Having adequate insurance coverage for your small business can save your reputation, allow your business to continue operating, and give you peace of mind in case of accidents and certain business disasters. For most business owners, commercial liability insurance is the best policy to start with. But what’s covered with this insurance policy and should you consider adding additional policies to customize your coverage?
What Is Not Covered Under Commercial Liability Insurance?
Because commercial liability insurance is designed to protect your business in case of accidents, there are several exclusions for this type of insurance. For example, liability insurance will not cover the costs of intentional or willful acts. This can include intentional injuries, intentional property damage, willful negligence that causes accidents, and intentional criminal acts, such as copyright infringement and fraud.
It’s important to read your insurance policy thoroughly to understand the precise limitations of your commercial insurance. Some specific policies that will not be included as part of your business owner’s policy include professional errors, commercial auto, employee injuries, and discrimination lawsuits.
Essentially, this insurance coverage provides protection in instances of professional mistakes, such as undelivered services, missed deadlines, and contract violations. Errors and omissions insurance is essential for small businesses working in retail, particularly hospitality services, home improvement services, and real estate services. With a professional errors insurance policy, your insurance will cover the cost of legal fees if your business is sued.
Commercial auto insurance is usually not part of a commercial liability policy. Whether your business has specific commercial vehicles or personal vehicles that are used for working purposes, commercial auto insurance provides coverage for accidents that are related to work. This specific insurance policy is not usually included in commercial liability because some businesses do not use vehicles.
If your commercial business does rely on vehicles, it’s a good idea to have a commercial auto policy. Furthermore, if your employees are going to use personal or rental vehicles to complete work, such as delivering contracts, it’s good to have a hired and non-owned auto insurance policy added to your commercial liability coverage.
A commercial liability policy specifically covers injuries and damages to the business and customers of the business, but it does not cover employee injuries. For employees who are injured on the job, you will need to have a separate policy for worker’s compensation insurance to pay for physical therapy, lost wages, and medical expenses.
Why Is Worker’s Compensation Insurance Separate?
Worker’s compensation insurance tends to be an additional policy added to business owners’ coverage because states have different laws about worker’s compensation insurance. For example, in Texas, private employers are not obligated to provide this insurance coverage under Texas law. In other states, it’s mandated that employers offer some amount of worker’s compensation insurance, particularly in industries where workers are at higher risk of injury.
Finally, a commercial liability policy will not usually apply to provide coverage for discrimination lawsuits. For example, if an employee complains about harassment, wrongful termination, or discrimination, your commercial liability coverage will not cover the costs of legal fees associated with your lawsuit. For specific coverage, you need to have an employment practices liability insurance policy, which will cover the cost of legal fees.
Why Doesn’t Insurance Cover Intentional or Willful Acts?
Insurance is meant to be there for your business in case of accidents that are beyond your control, such as property damage, third-party injuries, or damage to your reputation due to customer dissatisfaction. No matter what type of insurance policies you have, no policy will cover intentional or willful acts because these acts are criminal in nature.
As part of your insurance contract, your insurance company reserves the right to deny coverage if your business is involved in fraud. This is because your insurance coverage has no obligation to pay for intentional actions that result in lawsuits. Attempting to file an insurance claim for fraudulent acts is also considered a crime.
Why Won’t Commercial Insurance Cover Discrimination Lawsuits?
For the same reason your insurance will not cover intentional or willful criminal acts, your commercial liability insurance will not automatically cover discrimination lawsuits. If you want to protect your business reputation and secure financial assistance in case of lawsuits from employees, you need to have a separate insurance policy for employment practices liability.
The choice to include this policy is left to the discretion of the business owner. This is because your commercial insurance focuses on your business rather than your employees. So just like your commercial liability coverage will not provide automatic worker’s compensation insurance for injured employees, it will also not automatically provide coverage for legal fees for discrimination or harassment lawsuits.
Policies Included in Commercial Liability Insurance
Although there are several policies that are excluded from commercial liability insurance, there are many other policies that are automatically folded into this coverage. For example, third-party injury, third-party property damage, product liability, and advertising injuries are usually all part of a business owner’s policy for commercial insurance.
Third-party injury is a policy that will provide coverage for medical expenses if a customer is hurt in an accident that involves your business. This includes customers who are injured on your business property or injured by a business vehicle. Third-party injury insurance will also provide coverage for legal expenses if a customer sues your business over an injury.
Third-Party Property Damage
Third-party property damage insurance is a type of commercial liability policy that covers expenses when your business damages or destroys a customer or other third party’s property. For example, if a commercial vehicle damages another person’s vehicle or personal property, this insurance coverage will provide funds to replace the damaged property or legal fees.
Product liability is an essential insurance policy for small businesses. Injuries related to your business may not always occur on commercial property, particularly if you are a merchant. This insurance policy will provide coverage for injuries that are related to product liability, such as products that cause allergic reactions or other harm to a customer. This insurance will cover legal expenses and medical costs up to the policy limit.
Advertising injuries generally refer to instances where a customer accuses a small business owner of false advertising. This type of insurance coverage can also provide coverage in cases where a customer sues a small business owner for copyright infringement, slander, or libel. Advertising injuries can also apply to situations on social media where the reputation of a business is under attack.
Why a Business Owner’s Policy Is Necessary
Having a business owner’s policy with robust commercial liability insurance is essential for small businesses that want to thrive. The expenses related to injuries and lawsuits from customers and employees can be exorbitant, so an insurance policy can greatly relieve your financial burden in case of accidents.
When you are first starting your small business, the smartest thing you can do is take out a business owner’s policy that includes specific coverage for your business, such as commercial auto or cyber liability. By having adequate coverage, you can ensure your business is successful and doesn’t lose momentum.
What Additional Policies Should Be Added to Your Commercial Insurance?
There are several additional policies that can be added to your commercial liability coverage. Depending on the needs of your business, you can work closely with an insurance agent to add these additional policies so you can customize the protection for your business. Some of the most common additional policies that are folded into commercial insurance can include cyber liability, business interruption, business crime, and commercial umbrella insurance.
Because cybercrime is becoming more common, small businesses can benefit by including cyber liability in insurance coverage. This insurance policy will protect your business if customer or employee data is stolen or compromised by cybercriminals.
Business interruption insurance is a policy that protects your business from loss of profits if there is damage to your business property that prevents you from running your business as usual. Business interruption insurance will allow your business to get back up on its feet without compromising your regular income.
Business crime insurance provides reimbursement for the cost of investigating and prosecuting crimes against your business. For example, if your business is the victim of forgery, impersonation, or theft, this insurance can help you as you seek justice.
Commercial umbrella insurance is another policy that savvy business owners can use to protect their business. Although your policy limits for your commercial liability coverage may be generous, commercial umbrella insurance will provide additional funds to cover extra costs related to medical compensation or the cost of legal fees. This can also protect your business and your personal finances.
Small business owners benefit from using a robust commercial liability insurance plan that provides coverage for all major needs. Your commercial liability coverage will generally include protection for your business in case of injuries and accidents. For more information about insurance coverage for your small business, contact ISU Armac today.