What is ‘Liability Insurance’
Liability insurance is any type of insurance policy that protects an individual or business from the risk that they may be sued and held legally liable for something such as malpractice, injury or negligence. Liability insurance policies cover both legal costs and any legal payouts for which the insured would be responsible if found legally liable. Intentional damage and contractual liabilities are typically not covered in these types of policies.
BREAKING DOWN ‘Liability Insurance’
Liability insurance is very important for those who may be held legally liable for the injuries of others, especially medical practitioners and business owners. A product manufacturer may purchase product liability insurance to cover them if a product is faulty and causes damage to the purchasers or any other third party. Business owners may purchase liability insurance that covers them if an employee is injured during business operations.
Various Types of Liability Insurance
Business owners are exposed to a range of liabilities, any of which can subject their assets to substantial claims. All business owners need to have in place an asset protection plan built around available liability insurance coverages, including the following types.
Commercial general liability insurance protects a business from claims arising from bodily injuries that occur within the workplace, or injuries or damage caused by company employees. A common accident that occurs in workplaces is when a customer slips on a wet floor. Should an employee accidently damage a customer’s vehicle with a piece of equipment, the coverage will pay the cost of repairs. A general liability policy will cover a company’s legal costs as well as the judgment or settlement amount.
Employer’s liability and Workers’ Compensation is a compulsory coverage in all states for employers, which protects the business against liabilities arising from injuries or death of an employee.
Product liability insurance is for businesses that manufacturer products for sale on the general market. Product liability insurance protects against lawsuits arising from injury or death caused by their products.
Indemnity insurance provides coverage to protect a business against negligence claims due to financial harm resulting from mistakes or failure to perform. Errors and omissions (E&O) coverage is required by businesses engaged in financial and legal services, such as insurance, accounting, mortgage lending and law firms. Other professions and occupations, such as contractors, consultants and maintenance professionals carry indemnity insurance as a practical matter because of their exposure to “failure to perform” claims.
Director and officer liability coverage is for a business that has a board of directors or officers, with the insurance covering them against liability if the business is sued. While a corporation by definition offers some amount of personal protection against liability to employees and directors, some companies choose to offer additional protection to those key members of the executive team.
Umbrella liability policy is a personal liability policy designed to protect against catastrophic losses. Generally, umbrella liability coverage kicks in when the liability limits of other insurance are reached.
Business Liability Insurance
Insurance that protects a company and/or business owner in the event of a formal lawsuit or other third-party claim. Coverage includes any financial liability incurred in addition to expenses related to the company’s legal defense. There are three main types of business liability insurance: general liability insurance, professional liability insurance and product liability insurance.
BREAKING DOWN ‘Business Liability Insurance’
If you are a small business owner, your form of ownership – especially a partnership or sole proprietorship – could put your personal finances at risk in the event of a business-related lawsuit. Even under a limited liability corporation (LLC) you could still be exposed to personal risk. Business liability insurance can provide you with greater insurance protection than is offered by your legal structure.
New or additional insurance policies should contain an exclusions clause to minimize cost by avoiding duplications of coverage provided in other policies and/or to eliminate any unneeded coverage.