Owning a business inherently comes with its fair share of risks, regardless of the precautions you put in place. You could be dotting all your i’s and crossing your t’s yet still find your company vulnerable to unforeseen litigation.
While no business owner ever imagines being in a position where they need to defend themselves in court, it certainly happens. Claims can arise unexpectedly and expose your company to substantial financial loss. So, how can you safeguard your business against such risks? The answer lies in commercial liability insurance.
Commercial liability insurance reduces the risk of significant monetary loss by offering legal and financial coverage. Let’s take a close look at three types of commercial liability insurance and explore how each one provides financial coverage for your business.
General Liability Insurance
General Liability insurance, the most widely used form of liability insurance, provides various types of coverage related to a lawsuit. The coverage typically includes financial protection against claims of physical injury, damages to another’s property, and legal fees and settlement costs. This coverage can provide significant financial relief during a potentially stressful time.
Certain industries with higher risk factors, such as construction, often require General Liability insurance. In these industries, the likelihood of accidents or injury is markedly higher than in others. The requirement for General Liability insurance ensures that these businesses have adequate protection against the myriad of risks they face daily.
General Liability Insurance Example
Let’s consider a practical example to better understand how General Liability insurance functions. Imagine a customer slips and falls inside a floral shop and sustains injuries. If the customer decides to sue the owner for medical costs and damages, the ensuing legal battle could be financially draining.
If the floral shop has a General Liability insurance policy, it will provide coverage for the expenses related to the lawsuit. This includes legal fees, medical payments if the flower shop is found liable, and any settlements awarded to the customer. Because of the policy, the business can continue to operate without a significant financial burden.
Errors and Omissions Liability Insurance
Errors and Omissions Liability insurance, also called E&O or Professional Liability insurance, protects businesses that provide professional services. This includes businesses that offer advice, consultation, and knowledge-based services.
E&O insurance typically provides coverage for financial losses incurred by your clients or customers because of your company’s actions or inaction. This can include claims of negligence, misrepresentation of goods and services, inaccurate or harmful counsel, violation of “good faith” terms of an agreement or contract, and other similar claims. E&O insurance also covers the legal fees and settlement costs that may arise from such claims.
Errors and Omissions Liability Insurance Example
Suppose a financial advisor advises a client to invest in a specific stock, but the investment performs poorly, leading to significant losses for the client. The client decides to file a lawsuit against the financial advisor for providing bad advice.
If the financial advisor has E&O insurance, this policy will be triggered when the claim is filed, and the coverage will begin to take effect. Specifically, the policy will provide coverage for defense costs, mediation expenses, and any damages or settlements that are awarded to the client up to the policy limit.
Directors and Officers Liability Insurance
Directors and Officers Liability insurance, also known as D&O Liability, provides financial protection for corporate executives who face risks managing their organization. Despite their best intentions, corporate directors and officers can face difficult situations where their actions are put under scrutiny.
They may be personally sued by employees, vendors, competitors, investors, customers, or other stakeholders who have suffered losses or perceived wrongdoing. D&O Liability insurance provides a safety net by protecting the personal assets of the executives, protecting them from individual financial ruin.
Directors and Officers Liability insurance provides coverage for a variety of incidents that can arise while running a company, such as mistakes or missing information in company accounts or financial documents and failing to enforce HR policies.
Directors and Officers Liability Insurance Example
Consider a rising tech company that had a successful initial public offering (IPO). The excitement around the company led to a high stock price at launch. However, soon after the IPO, some irregularities were discovered in the company’s financial statements. Specifically, the revenue had been overstated, leading to a significant loss for shareholders.
Shareholders not only lost money but also felt that the company and its management had misled them through the IPO process. Shareholders decided to sue the company, its directors, and officers for fraud, claiming that they had knowingly published false financial statements to inflate the stock price.
This is where D&O coverage comes into play. When the claim was made against the company and its management, the D&O insurance policy was triggered. The policy provided coverage for legal costs to defend the directors and officers as well as any loss the insured is found liable for (up to the policy limit).
In this example, the D&O coverage was vital for the company’s management, as the legal costs to defend the case could have been debilitating without the insurance coverage. Moreover, if the court had found the directors and officers liable, the insurance policy would have further provided coverage for the loss they were found liable for (up to policy limits).
Commercial Liability Insurance from Christian-Baker Company
At Christian-Baker Company, we recognize that each business is unique, and their insurance needs can vary depending on the products they offer, services they provide, and industry they operate within. Our team has a deep understanding of the intricacies of commercial liability insurance and can help guide you to the right coverage options for your business.
With access to over 50 different carriers, we can source the best policy that meets your business’s unique needs. Our team has extensive experience working with clients from various industries, providing expert advice and solutions to ensure adequate coverage.
If you’re unsure whether your current commercial insurance policies provide adequate protection or if you’re interested in learning more about liability insurance, we encourage you to contact us today.
Our team will review your current policies, identify any potential gaps, and provide recommendations to ensure that your business is adequately protected. At Christian-Baker Company, we work for you, not the insurance company. Contact us today to learn more.
