Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Oct 25, 2021

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Congratulations on deciding to open your own business. You certainly have a lot to think about and many new “hats” to wear.

You may now be the accountant, interior decorator, tech guy or girl, and, oh yeah…the janitor.

But one of the most important things you are about to become is the risk analyst for your organization.

You may not have put much thought into that piece of the puzzle yet, but is highly recommended you do…or at least contact your local independent commercial insurance agent for some guidance.

Whether you operate out of a 10,000 square foot warehouse or your home’s basement, you will need to get a commercial liability, also known as a commercial general liability (CGL) insurance policy to cover you against a host of potential liability lawsuits arising out of your negligence.

What do you need to be insured against?

General liability insurance, or business liability insurance is a type of insurance policy that protects businesses from claims that result from normal business operations such as property damage, physical injury, defense costs, as well as personal and advertising injury. The cost depends on your specific business needs. Factors that impact the cost of this type of insurance include: the kind of work you do, your location and the number of employees.

The scope of this article is not large enough to discuss the millions of possible situations for which you may be sued, but here are the basics, detailed by the coverage parts of the CGL:

Bodily Injury and Property Damage: Premises and Operations Portion of the CGL (Coverage Part A)

As discussed above, you may sued for a variety of bodily injury or property damage claims that arise out of your negligence.

For example, a customer may slip and fall in your convenience store and sue you for bodily injury damages because your floor was left wet after you mopped up a Slurpee spill.

This coverage also extends to your employees. Perhaps an employee of yours injures someone while trying to replace a light bulb by dropping it on their head from a ladder.

Commercial general liability would cover you in this instance (up to your policy limits).

Please note; this policy does not provide coverage for any injury your employee may suffer as this would be covered by workers compensation insurance.

Bodily Injury and Property Damage: Products and Completed Operations (Coverage Part A)

Perhaps you are in the manufacturing business. Even though your products have left your building or your work is completed, you still have liability for your work.

Basically, you are not off the hook the second the job is done or your product is delivered to the end user.

For example, if your company manufactured faulty staircase hand railings that failed to hold the body weight of an individual who purchased them, your company would be held liable for the bodily injury and any property damage that occurred as a result of the individual’s fall.

This would also be covered by Part A of your CGl policy.

Personal and Advertising Injury: (Coverage Part B)

We are now looking at “financial” injury, rather than “bodily” or “property” damage.

Perhaps you develop an advertising campaign that you believe to be unique, but “borrows” a tag line from an existing competitor.

For example, your financial planning business advertises your clients are, “in good hands” when choosing to purchase your services.

You can expect to get a call from Allstate’s legal team regarding your choice of words, as you have unknowingly used their well known catch phrase.

Coverage B of your CGL policy would cover you against any damages awarded to Allstate in a legal battle if you were found to be liable for infringement.

“Personal Injury,” such as false arrest or detention of someone whom you believe was trying to steal from your organization would also be covered under this portion of the CGL policy.

Medical Payments Coverage: (Coverage Part C)

An individual may suffer minor bodily injury while on your business premises.

Part C of the CGL policy would cover you against these minor injuries that do not result in a lawsuit. Your insurance company agrees to indemnify the injured individual with this type of “no-fault” coverage.

Basically, in order to avoid a costly lawsuit, the insurer will shell out a predetermined amount of cash for minor bodily injury, usually between $500 and $10,000, depending on how much coverage you purchased.

Examples of businesses that may need commercial general liability insurance include: artisan contractors, small business owners, landscaping companies, IT contractors, real estate agents, consulting, marketing, janitorial services, etc.

General liability is often bundled with property insurance in a business owners policy, but it’s also available as stand-alone coverage. This coverage is not required by law but you may end up paying for all the expenses related to a claim against your business. Without this coverage, you could be responsible for all the medical bills and legal fees.

Read more: Why you need commercial vehicle insurance.