Liability insurance covers defending your business against civil lawsuits and legal liabilities for damages caused to others. Some form of liability coverage is essential in almost any business. Below is a summary of the coverages that are generally included in this policy:
Personal Injury: Has its own limit of coverage per occurrence for losses caused by libel, slander, false arrest, wrongful eviction, invasion of privacy, malicious prosecution, and other similar coverages.
Advertising liability: Provides coverage for copyright infringement and misappropriation of advertising ideas. (Not usually available if you are in the advertising or related field.)
Medical Payments: Usually just a small amount of coverage (perhaps $1,000) for minor injuries suffered by the general public while on your premises. This coverage does not have a deductible.
Fire legal liability: Usually $50,000 of property coverage for fire, smoke, and explosion for the building you rent or lease, if you are legally liable for the damage. (If you have an agreement with your landlord where each party assumes responsibility for their own property, you may not need this coverage.)
Broad form contractual liability: Liability you assume for insured contracts.
Broad form property damage liability: Covers the property damage you cause to property you have under your control; excludes that part of it on which you are actually working, which is usually not covered while you are working on it.
Host liquor liability: (Not available if you are in the liquor business.)
Limited worldwide products liability: This expands the geographic territory where the policy's coverage applies. It provides coverage for certain products exposures in places outside the normal policy territory, which is the U.S., its possessions and territories, and Canada. Read the definition in your policy.
Incidental medical malpractice liability: Covers the exposure for giving emergency first aid on your premises to an injured person.
Nonowned watercraft liability: Covers the use of nonowned boats in the course of business (e.g., rental of a boat for a business trip).
Employees as additional insured: Coverage for employees for any bodily injury or property damage the employees cause while at work. (You may also want to consider adding employees as insured under the commercial auto policy.)
You will need to analyze the appropriate limits to be written into your policy in these categories. Whenever possible, choose a policy that provides full defense costs (cost of defending you against a lawsuit) and does not subtract this cost from the policy limit. Your agent or broker should be able to help you. Your policy also generally carries an aggregate limit, which is the maximum amount it will pay in one year from all coverages it provides. So, each loss will reduce the amount of coverage available to cover future losses during the rest of the policy year. You can purchase increased aggregate limits of liability from your agent or broker if you think your limits are being depleted.
In some states, insurance is not permitted to pay punitive damages, and you would have to pay this out of your own pocket. The general liability policy also usually does not cover wrongful termination and discrimination, although you may be able to get a written endorsement for this coverage or cover it with an umbrella liability policy. If you go this route, be sure to get confirmation in writing from your agent. Other coverages usually available only by endorsement include employee benefits liability coverage, which you will want if you provide benefits. If you provide a pension plan and you or your business is the trustee for the plan, you will need ERISA liability coverage.
If you use independent contractors, you may need added coverage. Discuss this with your agent.
Occurrence vs. Claims-Made Policies
These are the two types of liability policies that exist. The claims made policy states that any claims that occur from incidents arising during the time the policy is in force will be covered only if they are made during the time the policy is in force. Claims reported more than 60 days after the policy expires will not be covered. An occurrence policy, on the other hand, will cover incidents during the time the policy is in force, regardless of when the claim is made to the insurer. If you can only get a claims made policy, consider adding endorsements that provide an extended reporting period, although this will be quite expensive.
Liability policies sometimes come with a deductible, which you must pay before the policy takes over and pays the rest. Be sure to check whether any deductible you are considering is per occurrence or per claim. Deductible per occurrence is always preferable to deductible per claim, because a single occurrence can lead to multiple claims.
Other Available Coverage
Other types of liability coverage that are available and may be appropriate include:
Umbrella: If a liability claim exceeds your limits, you can protect yourself by buying an umbrella or excess liability policy, which will start paying after your liability policy reaches its limit.
Professional liability: Also sometimes called Errors and Omissions coverage or malpractice insurance, it is used by professionals such as doctors, lawyers, engineers, etc., to cover the exposures of providing a professional service. This coverage is specifically excluded under the general liability policy.
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