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Coverage Basics

Your Client Just Got Sued: Why a CGL Alone Won't Save You

A $150,000 attorney bill can wipe out a small business. Here's how to check your coverage limits before a claim hits.

By Field Notes Editors August 18, 2026 0 views Calculating...

Imagine you're a small contractor, and a client slips on a wet floor at your job site. They sue for $150,000, which is within your $1,000,000 general liability limit. But then you get the bill for your defense: another $100,000 in attorney fees. That's when you realize your general liability policy covers defense costs in addition to the limit, so you're okay. But what if the claim is for professional negligence—like a design error that caused the client's financial loss? That's not covered by your CGL, and you might be paying out of pocket.

Here's the hard truth: most small businesses don't know the difference between general liability and professional liability until it's too late. Let's walk through a realistic scenario and see how the coverage basics actually play out.

The Scenario: A Typical Small Business Owner

You run a small IT consulting firm. You have a Business Owner's Policy (BOP) that bundles general liability and property insurance. The Hartford says the average annual cost for a BOP is about $1,687, or $141 a month (The Hartford, Business Owner's Policy). You think you're covered. But your client's server crashes due to a software bug you introduced, and they lose $50,000 in revenue. They sue you for negligence.

Your general liability policy won't help—it covers bodily injury and property damage, not financial losses from professional errors (IRMI). You need professional liability, also known as errors and omissions (E&O) insurance. And the worst part? Your BOP didn't include it.

Why General Liability Isn't Enough

General liability, or CGL, is the foundation. It covers third-party bodily injury, property damage, and personal and advertising injury (The Hartford, General Liability). But it doesn't cover professional mistakes. That's a different beast. Professional liability covers financial losses from errors, omissions, or negligence in your services (The Hartford, Professional Liability).

Here's a key difference: defense costs. For general liability, defense costs are typically paid in addition to the policy limit. For professional liability, they're included within the limit (IRMI). That means if you have a $1,000,000 professional liability policy and defense costs eat up $400,000, you only have $600,000 left for a settlement. That can be a nasty surprise.

Another difference: how claims are triggered. General liability is usually occurrence-based, meaning claims are covered if the incident happened during the policy period, even if reported later. Professional liability is usually claims-made-and-reported, so you need to have a policy in force when the claim is made, and you might need a retroactive date (IRMI). If you switch carriers, you could lose coverage for past work unless you buy extended reporting period.

What Professional Liability Actually Covers

Professional liability, or E&O, protects against claims of negligence, misrepresentation, inaccurate advice, libel, slander, and copyright infringement (The Hartford, Professional Liability). It covers attorney fees, which can range from $3,000 to $150,000, and settlements that can go into the millions (The Hartford, Errors & Omissions). But it doesn't cover intentional misconduct, fraud, or criminal acts (Cornell Law School Wex, Errors and Omissions). And it certainly doesn't cover bodily injury—that's general liability's job.

Let's go back to the IT consultant. If you add professional liability, you might pay an average minimum premium of $146 a month for technology-company E&O (The Hartford, Professional Liability). That's $1,752 a year. For that, you get coverage for mistakes in your professional advice or services.

How to Check Your Coverage Before It's Too Late

Before you sign a contract, ask for a certificate of insurance (COI). It's a one-page document that shows your coverage types, limits, and effective dates (The Hartford, Certificate of Insurance). Check if you have both general and professional liability. If your client requires $1,000,000 in general liability, make sure your policy meets that (IRMI). But also ask: do they require professional liability? Many contracts do, especially for service-based businesses.

Here's a short checklist:

  • Do you have general liability? (Covers bodily injury and property damage)
  • Do you have professional liability? (Covers errors and omissions in your services)
  • Are the limits adequate? ($1,000,000 per occurrence is common, but higher might be needed)
  • Is your professional liability claims-made? If so, what's your retroactive date?

Remember, an umbrella policy can add extra protection above your underlying limits, but it only kicks in after the underlying policy is exhausted (The Hartford, Commercial Umbrella). And it doesn't extend property coverage, so don't rely on it for that.

What I'd Actually Do

Don't wait for a claim to discover you're underinsured. I'd make two moves:

First, if you're a service business, buy professional liability now. The average cost is affordable—as low as $62 a month for standalone coverage (The Hartford, Professional Liability). It's a small price for peace of mind.

Second, check your contracts. If a client requires $1,000,000 in general liability, make sure you have it. But also ask if they require professional liability. If they don't, consider adding it anyway. In a world where a single claim can cost $150,000 in attorney fees alone, you can't afford to gamble.

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#liability insurance #general liability #professional liability #small business

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