Guide to General Liability Insurance for Small Business Owners

When Henry Walker went to get a watermelon at Walmart, he didn’t expect to end up disabled. But that’s exactly what happened: his foot got stuck in a pallet as he reached for the watermelon, and he fell so hard that he fractured his hip. When the case was brought to court, they found video evidence that Walker wasn’t the first person to get tangled up in the pallet, and the court awarded him $7.5 million in damages.

But Walmart didn’t have to pay that settlement out of pocket. Instead, it’s extremely likely that its general liability insurance covered the costs. And while it’s unlikely that your business would be hit with a settlement that big, even a moderately sized lawsuit can be devastating for small business owners.

What is general liability insurance?

General liability insurance is a type of business insurance that covers you in the case of general third-party claims against your business, including bodily injury and property damage. It’s also sometimes called business liability insurance or commercial general liability insurance.

What does general liability insurance cover?

Despite the fact that it has “general” in the name, general liability insurance provides liability coverage for claims related to a few specific things: a customer getting injured at your place of business, you or an employee damaging customer property, reputational damage you cause to someone else, and advertising injuries like copyright infringement.

How does general liability insurance work?

General liability insurance provides third-party coverage, which means the payments go to the third party involved in the claim, not to you directly. You’re considered the “first party,” and the “third party” is a person who has been injured—either physically, financially, or reputationally.

Some examples of claims that general liability insurance would cover include:

Third-party bodily injury. A customer slips and falls in your store. Their injury forces them to go to the hospital and they sue your business for coverage of medical costs. Your insurance will cover legal fees and medical expenses related to the incident.
Third-party property damage. Your employee misjudges the length of a ladder and punches a hole in a customer’s wall. The entire piece of sheetrock needs to be replaced. Your general liability insurance can help cover the cost of the repair.
Reputational damage. A competitor lies about you in order to gain a potential customer. Everything they say is completely fabricated, but word spreads. You find out and your insurance will help you recoup damages.
Advertising injury. You create a billboard and use another company’s logo without permission. That’s a copyright infringement, so they sue you. Your insurance would help cover legal defense costs as well as the settlement itself.

General liability insurance coverage does not cover:

Worker injuries. Workers’ compensation insurance is required for any worker injuries and lost wages.
Damage caused by your negligence. While an electric fire in your restaurant would be covered, one caused by leaving a burner on next to a pot of oil would not. Any damage your insurance company can prove was caused by your or your workers’ negligence is not covered by general liability insurance.
Damage to your business property. If someone throws a rock through your shop’s front window, you’ll need commercial property insurance for this type of coverage.
Damage to your personal property. No business insurance provides coverage for damage to your personal property.
Illegal acts. If you or one of your employees does something illegal that leads to a lawsuit or damages, your insurance isn’t going to cover it.
Business-related auto accidents. If your delivery van, food truck, or other specialty vehicle gets into an accident, you’ll need commercial auto insurance for coverage.

General liability insurance FAQ

What does general liability insurance typically cover?

General liability insurance typically covers claims related to a customer getting injured at your place of business, an employee damaging customer property, reputational damage, and advertising injuries like copyright infringement.

What is the difference between professional liability and general liability insurance?

General liability insurance covers claims related to physical risks like bodily injury and third-party property damage. Professional liability insurance covers intangible risks like damages due to errors and omissions, which is when your client suffers from a financial loss because of bad advice or another mistake you make.

Is general liability based on revenue?

No, general liability is not based on revenue. Instead, it’s based primarily on how risky your business is. Other factors that might affect the cost of general liability include how many employees you have, where you’re located, how old your company is, and previous insurance claims.