General liability insurance exclusions
General liability insurance is your company’s first line of defense against many business risks, but it has its limits. Learn these common general liability exclusions to make sure you don’t get caught without coverage.
What is and isn’t covered by a general liability policy
General liability insurance protects your company from common business risks.
It covers the costs of third-party lawsuits related to:
- Bodily injury
- Property damage
- Advertising injury
Investing in general liability insurance is typically a smart move. Without it, a lawsuit for physical or financial injury to a third party could devastate your business. Plus, it’s often required by landlords, clients, and lenders.
But make sure you understand what your general liability policy covers – and what it doesn’t.
What exclusions are never covered by general liability insurance?
If you don’t carefully read your policy, you could be surprised by coverage exclusions. These may include:
- Acts committed outside the policy period
- Knowingly wrongful acts
- Criminal acts
- Lawsuits over your professional performance
- Employee injuries
- Legal action over hiring or firing practices
- Business property damage
- Accidents involving employee vehicles or company-owned vehicles
- Claims beyond your policy limits
In any of these situations, your general liability insurance won’t cover the costs of a lawsuit, leaving you on the hook for all the expenses.
But certain acts will never be covered by small business insurance. No policy will ever cover events outside the policy period, willful negligence, and criminal acts. Let’s take a closer look at each.
Acts committed outside the policy period
General liability insurance is a contract between your business and your insurer. Like most contracts, it has a start date and an end date. Any claims that occur before or after that policy period aren’t covered.
For example, a cash-strapped cybersecurity business waits a few months after opening to buy general liability coverage. And before the policy starts, a visiting client slips and falls in the company office.
Months later, the client sues over injuries from the fall. Though the lawsuit was filed during the policy period, the claim isn’t covered because the accident happened before coverage began.
Knowingly wrongful acts
Insurance companies won’t cover willful negligence or damage – even if it’s related to an act that would normally be covered by the policy.
For instance, a digital marketing business owner intentionally spreads lies on social media and accuses her competitor of cheating clients. The rival sues for libel. Because the owner knew the harmful accusations were untrue, her general liability policy won’t cover any legal costs.
If you or your employee breaks the law, don’t expect any business insurance to cover it. Only fidelity bonds protect your business from illegal employee acts such as forgery, theft, or fraud.
Let’s say an app developer and a client get into a heated argument at the client’s office. The frustrated developer throws his phone and breaks a window.
The client calls the police and the developer is charged with criminal destruction of property. The developer’s general liability policy won’t cover the costs of replacing the window, or any related lawsuits.
Bottom line: Insurance won’t pay for damages:
- That happened when you didn’t have an active policy.
- Over lawsuits for your or you employees’ bad behavior.
The good news? You can still gain protection against many other exclusions.
How to protect your business from other general liability exclusions
Don’t worry. There are plenty of insurance options available to cover events that your general liability insurance won’t.
These types of insurance coverage and the risks they’ll protect your business from include:
Errors and omissions insurance protects against dissatisfied clients
General liability insurance won’t protect you if you make a mistake or fail to deliver on a project. For that, you’ll need errors and omissions insurance (E&O).
E&O coverage, sometimes called professional liability insurance, covers lawsuits over:
- Professional negligence
- Work mistakes and oversights
- Missed deadlines
- Undelivered services
- Breach of contract
For example, a computer parts company hires a web development agency to build a website for its planned launch of a new product. The agency doesn’t finish the website on time, delaying the product launch. The client sues for breach of contract.
The web developer’s general liability policy won’t cover the claim, but their E&O policy will.
Workers’ compensation covers lawsuits and costs for employee injuries
A general liability policy covers third-party bodily injuries. But it won’t help with injuries to your employees. For that, you’ll need workers’ compensation insurance.
Rules vary, but most states require you to carry workers’ comp after you hire your first employee. This policy protects you from pricey medical bills and lawsuits over work-related injuries or illnesses.
Suppose an employee at an SEO agency develops carpal tunnel syndrome from constant typing and requires surgery. General liability insurance wouldn’t apply, but workers’ comp would pay any related medical bills and cover part of their pay for missed work.
Employment practices liability insurance covers employee lawsuits
If an employee (or potential employee) claims they were treated unfairly when they were hired, employed, or fired, your general liability insurance won’t cover the lawsuit. To protect against these kinds of claims, you’ll need to carry employment practices liability insurance (EPLI).
EPLI protects you if you’re sued for:
- Wrongful termination
- Breach of employment contract
- Privacy violations
For instance, imagine a software company executive is fired for performance issues. He sues the company for wrongful termination, claiming they violated the terms of his employment contract.
Commercial property insurance protects business property
A general liability policy will cover property damage as long as the property does not belong to you, your business, or one of your employees.
To protect that property, you’ll need commercial property insurance. Or you can buy a business owner’s policy (BOP), which combines general liability and commercial property coverage at a reduced cost.
Commercial property insurance will pay to repair or replace your business property that is lost, damaged, or stolen.
It covers your company’s real estate and its contents, like equipment and furnishings. And landlords or mortgage lenders will often require you to have it before you rent or buy workspace.
For example, an employee at your IT consulting firm bumps into your desk, knocking your MacBook to the floor and damaging it. A general liability insurance policy won’t pay for repairs or replacement since the computer belonged to the company. But commercial property insurance would cover it.
Businesses that depend on vehicles need auto insurance
General liability coverage won’t help if you or your employee get in an accident driving a company or personal car for business. To cover those costs, you’ll need either commercial auto insurance or hired and non-owned auto insurance (HNOA).
Commercial auto insurance covers accidents in a company-owned vehicle. It pays for:
- Medical treatment for injuries
- Vehicle damage from accidents, weather, theft, or vandalism
- Liability claims related to an accident
- Uninsured motorists
HNOA covers accidents that happen while you or your employee are driving a leased, rented, or personal vehicle on company business. It generally covers only legal defense costs, not property damage.
For instance, let’s say a web designer is driving their personal car to a client’s office. In the parking lot, they turn too sharply into a parking space and hit a parked car. If sued, HNOA will pay the legal costs.
Commercial umbrella insurance boosts your policy limits
Lawsuits can be expensive. And your commercial general liability coverage has a policy limit. Any costs above that will have to be paid out of your own pocket.
For additional protection, you’ll need to buy commercial umbrella insurance.
Umbrella insurance is also known as excess liability insurance. It increases the limits of your existing liability policy in $1 million increments.
Usually, you’ll need this insurance because a client contract requires more coverage than your current policy provides. Umbrella insurance is often applied to these policies:
- General liability insurance
- Hired and non-owned auto insurance
- Employer’s liability insurance (usually part of a workers’ comp policy)
For example, a customer slips on a wet floor in a computer repair shop. The customer is seriously injured and requires multiple surgeries and a long hospital stay. They sue the store for medical expenses, lost work opportunities, and other damages that exceed the company’s liability policy.
Commercial umbrella insurance will cover costs that your underlying policy won’t.
Know your insurance coverage and your risks
Every business has insurance needs beyond general liability coverage. You need to know what your policy covers, and identify other coverage you may need to protect your business.
Our expert agents can help you every step of the way. We’ve helped thousands of business owners like you find the right insurance for your business and your budget.