Sometimes what you don’t know can hurt you. Or hurt your business, to be more exact. Because if you’re falling for one of these common myths and misconceptions about general liability insurance for your business, you may be leaving yourself completely exposed to losses, lawsuits, and unnecessary costs.
If you want to fully protect your business and keep your cash and profits safe from unnecessary risk, it’s time to dispel these liability myths once and for all.
Myth #1: My Business is Too Small (Too New, Too Whatever) For Liability Insurance
If there’s one myth that needs clearing up above all others, it’s this one. Your business is never too small, too new, or too whatever to benefit from liability protection. General liability is considered the foundation of a sound insurance plan because it protects all businesses from the most common risks that lead to losses, claims, and lawsuits.
We live in an extremely litigious society, and people will not hesitate to sue if they feel they have been injured or suffered damages as a result of someone else. And if that “someone else” happens to be a business/ business owner, not many people will hesitate to come after you to cover the cost of medical bills, property damage, and more.
It doesn’t matter if you’ve just opened shop and haven’t even hired any employees yet; your business is never too small or new to avoid a lawsuit.
General liability insurance protects your business against lawsuits and claims from:
- Third-party bodily injuries
- Third-party property damage
- Third-party personal injury (such as advertising injuries, copyright issues, or libel/ slander)
Your general liability coverage may even protect you against claims for product liability that may arise from products that you make. Which means even your side business selling handmade items on Etsy may benefit from this protection.
Myth #2: I Don’t Need Insurance for My Home-Based Business
Home-based businesses make up about 53% of small businesses. If you run a business out of your home, you may think your homeowner’s insurance is adequately covering your business activities. If you believe this insurance myth, you’re not alone.
According to the International Risk Management Institute (IRMI), as many as 87% of home-based businesses do not realize they need separate insurance, and of these under-insured business owners, 39% mistakenly thought their homeowner’s insurance offered them adequate protection.
The homeowner’s insurance myth is a dangerous one. These policies generally include liability restrictions for business-related activities. Which means bodily injury or property damage arising out of or in connection with your business won’t be covered -- and you could be responsible for the costs of medical bills, repairs, and even lawsuits.
Myth #3: My Workers are Covered by My GL Policy
Even when employers and business owners have general liability (GL) insurance for their business, they may still not fully understand what the policy covers, and what it doesn’t. One major misconception about your business liability is that it covers bodily injuries for everyone -- including employees.
Your liability policy contains an exclusion intended to eliminate coverage for claims made by your own employees.
A separate workers’ compensation policy is the only way to cover workers’ claims for illness or injury which occur as a result of performing their jobs. Not only does this policy fill the gap left in your business liability policy, in most states it is also required by law.
Myth #4: GL Covers Professional Mistakes and Errors
If someone is injured as a result of your business activities, your GL insurance policy covers it… most of the time. One exception to this coverage is injuries that arise from professional services that lead to financial injuries for your clients.
General liability doesn’t cover claims of negligence, misrepresentation, violations of good faith and fair dealing, and inaccurate advice.
If you are in a field where you offer a professional service, such as an accountant, architect, engineer, graphic designer, insurance professional, or real estate professional, you may want to add professional liability coverage to your existing GL coverage. In some professions, such as attorneys and doctors, professional liability isn’t just recommended; it’s required.
Myth #5: My Property is Covered Against Damage
Liability insurance will cover property damage, but it won’t cover damage to your own property. If the professional dishwasher at your catering business goes crazy overnight, flooding your retail storefront and the dress shop next door? The water damage to your neighbor’s store may be covered by your general liability policy.
But the damage to your own business most likely isn’t.
Damage to your own property is generally excluded on a standard GL policy, because this type of claim is covered by commercial property insurance. Whether you rent, lease, or own a business location, pairing GL plus property insurance is the only way to fully protect your property plus your neighbors against fires, floods, and other damaging occurrences which may be your fault.
Myth #6: GL Covers Employee-related Lawsuits and Disputes
The number of employee lawsuits has increased over the past few years, despite numerous state and federal laws providing protections against unfair workplace practices and discrimination. Small businesses are particularly vulnerable to employee-related disputes and legal issues, in part because they lack the resources needed for specific employment policies, programs, or to have legal counsel on retainer.
While your liability insurance can protect your business from the high cost of a lawsuit arising from a third-party bodily injury, personal injury, or property damage, it won’t cover a high-cost lawsuit arising from an employee or former-employee.
If you want to protect your business against employee-related claims for discrimination, harassment, wrongful termination (and more), ask your insurance professional about a stand-alone employment practices liability insurance (EPLI) policy, or an added endorsement to an existing commercial package policy.
Myth #7: GL Covers Third-party Accident Injuries Involving Business Vehicles
When a separate policy offers coverage for a specific incident, you will generally find a corresponding exclusion in your GL policy’s coverage.
Case in point: auto accidents involving your business vehicles.
Sure, general liability offers coverage against claims for injuries or property damage to another person as a result of your business activities. But if someone is injured and their car is damaged because one of your delivery drivers ran a red light while delivering floral arrangements, those third-party claims should be covered by your commercial auto policy instead.
Myth #8: My GL Policy Won’t Cover Subcontractors/ Independent Contractors (and their Work)
Businesses who use subcontractors or independent contractors to get the job done can rest easy; your GL policy protects your business if you are found liable for the negligent actions or work of independent contractors and subcontractors you hire.
Many professionals who regularly use subcontractors/ independent contractors will request that the contractor carry adequate liability insurance of their own, however, as well as asking to be added to the contractor’s policy as a named insured to ensure their protection against contractor liabilities. It’s never a bad idea to be sure that you’ve got as much liability protection possible when your business name, reputation, and assets are on the line.
Myth #9: GL Covers Cybercrime and Data Theft
You would be hard-pressed to find a single business operating today that doesn’t rely on technology in some way. From smart-devices to software programs, business email and more -- your business could be at risk for cyber crimes such as data breaches and personal information theft.
If a business laptop is lost or stolen, hackers obtain customer credit card numbers or other sensitive information, or a computer virus leads to a loss of electronic data, your general liability insurance typically won’t cover the incident.
To fully protect your business from the ramifications of these type of incidents, you’ll want to add a Cyber Liability policy to your existing business insurance coverage.
Myth #10: It’s a Covered Loss, So it Won’t Cost Me a Dime
General liability will go a long way to protect your business assets from the costs of covered claims and lawsuits. But that doesn’t mean your business won’t have to pay anything if a claim does occur.
Your liability policy typically includes a deductible amount, which is generally written as either “per occurrence” or “per claim.” That’s the amount your business is responsible for before your insurance pays the difference, up to your policy limits. (Be sure you understand your policy: there could be multiple claims for a single occurrence, meaning you could pay a per claim deductible multiple times for one single incident.)
Your policy limit is the maximum amount your policy will pay after you’ve paid your deductible. But if you are facing a claim which exceeds your liability policy limit, your business would be responsible for the difference. For example, let’s say you manufacture a product which happens to catch fire while charging, and the fire destroys an entire building. The total cost of the claim is $2M. Your policy limit, however, is $500,000. Not only will you pay your deductible, you are also responsible for the $1.5M over your policy limit.
Be sure you’ve chosen deductible and policy limits that your business is comfortable with, and that make sense for your potential losses in the event of a claim. If you want to extend the coverage limits of multiple business policies, you may want to explore the benefits of umbrella insurance with your insurance professional.
Don’t be fooled by misconceptions, myths, and legends surrounding liability insurance. Yes, your business most likely needs it. No, you’re never too small to have it. And no, it doesn’t cover everything. Understanding this crucial coverage is important so you can protect your business assets from the risks you face as you operate. Because when you’re in business, knowledge is definitely power.