General Liability Insurance for Your Small Business

One category of insurance coverage almost every small business needs is general liability insurance. Your business can be legally liable to people injured and for property damaged because you or your employees didn't use reasonable care. For example, if a customer falls on a slippery floor and then sues you, you may be liable if you negligently failed to provide safe premises.

As you probably know, when it comes to personal injuries, judges are broadening the scope of what people can sue for—and juries are increasingly generous in awarding damages. Because an injured person can collect not only for lost wages and medical bills but also for such intangibles as pain, suffering, and mental anguish, a single personal injury verdict against your business has the potential to wipe it out. For that reason, unless you have a very unusual business that has no personal contact with customers, suppliers, or anyone else, your insurance program should include liability coverage.

If you have a business or own property that by any stretch of the imagination could become involved in a toxic waste or pollution problem, try to find out exactly how far your liability coverage extends in environmental situations. You may need to buy supplementary coverage (if available and affordable) to cover this risk.

The Insurance Policy

Liability policies are designed to protect you against lawsuit judgments up to the amount of the policy limit plus the cost of defending the lawsuit. They provide coverage for a host of common perils, including customers and guests falling and getting mangled by your front door or otherwise being injured.

Liability policies usually state a dollar limit per occurrence and an aggregate dollar limit for the policy year. For example, your policy may say that it will pay $500,000 per occurrence for personal injury or a total of $1 million in any one policy year.

Excluded Claims

The typical general liability policy doesn't cover punitive damages—damages intended to punish your business for willful or malicious behavior rather than compensate the injured person. And liability coverage won't protect your business if an employee intentionally assaults a customer. In addition, a general liability policy doesn't cover injuries caused by defective products or motor vehicles, or by an employer's liability for injuries received by workers on the job. You will need to get special coverage for these types of liability risks. Speak to an insurance agent.

Both building owners and tenants may purchase liability coverage separately or as part of a package policy that also provides a number of other types of insurance, including fire insurance for the building itself.

If you have employees who telecommute or work from home, your business may be liable if a delivery person or other business visitor is injured at the employee's home. This will depend on the law in your state. To be safe, check with your insurance agent to make sure your liability insurance covers this situation. If it doesn't, you can add the coverage at a minimal cost.

Excerpted from Legal Guide for Starting & Running a Small Business, by Fred Steingold (Nolo).

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