No matter how careful you may be, your business may at times cause harm to someone else. A customer may slip on your business's floor and break a leg. A client may say your business's advice led to a loss in money. A manager may be accused of sexually harassing another colleague. Since you can't eliminate the risk of your business being directly or indirectly responsible for someone else's misfortune, the best thing you can do is make sure you're prepared if it happens. Business liability insurance provides the financial protection that you need to do so.
There are a number of costs that business liability insurance will cover. Most policies will pay for damages to the person who is found to be hurt by your business's practices. They also will typically pay for the attorneys' fees that are racked up to defend your case. Sometimes business liability insurance policies will even pay for the medical costs of someone who is physically injured on your business's property or as a result of your business's practices.
While all business liability insurance is designed to protect your business when you're found to be at fault, different policies have different focuses.
Professional liability insurance. This will pay for damages if someone is harmed as a result of the service or product that you offer. Say you own a coffee shop and your employee fails to put the lid on a cup of coffee tightly, causing the coffee to spill and burn a customer. A professional liability insurance policy might pay for the customer's medical bills or other financial damages. Also commonly referred to as errors and omissions liability insurance, this type of policy would also protect you if a client sued you for bad advice or recommendations you or your employees made.
Employment-related practices liability insurance. This protects your company from employee lawsuits. For example, if an employee claims that she was wrongfully terminated or that the hiring process was unfair, this type of liability insurance would kick in.
Liquor liability insurance. This is typically for businesses that sell or dispense alcohol on the premises. If someone is injured as a result of your business providing them with an alcoholic beverage, this insurance policy would pay for damages and legal costs.
Hired and non-owned auto liability insurance. This protects your company from financial losses resulting from the use of vehicles by employees. Specifically, hired and non-owned auto liability insurance refers to incidents involving the use by employees of rental cars or their personal vehicles when conducting business. This differs from a commercial auto liability insurance policy, which would cover drivers of vehicles that your company owns.
Directors and officers liability insurance. This takes care of damages resulting from a decision made by the company's officers or Board of Directors that is found to harm others. If a board member, for example, is accused of insider trading – the illegal activity of buying or selling stock in the company based on access to non-public information -- this type of insurance policy might provide financial relief for legal costs and damages.
Fire legal liability insurance. This protects your company in the event that your business causes a fire that damages a space that belongs to someone else. If you're renting your office space and an employee knocks over a candle that ignites a fire, this type of insurance would pay for property damage.
Depending on the size of your business and the type of work you do, you may not need all of these types of business liability insurance. However, you'd be putting your business at unnecessary risk if you failed to consider any business liability insurance products.