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      Commercial General Liability (CGL) / General Liability (GL) 101

      This page is meant to serve as a 101 educational resource for General Liability / Commercial General Liability (GL/CGL) insurance.

      What is General Liability Insurance?

      Firstly, General Liability insurance is also referred to as Commercial General Liability insurance and is abbreviated as GL or CGL.

      General Liability Insurance, often simply referred to as GL/CGL insurance, is a fundamental type of insurance policy that provides coverage to a business for bodily injury, personal injury, and property damage caused by the business’s operations, products, or injuries that occur on the business's premises. It is a critical coverage for businesses as it protects them against a variety of common claims.

      Eg: The soap manufactured by a company causes someone a rash. The lawsuit and payout fees can come from GL insurance.

      Some kinds of coverages provided by GL policies are:

      1. Bodily Injury Liability: Covers the costs associated with injuries to another person that your business is legally responsible for. This might include medical expenses, legal fees, and compensation for lost wages.
      2. Property Damage Liability: If your business causes damage to someone else's property, this part of the policy covers the costs associated with repairing or replacing it.
      3. Personal and Advertising Injury: Protects against claims of libel, slander, wrongful eviction, violation of privacy, and similar allegations.
      4. Legal Defense and Judgment: Provides coverage for legal defense costs if your business is sued for a covered liability claim, including when the lawsuit is groundless, false, or fraudulent.
      5. Medical Payments: This coverage can pay for medical expenses resulting from an injury to a client, visitor, or customer, regardless of who is at fault.
      6. Products-Completed Operations Coverage: Offers protection against injury or damage claims related to the products your business manufactures or the services it provides.

      Critical Elements / Breakdown of the application

      Industry Type / Class Code / Industry Code

      What the business does is a critical part of the General Liability insurance application. This is also referred to as Industry Type. It can be also referred to as the Class Code, Class or Industry code of the business.

      Eg: A accounting firm is less risky than a construction company which is less risky than Nuclear waste management companies.

      The industry of the business is the key piece of information required in determining the underwriting questions to be asked. This affects whether the carrier wants to insure a business or not and what is the premium amount.

      There are two standardized lists of industry codes: NAICS and SIC.

      Carrier Specific Industry Code

      Many carriers define their own list of industry codes which are referred to as Carrier Specific Industry Codes. The underwriting questions for such carriers are based on the Carrier Specific industry code rather than the NAICS or SIC codes.

      Carriers define their own industry codes because they want to classify the businesses differently than the NAICS or SIC codes. This might be because they want a more granular/deeper classification or their classification categories are different.

      Locations

      The locations of the business is a required part of a GL application. The carrier will want to know how many locations a business has and where each location is (Address). This ensures that the carrier can follow the various state laws and also make decision based on geography.

      Eg: Texas might have different laws for GL insurance compared to CA. If a business is in both locations then the insurance company needs to make sure it follows the laws of both states when providing insurance to such a business.

      Most carriers also allow selecting a different industry/class code for each location.

      Eg: A clothes store might have two locations. One is the retail shop where customers buy items and one might be a warehouse where the extra stock is stored. They would have different class codes as the warehouse is a different risk as compared to the retail shop.

      Revenue

      The revenue of the business is an important factor in a General Liability insurance application. These help in determining the size of the business and the potential riskiness.

      The revenue/sales of the business is collected for each location of the business.

      Payroll / Number of Employees

      The payroll (salaries) and number of employees of the business are also important factors in a General Liability insurance application. These help in determining the size of the business and the potential riskiness.

      Unlike a WC application, in a GL application the payroll and number of employees is an aggregate amount. They will not require a breakdown of the type of employees and payroll for each type of employee or by location.

      Loss Types

      In General Liability when providing information about past losses you also have to provide the loss type of the loss. Each carrier will have a specific list of loss types that they define. Some of the common ones are:

      1. Personal Injury - Injury for which the business is responsible for
      2. General Liability Products - Issues caused by the product of the business
      3. Professional Liability
      4. Property Damage
      5. Errors and Omissions
      6. etc

      Rating Factors

      The core rating factors for a GL/CGL policy are:

      1. Industry Type by location
      2. Locations
      3. Revenue by location
      4. Payroll / Number of employees
      5. Past losses
        1. Loss Amount
        2. Loss Type
        3. Date of loss

      There are also other factors that go into making the decision to insure a business or not and how much premium to charge. But the above ones are the core factors.

      Liability Limits

      The liability limits of a GL policy are:

      1. Per Occurrence Limit - This is the maximum amount of money that will be paid out for a single incident/claim in the policy term. Each incident/claim can use the full maximum amount
        1. Eg: ($500K) If a batch of soap causes rash to various customers then the maximum amount paid out for the claim would be $500K
      2. Per Policy/Aggregate Limit - This is the total amount of money that will be paid out for all the claims in the policy term. If the business exceeds this amount they will not be covered by the insurance anymore in that policy term.
        1. Eg: ($1M) If there was an incident/claim in February and March each for $500K then after March the business will not get anymore money from the insurance company for any new incidents/claims.

      The Per Occurrence and Aggregate limits offered by a carrier are a preset list. Most common limits are 500K/1M , 1M/2M and 2M/4M.

      The GL liability limits offered (preset list) can change based on the Carrier and State. Some carriers might also change the limits offered based on the industry of the business. For eg: A carrier might not offer low liability limits for a risky business like Nuclear Waste Management.

      Each carrier also has different rules about the limits offered in case of a business that has locations in more than one state.

      Besides the standard limits mentioned above each carrier might have limits for various optional coverages included in the GL policy. Eg: Liquor Liability limit, rental car limit etc