What Insurance Policies Protect You From Legal Liability?
Being a business owner means being concerned about legal liability. It’s simply part of the job. Legal liability is when you are obligated to compensate another individual for damages you cause them. This can be fairly complicated because it includes damages you cause to both their physical and mental health, and property. Additionally, being liable doesn’t necessarily mean that you intentionally harmed them. A mere accident on your part that injures another person or their property can create legal liability. Many business owners are often surprised to find out how much they can be held liable for, even situations or environments they don’t have any direct control over can lead to liability for them.
It is impossible to avoid all instances in which you could be legally liable to another individual, and even the most careful person can find themselves on the wrong side of a lawsuit. The best thing you can do to protect your business is insure yourself against liability exposures. Here are a few common policies that can help you do that.
Protect Your Business From Liability
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General Liability Insurance
General liability insurance is designed to protect against customer injuries, damage to customer property, and resulting lawsuits. Simply put, if you act in a way that causes bodily injury or property damage to another individual, it would be covered by general liability insurance. For example, if you own a construction company and a piece of your building falls because it was improperly secured and hits a pedestrian in the head, you would be legally liable for their injury. However, your general liability policy would cover this injury.
Similarly, if that same piece of the building fell and hit a car in the parking lot, you would be liable for the damage done to the vehicle. This would also be covered under your general liability insurance.
Business Owners Policy
A business owners policy is a bundle of both general liability and commercial property coverage. This policy covers the same liability exposures discussed above in the general liability section, and also covers damage to your commercial property. This includes the physical building you own and operate out of, as well as any completed additions or fixtures. For example, if your building burned down, this policy would cover the loss of the building as well as provide general liability coverage if any person or their property were harmed in the fire.
This policy is designed to cover small businesses with low-risk exposures, such as retail stores, local restaurants, and professional offices. It is not a good fit for larger businesses with higher risk exposures, such as general contractors, hazardous waste removal companies, and large-scale trucking companies.
Errors and Omissions Insurance
An errors and omissions policy covers you and your in-house experts in case there is a professional mistake or deadline missed that negatively impacts a client. (This policy is also referred to as professional liability insurance.) The legal field is one example of an industry that would need an errors and omissions policy. If a lawyer failed to file a client's lawsuit by the required deadline and the client lost the ability to obtain financial compensation due to this error, the lawyer would be legally liable to the client. However, an errors and omissions policy would help cover this liability.
Workers Compensation Insurance
Workers compensation insurance provides financial assistance to employees who are injured on the job as a result of the work they were performing. If one of your employees is injured on the jobsite, you can be legally liable even if you have taken every precaution to ensure their safety. For example, if you own a construction company and provide your employees with top-of-the-line safety gear, regular safety training, and only hire experienced, intelligent workers, you are clearly taking every precaution possible. However, accidents still happen. If a worker accidentally shoots a nail into their hand, you could be legally liable for their injury, even though none of your actions or precautions caused the injury.
Your workers compensation insurance would not only pay for your employee’s medical bills, but also their lost wages for the time they were unable to work while recovering from their injury.
Commercial Auto Insurance
Commercial auto insurance provides coverage when a driver of a company vehicle causes bodily injuries and property damage to others. This protects you from liability that arises out of a car accident, the same as a normal auto policy would. However, it is specifically designed to cover work vehicles or accidents caused by an employee while performing work-related tasks.
One common example of this is in the trucking industry. If you own a trucking company and your driver causes an accident, your commercial auto policy would cover your legal liability to the injured party. It would not only cover your liability for the physical damage to their vehicle, but also the injuries they sustained as a result of the accident.
Employment Practices Liability Insurance (EPLI)
Employment practices liability insurance (EPLI) covers lawsuit expenses when an employee sues over employment issues, such as sexual harassment or wrongful termination. Most businesses are prepared with insurance that covers physical damage to a person’s property or body, but they often forget about liability arising out of employment issues. There has been a significant increase in lawsuits resulting from employment practices in recent years.
For example, if one of your managers discriminates on the basis of a protected class, you can be legally liable. This is true even if you take every precaution to ensure the manager you hired follows the law and employment guidelines. In other instances, employers will run a background check on their employees and think they are safe from liability as long as it comes back without any criminal history. That is not the case. If your employees behave inappropriately or out of character, it can cause serious harm to your business. EPLI will help keep you covered from these types of issues.
The Bottom Line
Even if you take every possible precaution with your business, you can still find yourself on the wrong end of a costly lawsuit. The best way to protect yourself and your business from the most devastating legal liability is to identify your greatest risks in your business, and purchase an insurance policy that will cover those exposures. If you are worried about legal liability exposures in your business, give us a call and one of our experts will help identify which policies you need to keep your business safe.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.
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