A Business Liability Insurance 101: What It Covers & Why You Need It

Liability insurance is an integral component of your business owner’s policy. Even if you weren’t keen on purchasing property insurance or business interruption, it is strongly recommended that any business owner purchase at lease the bare minimum when it comes to business liability insurance. Generally, liability is used to cover legal costs, if a business ends up having to defend itself in court against a claim alleging they caused financial loss, property damage, or bodily injury. But that’s just the tip of the iceberg when it comes to business liability insurance.

Here’s the TLDR:

  • Liability insurance is a type of insurance coverage for business operations that is used to protect your organization if it is sued for accidental damages, injury, or if it fails to do something and that negligence leads to financial loss.
  • Most businesses have general liability insurance, which is the most basic form of liability insurance an enterprise can have. General liability – or “CGL” – protects businesses from medical costs, repair costs, and any legal expenses or settlement fees associated with a potential lawsuit.
  • Other forms of liability coverage exist for more specific scenarios and may benefit certain types of businesses, including cyber liability insurance, errors and omissions, directors and officers, and so forth.

In this blog post, we’ll dig into the various types of liability insurance and how they may benefit your business, as well as why you may need business liability insurance and its average costs.

Liability Insurance Coverage Types

Some businesses may benefit from commercial general liability insurance, but other businesses may need to purchase several different types of liability insurance to have full coverage. Note that some policies can be purchased in a larger package and some are standalone and require a separate purchase.

Commercial general liability insurance

Commercial general liability insurance is designed to cover your operations in the event that a third-party, or even their property is damaged as a result of your business operations. Intentional actions and activities outside of typical business activities are generally not covered. General liability is a common form of business liability insurance that is generally required by all practices as it can include legal defense costs, repair costs, and medical bills.

Note that CGL will not include injuries sustained by your employees while working for you. For this, you would need to purchase worker’s compensation insurance.

E&O or errors and omissions insurance

E&O, errors and omissions, or “professional liability insurance” coverage may offer payout in the event that a business or professional employee is sued as a result of alleged negligence, error, or omission in the provision of a professional service or advice, causing financial loss. Businesses that offer special services or advice, such as consultants, healthcare providers, accountants, etc. may need errors and omissions insurance.

Cyber liability insurance

Cyber liability insurance is an increasingly common form of business liability insurance as it can protect a business’ bottom line in the event that their network is hacked and private or sensitive data is leaked to the public. Cyber liability insurance may cover the costs to recover following a data breach and may also include coverage for any lawsuit expenses that may arise due to the leaking of private information.

Get a Quote Now

Employment practices liability insurance

This liability insurance coverage may pay out in the event that your business is sued or taken to court as by current or former staff members, alleging sexual harassment or wrongful termination. Sometimes shortened to EPLI, employment practices liability insurance is a good coverage option to include for businesses that depend on a large number of staff members to cover their operations and mitigate the risk of having to take any employee claims out-of-pocket.

Here are a few other examples of business liability insurance coverages:

  • Directors and officers liability insurance
  • Worker’s compensation insurance
  • Product liability insurance
  • Commercial auto liability insurance
  • Employee benefits liability insurance
  • Fiduciary liability insurance
  • Contractor’s liability insurance

What Business Liability Insurance Do You Need?

It all depends on the business you run. For the most part, you can expect that commercial general liability insurance may be your company’s baseline, but it goes further than that. Many companies may have industry regulations which require them to purchase specialized policies, such as errors and omissions insurance or, in the case of those operating in the health and medical field, medical malpractice insurance.

Bullfrog can help you navigate exactly what business liability insurance your firm may need. They may ask you several questions about your business, such as:

  • Your industry
  • Your geographical location
  • What you do
  • If you have any employees
  • Your insurance history
  • Lawsuit history
  • …etc.

Shopping for commercial insurance is typically a lot more involved than finding a personal policy, as there’s a lot more variables and a lot more at stake to be considered.

The Cost of Business Liability Insurance

The cost of business liability insurance will depend on the type of liability coverages your business has. Many of these options may be purchased as a larger package, however some will be sold as standalone policies. Your costs may vary depending on your business’ industry, claims history, location, employees, business history, projected annual revenue, and so on.

Many small businesses may pay less than $100/month for their commercial general liability insurance. Your chances of being sued may be low, especially if you’re a hardworking business owner who considers all potential risks and scenarios, but they can be costly if they do occur. The exact cost of a lawsuit depends heavily on what occurred, whether or not you win or lose, etc. As a business, good risk management practices are necessary but should not replace business liability insurance. Think of your liability coverage as your last line of defense for your business, when all else fails.

Having business liability insurance can very well be the difference between keeping your business open and thriving for years to come and having to close prematurely due to an unexpected lawsuit – even if you don’t believe you did anything wrong. Discuss with Bullfrog’s brokers about business liability insurance and which liability coverages may be best for your line of work.