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Liability Insurance Tips

General and professional liability insurance is designed to protect your business in the case of an accident or lawsuit. Liability lawsuits can cost thousands or tens of thousands of dollars; without the right liability insurance, your business could end up paying out of pocket for any court costs and settlements incurred by a lawsuit.

Why Buy Liability Insurance?

Liability insurance protects your business from the financial ramifications of an injury caused by your business operations, products, advertising, or premises. Here are a few examples of incidents where your business could be held liable:

  • A customer trips on your business’s front steps and suffers an injury. According to a study from the U.S. Department of Justice, personal injury trials comprised of almost 60% of total tort, contract and real property trials in 2005.
  • A patron becomes ill after consuming contaminated food at your restaurant.
  • An employee is injured while using the equipment in your facility. In 2007 alone, more than 335,000 workers were injured on the job according to the US Bureau of Labor Statistics.
  • A business competitor sustains a loss as a result of your negative advertising campaign.
  • A patient sues your practice for medical malpractice.

Head to the Buyer’s Guide for Coverage and Why You Need It

Liability Insurance Options

There are several kinds of liability insurance available. Each type covers a certain type of risk to your business. Here are a few of the various insurance policies that will protect your business, and some of these may be required depending on your industry and location:

  • General Liability Insurance, the broadest category, covers the types of risk that are normal to most businesses.
  • Professional Liability Insurance protects those who work in special, high-risk industries, including medicine and law. The amount of professional liability insurance you will need depends on your specialization – a general practitioner typically needs less coverage than a cardiac surgeon, and a criminal defense lawyer needs a bigger policy than a lawyer who specializes in small claims.
  • Product Liability Insurance protects you should an individual be injured by your product. Again, the amount of insurance you require depends on the type of product you make. Apparel is generally considered a low-risk product, whereas electronic equipment is significantly higher risk.
  • Pollution and Environmental Insurance covers damages to the environment (including people) as a result of pollution. If your business manufactures, uses, or transports toxic substances, you may be required by law to purchase this insurance.

A study from Vanderbilt University Law School analyzed the costs of liability lawsuits in Texas during the period of 1988 to 2004. The average cost to the insurer to defend a lawsuit was $35,000. When that number is broken down, auto liability claims averaged $23,000 each, while professional liability defense fees averaged $51,000 and medical professional liability reached $62,000 (“Tort Liability Litigation Costs for Commercial Claims,” American Law and Economics Review, 2007).

Note that these amounts reflect solely the costs of defending the case in court. They do not include the settlements paid as a result of the lawsuits, which can be much greater, especially when personal injury and medical payments are involved.

Liability insurance pays for the cost of your business going to court to defend a lawsuit. If your business is found to be negligent or otherwise responsible for an injury, the insurance also pays the additional costs involved in a settlement.

As a result, your business is protected from being financially responsible for any accident or injury that results in a lawsuit. The type of insurance you needs depends on the industry you’re in and the amount of risk associated with your business, its services and products.

If you need liability insurance, you may also want to look at wokers compensation and property insurance.