As you look through the list of policy exclusions and restrictions, you might feel like there’s no point in paying for insurance each month or quarter — after all, there are so many things not covered that you have no idea what is covered.
The reason we’ve written this article is to help you make sense of what you’re buying. By the end of it, you’ll understand, in plain, straightforward language, some of the most common exclusions in general liability policies. No matter what profession you’re in, many of these exclusions will apply.
That being said, if you’re buying insurance and your agent tells you something different from what you’re reading here, trust your agent! Similarly, if you know that some of these exclusions could cause serious problems for your business, ask your agent if there are riders or add-on products that might help you get more fully covered.
The first thing to understand is this:
Who is “An Insured”?
When you purchase liability insurance for your business, you’ll see that the policy refers to “the insured.” Who, exactly, is an insured? Does it cover just the person on the policy? Does every individual need to be named in order to be covered? What about family members? Are subcontractors or independent contractors covered? After all, if you think someone is covered under your policy, and they actually aren’t, that could put both yourself and that person at risk.
Who qualifies as insured for the purposes of liability insurance?
In general, “An Insured” will be:
- The named insured (usually the person purchasing the insurance).
- Their spouse.
- Their partners and their spouses, if the business is a partnership, or members if the business is an LLC.
- Employees of the business.
“An Insured” is not:
- Family members who work for the business, but do not qualify as employees, are often excluded from liability insurance coverage.
- Day laborers, who generally do not meet the qualifications to be employees under Labor Codes.
- Subcontractors and independent contractors (who are often required to carry their own liability insurance).
If you’re unsure if someone will be covered under your policy, talk to your insurance agent. It’s much better to know ahead of time that someone will or won’t be included than to find out after the fact.
Why You Need General Liability Insurance (Even With Exclusions)
All too often, businesses decide to forgo insurance in order to lower their overhead costs. While this may be a short-term necessity, it is never a good long-term plan. Despite exclusions and restrictions, liability insurance covers many crucial business vulnerabilities, such as:
- Lawsuits, investigations, and settlements. If your business is sued, liability insurance can cover attorney fees, settlements, and judgments.
- Injury damages. If someone (not an employee) is hurt on your property or your job site, liability insurance may help to pay damages.
- Miscellaneous damages. Liability insurance can cover a wide range of unexpected damages, such as if a company accidentally violates a copyright with advertising, and needs to pay fees.
Common Exclusions — What’s Typically Not Covered by General Liability Insurance
It doesn’t matter what work your business does — certain exclusions are common across most insurance policies. Sometimes items are excluded because they should be covered by other insurances that you should carry, like workers’ compensation or an insurance policy on your physical space. Other times insurance companies have decided, across industries, not to pay for particular situations.
What are some of the things that general liability insurance won’t cover? These are some common exclusions:
If your business takes on a contract, and the contract requires you to pay for some sort of liability or says that the other person won’t be liable, your liability insurance won’t cover any damages. For example, contractors may do work for a town or municipality. They will often sign a contract which agrees to hold the municipality harmless for any accidents that happen on the job. If the contractor then has a loss or accident on the job, the municipality cannot be sued.
Because the business owner signed a contract saying that the other party can’t be held liable, liability insurance probably won’t pay for this either. There are a few situations where this may not apply, including:
- A contract that relates to a lease of premises.
- A sidetrack agreement.
- A license or easement agreement, unless it relates to demolition or construction within 50 feet of a railroad.
- Some indemnity obligations of municipalities.
- Elevator maintenance agreements.
- Tort liability issues.