Operating a business is complex, as you have to deal with risks that are associated with it. You need to consider purchasing business liability insurance to protect your business from financial loss in the event of lawsuits or third party claims that are common in today’s world of litigation. There are a number of insurance policies available in the market, but you need to purchase one that suits your business’ needs and covers every risk that your business is likely to face.
Business liability insurance protects business and its owner in case of claims made by third party for physical injury or damage to the property. The coverage includes damages due to lawsuit in addition to legal costs.
There are four main types of business liability insurance, purchase the one that suits your business’ needs.
• General/commercial liability insurance: It is also known as Commercial General Liability (CGL) insurance. This coverage protects your business against the lawsuit made by third party for bodily injury or property damage. Under this cover, CGL pays the medical expenses and legal fees.
• Professional liability insurance: This type of insurance protects professionals such as accountants, doctors, lawyers and engineers in the event of claims made by a third party or client for negligence, malpractice, errors or omission, while providing services to the clients. Professional liability insurance is a legal requirement for some professionals who are specialized in their respective fields.
• Product liability insurance: Product liability insurance protects against liability from the use of faulty or damaged products. It is meant for manufacturers, wholesalers, distributors, retailers, or any others who sell the product to the public. The liability may be on account of injuries or damage caused to the customer by using a defective product.
• Commercial auto insurance: This insurance covers both liability and property risks a business owner faces, while using cars, trucks, autos or trailers. During driving, if the company vehicle injures other people or damages their property, the policy covers the claims made by the third party. This policy may also cover your employees, using their personal vehicles for your business purpose.
Types of claims
The business liability insurance covers four basic claims made by the third party. They are:
• Bodily injury – The liability covers the claims, if a person is accidentally injured by your company or its employees.
• Property damage – This type of liability coverage pays for damages caused by you or your employee to others’ property such as vehicles, house or furniture.
• Personal injury – Personal injury is different from bodily injury. In personal injury liability, it covers the policy holder from third party claims on issues like slander or libel. This cover also includes damage to a person’s or company’s character, invasion of privacy or false arrest.
• False or misleading advertising injury – An advertisement injury is a harm caused to a third party as a result of the policy holder’s advertising efforts. The claims that are covered are slander, libel, copyright infringement and invasion of privacy.
Business liability insurance explicitly covers three major damages caused to the third party by the policy holder. Covers include compensatory damages, general damages and punitive damages. In case of compensatory damage claim, financial losses of the third party due to an injury will be covered. In general damage claims, non-monetary losses such as mental torture, pain and suffering by the third party are covered. Punitive damages are additional charges or penalties, made by the third party, which the policy holder should pay.
Having business liability insurance transfers the risks of financial loss, caused due to the claims made against the business, to the insurer. The insurance company not only pays for the damages but also pays the legal costs on behalf of the policy holder. In case of settlement by the claims made by third party, the insurance company will pay up to the limit of the policy holder’s coverage.