Under a general liability insurance policy, the insurer is obligated to pay the legal costs of a covered business in a covered liability claim or lawsuit. Covered liability claims most of the time include bodily injury, property damage, personal injury and advertising injury (damage from slander or false advertising). The insurance company also covers compensatory and general damages. Punitive damages aren’t covered under general liability insurance policies because they are considered punishment for intentional acts. The Personal and advertising injury limit and products and completed operations limit may be excluded in general liability policies in professions such as environmental consulting, engineering, legal professions, dental professions etc. In these professions those limits would be covered in a Professional Liability policy which is advised in combination with a premises liability policy for property damage or the slip and fall type injury.
With regard to general liability policies, taking precautions before an accident can help keep your liability and your insurance rates down. All businesses can take certain steps to lower the chance of a liability insurance claim:
- Set a high standard for product and/or completed operations quality control.
- Make sure all company records are complete and up to date.
- Be sure employees are properly trained and hold regular safety meetings.
- Get safety tips for your type of business from your insurance company.
What factors determine the insurance premiums I pay?
How insurance companies determine premiums is a complicated process that involves many factors – risk, actuarial and losses/claims data for the type of operation, type of insurance, etc. While insurance companies try to be competitive with other companies, each makes decisions based on their own data and experience insuring businesses of similar risk, statistical information on the field of business, and business objectives.
Insurance companies maintain staffs of trained experts, called underwriters, whose primary job is to evaluate the amount of risk the company will assume by issuing an insurance policy for a particular business. If one particular company has experienced a higher rate of loss on a particular field of work, its premiums will likely be higher than another company whose loss ratio is lower.
- Perceived risk. Business owners should first consider the amount of risk associated with their business. For example, a home builder is at a greater risk of being sued for a defect on their completed operation, than a company who does interior painting and wallpapering, and would therefore pay a higher rate for liability insurance. Misrepresenting your business operations to an insurance company is considered insurance fraud so it is important to be up front when describing your business to your insurance broker.
- The state and zip code in which you operate. Businesses that operate in states like California, which has a history of a higher quantity of lawsuits filed, and awarding high damage amounts to plaintiffs typically need to carry liability insurance with higher coverage limits.
How do I know if the premiums I pay are not too high?
Keep in mind that premiums are not the only factors to consider when buying insurance. Similar coverage from several companies will, in all likelihood, vary because of the factors mentioned above and exclusions that may be applied to a policy. You’ve paid too much if your policy excludes coverages that you might need. For example, if you’re an exterior painter, and you use a sprayer every day, it is advised that you buy a policy that does not exclude overspray coverage (a common exclusion on many construction policies). When comparing insurance policies and premiums, it is almost impossible to make a true “apples to apples” comparison because of the many variables that go into making a particular policy. For instance general liability rates for an interior painter with no employees in Los Angeles can vary from $1000 including taxes and fees to $1600 including taxes and fees depending on the breadth of coverage, size and financial stability of the insurance company, and the exclusions that may be added to some of the policies. For these reasons, shopping for insurance based on price alone can be very risky. While one company’s premiums may be lower, the policy may not contain all the features and coverages you want or need. Once again, the assistance and advice offered by a licensed insurance broker can be quite valuable.
Should I pick different companies and agencies for each kind of insurance?
The answer to this question is related to several of the questions above. Depending on your field of work, your choices may be more limited, working with a broker like myself, who represents a variety of companies and lines of insurance, will likely offer more options and allow you to keep all lines of commercial insurance with one agency.