Liability Insurance and Claims Handling Standards

General Liability insurance, included in business insurance policies, protects the insured (e.g., a dry cleaning business) against legal liability and property damage caused to others due to operational errors, or negligence in providing products and services. Standard coverage limits are typically $1 million per occurrence and $2 million in annual aggregate.

Landlords often require that they be listed as an Additional Insured on the tenant’s business insurance policy as part of the lease agreement. This is intended to protect the landlord from legal claims arising from damages caused by the tenant.

Coverage under General Liability insurance includes:

• Bodily injury (e.g., injuries to customers inside the premises or pedestrians outside)
• Medical expenses
• Personal and advertising injury (such as defamation or slander)
• Legal defense costs related to liability claims against the business
• Property damage to others caused by the business’s negligence

Under “Special Form” policies, coverage may also extend to damages except for those explicitly excluded, including certain natural disasters.

Umbrella Insurance (also known as Excess Liability Insurance) provides additional liability protection beyond the limits of existing policies. If a claim exceeds the limits of the primary liability insurance, Umbrella coverage steps in to cover the excess amount.

As the term “umbrella” suggests, this policy offers an extra layer of protection over existing liability coverage, including General Liability, Workers’ Compensation, Auto, and even Homeowners insurance. Landlords may require higher coverage limits—sometimes ranging from $1 million up to $5 million per occurrence.

While Umbrella insurance involves additional premium costs, it is highly valuable in protecting against unexpected, large-scale claims.

Example:

If a claim results in $3 million in damages and the General Liability policy covers $1 million, the remaining $2 million would typically be covered by the Umbrella policy. This effectively provides a dual layer of protection.

Occurrence vs. Claims-Made Policies

There are two primary bases for insurance coverage: Occurrence and Claims-Made. Understanding the difference is critical when selecting coverage and determining how claims will be handled.

Occurrence Basis

Occurrence-based policies provide coverage for incidents that occur during the policy period, regardless of when the claim is filed.

For example, if a business operated from 2012 to 2025 with active insurance coverage during that time, and a lawsuit is filed today for an incident that occurred in 2015, the policy in force in 2015 would still respond—even if the business has since been sold and the policy is no longer active.

In short, Occurrence policies protect against claims arising from incidents that happened during the coverage period, even if the claim is filed later. However, policyholders should always review any exclusions or exceptions in the policy.

Claims-Made Basis

Claims-Made policies provide coverage only if:

• The policy is active when the incident occurs, and
• The claim is filed during the policy period

Environmental insurance is typically written on a Claims-Made basis.

To illustrate, consider health insurance: if you receive treatment while insured, the costs are covered. But if you cancel your insurance and later discover a condition requiring surgery, you must bear the full cost yourself.

The same logic applies to environmental insurance. If the policy has expired, any claims filed afterward—even for contamination that occurred during the coverage period—will not be covered. In some cases, a limited extension (Tail Coverage) may be available.

For instance, if a business carried environmental insurance from 2012 to 2025 and then sold the business, a later environmental inspection (due to financing, sale, etc.) may reveal contamination that occurred during that period. However, if the policy has been terminated, the insurer will generally deny the claim unless Tail Coverage was in place.

In some cases, businesses anticipating a sale may proactively conduct environmental testing and file claims before terminating their policy.