What is liability insurance?
The liability insurance is an insurance which offers protection against claims arising from injuries and damage to persons and/or property.
The liability insurance covers both the legal costs and all legal payments for which the insured would be responsible in the event of legal liability. Deliberate damages and contractual liabilities are usually not covered by this type of policy.
BREAKING DOWN Liability Insurance
Liability insurance is crucial for those who can be held legally liable for the injuries of others, especially doctors and entrepreneurs. A product manufacturer may take out a product liability insurance policy to cover it if a product is defective and causes damage to purchasers or other third parties. Entrepreneurs can take out liability insurance to cover them if an employee is injured during business operations.
Different types of liability insurance
Entrepreneurs are exposed to a number of liabilities, each of which can encumber their assets with substantial claims. All entrepreneurs must have an asset protection plan based on available liability insurance. Here are the main types of liability insurance:
Employer liability and workers’ compensation insurance is a type of mandatory cover for employers that protects the company from liabilities arising from injury or death of an employee.
Product liability insurance is for companies that manufacture products for sale on the general market. Product liability insurance protects against claims for injury or death caused by their products.
Directors’ and officers’ liability insurance applies to a company that has a director or officers and the insurance insures them against liability if the company is sued. While a company by definition provides some personal protection from liability for employees and directors, some companies choose to provide additional protection for these key members of the management team.
Business liability insurance is a commercially available general liability insurance (also known as comprehensive general liability insurance) that provides coverage for litigation arising out of employee and public injury, property damage to an employee and injuries resulting from employee negligence. The policy may also include violations of intellectual property rights, defamation, libel, contract liability, tenant liability and liability for employment practices.
Compensation and Defense
The liability insurance covers two types of costs related to lawsuits: compensation and defense.
Compensation cover applies to damages or settlements paid to the plaintiff. This coverage is limited, e.g. $1 million. Your insurer will stop paying damages or settlements once your insurance limit is exhausted.
Defense coverage refers to the cost of investigating a claim and defending against a lawsuit. It includes expenses incurred by your insurer to summon witnesses, make statements and hire experts to testify in your defense. It also includes fees charged by a lawyer to defend you. The lawyer can be hired by the insurer or hired by an outside firm. Most (but not all) liability policies provide unlimited defense coverage. This means that your insurer will continue to bear the cost of defending you until the claim or suit is resolved.
General liability insurance
Virtually all businesses require general liability insurance, which protects businesses from some common types of claims or lawsuits. It includes three types of cover:
– Liability for personal injury and property damage
– Liability for personal injury and advertising damage
– Medical payments
These coverages are often referred to as cover A, cover B and cover C.
Commercial umbrella insurances
A commercial umbrella is a kind of liability policy that fulfils two functions. First, it serves as an enclosure, with additional liability limits. The limits on your umbrella apply after the limits on your primary liability policy have been used up. Secondly, an umbrella provides broader coverage than your basic liability policies. That is, it includes cover not provided by your primary policies.
Almost all umbrella policies apply in addition to your primary general liability policy. If your company is insured for commercial car liability or employer’s liability, your umbrella must also include those coverages. Some umbrellas contain self-confident retention (SIR). An SIR usually applies to claims that are covered by your umbrella but not covered by a primary insurance.
Errors and omissions Liability
As the name suggests, liability insurance for errors and omissions covers claims arising from a company’s negligence, errors or omissions in providing services to others. Errors and omissions (E&O) liability is also called professional liability.
Many E&O insurers offer policies for specific types of companies. For example, an accounting firm can purchase E&O insurance for accountants. An engineering or architectural firm can take out E&O insurance for architects and engineers. A doctor can take out medical insurance (or medical malpractice insurance). Some insurers also offer “catchall cover”, the so-called various professional liability insurance. This cover can be used to insure many types of companies that have professional liability risks.
Management Liability Insurance
Many companies buy a group of E&O covers often referred to as management liability insurance. This category includes the following:
– Employment practices Liability: Includes employment-related claims by employees regarding discrimination, unlawful termination of employment and harassment.
– Fiduciary liability: Includes claims against fiduciaries of employee benefit plans for errors or omissions they make in the management of such plans.
Insurance company
The Hartford
Best overall for leading customer service, highly valued claims service and specialized packages
Hiscox
Managers who want specialised coverage per occupation, including one for home based companiesManagers who want specialised coverage per occupation, including one for home based companies.
AllState
Small entrepreneur looking for basic insurance and free business assets
The criteria for the assessment of the top insurers include:
– Industry or profession cover: Top business insurance companies must offer business insurance that most owners need plus pre-packaged plans for specific industries or professions.
– Customer service: We investigated trends in customer reviews and reviews at sites such as the Better Business Bureau, Feefo and Trustpilot, including
– National presence: We have only included providers that serve small entrepreneurs throughout the United States.
– Costs: We looked at premium rates, pricing structures, available discounts and what customers had to say about affordability.
– Customer reviews: We looked at what customers had to say about each carrier, looking at the website and a number of external review sites.
