is commercial general liability insurance required by law

Is Commercial General Liability Insurance Required by Law in Malaysia

/ Liability Insurance, Sharing / By

One of the most common questions among Malaysian business owners is:
 “Is Commercial General Liability Insurance (CGL) mandatory by law?”

The short answer? Not always — but often, it’s effectively required.

In this article, we’ll break down:

  • Whether CGL is legally mandated in Malaysia
  • The industries and situations where it becomes compulsory
  • The hidden risks of operating without it
  • How to prepare for regulatory or contract-based requirements

Understanding this will help you stay compliant, win contracts, and avoid financial pitfalls.

Is CGL Insurance Legally Required in Malaysia?

No, it’s not universally mandated by Malaysian law.

Unlike mandatory coverages such as:

  • Motor Insurance (under the Road Transport Act 1987)
  • Workmen Compensation Insurance (for foreign workers)
  • Employer’s Liability Insurance (under common law)

CGL insurance is not enforced by a national law that applies to all businesses.

However, this doesn’t mean you can operate without it risk-free.

When Does CGL Become “Effectively” Mandatory?

While the law may not explicitly mandate CGL, you’ll find it becomes a de facto requirement in the following scenarios:

1. When Bidding for Government Tenders

Government agencies often require proof of CGL coverage as part of your compliance documentation — especially for:

  • Construction projects
  • Public infrastructure works
  • IT or systems integration contracts

Example:

If you’re bidding to install equipment in a public building, the tender may state:
 “Contractor must submit valid general liability insurance coverage of not less than RM1,000,000.”

Related reading: Public vs General Liability Insurance in Malaysia

2. When Renting or Leasing Commercial Property

Most commercial landlords require tenants to carry liability insurance to:

  • Protect their property
  • Minimise exposure in case of accidents or damages

In many tenancy agreements, liability insurance is a condition for leasing, especially in:

  • Office buildings
  • Shopping malls
  • Co-working spaces

Clause Example:

“The Tenant shall maintain General Liability Insurance with a limit of not less than RM2,000,000 covering bodily injury and property damage.”

3. When Signing with Corporate Clients

Large corporations — especially multinationals — will ask for your CGL policy documents before:

  • Appointing you as a vendor or contractor
  • Allowing you to operate on their premises
  • Letting you represent their brand publicly

They want assurance that:

  • Your business can cover claims if something goes wrong
  • They won’t be liable for third-party damages caused by you

4. When Operating in Regulated Industries

Certain industries may have licensing or regulatory conditions that imply the need for liability coverage, such as:

  • Construction (CIDB registration)
  • Engineering (Board of Engineers Malaysia)
  • Architecture, medical, and legal professions (though they typically require Professional Indemnity)

While not always listed as “CGL” explicitly, regulatory bodies may require “adequate insurance protection” which is interpreted as needing public or general liability cover.

Why Businesses Still Choose CGL Without Legal Pressure

Even when not required, thousands of businesses in Malaysia voluntarily purchase CGL insurance — and for good reason:

1. Financial Protection Against Lawsuits

One court case or injury claim can financially destroy an SME. CGL helps absorb the legal and compensation costs.

2. Business Continuity

Accidents happen. With insurance, your company survives the unexpected.

3. Trust and Credibility

Being insured sends a strong message to clients, investors, and partners:
 “We are professional, responsible, and prepared.”

4. Tender Eligibility

Not having CGL may mean automatic disqualification from high-value contracts.

5. Peace of Mind

Business owners have enough to worry about. With CGL, one major risk category is taken care of.

What Happens If You Operate Without CGL?

Let’s say you operate a warehouse or run installations at client sites — and you have no CGL policy.

If an accident occurs:

  • You pay out-of-pocket.
  • You may face lawsuits personally if your business is a sole proprietorship.
  • Your company may be blacklisted from future projects or tenders.
  • Clients may terminate contracts due to breach of insurance requirements.

Even worse, if someone is seriously injured or dies, you could face millions in liabilities.

Real-Life Scenario (Malaysia)

Case:
 A subcontractor without liability coverage accidentally damaged an office ceiling during an HVAC installation.
 Water leaked, destroying laptops and furniture. The client demanded RM200,000 in compensation.

Without CGL, the subcontractor had to:

  • Settle privately with the client
  • Take out a loan to cover the cost
  • Lose future business due to reputation damage

The incident was preventable — but there was no insurance buffer.

Is Public Liability Enough?

Many businesses ask:
 “Can I just get Public Liability Insurance instead of CGL?”

The answer: It depends on your risk exposure.

Public Liability

Commercial General Liability

Covers injury/property damage only

Covers injury, property, legal, advertising, more

No coverage for personal injury (slander, libel)

Includes personal and advertising injury

May exclude tenant legal liability

Often includes tenant legal liability

Suitable for small, low-risk ops

Better for medium to high-risk businesses

🧠 Learn more:

What Should You Do If You're Not Sure?

Here’s a practical checklist:

  • Review your contracts, tenancy agreements, and client onboarding forms
  • Check for any mention of “insurance,” “liability coverage,” or “indemnity”
  • If unsure, speak with a licensed broker to interpret the risks
  • Budget for at least RM1 million in coverage — which is often the entry requirement

Use our General Liability Insurance Guide to get started.

Conclusion

While not legally required by Malaysian law, Commercial General Liability Insurance is often contractually or commercially required. Whether you work with landlords, clients, or the government — chances are, CGL will come up in the fine print.

Rather than waiting for a problem to arise, getting covered now can:

  • Open new business opportunities
  • Prevent financial disasters
  • Keep your business compliant and credible

Need Help Choosing the Right Coverage?

At Minaris, we simplify the insurance journey for Malaysian SMEs, contractors, and service providers. We help you meet requirements, reduce risk, and get insured — without the guesswork.

Request a quote or talk to our team today

👉 Request a Free Quote 

👉 Talk to an Expert at Minaris today.

Get protected with a plan that fits your business.