What does General Liability cover and what is excluded?

[BreAnn Stephenson]

Disclosure: I represent Affinity Loss Prevention Services, the chosen loss prevention partner of NREIG/AGM

This question and a few items came up in another thread and warranted further discussion.

@Gautam Venkatesan @Darish D. @Sara Nobles @Juliana Shipp

The questions were:

1. What does General Liability cover and what is excluded?

2. How is Lloyd's of London rated?

#1 About General Liability coverage: When we speak of liability coverage on an investment property the concerning exposure is premises liability. Think slips-and-falls for example. As there are other types of commercial liability coverage (workman's comp is an example you may recognize the name of), let's just be clear on which type of liability we are addressing below... 

General Liability coverage is pretty simple and usually has the following categories:

a. Per Occurrence Limit - The maximum payout for any one occurrence (usually $1,000,000). Bear in mind, legal expenses that are incurred due to such a claim do not diminish this limit.

b. General Aggregate - The total limit for the policy period. Typically twice the occurrence limit.

c. Products/Completed Operations - For completed work on the property - usually a contractors liability policy will have this coverage. Accordingly, it is excluded in many policies out there for an investor.

d. Personal/Advertising Injury (For acts of false advertising/slander. That would be if you were harming someone else through your business methods. This may be excluded for premises liability as it could be picked up on a Commercial General Liability policy that a landlord/PM might obtain to protect themselves in business activities...to protect from wrongful evictions, etc.)

e. Damage to Premises Rented to You - Doesn't usually apply for investors as this has to do with space rented to you...such as any fire damage you cause to an offsite office you rent.

f. Medical Payments - Coverage for medical bills as a result of an injury occurring on the insured premises, without consideration for negligence. Many times an insurer will use this coverage as a "good faith" payment to help avoid litigation. This is exclusive of the per occurrence limit above, so don't fret if you do not have this limit in your coverage, or have a minimal amount such as $5,000 or $10,000.

g. Deductible - Your out-of-pocket cost if you are liable for damages to another party's property or for bodily injury.

Sample limits for many policies that cover residential real estate are:

a. $1 Million

b. $2 Million

c. Excluded - See explanation above. For real estate, there is no "product", and the "completed operations" of a third-party such as a contractor typically fall under their coverage. Accordingly, you should always secure valid evidence of insurance from all contractors that work on the premises.

d. Excluded - Typically not an exposure for an investment location

e. $50,000 (or Excluded)

f. $5,000

g. $1,000 (or could be $2500 maybe)

A couple of other important notes...

Liability typically will not cover:

1. Any contractors working on a property (they should have their own coverage for their workmanship and/or workman's comp)

2. Anyone else hired by you to do work on the property (i.e. don't hire your friend's kid to do work on the property as you are opening yourself up to risk)

3. Injuries from animals (i.e. certain dog breeds, amphibians, & insects to name a few). It is best to take a look at policy specifics as this exclusion can vary quite a bit. Carefully consider if you will allow tenants to have pets and what kinds, if any.

4. Trampolines or other play equipment that could be seen as an "attractive nuisance".

5. If you have a pool at your property there may be strict guidelines that must be followed. Many policies require that you adhere to municipal guidelines and may have specific instructions for signage, maintaining safety equipment on the premises (life preservers, flotation ropes, etc.), and could even require the pool be fenced or a certified lifeguard be present when the pool is open. 

6. Total pollution exclusion - many policies have this exclusion and it can become an issue if there are injures due to Carbon Monoxide.

Premises liability coverage is important even though liability claims are more rare than property damage. They often are more costly and could take you out of business if someone is hurt as a result of your negligence. The cost of this coverage is pretty low, as you can usually get $1 Million per Occurrence/$2 Million Aggregate for $100/year/unit if you have a company that is also providing the property coverage...

#2 Lloyd's of London's Rating

(I know that you can all Google search quite effectively, but thought that bringing this info. to one centralized location might help...)

Lloyd's of London has a long-standing history as a pioneer of the insurance industry. There are different syndicates, or groups, within Lloyd's, but as they are all backed by Lloyd's Central Fund, they all have the same unified ratings.

a. History: If you would like to know more, I would suggest looking at their site:

https://www.lloyds.com/lloyds/about-us/history which can give insight into their 325-year-old history... 1688... Lloyd's has been around longer than the U.S. has been a republic.

b. Stability: There are a few recognizable rating agencies and Lloyd's displays their ratings here:

https://www.lloyds.com/lloyds/about-us/what-we-do/...

Standard and Poor's: A+ (Strong) - www.standardandpoors.com

Fitch Ratings: AA- (Very Strong) - www.fitchratings.com

A.M. Best: A (Excellent) - www.ambest.com

Cheers, BreAnn