By Jared Nusbaum
A routine slip-and-fall injury on site could land you on the wrong end of a customer lawsuit. Although many small businesses carry commercial general liability (CGL) insurance to minimize their losses, few business owners read those lengthy CGL policies. However, reading your policy is the best way to know when and how your insurer will act on your behalf. This article will help you navigate typical CGL provisions to better understand your coverage.
What does my insurer do?
Your CGL policy probably includes a paragraph like this:
We will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. We have the right and duty to defend the insured against any suit seeking those damages.
This paragraph is referenced in nearly all insurance coverage denial letters. It explains when the insurer is required to act pursuant to the policy. Specifically, the insurer in the aforementioned paragraph will act when you’re sued for injuring someone or damaging their property, if the incident is within the scope of coverage. Depending on your state, the insurance company will have to defend you if the claim falls arguably within the scope of coverage. That means the insurance company will hire an attorney to represent your rights. Nevertheless, it’s important to realize that the attorney is hired by the insurance company and may be putting your best interests second. Therefore, it’s always advisable to have your private counsel involved in an insurance case.
What does my insurer NOT do?
In reality, insurance companies want to close out claims for the least amount of money. It is truly a monetary decision that will have little to do with the effect on your business. First, the insurance company will see if the claim is an “occurrence” under the policy. Generally, an occurrence is defined by the policy language. If the claim does not meet the definition of an occurrence, the insurance company will deny the claim. However, even if the claim qualifies as an occurrence under the policy, multiple exclusions in the policy may apply that allow the insurance company to deny coverage.
Exclusions to coverage are generally the longest part of a CGL policy. If the claim falls under an exclusion, your insurer will probably take no action beyond a denial except maybe an initial investigation.
Read the exclusions carefully. Some typical exclusions are as follows:
- Employee work-related injuries (usually covered by workers’ compensation)
- Liability you assume by contract, even if the incident is otherwise within the scope of CGL coverage
- Damage to property in your custody or control
- Damage caused by defects in a product you manufacture
- “Your work” exclusion
Nuances in term definitions
CGL policies often define terms to have a specific meaning, different from general use. For example, the definition of “property damage” may exclude electronic property and the definition of “employee” may exclude temporary employees. Make sure to review the Definition section of your policy so that you’re not surprised if your claim is denied.
We’ve seen insurance policies go drastically wrong (covering the wrong equipment, excluding certain coverages that were discussed prior to purchasing the policies and providing maximum coverage amounts that were less than expected). It’s always best to read your CGL policy to make sure that coverage, mutual obligations and policy limits are right for your business. Make sure that any business equipment you want covered is specifically listed in the policy. It’s always best to meet with an attorney in addition to your agent to make sure your business is covered.
Jump start solutions
- Make sure your attorney is advised of any insurance claim.
- Be aware of any exclusions in coverage that could cause your claim to be denied.
- Dig deep to completely understand your policy, including definitions, so there are no surprises.
Jared Nusbaum is an attorney with Zlimen & McGuiness, PLLC. His practice focuses on small business contracts, employment law, litigation, bankruptcy, and appeals. Contact him at firstname.lastname@example.org.