Do I Need General Liability Insurance in California?

As a business owner, you know that sometimes—more than you might like—things can go wrong. A customer slips on a wet floor, a landscaping employee damages a client’s property, a competitor sues you because of something you said in an ad—there are plenty of mishaps that do their best to knock you down. 

That’s why you should consider purchasing general liability coverage to protect your business from lawsuits and more. This type of insurance coverage is one of the most common types of small business insurance. It gives business owners peace of mind while mitigating their risks.

So what is California general liability insurance? What does it cover and why do you need it? Let’s take a closer look.

What Is General Liability Insurance?

General liability insurance, also called commercial general liability (CGL), covers you if you cause bodily injury or property damage to a customer, client or someone else who isn't an employee. (If they are an employee, workers’ compensation insurance covers them). A general liability policy also protects your business against claims of libel or slander.

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You’re already familiar with liability insurance if you have coverage for your personal vehicle or your home. With car insurance, for example, liability insurance would cover you if you cause an accident and you are responsible for damages or injuries to others. 

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It’s the same with homeowners insurance: If someone, say, slips and falls because you didn’t shovel the snow on your front walk, you’d be liable for their injuries and would be reimbursed for those costs by your insurance company up to your policy limits. General liability works the same, but for businesses. Essentially, if you're responsible for a mishap that affects a customer or client, this insurance has you covered.

Does California Require General Liability Insurance?

Unlike some forms of insurance, such as the coverage you have for your personal auto or commercial auto insurance, general liability insurance is not required in California, no matter where you live in the state, from San Francisco to Los Angeles. However, that’s not to say you won’t be required to carry it by other entities. 

If you bid on projects as a subcontractor, you may be required to have this insurance and prove it with a certificate of liability insurance. You may also need to purchase a policy if you rent out a building, office, warehouse or another type of physical space, or have a mortgage.

Who Needs General Liability Coverage?

It’s easy to understand why businesses in high-risk industries need general liability insurance. A construction firm, for example, has many opportunities for injuries and damage to happen over the course of a job.

But what about if you’re in a low-risk industry? Let’s say, for example, that you’re a graphic designer working out of a home office. You have one part-time employee who also works out of the same office. You have no company vehicles and communicate with your clients most frequently via the Internet. Do you need general liability?

You might. If a client were to come to your home for any reason, your personal homeowners policy might not cover you if the client slips and falls on the sidewalk in front of your home. Or let’s say you work on a large advertising project for a client, and the client is caught up in a lawsuit over an accusation of slander in the ads. Strictly speaking, you are not at fault, but you could still be included in the lawsuit and need to hire a lawyer to defend yourself.

If you’re not certain whether you need this kind of insurance, schedule a conversation with your agent or broker and see what they think when they review the potential risks of your business.

What Does General Liability Insurance Cover in California?

General liability insurance has some important coverages for California business owners. As we've noted, it protects your business against claims of injury or damage from third parties, as well as libel and slander claims.

Let’s break it down a little more. Here are some examples of what your general liability will cover in California:

• Cost of injuries: If someone slips and falls in your restaurant because the floor is wet, general liability will cover them for medical expenses related to the fall.
• Loss of income: If the person who falls misses work because of their injury, your policy will pay for their loss of income.
• Lawsuits: If that fall results in a lawsuit against you, your policy will cover legal fees and defense costs.
• Loss of property: If your employee accidentally damages a client’s property (think car, lawn, building, etc.), those property damages will be covered by liability.
• Libel and slander: Your new advertising campaign makes claims against a competitor that aren’t true—your insurance policy will cover legal fees if they sue you for slander.

General liability coverage is fairly comprehensive and is one of the most common types of business insurance. A good policy will cover you at all your business locations if there is more than one and will protect you from liability claims of multiple types.

How Do I Purchase General Liability Coverage in California?

Your regular insurance agent or broker can work with you to develop a policy that is right for your needs. It is one of the more common insurance products sold to business owners, and most insurance companies will be happy to give you a business insurance quote that fits your wallet.

One option that you should consider is bundling your general liability insurance in a business owners policy, also called BOP insurance. BOP coverage pulls together several of the most common types of insurance needed by small business owners, including:

• General liability
• Property insurance, which protects your building and its contents from damage
• Business interruption insurance, which replaces lost revenue if you are forced to close for any reason
• Other optional coverages as needed, such as cyber liability and errors and omissions insurance.

BOP insurance streamlines the process for you since you’ll only need to pay a single premium, and all your business insurance coverages will be held under one blanket policy.

This does not mean that you can’t get stand-alone commercial general liability insurance if you’d prefer to keep your policies separate. You may be able to save money, however, by bundling your business liability insurance with other policies from a single insurance carrier. Talk to your broker or insurance agency to answer any questions.

What Other Types of Insurance Do I Need in California?

While some insurance experts might say that liability insurance coverage is the most important type of policy to have, your business will likely need several types of insurance. 

In their guide on California business insurance, the California Department of Insurance lists eight types of policies that business owners should consider. Not all businesses will need all eight, but it’s a good idea to know what’s available so that you and your insurance services provider can bundle your coverage options appropriately. Here are the types of insurance they suggest you consider in addition to general liability:

• Commercial property insurance: Protects you if your business’s property is stolen, damaged, or destroyed. 
• Inland marine: Covers your business property when it is in transit (like equipment on a truck). Ironically, it does not include damage from a boating accident or peril.
• Boiler and machinery: Protects you from any system breakdowns that impact business operations.
• Crime: Covers you from robbery, larceny, forgery, and embezzlement.
• Commercial auto: Covers any vehicles owned by your company and may cover personal vehicles when they are used for work.
• Commercial umbrella: Covers you when costs are more than your policy’s limits. For example, if your business insurance policy covers you for up to $1 million, but an accident causes $1.5 million in damages, your umbrella coverage will kick in.
• Workers’ compensation: The only one of the coverage options mandated by state law, workers’ comp covers your employees if they are injured on the job. Workers’ comp can be complex, and many California small business owners use Hourly’s platform to make it easy and convenient to pay for this coverage.

Your agent may recommend other types of coverage depending on the type of business you own. One type of coverage that’s increasingly popular is cyber liability insurance, which can protect you from data breaches and other cyber risks. Another common type of insurance is professional liability insurance, which protects professionals in fields like law, medicine, and finance from risks associated with negligence or malpractice.

How Much Does General Liability Insurance Cost in California?

Insurance costs vary greatly depending on several factors. One insurer estimates that a typical small business in California can expect to pay anywhere between $300 and $5,000 annually for their liability coverage, although most businesses may find their costs to be at the lower end of that range. Factors that play a role in determining your premium costs include:

• Your deductibles: A higher deductible generally results in a lower premium cost.
• The size of your company and the number of employees you have.
• The size and physical condition of any buildings you own.
• The upper limits of your policy—i.e., the maximum an insurer will pay out on a claim.
• The kinds of optional coverages you have and any exclusions included in the policy.
• The level of risk that is inherent in your industry.
• The location of your business: If you’re in an urban high-crime area, for example, you may pay more.
• Any previous claims you’ve made on policies in the past.

Since every company does underwriting a little differently, there may be other factors that play into your premium, so make sure to work closely with an agent or broker to figure out exactly how much you’ll owe.

Make a General Liability Policy the Centerpiece of Your Insurance Portfolio

It’s almost impossible to imagine a business, small or large, that doesn’t deal with risk in some way. That risk is why you have insurance. It protects you if something goes wrong and you are held responsible for it. 

As we saw above, there are several types of policies that business owners can buy to protect themselves from different types of risk. But few are as basic, or as necessary, as general liability coverage. 

When you start up a business, it should be the first type of insurance that you consider for your new enterprise. If you haven’t done so already, give your agent or broker a call and ask them if you need this inexpensive, but necessary, coverage for your business.