Small businesses are the backbone of our economy, and as an entrepreneur, you know that running a business involves taking on risks. From customer injuries to property damages, countless potential liabilities can threaten your company's success. As a small business owner, you are always looking for ways to minimize risk and protect your business, right?

In this article, we will discuss one highly effective way to do this. Yes, we are going to talk about commercial general liability insurance and how it can protect small businesses like yours. We will also discuss other important matters related to commercial general liability insurance coverages in India.

Let’s first start with the basics!

What is Commercial General Liability Insurance?

Commercial General Liability Insurance, also known as CGL insurance, is a form of insurance that protects businesses from legal liabilities originating from claims of bodily injury, property damage, or personal injuries sustained by third parties, because of their regular business operations. Various insurance companies in India provide CGLinsurance policies to protect businesses from such legal liabilities. The policy covers legal fees, compensation, and settlements granted by the court to the plaintiff, as well as any other expenses incurred by the insured in defending the said claim. The premium for a CGL policy is determined by several factors, including the nature of the business, its size, and the extent of coverage needed.

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Here are some scenarios in which your organisation could be held liable for a wide range of costs, including legal and medical expenses, as well as punitive and compensatory damages:

• A customer slips and falls while visiting your business premises and is injured.

• Inadvertently, one of your employees leaves the water running, causing damage to a home nearby.

• A lawsuit is filed against your company, accusing that the content in one of your advertisements is false and misleading.

Please note that a business may choose to name other companies or individuals as "additional insureds" under its commercial liability insurance policy, depending on the business's needs.

As an example, ABC Co. may require that garage owners add ABC Co. on their commercial general liability policy as "additional insured" if ABC Co. provides cleaning services at the garage.

Importance of Commercial General Liability Insurance for small businesses

CGL insurance is not a mandatory requirement in India. However, it is strongly recommended for businesses protect themselves from potential legal liability arising from their operations. The policy is appropriate for all sizes and types of businesses, including startups and small businesses. This coverage is available to business owners, managing directors, operations heads, and anyone involved in business operations. It also shields sellers, distributors, and manufacturers from business liability.

Considering the highly volatile and unpredictable liability environment in India, it is common for clients and partners to demand that you should have a CGL insurance cover, before working with your company. For instance, a landlord might request proof of insurance before signing a commercial lease. Some clients may also require you to name them as additional insured on your CGL policy. This means that the client is covered under the policy for any liabilities arising from your business operations. This way, clients can minimise their own risk exposure and protect themselves from potential financial losses.

As a result, small firms must have a CGL policy in place and keep excellent business relationships with their stakeholders. A CGL insurance might reassure clients that the company has taken precautions to protect itself from unforeseen liabilities. As a result, it improves your company's reputation and gives you a competitive advantage.

What all are covered by Commercial General Liability Insurance?

What all are covered by commercial general liability insurance?

Your commercial general liability (CGL) policy covers the following:

Third-party bodily injuries

This coverage protects against losses originating from the insured's legal liability for bodily injury or property damage to others. Such injury or damage should be the outcome of non-professional negligence or liability arising from their company operations. Mental injuries and emotional distress can also be considered bodily injuries in the absence of physical bodily harm.

Third-party property damage

It also covers third-party property damage expenses like repair, replacement, and reconstruction. It will, for example, cover the costs if a third-party laptop, phone, or other equipment is damaged. CGL Insurance would also cover the cost of repairing adjacent structures damaged by an unintended fire on your business premises.

Product Liability

This policy protects against third-party claims resulting from the usage of the insured's products that may cause bodily harm or property damage. Such claims might emerge as a result of flaws in a product's design, production or packaging, as well as failure to warn against potential hazards linked with the product. Injuries caused by faulty machinery, food-borne illnesses produced by contaminated food products, and property damage caused by defective consumer goods are all examples of product liability claims. To be covered under a cgl insurance policy, the product liability claim must have occurred during the policy period

Personal injuries and advertising injuries

General liability insurance can help cover legal costs and resulting settlements or judgments in cases involving slander, libel, false arrest, etc.

A CGL coverage will also be useful if you commit intentional or inadvertent copyright infringement of another brand's or product's logo or tagline. This includes slander and libel for causing indirect harm to a third party's reputation. In such cases, the insurance will cover the settlement and legal costs.

What does commercial general liability insurance not cover?

It's important to have commercial general liability insurance for small businesses, but you can't expect it to cover everything. Your policy does not cover:

  • Liabilities already covered by other policies ( such as liabilities under workmen's compensation for employees who are injured at work)
  • A failure or delay by anyone on behalf of the company to perform an agreement or contract as per its terms.
  • Employee Discrimination Lawsuits – EPLI insurance covers lawsuit expenses associated with harassment, discrimination, and unlawful termination claims.
  • Expected or intended injury
  • Vehicles used by a business – This is covered by commercial auto insurance.
  • Pollution
  • Liabilities arising out of the conduct of the Insured’s business
  • Damage to the insured’s property
  • Damage to the insured’s product
  • Errors and Omissions
  • Damage to the work/business of the insured
  • Professional liability
  • A deficiency, inadequacy, defect or dangerous condition in the product

What are the factors that can impact the cost of commercial general liability insurance premiums?

Certain factors that can impact the cost of commercial general liability insurance premiums include:

  • Coverage amount
  • Industry, type of work , and risk factors
  • Location
  • Employee headcount
  • Claims history

Overall, the cost of general liability insurance for contractors in India will depend on a combination of these factors, as well as the specific insurance provider and the policy being considered. It is important for you to shop around and compare quotes to find the best coverage at the most affordable price.

How much general liability insurance do independent contractors need?

Independent contractors are liable for consumer injuries, customer property damage, and advertising injuries, just like any small business owner. Although contractors without a physical location or expensive equipment probably don't need a business owner's policy or commercial property insurance, they may still benefit from general liability coverage. General liability insurance will provide coverage for losses that the independent contractor would incur as a result of paying for damages and defence costs for claims brought against him.

What is the right amount of general liability coverage for me?

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 commercial general liability insurance, you may also consider factors such as the total funding received, annual income, risk exposures, and so on.

How to find the right provider for your business?

As a small business owner, you know that choosing the right insurance provider is crucial to getting the best out of your CGL policy. With so many options on the market, it can be difficult to know where to start. Here are a few tips to help you find the right commercial general liability insurance provider for your business.

  1. Go to a platform like BimaKavach, where you can compare all the quotes.
  2. Shortlist some commercial general liability insurance coverages that meet your unique needs.
  3. Make sure you understand the coverage limits of the policies.
  4. You may speak to experienced consultants on these platforms for more help.

The footnote: Hope from the discussion above, you have got a fair idea of how CGL insurance is helpful for small businesses. Find out how CGL insurance benefits contractors here