How does commercial general liability insurance work?


Every business owner faces certain risks of legal liability which may arise out of their business operations or which may occur on their commercial premises. Commercial General Liability insurance (also commonly known under its abbreviation CGL) has been designed to protect business owners against a number of general liability loss exposures.

General Liability Loss Exposures insures against:

  • Premises and Operations Liability.

    Any liability that may arise out the named insured's business operations, is covered under General Liability insurance, regardless of where the injury or damage has occurred. The insured is also protected against liability for any injury that may occur on their commercial premises.

  • Products Liability.

    People whose business involves the designing, manufacturing, selling or distributing of products, are exposed to the risk of being held liable by consumers if their products are found to be defective.

  • Contingent Liability.

    In certain situations a business owner may be held liable for damage or injury caused by independent contractors hired by the insured.

  • Contractual Liability arises when a one party agrees to assume legal liability on behalf of another party by contract.
  • Completed Operations Liability might occur after a certain operation or work is completed in a faulty way.

What Commercial General Liability Insurance Covers

A Commercial General Liability policy has five major sections, each of them specifying matters of importance, such as the policy characteristics, conditions, limits and definitions. The most significant element of a Commercial General Liability policy, however, is Section I detailing the types of liability covered under the policy.

The Commercial General Liability policy has three general groups of coverage, as follows:

  • Coverage A of the CGL is specifically intended to pay compensation for bodily injury and property damage which the insured is held legally liable for. This means that if the insured's business operations cause bodily injury or property damage to a third party, coverage A will cover the damages awarded in a lawsuit up to the policy limits, as well as the contingent legal defense costs. Some noteworthy exclusions apply to Coverage A, including intended injury, liquor liability, contractual liability and pollution.
  • Coverage B of commercial general liability insurance provides protection against personal and advertising injury, such as libel, slander, malicious prosecution, and unlawful imprisonment, copyright and other intellectual property infringement, etc. If the offense is committed intentionally or before the policy comes into effect, it is usually not covered by commercial general liability policy.
  • Coverage C is intended to cover the medical payments of people who have suffered bodily injuries as a result of the business operations of the insured or on the commercial premises of the insured, regardless of legal liability. This means that the insured does not need to be taken to court for Coverage C to come into effect. The only requirement is that the medical bills are incurred within a year of the occurrence.

Commercial General Liability Policy Limits

Another very important characteristic of commercial general liability insurance is its policy limits. This refers to the maximum sum that the insurer will pay in a liability lawsuit against its client.

There are specific limits for every coverage that the insured needs to be aware of, including the general aggregate limit (for coverage A, B and C), products-completed operations limit (for Coverage A), personal and advertising injury limit, each-occurrence limit and medical-expenses limit.

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