Liability insurance provides compensation for injury to third parties. The amount of coverage needed depends on the risk inherently associated with each business.
Policies generally state a maximum amount the insurer will pay per occurrence. Many businesses purchase umbrella liability insurance to cover losses that exceed their other policy limits.
General Liability
Often called commercial general liability or CGL, this insurance protects your business against the financial consequences of third-party bodily injury and property damage. It also covers your legal costs if you are sued for reputational harm (libel and slander) or advertising injury (copyright infringement). This is one of the most popular types of small business insurance, and it’s typically required by law for businesses that lease commercial space.
A general liability policy’s per-occurrence limit, aggregate limit and deductible are important to understand. The aggregate limit is the most amount your insurer will pay out for all claims made during the life of the policy. If you hit this limit, your insurer will no longer pay for any further claims. This is why it’s important to assess your risk regularly, and re-assess your limits annually.
While general liability is an essential coverage for all businesses, it doesn’t include work-related auto accidents (which can be covered by workers’ compensation insurance), damages to your own business property or mistakes in professional services (which can be covered by errors and omissions insurance). Your Hiscox agent can help you add these coverages or customize your policy to meet the unique needs of your business. They can also provide a Certificate of Insurance, which you may need to show to a client or landlord as proof of your insurance.
Products Liability
Product liability insurance protects your business against claims that a product you created, manufactured, sold or distributed caused injury or property damage to third parties. Your business could be held liable even if the defect in question was not your fault, since most product liability policies use “strict liability” wording.
Product-related lawsuits can result in hefty financial obligations and penalties, regardless of whether or not your business is found liable. Having this type of coverage can help ease the stress and costs associated with these types of lawsuits, so you can focus on growing your business.
In addition to covering legal fees and damages awarded to claimants, most product liability policies also include the cost of inspecting, withdrawing, repairing or replacing a defective product. Often, product liability can be added to a commercial general liability policy as an add-on or included in a completed operations (C/O) section of the policy.
If you work in the manufacturing industry, or distribute products through your online ecommerce store, you should consider purchasing product liability insurance. Likewise, if you work with vendors that manufacture or sell products, it is important to verify that they have adequate coverage in place and make sure you are listed as an additional insured on their policy. This is an especially critical step if your business is involved in the construction, manufacturing, repair or installation of any physical products or materials.
Professional Liability
Professional liability insurance, also known as errors and omissions (E&O) insurance, protects businesses that provide expert advice or services against claims of negligence or mistakes that lead to financial loss for their customers. Examples include hair salons botching a customer’s dye job or veterinarians misdiagnosing Fido’s upset stomach. These incidents may not be covered by general business insurance policies, so a professional liability policy is often required by clients or by contract.
Unlike other types of liability coverage, which cover bodily injury and property damage, most professional liability policies protect against financial losses only. Medical malpractice and other specialty insurance are notable exceptions, as they insure against alleged acts that can result in death or serious bodily harm. Like general liability policies, professional liability insurance is available on a claims-made and an occurrence basis. Claims-made policies only pay out for claims arising from an incident that occurred while the policy was active, while occurrence policies pay out for any qualified claim regardless of when the incident actually took place.
Some companies, particularly those in the medical industry, must carry a professional liability policy to comply with state law. Others, such as architects or engineers, may opt for it to cover themselves against costly legal disputes. Many small business providers offer professional liability insurance, including the Berkshire Hathaway brand biBERK and NerdWallet’s top-rated provider, Allied World.
Employment Practices Liability
Employment practices liability insurance, or EPLI, protects businesses against claims made by employees that the company has violated their legal rights. It typically covers litigation costs and losses associated with wrongful termination, harassment, discrimination and other employment-related lawsuits. It can be purchased as an endorsement to a BOP or as a stand-alone policy. Unlike general liability and errors and omissions (E&O) policies, EPLI does not cover the company itself, but rather its directors and officers.
While the vast majority of employment-related lawsuits are brought against large companies, no business is immune from these claims. Those with an extensive hiring and screening process, well-developed HR policies and procedures and regular training on avoiding discrimination may have a better chance of qualifying for EPLI coverage. Companies with a history of employment-related litigation, inadequate record-keeping and a poor workplace culture may also find it difficult to obtain this coverage.
Like all insurance, the specific details of an EPLI policy vary by insurer and industry. As a result, companies should carefully review their potential loss exposures with an independent agent or broker before purchasing this insurance. This will include reviewing HR policies, such as an employment-at-will policy and a nondiscriminatory hiring practice, post-incident investigation protocols and employee handbooks. Also, ensuring that there are effective training and record-keeping systems in place to avoid violations such as the infliction of emotional distress or failure to provide reasonable accommodations for disabled employees are key considerations.assurance rc
