Business Insurance

What risks do you face with your business?

Do you live in an area where there is a greater likelihood of suffering losses due to weather-related events?

Do you regularly work with the public or task your employees with providing services in a customer’s home?

Business insurance helps to keep your small business afloat by mitigating the losses you experience. Insurance companies provide a number of industry-specific add-ons and policies especially designed for businesses that are your size.

A business attorney can help you understand the risks you face with your operations and can help you select policies that will protect your bottom line from those risks. In addition, your business lawyer can provide other services aimed at ensuring that your liability is properly managed through the development of company procedures and careful review of the contracts you enter into with customers, employees, and vendors.

If you need legal help with your business, use our free search tool to find a business attorney in your area.

What is business insurance?

Business insurance is a series of insurance policies designed to protect businesses from losses due to events that are not necessarily in the control of the business, such as fire, some weather events, as well as liability insurance for transportation accidents or accidents occurring on your business property.

Is there an insurance policy specifically designed for small businesses?

Yes, most major insurance companies provide policies and packages specifically designed for small businesses, with common add-ons for specific industries. Your small business insurance should provide coverage of common liabilities small businesses face, including:

• Lawsuits as a result of accidents involving customers or involving employees using a company vehicle or their own vehicle to perform work-related tasks
• Professional errors
• Natural disasters
• Worker’s compensation claims from injured or ill employees

What isn’t covered in a standard business insurance policy?

While many people assume that business insurance will provide coverage of any type of loss a company incurs, there are a few things that are almost always excluded from a business insurance policy, including:

• Certain types of natural disasters such as floods or major weather events. Often, you can purchase additional coverage for these items at a cost, but it is generally safe to assume that these items won’t be included in your standard policy.
• Customer’s property that is stored at your business.
• Intentional or fraudulent acts committed on your property.
• Lawsuits against a company director by another director, or lawsuits against a director by the company.

Who needs business insurance?

With the exception of insurance on your company vehicle that meets the minimum insurance requirements in your state and worker’s compensation for your employees, you are not required to have business insurance.

However, nearly all businesses are encouraged to obtain insurance against various types of liability you face – including industry-specific liability like gym insurance or personal trainer insurance if you want to open a gym, for example, as well as insurance on your property, inventory, and equipment. Consider these facts:

• According to a survey conducted by Travelers, 75% of businesses in the U.S. are underinsured, meaning the business owner will likely be required to pay for liability and losses out-of-pocket. 40% of small business owners have no insurance at all.
• The most common claims that were made against business insurance policies involved customer complaints or contract disputes. The second-most common claim involves worker injuries.
• An estimated 8.8% of all U.S. business owners are expected to make a claim against a business insurance policy each year. However, survey results indicate that approximately 35% of all small businesses suffer a loss that insurance would have covered each year.
• The most expensive type of claim to be made against a company involves reputational harm, with the average claim costing about $50,000.
• Female business owners are around 18% less likely to have a claim filed against their business than male business owners. Some of the reasons for this include female business owners being less willing to take business risks and the fact that nearly half of all female-owned small businesses or operated at home where there can be fewer risks that would result in a claim against a business policy.

What are the various types of business insurance?

There is no single insurance policy that provides coverage for all types of liability or loss that a business can face. Instead, most insurance companies offer bundled packages that include several types of insurance. Here are some of the types of insurance that small business owners often purchase.

Liability Policies

Liability is defined as the legal responsibility to compensate someone for physical, emotional, or financial harm. This involves any occurrence related to or instigated by your company or its employees that creates expenses or psychological impacts to others, including:

• Motor vehicle accidents that you or your employee are involved in on company time that result in damage to property or injuries to others.
• Slip and fall and other premises liability type accidents occurring on your commercial property. Premises liability is an area of the law that deals with claims against property owners for failing to protect their customers or patrons from injury. Other types of premises liability accidents include elevator and escalator accidents, swimming pool accidents, accidents involving fires, explosions, or floods, or injuries and losses occurring as a result of criminal activity on your personal property that you knew was likely to occur but did not take measures to mitigate.
• Financial losses incurred by your customers as a result of a professional error or breach of contract.
• Injuries or financial losses resulting from a defective product that you manufactured, distributed, or sold.

General Liability Insurance

General liability insurance (GLI) policies provide coverage against claims arising from normal business operations. Examples of the type of losses that a GLI policy covers include:

• Third-party bodily injury for injuries that occur due to slip and fall or other type of premises liability hazards on your commercial property as listed above.
• Third-party property damage if you or your employees perform work at your customer’s home and cause damage to the customer’s personal belongings during the scope of that work.
• Reputational harm due to something you or your employees said or wrote about an individual while representing the company.
• An advertisement injury, such as if your company’s advertising materials infringe on someone else’s copyright.

While general liability insurance covers a lot of situations in which your company could face liability for financial or psychological harm, it doesn’t cover all types of accidents or losses, including damage to your own property, injuries to your workers, or legal claims against the company’s directors.

The dangers of not having general liability insurance include having to fork out the costs of paying on a claim made on your business out-of-pocket, in addition to the costs of paying an attorney to defend you as well as the high costs of litigation.

Professional Liability Insurance

Professional liability insurance provides coverage if you or your employee makes a mistake on the job that results in a claim of negligence, misrepresentation, and inaccurate advice. Additional coverages are available for industry-specific needs.

Professional liability insurance is encouraged for small businesses that provide professional services directly to customers, or if you regularly give professional advice as a service to your customers. Often service contracts will require this type of coverage.

Commercial Umbrella

Commercial umbrella policies provide additional money to pay for high-cost claims against you. Without this type of coverage, you would likely be ordered to pay the amount of the claim that exceeds your policy limit, including medical expenses, legal costs, damage to someone else’s property, and judgments or settlements against you.

Commercial umbrella policies are generally flexible and can be used to bolster the amount of funds available for claims, even if the claim is against a policy you have with another company.

Usually, the more a company interacts face-to-face with customers, the higher the liability risk they face. Commercial umbrella insurance is encouraged for business owners who frequently interact with customers, work on someone else’s property, or allow the public to visit the company property during regular hours.

Business Income Insurance

A business income insurance endorsement protects income that you lose if your business is damaged by fire, wind, or theft. This form of business insurance coverage works by providing protection against a business interruption if you are no longer able to operate due to the damage to your building. The policy can cover a portion of your costs until you are able to get back up and running again, or up to the limit of your policy.

Those whose business relies on a physical location or equipment, or the availability of another property to operate should consider getting this endorsement to their business property damage policy. Some of the types of business income that can be covered include:

• Extended business income to continue to assist you after the situation that caused your loss of income if you have trouble regaining your former level of income. This is particularly helpful if, during the time you were unable to operate, your customers found another provider of the services they were receiving from you.
• A business income extension for essential personnel.
• A business income extension for cloud service interruption, if your company relies on a cloud service provider to store date that you need to conduct your business, such as information on your vendors or customers, or employee records.
• A business income extension for electronic attacks, if you are unable to operate your business as a result of damage caused by a hacker.
• A business income extension for off-premises operations or off-premises utility services.
• A business income extension for dependent properties, such as a shipper who delivers products you depend on to provide service to your customers, an anchor store whose customers and employees do business with you, or a manufacturer who delivers your product.

Employment Practices Liability

Employers can face a number of different types of claims from their employees, including claims regarding wrongful termination, workplace harassment, discrimination, and retaliation. The most common type of employment claim involves wage and hour violations, such as claims alleging misclassification of employment status and miscommunication regarding the employee’s eligibility for overtime.

Employment practices liability coverage provides protection against claims that are made to you by your employees.

Directors and Officers (D&O) Liability Insurance

This type of insurance provides coverage for your company’s directors and officers if they are named in a suit as a result of serving as a director or officer of the company or organization. The policy provides coverage against the losses they incur, as well as the costs they or the organization face in order to mount a legal defense against the allegations.

Typical D&O policies offer three types of insuring agreements, known as Side A, Side B, and Side C:

• Side A provides coverage for directors and officers when the company refuses to or is unable to pay for indemnification.
• Side B provides coverage of losses experienced by the directors or officers when the company does grant indemnification.
• Side C provides coverage that extends to the corporate entity itself, along with its assets.

Employee Insurance Policies

Nearly all states in the nation require employers to provide specific types of insurance policies to protect their employees from loss. These policies include:

• Worker’s compensation: This is a no-fault insurance policy that most employers must provide for their employees. Excepted employees include those working for the federal government, who have their own benefit program for injured employees. Worker’s compensation covers the cost of all reasonable medical treatment and care for a work-related injury or illness, as well as wage replacement for the time you are unable to work as a result of your illness or injury.
• Commercial auto policies: These are policies to protect you and your employees from liability in the event of a motor vehicle accident involving the company vehicle or occurring on during work-related activities. Some of the types of incidents which require commercial auto insurance include: an employee hitting a pedestrian while driving a business vehicle; you or your employee swerving off the road on the way to work in a company vehicle and causing damage to someone’s mailbox; or you or an employee striking another vehicle and injuring its occupance while using the company vehicle during your normal scope of work.

Employers are also required to make payments on behalf of their employees for unemployment insurance. Unemployment insurance is a federal-state program that most employers and their employees pay into with money taken out of their earnings. This insurance provides temporary wage replacement for workers who become unemployed through no fault of their own, as long as they are looking for new work.

Property Policies

Business property insurance helps cover losses to the building and commercial real estate, as well as losses to equipment, tools, inventory, furniture, and your personal property that is kept at the business. Commercial building insurance covers damage caused by fire, lightning strikes, or even criminal acts such as breaking and entering, and theft. Add-on coverages are often available to help you restore the costs of reproducing records, providing temporary storage of records, or moving records to avoid additional loss.

Home-Based Business Policies

Many homeowner’s policies will not cover equipment and inventory that is used to run a home-based business. Those that do generally only provide about $2,500 for business-related losses. As you and any other business owner is well aware: $2,500 doesn’t go very far when it comes to replacing the vital equipment and inventory you need to keep your business afloat. Some affordable insurance options that are available for home-based businesses include:

• An increase on the limits of your homeowners policy for increased business property. Increasing the limits of your existing policy can be an option if you have less than $5,000 worth of business equipment and inventory at your home; you do not invite customers to your business location; and you only have up to $750 worth of property meant for business use outside of your home.
• An in-home business policy that provides comprehensive coverage for the equipment you use to run your home-based business.
• A business insurance policy. It is best to go with a full business insurance policy if your home-base business requires customers to be present in your home, you have more than $5,000 worth of business equipment in your home; or you rely on the income from your home-based business to support your household.

Your insurance provider or business lawyer can recommend add-on coverages to ensure that you don’t have to pay business losses out-of-pocket due to them occurring in your home.

How Can a Business Lawyer Help Me Manage My Insurance and my Finances?

When you talk about legal and physical risks to a company, many small business owners automatically think these are tasks for a financial advisor to deal with. In many cases, this is true. It is also true that many financial advisors are also business attorneys or employ attorneys to better position themselves to help their clients with the legal issues they face.

While accountants are not legally permitted to provide tax advice and tax advisors are not necessarily involved in the legality of your contracts and developed policies and procedures, a financial professional who is also an attorney or works closely with one is able to provide more of a full-service offering for small businesses. Some of the ways that a business lawyer can help you to avoid liability and protect yourself from unexpected expenses include:

• Thorough and regular analysis of all aspects of your business, intended to identify potential legal risks and regulatory compliance issues.
• Ensuring that the contracts you enter into with clients, employees, and vendors are legally enforceable and serve the best interests of your company.
• Ensuring that the real estate contracts you enter protect the interests of your company, including the provision of tenant’s addendums on commercial leases that will provide you with terms that best suit your industry and method of operations.
• Preparing the necessary paperwork needed to structure your business as a corporation or LLC, and providing ongoing assistance with meeting the formalities of these types of organizational structures.
• Ensuring that you have obtained the proper federal and state tax identification numbers and that you are in good standing with the IRS and your state department of revenue.
• Ensure that you are in compliance with all the local zoning restrictions for your area as well as providing legal counsel if you are involved in a zoning dispute in order to help you avoid fines.
• Making sure that the insurance policies you purchase completely and adequately cover the risks you face, whether the involve potential losses due to weather-related disasters, cyber attacks, theft, or unreasonable hazards to guests or employees. A business attorney is better positioned to provide this service than a financial advisor, as he or she has obtained specialized training in the legal process of obtaining compensation from liable parties and a deeper understanding of the insurance coverage needed to fully compensate industry-specific losses.

In a matter of moments, an unexpected disaster can result in losses and liabilities that can take years for your small business to recover from.

An experienced business lawyer can help you make sure that your small business insurance policies provide the coverage you need for the risks you face. Type your ZIP code into our free search tool to find a business attorney in your area.

Case Studies: Business Insurance

Case Study 1: Fire Damage and Business Interruption

A small manufacturing company experienced a devastating fire that caused significant damage to their building, equipment, and inventory. The company had business property insurance, which covered the cost of repairing the building and replacing damaged equipment and inventory.

Additionally, they had a business income insurance endorsement that provided coverage for the income lost during the period of business interruption. This coverage helped the company stay afloat financially while they rebuilt their operations and resumed normal business activities.

Case Study 2: Professional Liability and Legal Defense

A consulting firm faced a lawsuit from a dissatisfied client who claimed that the firm provided inaccurate advice, leading to financial losses. Fortunately, the consulting firm had professional liability insurance, also known as errors and omissions insurance.

The policy covered the legal expenses associated with defending against the lawsuit and provided compensation if the client’s claim was successful. The insurance coverage protected the consulting firm’s financial stability and reputation during the legal proceedings.

Case Study 3: General Liability and Customer Injury

A retail store had a customer slip and fall on a wet floor, resulting in injuries. The customer filed a lawsuit against the store, alleging negligence in maintaining a safe premises. The store had general liability insurance, which covered the legal expenses and medical costs associated with the customer’s injuries.

The insurance policy provided a defense against the lawsuit and ultimately paid for the settlement, ensuring that the store did not bear the financial burden of the incident.