Commercial general liability (CGL) insurance and commercial property insurance protect against unexpected losses that could be financially devastating to your business. For many businesses, it’s crucial to have both types of policies, which serve distinct purposes.
How are they different?
Commercial property insurance is a type of first-party coverage, which means the insurance company compensates the business for damage to the business’ own property. By contrast, CGL insurance is a form of third-party coverage. It protects businesses from claims of injury or property damage that third parties bring against them.
What does a CGL policy cover?
A CGL policy typically covers all sums that the insured becomes legally obligated to pay due to bodily injury or property damage to a third party, which was caused by an occurrence. Many policies also provide coverage for personal or advertising injury, such as defamation. A CGL policy will cover the cost of defending lawsuits as well as the costs of settlements and judgments against the insured for covered events up to the policy limits.
Policies will specify the types of perils that losses must arise from in order for coverage to apply. CGL policies typically cover “premises/operations,” “products” and “completed operations” hazards. Most CGL policies have a professional services exclusion, which refers to liability arising from mistakes inherent to the practice of a particular profession. As a result, it’s common for businesses that provide professional services, such as law, engineering, real estate, and financial advice, to have a separate errors and omissions policy, which can be customized to their industry. Other common CGL exclusions include employee injuries and illnesses, which would be covered under workers’ compensation insurance, and vehicle accidents, which would be covered under a commercial auto policy.
What does a commercial property policy cover?
Commercial property policies provide protection for direct physical loss to your business property caused by covered perils, such as fire, theft, acts of vandalism, or certain weather events. Some policies also provide business interruption insurance, which covers income lost due to your business being shut down because of a covered event.
Some property insurance policies are “all-risk” policies while others provide coverage for specifically named perils. It’s important to note that all-risk policies do not in fact protect against all risks, but rather all perils not specifically excluded under the policy. Common exclusions in all-risk policies include water damage, mold, pollution, and contamination, among others. For coverage to apply, there must be physical loss; loss of use of the property is not typically covered absent physical damage. For instance, when businesses were closed due to pandemic-related lockdown orders, the vast majority of courts determined this loss of use did not constitute direct physical loss, and therefore, the businesses were not able to recover lost income from that period.
With property insurance, covered losses accrue at the time the damage occurs, not when the insured suffers resulting financial losses, such as the cost of making repairs.
How are coverage limits determined?
As property damage protects against losses to the insured’s own property, the amount of coverage is typically equal to the maximum potential loss of property.
Determining appropriate coverage limits for a liability policy is more complicated and will depend on many factors. Policies will include an aggregate coverage limit, which specifies the maximum amount the insurance company will pay in total for the policy period, and occurrence limits, which specify maximum payments per occurrence. There are also typically limits for categories such as products/completed operations, personal and advertising injury, damages to premises rented by the insured, and medical expenses.
Many small businesses choose policies that provide $1 million in coverage per occurrence and a $2 million aggregate limit for the policy period, which is typically one year.
Business Owner’s Policy
Small businesses often opt for a business owner’s policy, which bundles CGL, commercial property, and business interruption insurance, often for a more affordable rate. Additional types of insurance can be added to meet your company’s specific needs.
If you are involved in a dispute with your business insurance company, contact us. We have the expertise, experience, and tenacity to make insurance companies keep their promises to you and your businesses.