Liability insurance provides businesses of all kinds – from beauty salons and photographers to marketing agencies and IT firms – an essential layer of protection against lawsuits arising from accidental injury or property damage claims. From beauty salons and photographers to marketing agencies and IT firms, most industries face this threat.
Auto and BOP policies are the two most frequently purchased liability policies, providing both bodily injury and property damage coverage.
What It Covers
Liability insurance (sometimes known as third-party liability coverage) protects its insured against injury or property damage caused by their unwitting negligence, unlike property policies which aim to compensate only their own damages. Instead, liability coverage offers compensation to “third parties,” such as medical bills, repairs to property or legal fees that arise as a result of your unintended actions. It’s crucial for anyone running their own business, driving cars for hire or owning expensive equipment to have liability protection in place.
Imagine your employees working on a project and they accidently break a window or spill water onto an electrical cord, leading to expensive repairs and possibly lost work hours. However, bodily injury and property damage coverage in a general commercial policy may help cover these expenses.
Other examples could include when a customer falls and gets injured on your property, or one of your products damages someone’s person or belongings. You can obtain additional protection against these events with workers’ compensation insurance policies, product liability coverages, directors and officers liability coverage (D&O), or professional liability coverage which are often included as part of general commercial liability policies for counselors, physical therapists, dentists, pharmacists and other healthcare providers.
Your specific business requirements determine which form of insurance coverage best meets them, but typically liability and property coverages should be combined in one business owner’s policy (BOP). Your Cleary representative can assist in choosing an ideal BOP solution.
Liability Limits
As a business owner, you need to protect your operations from financial strain caused by unexpected injuries and damages. Liability insurance provides this protection; however, the type of policy depends on your individual needs. Understanding coverage limits is critical as they determine how much an insurer must pay out if a claim exceeds this cap; failing to do so could leave you open to higher expenses than anticipated if a claim exceeds this threshold.
Your liability limits for your business depend on its specific risks and industry. For instance, a coffee shop with significant foot traffic might require higher limits than a small tax preparer’s office. When deciding on your liability limits for either property damage or bodily injury claims from third parties, keep this information in mind along with size of operations as a factor in making this determination.
Liability insurance should generally match your net worth (i.e. the sum of all assets less debts). You can purchase additional coverage to increase these limits and provide more protection for your business, however insurance providers often require proof of financial stability before increasing them further; so it is wise to evaluate both finances and risk regularly.
Backdated Coverage
Traditional insurance policies generally focus on assessing risk and compensating policyholders for potential losses, while backdated liability coverage provides compensation for claims filed prior to policy inception. This type of policy provides law firms with peace of mind and financial protection from events that might happen in the past.
Backdated insurance can have significant legal ramifications for both insurers and insureds, making the choice of backdated policies an important one. When considering this approach, it is vital that legal advice be sought from experienced experts in order to maintain transparency and good faith between all parties involved, which will help avoid disputes due to miscommunication or misrepresentation of terms between all involved.
Backdated insurance policies tend to be more costly than other forms of coverage due to their necessity of covering any losses that have already happened. Therefore, it is crucial that each case meets all eligibility criteria and determine the most cost-effective liability allocation method.
Imagine that an law firm unwittingly made an error five years ago which caused significant financial losses for one of their clients, without a backdated insurance policy it would likely need to cover this claim out-of-pocket but with backdated coverage it would receive compensation to help offset its reputation and client relationships.
Additional Coverage
Your insurer typically limits how much they will pay per “occurrence,” though this doesn’t always reflect actual damages; for instance, if a fire caused by your negligence were to burn several structures while injuring multiple people and damaging multiple vehicles simultaneously – this would count as one occurrence with multiple claims potentially stemming from it.
Your maximum coverage limit should be listed on your policy declarations page alongside its individual coverages, for instance property damage only or both property and personal injuries (which includes advertising injuries such as libel and slander).
Your business type will ultimately dictate how much liability protection is necessary. A retail store might require general liability coverage to guard against damages to customer property and bodily injuries; on the other hand, contractors should add workers’ compensation coverage in their policies as protection from employee lawsuits.
Your insurer can also offer additional protection via endorsement or addendum. For example, if you work regularly with other businesses that share responsibility for any accidents at their location, an endorsement typically allows you to add them as additional insureds through separate coverage.
