What Does General Liability Insurance Cover?

General liability insurance covers your business when you're legally responsible for bodily injury or property damage to a third party. It also covers personal and advertising injury offenses such as libel and slander, medical payments to people who are injured on your premises, legal defense costs of those claims. The policy does not cover injuries to your own employees, damage to your own property, or professional mistakes, which need separate policies.

Most businesses' owners believe their commercial liability insurance protects them against loss or damage in their own business. The truth is, it has just the opposite effect. Instead of protecting your business from itself, it protects others from your business. That single difference will explain almost all of the surprises you have with coverage as explained further down. The standard Commercial General Liability form, ISO CG 00 01, is written on an occurrence basis, which our guide to occurrence vs. claims-made policies explains.

What are the three coverage parts of a CGL policy?

The CGL splits into three coverages, each with its own insuring agreement and exclusions:

Coverage C is the quiet workhorse. Because it pays regardless of fault, it lets you resolve minor injury claims before they develop into lawsuits. The standard medical expense limit however is only $5,000 per person, sufficient funds for an urgent care facility visit and an x-ray but insufficient for a hospital stay.

All three coverage types include the insurer's defense as part of the policy. Under the supplementary payments section all of the defense costs associated with defending the lawsuit are in addition to the policyholder's liability limits. Therefore, defense costs will never reduce the amount of money available to be used to pay a judgment.

What business activities does Coverage A cover?

Coverage A covers many things and there are six different types of liability exposures that your business will create daily:

• Premises liability: keeping your premises reasonably safe for visitors, whether you own rent or lease them.
• Operations liability: injury or damage caused while performing work, often on someone else's premises.
• Products liability: products you sell, distribute, or make cause injuries after they leave your premises.
• Completed operations liability: Damage caused once your completed project has been placed into service, which can be a situation where a hot water tank leaks weeks after installation and damages the customer's floor covering.
• Contractual liability: Liability for protecting another party through a contract, typically an indemnification clause found in a lease or construction agreement.
• Contingent (vicarious) liability: The obligation of a person who hired others to perform services on their behalf, this includes but is not limited to employees and may include independent contractors.

Restaurants are a common exception. Because the standard products definition assumes injuries occur off the restaurant owner's premises, if patrons consume the products provided by the restaurant while dining at the establishment, then the Products/Completed Operations Hazard Redefined endorsement (CG 24 07) would provide coverage for an individual harmed at the table.

What does general liability insurance not cover?

A CGL policy covers the costs associated with accidents that cause injury to others. However, it does not provide coverage for those costs which come back on the insured. For example, injuries sustained by your employees in the course of employment, damage to your own property or your own work, and professional errors are examples of the many types of risks that are not covered under a CGL policy. Some of the most common exclusions from coverage include:

• Injuries to your own employees: The responsibility for paying for an injured worker falls to workers compensation insurance. An employee swinging a ladder into a co-worker's face would fall outside of a CGL policy.
• Professional services: Advice, design services, and health care require professional liability (E&O) coverage.
• Damage to your own property or your own work: Costs incurred in correcting or replacing defective work done for the customer are considered normal operating expenses, and therefore are not eligible for reimbursement through a CGL policy.
• Electronic data: Property damage applies only to tangible property, and electronic data is not tangible, so cyber liability insurance fills this gap.
• Expected or intended injury, pollution, aircraft/auto/watercraft, and liquor liability each has their own policy.

How much does general liability insurance cost?

Most small business owners purchase a limit structure of $1,000,000 (per occurrence) and have a $2,000,000 (general aggregate), in addition to having a separate $2,000,000 (products/completed operations) aggregate. For that package, Insureon reports its clients pay an average of about $45 per month.^[1] The averages spread wide by trade:

The amount you pay will depend upon which class of operation you have (and thus what code), and the payroll or sales that the class is rated on. So a low-traffic office tenant pays a few hundred dollars a year, but a roofer or restaurant may be paying several thousand dollars. The one thing you need to keep track of is not the per-occurrence limit, but the aggregate. Every damages payment during the year comes off of the aggregate, and when the aggregate runs out, your insurance company will owe you nothing more. In fact, that includes your defense. The Insurance Information Institute notes that bundling General Liability, Property, and Business Interruption together into one Business Owners Policy can often work well for smaller or lower-risk businesses.^[2]

Do small businesses need general liability insurance?

Yes. While there is no state statute that mandates the purchase of a commercial general liability (CGL) policy, due to the nature of how business is conducted (i.e., commercial landlords requiring minimum liability amounts, often $1,000,000 per occurrence, be written into their lease agreements and/or commercial general contractors demanding evidence of such prior to allowing subs on-site), as well as by virtue of a larger client requesting a certificate of insurance on the ACORD 25 form prior to signing, it is effectively mandatory in practice. No certificate means no contract.

The claims behind those requirements have been worsening. There was also a doubling of slip, fall, and customer injury claims as a percentage of all small business claims from The Hartford's 2015 & 2025 claim studies, from 10 percent to 20 percent, while The Hartford's average small business claim more than doubled from $20,000 to $45,000, which is a trend that The Hartford attributes in part to increased litigation costs.^[3] A home-based sole proprietor is not exempt either, because homeowners policies exclude most business liability, leaving a client injured during an in-home consultation to be paid out of your own pocket.

This guide is for educational purposes and summarizes standard ISO policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.

The Bottom Line

General liability insurance protects your business from injuries/damages to third parties (third parties include customers, vendors, etc.) and the cost of defending against claims. It does not touch employee claims, which fall to workers compensation, it does not touch your own work, and professional errors/mistakes fall into E&O. Prior to quoting for coverage identify required insurance limits in your leases/contracts, then review your endorsement schedule to ensure there will be no surprise at claim time regarding designated premise limits.