Businesses, that are starting out or seeing some growth, sometimes overlook the importance of obtaining or evaluating both the type and amount of insurance that they need to meet their particular needs. Operating your own business is a rewarding endeavor for many, but accidents can, and will, happen. Whether it’s a customer/client who slips and falls on your property, damage to an expensive shipment, a defective product that injures someone, an employee hurt on-the-job, or any other accident; any legal adviser worth their salt will encourage a business owner to obtain at least some form of liability insurance that covers at least general liability issues, as well as the even increasing complexities of data security and worker’s compensation. Without it, a single accident could potentially wipe out your company, or worse, your personal assets.
As a small business owner, understanding your liabilities and obtaining the necessary insurance policies is critical. Certain types of businesses carry an inherently higher degree of liability than others. The following guide covers a broad variety of small business insurance and liability scenarios.
General Commercial Liability
General liability insurance is the first major layer of protection for claims of bodily injury not suffered by an employee, or property damage against your business. If your business has some form of direct contact with customers or clients, you need a general liability policy. Think of it as a shield for your company’s assets if an unfortunate incident occurs that results in you or your company being successfully sued by someone who slipped and fell inside your office. General Commercial Liability insurance generally covers the cost of your legal defense and any settlement or award. These include compensatory damages, nonmonetary losses suffered by the injured party, and, where allowed by statute, punitive damages.
Another benefit of general liability insurance, depending upon the riders that your policy contains, is that it can protect you from claims of false or misleading advertising, including libel, slander, and copyright infringement. Furthermore, if you are a tenant then liability insurance can cover damage to a property that you rent in the event of a fire or other covered loss.
Some general commercial liability policies may contain language regarding “self-insured retention.” This is the same thing as a deductible, or, the amount of the loss that the insured is responsible for before coverage can exist.
Employee Compensation Insurance
Also known as worker’s compensation insurance. While Texas does not mandate that employers carry this type of coverage, your business becomes what is known as a non-subscriber, any business that has employees should consider carrying this type of insurance. States have laws establishing procedures for claims and the scope of coverage. Employees typically may claim workers’ compensation for any injury or illness caused or exacerbated by their job. This includes work performed outside of the typical workplace or even “off the clock.” Instead of a lawsuit, employees injured receive compensation for costs associated with their injuries through your business’s workers’ compensation insurance. Business owners should consider this form of insurance if their business has a high hazard risk such as a company that works with hazardous chemicals or, say, a roofing company.
Commercial Auto Insurance
Often overlooked by folks because they incorrectly think that their personal auto policy would cover them if they are in a wreck while doing business. Commercial auto policies, while similar to your personal policy, protects a company’s vehicles, any employees in the vehicles, products or equipment, or those who are hurt because of negligence caused by an employee while driving on the job, from damages and injuries sustained should there be a wreck. If you do not have company vehicles, but employees drive their own cars on company business you should have non-owned auto liability to protect the company because your employee’s personal policy will not protect your business. It is important that if your employee uses their personal vehicle for work, and you do not have such a policy, that you require your employee to obtain a commercial rider to their personal policy.
Data Breach Insurance
This area of insurance is starting to become commonplace as technology and businesses continue to merge together. If you work with sensitive customer data (customer/employee/patient records, credit card info, bank account info, and social security numbers) then you must be aware of the frequency that data breaches are occurring around the world. Cyber-criminals have turned their eyes from large corporations, which are much harder to breach, to small businesses, who have minimal safeguards in place.
A data breach can be fatal for business owners and for their reputations. Texas’s Identity Theft Enforcement and Protection Act requires any entity conducting business in the Lone Star state to inform its customers when their data is compromised in a data breach. In the event of a data breach, a business must respond quickly to help protect impacted individuals and the business’s reputation. As you can see, such an endeavor can become quite costly. As such, data breach coverage can help with response related expenses including costs to notify impacted individuals and good faith advertising. In most states, coverage is available to help cover legal defense and liability expenses if your business is sued because of a breach.
If your business frequently involves shipping goods to your customers then this form of insurance should be a no-brainer. Cargo insurance covers the loss, theft, or damage of cargo while it is being shipped between its point of origin and destination. It can cover goods that are transported by land, air, or sea.
Directors and Officers Insurance
This type of insurance protects the directors and officers of a company against claims that they breached their fiduciary duties towards the company and shareholders. It has become closely associated with broader management liability insurance, which covers liabilities of the corporation itself as well as the personal liabilities for the directors and officers of the corporation. If a director or officer of your company, as a direct result of their actions on the job, finds him or herself in a legal situation, this type of insurance can cover costs or damages lost as a result of a lawsuit. This type of insurance is extremely important if you bring in outside investors, or have multiple investors that are not actively involved with the business.
Always make sure you conduct thorough research prior to purchasing any insurance policy since important terms and conditions may be buried in the fine print. Remember, the insurer will often look for reasons to not pay a claim, but it must adhere to the terms of the agreement. In other words, don’t assume anything that isn’t clearly stated in the contract.
If you have any questions concerning this article, please contact me today.