General Liability Exposures Every Organization Should Know
Regardless of operations, every organization faces commercial liability exposures. General liability exposures present the possibility of an organization becoming legally and financially responsible for bodily injury, harm or property damage to another party.
These exposures stem from the work an organization performs and where that work is executed, namely, your owned or leased premises, or an off-site location. They also encompass other aspects of business-related circumstances, activities or events that could result in harm to a third party.
Common Types of Commercial Liability Exposure to Know
There are five types of commercial liability exposure that every organization should know. Possible loss exposures that may affect an organization include the following:
- Premises liability—Premises liability describes the risk an organization faces if a third party is injured on the premises (e.g., tripping and hurting themselves at the store). Organizations that require customers or clients to be physically present, such as retail stores and landlords, are particularly at risk for these losses and may be held liable for bodily injury or property damage. If you have tenants, it’s critical to require them to carry insurance at the appropriate limits and for you to collect a certificate of insurance.
- Operational liability—Operations liability exposure is the possibility that an organization will be held liable because of bodily injury or property damage that occurs because of their ongoing (as opposed to completed) operations. For example, imagine a contractor working on a client’s home. During the course of construction, an employee from the contractor drops a tool, striking a passerby and causing bodily injury, or a scenario where property damage is caused to the home itself as a result of your work.
- Products’ liability—Products’ liability refers to the loss exposure an organization faces because of manufacturing, distributing or selling an unsafe or defective product. Any organization that makes, distributes, or sells products is at risk. Associated injuries may occur virtually anywhere in the world once an organization’s products have been manufactured or sold. The coverage territory in your policy may come into play in these situations.
- Completed operations liability—The completed operations liability exposure refers to injuries or damages incurred by a third party due to work that has been finished, turned over to the client, and/or put to its intended use. For example, an electrical fire caused by faulty wiring at a completed construction project would represent a completed operations exposure for the contractor who completed the work. Injuries or damages arising out of completed operations can occur years after a business’s relationship with the injured party has ended. Many new construction projects even require the insurance to go back 10 years, so having the right policy is paramount.
- Contractual Liability—Organizations take on contractual liability loss exposures when they enter a contract. By agreeing to contractual terms, an organization becomes liable if the other parties involved in the contract believe an organization has not fulfilled its obligations under the written agreement. Examples of this are lease agreements, subcontractors’ agreements, and scope of work agreements in professional services situations.
Potential Consequences of Liability Exposures
In the event of a commercial liability loss, organizations can face a variety of potential consequences, such as:
- Damages—If a court deems an organization is responsible for a loss, that organization may be held financially accountable for paying damages to the harmed or injured party.
- Defense costs—The organization may have to pay legal defense costs and the costs associated with the claim. This is included in most general liability policies, but it is key to make sure defense costs do not erode the aggregate limit.
- Reputational harm—General liability losses can lead to organizations experiencing reputational harm, including but not limited to; the loss of business, decreased employee retention, and a loss of consumer loyalty and investor trust.
Although commercial liability loss exposures are a risk for every organization, the severity of the consequences can be alleviated with proper insurance policies.
Commercial Liability Insurance
No matter how careful an organization is, there will always be risks associated with commercial liability loss exposures. Therefore, the best way to protect an organization is to purchase commercial general liability coverage (CGL) or Business Owner Policies (BOP), which is a policy decided for small businesses to combine general liability coverage with property.
CGL or BOP policies are designed to cover an organization from liability claims for bodily injury and property damage to third parties. CGL policies have three standard coverages:
- Bodily injury and property damage—This coverage protects organizations from the legal liability arising from bodily injury and property damage stemming from an organization’s premises or operations.
- Personal and advertising injury—This aspect of CGL policies protects insureds from liability stemming from accusations of libel, slander, false arrest, copyright infringement, malicious prosecution, theft of advertising ideas and invasion of privacy.
- Medical payments—Medical payments coverage includes payments for injuries sustained by third parties that are caused by an accident at the insured’s premises or the insured’s operations. Medical payments coverage can be triggered without legal action and is designed to settle smaller, less serious medical claims without litigation. We call this a “friendly” claim. Its use is intended to keep small claims from becoming larger claims.
Consult a trusted insurance professional from Knauf Maxwell Insurance for further guidance on how to protect your organization from commercial liability loss exposures.
*This Coverage Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.