Liability Insurance Defined and Explained

May 17, 2024 | General Liability

This article was originally published December 15, 2021

Every small business faces the risk of lawsuits filed by customers or others who claim the company is responsible for damage to their property, personal injuries, or financial harm. Coverage like general liability insurance, for example, can pay for legal costs and also financial damages awarded by the court if your business is found to be liable.

How is liability insurance defined? We explain below. We also answer questions like, "What does liability insurance cover?"

Liability Insurance Defined: What Does Liability Insurance Cover?

Liability insurance protects your business against claims stating it’s responsible for damaging someone’s property or causing bodily injury.

Different types of business liability insurance cover different areas of a business. Common types of liability coverage include general liability insurance, professional liability insurance, and commercial auto insurance.

If your business has all three of these policies for different types of liabilities, for example, you can be protected from a wide range of claims, including:

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    Damage to the property of others or physical injuries to customers caused by your business. For example, your employee accidentally causes a fire at a customer’s home.
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    Medical costs for customers who injure themselves at your place of business if your business is determined to be at fault or negligent. If a customer trips and falls while visiting your restaurant or retail store, they could sue you.
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    Situations where you’re expected to take certain actions based on the standard for your profession but you fail to do so. For instance, as an accountant, you’re supposed to file important paperwork for a client but you miss the deadline.
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    Errors in the professional advice or service you provide to a client. For a beautician, this could be that you damage a client’s hair by using the wrong product in a hair treatment.
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    Bodily injury or death resulting from a vehicle accident for which an employee driving a company vehicle is at fault. Your staff member runs a stop sign in your truck and hits another vehicle, and that driver suffers a broken arm.
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    Damage caused by a company vehicle to another person’s vehicle or property. Your employee goes too far in backing into a loading dock and strikes the dock door.

These are just a few examples of ways that these liability insurance policies can protect your business.

Does My Company Need Liability Insurance for Businesses?

Now that we’ve defined liability insurance, let’s look at your business specifically.

Does your company need liability insurance for small businesses? In some states, certain types of business insurance (like commercial auto insurance) are required by law. In other instances, insurance may be required by your clients or landlord. Even when insurance isn’t required, most small businesses can benefit from the financial protection of insurance.

Even when insurance isn’t required, most small businesses can benefit from the financial protection of liability insurance coverage.

Unfortunately, just one lawsuit for bodily injury or property damage can bankrupt a small business that doesn't have adequate insurance protection.

General liability insurance provides you with the coverage you need to pay for most damages, injuries, and medical costs related to accidents that could happen to people like your customers and other non-employees.

What Does Liability Insurance for Businesses Cost?

A number of factors affect the cost of liability insurance for businesses. One of them is the type of company you operate. Some businesses face more risk than others, and greater risk typically means higher premiums. Other company attributes play a role as well, like:

  • Location
  • Years in business
  • Claims history

The specifics of your liability insurance policy—things like coverage limits (the maximum amount the insurer will pay for a covered claim) and deductibles (the amount you pay for a covered claim before your insurance plan starts paying)—also affect your rate. 

Getting a fast, free, no-obligation online quote is the best way to determine your liability insurance cost.

Certificate of Liability Insurance Coverage: Proof That Your Business is Covered

A Certificate of Insurance or COI is a document (physical or electronic) that proves you have liability insurance. The COI includes key details about your policy that a client, landlord, or someone else might require. You may need one for a few different reasons, including:

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    A client or potential client requires that you prove you have liability insurance. Some clients may ask that you provide them with a COI before you start a project. In fact, in some scenarios, you must have a Certificate of Insurance in order to win a contract.
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    Your landlord includes having insurance as a provision of your lease. It’s common for building owners to require a COI from you before you can sign a lease. For example they might expect your small business to have a property & liability insurance Certificate of Insurance.

Plus, it’s just a good idea to have a copy of your Certificate of Liability Insurance for your records. At biBERK, we make it quick and easy to get a COI on our website.

Liability Insurance Frequently Asked Questions

Liability insurance is easy to understand once you’ve read about it, but if you have questions, our licensed insurance experts are always happy to talk with you about your liability insurance needs. Answers to some of the questions business owners frequently ask are provided below for your convenience.

Am I required to have liability insurance or other types of small business insurance?

Certain types of coverage may be required in your state and for your type of business. For example, commercial auto insurance is frequently required for companies that own vehicles. Plus, some organizations require that the businesses they work with have insurance, and some landlords require that you have general liability coverage. Our licensed business insurance experts can help you understand what kinds of policies you need.

Does biBERK provide business liability insurance in my state?

Most likely, yes. But it depends on the state you’re in and the type of insurance you’re looking for. Review our coverage maps for details.

What kind of liability insurance does my business need?

Each business has unique insurance requirements. Going through our online quote process or talking with one of our licensed insurance experts are two great ways to better understand your needs and the policies that can address them.

What is primary insurance versus excess insurance?

A primary insurance policy, like a general liability insurance policy, kicks in first to cover a claim or loss. Excess insurance, like an umbrella policy, provides additional coverage for the same claim once the limits of the primary policy have been reached. For example, if you are found liable for $125,000 and your primary insurance policy has a $100,000 limit, an umbrella policy may cover the remaining $25,000.

What does professional liability insurance cost?

The cost of professional liability insurance depends on factors such as your industry, years in business, and number of employees, as well as the level of coverage you select. Our professional liability insurance policies start around $300 per year and can go up into the thousands.

How is professional liability insurance different from general liability insurance?

A general liability insurance example would be a policy that covers accidents that cause things like property damage or bodily injury. Professional liability insurance addresses claims from a client that you made a mistake or failed to do something you were obligated to do.

Is my business vehicle covered by my commercial auto policy when I’m using it for personal activities?

Commercial auto insurance can cover the cost of damages even if the vehicle is used for personal activities outside of its primary business use.

If you have additional questions after reading this article on liability insurance defined and explained, don’t hesitate to contact us.