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man slipping and falling liabilityA 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 damage to property of others 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.
A Commercial General Liability (CGL) policy provides many liability coverages under one contract. Two common types of liability coverage almost always written on this form are:

  • Premises and Operations coverage. This insurance provides bodily injury and property damage liability coverage for accidents on your premises or arising out of your business operations.
  • Products and Completed Operations. This coverage provides protection for liability arising from 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 that arise out of operations that have been completed or abandoned. Other liability coverages are available as an endorsement to the CGL policy or as separate policies. Some of these are:
  • Owners’ and Contractors’ Protective Liability. This coverage will provide liability protection if you are sued because of the negligent acts or omissions of an independent contractor or subcontractor hired by you who could cause bodily injury or property damage to others.
  • Directors and Officers Liability insurance. This coverage protects corporate officers and directors against claims brought by shareholders, employees, consumers, clients, or other businesses because of wrongful acts committed in the course of their duties as officers or directors. The coverage may be needed by directors and officers of both for-profit and not-for-profit organizations.

IMPORTANT: If you are a director of a corporation, whether or not you have any ownership interest, make sure you know what protections are in place for this exposure.

  • 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. It is sometimes available as an endorsement to other liability policies. To decide whether you need an umbrella policy, think of the most extreme situation that could happen in your business that would cause bodily injury or property damage and determine whether your current liability policies would cover this risk. In some cases, umbrella policies provide broader coverage (cover more kinds of accidents) as well as higher limits.
  • Professional Liability insurance. These policies cover liability claims arising from wrongful acts, errors and omissions, or malpractice by medical practitioners, attorneys, accountants, engineers, or other professionals.
  • Errors and Omissions insurance. Like Professional Liability except this coverage is available for non­professionals who may be held liable for losses caused by their errors or oversights.
  • Care, Custody, or Control. Most basic liability policies exclude property in the care, custody, or control of the insured. This is important if you have property of others that you work on, or store, or if you do work on the premises of others. For example, if you are painting an interior wall in a building, the windows, doors, and trim on that wall (not to mention that expensive artwork), and probably the floor, ceiling, and other walls adjacent to the wall you are painting are in your care, custody, or control. Damage to these items would not be covered under your liability policy. If your business may be exposed to such losses, ask your agent about coverage under your policy, and the cost to purchase coverage if it is excluded.
  • Pollution. Basic business liability policies usually exclude damage caused by polluting the air, water or soil. Coverage can be added by endorsement for many businesses. However, businesses that have a particular exposure to pollution (such as a business using or handling chemicals) may need a separate pollution policy.

Be sure to ask your agent or insurer 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 first made (even if it is made after the policy expires).
A policy written on a claims-made basis covers only those claims which occurred after a date specified in the policy (usually called a “retro date”) and which are made during the policy period. Make sure you understand which claims (as well as what kind of claims) are covered.
When a claims-made policy expires or is cancelled, it may be necessary to purchase “tail coverage.” Tail coverage covers claims resulting from incidents which occurred after the retro date but which are reported after the policy has terminated. According to Insurance Commissioner John Oxendine, you should ask your agent about any other changes or conditions in a claims-made policy which may necessitate the purchase of tail coverage and how long after the expiration, cancellation, or other change you have to exercise the option to purchase the tail coverage.

As you can see, it would be possible to purchase many separate insurance policies to cover a single business operation. Rather than shopping for each type of insurance you need individually, you may want to buy a combination policy, often called a“multi-peril” or “package” policy. This is a policy which can be tailored to suit your business needs and will provide both property and liability protection. For many businesses, it is the most efficient and economical way to buy insurance. One package policy frequently purchased by small to mid-size businesses is the Business Owners Policy (BOP). Another well-known commercial combination policy is the Commercial Package Policy (CPP).

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