Starting and growing a small business is hard work. The last thing you need is for an accident caused by a contractor or employee to put all of your efforts at risk. Unfortunately, that is exactly what can happen if you are not properly protected. Contingency liabilities can leave you and your business financially liable for actions that were not under your direct control.
Contingency liability issues are something that every business owner should understand, because even if you play by the rules and have stringent safety polices in place, you could find yourself in court due to the actions of an agent, employee or contractor.
Luckily, there are a few contingent liability insurance products that can help mitigate these risks.
Contingent liability goes by different names. It is also referred to as indirect liability and vicarious liability, which is probably the most common term used to refer to this particular risk.
Vicarious liability simply means that you can be held legally responsible for another person’s wrongdoing or poor work because of the way legal relationships work.
Say you hire a contractor to paint your building and while doing the job, they drop a paint can that hits a customer walking into your business. You could be held liable for both the medical bills and the cost of a lawsuit if they decide to sue.
Medical bills can be a huge expense, and a lawsuit takes those costs to a whole new level. A 2010 study conducted by the Institute for Legal Reform of the U.S. Chamber of Commerce found that small businesses paid $105.4 billion in expenses related to lawsuits in 2008, which is roughly $118 billion in today's dollars.
While the painting company should technically be liable, if they are uninsured, underinsured, or not properly licensed, your company could be held liable for the damage.
It’s not just direct contractors that come with vicarious or indirect liability. If they hire a subcontractor that causes an injury on your business premises, the liability may make its way back to you and your business.
Employees are a common source of contingent liability, and your business will absolutely be held liable for their actions.
Say you own a convenience store and an employee cleans up a spill but forgets to put out a wet floor sign, even though you reminded them about the sign, and a customer slips on the wet spot and falls. Your business will be on the hook for your employee's actions.
Basically, although your employee is directly responsible for the fall and not providing a safe environment for your customers, they were acting on behalf of your company. Your company is legally responsible for making sure employees follow safety rules.
If the customer is injured and decides to sue, your business (and you personally) can be held liable for legal costs, as well as any settlements or judgments resulting from the lawsuit.
It’s important to know just where your indirect liability lies. Here are some of the most common sources of vicarious liability:
The truth is, there is no way to escape vicarious liability unless you are the only employee and never use outside contractors or agents. Fortunately, there are insurance products that will protect you and your business from mistakes made by employees and contractors.
Here is a quick rundown of the types of insurance that offer contingent liability protection:
Lawsuits can easily run into the hundreds of thousands of dollars, so errors and omissions coverage can be a real financial lifesaver for your business.
This can also be an issue for companies such as truck brokers who do not own the equipment being used because they use independent agents. If an independent agent (such as a truck driver who owns their own truck) is working for your company and lets their truck insurance lapse or their policy is cancelled, you can be held liable if they are in an accident that causes damage to others.
Althhough the driver is responsible for providing their own insurance, and they provided proof of coverage before the job started, if their policy lapses while working on a job for your company, it's possible you can be held liable.
Contingent auto liability insurance will help protect your business in these situations.
Accidents, mistakes and lawsuits happen every day in the world of small businesses. You need to make sure you protect what you have built. Contingency insurance will make sure you are covered when something happens.
A Trusted Choice® independent agent can help you determine what risks your business faces, as well as the best policy options to protect you and your business. Even better, they will do all of the legwork of shopping for a policy and present you with the best option for your needs.
There are a couple of things to consider when shopping for insurance that will protect you against contingent liability:
Start shopping today for a contingent liability insurance policy to make sure your business is fully protected.