General Liability Insurance

As a business owner, you need to protect yourself and your company from lawsuits arising out of your everyday business activities.  Your enterprise could be at significant risk if you don’t have insurance that covers the legal fees, court costs, and any unfavorable judgments resulting from litigation.  And that’s why General Liability insurance can be so important for any type of business, regardless of its size.  At a very high level, General Liability insurance protects your business from customers who are injured or property that is damaged as a result of the services that you provide.  And while that definition seems straightforward, there is much confusion regarding this type of insurance.  Some of the common misperceptions include the following:

• “I created my business as a Limited Liability Corporation (LLC) so I don’t need to purchase General Liability insurance”: The primary benefit of an LLC is to protect the personal assets of the business owners should the company be threatened by a lawsuit.  But an LLC does nothing to protect the business assets when faced with litigation.  So say, for example, someone is hurt at your business and your company is found liable for those injuries.  Without General Liability insurance, the company’s cash, equipment, and materials could be liquidated to cover those damages.  The LLC may protect the owner’s assets, but the business itself would still be at risk from unfavorable judgments.
• “I purchased Professional Liability insurance so I don’t need a General Liability policy:  Oftentimes, Professional Liability insurance and General Liability insurance are used interchangeably.  But there is one key difference between these types of insurance policies and it deals with the type of business that you own.  General Liability typically protects against physical damage to either a person or property.  Professional Liability, on the other hand, typically protects against damages that your business causes as a result of the services provided.  So say, for example, your accounting business fails to file the proper tax documentation for a client.  Professional Liability, also known as Errors and Omissions (E&O) insurance, would protect your business from litigation or would pay the fees resulting from the oversight.  In some instances, both a Professional Liability policy and a General Liability policy are necessary to fully protect your business.

“General Liability insurance will protect my business from all work related injuries”:  While true that General Liability insurance will protect the business from many types of claims, this policy does have some limitations.  Most notably, General Liability only protects against third-party claims.  As a result, personal injury claims from your own employees wouldn’t be covered.  Likewise, any auto accidents caused by employees while driving for work would also be excluded.  Other types of insurance, such as a Worker’s Compensation policy or a Commercial Auto policy, would be required to protect the business from these types of claims.