Liability insurance offers certain protections to a small business owner. For example, if someone falls while visiting your business premises or a customer is hurt by a product your business sells, a liability policy can protect your business.
Liability insurance, also called Commercial General Liability (CGL), covers four categories of events for which you could be held responsible: bodily injury; damage to others’ property; personal injury, including slander and libel and false or misleading advertising. CGL coverage pays for the injured party’s medical expenses. It excludes your employees who are covered by worker’s compensation.
Three types of legal damages people may sue you for:
Compensatory Damages
Financial losses suffered by the injured party and future losses they may suffer resulting from an injury they claim in the lawsuit
General Damages
Nonmonetary losses suffered by the injured party, such as “pain and suffering” or “mental anguish”
Punitive Damages
Additional penalties and charges the defendant must pay
Liability Insurance Coverage
Defending against a legal complaint, even a minor one, is costly. The liability coverage in BOP protects the assets of your business when it is sued for something your business did (or failed to do) that caused injury or property damage to someone else.
Types of Claims Covered by Liability
BOP liability covers claims in four basic categories of business liability: Liability coverage in BOP pays for medical expenses of persons, other than employees, who sustain injuries at the insured business or as a direct result of the operations of the insured business.
Bodily Injury
Damage to a person’s body or physical well-being.
Property Damage
Damage to any type of real estate or personal property such as furniture.
Personal Injury
Damage to a person’s or business entity’s reputation or basic rights, such as the right to be free from interference and to have privacy. (Includes slander or libel.)
Advertising Injury
The harm caused as the result of the insured advertising its goods or services, such as an advertisement that slanders another organization’s products or services.
Liability coverage in BOP covers liability claims that stem from ownership or control of premises, products and completed operations, and certain types of contracts. The term “premises” generally includes land, building, and other property. This part of the policy covers claims due to failure to avoid harming customers, salespeople, or other people (even trespassers) who are on their premises.
“Products” coverage includes claims that stem not only from the manufacture of products but also from their distribution and sale. “Completed operations” is work that has been performed, such as the repairing of appliances, the cleaning of chimneys, or the installation of plumbing.
However, liability insurance will not protect you against claims arising from non-performance of a contract, wrongful termination of employees, sexual harassment, or race and gender discrimination lawsuits. This is another good reason to read your policy carefully.
Single Limit Liability
Coverage BOP has a single limit for liability and medical expenses with a separate medical expenses limit per person injured. BOP also has separate limits for products/completed operations, that is, the work carried out and completed by the business, such as repairing electrical appliances, and for advertising and personal injury, as well as a general aggregate limit and limits per person injured and per occurrence, and limits on damage per fire.
The single limit in BOP makes decisions on how much liability protection to purchase less complicated, but it also reduces flexibility. If your product has a higher-than-average product liability risk, such as toys, BOP might not provide enough liability coverage.