"Are you covered?"

A brief refresher of your business liability needs

Thought Leadership on Succession Planning presented by Leonard J. Miller and Associates, Chartered.

There are few responsibilities more challenging to navigate than owning a business. At some point, even companies supported by top-rated customer service teams will face difficult customers. Certain customer horror stories are passed around like gossip: these people fling accusations or are impossible to please. Suing is a common practice in today’s professional environment, which is why professional liability insurance is vital to your business.

General liability insurance

Also referred to as commercial general business insurance, this coverage insures all of your company assets. It covers problems that arise with people in and outside of the company for a host of problems ranging from product lost in a storm to medical payouts. For example, a retailer is covered if a customer trips on a wet spot and suffers injury hitting a shelf. It will also help cover property intentionally damaged by employees.

If someone sues your company, liability insurance will cover attorney fees, court fees, settlements, and awards. If you own rental property and a tenant burns the building down by falling asleep with a lit cigarette, insurance will cover the cost to rebuild the structure.

Business liability insurance also gives you continuing protection and does not necessarily end if your business is dissolved. Lawsuits are frequently filed after a business is no longer operating, which often prompts business owners to purchase run-off coverage.

Types of available liability insurance

Not all policies are created equal. Some businesses have different considerations. Business that serve food and drink, like restaurants, require very different coverage from a heavy transport business.

General liability

General policies dictate the insurer must pay any legal costs which arise from lawsuits. This ranges from bodily harm, property damage or loss, false advertising, and virtually anything else that threatens your business. General policies do not cover punitive damages. These policies typically come with a maximum coverage amount, often capping at seven figures.

Indemnity policies

Indemnity insurance policies protect service-oriented businesses from clients who sue for negligence, losing documents, copyright and confidentiality breaches, or loss of products or money, provided your business is liable. Indemnity policies are popular for accountants, engineering, and consultants.

Employment practices insurance

Epli, or employment practices liability insurance, covers businesses when workers claim their rights have been violated. This is an umbrella insurance that covers all employee lawsuits. Epli covers employers from discrimination cases, wrongful termination, failure to employ, career deprivation suits, and more.

Product coverage

Product liability covers policy holders in the event that a company’s products are misused or function improperly. For instance, if a surge protector catches fire, product liability coverage would pay out money on behalf of the manufacturer.

Licensed professional liability

Some liability insurance policies offer specific plans for certain professionals to meet their needs. For instance, physicians pay notoriously high malpractice insurance payments every month to cover anything that might go wrong during diagnosis and treatment.

Another big licensed professional insurance policy is error and omissions, which covers lawsuits from clients if you appear to have failed in your professional duties. E&o insurance covers all negligence claims, personal injury that arises from libel or slander, omissions, claims, and damages. E&o is often purchased for attorneys, doctors, architects, and accountants.

How to select the best policy

Coverage needs are based on the type of company you run. Every policy is crafted based on two major factors:

  1. Perceived risk. Each industry and business is associated with a perceived risk. For instance, a team of web designers would assume far less risk than a toy manufacturer, which in turn assumes less risk than a coal mining operation.
  2. State of operation. Each state has its own attitude toward businesses in their judicial systems. Some states require more coverage for businesses, while others shell out above-average payouts to plaintiffs seeking damages. Insurance brokers understand the trends within each state.

If you run a low-risk operation, a bop (business owner’s policy) may be all you need. Bops combine general commercial liability coverage and property insurance to achieve a lower, overall rate. Companies should continually reassess their policy needs. Companies that experience rapid growth will need larger, better policies. Insurance needs become substantially more complex when your business operates in multiple states.

Factors that determine coverage

Insurance providers review multiple fundamentals before providing you with an estimate. It is difficult to immediately determine insurance cost for any company, even simple bops. Deductible size and perceived risk are probably the two largest factors, but there are others, too:

  • Prior claims. If you have been sued multiple times for the same thing, were found guilty of making fraudulent or misleading statements, intentionally cheating consumers or investors, your insurance company may decide to revoke your insurance. Any company that spends a lot of time in the courtroom will be paying higher claims, period.
  • Number of employees. More employees means greater risk that someone could get injured or cause damage to property.
  • Policy features. Purchasing additional umbrella policies, changing your deductible, or adding industry-specific coverages, all change how much you pay on your premium.
  • Industry experience. Insurance companies are not just insuring your liability, but also your ability to grow as a business. A more established company run by someone with twenty years of experience is better-equipped to thrive than a new company started by someone with five years of experience.

How to avoid common business liability claims

The vast majority of small-business claims arise because a company failed to cover the basics. They are related to workplace injury from falls, minor accidents, and insufficient environmental support. Here are some leading factors that cause accident claims:

  • Emergency system failure causes injury or death. Periodically test all emergency safeguards, like emergency lighting, fire extinguishers, and your sprinkler system.
  • Clean up spills immediately. Employees should safeguard large spills and direct customer traffic until the area is secure.
  • Wet floor signs reduce liability and prompt customers.
  • Use mats to prevent slipping near entrances and exits.
  • Make sure all burned out bulbs are replaced immediately. Poor lighting causes accidents.
  • Survey parking lots and walkways, especially during winter. Paths should be unobstructed, smooth, and easy to walk on.
  • Repair all parking lot holes and cracks.
  • Steps, especially slippery ones, should be installed with non-slip adhesives to grab shoes.
  • Never place anything on stairs.
  • Never use extension cords.
  • All trash must go in its receptacles and be emptied on a regular basis.

Consult your property and casualty agent to address your business’s risk. For proactive planning and advice, contact me. For insurance needs, an ounce of prevention really is worth a pound of cure.

Len Miller_Click here for more Thought Leadership on Succession Planning from Leonard J. Miller and Associates, Chartered.