There's a lot of peace of mind that comes from knowing your small business is insured. But it is important to understand your business's risks and what the various types of business insurance are intended to cover.
For example, understanding what general insurance is not intended to cover is just as important as understanding what it does cover. The ideal time to find out what's covered and what's not is before you purchase a policy. As you consider your policy purchase, determine what is excluded. Once you receive your general liability policy paperwork, it may be tempting to file it away and move on to the next challenge. But, before you let your guard down, take a little time to be sure that your policy covers everything you think it does.
Keep in mind the following exclusions found in nearly all general liability insurance policies.
General Liability Excludes Professional Liability
General liability insurance is the most common type of business liability insurance. Basically, it is designed to protect your company in the event that someone alleges they were injured or their property was damaged as a result of your negligence.
A Business Owner's Policy includes general liability insurance that covers bodily injury, property damage, personal injury and advertising injury. This often includes advertising copyright infringement; defamation of character, such as libel and slander; and invasion of privacy. A BOP also includes property insurance that covers both your own and others' business property.
What's missing? Claims related to professional negligence or failure to perform your professional duties.
Lawsuits related to such claims have put many small companies out of business. In fact, for many professional services firms, the liability risk associated with professional errors & omissions and negligence can be far greater than the bodily injury and property damage risks covered by a general liability policy.
To protect your business against such claims, you would need to purchase separate professional liability insurance, also known as errors and omissions or E&O coverage.
Unfair or Discriminatory Employment Practices Are Not Covered
A typical commercial general liability insurance policy also doesn't cover unfair or discriminatory employment practices, including hiring and termination-related claims. Also excluded are any claims related to demotion, reassignment, employee evaluation, discipline, harassment, and other employment-related policies.
In short: if an employee alleges he or she was treated unfairly or that you acted illegally in your dealings with them, a general liability policy will usually not respond. These exclusions apply not only for employees currently on staff, but also to job applicants, contractors, and former employees who no longer work for you.
If you're worried about claims related to employment-related practices, you might want to look into buying employment practices liability insurance (EPLI), which covers your legal liability for some claims related to wrongful termination, discrimination or sexual harassment.
Subcontractors
If your business is like many small businesses, you occasionally rely on subcontractors to get the job done. If so, it's important to be clear about how your general liability insurance applies to your subcontractors - or more importantly, how it might not.
With some insurance carriers, claims caused by independent contractors working on your behalf aren't covered by your general liability insurance policy. On the other hand, some general liability insurance policies are very broad and not only cover you, if a contractor makes a mistake, but also cover the contractor directly. Obviously, is important to know in advance how you should expect your policy to perform.
Know Your Policy
Policy exclusions are one good reason why it pays to have a knowledgeable agent or broker on your side. When you purchase your policy, be very clear about the type of work you do, so that your agent can ensure you're covered for all risks you may encounter on the job. If you're unsure whether a specific concern is covered by your general liability policy, read your policy carefully and ask your agent or broker for clarification.
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