By Dan Bukaty

With a quick review of your business insurance policies you should come upon a coverage item referred to as "general liability." This coverage is a standard component of even the most basic insurance programs. Because general liability is so commonplace, policyholders may fail to appreciate or understand the coverages it affords.

General liability insurance protects the policyholder from a variety of unintended bodily injury and property damage related claims-provided the policyholder is legally liable for those damages.

Policyholders should never assume that general liability insurance protects them from all liability claims, because that is not the case. General liability policies always contain exclusions that shape and define the coverages being provided.

The basic general liability policy anticipates several common claims exposures.

• Ownership, maintenance or use of the insured premises - Sometimes referred to as "slip, trip and fall insurance," it provides coverage for bodily injury and property damage to persons other than employees and the insured for incidents that occur on the insured's premises.
• Operations conducted or performed by the insured on or off the premises - The opportunity for unintended bodily injury or property damage to others that exists in the course of the insured's daily operations. Coverage applies provided the insured is legally liable and is subject to any policy exclusions.
• Products manufactured, sold or distributed and completed operations - Covers bodily injury and property damage that occurs away from the insured's premises that results from the failure of the insured's product or completed work. It does not provide coverage to repair or replace the work, or otherwise compensate the insured for the lost value of the actual product or completed work.
• Personal and advertising injury - These are claims resulting from the following circumstances: false arrest or detention, malicious prosecution, wrongful entry, eviction or invasion of privacy, slander or libel, copyright infringement and unauthorized use of advertising materials, including photos, slogans and ideas.
• Medical payments - Regardless of fault, payment for reasonable medical expenses due to an accident occurring on the premises or at an insured's job sites. Coverage does not apply to employees and the insured. Payment is subject to the coverage limit outlined within the policy. A typical limit may be $5,000 or $10,000. Once the coverage limit is exhausted, the injured person must prove that the insured is legally liable before bodily injury or property damage liability coverage limits would apply. The intent of this coverage provision is to provide a quick remedy for the injured party, thereby avoiding costly litigation and loss of goodwill.

Review Exclusions
To truly understand the full scope of one's general liability policy, it's important to critically review the exclusions within the policy language.

General liability policy exclusions can be numerous and diverse. A primary purpose of exclusions is to eliminate coverage for intended or expected consequences, such as those that arise from deliberate acts.

Exclusions also help control the cost of insurance premiums by eliminating coverages that may need to be rated and charged for separately, depending upon the insured's business operations. For example, the presence of risk resulting from the consumption of alcohol is vastly different between an office supply store and a nightclub.

Premium Determination
When determining the premium for a general liability policy, insurance companies typically charge based on a measurable component of the insured's business. Common measurable components include gross sales, payroll or square footage, but there are others as well.

The rationale is simple: claims exposure increases in proportion to the measured component. Therefore a policyholder with twice the gross sales of competitors likely has twice the claims exposure and should pay twice the premium. However, there are general liability insurance policies with a set premium charge for all policyholders within a homogenous group. In these instances, the insurance company has determined that the potential claims exposures of the group are reasonably equal among its individual members. Equal exposure allows for a common set premium.

Other Forms of Liability
Business owners face other forms of liability exposure besides bodily injury and property damage. These include employee benefits liability, employment practices liability, fiduciary liability and professional liability. Liability of this nature represents serious financial risk to a business owner, but a resulting loss is not in the form of bodily injury or property damage. Consequently, insurance coverage for these exposures can either be secured through a stand-alone policy or by specific endorsement to the general liability policy.

A good rule of thumb for general liability insurance is to understand the policy exclusions. Then if a claim is filed, the policyholder will not be caught off guard.

Dan Bukaty, CIC, is vice president of Bukaty Property & Casualty Services, LLC. You can reach him at (913) 345-0440 or .