Business Liability and You: Things You Should Know

According to the folks at Legal Reform Now, over 15 million lawsuits will be filed in the United States this year. That works out to about 1 lawsuit per 20 people in this country. To say that we live in a litigious country, where companies see consumers as potential plaintiffs and consumers see companies as “deep pockets” is an understatement of titanic proportions. Suits are being filed over issues that are, on their face, ridiculous yet the plaintiffs often win (remember the old lady with the McDonald’s coffee?). What does that mean for you? It means that the odds of you or your business having to square off against someone in court at some point are pretty good. Not 100%, of course, but still higher than anyone would like. Knowing that, it means you have to consider this and protect yourself just in case your number comes up. 

I am not going to say the following statement covers 100% of the lawsuits filed in the U.S. each year, just most of them. Yes, there are a few out there striving to right wrongs and punish evil, but the vast majority of lawsuits are about one thing: Money. Why is that? It is simple: Money is the one thing that can be readily transferred from one party to the other to redress some injury—physical or otherwise—done by one party upon the other.

Because of this, you have to approach any matter of liability as if it were a financial issue and not a moral one. Let me reiterate that: This is not a matter or right or wrong, it is about money. Yes, it would be nice to walk out of court with your corporate image intact, which is why so many of these settle out of court with all sorts of nondisclosure clauses in the agreement, but that issue of image is really collateral damage incidental to the real target, your wallet.

No one is perfect, accidents happen; and when they do, a lawsuit begins to rear its ugly head. Just because you have Inc., or LLC behind your company name doesn’t mean you are completely safe. You are personally shielded from liability as long as it is the corporation that is being accused. However, if it is you, personally, being accused, then that is another issue. Some of the things you should watch out for include:

• You personally guaranteed a loan.
• You personally injured someone. 
• Your behavior or actions were irresponsible or illegal.
• You failed to operate your business as a separate entity.

If any of these happen, you have no more protection than a sole proprietor or a simple partnership. The one way you can protect yourself—aside from having a great civil trial lawyer on retainer—is through liability insurance.

The best way to describe liability insurance is to say that it protects you and your small business from personal injury or property damages. Typically, it covers damages awarded in court as well as any legal costs and fees. Like other types of insurance, liability insurance comes in several forms, each more or less tailored to your business needs. These are general, product and professional liability insurance policies.

• General Liability. This is also known as Commercial General Liability and it is the primary coverage for your business. This type of insurance covers personal injury, property damage and advertising claims.
• Product Liability. If you manufacture or sell products, you will need this type of insurance. It protects against someone becoming injured by your product and the level of protection is usually based on the risk of the products involved. If you sell sheets, your liability—and coverage needs—will be much lower than if you sell firearms.
• Professional Liability. Professional liability insurance covers errors and omissions in the professional services your company offers. This includes malpractice, negligence and omissions. Also, depending on your profession, a doctor, for example, you might have a legal requirement to carry such a policy.

Affording Coverage
Once you have decided on the kind of coverage—or mix of coverage—that you need, you need to figure out how to acquire it. Depending on your business, this kind of insurance can be expensive, but there are some ways to lower your costs.

You should research the legal actions, verdicts and settlements that have taken place in your industry for the last year or so. This information will give you an idea of the actual level of liability your industry faces and what you may face, yourself. You can look locally, regionally or nationally for this information, but the more information you gather, the better your decisions will be.

What are your peers in the industry paying and what kind of coverage are they getting for the money. It is important to know what the going rate in your area is before you start shopping around.

You may be an expert in your field, but unless you are in the insurance game, you will need the advice of someone who actually knows the terrain and can find you the best coverage and the best rates.

Whether you are working with a broker or going it alone, shopping around for coverage is the first thing to do. Compare policies to see what is covered and what is excluded. Also, if you need more than one kind of insurance, see if package deals are available. Usually called a Business Owner’s Policy, this kind of policy brings the various kinds of insurance under one policy at a much reduced premium.

If you haven’t bothered with your industry trade association, area business group or a national small business association such as America’s Best Companies, give it some thought. These groups frequently have insurance benefits available for members at group rates, which is a great savings when compared to rates for individual companies.

A court judgment against your company could put you out of business. Protecting yourself through liability insurance can keep that from happening. Take the time now to research and establish this protection and keep in force against the day you will need it. It is an investment in the health of your business and one of the best decisions you, as a business owner, can make.