We live in a time where business opportunities are abundant, prompting businesses to seek newer and better ones. The Indian business diaspora has never been more exciting, thanks to robust economic growth fueled by increased international investment. The growing number of entrepreneurs in the country is a crucial testimony to this fact. The term 'Startups' has sparked a mini-revolution, so to say. At the same time, the risks associated with running a business are increasing as well. It not only has the ability to cause loss to business assets but also can damage the brand image and disrupt day-to-day operations. Events such as natural disasters and burglary can wreak havoc and result in hefty financial losses.

As a business owner, you do not need to panic though! Quite a few protection mechanisms are offered by the Indian insurance industry these days, to minimise losses and prevent disruption to business operations. These insurance products are aptly designed to protect business owners against the most commonly occurring risks. In this article, we will discuss one of them, general liability insurance, in detail.

Let’s start with the basics then!

What is meant by liability?

To explain liability in simple terms, it is something that an individual or a company owes (usually a monetary sum). Throughout a time period, liabilities are satisfied by transferring financial benefits such as money, products, or services. Liabilities are recorded on the right side of a balance sheet. Accounts payable, loans, warranties, mortgages, bonds, delayed revenues, and accumulated expenses are examples of them. In general, liability refers to the state of being answerable for anything, and it can refer to any amount or service owed to another entity. For example, a homeowner's tax responsibility could be related to property taxes due to the Government or income tax authorities. Another illustration of liability is one's potential damages in a lawsuit.

In the company books, the liability of business and assets are reflected on opposite sides. To sum up, liability for business includes items borrowed or owed, whereas assets are items owned by the company.

What is general liability insurance?

General liability insurance provides basic protection to the insured and is frequently coupled with various liability insurance, as opposed to specific liability coverages. General Liability Insurance protects a business financially if it is sued for a bodily injury or accidental death on its premises, for inflicting an advertising injury (such as slander, copyright violation, or libel), or for damage to a visitor's property. It covers the business's legal liability to third parties as well as expenses such as lawyers' fees, expenses of judgments and settlements related to litigation, medical expenses of the injured third party, and other monetary damages.

General Liability Insurance coverages are commonly regarded as necessary in light of the exceedingly volatile liability environment in recent times. This insurance covers anyone participating in business activity, including owners, directors, and management staff.

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What does general liability insurance cover?

One of the main reasons for the popularity of general liability insurance is that it covers a wide range of risks. It compensates for damages as well as legal costs that your company may have to incur in the instance of an unfortunate accident:

The set of coverages includes (but is not limited to):

  • Third-Party Injury

This type of insurance policy is designed to protect a business from financial losses that may arise from claims of bodily injury or property damage caused to a third party.

  • Bodily injury liability: This covers the cost of medical expenses and other damages that may arise from injuries suffered by a third party on the business premises or due to the business's operations. In the absence of physical bodily harm, mental injuries, and emotional discomfort can also be considered bodily injuries.
  • Property damage liability: This covers the cost of repairs or replacement of property that may be damaged due to the business's operations or activities. For example, it will cover the expenses if a third-party laptop, phone, or other items are damaged.
  • Defamation

A typical general liability insurance policy in India may provide coverage for defamation liability for businesses under personal injury liability coverage. This type of coverage may protect the business from financial losses that may arise from claims of defamation, libel, or slander made by a third party against the business.

  • Libel or slander: This coverage may apply if a third party accuses the business of making false and harmful statements about them that are published or spoken publicly. The policy may provide coverage for damages awarded against the business for such claims.
  • Invasion of privacy: Usually, general liability insurance does not provide coverage for claims related to invasion of privacy, as these are typically considered intentional acts and not accidental or unexpected events. However, there are some situations where general liability insurance may cover privacy-related claims, such as employee policy violations or data breaches. If an employee of the business violates the privacy rights of another person while acting within the scope of their employment, the business may be held liable. Also, if a third party accuses the business of publicly disclosing private information about them, the business may face a risk. General liability insurance may cover such situations.
  • Copyright infringement: General Liability Insurance coverages may apply if a third party accuses the business of infringing on their copyright by reproducing, distributing, or displaying their work without permission. In such circumstances, the insurer will pay the settlement and legal expenses.
  • Legal Expenses- A typical general liability insurance policy in India may provide coverage for legal expenses for a business under the "Defense Costs" coverage. This type of coverage may protect the business from financial losses that may arise from legal expenses incurred while defending against a covered claim or lawsuit.

The Defense Costs coverage under a general liability insurance policy may cover the following:

  • Legal fees and expenses: This coverage may apply to legal fees and expenses associated with defending a covered claim or lawsuit, including attorney fees, court costs and expert witness fees.
  • Settlements or judgments: If the business is found liable for a covered claim or lawsuit, the policy may cover the cost of any settlements or judgments, up to the policy limits.
  • Investigation costs: This coverage may apply to investigation costs incurred by the business in response to a covered claim or lawsuit.

Third-Party Medical Expenses-Limited medical expenses coverage includes compensation for injuries experienced by a third party due to an accident on the insured's premises or due to exposure to the insured's business activities. This coverage can be activated without the need for a judicial order. Small medical claims can thus be settled swiftly and without litigation. It pays for all necessary and reasonable medical, surgical, hospital, ambulance, nursing, and funeral expenses for someone injured or killed in the instances mentioned above. There is no defence or legal liability coverage here because the coverage is provided on a no-fault basis.

What are the typical exclusions in a general liability insurance policy?

  • Liabilities already covered by other policies (such as liabilities under workmen's compensation)
  • Liabilities arising out of the conduct of the Insured’s business
  • Loss or damage originating from war or war-like situations, radioactive contamination, and other similar events.
  • Damage to the work of the insured
  • Professional or contractual liability
  • Damage to the insured’s property
  • Damage to the insured’s product
  • Claims against your Directors & Officers
  • A deficiency, inadequacy, defect or dangerous condition in the product
  • Electronic data Recall of products, works or impaired property and product guarantees
  • Data theft, among other cybercrimes
  • Errors and Omissions.

How costly can general liability insurance be for small companies in India?

Deciding on the appropriate cost of general liability insurance is a challenging task for any organisation and this is especially true for small businesses in India. Depending on its goals, business model, risk tolerance, and present financial status, a company can choose any limit of general liability insurance coverage.

If your company is in good financial condition, is growing steadily, and has an excellent debt management system in place, you can choose a lower level of coverage (and vice-versa). To determine an acceptable pricing range for your general liability insurance, you may also consider the total funding received, annual income, and the number of paying clients. If you are more risk-averse, you may opt for a higher retention amount, thus, lowering the premium to pay. The inverse is also true.

If your company is new, you will have a shorter track record of successful management practices and a less dependable revenue stream. As a result, insurance companies will face increased liabilities. To determine the cost of the coverage, the provider will also evaluate recent significant changes impacting the business, mergers or acquisitions, changes to the business's financial condition and shareholder agreements, and so on.

The footnote:

Hope from the discussion above, you have got a fair idea of what general liability insurance is and how it can protect your business. We have also discussed other important aspects of a general liability insurance policy in India. For the best recommendation on general liability insurance, you may contact BimaKavach. Here, you can get the best recommendation for any insurance product in just 5 minutes.