Today’s society is increasingly litigious, and even small missteps can result in large lawsuits. Because of this, general liability insurance is critical for companies. General liability insurance can protect a company’s assets if it is sued for property damage or personal injury by a visitor or client to their premises. You can purchase this coverage on its own or as part of a business owner’s policy (BOP) or package policy. BOPs and Package policies bundle liability and property insurance into a single policy.
So how do you decide how much coverage your business needs? It usually depends on a couple of factors:
- Perceived risk. Consider the amount of risk associated with your business. A heavy machinery manufacturer will carry a much greater risk of being sued for personal injury than a linen manufacturer.
- Your company’s location. Some states have a history of awarding high damage amounts to plaintiffs claiming personal injury. Businesses that operate in such states should carry liability insurance with higher coverage limits. You should consult with a licensed insurance broker to obtain more guidance in this area.
How Does General Liability Work?
This coverage provides business organizations insurance to protect them against claims for bodily injury and property damage caused by the premises, operations, products and completed operations. It also protects against advertising and personal injury liability. In the event of a covered claim, the insurance may provide a legal defense against the suit. If the claim is deemed to be valid, it will provide payments to the plaintiff up to the policy limit.
General liability policies detail the maximum amount that an insurer will be responsible for paying during the policy’s active period. Such policies also usually list the maximum amount an insurer will pay per occurrence. The insured business would be responsible for any amount above that maximum. So, if a business with a $2 million occurrence cap in its liability insurance policy were to be successfully sued for $2.5 million, the insurer would pay the $2 million, leaving the company responsible for the $500,000 balance.
Some companies choose to purchase umbrella insurance to cover such situations. Umbrella insurance picks up where general liability coverage ends, covering payments that exceed the limits on other policies. It also provides additional coverage for any liabilities that standard liability policies do not cover. Read more about umbrella insurance here.
What Can I Do?
If an accident occurs that may lead to a liability claim, most insurance companies require policyholders to report it as soon as possible. At that point, the insurer may instruct the business owner to: document the accident and any other relevant information, to forward any legal notices to the insurer, and to cooperate fully in any investigations arising from the accident.
To keep liability and other rates down, business owners should take precautions to prevent accidents. Taking these steps can lower the potential costs of a liability insurance claim:
- Set a high, companywide standard for product quality control.
- Keep all company records up to date; ensure that they are complete.
- Train all employees properly.
Even if an allegation has no merit, it still must be defended. Having this coverage will help you pay for any defense costs. Should you have to pay the plaintiff, this coverage will help you cover the cost of the claim. This is why it is so important to have general liability coverage.