Liability Coverage 101: What are the different types of liability coverage?
There’s no disputing it: a lawsuit can have devastating impacts on a business, including financial losses and reputational harm. To protect your business against the threat of claims and lawsuits, having liability insurance suited to your business needs is critical.
Liability insurance typically covers legal costs and payouts if the Insured is found legally liable for claims of harm or wrongdoing against a third party, including injuries or property damage. Unlike other types of insurance, liability insurance pays third parties, not policyholders.
As there are many different types of liability coverage available in the marketplace, liability insurance can seem tricky to navigate. Here is a general overview of the different types of liability coverage and some of the most common ways these policies can help protect your business.
General Liability: General Liability insurance typically protects your business against claims in three areas:
- bodily injury or property damage stemming from your product or service
- personal and advertising injury, which protects you against offenses such as libel, slander, false arrest, and copyright infringement
- medical payments for injuries sustained by a non-employee on your premises.
This protection covers legal costs to defend a claim related to one of the three areas mentioned above as well as payments for damages if you are found liable. General Liability typically only provides coverage for any non-professional negligent acts, meaning negligence that doesn’t relate to your rendering of professional or expert services.
Professional Liability: Professional Liability insurance helps protect those who work in professional services, including accountants, consultants, lawyers and physicians, against claims initiated by their clients. Policies typically provide coverage for liability arising from errors and omissions, negligent acts and misrepresentation. Professional Liability policies are generally written on a “claims made” basis, which means you’re covered for claims made against you only while the policy is in effect, unless your policy contains a retroactive date.
Employer’s Liability: Workers’ Compensation insurance is generally required by law and pays for medical expenses and lost wages stemming from work-related injuries and illnesses. However, it doesn’t cover lawsuits—and that’s where Employer’s Liability insurance comes in. An Employer’s Liability policy can protect you by covering legal costs and compensation should an employee sue for a work-related illness or injury. In addition, since some industries are exempt from Workers’ Compensation insurance, Employer’s Liability can provide coverage for claims brought against a business if found to be negligent.
Wrap-up Liability: This coverage protects most (if not all) workers on a construction project—including contractors, property owners, subcontractors, architects, developers and engineers—under a single policy. Rather than a general contractor being forced to rely on each party’s General Liability for coverage, the project owner can buy Wrap-up Liability insurance that can cover all contractors who work on the project. This reduces any potential coverage issues among all parties involved and keep’s a contractors General Liability policy free from losses. Another advantage is that wrap-up policies can be easily tailored to individual projects (as opposed to a broader General Liability policy).
Third-party or Auto Liability: For companies with employees operating commercial vehicles on public roadways, accidents can lead to fatalities, injuries, property damage and costly lawsuits. Third-party Auto Liability can protect your business from the financial costs associated with these events, including legal costs and damages awarded in a lawsuit. All vehicles are legally required to carry this coverage.
For any business, there is a strong case to be made for investing in liability insurance, as there is always the potential for a third party to be harmed through products and services. That means it’s not whether or not you need liability insurance, but which types are suited to your business needs. Contact your broker to determine which coverage(s) may help you protect your business.
IMPORTANT: Liability insurance does not cover everything. Please refer to your policy for applicable limitations and exclusions. We encourage you to review your coverages and limits regularly to ensure adequate protection.