Liability insurance is something every business should have. Often referred to as general liability insurance or commercial liability insurance, it’s one of the primary protections your business needs to operate confidently and without major risk. But what makes it so important?
To make a long story short, liability insurance protects you from the most common risks associated with a business, namely incidents that result in legal action. Businesses are far more likely to run afoul of litigation than the average person for a number of reasons. Because of this, most types of business in Ontario are expressly required by law to have liability insurance. But even if it wasn't required, it would still be something any forward-thinking business owner or management team would want.
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What exactly does liability insurance help with?
Liability insurance primarily protects against legal liability (as the name would imply!). This includes lawsuits that stem from physical injuries, property damage, and so on. A common example of this would be a "slip and fall” suit where someone takes a tumble on your property and asserts that it was the fault of the business due to negligence.
But liability insurance doesn’t just protect the business’ premises though. It also extends to the actions of employees, third parties involved with the business, and contractors. This is extremely important if you do work at different locations and properties. Landscapers, contractors, delivery services, any kind of installation at a site, the examples are endless. Any business that needs to travel to get the job done also needs this insurance.
Then there is protection against less direct forms of harm, such as reputation harm or advertising injury. In these cases, it could be something that you have claimed in an advertisement has offended a competitor to the point where they consider it harmful to their reputation. Or in an advertisement you’ve run, someone believes you are using their intellectual property. Perhaps a graphic in a print ad you ran looks similar to something in another artist’s portfolio, or a snippet of music in a radio or TV commercial that someone believes was not cleared correctly. This is the kind of sticky situation that can be quite difficult to navigate without sufficient protection.
The idea is to provide a cushion of legal and financial protection for your business in the event of a lawsuit. Court costs can be extremely high, as can settlements and judgments. Liability insurance offers a buffer that will keep your business from suffering while a legal matter is being decided and a cushion if a settlement is reached or a judgment is found against your favour.
Who does liability insurance protect?
The best thing about liability insurance is that it is good for everyone involved. Obviously, it protects the business that has the policy from any potential financial damage as a result of a lawsuit, but that is only the most immediate effect.
Liability insurance also protects the employees of a business. When you work for a professional business that is responsibility protected, you don’t have to worry about coming to work one day and finding the doors shut because a lawsuit has effectively closed the business.
It also protects your customers. Particularly in areas such as contracting and vendor sales, clients want to know that they are working with a responsible business and liability insurance shows a level of planning and forethought. It also ensures that if there ever is a problem and a liability issue is brought up, you will be able to make restitution rather than just declare bankruptcy.
What else should a business look for?
An excellent companion to a general liability insurance policy is what is known as errors and omissions insurance (sometimes called professional liability insurance). Errors and omissions (E&O) protects you in the event of a professional that damages a client of yours or results in a financial loss. This is incredibly important if you work in a field where clients trust you to advise them, manage their affairs, or provide a service crucial to their business (such as IT support, or accounting).
Despite our best intentions, we all make mistakes. But it’s one thing to burn the toast in the morning, it’s quite another to make a mistake that costs a client money, an opportunity, or other harm. This extends to more businesses than you might think as well. While there are obvious examples we can point to such as a key vendor or service, there are plenty of other businesses that can also benefit from E&O protection. Beauty salons need protection in case a dye reacts poorly, carpenters in case something breaks in the process of a job, any kind of consultant in case they give out of date or incorrect advice that proves costly. Basically if you sell a service that has the potential to go sideways, you should look at attaching an E&O policy to your liability insurance.
What kind of coverage should my business look for?
In the insurance world there are no "one size fits all” solutions. After all, a flower shop is going to need different protection than a sports bar, just as a daycare will need different protection than laser cutting shop.
That’s why it’s always best to speak with a licensed Staebler broker. We can help you asses the kind of risk your business faces, provide guidelines on the premium costs, and help craft a policy that is right for your specific business.
FURTHER READING: Our website is great source for even more ways we can protect your business.