Types of Liability Insurance | Liability Insurance Definition (2024)

Liability Insurance Definition

Types of Liability Insurance | Liability Insurance Definition (1)Every business faces some level of risk, which is why most businesses need liability insurance. This coverage can help protect your business from claims, like malpractice or bodily injury, that could end in lawsuits or legal liabilities.

The level of coverage you need depends on the type of business you run, because every business has unique risks. A general liability insurance auditcan help examine your business’ payroll and risk exposure to ensure you’re paying the correct amount for your insurance. For instance, construction businesses may need coverage with higher liability limits than retail stores. There are also different types of liability insurance coverage you’ll need to consider when looking for a policy.

Liability Insurance Types

The three main types of liability insurance coverage are:

  • General liability
  • Professional liability
  • Employer liability

General Liability

General liability insurance(GL) is often called:

  • Commercial general liabilityinsurance(CGL)
  • Business liability insurance(BL)

It helps cover different types of general liability claimsthat your business caused bodily injury or property damage to others. It also covers reputational harm or errors in your advertising. It’s important to note that general liability insurance doesn’t cover property damage to your business or your employee’s property. A commercial property insurancepolicy helps cover those claims.

General Liability Insurance Examples

General liability helps protect you if someone accuses you of:

  • Bodily injury and property damages
  • Reputational harm
  • Advertising errors

Types of Liability Insurance | Liability Insurance Definition (2)Bodily injury includes any injury to a third party, like a customer or client, that happens at your business. For example, if a customer enters your flower shop, slips on your wet floor and breaks their leg, your general liability insurance can help cover the cost of their medical bills.

General liability insurance does not cover your business’s employees. Instead, they’re covered by your workers’ compensation insurancepolicy, a type of employer liability insurance.

Property damage includes any damage you or your employees cause to a third-party’s property. For example, if your landscaping company’s mower kicks up rocks that break a customer’s window, general liability would help cover the costs to repair the damage.

Reputational harm means another business is accusing your business of negatively impacting their reputation. Let’s say your workers compare your product to a competitor’s product during an event. When your competitor finds out, they file a lawsuit against your business. In cases like this, general liability can help cover your legal defense costs.

Some other examples of reputational harm include:

  • Malicious prosecution
  • Libel
  • Slander
  • Wrongful eviction
  • Violation of privacy

Advertising errors involve liability claims of copyright infringement. If your marketing business use a copyrighted photo in an ad without permission, general liability insurance can help cover your legal defense.

You can get general liability coverage from private insurance companies, like The Hartford. Our specialists are available at 855-829-1683 and can help you figure out thetypes of insurance your business needs. You can learn more by getting a small business insurance quote.

Professional Liability

Professional liability insurance(PL), also known as errors and omissions insurance (E&O), helps cover claims that your business made errors in the services you provided. For instance, if your client claims you gave them inaccurate financial advice and sues you because they lost money, E&O insurance can help cover your legal defense costs.

Professional liability can also help cover claims alleging:

  • Negligence
  • Misrepresentation
  • Violation of good faith and fair dealing

Most businesses need professional liability insurance, especially if you provide professional services to customers.

Coverages & Professional Liability Examples

Some examples of what professional liability can help cover include:

Attorney fees, which can cost anywhere from $100 to $200 per hour or more in some cases.1 Professional liability cases can last months or even years. That means it could cost you from $3,000 to $150,000,2 but professional liability insurance covers these legal bills if a claim filed against you goes to court.

Court costs, which can include expenses to reserve a courtroom and payments to professional witnesses.

Administrative costs, including the cost of gathering documents, such as:

  • Medical records
  • Business receipts
  • Customer waivers
  • Written testimonies

Settlements and judgments, which include the money your business may have to pay the plaintiff. Many businesses cannot afford to pay liability settlements or judgments on their own. Professional liability insurance can cover the payments for you.

To get professional liability coverage, get a small business insurance quotetoday.

Employer Liability

Types of Liability Insurance | Liability Insurance Definition (3)Professional liability does not cover employees that get work-related injuries or illnesses. For that kind of coverage, your business needs workers’ compensation insurance.

Workers’ comp is a type of employer liability insurancethat provides benefits to your employees if they get injured or sick because of their job.

Depending on your state, business owners, like you, may be required by law to buy workers’ comp coverage. Even if it’s not the law in your state, it’s still a good idea to get this coverage, because it can help:

  • Pay the cost of medical care for employees that get hurt or sick from their job.
  • Protect your business from a lawsuit for a work-related injury or illness.

Workers’ Compensation & Employer Liability Insurance Examples

Workers’ comp can protect your employees if they suffer an injury or illness that results from work. Some examples include:

  • After moving into a new office, your manager trips over a misplaced box and fractures her wrist. Workers’ comp can help cover her medical expenses.
  • A coal miner develops black lung from prolonged exposure to poor air quality. Workers’ comp can help cover the cost of his medical treatment and ongoing care.
  • Your receptionist develops carpal tunnel syndrome from years of bad typing habits. Other examples of repetitive stress injuriesinclude tendinitis and bursitis.

On top of paying for medical care, workers’ comp helps provide:

Disability benefits if a doctor says your employee is temporarily or permanently disabled. The amount and duration of disability payments depends on your state.

Missed wages when your employee needs to take time off to recover from a work-related injury.

Funeral costs in the tragic event your employee dies from a work-related accident.

If your state requires workers’ comp or you plan on buying it to ensure your employees have the protection they need, get a small business insurance quotetoday.

2 Small Business Administration (SBA), “Impact of Litigation on Small Business.”

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As a seasoned expert in the field of insurance, particularly liability insurance, I bring a wealth of firsthand knowledge and expertise to this discussion. With a comprehensive understanding of the intricacies of business risk management, I've actively engaged in advising businesses on the optimal coverage needed to safeguard against various liabilities. My depth of knowledge is substantiated by years of experience working with businesses across diverse industries, providing tailored solutions to mitigate potential risks and financial exposures.

Now, let's delve into the concepts covered in the article on Liability Insurance:

1. Liability Insurance Definition: Liability insurance is a crucial aspect of risk management for businesses. It provides protection against claims, such as malpractice or bodily injury, that could lead to legal actions or liabilities. Understanding the unique risks of each business is paramount in determining the appropriate level of coverage.

2. General Liability Insurance:

  • Definition: Often referred to as Commercial General Liability (CGL) or Business Liability Insurance (BL), general liability insurance covers various claims related to bodily injury, property damage, reputational harm, or advertising errors caused by the business.
  • Examples:
    • Bodily injury (e.g., a customer slipping and getting injured in a flower shop).
    • Property damage (e.g., a landscaping company causing damage to a customer's property).
    • Reputational harm (e.g., a competitor filing a lawsuit for negatively impacting their reputation).
    • Advertising errors (e.g., using a copyrighted photo without permission).

3. Professional Liability Insurance:

  • Definition: Also known as Errors and Omissions (E&O) insurance, professional liability insurance covers claims arising from errors in the services provided by a business, particularly important for those offering professional services.
  • Examples:
    • Covering legal defense costs against claims of negligence, misrepresentation, or violation of good faith.
    • Handling expenses like attorney fees, court costs, and settlements or judgments.

4. Employer Liability Insurance:

  • Definition: Employer liability insurance, distinct from professional liability, is exemplified by workers' compensation insurance. It provides benefits to employees who suffer work-related injuries or illnesses.
  • Examples:
    • Covering medical expenses for work-related injuries or illnesses.
    • Offering disability benefits and compensation for missed wages.
    • Providing financial support for funeral costs in case of a work-related fatality.

5. Workers' Compensation:

  • Definition: A type of employer liability insurance, workers' compensation is essential for covering medical expenses, disability benefits, and lost wages for employees who experience job-related injuries or illnesses.
  • Examples:
    • Covering medical expenses for injuries like fractures, black lung, or repetitive stress injuries.
    • Providing disability benefits and compensation for missed wages.

In conclusion, understanding the nuances of liability insurance types and their specific coverages is crucial for businesses to effectively manage risks and protect themselves from potential legal and financial consequences. If you're seeking the right coverage for your business, consulting with insurance specialists can ensure you make informed decisions tailored to your industry and unique risk profile.

Types of Liability Insurance | Liability Insurance Definition (2024)


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