Whether it is an employee injured on the job, a corporate ad that allegedly makes false claims, a malfunctioning elevator, a slip and fall accident, or another potentially-litigious incident, businesses face setbacks and the risk of liabilities on a daily basis. It is therefore imperative that a comprehensive financial plan be instituted to provide a buffer against dents in corporate earnings stemming from legal mishaps. By purchasing adequate indemnity coverage known as commercial insurance, businesses can protect their assets.
What is Commercial Liability Insurance?
This type of insurance
protects businesses against pecuniary hardship or bankruptcy suffered as a result of property damage or bodily injury claims brought by third parties against the former or their employees. Commercial general liability insurance also compensates policyholders for legal costs (i.e. witness fees, court costs, and attorney's fees) associated with settling or defending covered claims, irrespective of who is at fault. By purchasing commercial liability insurance, businesses need not shut down operations while addressing claims of wrongdoing or negligence.
Types of Claims Covered
Commercial general liability insurance policies provide coverage of four types of claims: 1) property damage, 2) bodily injury, 3) advertising injury, and 4) personal injury (i.e. libel or slander). More specifically, they are the first line of defense against the following categories of claims:
- Contractual liability
This type of coverage protects policyholders against liability arising out of a variety of contracts such as elevator maintenance agreements, easements of license agreement, and building leases.
- Advertising and personal injury
To protect themselves against claims of copyright infringement, disparagement, slander, and libel in the advertising of their goods or services, businesses can take out the aforementioned coverage.
- Employment practices liability
This form of coverage insures against claims relating to employment which are filed against the company's employees or job applicants.
- Medical payments
By purchasing medical expenses coverage, policyholders can obtain reimbursement of funeral and medical expenses incurred as a result of an injury caused by them or at their business establishment.
- Liquor liability
This type of insurance coverage is often necessary for businesses that sell, manufacture, or distribute alcohol. Liquor liability insurance coverage safeguards a business in the event that damages or loss are incurred as a result of a customer becoming intoxicated on the company’s premises.
- Premises liability
This type of coverage insures against property damage and bodily injury suffered by third parties on the policyholder's premises due to the latter's business operations.
- Tenant's liability
This insurance compensates businesses in the event of claims of damage resulting from covered losses (i.e. fire) that they cause to rented premises.
- Products liability
This coverage option insures policyholders against claims relating to accidents or injuries caused by their products.
Liability Insurance As Part of a Business Owners' Policy (BOP)
Businesses can choose to purchase their policy either separately or as part of a Business Owners Policy, which merges liability and property insurance into a single policy. By selecting a BOP package, policyholders can safeguard their business against incidents transpiring either at their workplace or at other insured locations where they also carry out business. When purchasing commercial liability insurance as part of a BOP combo, businesses with a higher risk may find that their coverage needs are not met due to the fact that a BOP usually offers lower coverage limits. They may therefore opt for a separate policy for their commercial insurance coverage.
How Much Coverage Is Needed?
The amount of commercial liability insurance that a company needs will hinge upon two factors: 1) the location of its business and 2) the extent of risk that their type of business presents. The likelihood of success and amount of litigation differs from one state to the next. Companies located in states that tend to award high damages to plaintiffs should increase their liability coverage.
A commercial insurance liability policy will indicate the maximum amount that the insurance provider will pay per incident and during the policy period. Businesses needing reimbursement exceeding the policy limits and beyond what is offered by a standard liability insurance policy should consider an Umbrella Liability Insurance.
Lowering Premium through Risk Management
There are numerous precautions that policyholders can take to reduce their exposure to liability and consequently, their commercial general liability insurance rates:
- Insure that their building's wiring is in good condition
- Notify employees of work-related hazards
- Provide adequate training for their employees and perform safety inspections
- Set a high threshold for product quality control
- Place a sprinkler system on the premises
- Hire drivers with a good driving record
- Protect against the destruction of inventory by storing it in different locations