Every business faces many types of financial risk, including being sued.
You must obtain adequate coverage if you are a business owner or decision-maker.
What is at stake if you choose not to carry coverage like general liability insurance?
Unfortunately, the short answer is "Everything."
The cost of an unfavorable judgment in just one lawsuit can create a financial burden large enough to threaten a small company's financial stability.
Sadly, many small businesses leave annually due to lawsuit-related costs they cannot cover.
Those costs include legal defense expenses, which a company has to pay even if they prevail in court.
So, if your approach to small business insurance is, "We won't carry it, but we'll be really careful in our operations," you can end up with a large bill even if a lawsuit is baseless.
Types of Business Insurance:
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| Common Claims Against Small Businesses and How General Liability Insurance Can Help: eAskme |
Insurance companies offer different policies to cover various types of business risk.
This includes:
- Workers' compensation insurance which is typically mandatory for companies with employees and covers medical costs and other expenses related to worker on-the-job injuries or illnesses
- Professional liability insurance (also called errors and omissions insurance) covers lawsuits over alleged business mistakes that cause financial losses for clients.
- Commercial auto insurance covers vehicles the company owns or leases and uses for business purposes.
- Cyber insurance to address costs related to system hacks or data theft and resulting fraud
- Umbrella insurance covers claims that exceed the limit of an underlying liability policy.
But general liability insurance may be the most universally valuable small business coverage.
That's because it covers a wide variety of risks that companies face every day.
You probably don't need professional liability insurance if you don't provide professional advice or services.
And if you don't own or lease vehicles, there is no need to carry commercial auto insurance.
But virtually every business interacts with its customers, clients, competitors, and others in some way.
That is why having general insurance is essential.
What Is General Liability Insurance?
General liability insurance is a type of coverage that protects businesses from various kinds of liability.
This includes:
- Damage your business causes to third-party property.
- Bodily injuries you cause to non-employees
- Product liability if something you develop or sell harms someone or damages their property
- Libel, slander, or copyright infringement, including so-called "advertising injuries," where you say negative things about a competitor in your ads
As you can see, if you interact physically with your customers or clients or promote your business, you have general liability "exposures." And exposures can lead to costly lawsuits.
Examples of How General Liability Insurance Can Protect Your Business:
Whether a general liability insurance policy will cover you in a specific scenario depends on multiple factors, including the policy specifics, the facts surrounding the incident, and others.
But the types of incidents below typically can be covered.
Customer injuries at your location:
A little moisture on a tile floor or a small tear in the carpet is all it takes to cause an accident.
If a customer or client falls, breaks a bone, or suffers another injury, the medical costs alone can easily reach five figures or more.
And if they sue you, their lawsuit might also demand compensation for their time away from work while they recover, so six-figure amounts aren't uncommon.
With the right general liability policy, you won't have to pay the amount.
Customer property damage:
Imagine that your employee is doing some work at a customer's home and accidentally knocks their expensive TV off its wall mount, shattering it on the hardwood floor, which is also damaged.
It's a cutting-edge device, costing several thousand dollars, and the floor repair will add a few thousand dollars to the total for the incident.
Fortunately, your general liability policy can cover the $25,000+ in expenses.
Slander:
A competitor has evidence you've made disparaging statements to people about them.
They've lost business as a result, and they sue you for $250,000, prevailing in court.
You must pay that amount plus court costs, legal defense costs, and other expenses.
It's a huge relief that your general liability policy can cover the total amount.
Product liability:
Your business sells branded coffee mugs as part of your marketing strategy. One of them is defective, and the handle breaks.
The customer is injured when hot coffee burns their skin. They sue you for the cost of an urgent care visit and subsequent plastic surgery.
The court awards them over $55,000; your general liability policy covers the cost.
These are just a few business liability scenarios your company could face.
Customizing Your General Liability Insurance:
General liability insurance policies provide relatively broad coverage, but you can expand that coverage with endorsements.
Some of the common policy additions include:
- Hired and non-owned auto liability. This covers liability resulting from using vehicles the business doesn't own or lease, such as when an employee uses their vehicle to make deliveries.
- Employment-related practices liability. This endorsement protects your company from lawsuits related to inappropriate workplace behavior (e.g., wrongful termination, harassment, or discrimination).
- Employee benefits liability. This add-on is for errors or omissions in administering your employee benefits program. For example, you fail to file forms on behalf of your employee by the due date, and they are denied medical coverage.
- Contractors installation, tools & equipment. This insurance covers business property, tools, equipment, etc., while at a job site, in transit, temporarily in storage, or during installation.
- Liquor liability. This endorsement is for your business's liability from selling, serving, or furnishing alcoholic beverages.
General Liability Insurance: Broad Coverage Every Business Needs:
Your company may never be sued. Or you may hear from a lawyer tomorrow. That's an unfortunate reality of business.
But you can protect your company and those who rely on it by getting and maintaining general liability insurance and other policies as needed.
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