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Understanding Small Business Liability Coverage

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The rewards and risks of running a small business are high. A small business can be much more vulnerable to financial devastation from litigation fees than a larger company with more resources. Making sure you have the right liability coverage can help protect your small business, your livelihood and your reputation. There are multiple types of liability coverage to consider, depending on the risks your business faces.

 

General Liability vs. Professional Liability

All businesses have liability risks. The difference between general liability and professional liability insurance is the types of risk they cover. General liability insurance helps protect from risks in common business situations and is a good idea for most small businesses. General liability covers claims by anyone who doesn’t work for your business and includes coverage for bodily injury; property damage your business or employees cause; medical payments if someone gets hurt on your business property; reputation harm if someone sues you for libel, slander, copyright infringement or privacy violations; and advertising errors. Depending on what industry you are in, general liability policies can be tailored to your industry’s risks and hazards, such as construction, agriculture, food service and more.

Professional liability insurance, also called errors and omissions or malpractice insurance, is designed for businesses that provide clients their expertise or make decisions on their behalf, such as attorneys, accountants, architects, engineers, IT professionals and consultants. Even the most experienced and thorough professional service provider can make mistakes, and some clients may not be understanding if an error costs them considerable time or revenue. Professional liability covers legal defense costs when a client suffers a financial loss due to your professional services or advice, such as work mistakes and oversights, undelivered services, missed deadlines, claims of negligence and breach of contract.

 

Directors and Officers vs. Errors and Omissions Insurance

If your business has leaders and stakeholders who interact with customers, employees, investors, competitors and government agencies, Directors and Officers insurance should be considered. D&O insurance protects high-level decision makers, executives and board members, when someone claims they were negligent in their duties or their management decisions caused harm to the community, employees, shareholders or investors. Examples of D&O claims include wrongful interference with a contract, employment practices suits, unfair business practices, mismanagement of funds, consumer protection violations, self-dealing and conflicts of interest, and violations of state or federal laws.

Errors and Omissions insurance, also called professional liability as mentioned above, covers professional services decisions or advice given to clients. While D&O insurance is designed to protect your business’ directors and officers, E&O provides protection for any employee and the business itself. Examples of E&O insurance claims include financial damage to a client, negligence (omissions) and malpractice.

Depending on your business, both D&O and E&O insurance coverages are often recommended.

 

Bundling Liability Coverages

Working directly with a commercial insurance broker will help you determine the best insurance coverage solutions for your type and structure of business. Your broker may recommend bundling policies, an approach that often leads to more comprehensive coverage and cost savings providing you peace of mind that your business is protected.

 

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This content is for informational purposes only.  Consult your actual insurance policy for details regarding terms, conditions, coverage, and exclusions.

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