A lawsuit could mean a catastrophic loss to your business.  Therefore, it is important that you carry enough liability insurance to protect your business from financial loss because of injuries, deaths, or property damage caused by your products, business operations, or employees.  A liability policy generally will provide for your legal defense and will pay on your behalf if you are liable, up to the limits of your policy.

Many different types of liability policies are available.  Some of the major categories are explained below.

  • Commercial General Liability (CGL).  This policy provides many liability coverages under one contract.  Two common types of liability coverages are almost always written on this form.  Premises and Operations coverage pays bodily injury and property damage claims to members of the public as a result of an accident on your premises or arising out of your operations.  Products and Completed Operations covers liability arising from the handling, use of, existence of any condition in, or warranty of any goods or products manufactured, sold, handled or distributed by your business after the product is given to others and is away from the business premises.  It also provides coverage for claims occurring away from your premises and arising out of operations which have been completed or abandoned.
  • Owners' and Contractors' Protective Liability. This policy will provide liability coverage for an insured who is sued because of the negligent acts or omissions of an independent contractor or subcontractor hired by the insured which result in bodily injury or property damage to a third party.
  • Directors' and Officers' Liability Insurance protects corporate officers and directors against claims brought by shareholders, employees, consumers, clients, or businesses because of wrongful acts committed in the course of their executive duties.  This coverage may be needed by directors and officers of both for-profit and non-profit organizations.
  • Surety Bonds are a financial guarantee of your performance of a specific action.  For example, a builder may be required by his client to buy a bond under the terms of a construction contract.  If the builder fails to perform as agreed, the client can get a settlement.  The bonding company will then seek reimbursement from the builder who is the principal under the surety bond.  License and permit bonds are other types of surety bonds that governmental agencies may require businesses to obtain to guarantee their compliance with laws and ordinances and to guarantee that they will perform in good faith.
  • Umbrella Liability Insurance. This type of policy provides protection over and above the limits of basic liability policies such as commercial general liability policies and commercial automobile policies.  To decide whether you need an umbrella policy, think of the most extreme situation that could happen in your business and determine whether your current liability policies would cover this risk.  In some cases, umbrella policies provide broader coverage as well as higher limits.
  • Professional Liability Insurance pays liability claims arising from wrongful acts, errors and omissions, and malpractice by physicians, attorneys, or other professionals.  Errors and omissions insurance is also available for non-professionals such as corporate directors and officers who may be held liable for losses caused by their errors or oversights.

Be sure to ask how your professional liability policy or your general liability policy pays claims.  These policies may be written on either an "occurrence basis" or on a "claims-made basis."  A policy written on an occurrence basis covers incidents that occur during the policy period, regardless of when the claim is reported to the insurance company (even if it is reported after the policy expires).  A policy that is written on a claims-made basis covers only those claims reported during the policy period.  If a claims-made policy expires, it may be necessary to purchase "tail coverage."  Tail coverage covers claims resulting from incidents which occurred while a claims-made policy was in force but which are reported after the policy has expired.  Ask your agent about any other changes or conditions in a claims-made policy which may necessitate the purchase of tail coverage.



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