Commercial Liability insurance offers businesses the protection businesses need against unforeseen incidents and mishaps.
When businesses open their doors for the first time, they are already open to many potential risks. A customer might trip over a cord, the building might catch fire, or the printer may have advertently advertised an outdated or harmful product.
Liability claims can make or break a business depending on the seriousness of the claim. Especially if the business does not have enough liability insurance.
Because the possibility of financial ruin is great, no business can afford to be without commercial liability insurance.
What is Commercial Liability Insurance?
As a commercial business owner, you are responsible for the actions and behavior of your employees. If they cause physical harm or damage to your customer’s home, appliance, or structure, you must have enough insurance to cover the cost of repair or replacement.
Commercial Liability Insurance is a type of insurance that provides businesses with risk insurance against these potential harms.
Businesses that offer commercial services face scrutiny at all levels. Without this necessary liability protection, most businesses would suffer great financial ruin.
What Does Commercial Liability Insurance Cover?
Commercial liability insurance covers businesses who may be sued for business slander or property damage.
Most importantly, this type of insurance covers a financial loss that might be due to erroneous advertising, or some other type of liability that may affect the livelihood of your business.
If you have to go to court, the insurance will pay for your defense, if this is included in your premiums.
Wiring a house or building that catches afire due to bad wiring, accidental puncturing a water line, not cleaning the water from a walking area and a customer slips and falls, and sustains an injury. These are what would be covered under commercial liability insurance.
Workers damaging a structure due to not using the proper equipment is also an example of liability charges. Think of your liability insurance as malpractice insurance.
Doctors are sued for negligence if they prescribe the wrong medication, perform unnecessary surgery, or cause permanent damage to a patient.
Your liability insurance offers the same type of protection, but mostly for destruction or disfiguration of personal or private property, committed by those you employ.
What Liability Insurance Does Not Cover
Liability insurance does not cover medical claims.
Businesses will need to purchase additional insurance for personal injury payments due to injuries received on the property.
It does not cover intentional injury or property damage, nor does it pay for willful and intentional infringement of copyrights or negligence.
Are There Any Policy Limits?
Policy limits can range from $300,000 to $1,000,000. Higher amounts require the purchase of Excess Liability insurance or an Umbrella policy.
Types of Commercial Liability Insurance
General Liability
General liability is a commercial insurance policy that provides coverage for both bodily injury and property damage occurring on the insured’s premises or damage due to the insured’s operations in progress or completed operations.
It consists of multiple components to ensure broad based coverage of the risk to which businesses are exposed.
Premises Operations
Premises operations coverage encompasses liability for accidental bodily injury or property damage that results from either a condition or operation on the insured’s premises.
Products & Complete Operations
The Products Liability Hazard exists for any insured that manufactures, sells, handles, or distributes goods or products – the hazard being the insured’s liability for bodily injury or property damage that arises out of such goods or products.
The Completed Operations Hazard is the insured’s potential liability for bodily injury or property damage that arises out of the insured’s completed work.
Commercial General Liability
This coverage also provides protection to the insured in other areas. The Insuring agreement refers to the insured’s legal obligation arising out of Personal Injury. “Personal” is defined differently from bodily injury.
Personal Injury not only includes bodily injury, but also includes injuries such as humiliation, loss of reputation, false imprisonment, arrest or restraint, malicious prosecution, libel, and slander.
Medical Payment
Medical payment coverage is provided under the Commercial General Liability coverage providing premises and operations medical payments.
This coverage pays for medical expenses incurred by a person as a result of bodily injury arising from the named insured’s premises or operations covered by the policy without regard to negligence.
Advertising Liability
This coverage is important to businesses, because it applies to injuries arising out of libel, slander, defamation, violation of privacy, unfair competition, or infringement of copyright, title, or slogan that occurs in the course of the insured’s advertising activities.
Computer Services & Omissions
With the development of highly complicated and sophisticated electronics data processing equipment has come a variety of new types of service organizations that perform various computer-related functions for other businesses.
Firms in this field offer data processing, consulting systems maintenance, and of course development, marketing, distributing, and installation of computer hardware or software products.
Firms may be involved in one, or all or a combination of these activities. All these firms are vulnerable to loss from error, malfunction, or mistake and the cost of these claims can be enormous.
The coverage provided by this policy is the computer service and software organizations resulting liability to others caused by its negligent act, errors or omissions committed in the performance of services or the providing of products.
Covered business activities include performing computer services for others including data processing, system analysis, programming and consulting.
Other computer-related business activities such as developing, distributing, marketing, licensing, selling, and maintaining computer hardware and software products are also covered.
The term insured, includes the named insured, but also any partner, executive officer, employee director, or stockholder acting within the scope of his or her duties.
Fire Legal Liability
Fire legal liability coverage relates to losses as a result of property damage to structures or portions of structures (including permanently attached equipment) rented by or leased to the named insured if such damage is caused by fire.
The basic limit is $50,000; but additional coverage can be purchased or is included in some policies. This coverage is excess over other valid and collectible insurance (meaning the other insurance would pay first and then this coverage would pay on any unpaid balance).
Professional Liability
A professional liability exposure stems from rendering or a failure to render any professional service such as one provided by an accountant, engineer, insurance agent, broker, doctor, dentist, or attorney.
Two liability policies are needed: the General Liability Policy and the Professional Liability Policy. Professional Liability or “Error & Omissions” covers the acts or failures of the professional in conducting their business.
Directors & Officers Liability
Under common law, and under the statures of some jurisdictions, directors and officers owe certain duties and standards of care in managing the affairs of the corporation they serve.
If failure to perform these duties – with due care – results in financial damage to the corporation, they can become personally liable to make restitution, because of their mismanagement, to the corporation’s stockholders or in some cases to parties outside the corporation such as creditors.
The other liability policies discussed have no coverage against liability for the financial loss described,and it is outside the scope of conventional homeowners or personal umbrella policies that the director might carry.
Coverage Territory
Coverage terriftory is included in the Commercial General Liability (CGL) coverage that applies only to bodily injury or property damage that occurs within the policy territory.
The Policy territory is defined as the United States, its territories and possessions such as Puerto Rico, and in to Canada.
Also, international waters and air space between these regions are included in policy territory “provided the bodily injury or property damage does not occur in the course of travel or transportation to or from any other country, state or nation.”
With respect to the named insured’s Products the CGL covers bodily injury that occurs anywhere in the world, subject to two limitations: first, the product must have been sold for use in the United States, its territories, possessions, or Canada (the coverage territory); second, the original suit for damages must be brought within these regions.
Note: The “worldwide” feature applies only to products, and not to completed operations. An insured whose completed work goes abroad, such as a company that repairs airplanes or boats, has no coverage under the CGL for accidents caused by its faulty work if the bodily injury or property damage occurs outside the policy territory. If an insured has this exposure, which could exist for any insured that repairs any kind of portable property, the insured should seek to have the policy territory amended to provide the same worldwide scope for completed operations.
Occurrence and Claims-Made Coverage
Each is written with a different CGL coverage form. The basic difference between the two coverage forms is the “Triggers.” The trigger of each form is the event that must happen during the policy period in order for the policy to pay the claim.
The trigger of the occurrence form is bodily injury (BI) or property damage (PD). So, if someone is injured by the insured’s product today, the occurrence policy in effect today will apply to the loss whether the claim is made this year or next year. There are pitfalls to the occurrence policy, which aren’t discussed here; to avoid these pitfalls the claims-made coverage was introduced.
The trigger of the Claims-Made Form states that the insurance applies to bodily injury and property damage as long as the injury or damage did not occur before the “retroactive date,” if any (shown in the declarations and occurs during the policy period).
A “retroactive date” can go back to when you first started in business (full prior acts coverage) or can be set the day the policy is written. This is up to the discretion of the insurance company writing the policy.
Both policy forms are used today; however the Occurrence Form is probably most common with the Claims-Made Form reserved for certain business or coverages.
Employment Practices Liability (EPLI)
Sometimes it appears employers are facing an attack on two fronts. Employees’ emerging eagerness to sue over any perceived employment-related wrong is placing an increasing burden on employers; and in the harsh realities of a tough economy American companies need to operate leaner, more efficient organizations to remain competitive in the marketplace.
In some industries, “company loyalty” and “employee loyalty” seem to be a thing of the past. Streamlining, downsizing, and restructuring may help the bottom line, but they can also contribute to an increasingly adversarial employment relationship.
Heightened awareness of employee rights – coupled with passage of the American with Disabilities Act of 1990 and the Civil Rights Act of 1991 – increased the likelihood that employees will sue for a variety of disputes.
Additionally, as the courts are broadening the definitions of discrimination and harassment, claim frequency can be expected to rise. A major insurance industry study reported that the average employee claim exceeded $247,000, excluding defense cost.
In South Carolina punitive damages are awarded – and are covered by insurance – for bad intent. It is the awarding of punitive damages that have really increased the cost of EPLI claims.
The many costs associated with such EPLI claims can have a serious financial impact on any business – large or small. More employers are becoming aware of the need for insurance protection for this type of claim.
Employment Practices Liability Insurance Coverage
On behalf of the Insured, EPLI will pay loss for which the Insured becomes legally obligated to pay on account of any claim made against them individually or as the employer during the Policy Period, or if exercised, the Discovery Period (an extension of the reporting period that can be purchased after policy period), for a Wrongful Employment Practice taking place after any retroactive date and during the Policy Period.
Wrongful Employment Practice
This type of policy pertains to actual or alleged:
- Violation of federal, state or local statue, or any common law, prohibiting any kind of employment-related discrimination;
- Employment-related harassment, including any type of sexual harassment as well as religious, racial, sexual orientation, pregnancy, disability, age, or national origin-based harassment including workplace harassment by non-employees (vendors such as salesman and/or service people who are not employed);
- Abusive or hostile work environment whether based on gender, religion, age, disability, or other areas as mentioned in #2 above;
- Wrongful discharge or termination of employment whether actual or constructive;
- Breach of implied employment contract;
- Failure or refusal to hire;
- Employment-related misrepresentation;
- Failure to provide equal opportunities;
- Employment-related defamation, libel, slander, or invasion of privacy;
- Failure or refusal to promote, including failure to train, advance or grant bonuses, and failure to make partner;
- Wrongful demotion;
- Negligent hiring or negligent supervision of others;
- Failure or refusal to adopt or enforce adequate workplace or employment practices, policies, or procedures;
- Wrongful, excessive, or unfair discipline of employees;
- Employment-related wrongful infliction of emotional distress;
- Retaliation against employees, including retaliation for exercising protected rights or supporting anothers’ exercise of protected rights.
Errors & Omissions
This is defined as a “negligent act” in giving counsel to employees with respect to “employee benefits;” interpreting “employee benefits;” handling or records in connection with “employee benefit” or effect in enrollment, termination, or cancellation of employees under “employee benefits.”
Employee Benefit Liability
Liability coverage is extended to cover errors & omissions which occur in the administration of employee benefit programs such as major medical (health insurance), 401K’s, Pension Plans, etc.
Examples Corporate Liability Insurance Claims
The controller of a large corporation believed he was fired for refusing to sign a misleading annual report. He felt the annual report, which was to be filed with the Securities and Exchange Commission, failed to disclose certain conflicts of interest and misuse of corporate assets. The controller brought a wrongful termination complaint against the company and its chairman alleging he was terminated for his refusal to violate federal laws and regulations. The jury awarded $124.4 million in damages.
A legal secretary at a large law firm brought a complaint against the firm and a senior partner of the firm alleging that she had suffered sexual harassment by the partner. Other women also complained. Although the firm contended the charges had been investigated and taken seriously, the jury found the firm “failed to take all reasonable steps to prevent the sexual harassment of the plaintiff from occurring” and awarded $7.2 million.
A female worker brought a complaint alleging that she had suffered sex discrimination, sexual harassment, and wrongful termination. The company argued the woman was terminated for excessive absenteeism. The woman countered that other employees were not dismissed, although they had poorer attendance records. The jury awarded the plaintiff $1.1 million in damages.
A female stenographer brought a claim for constructive discharge against her employer, a steel company. The woman had reported what she considered racial and sexual harassment to management, but the harassment continued. After suffering a breakdown, the woman resigned. In her complaint, the woman alleged that her civil rights had been violated and that the company was negligent in its failure to investigate incidents she had reported. The jury awarded the employee $1.64 million.
A customer service representative brought a wrongful termination complaint against his employer. The employee, a 60 year old man, alleged he was terminated because of age. The company contended he was laid off as a result of workforce reduction. The customer service representative argued he was replaced by a 28-year-old employee. The jury awarded the employee $1.5 million in damages.