Business Liability Insurance

Liability implies negligence. If you permit a hazard to exist, you are negligent. An example is neglecting to remove the ice and snow from the sidewalk in front of your store. But these days, no matter how diligently you remove all possible hazards from you business, you could be sued successfully for accidents resulting from the carelessness of a customer too. Businesses these days are assumed to be responsible for just about anything, and so liability insurance is your last line of defense against devastating claims for things over which you may have little or no control. (Be sure to check out our discussion of Liability Insurance in general.)

General liability insurance will protect you from payments required to be made for bodily injury or property damage to a third party, for medical expenses accruing to the underlying incident, for the cost of defending lawsuits including investigations and settlements, and for any bonds or judgments required during an appeal procedure.

This type of coverage comes with exclusions and limitations. The exclusions typically include war and sometimes property of others entrusted to you (such as clothing if you own a dry cleaning business.) Liability for the property of others can be removed as an exclusion, usually for an additional premium or via separate coverage. Limitations will be akin to those on your personal auto policy; for example $100,000 per person and $300,000 per accident. In addition to general liability coverage, depending on what kind of business you're in, you may need one or more of the other kinds of liability coverages such as:

• Product liability insurance, which can cover products you may manufacture or sell or your services if you are, say, a mechanic or house painter. Under the name of malpractice insurance, this is the classification of coverage that will cover physicians, dentists, accountants, and lawyers. In today's world, a minimum of $1 million is recommend coverage for businesses dealing with the general public. It's also a good idea to have the name of your business added to your suppliers' insurance riders as an "additional named" insured. This adds another explicit layer of protection should a product liability suit arise, generally costs nothing, and has become common practice for companies in food retailing, wholesaling, marketing, and manufacturing.
• Auto liability insurance, which for a business, just as for your personal vehicles, should be of the comprehensive type. This is especially important if you have employees who drive for your business.
• Workers' compensation insurance is a required type of coverage which protects an employer from liability for an accident involving an employee. This type of insurance will pay for medical expenses and lost wages for an injured employee and, in cases of death or disability, provide lump sums or annuities. Maintaining a safe working environment will go a long way toward controlling the cost of this type of coverage, but a careless or accident-prone employee can raise your insurance rates out of the realm of affordability very quickly. Proper selection and training must be practiced to minimize this risk. In some states this coverage is not required for family members who may be working in the business. Your agent will know if any exceptions apply to your situation.
• Umbrella liability insurance, an all-inclusive option that can cover enormous liabilities exceeding the normal limits of your basic policy at a fairly low cost. This coverage is almost always worth considering since it provides a valuable safety net for you and your business.
• Malpractice, E & O, professional liability coverage is needed if you provide advice or services to the public where significant liability could result if something went wrong. You may want to consider obtaining professional insurance for a couple of reasons. First, depending on your profession, you may be required to carry such insurance by law. Second, certain policies will provide you with low-cost legal representation in the event you are sued. Remember: Even if your work is flawless, a customer could still claim that you did something wrong. A good professional insurance policy would help you defray the costs of any lawsuit, regardless of whether the underlying claim has merit. See our discussion of Professional Liability Insurance for complete details.

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