As a small business owner, you've poured everything you have into your company.
(article continues below)
The last thing you need hanging over your head is the possibility of losing it all in a lawsuit. But with the right general liability insurance policy in your corner, your worries may be over.
General liability exists for one purpose and one purpose only: To protect your business from the financial impact of a lawsuit based on claims of bodily injury or property damage. Although general liability is often covered under a business owner's policy, the liability limits in a business owner's policy are often low. Consequently many business owners choose to obtain an additional general liability insurance policy to beef up their coverage and minimize their overall vulnerability.
Several factors need to be considered in determining the amount and cost of general liability coverage. The most obvious consideration is risk. Some businesses are inherently riskier than others from a liability perspective. For example, a company that produces paper probably carries less risk than a company that manufactures precision airplane parts. As the risk increases, so should your insurance coverage.
Something else to consider is the state in which you operate. As unbelievable as it sounds, typical damage awards vary from state to state. If your business is located in – or does business in – a state that awards higher damages, you'll need to up your coverage.
Damages covered under a general liability policy usually include bodily injury, property damage, slander, and false advertising. It's also common for general liability policies to cover any legal costs associated with a liability suit. Punitive damages, however, are excluded from coverage and won't be paid by your insurer.
Umbrella Liability Policies
If your company is found liable for damages in a lawsuit, your general liability insurer will pay up to the maximum amount for the policy period, a figure which is clearly described in the policy itself. If the court holds you liable for damages in excess of the amount described in the policy, you will be responsible for paying the difference. In other words, if the policy maximum is $2 million and you are found liable for $3 million in damages, the additional $1 million is your responsibility. To cover the shortfall, many business owners obtain additional protection under a separate, umbrella liability policy. Umbrella liability policies are specifically designed to offer protection from excess damages and may even provide coverage for damages that aren't typically included in a general liability policy.
Regardless of how much liability insurance you carry, an ounce of prevention is always worth a pound of cure. Get in the habit of maintaining accurate incident records and report them to your insurer in a timely manner. Also, make the effort to implement a proactive and comprehensive safety program that includes training, compliance, and quality control.
Finally, since your liability policy may potentially have legal ramifications later on, it's a good idea to involve your attorney in the process. A competent lawyer should be familiar with liability insurance terminology and will be able to identify gaps in coverage before they become a factor.