How the Insurance Provided by a Liability Policy Applies to Your Business

A liability policy can provide crucial financial protection for your business in the event of a lawsuit or other legal action.

This type of policy can cover damages or injuries caused to others as a result of your business operations, such as property damage or personal injury.

The policy can also cover the costs of defending yourself against a lawsuit, including attorney fees and court costs.

In the event of a claim, your liability policy can help cover the costs of damages or injuries, helping to prevent financial ruin for your business.

Liability policies cover a wide range of situations where you're liable for someone else's injuries or damaged property. Liability insurance protects you financially if you're responsible for someone else's injuries or damaged property.

Liability coverage can help with accidents like backing into someone's car, which could pay for the damage to their vehicle. Most vehicle and property insurance policies, including auto and homeowners insurance, come with liability coverage.

Worth a look: Vehicle Insurance

Liability policies can also cover damages that you're legally obligated to pay as a result of bodily injury, property damage, or personal and advertising injury. This includes injuries that are emotional or mental, such as post-traumatic stress syndrome or humiliation.

Bodily injury means injury, sickness, disease, or death, and may include injuries that are emotional or mental. Personal and advertising injury includes libel, slander, or any defamatory or disparaging material.

Liability policies may also cover situations where you're providing advice, expertise, or professional services, and you risk being sued by a customer or client who claims they were injured due to your negligent act, error, or omission.

Here are some examples of what liability coverage may cover, broken out by type of insurance:

In addition to these examples, liability policies can also cover:

It's worth noting that liability policies often refer to an "occurrence", which is defined as an accident, including continuous or repeated exposure to substantially the same harmful conditions. This means that liability policies can cover situations where harm was done because of an ongoing situation, such as a person developing allergic asthma from breathing dust from a chicken farm over many months.

When purchasing a liability policy, you have several options to consider. For small businesses, the most efficient and least expensive way to purchase liability insurance is usually as part of the Businessowners Policy (BOP). This policy combines property and liability insurance in one contract.

A Commercial General Liability policy is also a viable option, offering protection against various types of claims. This type of policy is often purchased separately from property insurance.

For more insights, see: Business Property and Liability Insurance

When purchasing liability insurance, it's essential to understand the different policy types and options available. A Businessowners Policy (BOP) is a cost-effective way for small businesses to purchase liability insurance, combining property and liability insurance in one contract.

A Claims Made policy covers a business based on the policy that's in force when the claim is made, regardless of when the incident occurred. This type of policy can be beneficial for businesses with a history of claims.

Liability insurance coverage protects you financially if you're responsible for someone else's injuries or damaged property. Most vehicle and property insurance policies, including auto and homeowners insurance, come with liability coverage.

You'll choose a coverage limit when quoting a policy with liability coverage, which is the maximum amount your policy will pay for injuries or property damage you cause to others. Consider choosing a liability limit that matches or exceeds your total net worth.

There are two major forms of liability insurance policies: Occurrence and Claims Made. An Occurrence policy covers a business for harm to others caused by incidents that occurred while a policy is in force, no matter when the claim is filed.

You may need to consider additional liability coverages, such as Umbrella Liability Insurance, Errors and Omissions Liability Coverage/Professional Liability Insurance, or Directors and Officers (D&O) Liability Insurance, depending on the nature of your business and its risk exposures.

Here are some examples of liability coverages you may need:

Higher deductibles are another means of lowering premiums, but make sure you can afford to pay the deductible you select.

Endorsements can be a powerful tool for businesses, allowing them to tap into the influence of others to promote their products or services.

A business owner's opinion (BOP) is a type of endorsement that can be particularly effective, as it comes from someone with a vested interest in the business.

Endorsements can be used to build credibility and trust with potential customers.

For example, a BOP can highlight the business owner's personal experience with the product or service, making it more relatable and authentic.

A BOP can also be used to showcase the business owner's expertise and knowledge in the industry.

Worth a look: What Are Endorsements on Insurance Policies

The limits of your liability coverage are set forth in your policy "Declarations", which describe how the limits will be applied. The amounts are the most the insurer will pay, regardless of the number of persons or organizations making claims.

A single occurrence can produce many costly liability claims, so it's essential to understand how the limits work. A fire due to negligence that spreads from your building to destroy neighboring structures and causes a death could result in significant claims against you.

Liability limits are divided into two sections: one for bodily injury and property damage from a single occurrence, and another for aggregate limits, which apply when you have more than one occurrence during the policy period.

Here's a breakdown of the aggregate limits:

For higher coverage limits, you may need to consider an umbrella policy.

Liability and damages are determined by the law of the state where the lawsuit is filed, setting the rules for the determination of both.

The amount of damages imposed in any particular case is in part a function of the economic losses the plaintiff can prove they have endured due to the defendant's negligence.

If the parties don't agree to settle a liability lawsuit, there may be a trial, or they may agree to use alternative means of dispute resolution, such as arbitration, and be bound by the arbitrator's ruling.

The legal meaning of negligence is failure to exercise reasonable care, which can include not repairing a pothole in a parking lot, not lighting a dark stairway, or failing to train workers how to do their jobs safely and legally.

Curious to learn more? Check out: Most Liability Policies Do Not Provide Coverage for

Policy limits are set forth in your policy "Declarations" page, and they describe how the limits will be applied.

The most the insurer will pay for either all damages due to bodily injuries, property damage, and medical expenses arising from one occurrence or personal and advertising injury sustained by one person or organization depends on the circumstances.

A single occurrence can produce many costly liability claims, and the value of all claims against you could be significant, even if there was only one occurrence.

The policy has aggregate limits, which apply when you have more than one occurrence that results in bodily injury and/or property damage during the policy period.

Here are the two sections of aggregate limits:

For higher coverage limits, you will need an umbrella policy.

As you're considering your business's liability coverage, it's essential to understand who is insured under a BOP policy.

The good news is that a BOP policy insures the business owner, partners, and their spouses, so long as they're performing duties on behalf of the business.

A BOP policy also covers officers and directors, as well as stockholders, but only for their duties related to the business.

Employees and volunteer workers are insured for any acts they commit while working within the scope of their employment.

Insurance policies are issued by insurance companies, also known as insurers, who specialize in managing risk.

Liability policies can be issued by various types of insurers, including property and casualty insurers, who cover a wide range of risks.

Insurers assess the risk level of each policyholder and set premiums accordingly, taking into account factors such as the policyholder's past claims history.

The premium paid by the policyholder is the cost of transferring the risk to the insurer.

Insurers have a vested interest in minimizing claims payouts, as they directly affect their bottom line.

In general, insurers have a significant amount of control over the claims process, including the right to deny or settle claims.

Professional liability insurance is a type of insurance that protects professionals from lawsuits and financial losses due to their actions or omissions in the course of their work. In the case of Federal employees, the Department of Justice (DOJ) may provide representation in lawsuits, but only if the employee's actions were within the scope of their employment and providing representation would be in the best interests of the United States.

If a Federal employee is sued in their individual capacity, they can request DOJ representation, but they must submit a written request to the agency's designated official. The agency will then review the request and submit a statement to DOJ, which will determine whether the employee's actions reasonably appear to have been performed within the scope of their employment.

In the past, DOJ received over 7,000 requests for representation from Federal employees, and rejected only 150 of those requests. This suggests that DOJ is generally supportive of providing representation to Federal employees in lawsuits.

There are some exceptions to DOJ representation, however. For example, representation is generally not available in Federal criminal proceedings, because it would create a conflict of interest for the DOJ to both prosecute and defend the case.

If a conflict of interest arises in a lawsuit, DOJ may separate the employees into different groups and provide each group with separate representation. In some cases, private representation may be provided to all conflicting groups, and the employee may be reimbursed for private counsel fees.

In the event of a judgment for money damages, the Federal employee may apply for indemnification from their employing agency. In fact, over the past 5 years, only 14 Federal employees were found personally liable in lawsuits, and in 11 of those cases, their agencies indemnified them.

Liability policies have their share of exclusions. Injuries to employees are not covered because workers compensation insurance usually takes care of work-related injuries.

Damage to your own property is also excluded, as it's typically covered by your property insurance. This is why you need to have separate policies for different types of risks.

The standard policy form doesn't provide coverage for product recalls or damaged property due to suspected defects.

Cancellation or discontinuance of insurance can happen for various reasons, and it's essential to understand the process and potential reimbursement.

If you discontinue or cancel your Professional Liability Insurance before the end of the coverage year, you may be eligible for reimbursement on a pro-rated basis.

Employees who discontinue or cancel their Professional Liability Insurance should submit the Professional Liability Insurance Reimbursement Claim Form and supporting documentation to the SHRO as soon as possible to receive reimbursement for premiums.

This ensures that you don't miss out on potential reimbursement for the premiums you've paid.

The standard BOP liability coverage has its limits. Injuries to employees are excluded because they're usually covered by workers compensation insurance.

Some businesses may need extra coverage for pollution or professional services, but these are excluded from the standard policy. Auto liability is also excluded because it's covered by a businessowners auto policy.

Damage to your own property is excluded because it's covered by your property insurance. This makes sense, as you already have protection for your own assets.

A recall of products or work due to a suspected defect is not covered by the standard policy. However, you can purchase a Product Withdrawal Expense Endorsement to cover some of this risk.

If you manufacture, sell, or distribute a product, there's a possibility it could cause bodily injury or property damage for which you'd be legally liable.

Manufacturing, selling, or distributing a product can be a high-risk activity, especially if it's used in a way that's not intended.

To be covered under the "products completed operations" hazard, the injury or damage must occur away from your own premises, unless your business includes selling, handling, or distributing your product for consumption on premises you own or rent.

This means if you sell a product that's meant to be used on-site, you could still be liable if it causes damage.

Bodily injury and property damage are the two main risks covered under the "products completed operations" hazard.

Property damage includes physical damage to tangible property, such as a building or a car, and loss of use of that property.

Tax can be a complex topic, but fortunately, there are some tax benefits to be aware of. Reimbursement for Professional Liability Insurance premiums is tax exempt.

This is because it meets the definition of an "accountable plan" under Internal Revenue Service Code.