General Liability Insurance: How to Keep your Business Protected
For any business with multiple employees, there are countless scenarios that could result in an unhappy customer filing a lawsuit. Though the possibilities for lawsuits are endless, the lion’s share of those claims is likely to fall into one of two general categories: bodily injury or property damage.
Thankfully, general liability insurance is a vast umbrella that can protect your business from the hefty costs that bodily harm and property damage lawsuits impose. So, how exactly does general liability insurance work? And how can your business benefit from it? Read on for everything you need to know.
What Does General Liability Insurance Cover?
The primary purpose of general liability insurance coverage is to serve as the all-encompassing ace in the hole against common commercial lawsuits like:
- Third-Party Bodily Injury – This insurance policy covers you in the event that any non-employee endures a bodily injury as a result of a “slip-and-fall” or any incident that occurs on your premises. For example, if a customer accidentally trips on the carpet at your location and sustains an injury as a direct result, you’ll be covered
- Third-Party Property Damage – This insurance policy protects you in the event that you or any of your employees cause unintentional damage to someone else’s property. For instance, let’s say you run a grocery store. If one of your shopping carts somehow crashes into a neighboring business’s building, your general liability coverage takes care of the damages. Additionally, you’re covered in the event that you rent or lease your premises from a third-party
- Reputation Harm – Usually filed by one business against another, reputation harm dictates that your business perpetuated either slander or libel that damaged a rival competitor’s reputation. Say, for example, you’re interviewing a prospective employee and argue they should work for you because you treat your employees better than a competitor does. General liability insurance covers you if that competitor finds out about your fighting words and takes legal action
- Advertising Injury – Another classic lawsuit among rival businesses, advertising injury is the claim that your business’s advertising is somehow destructive to another business. For example, say you run a donut shop and post a sign outside your building that reads “best tasting donuts in the neighborhood.” Should that ruffle the feathers of the rival donut shop owner down the block, your general liability coverage sets in
- Completed Operations – Though it’s primarily only relevant to contractors and construction workers, completed operations insurance is included as part of most general liability plans. This protects you from any claims filed against you related to past for-hire assignments you’ve completed. For example, if you’re a repairman who fixed the roof of someone’s garage ten years ago, and the roof recently collapsed, you’re protected by your coverage
How Will This Coverage Benefit My Business?
Because it covers such a broad scope of common work-related mishaps and the bank-breaking fees that come with them, general liability insurance kicks the door open for your business to benefit in a multitude of ways, such as:
Responding Back to Respondeat Superior
Latin may be a dead language, but there’s one phrase every small business owner should know: respondeat superior. It basically means that the accountability for anything that goes wrong lies with the person in charge. And, fair or not, it’s the golden rule that dictates lawsuits filed against small businesses.
In the eyes of the law, you’re fully responsible for not only your own actions at work, but also every one of your employees, the equipment at your premises, and even Mother Nature herself. This means that the fees associated with any lawsuit filed against your business, even if it came about due to circumstances completely out of your control, comes out of your wallet.
What Kind of Fees are we Talking About, Here?
One thing that all business-related lawsuits have in common is that they’re expensive. Shut your lights out expensive. To put it into greater perspective, here are the typical costs of general liability lawsuits for business owners who don’t have insurance:
- Property Damage: Between $2,5000 and $15,000, depending on state law
- Slip-and-fall incident: $20,000
- Customer injury: $35,000
- Reputation harm: $50,000
Unless you’re Amazon or some giant corporation, there’s a slim-to-none chance your business will survive costs like that. But with a general liability insurance policy in place, you won’t lose sleep worrying about the unexpected. You can rest easy knowing you’re protected from costs related to:
- Lawsuits, investigations, judgements, settlements, compensatory and punitive damages, and non-monetary losses sustained by the injured person
- Attorney fees
- Witness fees and evidence costs
- The medical expenses of the person who is injured on your premises
- Any damages you are legally responsible for
- Abuse liability
Likewise, you have peace of mind knowing that you won’t be held responsible for instances when your employees do the unexpected.
Increasing Your Chances of Sealing the Deal with Potential Business Partners
Part of growing your small business means teaming up with larger companies. When attempting to strike a business deal with a large company, the first question they’ll ask right after “what is it that you do?” will be “do you have insurance?” And the first type of insurance they’ll inquire about is your general liability plan.
If your answer is no, you might as well shake their hands and apologize for wasting their time, because the meeting is as good as over. Why? A lawsuit that puts you out of business will disable you from completing the services you agreed upon with them, which by extension, puts them in the lurch.
Large businesses want assurance that you’ll be able to deliver on your end come hell or high water. And they’ve been around the block enough times to know that, in business, what can go wrong will go wrong.
The Ugly Stat for Work-Related Lawsuits
But I run a reputable business and take great care of my building. No one would ever file a lawsuit against me, you might say. Well, roughly 40% of small business owners who have claims filed against them every year probably say the same thing. No business owner envisions being hit with a lawsuit. Until it happens.
While that statistic may seem high, it actually makes sense when you consider how the US legal system works. Even if a claim is filed by a pathological liar with zero ground to stand on, the US judicial system is forced to take the claim seriously.
Because virtually anyone can take you to court regardless of their credibility, shirking general liability insurance is like tying yourself to a train track and leaving it up to chance that the train never comes. Conversely, having general liability insurance helps prove that you’re a serious businessperson who is willing to take responsibility for their entire operation and has the best interests of their employees and customers at heart.
Why LLC’s Don’t Cut it
A common misconception many business owners have is that, if they establish their business as a limited liability company, or LLC, it will negate the need for general liability insurance.
This logic is easy to track, as LLC’s do protect you from liabilities such as debt and combats respondeat superior by freeing you from culpability for certain employee actions. But there’s a limit to what LLC’s cover, as they don’t protect you from claims filed against you for:
- Negligence or acting irresponsibly
- Doing something illegal, regardless of whether or not you knew it was illegal beforehand
- Mixing business expenses with personal expenses
Unless you’re like Leonardo DiCaprio’s character in The Wolf of Wall Street, you don’t plan on committing any action with the intention of breaking the law or being negligent. But everyone, even a business owner, is prone to making honest mistakes that LLC’s can’t protect you from.
Business Owners’ Policies
Though general liability insurance casts a wide net in covering bodily injuries and property damage, the net doesn’t extend to your own staff and building.
If one of your employees is injured, that gets covered through the workers’ compensation insurance you’re required to purchase by law. Damage to your own property is covered by commercial property insurance.
If your business falls into the low risk category, most insurance providers can help you save a tremendous amount of money by allowing you to bundle general liability and commercial property insurance into one “business owner’s policy.”
Since purchasing a general liability insurance premium is often considered part of the “cost of doing business,” it’s oftentimes tax deductible. Every policy is constructed a little differently, so make sure you double-check any deductions you claim with a tax professional.
Excess of Loss Insurance
What if the nature of your small business involves such high risks that a conventional general liability insurance plan doesn’t cover them? There’s good news: most insurance providers afford you the option of an excess loss of insurance, or umbrella policy.
This stretches your policy limits so that it can cover the immense premium cost needed for your “jumping through hoops of fire” business or whatever it is you do.
Some business insurance providers are more flexible than others in their policy limits. But if you search hard enough, you may be able to find a general liability insurance plan that includes the following additional features:
- Commercial Auto Liability – While general liability insurance won’t cover your personal automobile, you can expand the coverage to vehicles that you lease short-term for the purpose of transporting equipment, products or employees. Additionally, you can extend coverage to employees who use their personal vehicles for business on a frequent basis (e.g. delivery drivers)
- Cyber Liability Insurance – With computer hacking continuing to occur at an alarming rate all over the world, protecting your business from identity theft and data breaches is more important now than ever before. Whether an employee or customer’s data is compromised electronically or on paper, this protects you from having to pay data recovery costs so high, you don’t even want to know what they are (a hint: it can eclipse millions)
How is the Cost of General Liability Insurance Determined?
When a business insurance provider assesses your small business in order to determine your final quote, the following factors are taken into account:
- Perceived Risk – Insurance providers will evaluate the nature of your business itself (i.e. which industry is it in? What type of business is conducted? What kind of equipment is involved? etc.), and judge how much of a risk it presents. For example, a lumberjack will need more coverage than a caricature artist
- Location, Location, Location – Assessing risk is based not only on your small business’s operations, but also on where it’s physically located. The location of the neighborhood itself as well as the regional weather patterns, climate, and geography are all given consideration. For example, opening a business in Beverly Hills is a lesser risk than opening one on the South Side of Chicago. Likewise, a business located in a temperate climate requires less coverage than one built next to the San Andreas Fault
- Size and Condition of Premises – In addition to the location of your small business, insurance providers take a close look at the current condition of your premises to determine if the building is large enough to host your operations comfortably, and if the building itself is in adequate shape from a maintenance standpoint
- Number of Employees – The risk that insurance providers associate with your staff is simple: the more people you keep on your payroll, the greater the chances of a mishap occurring
- Your Experience – This is another simple calculation. In the eyes of insurance providers, the longer you’ve worked in your industry, the lesser the chances of something going wrong
- Your Claims History – Insurance providers also want to make sure that you’re unlikely to try scamming them. Having one past claim on record won’t necessarily affect your final quote. But having several past claims will raise eyebrows, and ultimately prices
Though a general liability policy isn’t required by law, it’s basically a must-have for small business owners. The invaluable benefits general liability insurance offer will pay for themselves.
Call a NOW Insurance agent today for competitive rates on your next general liability policy and the peace of mind that comes with it. It’s imperative to follow the adage it’s better to be safe than sorry. Because an apology in this case could cost you millions or sink your business.
- “Business Liability Insurance” by Julia Kagan https://www.investopedia.com/terms/b/business-liability-insurance.asp
- “Small Business Insurance Do’s and Don’ts” by The National Federation of Independent Business https://www.nfib.com/content/resources/insurance/bizhelp-small-business-insurance-dos-and-donts-74003/