Understanding how business liability insurances protects your company

As a self-employed person or small business owner, having the right insurance is everything.

Most businesses don't consider their doors open and ready for customers without a full battery of liability and premises insurance protection. And for good reason.

Insurance isn't just something you have to have according to laws or industry regulations; it's a type of legal and financial protection that every business needs, no matter how big or small.

While everyone can see the importance of insuring your physical building and its contents, it may be more difficult to see the big picture when it comes to liability insurance. Why do you need so much insurance, why so many layered policies?

That is exactly what we are here to answer today.

Accidents happen. A customer may slip on icy pavement in your parking lot. A product may malfunction causing property damage. Or your business might just become the target of a personal injury fraud.

Without the right liability insurance coverage, that revenue you've been nurturing will suddenly be on the hook for attorney fees and civil-court damages the likes of which you've never seen before. Which is why every modern business layers on the liability insurance like a protective coat.

Purchasing the right insurance is like wearing the right clothes on a cold winter day.

Every liability coverage is a garment that you put on to protect yourself from the biting chill of unavoidable business mishaps. Your warm shirt and jumper,  your hat and mittens, your leggings and trousers, and your big snow-proof galoshes all play a part in keeping you warm. In the same way, your employer's, public, product, and vehicle liability insurance also all play a part in keeping your company safe from lawsuits, among other industry hazards.

Layer by layer, you add insurance to protect your business, finances, and brand reputation from the consequences of an accident. And like cold weather, accidents are something that not even the most careful business can avoid.

Employer's Liability Insurance

The first type of insurance every employer should start with is Employer's Liability Insurance.

This type of liability coverage is mandatory for all employers. It can provide an outside source of funds if one of your employees becomes injured or ill as a result of their work with you. This can include on-premises injuries, repetitive motion injuries caused by a work task, or illnesses that stem from work conditions.

Of course, you will do everything you can to keep employees safe and healthy. But a business owner is not omniscient or omnipotent, and you can't just reach down your hand to prevent employees slipping in an icy parking lot or drinking unfiltered water when there's work on the pipes down the street.

When an employee is injured or ill, your business is responsible for their medical treatments, medication, and time away from work. Employer's liability insurance protects you from that by covering the costs when an employee makes a claim.

Public Liability Insurance

Next is Public Liability Insurance.

This is the primary type of liability insurance people talk about when they say "Liability insurance" because it is both optional and absolutely necessary. Most business owners wouldn't dream of opening shop without full public liability coverage. Why? Because it protects you from almost everything non-employee-related.

The way Public Liability Insurance protects your company is by covering all legal costs, medical expenses, and settlement damages for lawsuits brought on by customers or visitors.

If a customer trips over a dropped item in your store and sues, public liability insurance will pick up the tab both for your costly courtroom defence and any expenses if your company provides a settlement. If a huge clod of re-frozen snow falls from a parking lot light and damages a customer vehicle, public liability will cover the costs.

Public liability insurance is also there for you to cover the legal fees when facing personal injury scams when a customer fakes an injury in order to win a settlement.

Product Liability Insurance

If you provide some kind of product, as many brands do, then product liability insurance is also non-optional.

Product liability protects you from any injuries, property damage, or lawsuits that result from product use or malfunction. Because you don't have absolute control over your manufacturing plants or how customers choose to use your products, product liability insurance is necessary to protect your company from lawsuits relating to product mishaps.

This type of liability insurance is protective if a product injures a customer, damages property, or does not work as advertised and a customer decides to sue. It may also cover settlements if the company decides to settle before a lawsuit can begin.

Commercial Umbrella Insurance

Every business should also have commercial umbrella insurance in one form or another. This simple insurance type is not specifically slated for liability, but rather any expense where your standard insurance policy does not fully cover costs incurred by an event.

For example, if a customer slips in your store and is injured, the court settlement may be more than your public liability coverage is prepared to pay out. Commercial umbrella insurance would help cover the costs so that the extra doesn't harm your business as an out-of-pocket expense.

Let's not forget that each industry has it's own unique way of running things and may need additional liability insurance to cover the type of work you do or the type of clients you work with.

Commercial Motor Vehicle Insurance

If your business has commercial vehicles, as many do, you will need commercial auto insurance.

This is different from personal motor vehicle coverage, though functions in much the same way. Have no doubt, commercial motor vehicle insurance is a very important type of liability insurance because it covers damages and legal fees in the event of a company-car-related accident.

If an employee hits another driver in an accident and it is deemed their fault for insurance purposes, employer's liability insurance pays for the employee's injuries while commercial motor vehicle insurance will cover repair expenses, legal fees, and any settlement amount to the driver of the other vehicle.

Professional Indemnity (PI) Insurance

Does your industry include professional technicians whose work quality is a critical part of your services?

Many industries do, especially in B2B and field services. For this type of work, your business will need Professional Indemnity (PI) insurance. This is a type of liability insurance that secures the quality of a technician's work.

If an electrician, for example, accidentally installs the wrong outlet equipment which burns out a client's circuit then PI insurance will cover the costs and help you deal with any lawsuit that ensues. If a landscaping team ignorantly clips prize-winning azaleas or mows over a sprinkler head, PI insurance will cover the damages.

If a failure of expertise can put your business at risk, you need Professional Indemnity insurance.

Directors & Officers (D&O) Insurance

Directors and Officers (D&O) insurance is somewhat more complicated. For non-profits and other businesses where the leading or directing officers hold a prominent position, this speciality type of liability insurance protects the organisation from mistakes made by the directors or leading officers.

In other words, if there are financial losses as the result of management errors, D&O insurance can make sure that your company does not suffer the financial consequences of being sued for these mistakes.

Money Insurance and Fidelity Insurance

Does your business manage a large amount of money either physically or digitally? Banks, depositories, and stockbrokers are among the types of business that need either Money Insurance or Fidelity insurance as another specialty type of business liability coverage.

Money insurance specifically insures the cash your company is physically responsible for. Whether customers trust you to hold onto their savings or you are required to keep a copious cash reserve for business reasons, Money insurance will help you replace cash that is lost, destroyed or stolen. Money insurance can also cover valuables and high-value documents.

Fidelity insurance is similar, but relating to employee honestly.

If an employee commits fraud which results in the loss or theft of client assets (including stocks), then fidelity insurance will keep your company safe from legal consequences while the employee is personally prosecuted for their crime. Fidelity insurance is highly important for some businesses, but often only worthwhile after you have a larger workforce or are working with large sums of client assets.

Medical Malpractice Insurance

Last but certainly not least is medical malpractice insurance.

The hallmark if industry-specific liability coverage, medical malpractice insurance is necessary because doctors and medical staff are only human. Sometimes, doctors make mistakes. They may misdiagnose a patient, miss a critical symptom, or administer the wrong treatment. These are almost universally honest mistakes that are deeply regretted.

But when a doctor or medical professional makes a mistake that harms a patient, lawsuits ensue. Medical malpractice insurance protects doctors and their employers from the financial burden of representation and settlements as the result of medical mistakes.

So how, exactly, is a new company to know which liability insurance and how much coverage you'll need to safely run your business?

Needless to say, most business owners aren't exactly insurance experts. Trying to DIY your company insurance policies is an unfortunately common way to wind up with financially devastating gaps in coverage.

For any new business, it's vital that you work with an experienced insurance consultant who can help you determine exactly which policies and how much coverage your business needs to keep the doors open and the lights on without worry.

An insurance consultant not only knows all the types of insurance and exactly what kind of coverage they offer, but they can also help you make sure there are no exploitable gaps in your coverage. You can fine-tune your coverage for your exact industry, budget, number of employees, and unique business choices.

Here at Forma , we are dedicated to providing personalised insurance consultations for businesses of every size and industry.

Whether you're starting up, growing, or going through a serious reorganisation, it's important to always have the right insurance coverage for the job. Reach out to our team for more in-depth business insurance insights or to consult on the perfect coverage for your company needs.