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What is commercial general liability insurance?
Commercial general liability insurance provides financial protection for businesses when they are hit with third-party claims.
Let’s say a customer sustains an injury after slipping at your restaurant, or one of your employees damages a client’s property while performing a plumbing job at their home. These clients then decide to bring lawsuits against the businesses, alleging bodily injury and property damage.
A commercial general liability insurance policy will help cover the legal costs of defending the lawsuits. If the court awards damages to the clients, your policy will cover that as well, so you won’t have to pay out of pocket.
Commercial general liability insurance is not the only type of coverage business owners can get to protect themselves from third-party claims. But it is the broadest type of coverage. This means it covers the widest range of claims compared to other types of policies, including those related to property damage or bodily injury. To fill in the coverage gaps related to other types of third-party claims, insurance companies offer other supplementary insurance products policies.
For example, many businesses choose to add errors and omissions insurance on top of their commercial general liability policy. Errors and omissions insurance offers financial protection to businesses when customers allege problems with the services they provide. Critically, commercial general liability insurance does not cover claims related to the quality of a business’s services.
Who needs commercial general liability insurance?
Commercial general liability insurance is not mandatory in Canada. That said, we highly recommend it for all businesses.
That’s because legal fees accumulate fast. Hiring legal counsel is expensive. If a judge or jury rules against you, you are responsible for paying both the legal fees associated with defending the claim and any damages the court awards to the parties who brought the complaint. Mediation and settlements also cost money.
Accidents or mistakes can happen in a matter of seconds, but they can motivate clients or customers to file claims that can take years to resolve – and even longer to financially recover from.
Which industries benefit most from commercial general liability insurance?
This type of coverage is highly recommended for any business that frequently interacts with third parties – whether that be clients, customers, suppliers, vendors, or even other businesses. These interactions are critical to most businesses, but they also increase the risk of third-party claims.
No matter the size of your business, it is especially important to have commercial general liability insurance if you or your employees regularly interact with clients on your commercial property, in your home, or on their properties.
What does commercial general liability insurance cover?
This type of policy generally covers the legal costs and damages associated with many kinds of third-party claims. These coverage areas include:
- Bodily injury liability: Claims that allege your business operations resulted in a third party’s bodily injuries or damage to their property.
- Personal and advertising injury liability: Claims that allege your business committed defamation, libel, slander, or false advertising.
- Product liability: Claims that allege a product your business sells or supplies caused a third party’s bodily injuries or damage to their property.
- Tenant’s legal liability: Claims that allege you or your employees damaged the commercial space you rent or occupy.
What does this type of insurance not cover?
Although commercial general liability insurance covers a wide range of third-party claims, certain kinds of claims are exempt from coverage. These include claims alleging:
- Intentional criminal acts: Insurance cannot cover damages resulting from illegal or deliberate wrongdoing.
- Patent infringement: These fall under intellectual property disputes, which require specialized insurance.
- Contractual liability: Commercial general liability covers unexpected claims from others, not promises made in a contract.
Filling the gaps in your liability coverage
The following types of claims are not covered by commercial general liability insurance, either. However, many insurance companies offer other kinds of policies to fill the coverage gap.
Let’s say you damage a customer’s property while performing a job at their home, or you give a client professional advice that is misleading or inaccurate. If these clients file claims against your business over these incidents, your legal costs won’t be covered by your standard commercial general liability insurance policy. It would, however, be covered by errors and omissions insurance (which is sometimes called professional liability insurance).
Commercial general liability insurance won’t cover third-party claims that allege you or your employees inflicted damage while operating a vehicle on your business’s behalf. Instead, you’ll have to get coverage for these kinds of claims by buying a commercial auto insurance policy.
How much does commercial general liability insurance cost?
The amount your business pays for a commercial general liability insurance policy depends on several factors. These include:
- Your company’s annual and projected revenue
- What industry you’re in
- How many employees you have
- How many years your business has been in operation
- The type of building(s) you operate in
- Past insurance claims
To give you an idea, though, small to medium-sized businesses can generally expect a premium in the low thousands.
Common commercial general liability insurance claims
Clients, customers, vendors, suppliers, and even other businesses can file several types of third-party claims that are covered under a typical commercial general liability insurance policy. Claims alleging a business’s operations or products caused bodily injury or property damage are common. Many third-party claims also allege libel or false advertising, or that a company has damaged a commercial space it leases.
To get a sense of how your business could benefit from commercial general liability insurance, consider the following scenarios.
When skincare goes wrong: How liability insurance can protect a small business from a costly lawsuit
The scenario:
- A small business produces and sells its own skincare line and claims its products can significantly reduce acne.
- A customer buys cleanser and moisturizer from the store, and promptly starts to break out in painful blemishes. These blemishes lead to significant scarring that will take many expensive lasering procedures to remove.
- The customer files a lawsuit against the company, alleging it engaged in false advertising and caused them bodily injury.
- A court rules in the customer’s favour and awards her damages.
The outcome:
The skincare company has commercial general liability insurance, which covers the legal costs of defending against the lawsuit. The policy also covers the damages the court awards the customers. Overall, the policy pays out $20,000 – an amount the company’s owner would have had to pay out of pocket if she did not have insurance coverage.
Costly repair mistake: How liability insurance saved a company $80,000
The scenario:
- A company sends an employee to a customer’s home to repair his dishwasher.
- The employee makes a mistake, resulting in a leak that ends up damaging the customer’s kitchen wall, floor, and cabinets.
- The customer sues the company, alleging it caused significant damage to her property.
- A court rules in favour of the customer, and awards damages to cover the costs of repairing the kitchen.
The outcome:
In this scenario, the company’s commercial general liability insurance policy would cover the legal fees associated with defending the lawsuit, as well as the damages owed to the customer. This coverage helps the company save $80,000. Without insurance, the company would have had to pay this amount out of pocket.
How to get the cheapest commercial general liability insurance quote
As with any other type of insurance coverage, there are steps you can take to get the most affordable commercial general liability insurance policy for your business.
These include:
Buy the right coverage
Pay only for the coverage that meets your business' specific needs to avoid unnecessary frills and reduce costs.
Pay on time
Pay on time to avoid late fees and secure a better rate at renewal. Insurers reward good customers.
Bundle up
Many insurers offer discounts when you buy several insurance policies instead of one. Ask about bundle deals.
Choose the right coverage limits
Review your inventory and select coverage limits that match the actual quantity and value of your assets.
Review coverage regularly
As your business grows or changes, review your coverage to avoid paying a chunk on assets you no longer own.
Increase deductibles
Choose a higher deductible amount to keep your premiums low.
Ask for discounts
Ask about any available discounts, like having a claim-free history.
Shop around
Comparing insurance rates from different companies is the smartest way to get the most affordable price.
Check with professional associations
Some associations (like the Canadian Federation of Independent Business) offer members discounted rates.
Implement safety measures
Insurers may offer lower rates if you have certain safety measures in place, like surveillance systems.
Work with an insurance broker
Brokers can help you find access to special rates and deals.
Consider a risk management plan
A risk management plan can demonstrate to insurers that you are proactive about minimizing risks.
Your commercial general liability insurance questions, answered.
Is commercial general liability insurance mandatory in Canada?
As with business insurance, it is not mandatory for business owners to buy commercial general liability insurance. It is highly recommended, however, for businesses of all sizes. The coverage it provides can offer financial protection in the event of unexpected third-party claims – and the high legal costs that come with them.
If I buy commercial general liability insurance only on selected risk, will my premium be significantly lowered?
If you believe the coverage provided by commercial general liability insurance is too broad for your business’s needs, we recommend talking to an experienced broker to help guide you through other policy options that are more tailored to the risks your business faces. A broker can also determine whether customized coverage would be more affordable than a standard commercial general liability policy.
Jessica Mach
About the Author
Jessica Mach is a freelance writer for LowestRates.ca. She's covered the documentary film industry at realscreen, and her work has also appeared in The Hairpin.