liability limits are split, meaning that there is a limit per occurrence, and a separate aggregate limit. For example, let’s assume your General Liability has a $1 million occurrence limit and $2 million aggregate limit. You then have a loss of $1.5 million under your General Liability. The General Liability policy will cover $1 million of that loss, and you will also have another $1 million dollars left for any other claims that may occur that year. The $.5 million would not be covered and would require you to pay out of pocket—unless you had an Umbrella policy. 

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