General Liability Exposures Your Organization Should Know

Did you know that almost every organization, from churches to contractors to nonprofits, faces the constant threat of commercial liability exposures?

A commercial liability loss exposure is simply a condition or situation that creates the possibility of your business becoming legally and financially responsible for injury, harm, or damage to another party. They also encompass other aspects of business-related circumstances, activities, or events that could result in harm to a third party.  These risks are inherent to the kind of work you perform, where you operate, and even the contracts you sign. How can you better understand these critical exposures and help prevent them?

5 Critical Commercial Liability Exposures Your Business Must Address

Risk management starts with identification. Here are the five most common types of commercial liability exposure that could threaten your organization:

1. Premises Liability: The On-Site Injury Risk

What happens if someone trips over the church garden hose and breaks their wrist? Premises Liability describes the risk your organization faces when a customer, client, or visitor is injured while on your physical business property.

• The Exposure: A client trips over loose carpeting in your office lobby. A customer slips on a wet floor in your retail store.
• Who is at Risk? Businesses that regularly require the physical presence of customers or clients, such as retail stores, restaurants, property owners, and landlords.
• The Focus: Being held liable for bodily injury or property damage that occurs on your premises.

2. Operational Liability: Risk from Ongoing Work

What happens if a tutor, camp, or VBS leader picks up a child and hurts their back? Operational Liability refers to the possibility of your business being held liable for bodily injury or property damage that occurs during the course of your active, ongoing work or operations.

• The Exposure: An HVAC technician working on a roof accidentally drops a tool, striking a passerby or damaging a section of the client’s landscaping.
• Who is at Risk? Contractors, service providers, repair companies, and any business whose operations extend beyond their own physical location.
• The Focus: Damages arising from the work being actively performed before it is completed and turned over.

3. Products Liability: The Defective Good Threat

What happens if you sell something defective- and potentially dangerous? If your business manufactures, distributes, or sells a product, you face the exposure of being held responsible if that product is deemed unsafe or defective and causes harm.

• The Exposure: A component in a piece of machinery you manufactured fails, causing an injury to the end-user. A food product you distribute causes illness.
• Who is at Risk? Manufacturers, wholesalers, distributors, and even retailers.
• The Focus: Associated injuries or damages that can occur virtually anywhere in the world once your product has left your hands.

4. Completed Operations Liability: After the Job is Done

After the job is finished, however, there can still be liability risks. This falls under Completed Operations Liability. This critical exposure involves injuries or damages incurred by a third party due to work (including construction or installation) that has been finished, turned over to the client, and/or put to its intended use.

• The Exposure: An electrical fire is caused months later by faulty wiring installed by your team at a completed construction project.
• Who is at Risk? Contractors, builders, installers, and any service business that performs long-term work.
• The Focus: The potential for a claim to arise long after your direct relationship with the injured party has ended.

5. Contractual Liability: Agreements and Assumed Risk

Organizations assume this loss exposure when they enter into contracts that contain indemnification or “hold harmless” clauses. By agreeing to these terms, you essentially take on the liability of another party.

• The Exposure: Your company signs a lease agreeing to indemnify the landlord against certain claims, effectively assuming their liability risk in specific circumstances.
• Who is at Risk? Virtually every business that enters into vendor agreements, leases, or specialized service contracts.
• The Focus: Liability resulting from the terms and obligations you willingly assumed within the agreement.

Potential Liability Consequences

The consequences of a commercial liability loss can be severe, threatening the hard-earned equity and stability of your organization:

• Financial Damages: If a court rules against your organization, you may be held financially accountable for paying compensatory damages (medical bills, lost wages, pain and suffering) to the injured party. This can total millions, especially in work with vulnerable populations, which churches and nonprofits often serve.
• Defense Costs: Even if you are ultimately found not liable, the costs associated with mounting a legal defense can be substantial and crippling.
• Reputational Harm: General liability losses often lead to negative publicity, which can result in a loss of business, decreased employee retention, fewer volunteers or churchgoers, and a significant erosion of consumer loyalty and investor trust. The long-term cost of a damaged reputation can outweigh the immediate financial payout.

Commercial General Liability (CGL) Insurance

No matter how meticulous your safety protocols, risk is a constant of doing business. While trying to minimize risk is important, it’s also smart to prepare for the worst. The most reliable and comprehensive way to protect your organization’s future may be by purchasing a Commercial General Liability (CGL) policy.

A CGL policy is your primary defense, designed to cover your business from liability claims for bodily injury and property damage to third parties.

Standard CGL Coverage Components:

1. Bodily Injury & Property Damage: This is the core protection, covering legal liability arising from bodily injury and property damage on your premises (Premises Liability) or your operations (Operational Liability, Products Liability, and Completed Operations Liability).
2. Personal and Advertising Injury: This lesser-known but vital coverage protects your business from liability accusations like libel, slander, false arrest, copyright infringement, theft of advertising ideas, and invasion of privacy.
3. Medical Payments: This coverage is designed to settle smaller, less serious medical claims without the need for litigation. It covers medical expenses for injuries sustained by third parties due to an accident at your premises or operations, and it can be triggered without legal action.

Commercial liability loss exposures are a reality for every organization. While the risk is unavoidable, the severity of the consequences can be proactively managed and mitigated with the correct insurance policies.

Interested in commercial liability? Learn more.

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