Comparison shopping for commercial general liability policies is the best way to get the insurance that your business needs at the lowest cost possible. That’s why it is essential that owners understand how their business operations will effect their insurance premium. This requires understanding of the basics types of policies available that will fit the needs of your business operations.
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What is Commercial General Liability Insurance
Commercial general liability policies were first introduced in 1986 and were designed to protect business owners from business liability claims. Such claims of bodily injury and or property damage is usually as a result of damages arising from:
- Products Liability
- Premises Liability
- Contractual Liability
- Personal Injury and Advertising
- Medical Payment
Coverage Provided
As you are shopping around for various insurance polices, they will ask you general question about your business so that they can develop rates based on your business operations. Therefore you should understand how coverage is provided and how it can impact your rates:
1. Products Liability
Coverage is provided for products or completed product operations that are under the control of the company. Faulty products can arise from:
- Negligence – Failure to take necessary care to make the product safe.
- Breach of Warranty – Implying or stating that merchandise is of a certain quality and the product breaks.
- Strict Liability – Knowingly releasing an item to the public without inspection and it causes harm.
2. Premise Liability
Provides coverage for exposures at the location in which operations are in progress.
3. Contractual Liability
Coverage is provided to all insured contracts such as leasing of premise agreements, elevator maintenance agreements, etc.
4. Personal
Personal injury includes bodily harm arising from slander, false arrest, etc.
5. Advertising Injury
This type of injury includes harm as a result of advertising activities from firms that are in advertising.
6. Medical Payments
Coverage includes medical payments due to injury occurring at the company’s premise.
There are also other coverages that include fire, liquor, extended bodily injury, incidental malpractice, ect.
Commercial General Liability Limitations
While CGL policies were designed to cover a broad variety of businesses operations, general liability insurance customarily does not cover damages as a result of:
- Automobile Liability
- Employers Liability
- Professional Liability
- Watercraft Liability
- Aviation Liability
- Pollution Liability
Therefore it is essential that you obtain additional coverages to support such operations. Such additional support is referred to as Endorsements.
Endorsements
Endorsements are a great vehicle for business owners to tailor their insurance policies to meet the needs of their operations. Therefore when you are shopping for commercial general liability insurance, you can use endorsements to limit or broaden the scope of certain coverages. Consequently this can aid you in individualizing your insurance coverages in areas that are specific to your business. Some examples of endorsements may include elimination of :
- Product/Completed Operations Coverage
- Eliminate Medical Payments Coverage
- Eliminate Personal and Advertising Injury Coverage
Alternatively you may also use endorsements to broaden coverage such as pollution coverage extensions, etc.
Contractors Protective Coverage
Contractors protection coverage is a very difficult pill to swallow for most business owner. Owners just want to be responsible for their business and business operations only. This is a very fair assumption but according to the 
company that provides standards on insurance policies, Insurance Services Office (ISO), in many cases businesses are responsible for other individuals as well.
Meaning if individuals, who are not employees, render services on behalf of the company, then liability should fall on the shoulders of the company who hires such subcontracted help. Courts have ruled that owners and their contractors will be held “equally liable” for subcontracted work that have cause injury or damages as a result of the work.
More importantly, in order to mitigate losses to a business, each subcontractor should be made to purchase an Owner’s and Contractor’s Protective Policy on behalf of the business. If any damages occur as a result of business operations, then the owner is protected by the policy that was put in place by the subcontractor.
Exposure Bases
When looking for a commercial general liability policy, your premium will be derived from something that is commonly referred to as an “exposure base”. An exposure base is simply a means of determining what premiums you will pay for the policy period. Depending on your business, your premium will be based on the following exposure bases:
- Payroll
- Gross Sales
- Units
- Area
- Total Cost
- Admissions
In example, your insurance agent will ask you to estimate what your payroll will be for the upcoming year. Once that is determined, there will be calculations made to the payroll amount to determine what your premium payments will be.
Why Am I Getting Audited?
Many times, when shopping for insurance, your agent will forget to mention the fact that you may get a request for an insurance audit of your books. Therefore I believe that this issue merits some explanation as it is a necessary “evil” that occurs quite frequently in business.
Nonetheless, if you received notice that you are being audited by an insurance auditor, you can relax because this is a normal process. What an insurance auditor is mainly looking for is the actual amount of gross sales, payroll,total cost, etc (exposure bases) for your policy period.
For instance, if you estimated and paid premiums on $15,000 of payroll, but at the end of the year you actually had $20,000 of payroll, then you were under-insured for that policy period. That means that you must pay more premiums on that remaining $5,000 in payroll that was unaccounted for due to your forecast. Therefore the auditor is simply attempting to balance your insurance protection to meet your risk exposure for that period of time.
Tying it All Together
In order to be successful, owners need to always protect themselves and their businesses against losses of any kind. Protecting yourself with adequate amounts of commercial general liability insurance sets the foundation for safeguarding business assets from substantial claim damages. Moreover, by understanding the mere basics of how this instrument works, you can also save yourself hundreds of dollars by shopping around for the right amount of coverage that you business operations require.
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