One of the major concerns for all business owners is the threat of lawsuits. Businesses can get sued for all kinds of reasons, and some lawsuits can be costly enough to bankrupt a business without the proper coverage. But do you know whether your business insurance actually covers all legal fees in the event you do get sued? The good news is that we know, so you don’t have to.
Independent insurance agents know all about business insurance and how it covers legal fees, too. They know exactly how to protect your business against the costliest possible lawsuits, and they’ll get you set up with all the coverage you need long before you need it. But before we get ahead of ourselves, let’s take a closer look at business insurance and liability coverage.
Does My Business Insurance Cover All Legal Fees?
As long as the reason you’ve been sued is covered by your policy, the answer is yes. If you get sued by a third party who accuses you of something included in your business insurance, your policy will cover all necessary legal fees to defend you. Business insurance pays for attorney fees, court fees, and any settlements you’re ordered to pay if the case rules against you.
The only way you wouldn’t be covered is if what you’re accused of isn’t included in your policy. Many policies don’t cover intentional harm done to another by a business, so legal fees associated with an intentional malicious act wouldn’t be paid for by the insurance company. Your independent insurance agent can help review your business insurance policy with you so you can find out exactly which scenarios are covered and which aren’t.
Do I Need Additional Liability Insurance to Protect Myself?
Well, that depends on how risky the type of business you run is. If your business has a greater threat of being sued, and getting hit with costly lawsuits at that, you may want to purchase extra protection. Standard business insurance policies include limits of $1 million for liability coverage, which is enough for many lawsuits, but not all. In order to increase your liability coverage limits, you’d need to purchase an additional policy called umbrella insurance.
What Is Umbrella Insurance and Do I Need It?
Again, you might need it if your business has a greater threat of getting hit with a costly lawsuit due to the nature of its operations. Umbrella policies essentially stack on top of an underlying policies, such as business insurance, to increase the liability coverage provided. Umbrella insurance can be purchased in $5 million or $10 million increments.
So if your business insurance includes a $1 million limit for liability coverage and you add a $10 million umbrella policy, you’ve now increased your legal protection to a total of $11 million. Umbrella policies are typically very affordable and offer valuable coverage for those who need it. Your independent insurance agent can help you decide whether your business would benefit from umbrella insurance.
What If I Don’t Have Enough Liability Coverage to Protect Me?
Well, unfortunately you’d be forced to pay the remaining fees and bills out of your own pocket. Lawsuits can get expensive fast, so it’s best to be set up with all the protection you need long before they ever hit. If you didn’t purchase an umbrella policy and you exhausted the limit on your liability coverage under your business insurance, you’d be left with an ugly situation of having to pay the rest of the costs yourself.
Businesses often go bankrupt due to lawsuits they can’t afford. That’s why it’s so important to get the right coverage from the start. If your business has any risk at all of being sued in a way that could exceed your regular business insurance’s limits, it’s imperative to make up the extra coverage you might need with umbrella insurance.
Which Businesses Are Most At Risk of Being Sued?
In a litigious society, anyone can sue you for pretty much anything. An infamous case in 1992 involved a woman suing McDonald’s for severe burns after spilling her coffee in her lap, which she claimed was too hot. The woman ended up winning the case, and McDonald’s started serving their coffee at a lower temperature from that day forward.
Many lawsuits are much more serious than this example, however. Here’s a look at a few types of businesses with the highest risk of getting sued:
- Food manufacturers: Any product sold to consumers that makes a particular promise can be risky. Dannon and Kellogg are just a couple of companies with famous examples of lawsuits involving false advertisement of what they claimed their products could offer.
- Restaurants: From food poisoning claims to slips and falls, restaurants are sued all the time. But it’s not just customers who sue restaurants, employees often sue them as well. Employee injuries, assaults, and cases of unfair discrimination are common lawsuits restaurants face.
- Bars: Not only can bars be sued for brawls that cause injuries among their intoxicated patrons, but they can also sometimes be sued for incidents that occur after patrons have left the establishment, if they were overserved. Incidents can include acts of physical violence or car accidents.
- Shops and retail chains: Slips and falls are one of the most common reasons businesses get sued, and a lot of these mishaps occur in retail stores.
Even if the type of business you run doesn’t appear on this list, it’s still crucial to be protected. Get in touch with your independent insurance agent to ensure that your business is equipped with all the liability coverage it needs to handle any potential lawsuits.
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What Does My Business Owners Policy Cover?
Your business owners policy (BOP) offers a package of coverages needed by all business owners. BOPs are finished off with specific coverages needed by your unique business.
Standard coverages offered in BOPs include:
- Commercial general liability: Protects your business against property damage or bodily injury claims made by a third party.
- Property damage: Covers loss of or damage to your physical property, including your office space and often the inventory inside it from things like fires, storms, vandalism, etc. Coverage often extends to permanent changes you make to the interior of a building as well, such as installing light fixtures.
- Business income: Covers the financial loss suffered while a business is closed due to fire damage or other disasters.
Common add-on coverages to BOPs include:
- Boiler & machinery coverage: Also known as "equipment insurance," this coverage applies to electric equipment in the building (e.g., AC units and boilers) that breaks down due to power surges, etc.
- Employee dishonesty coverage: Covers harm to the business caused by employees with questionable motives.
- Crime coverage: Covers losses due to criminal activity such as theft or fraud. Coverage even applies to employees who steal from the company.
- Glass breakage coverage: Covers the glass windowpane of your business’s storefront, where applicable, from things like vandalism and car crashes.
- Druggist liability insurance: Covers liability exposures for professionals like pharmacists who have the potential to make costly mistakes, like giving someone the wrong prescription.
- Hired and non-owned auto liability: If your employees drive their personal vehicles to carry out company operations, you might need this coverage.
The more complex your business, the more coverage it’ll require. This list of available add-ons to BOPs is far from exhaustive. Your independent insurance agent can make sure you get set up with all the unique coverages your business needs from the start.
What Doesn't My BOP Cover?
Business insurance comes with a list of perils that are specifically not covered, too. Your individual policy will dictate your coverage exclusions, but the two major perils never included under BOPs are flood damage and earthquake damage. Special flood insurance and earth movement policies would be required to protect your business from damage or liabilities caused by these disasters.
Additionally, BOP insurance usually excludes the following coverages:
- Professional liability
- Commercial/business auto
- Workers’ compensation
In order to get protection for professional errors/negligence, company vehicles, and your employees, you’ll need to work with your independent insurance agent to purchase separate policies to cover these important areas, if they apply to your business.
Here’s How an Independent Insurance Agent Can Help
When it comes to protecting your business against pricey lawsuits and everything else, no one’s better equipped to help than an independent insurance agent. These agents search through multiple carriers to find providers who specialize in business insurance and umbrella insurance, deliver quotes from a number of different sources, and walk you through them all to find the best blend of coverage and cost.
TrustedChoice.com Article | Reviewed by Paul Martin
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