After years of studying business management, mastering your culinary prowess, and getting funds, you finally open your very first food business – a 50s diner-inspired burger joint. Comfort food aficionados flock from all over the country just to savor your take on this American classic. All is well – until one customer claims that he’s suffering from a severe allergic reaction caused by your food. Apparently, one of your crew mismatched the orders and the four-cheese burger that’s supposed to be in table #23 accidentally landed on the lactose intolerant patron’s table.
There’s no one to be held accountable but you. Apart from compensating for the ill customer’s medical bills, you may risk your profits and even face lawsuits against your firm. It’s a hell of a financial loss. That being the case, it’s a must to have your business covered with a liability insurance.
A Business Liability Insurance is a policy which protects businesses and/or business owners from the risks of being held accountable and getting sued in the event of a formal lawsuit or other claims in pertaining to injury, negligence, and malpractice. The coverage of the policy includes any financial liability incurred as well as the expenses associated with the business’ legal defense. Not all industries are the same and with this, your plan should depend on your line of your business, risks, and coverage needs.
What are the three types of Business Liability Insurance?
There are three major types of business liability insurance namely, General Liability insurance, Professional Liability insurance, and Product Liability insurance.
1. General Liability Insurance
Getting a General Liability Insurance (GL) is a great starting point for newbie business owners. The policy outlines the maximum amount the insurance company is able to pay against a liability claim such as injury and property damage which can arise from your business operations.
It may be the only business insurance plan you may need but again, it depends on your line of business. A GL can be purchased on its own or can be included in an all-encompassing Business Owner’s Policy (BOP) which bundles liability insurance and property insurance into one policy.
2. Professional Liability Insurance
Businesses including advice- and service-providing firms find the coverage of GLs not enough for their needs. They may require a Professional Liability Insurance, a policy that protects professional individuals and businesses from bearing the full cost of defending against claims of medical or legal negligence, errors, and omissions.
Mistakes, like wrong analysis and recommendations, can occur in almost any transaction. When clients claim that they’ve suffered medically and financially when the professional services failed to live up to their expectations, they may file lawsuits against your company. In many cases, it may be a legal requirement to obtain such policy.
To name a few, professional service providers like lawyers, accountants, consultants, real estate agents, insurance agents, IT service providers, and quality control specialists should acquire such policy.
3. Product Liability Insurance
If your business provides products, then it’s a top priority to protect your business against claims of damage or injury that may arise from using these products. Let’s cite some examples: slight electric stove defects may burn a house down; failure to include some side effects may cause more harm than good to medicine takers; and referring to the example above, a customer may get hospitalized by eating an allergen-infused burger by accident.
Product Liability insurance ensures that when any of these happen, you don’t have to bear the legal or medical costs. The policy is recommended for any business that manufactures, supplies, and retails products to the public, from consumables (food, beauty products, etc) to durables (home appliances, electronics, and furniture). The level of risk, as well as the amount of coverage, depends on the nature of your business.
What business liability insurance policies (in general) DO cover
A large claim is equivalent to a large compensation, devastating company’s profits, and reputation. Business policies seek to minimize these heavy burdens for companies by covering four types of claims: physical damage to property, injuries, lawsuits filed against your company, and even income losses.
Most insurers don’t provide a limit greater than $1 million per occurrence (for General Liability). For instance, if your business gets sued for $150,000 for medical costs plus additional $100,000 in legal fees but your coverage only provides $200,000, then you should compensate for the $50,000 balance.
What business liability insurance policies DO NOT cover
Just because you availed an insurance policy does not mean you’re a hundred percent covered. There are certain scenarios when your business insurance policy won’t save you or your business:
- When you personally injure a person
- When you personally guarantee a business loan or debt
- When you fail to manage your business taxes properly
- When you commit an irresponsible/unlawful act
- When you combine business and personal accounts or expenses
Author Bio: Carmina Natividad is a resident writer for Insurance Adviser, one of the largest and most credible General Insurance businesses in Australia and New Zealand, providiving high quality risk management advice for business owners.