A quick online search of “Business Liability Insurance” reveals over 75 million results! Who has time to sort through all that?
The National Law Journal recently released their Top 100 Verdicts of 2019. 8 of the top 10 loss categories were some form of liability, making it huge exposure businesses need to carefully consider how best to cover.
This guide will help you and your business determine what liability you need based on available coverages and what is recommended depending on your unique business model and industry.
Nearly every business out there has a need for these three types of liability coverage:
Commercial General Liability
The liability insurance all businesses need is a Commercial General Liability (CGL) policy. 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, damage to someone else’s property, or false or misleading advertising.
Typical General Liability limits will look something like this on the Declarations page of your policy:
- Each Occurrence - $1,000,000
- General Aggregate - $2,000,000
- Products/ Completed Operations Aggregate - $2,000,000
- Personal & Advertising Injury - $1,000,000
These are pretty standard limits for a CGL policy. It means your business is protected 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.
Without this policy, you and your business would be responsible for paying the damages, or the attorney fees to defend against a lawsuit. This could absolutely bankrupt a business!
While these limits are standard, higher limits are available through an umbrella or excess liability policy if your business needs more than $1million in protection.
Cyber Liability policies have been gaining in popularity over the last 10 years, but have now become a standard recommendation due to the dramatically shifting Covid-19 landscape.
According to Mimecast, the pandemic has increased the potential for cyber threats. Phishing attacks have continued to increase. COVID-related lures prey on fears or desire for information about the pandemic. At the same time, a remote workforce using less-secure home networks and personal devices can leave business more unprotected than ever!
Cyber Liability policies 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.
Hired and Non-Owned Auto Liability
I often hear that a business doesn't need any auto liability because they don't own any vehicles, but that’s exactly why you need it! It’s actually 2 separate coverages, but are typically combined together in insurance discussions.
Non-Owned Auto Liability
If you or your employees are using personal vehicles in the course of business, it leaves the business unprotected. Personal auto policies do not extend coverage to a business. For example, if you or your employee runs out to make a bank deposit and causes a car accident, they are personally responsible, but the business could be held responsible as well. With Non-Owned Auto coverage, the policy would cover the damage instead of it coming out of your pocket.
Hired Auto Liability
If you or your employees ever rent or lease vehicles for business reasons, this coverage is a must. Renting vehicles for business use is a common scenario. If you ask your employee to get a rental car on their way to an out of town convention and they cause an accident, the driver is held responsible, but the business could also be held vicariously liable. Hired Auto Liability would protect the business in these circumstances.
Once a business grows to the point of adding employees and subsequently employee benefits, additional liability coverages are highly recommended (or in some cases required) on top of the three listed above.
Employer’s Liability is usually included as part of a Workers' Compensation policy in most states; however, it is not the same coverage. Workers Compensation laws vary by state and for that reason can be quite complicated. The Employer’s Liability piece is fairly simple but extremely important to protect your business. It can cover additional losses against the employer for allegations of negligence, additional issues surrounding spouses or caregivers of an injured employee, or diseases and injuries excluded by state workers' compensation laws.
If you have employees, then it’s also a good idea to consider an Employment Practices Liability policy. This policy can pay 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.)
Many businesses feel as though this is an unneeded coverage. They strive to do what's "right" and treat their employees fairly, but the keyword here is “allegations”.
An Employment Practices Liability policy provides a defense for any allegation of these acts. And many claims don’t come about until after an employee leaves (voluntarily or involuntarily). In 2019, there were 72,675 charges of workplace discrimination filed with the EEOC and more than half of those claims were categorized as "retaliation”.
If your business has employees and offers benefits such health insurance, pensions, vacation time, tuition assistance or unemployment, this coverage is a must!
It provides protection for any administrative errors or incorrect explanations of benefits. Benefits administration is a tedious. meticulous process and mistakes do happen. For example, if a new employee was mistakenly left off the health insurance and later had a serious injury only to realize their health insurance was not in effect, the Employee Benefits Liability policy would respond.
Otherwise, the only way for your employee to recoup for the medical bills would be to sue the business directly, at the very least making it an uncomfortable work environment for all involved.
This is recommended for any business sponsoring an employee retirement or health plan. When you set up your business entity, it is to separate the business liability from the personal.
Most decisions made in business cannot be held against you personally. But in the case of employer-sponsored plans, anyone acting as a “fiduciary” could potentially be held personally responsible for the mismanagement or breach of their duties.
The fiduciary is expected to act solely in the best interest of plan participants and beneficiaries—not in the interest of the company that employees them. At times this can be in conflict.
Settlements in benefits disputes were over $449 million in 2019, the majority of that due to unfair fees associated with 401k plans. Fiduciary Liability is there to protect you from these potential losses.
If your business has a Board of Directors, it is important to have a Directors and Officers policy in force. This protects board members individually for decisions they make for the direction and running of the business.
It also provides additional coverage for legal fees and other costs associated with such lawsuits. Without it, board members stand to lose personal assets which makes it a lot harder to get quality officers!
In addition to the coverages discussed so far, depending on the type of industry your business operates in, there are even more specific options you may need to consider.
Professional Liability (also known as Errors and Omissions)
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.
It provides coverage when the end product is a professional opinion. However, more industries are in need of this coverage and it is commonly being offered for contractors, advertisers, and consultants of all types.
For example, an HVAC contractor that typically repairs systems wouldn’t necessarily have a need for professional liability. But, if in the process of their work, they deviate from the original system layout and because of that, the HVAC system fails, which could be considered professional guidance outside the typical scope of work.
This situation would fall under professional liability rather than the General Liability policy, which could decline, leaving the business to pay for the loss on their own.
Some industries have to carve out portions typically covered under the General Liability policy due to the specific risks of the work they’re doing. For example, an advertising agency has a much higher risk of being sued for advertising injury than most businesses so they will typically need to get that coverage elsewhere.
Or in the case of a manufacturer, a separate Products Liability policy is often needed. 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.
If you are in a business that serves, sells, distributes, manufactures or supplies alcoholic beverages, you are probably well aware of the need for Liquor Liability.
A business can be held responsible for the actions and damages caused by an intoxicated person. Liquor Liability would protect the business against a lawsuit alleging they contributed to the person’s intoxication and therefore bear responsibility in the loss as well.
It is important to note that most other businesses that are not specifically in the business to serve, sell, distribute, manufacture or supply alcoholic beverages do not have to buy a separate policy if they host an occasional happy hour or have drinks at work party; however, more and more policies are changing their exclusion wording, so it’s always a good idea to review your specific policy form and check with your agent on this.
There are other, less common liability coverages some businesses may need to consider as well, but the above are recommendations that would cover the vast majority of businesses out there.
As always, the best advice is to have an in-depth review with a trusted insurance agent who will guide you in making recommendations specific to your business needs.
Use this guide as a starting point in the conversation and don’t be left exposed!