If you've ever experienced a loss on your general liability policy, you know it can be both costly and challenging. The average property loss can exceed $350,000, and multi-million dollar claims are not uncommon. In my experience, water damage often compounds costs. Whenever water damage is involved, expect significantly higher expenses. Whether it’s property damage or an incident with equipment like a forklift, your business is exposed to a variety of risks.

Understanding the Financial Impact

General liability premiums are based on gross sales and your claims history over the past five years. Unlike workers' compensation claims, general liability losses can be far more costly because they often involve damage to third-party property. While general liability insurance is there to protect you from these losses, poorly managed claims can seriously impact your premiums.

Consider this recent example: One of my clients received a claim demanding $580,000. Initially, the insurance adjuster had an estimated $80,000 in damages after an on-site inspection. However, after litigation, the attorney representing the claimant increased the demand, including additional costs for appliances and other parts of the property. The complexity increased when prior work by another contractor and recent rain damage contributed to the additional costs. We’re now working with the insurance carrier to dispute the claim with the facts, arrange a third inspection, and mitigate the overall expense.

This example highlights how general liability claims can quickly escalate if not carefully managed. Allowing an inflated claim to remain open at a high reserve can lead to significantly higher premiums. Just like in workers' compensation, you need to monitor your claim reserves closely to avoid unnecessary premium hikes. If you’re unsure how to manage these claims, it’s essential to work closely with your insurance agent.

Don’t Let Inflated Claims Drive Up Your Costs

Managing claims proactively is essential to maintain reasonable premiums. Here are three tips to help control your general losses:

Take Immediate Action on Claims

Respond promptly to incidents, gather evidence, and report them to your insurer right away. Documenting details, including photos, witness statements, and incident reports, can prevent minor issues from escalating into larger claims.

Regularly Inspect and Maintain Worksites

Perform frequent inspections to identify and resolve hazards before they lead to accidents. This includes securing equipment, maintaining signage, and ensuring that walkways and work areas are clear. Maintaining a safe environment reduces your exposure to bodily injury and property damage claims.

Implement Strong Contractual Protections

Use well-drafted contracts with clear terms and liability waivers. Ensure that all subcontractors have their own insurance and add “hold harmless” clauses to protect your business. Contracts can help reduce liability and shield you from claims resulting from third-party work.

Implement Safety and Training Programs

A proactive approach to safety and compliance helps prevent incidents from happening in the first place. Train your team on risk reduction and enforce safety protocols to reduce the likelihood of accidents and injuries.

Effective claims management is key to keeping your general liability costs under control. By acting quickly, communicating clearly, and proactively managing reserves, you can protect your business from inflated premiums and ensure the best possible outcome for every claim.