Volare Risk Management

A tenant's customer trips on an uneven parking lot surface, suffering a fractured wrist. The medical bills total $18,000, but the lawsuit seeks $250,000 for pain and suffering, lost wages, and future medical expenses. Your defense costs another $75,000. This scenario—unfortunately common in commercial real estate—is precisely what general liability insurance is designed to address.

Yet many property owners struggle to understand what their GL policy actually covers, how much coverage they need, and what factors determine their premium rates. A portfolio owner managing $30 million in assets might carry only $1 million in coverage because "that's what the previous owner had," unaware that a single catastrophic claim could expose them to significant out-of-pocket losses.

General liability insurance represents the foundation of your risk management program. Understanding its scope, limitations, and proper structuring is essential for protecting your real estate investments.

What General Liability Insurance Covers

General liability (GL) insurance, sometimes called commercial general liability (CGL), provides broad protection against third-party claims alleging bodily injury, property damage, or personal injury caused by your business operations or premises.

Bodily Injury and Property Damage Liability

This core coverage responds when someone is injured or their property is damaged due to your negligence or the condition of your property. Common scenarios include:

Slip, trip, and fall claims: A visitor slips on a wet lobby floor, trips over uneven carpeting, or falls on icy stairs. These claims account for a significant portion of GL losses in real estate, with settlements ranging from $20,000 to over $500,000 depending on injury severity.

Falling objects: A facade element detaches and strikes a pedestrian, or items fall from upper floors causing injury or damage to vehicles below.

Parking lot and sidewalk accidents: Potholes, cracked pavement, inadequate lighting, or snow and ice accumulation lead to vehicle damage or pedestrian injuries.

Maintenance activity injuries: A window washer's equipment damages a tenant's expensive computer equipment, or painting activities result in tenant property damage.

Building system failures: A fire sprinkler malfunction floods a tenant's space, damaging inventory and equipment. While your property policy might cover building damage, the tenant's lost business property often becomes a GL claim.

A Chicago retail property owner faced exactly this scenario when aging sprinkler pipes burst on a weekend, flooding four tenant spaces. While the building repairs were covered under property insurance, the damaged tenant inventory, electronics, and furniture generated GL claims totaling $180,000 across the four tenants. The GL policy covered the damages and $45,000 in legal defense costs.

Personal and Advertising Injury Liability

This coverage—often misunderstood—protects against non-physical injury claims including:

Wrongful eviction: A tenant claims you improperly evicted them or unlawfully removed their possessions. Even if the eviction was legally justified, defense costs can be substantial.

Discrimination allegations: While employment practices liability requires separate coverage, discrimination claims related to tenant selection or lease terms may fall under GL coverage.

Libel and slander: A property manager makes allegedly defamatory statements about a tenant or former employee.

Invasion of privacy: Unauthorized entry into a tenant's space or improper disclosure of tenant information.

False advertising: Misleading statements in marketing materials about property features or amenities.

A property management firm learned the value of this coverage when a former tenant sued for wrongful eviction and defamation, claiming the manager made false statements to other tenants about why they were evicted. The claim sought $500,000 in damages. The GL policy provided defense counsel and ultimately settled for $125,000—fully covered under the personal injury portion of the policy.

Medical Payments Coverage

GL policies typically include $5,000-$10,000 in medical payments coverage per person, payable regardless of fault. This "goodwill" coverage allows immediate payment of minor medical expenses without admission of liability.

A visitor to an office building twisted their ankle on the front steps. The property owner immediately offered to cover the $3,500 emergency room visit under the medical payments coverage. The injured party accepted, signed a release, and no lawsuit materialized. The modest medical payments coverage prevented a potentially costly claim.

Tenant's Legal Liability

When tenants make alterations or improvements to leased space, their work might damage the building structure. Tenant's legal liability coverage pays for this damage under your GL policy.

Consider an office tenant installing a server room who accidentally damaged the building's electrical system, requiring $35,000 in repairs. While the tenant was legally liable, they lacked adequate insurance. The building owner's GL policy covered the damage under tenant's legal liability provisions, though the insurer subsequently pursued subrogation against the tenant.

What General Liability Insurance Doesn't Cover

Understanding exclusions is equally important:

Professional services: Advice, consulting, or management services require professional liability (E&O) coverage. If you provide property management services for others, GL won't cover allegations of professional negligence.

Employment-related claims: Wrongful termination, discrimination, and harassment by employees need employment practices liability insurance (EPLI).

Auto liability: Vehicles require separate commercial auto liability coverage.

Property you own: Damage to your own property is covered under property insurance, not GL.

Intentional acts: Coverage excludes intentionally caused injuries or damage.

Pollution: Standard GL policies exclude pollution claims. Properties with environmental exposure need specific pollution liability coverage.

Cyber incidents: Data breaches and cyber attacks require cyber liability insurance.

Contractual liability beyond standard lease provisions: Unusual indemnification obligations may exceed GL coverage scope.

How General Liability Premiums Are Calculated

Understanding rating factors helps you anticipate costs and identify potential savings:

Property Type and Occupancy

Underwriters assign classification codes based on building use, with premiums varying dramatically:

Office buildings: Base rates typically range from $400-$800 per million of coverage for low-rise suburban offices
Retail properties: Higher foot traffic increases exposure, with rates 40-70% higher than comparable office buildings
Industrial properties: Rates vary based on tenant operations, from light assembly to heavy manufacturing
Multifamily residential: Moderate rates but increasing due to higher claim frequency
Mixed-use properties: Rated based on the dominant use or broken into separate classifications

A 50,000 square foot building occupied entirely by professional offices might pay $1,200 annually for $1 million in GL coverage, while the same building converted to retail use could pay $2,000-$2,500 for identical coverage.

Square Footage and Revenue

Premiums scale with exposure metrics:

Square footage: Larger buildings generate higher premiums due to increased exposure
Gross receipts or rental income: Many policies use income as a rating factor, particularly for retail and hospitality properties
Number of units: Multifamily properties often rate per unit

Location Factors

Geography significantly impacts pricing:

Litigation environment: Properties in jurisdictions with plaintiff-friendly courts and higher jury awards face premium increases of 20-40% compared to more balanced legal environments. Florida, Louisiana, and California generally command higher rates than Midwestern states.

Urban vs. suburban: Urban locations with higher pedestrian traffic and more frequent claims typically cost 15-30% more than suburban equivalents.

Crime rates: Areas with elevated property crime affect liability exposure and pricing.

Loss History

Your claims history creates the most significant variance in premiums:

Claim frequency: Multiple small claims indicate higher risk. Three slip-and-fall claims in five years, even if each settled for under $25,000, will increase premiums substantially—often 30-50%.

Claim severity: A single large claim also impacts pricing, though insurers recognize that catastrophic events don't always predict future losses.

Claims-free credit: Many insurers offer premium discounts of 5-10% for maintaining three to five years without claims.

A property owner with clean loss history might pay $2,000 for $2 million in GL coverage, while an equivalent property with three claims in five years could pay $3,500-$4,000 for the same coverage.

Risk Management Programs

Documented safety programs can reduce premiums:

Formal inspection programs: Regular property inspections with documentation of hazards and remediation Tenant safety requirements: Lease provisions requiring tenant compliance with safety standards Snow and ice management: Written winter maintenance programs with documentation Security measures: Adequate lighting, security cameras, and security personnel where appropriate Maintenance tracking: Documented preventive maintenance programs for building systems Certificate of insurance tracking: Systems ensuring contractor insurance compliance

Properties demonstrating robust risk management may qualify for premium credits of 10-20%, and more importantly, experience fewer claims.

Determining Appropriate Coverage Limits

Selecting adequate GL limits requires analyzing multiple factors:

Asset Protection

Your coverage should protect your net worth from catastrophic judgments. Consider:

Property values: A portfolio worth $20 million with only $1 million in GL coverage leaves significant exposure. Judgments can attach to property and other assets.

Personal guarantee exposure: If you personally guaranteed loans or leases, your personal assets are at risk from business claims.

Multi-member LLCs and partnerships: While entities provide liability protection, inadequate insurance exposes the entity's assets to seizure.

A reasonable rule of thumb: carry GL limits equal to at least 10-20% of your property portfolio value, with higher percentages for properties with elevated exposure.

Contractual Requirements

Lease obligations: Review your tenant leases. Many require landlords to maintain minimum GL coverage, typically $1-2 million per occurrence.

Lender requirements: Mortgage documents often specify minimum liability coverage, commonly $1-2 million.

Management agreements: If you use third-party property management, their professional liability coverage typically requires you to maintain specified GL limits.

Service contracts: Contractors may require you to maintain specific coverage before commencing work.

Exposure Analysis

Assess your actual risk exposure:

Property characteristics: High-rise buildings, properties with swimming pools, fitness centers, parking structures, or heavy foot traffic warrant higher limits.

Tenant activities: Properties housing restaurants (grease fires, food poisoning exposure), fitness centers (injury risks), or daycare facilities (severe injury potential) need robust coverage.

Public access: Properties with significant public access—retail centers, mixed-use developments, medical offices—face higher frequency exposure.

Common area complexity: Extensive common areas, parking lots, elevators, and shared facilities increase exposure points.

Standard Coverage Levels

Industry standard GL limits follow these patterns:

$1 million per occurrence / $2 million aggregate: Minimum coverage for small, low-risk properties. Adequate for a small office building with stable tenants and minimal public access.

$2 million per occurrence / $4 million aggregate: Appropriate for moderate-sized portfolios or properties with moderate exposure. This represents a reasonable baseline for most commercial properties.

$3-5 million per occurrence / $5-10 million aggregate: Suitable for larger portfolios, higher-risk properties, or owners with significant net worth to protect.

Higher limits: Properties with exceptional exposure (large retail centers, high-rise buildings, properties with unique hazards) may carry $5-10 million in primary GL coverage.

Per Occurrence vs. Aggregate Limits

Understanding both limits is critical:

Per occurrence limit: The maximum the policy pays for any single claim or incident. If your limit is $2 million and a single accident results in $3 million in damages, you're personally responsible for the $1 million excess.

Aggregate limit: The total amount the policy will pay for all claims during the policy year. With a $2 million aggregate, once claims total $2 million, you have no coverage remaining for the policy period.

Many policies structure limits as:

$1 million per occurrence / $2 million aggregate
$2 million per occurrence / $4 million aggregate

Ensure your aggregate limit is sufficient. A property experiencing multiple moderate claims in one year could exhaust the aggregate even if no single claim approaches the per-occurrence limit.

Structuring Your General Liability Coverage

Policy Structure Options

Standalone policy: Some portfolios maintain separate GL policies for each property or entity. This approach provides clear separation but often costs more than consolidated coverage.

Portfolio policy: Covering multiple properties under a single policy typically reduces costs through portfolio credits and simplified administration.

Master/scheduled locations: A master policy covering all locations with a schedule listing each property address and its characteristics.

Deductibles

GL policies typically carry low deductibles ($1,000-$5,000) or none at all. Higher deductibles rarely generate significant premium savings, as the insurer still incurs claims handling costs regardless of the deductible.

Additional Insureds

Regularly review additional insured requirements:

Tenant requirements: Most commercial leases require the landlord to name the tenant as an additional insured. Ensure your policy includes broad-form additional insured endorsements covering all contractual requirements.

Lender requirements: Mortgagees and loss payees require proper endorsements.

Property managers: If you use third-party management, they typically require additional insured status.

General contractors: During renovations, contractors often require additional insured coverage.

Blanket additional insured endorsements automatically extend coverage to entities where required by written contract, avoiding the need to list each party individually.

Claims Management Best Practices

When incidents occur:

Document immediately: Photograph the scene, gather witness statements, and document conditions.

Report promptly: Notify your insurer immediately, even if you believe the claim lacks merit. Late reporting can jeopardize coverage.

Don't admit fault: Provide factual information but avoid admitting liability or making settlement offers without insurer involvement.

Preserve evidence: Maintain the accident scene and any equipment or property involved until the insurer investigates.

Cooperate fully: Respond to insurer requests promptly and provide complete information.

Review regularly: Analyze claim patterns to identify risk management opportunities. Multiple parking lot accidents suggest lighting or surface improvements.

The Bottom Line

General liability insurance serves as your first line of defense against third-party claims that could otherwise devastate your real estate portfolio. While premium costs matter, the difference between adequate and inadequate coverage is typically modest—a few hundred dollars annually—compared to the catastrophic exposure of underinsurance.

Consider a realistic scenario: A $100,000 claim is manageable. A $1.5 million claim with only $1 million in coverage leaves you personally liable for $500,000 plus any defense costs exceeding the policy limit. The additional premium to carry $2 million instead of $1 million might be only $400-$600 annually—a small price for substantial additional protection.

Review your GL coverage annually, ensure limits align with your actual exposure, maintain robust risk management programs, and work with an insurance advisor who understands real estate-specific risks. Your general liability policy isn't just an expense or a lender requirement—it's the foundation of your risk management strategy and protection for everything you've built.