This is what you need to understand regarding commercial liability insurance:
Along with property and workers compensation insurance, general liability insurance is a must have for almost all companies. Liability insurance protects the assets of a business when it is sued by a third party for alleged injury or property damage.
Liability insurance can be purchased separately or as part of a Business Owners Package, which bundles property and liability insurance into one policy. When liability insurance is purchased as part of a B.O.P., the coverage limits are generally lower, so higher risk companies that need more coverage may choose to purchase liability insurance as a separate policy, or, add a commercial liability umbrella policy on top of the B.O.P. for additional protection.
The coverage a business needs depends on several factors. Business owners should consider the amount of risk associated with their type business. For example, a business that manufactures heavy machinery is likely at a greater risk of being sued than a company that manufactures linens, and would, therefore, need more liability insurance.
Another factor to consider is where your business is located. The volume and success of litigation varies dramatically from state to state. If a business is in a state that seems to favor high damage awards to plaintiffs, that business will need more liability protection. This information is often available from your state department of insurance.
With a liability insurance policy, the insurer is obligated to pay the defense and legal fees of a covered claim or lawsuit. Covered liability claims normally include bodily injury, property damage, personal injury and advertising injury. The insurance company would also pay any compensatory or general damages that the business becomes legally obligated to pay. It’s important to remember that punitive damages are not covered under general liability insurance policies because they are considered punishment for intentional acts.
General liability insurance policies always state a maximum amount that the insurer will pay during the policy period. Usually these policies also list the maximum amount the insurer will pay per “occurrence”.
For example, if a company has a $1 million “occurrence” cap in their liability policy and they are sued and receive a $1.5 million judgment against them, the insurer would pay $1 million and the business would be responsible for the additional half-million dollars. To cover these types of situations, most companies can purchase Umbrella Liability Insurance, which would cover payments in excess of the policy limits and provide coverage for liabilities not covered in a standard liability insurance policy as noted earlier.
Today, lawsuits are often brought for the most minor claims. For this reason, most insurance companies require their policyholders to report any accidents that could lead to a liability claim as soon as possible. The insurer may then require the business owner to document the situation, forward all summons and legal notices and cooperate fully in any investigations. This allows the maximum protection for your business and the insurer to prepare adequately for the claim.