We hear the term general liability, we likely think it refers to general liability insurance. We know we need this coverage if we want to run a successful business. But what exactly is general liability?
Liability is a term that refers to being responsible for something, particularly in legal matters. It has a second meaning as well. In this second meaning, liability is a person or a thing whose mere presence creates an increase of risk.
The insurance angle of liability covers both these definitions. When you run a restaurant, you have liability in the sense that you will be held responsible should something happen within your four walls. And your restaurant itself is a liability, in the sense that it introduces a new set of risks for you to manage.
All insurance, in some way or another, is a kind of liability coverage. When we buy coverage, we're covering all those what ifs that we invite by driving a car, owning a home or running a business.
General liability insurance is so named because it covers general risks. You buy collision insurance to cover your car against collisions, you buy flood insurance to protect your home or building from flooding, and you buy general liability insurance to cover against the broad assortment of bodily injuries and property damage that may result from your operations or products. If you are sued or otherwise held responsible for such damages, your general liability insurance will pay for the damages — up to the limits specified on your policy.
Note that there are multiple exceptions to general liability insurance:
- Professional liability. If your VP says something on Twitter that gets your company into hot water, you'll need professional liability insurance to cover that. General liability insurance doesn't work here.
- Employee injuries. These will typically be covered under your workers compensation policy.
- Losses suffered by the company. These will be covered by other types of business insurance — such as property insurance or inventory insurance.
You'll notice a pattern there: If some other form of insurance covers it, general liability insurance probably won't.
General liability insurance is the safety net of your insurance plan, and its very foundation. Whatever isn't caught by your other policies — whatever doesn't already have a specific type of insurance named after it — that's what general liability insurance is for.
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