If someone falls while visiting your business premises, or a customer is hurt by a product your business sells, you can be held responsible. That’s the risk that liability business insurance covers.
In a 2004 survey released by the National Federation of Independent Business (NFIB), 30 percent of small business owners ranked the cost and availability of liability insurance as the second most important insurance concern they faced. (Health insurance ranked first, while workers’ compensation ranked third). Concerns about liability insurance are significantly increasing. In a 2000 survey, only 11 percent of small business owners cited cost and availability of liability insurance as a critical issue.
Liability insurance, also called Commercial General Liability (CGL), covers four categories of events for which you could be held responsible: bodily injury; damage to others’ property; personal injury, including slander and libel; and false or misleading advertising. CGL coverage pays for the injured party’s medical expenses. It excludes your employees, who are covered by workers’ compensation. (For details see workers’ compensation section of this site). Bear in mind that even trespassers can sue you if they fall and get hurt on your business premises!
There are three types of legal damages people may sue you for that are typically covered by a CGL policy:
- Compensatory damages: financial losses suffered by the injured party and future losses they may suffer resulting from an injury they claim in the lawsuit.
- General damages: non-monetary losses suffered by the injured party, such as “pain and suffering” or “mental anguish.”
- Punitive damages: additional penalties and charges the defendant must pay.
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