Protecting your business against lawsuits is an unfortunate part of business ownership. As many as 43% of small businesses have been involved in or threatened with a civil lawsuit, the costs of which can range from thousands to hundreds of thousands of dollars. For many, the cost of a lawsuit can mean the end of a business — closing their doors for good.
There are many reasons small business owners get caught up in litigation. Anyone, from employees to customers to someone who thinks your website is inaccessible, can file a lawsuit against your business.
Even if you win, the costs can be staggering.
Liability protection is a safety net for your business; it's a parachute meant to deploy if the worst-case scenario happens to you.
General liability and professional liability are two of the most common types of liability insurance available for your small business. Here's how they protect you.
General Liability vs. Professional Liability
General and professional liability cover different types of risks you may face in your business. One covers physical damages, such as damage to someone's property or bodily injury, while the other covers financial damages and professional mistakes.
Let's dive into the differences between these two.
General Liability Insurance
General liability insurance is your safety net against lawsuits from third-party physical damages. It's designed to cover bodily injury and property damage, and, depending on the policy, its protections may even extend to advertising injuries or completed product injuries.
What it covers:
- Third-party property damage: if you damage client property that's in your possession or another person's property while conducting business, this coverage can help pay for repairs or replacement.
- Third-party bodily injuries: the slip-and-fall is one of the most well-known forms of this, but anytime a client or other non-employee gets injured because of your business, this coverage can help pay for medical bills.
- Product liability: if you have this coverage, it can help cover expenses if a product you made, sold, or distributed caused third-party damage or injuries.
- Advertising injuries: provides coverage against claims and lawsuits for copyright infringement, libel, slander, or even false arrest.
What it doesn't cover
General liability is the go-to coverage option to protect your business from third-party claims for physical damage or injuries. But its protections are limited to third-party claims; it won't cover damage to your business property, personal property, or injuries to your employees if they get hurt or become ill while working.
When is it required?
General liability is not commonly required by law to operate your business, but you may find it necessary if you want to work with certain clients or in certain circumstances.
For example, construction companies may be required to show proof of their general liability coverage in order to bid on a certain project, or your web development business may need to produce proof of your general liability coverage before a prospect agrees to sign your contract.
Food-based businesses, from food trucks to wedding caterers, are typically required to obtain general liability coverage in order to apply for permits and licenses.
Who needs it?
General liability is considered a foundational insurance policy because every business can benefit from its protections regardless of size or industry. From a freelancer operating a home-based business to a retail chain or construction business, every business owner is at risk of a lawsuit for third-party injuries or damages and can benefit from general liability coverage.
Professional Liability Insurance
Professional liability insurance protects your business against lawsuits from unsatisfied clients or those who think they've experienced a financial loss as a result of working with you. Professional liability is designed to protect your business if your client sues you because you've missed a deadline, provided business advice that wasn't in their best interest, or omitted information that caused them financial loss.
What it covers
Professional liability is meant for those businesses that provide professional services, particularly if those services can influence a client's bottom line. It can help cover the cost of your legal defense, lawyer, court, and other related costs if you have to defend yourself against a lawsuit for:
- Accusations of negligence
- Missed deadlines
- Mistakes and oversight
- Undelivered services
What it doesn't cover
Professional liability insurance has a very narrow scope, so don't expect this policy to offer broad protections for your business. It is designed to cover lawsuits brought against you or your business for allegations of professional negligence or malpractice, but it is not meant to cover lawsuits from employees, costs of worker injuries, third-party property damage, or damage or losses to your equipment or property.
When is it required?
Certain forms of professional liability insurance may be required before you apply for a professional license, depending on your state. Professional liability may be known by its other names, such as errors and omissions insurance or malpractice (legal malpractice or medical malpractice) insurance.
Who needs it?
Service-based professionals benefit the most from professional liability coverage, from accountants to insurance agents, real estate agents, tax preparers, IT professionals, lawyers, and medical professionals.
If you are not providing professional services or advice and instead operate a product-based business, you may not need this specific type of coverage. Coffee shops, retail stores, or yoga studios, for example, do not typically need professional liability coverage — unless your coffee shop doubles as an accounting firm, too.
Can Your Business Survive a Lawsuit?
Unfortunately, a day in court can mean the end of many people's business stories. It doesn't matter how hard you work, how innovative your product is, or how experienced you are in your field — fighting a lawsuit takes tremendous resources. You can reduce your business risks with a good risk management plan and careful training practices, but no matter how much you prepare, an unexpected incident could bring a lawsuit to your door.
Adequately protecting your business with the right types of insurance coverage could mean keeping that door open. No one ever wants to use their safety net or parachute, but when the unexpected occurs, you will be glad you have it in place.
General Liability vs. Professional Liability — Which is Right for You?
Unsure which policies will best protect your business? Let the business insurance professionals at Aegis Insurance Markets help you determine how much coverage you need to protect the business you've built.
Get a no-obligation quote for general liability or professional liability today.