Small Business Liability Insurance

Small business liability insurance is a type of commercial insurance available to cover the risks faced by small businesses. Generally speaking, liability insurance is intended to provide financial coverage for businesses when they may be liable for injuries or property damage caused to customers or visitors to their premises. Other risks involved in doing business, e.g., driving on public roads and highways, always require insurance coverage.

What Does Liability Insurance Cover?

Most businesses carry some type of liability insurance. It is highly recommended to have the insurance necessary to cover all risks that can be identified.

A business can get different types of insurance coverage to protect its assets from having to cover the cost of paying liability claims. Common business liability insurance coverage includes the following:

• General Liability Insurance: General liability insurance helps cover the payment of legal costs and judgments if a client sues a business for errors, omissions, or professional malpractice arising from the provision of business or professional services. This type of insurance coverage is also referred to as “errors and omissions insurance”;
• Data Breach Insurance: Data breach insurance helps a business respond in the event of a data breach in which personally identifiable information is stolen from the business. Currently, some insurers refer to this coverage as “cyber liability insurance”;
• Commercial Umbrella Insurance: Commercial umbrella insurance is a kind of extra insurance that helps the payment of claims that exceed the policy limits of other types of insurance;
• Commercial Auto Insurance: Commercial auto insurance helps protect the owners and employees of a company if they have to drive in the course of doing business. It can help cover someone else’s property damage and injuries if the owner or employee of the business causes an accident.

As for personal liability insurance, a business should consider getting the following coverage:

• Personal Liability Insurance: Personal liability insurance helps protect a business if someone is hurt while on the business’s property, e.g., in a trip and fall incident. It can also help if a business is responsible for damaging another person’s property. This coverage is similar to that which is commonly part of a homeowners or renters insurance policy. It is sometimes referred to as “premises liability insurance”;
• Bodily Injury Coverage: Bodily injury liability insurance helps pay the cost of medical treatment for injuries resulting from a car accident caused by the negligence of the owner or employee of a business while driving on the job or through some other type of negligence;
• Property Damage Coverage: Property damage liability insurance helps a business pay to repair property damage from an accident the owner or employees cause or for which the business is otherwise responsible;
• Strict Product Liability Coverage: If defects in products designed, manufactured, or sold by a business harm people or damage property, then product liability coverage can pay legal expenses associated with product liability lawsuits, including paying an award of damages that may result from the lawsuit.

Product liability coverage protects against injury or damage caused by defects in products. Three of the most common types of defects are as follows:

• Design defects: This defect arises before the product is even made. There is a defect in the design that can lead to a product being unsafe or faulty;
• Manufacturing defects: This would be a defect that arises while the product is being made. For example, something might go wrong during the manufacturing process, whether the product was assembled incorrectly or missing an important part, for example;
• Marketing defects: This type of defect does not involve the product itself but rather how it was marketed to the customer. Labels or safety warnings may be incorrect. Or they may be lacking entirely. Instructions about using and not using the product may be absent or incorrect. Any defect of this kind that can lead to a consumer injury from using the product is a marketing defect.

Any business involved in a product’s design, manufacture, or marketing should always protect its business from product liability claims. And if an award of damages or settlement must be paid, the insurance would pay up to the policy limits.

• Umbrella Insurance Policy: Umbrella insurance, again, covers losses that are more than the policy limits of premises and auto liability insurance.

When an employee damages customer property, a business’s insurance coverage may pay for replacement property or repair of the damage. For example, a contractor employed by the business may accidentally cause a fire in a building in which they are working. Repair costs may exceed $150,000.

The business will probably be liable to pay to repair the damage. The business’s small business general liability insurance would likely cover the costs of repairing the damage up to the policy limit. If the business also has an umbrella policy, it would cover the costs if it exceeds the liability insurance policy limit.

One additional type of insurance that any business with employees must have is workers’ compensation insurance. In most states, it is required by state law. Workers’ compensation insurance pays for medical expenses and lost wages suffered by an employee injured in an accident while acting within the course and scope of their employment.

If a business should be operating in an industry exempt from the workers’ compensation insurance system, an employer’s liability insurance policy can protect the business by covering legal costs and compensation if an employee sues for work-related illness or injury.

As with all insurance policies, a liability insurance policy works by helping protect a business from losses specified in the policy’s language. They pay up when the following applies:

• The loss occurs during the effective period of the policy;
• The business files a claim with its insurance company promptly;
• The cause of the loss is covered per the language in the policy.

It is a good idea to check each of a business’s liability insurance policies to make sure someone in the business understands how they work. They should be reviewed annually, at least, to ensure that the business has the coverage and in the amounts it needs. Most policies include exclusions that explain the types of losses the policy does not cover.

What Is Not Covered by Liability Insurance?

Liability insurance often does cover certain acts or situations, such as the following:

• Harm that is caused by the intentional acts of business owners or employees;
• Instances where the business knowingly violates best practice business standards or standards of ethics, including food safety hazard standards;
• Certain losses arising from situations in which the business owner knew about liability risks and failed to address the problem.

Also, most insurance companies will provide liability coverage up to a certain dollar amount, i.e., the policy’s stated limits, and not more. The policy limits are always clearly written in the policy. Within this range of dollar amounts, from zero to the policy limit, the insurance company may pay for costs, including court fees, damages, and other amounts allowed under the policy.

However, beyond the policy limit, the business will be responsible for paying any damages or costs required by a claim against it.

Do I Need a Lawyer for Help With Small Business Liability?

Liability laws can often involve technical legal concepts. Insurance also can be highly technical. As can be seen, a large variety of types of insurance that a business may want to have in place.

You may wish to consult an insurance lawyer if you need assistance with any small business issues. Your attorney can help you identify the risks for which you need insurance coverage, negotiate insurance terms, and provide guidance while purchasing the coverage you need. If a lawsuit is necessary for any reason, your attorney can provide you with legal representation.