General Liability is the cornerstone liability insurance coverage.  Everything else is built on top of it. Understanding the basic tenets of General Liability insurance makes it easier to understand how all the other pieces of the program fit together.

This article is written to clarify 7 key issues that you should understand.

Issue 1: Coverage basics

Liability Insurance is designed to protect your organization if you are sued for damages by another person or organization.  It pays for a lawyer and a settlement. 

A liability policy is then written to specifically define the types of lawsuits that will be covered, who will be covered under the policy, and how much can be paid out.

Let me reiterate an idea because it’s an underlying thought in some of the most common questions I hear.  Liability policies are written first and foremost around a specific type of damage or lawsuit.  The people protected under the policy come second.

General Liability is usually the first line of coverage that an organization will buy in its life cycle.

Issue 2: Who is protected?

Every liability policy you buy will define who is an “Insured”.  Most commonly, a policy will include Employees, Directors, and Officers as insureds under the policy.

It’s worth double-checking whether volunteers are covered under your policy if that’s important to your organization.  It’s common for them to be included, but not automatic.

Independent contractors are a broader topic than can be covered in this article.  Every contractor relationship is different.  Sometimes the organization doesn’t want to be responsible for the person, but one way or the other will still be on the hook for the work that person does.  Sometimes they do want to protect the individual.  It all depends.

Let me pause and answer one of the most common questions I hear from a Nonprofit. 

“The Board wants to know if they’re covered.”

The Board is typically listed as an insured on your liability insurance polices.  The real question is whether it’s a covered lawsuit.

Issue 3: Key coverages

General Liability insurance has 4 key parts.  Stories are easier to understand than further explanation, so I will use examples to illustrate different claims.

1.       Bodily Injury – Somebody gets hurt in your programming.

Here are some examples:

A volunteer steps in a pothole while playing flag football during youth programming.  He twists his ankle.

A volunteer tears their ACL playing volleyball while taking a student on a college tour. 

An individual shopping for food at a food bank slips on a puddle on the floor.

2.        Property Damage  -- Something gets broken.

A program rents apartments for their clients at various apartment complexes.  A client starts a fire while cooking in the kitchen of one of the apartments.

A church is renting a facility.  One of the youths in the church pulls a water fountain out of the wall.

3.       Personal Injury  -- You say something that is offensive.

An organization takes out an advertisement that slanders local competition.

4.        Product & Completed Operations Liability – A product you make or a service you provide causes damage.

An individual gets sick eating a can of soup they procured from a food bank and sues the medical bill related to the sickness.

An organization creates hand sanitizer as a marketing campaign.  The hand sanitizer causes skin rashes on several people.

An organization that provides home repairs to members of a community builds a wheelchair ramp.  The wheelchair ramp is built improperly and collapses while the individual is entering their home.  They sue for the injuries related to the construction project.

Issue 4: What does it pay for?

Liability insurance pays for lawyers, court costs, settlements, and judgments.  Insurance companies tend to pay more for lawyers than they pay for settlements.  Justice is expensive in America.

Issue 5: How much will it pay?

The policy will limit the amount it will pay out in three different ways:

1.       The amount of money it will pay for settlements.  This is the limit stated in the policy.

2.       Defense Costs – the amount it will pay for lawyers and court costs.  Many policies pay for attorneys “outside the limit”.  This means that lawyer costs are uncapped by the policy and do not reduce the amount of money available for a settlement.

3.       Deductibles – This will dictate whether your organization is responsible for paying out anything before the insurance company.

Every policy is different.  The marketplace is different for each type of operation.  Sometimes the Defense Costs are limited and separate from the amount of money available for a settlement.  In other situations, attorney fees will reduce the amount of money available for a settlement.

Issue 6: What are Common Exclusions?

The policy will attempt to exclude everything that is not one of the 4 key coverages I mentioned above.  There is no way for me to list out every possible exclusion.  Instead, I’ll try to provide 3 different categories of exclusions:

1.       It’s a damage the company wants you to insure under a different policy.  Examples include

a.       Auto Insurance

b.       Hiring and firing decisions

c.       Management decisions about how you run the company

d.       Cyber Liability

2.       Risks the company wants the chance to separately measure and underwrite.  Examples include

a.       Sexual Abuse

b.       Professional Liability

c.       Property in your care, custody or control.  Like Clients’ money, or property

3.       Risks they don’t want to insure at all

Categories one and two can be dealt with under separate policies.  Category three is a different challenge.  Sometimes the company has identified something in your operation they don’t want to insure.  This can be a service you a provide.  Perhaps it’s a riskier operation, like an amusement park ride.  In this situation, you can either accept the current insurance company’s opinion, or you can get another opinion.  Sometimes the marketplace will have no appetite at all.

Issue 7: Contracts can change your liability program

Every contract you sign can have an impact on your General Liability insurance program, and almost every organization you work with will have a contract they want you to sign.  Contracts can change how much insurance you are required to carry.  They can also change which organization is responsible for paying the attorney and settlement.  I am not a contract lawyer so make sure to have your contracts reviewed by an attorney.

That said, here are some common clauses that will impact your liability insurance program:

1.       A contract requires higher insurance limits

2.       A contract changes who will be defended by your policy.  Usually, this is done with an Additional Insured clause.

3.       A contract can change if your are allowed to sue an organization or recover damages.  Hold Harmless and Waivers of Subrogation are examples of this kind of language.

4.       A contract can indicate which policy will pay first.  Primary and Noncontributory language is a good example.

Every contract can impact the insurance you need to purchase.  Make sure to review the insurance clause of your contract before signing.

 Conclusion

General liability is insurance designed to protect you in the event you hurt somebody outside your organization or break some property that isn’t yours.  It is the baseline insurance cove