In today's litigious society, even small mishaps can
result in large lawsuits. That's why general liability insurance,
along with property and worker's compensation insurance, are
essential for most companies. Liability insurance protects the
assets of a business when it is sued for something
it did (or didn't do) to cause an injury or property damage.
General liability insurance can be purchased
separately or as part of a business-owner's policy. A Business Owners Policy
bundles property and liability insurance into one policy; however,
the liability coverage limits are generally pretty low. Businesses
that need more coverage usually purchase liability insurance as a
separate policy. The amount of coverage a business needs depends on
a couple of factors:
- Perceived risk.Business owners should first consider the amount of risk
associated with their business. For example, a business that
manufactures heavy machinery is at a greater risk of being sued
than a company that manufactures linens, and would therefore
need more liability insurance.
- The state in which you operate.Businesses that operate in states with a history of awarding
high damage amounts to plaintiffs typically need to carry
liability insurance with higher coverage limits. An insurance
broker can offer guidance in this area.
How General Liability Works
Under a general liability insurance policy, the insurer is obligated
to pay the legal costs of a business in a covered liability claim or
lawsuit. Covered liability claims include bodily injury, property
damage, personal injury, and advertising injury (damage from slander
or false advertising). The insurance company also covers
compensatory and general damages. Punitive damages aren't covered
under general liability insurance policies because they're
considered to be punishment for intentional acts.
General liability insurance policies always state
a maximum amount that the insurer will pay during the policy period.
Usually these policies also list the maximum amount the insurer will
pay per occurrence. For example, if a company has a $1 million
occurrence cap in its liability policy and it's successfully sued
for $1.5 million, the insurer would pay $1 million and the business
would be responsible for paying $500,000.
To cover these types of situations, many companies
purchase umbrella liability insurance, which picks up where their
general liability coverage ends. Umbrella liability covers payments
that exceed their other policy's limits, and provides additional
coverage for liabilities not covered in a standard liability
insurance policy.
Most insurance companies require their
policyholders to report as soon as possible any accidents that could
lead to a liability claim. The insurer may then require the business
owner to document the situation, forward all summonses and legal
notices, and cooperate fully in any investigations.
Taking precautions before an accident can help
keep your liability and insurance rates down. All businesses can
take certain steps to lower the chance of a liability insurance
claim:
- Set a high standard for product quality
control
- Make sure all company records are complete
and up-to-date
- Be sure employees are properly trained
- Get safety tips for your type of business
from your insurance company
