4 Types of Liability Insurance Every Business Should Have
These essential liability insurance policies will protect you from mishaps that can put a company out of business.
Good business practices and safety guidelines are paramount for any organization. However, any company owner knows the business environment can be extremely unpredictable. No matter how many protocols you put in place, a chance for human error always exists. If something goes wrong, your organization can be held liable for the damages. The best way to make sure your assets are protected is to make sure you’ve got the necessary insurance liability coverages in place.
Nearly every business out there needs these four types of liability coverage to be adequately protected:
- Commercial General Liability (including Products Liability)
- Professional Liability
- Cyber Liability
- Employment Practices Liability
Commercial General Liability
The number one insurance need of all businesses is Commercial General Liability (CGL). This coverage is designed to protect your business assets if a claim is brought against your business for negligence resulting in some form of injury.
This could be a bodily injury to a customer as a result of your work or faulty product, damage to someone else’s property, or false or misleading advertising.
A typical General Liability limit would protect your business for up to $1 million for the damage and legal expenses associated with one claim (Each Occurrence) and no more than $2 million in total losses paid for the term (General Aggregate).
The aggregate could be a combination of any losses—customers getting hurt from falling in your store, allegations of slandering another business, or losing control of your crane during construction and damaging a neighboring building.
While these limits are typical, higher limits are available through an umbrella or excess liability policy if your business needs more than $1million in protection. An Umbrella policy offers coverage in increments of one million for a relatively reasonable premium.
Without General Liability coverage, you and your business would be responsible for paying the damages, and/or the attorney fees to defend against a lawsuit. This could absolutely bankrupt a business!
A Note About Products Liability
Some industries have to carve out certain coverages typically covered under the General Liability policy due to the specific risks of the work they’re doing.
For example, a manufacturer will often need to obtain a separate Products Liability policy if they are making edible items or products that carry a higher degree of risk. This will protect the business if someone or something gets hurt due to their product. It can also include coverage for product recalls if the manufacturer realizes an error in their product and needs to alert people to return it and compensate them if needed.
Read: Business Insurance: Building, Contents and Stock
Professional Liability (or Errors and Omissions Coverage)
The need for Professional Liability coverage is becoming common. It was originally designed for professional service providers such as attorneys, accountants, physicians, engineers, insurance agents, and realtors, jobs where clients make decisions based on your professional advice.
It provides coverage when the end product is a professional opinion. However, more industries require this coverage and it is commonly being offered for contractors, advertisers, and consultants of all types.
For example, let’s assume a contractor installs a driveway and it begins to crack after a week. After an investigation, it is found that the concrete was mixed incorrectly. It would be the contractor’s responsibility to replace the driveway. It would be considered faulty workmanship and not covered under the General Liability policy. But the expenses to replace it could be provided under the contractor’s Professional Liability policy.
Without this coverage, the business would be left to pay for the loss on its own.
Estimated global losses from cybercrime are projected to hit just under a record $1 trillion for 2020 as the coronavirus pandemic provided new opportunities for hackers to target consumers and businesses.
While Cyber Liability policies used to be just a recommendation, with these statistics a cyber policy is now critical for any business with a website or that uses a computer. It's not a threat that is going away any time soon. The pandemic has given rise to a huge increase in cybercrime. And not only was there more fraud attempted, but the dollar value of each attempted fraudulent transaction was also 5.5% higher than it had been the six months preceding the pandemic.
Without Cyber Liability, your business could face hundreds of thousands of dollars in losses. However, these policies are not all the same. They can range from very basic: only covering reimbursement of expenses in the event of a data breach, to broad, comprehensive coverage for extortion, hacking, wire fraud, third party liability, and more. When discussing Cyber Liability, be sure you and your agent have a good understanding of exactly what coverage the policy is providing.
Read: How to Protect Your Company from Liability Risks by Properly Disposing of Documents and Electronics
Employment Practices Liability
If your business has employees, then Employment Practices Liability is becoming a must. In 2019, there were 72,675 charges of workplace discrimination filed with the EEOC.
Attorneys are predicting even more in 2020 as Covid-19 related lawsuits are being filed. Many of the employment practices liability-related claims have been for disability discrimination under the Americans with Disabilities Act (ADA), age discrimination, national origin discrimination, disparate impact claims, retaliation, and wrongful termination.
An Employment Practices Liability policy pays legal expenses and other fees for your business if there are ever allegations of things like:
- Unfair hiring or terminations.
- Incorrectly paid wages.
It not only protects the business if employees are the ones accused of the unfair treatment (considered First Party Liability) but also protects the business if the harassment came from non-employees such as vendors or delivery drivers for example (called Third Party Liability.)
While businesses strive to do what is right, the key to this coverage is that it covers “allegations” of unfair treatment. The Employment Practices policy can pay for the attorney fees to defend any allegation of these acts.
Read: What You and Your Business Need to Know About Liability Insurance
Having the right liability policies in place to protect your business can be the difference between staying open and closing your doors forever after a loss. There are other types of liability policies and numerous other insurance coverages that exist for the sole purpose of protecting your organization.
The best course of action is to work closely with an independent insurance agent. Talk to them about the ins and outs of your day to day business activities and what worries keep you up at night. They will assist you in assessing your risks and put together an insurance program to give you peace of mind and safeguard the business you worked so hard to build.
Written by Tiffanie Demasters | Commercial Insurance & Risk Mangement Advisor
Tiffanie Demasters, PRIS, CIC, CRM is a Commercial Insurance Producer and Risk Management Advisor with 18 years of insurance industry experience. She started as a personal lines claims adjuster, then moved to the agency side first in Personal Lines and then has spent the last 10 years as a Commercial Lines agent. She has a knack for making the complex world of insurance a little simpler. Tiffanie specializes in coverage analysis and a whole risk management approach to help clients find comprehensive solutions for their business insurance needs.
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