However you may feel about the volume of litigation in the United States, if you're a business owner, you need insurance against the risk of your company being sued.
All companies, regardless of their size or industry, need liability coverage to protect themselves against allegations that employees did something (or failed to do something they should have) that caused property damage or injury to a third party.
Small business liability insurance, known as a commercial general liability (CGL) policy, is designed to protect your company and its assets against litigation that can be filed for any of a number of reasons, such as allegations of:
- Bodily injury
- Property damage
- Personal injury (such as slander or libel)
- False or misleading advertising
Liability insurance provides financial protection not only for the direct cost of an accident, such as any damages, and potentially more importantly, can help fund the cost of settling or defending the litigation.
Without insurance, the defense costs associated with a lawsuit that your company ultimately wins can create a financial hardship that could, in an extreme, endanger your company's ability to remain in business.
Liability insurance helps your business remain in business by paying for legal assessments including:
- Compensatory damages (direct financial losses by the injured party)
- General damages (non-monetary losses, such as pain and suffering) or
- Punitive damages (additional penalties or charges).
General liability insurance doesn’t provide coverage for professional liability (which is written under industry-specific policies); auto liability, injuries to employees (covered under workers’ compensation); or health or disability claims. These are all covered under specific forms of insurance that have to be purchased separately.
Commercial general liability coverage also protects your company against any liabilities resulting from damage to any real estate you're renting, such as an office or warehouse.
A variety of factors will help your company and insurance professional evaluate how much coverage your company may need. Some of the important considerations include your industry and any insurance requirements made by your company's lenders, landlords or customers.
For companies with relatively simple needs, general liability coverage may be purchased as part of a business owner's policy (BOP) that combines property and liability coverage into a package.
Companies in industries with specialized risks may need a dedicated commercial general liability policy from a carrier that specializes in their industry and risk exposures.