California is a state of builders, makers, and side-hustlers. It’s home to 4.2 million small businesses employing about 7.0 million people—nearly half of the state’s private workforce. That’s a lot of storefronts, food trucks, contractors, startups, and home-based services interacting with customers every day. More interaction means more chances for accidents—and more reasons to get your coverage right.
This guide breaks down the top mistakes Californians make when buying general liability insurance for business, and how to avoid them. We’ll keep it simple and practical, but we’ll also point out key California rules so you can make confident choices.
What Does General Liability Cover?
A Commercial General Liability (CGL) policy protects your business if a third party (not your employees) claims bodily injury, property damage, or personal/advertising injury caused by your operations, products, or completed work. Policies have separate limits and annual aggregate limits—when you use up the aggregate, the insurer stops paying for the rest of that policy term.
Mistake 1: Assuming general liability is always required by law (or never required)
California doesn’t make every business carry general liability insurance by default. But you’ll run into situations where it is required—by a landlord, a client contract, a city permit, or a license board. For example, if you’re a licensed contractor organized as an LLC, the Contractors State License Board (CSLB) requires at least $1 million in liability insurance (more if you have many personnel of record).
Fix it: Read your leases, contracts, and license rules. If you do home improvement work, know that the CSLB requires you to disclose to homeowners whether you carry general liability—another reason to get the coverage and keep it current.
Mistake 2: Buying limits that are too low for California
California is known for high legal costs and big verdicts. Research shows California is among a handful of states producing a large share of the nation’s “nuclear verdicts” (very large jury awards). That climate pushes up claim severity and, over time, premiums.
Even everyday risks can be pricey. Dog-related injury claims averaged about $69,000 each in 2024, and California is consistently one of the states with the most claims—important for any business where pets or foot traffic are common (think retail, rentals, and service providers).
Fix it: Don’t pick limits just because they “sound big.” Many small firms buy $1 million per occurrence / $2 million aggregate, then add a commercial umbrella to handle truly bad days. Review your foot traffic, contract sizes, and venues. If you host events, sell products, or work at other people’s sites, consider higher limits or an umbrella.
Mistake 3: Confusing general liability with other coverages
General liability covers third-party injuries and property damage. It doesn’t replace workers’ compensation (injuries to your employees), commercial auto (crashes), or professional liability (bad advice/design). In California, workers’ comp is required for employers—it’s a separate policy with its own rules and penalties.
Fix it: Map your risks. If you have employees, you need workers’ comp. If you drive for business, you need commercial auto. If you design, advise, or code, consider professional liability (E&O). General liability is your foundation—but it’s not the whole house.
Mistake 4: Ignoring contract language (additional insured, primary & non-contributory, waiver of subrogation)
In California, many customer and construction contracts require additional insured status, primary & non-contributory wording, and sometimes waivers of subrogation. On top of that, California restricts some indemnity/defense transfers in construction—you can’t make a subcontractor’s policy defend you for your own active negligence. If you assume a sub’s insurance will always bail you out, you could be surprised.
Fix it: Show your broker the exact contract. Confirm you have the right endorsements (not just a promise on email). Make sure your expectations match what California law allows.
Mistake 5: Not reading exclusions and endorsements
Most CGL policies exclude things like intentional injury; pollution; auto/aircraft/watercraft; damage to your own work; and “care, custody, and control” of property—unless you add back coverage or buy a different policy. If your business installs or repairs things, the “your work” and “damage to property” exclusions matter a lot.
Fix it: Ask your broker for a short walkthrough of key exclusions. If you’re a contractor, talk about products/completed operations and what’s covered after the job is finished.
Mistake 6: Misclassifying your business (and paying the wrong price)
Insurers use rating exposures like square footage, payroll, or gross sales depending on your classification. If your café adds catering, or your web-design shop starts building physical displays for events, your exposure has changed—and so might your premium and coverage needs.
Fix it: Tell your broker about new services, more employees, or busier seasons. You’ll avoid under- or over-paying and reduce the risk of unpaid claims from misclassification.
Mistake 7: Treating a certificate of insurance like the policy
In California, a certificate of insurance (COI) is proof of insurance, but it does not change the policy. The California Insurance Code requires specific language making this clear. If the policy doesn’t include an additional insured endorsement, the certificate alone won’t give you those rights.
Fix it: Use COIs to verify coverage exists, but read the actual endorsements to confirm who is covered and on what terms.
Mistake 8: Overlooking admitted vs. surplus lines carriers
When standard (admitted) insurers won’t write your risk, your broker may go to surplus lines. That’s common for new ventures or higher-risk operations. In California, surplus lines insurers on the LASLI list can write these policies, but the state guaranty fund (CIGA) doesn’t apply if they become insolvent. Understand the tradeoffs before you buy.
Fix it: Ask whether your carrier is admitted or surplus lines, why that matters, and how they’re rated for financial strength.
Mistake 9: Forgetting California’s clock on lawsuits
Most personal injury claims in California must be filed within two years; property damage is often three years. Timelines matter when choosing occurrence-based coverage (most CGL) vs. claims-made (more common for professional liability). If you switch insurers or grow fast, gaps can appear.
Fix it: Stick with occurrence-based for general liability unless there’s a strong reason otherwise. If you change carriers, review any retroactive dates or tail needs for related policies (like E&O).
Mistake 10: Skipping basic due diligence
Before you sign, do quick checks:
- Verify your broker’s and insurer’s status with the California Department of Insurance.
- Know that California uses a prior-approval system for most property-casualty rates (Prop 103). That can affect how and when rates change, especially in volatile markets.
Why This Matters in California
California’s business scene is huge, diverse, and increasingly litigious—from everyday slip-and-falls to high-value verdicts. At the same time, the state’s regulatory system sets clear rules for how policies work, how they’re rated, and how contracts shift risk. Getting general liability insurance for business right isn’t just a box to check—it’s a guardrail that keeps your company on the road when something goes wrong.
Quick Checklist
- Match your limits to real exposure. Consider an umbrella for big claims.
- Confirm contract requirements (AI, primary/non-contributory, waivers) and what California law allows.
- Separate coverages: GL ≠ workers’ comp ≠ commercial auto ≠ E&O.
- Read exclusions—especially for your work, property in your care, pollution, and product/operations.
- Treat COIs as proof, not promises. Check endorsements.
- Know your market: admitted vs. surplus lines and LASLI status.
- Verify licenses and keep your broker in the loop as your business evolves.
Bottom Line
Buying general liability insurance for business in California isn’t just about meeting requirements—it’s about protecting the company you’ve worked so hard to build. The state’s unique mix of high legal costs, strict disclosure rules, and contract-driven requirements makes it especially important to read the fine print and avoid shortcuts.
The good news? With the right coverage in place, you won’t have to lose sleep over an unexpected lawsuit, an injury on your property, or a contract dispute. By steering clear of the common mistakes outlined here—like underestimating limits, confusing coverage types, or relying too heavily on certificates—you can make smarter insurance decisions that keep your California business safe, credible, and ready for growth.