Why General Liability and Business Interruption Insurance are Essential for Every Business

The unexpected can happen in the blink of an eye. A customer slips in your office or a contractor accuses your team of causing damage; the next thing you know, you and your business are facing a lawsuit.

Every day business operations carry the risk of bodily injury, property damage, or personal injury claims. That's why general liability insurance fundamental component of any organization's risk management strategy.

This coverage helps protect your business from the financial impact of legal defense costs, settlements, and judgments. It allows you to continue operations while managing claims, regardless of industry. For many organizations, general liability insurance is the first layer of defense when legal challenges arise.

What Is General Liability Insurance?

Accidents can happen in any business. While you can’t predict when they’ll occur, you can be prepared. General liability insurance protects against lawsuits and claims related to bodily injury, property damage, and personal or advertising injury.

Coverage typically includes:

• Bodily injury to third parties
• Damage to others’ property
• Legal defense and court costs
• Personal and advertising injury (such as defamation or copyright infringement)
• Medical payments for minor injuries

Without this protection, your organization could face serious out-of-pocket expenses. Even businesses considered low-risk can benefit from having a comprehensive policy in place.

It’s also worth noting that general liability insurance is often required in contracts with landlords, vendors, or clients. Having coverage can be a factor in securing new business, as it demonstrates professionalism and preparedness.

What Can Trigger a General Liability Claim?

Claims often stem from routine business interactions. Here are some common scenarios:

• On-site accidents: If someone gets injured at the business, such as a customer slipping or falling on the property, general liability can cover medical expenses and legal fees.
• Product issues: A product you sell or manufacture malfunctions and causes injury.
• Property damage: A team member accidentally breaks a client’s window while on the job.
• Advertising injury: A competitor alleges you used their copyrighted content or made defamatory claims.

These incidents are unpredictable, but you can manage the aftermath more confidently with proper coverage. The "duty to defend" clause included in most general liability policies means your insurer is obligated to provide legal representation, even if the claim is groundless or fraudulent.

What Happens When a Lawsuit Is Filed Against You?

If your business is served with legal papers, it can be overwhelming. Here's how the process usually works:

• Notification: You receive formal notice of the lawsuit, known as service of process.
• Contact your broker or insurer: Report the claim immediately to start the investigation and determine coverage.
• Defense assignment: Your insurer may provide legal representation or pay for an attorney.
• Coverage for legal costs: If a settlement or judgment follows, your policy will pay up to the policy limits.

Prompt reporting is essential. Early communication with your broker helps avoids delays or coverage denials.

Depending on the nature of the lawsuit, your insurer may assign an attorney experienced in the relevant area of law. These legal professionals work on your behalf to resolve the claim efficiently, whether that means negotiating a settlement or taking the matter to court.

What's Covered and What's Not

Understanding the scope of your policy is critical. Here's a closer look at what general liability insurance includes and excludes.

Common Inclusions:

• Bodily Injury: Covers injuries to third parties on your premises or as a result of your operations. It's a common misconception that employee injuries are included under this coverage; however, such incidents require workers' compensation insurance.
• Property Damage: Helps pay for third-party property repairs or replacement due to your business activities. Most policies have coverage limits that range from $100,000 to $1 million per occurrence. Damage to the insured’s own property and intentional acts are not included in this coverage.
• Personal and Advertising Injury: Covers legal costs related to defamation, slander, or copyright infringement. What’s excluded? Intentional acts and contractual liabilities. Businesses should assess the terms of the coverage to ensure thorough protection.
• Completed Operations: Covers incidents arising from work you've completed. This is common for industries such as manufacturing and construction, as it covers bodily injury or property damage that result from the completed work.
• Medical Payments: Provides a no-fault option to cover minor injuries to visitors or customers. Again, employees are not protected by this but can be with a workers’ compensation policy.
• Legal Defense Costs: Includes attorney fees, court costs, and related legal expenses.

Common Exclusions:

• Professional Services: Claims deriving from professional services will need professional liability insurance to be protected.
• Auto Incidents: Damage that arises from the use of vehicles will need commercial auto insurance.
• Cyber Events: Any incident involving cyber-attacks or breaches will need cyber liability insurance.
• Employee Injuries: Must be handled through workers' compensation insurance.

Review the ISO Commercial General Liability form or consult your broker to fully understand your policy. Your broker can also help you identify gaps and recommend endorsements to extend coverage.

What About Business Interruption Coverage: Why It Matters

General liability helps with lawsuits, but what if a covered event forces your business to temporarily shut down? That’s where business interruption insurance comes in.

This coverage helps replace lost income and covers ongoing expenses if your operations are disrupted due to a covered peril, such as fire or storm damage.

What It Typically Covers:

• Lost revenue during the shutdown
• Rent or mortgage payments
• Employee wages
• Loan payments
• Relocation and temporary operating costs

Business interruption coverage is usually part of a commercial property or business owner's (BOP) policy. It's essential for maintaining cash flow when you need time to rebuild or relocate.

Why It’s Important:

Business interruption insurance helps maintain financial stability during unexpected closures. If you rely on a physical location, equipment, or machinery, even a short downtime can significantly affect revenue.

You can also enhance this coverage with optional endorsements, such as:

• Contingent Business Interruption: Covers losses due to a supplier or partner's disruption.
• Civil Authority Coverage: Applies when government action blocks access to your premises.
• Extra Expense Coverage: Reimburses costs above and beyond normal operations to avoid or minimize shutdown.

Pairing business interruption with general liability coverage offers more complete protection, ensuring both legal and operational threats are addressed.

What If You Don’t Have General Liability or Business Interruption Coverage?

Going without coverage exposes your business to significant financial risk. Here's what you might face:

• Hiring attorneys out of pocket
• Paying settlements or judgments yourself
• Loss of income during forced closures
• Damaged reputation
• Risk of bankruptcy or business closure

A single lawsuit can cost tens or hundreds of thousands of dollars, not to mention the time and productivity lost to preparing your legal defense. A forced closure due to property damage can have ripple effects on staffing, customer relationships, and contract obligations.

While insurance comes with a cost, the alternative can be devastating. The right coverage helps your company stay afloat during challenges.

How to Ensure You’re Properly Protected

Taking the time to assess your policies can save you money and stress in the long run. Here are some best practices:

•  Know your policy limits: Understand the maximum your insurer will pay per claim and in total.
• Review exclusions: Be aware of what isn’t covered so you can fill in any gaps.
• Evaluate industry-specific risks: Tailor your coverage to your field’s common exposures.
• Conduct annual reviews: Update your coverage as your operations, revenue, or assets grow.
• Speak with your broker: A licensed insurance professional can perform a complete risk assessment and help you adjust your coverage accordingly.

Insurance isn’t one-size-fits-all. Your broker can help you balance cost with protection, so you’re covered where it counts most.

Final Thoughts

Unexpected lawsuits and business disruptions happen, but if you prepare correctly, you can greatly reduce the headaches they cause. This is why general liability and business interruption coverage should be part of every business's risk management plan.

At AssuredPartners, we work with businesses across countless industries to build insurance strategies that protect assets, operations, and long-term goals. Contact your local AssuredPartners representative for more information or to speak with a licensed advisor. Our network of risk control professionals is here to help you safeguard what matters most.