Liability insurance protects you from the costs associated with lawsuits filed by third parties against you or your business. But it’s no secret that finding the right policy is difficult, which is why we’re here to help!
By the end of our discussion, not only will liability insurance appear much simpler than before, but you’ll know exactly how to obtain the perfect policy for you and your company. Let’s begin by ascertaining the exact definition of liability insurance coverage.
What Is Liability Insurance Coverage?
Liability insurance is a term used to refer to coverage for costs related to third-party liability problems. Usually, it relates to bodily injury and property damage.
In this instance, third parties can be anyone from customers to vendors to maintenance personnel to any other type of visitor.
There are numerous types of liability insurance coverages to choose from, some of which we’ll discuss in more detail below:
With this type of liability insurance, you’re protected during claims of third-party bodily injury and property damage incurred due to your business’ negligence or unexpected incidents. Often, it pays compensatory damages and legal defence costs if you’re sued, no matter the lawsuit’s outcome.
Specifically, CGL insurance includes coverage for damages and legal costs associated with the following areas:
- Bodily injury — Damage or injuries to a third party caused by your business operations.
- Tenant’s legal liability — It pays for the repair or replacement of somebody’s property you occupy or rent.
- Personal and advertising injury liability — It protects against allegations of false advertising, slander, defamation, and libel.
- Product liability — If a product you supply or sell causes property damage or bodily injury, CGL covers legal costs and compensation.
While a small amount of product liability coverage may be included in your commercial general liability insurance policy, some businesses benefit from standalone product liability coverage.
With this policy, your business is protected in the event a product you distribute, manufacture, or sell causes bodily injury or third-party property damage. Insufficient safety warnings and incorrect labelling are the two main issues covered by product liability insurance.
Otherwise known as errors and omissions, professional liability insurance protects you from claims made by your clients alleging financial loss due to a service provided by your business. It also covers lawsuits of misconduct, failure to deliver services as promised, and negligence.
You’ll likely need to customize your professional liability coverage to suit your specific business. But, generally speaking, legal costs and damages associated with the below are included:
- Products — It provides coverage for product failure or physical injury. For example, if your product doesn’t work as intended or causes bodily injury due to overheating, the policy pays legal costs and damages.
- Media and advertising — This part of the policy relates to media services that result in your client getting lawsuits against them for libel, slander, or defamation.
- Professional services — Errors and omissions or negligent acts related to your services. Failing to deliver a service as promised is also covered.
Put simply, directors and officers insurance protects the members of your board and any assets if a claim or lawsuit is filed against them specifically or your business as a whole.
Some insurers may call this coverage management liability insurance instead. Typically, the policy includes coverage for the following scenarios:
- Misleading statements, inaccurate disclosure, and reporting problems
- Decisions that caused shareholders to experience adverse financial consequences
- Breach of fiduciary duties
- Breach of legal duties
- Allegations of negligent acts and misrepresentation
- Wrongful dismissals
- Employee discrimination claims
- Failure to adhere to federal laws and regulations
- Failure to comply with provincial laws and regulations
With this type of liability insurance policy, you get coverage for legal costs and damages associated with the areas found below:
- System damage and restoration costs — Repairs and restoration of any software damaged during a cyber event.
- Incident response cost — It gives your business access to a 24/7 cyber incident response team and a group of professionals who assist you while you respond to cybercrime.
- Legal, forensic, and breach management costs — It pays for legal advice, crisis management services, credit monitoring, customer data recovery, and notification fees.
- System business interruption — You receive compensation if you sustain financial losses due to a cyberattack.
You can purchase social engineering coverage as an addition to the standard policy. It covers your business if your employee is tricked into providing access to your system or sending money to a fraudulent bank account.
What Does Liability Insurance Cover?
In general, business liability insurance offers coverage for third-party property damage, financial loss, or bodily injury allegedly caused by your business. Regardless of the outcome of the lawsuit, your insurance could cover the costs of out-of-court settlements, legal defence, and even third-party medical bills.
What Doesn’t Liability Insurance Cover?
While liability insurance covers many aspects of your business, it won’t protect you from all eventualities. It covers incidents related to third parties, which excludes you and your employees.
Who Needs Liability Insurance Coverage?
Even though liability insurance isn’t mandatory to run your business in Canada, every business should consider purchasing at least a basic policy. It protects you from a plethora of common risks you may encounter throughout your day-to-day procedures and covers legal and compensatory costs associated with future lawsuits.
Depending on your profession, customers may request proof of insurance before they decide to work with you. So, in many instances, liability insurance is a situational requirement.
Liability Claims Examples
To make it easier to understand why acquiring liability insurance coverage is a smart move, take a look at the following real-world examples:
Property Damage Claim
One of your employees drops a heavy wardrobe during a home delivery and damages the homeowner’s beautiful hardwood floor.
Your client sues your business for property damage and is successful. Your CGL policy pays for legal expenses and the costs of floor repairs costing $45,000 in total. Without the insurance, your business would have to stump up the cost and potentially experience financial hardship for months following the incident.
Professional Liability Claim
Your client claims the website you designed for them doesn’t meet the agreed requirements and therefore caused their company to experience a financial deficit.
The client sues you for failure to deliver a service as promised. Your liability insurance coverage pays the monetary judgement and legal expenses of $18,000.
Slip and Fall Claim
You’ve just mopped the floor, and a customer slips and falls. Unfortunately, they sprain their ankle and need two surgeries.
They sue you for $110,000 in medical costs. Your CGL policy covers these extortionate costs.
How Much Does Liability Insurance Coverage Cost?
The cost of liability insurance coverage fluctuates massively. The largest affecting factor is the amount of coverage your business requires. Typically, a small business should expect to pay around $450 for a standard general liability insurance policy with a $2 million limit.
However, other factors play into your premium costs, including:
- Your insurance claims history — If you or your business has a long history of making insurance claims, insurers typically raise your premium cost. Why? Because they believe you’re more likely to make more claims in the future, increasing the insurer’s risk.
- The size of your business — The larger your business, the more you have at stake during a lawsuit or claim.
- The location of your business — Some areas have a higher vandalism or theft rate. Additionally, places prone to floods and other adverse weather conditions could raise the price of your monthly premium.
- Your experience within your industry — The more experience you have in your industry, the less likely (in the eyes of your insurer) you are to make mistakes. So, if you’re highly experienced, you can expect a lower liability insurance premium.
- The number of employees — Perhaps one of the least (but still notable) affecting factors is the number of employees you have. Depending on the type of liability insurance coverage you need and the insurer, you may need to pay higher premiums if you employ many people.
- Your business’ annual and forecasted gross revenue — While owning an extremely profitable business is advantageous, it can increase the likelihood of a larger monthly insurance payment. Clients may ask for more compensation from you if they know you have the money to sustain it.
During our online quote process, we ask you a few questions about your business to provide accurate quotes from our large pool of licensed insurance brokers and agents.
How Much Liability Insurance Coverage Do You Need?
You should purchase as much liability insurance coverage as your income allows as a general rule. When figuring out exactly how much to buy, consider the factors below:
- The size of your business
- Your industry
- How often you come into contact with third parties such as customers, other companies, and vendors
The above helps you determine your risk exposure level. Not to mention you can establish whether you need additional coverage due to your particular industry. After all, if you’re a building contractor, you’re far more likely to be at risk of third-party property damage than a graphic designer who works from their home office.
Usually, customizing your liability insurance policy is a must to ensure complete protection.
How to Get Liability Insurance Coverage
Getting liability insurance coverage with us at LiabilityCover is as easy as the alphabet. We work with a variety of high-quality insurance brokers to bring you the right coverage at the best prices.
By following the steps below, we’ll connect you with brokers and agents like Allianz, First Media, Underwriting Management Ltd, and more today:
- Submit a request using our intuitive online quote form.
- We look at your insurance requirements.
- Our reliable team connects you with a licensed insurance agent or broker. We make sure the company we put you in touch with has industry-specific experience.
- The broker or agent contacts you to get you started with acquiring the liability insurance coverage you and your business needs.
To ensure we connect you with the best insurers, make sure you know the answers to the following questions before submitting the form:
- How much insurance do you need?
- What insurance products do you require? If you’re unsure, just tick the “I need to speak to an advisor” box.
- When do you need the insurance?
- What is your profession? Different industries carry different risks.
- What is your next 12 months’ gross revenue estimate? It helps us understand your risk exposure and insurance needs.
Is Liability Insurance Coverage On Its Own Enough?
Liability insurance protects you and your business against third-party property damage, financial loss, and bodily injury. However, it doesn’t you or your employees. Because of that, you need to consider other types of insurance to make sure you’re protected from all sides.
Consider the following additional business insurance coverages:
Business interruption insurance offers coverage for income your company loses after a property loss. It often provides operating costs throughout your business closure too.
With that said, policies often don’t kick in until 12 to 24 hours of your business closure. Effectively, you lose 12 to 24 hours’ worth of income. But, it’s still a helpful policy to take out to save long-term financial problems after a temporary closure.
For specific coverage areas, see the below:
- Mortgage, lease, and rent payments
- Overheads like rent and electricity
- Taxes and loan payments due throughout the interrupted period
- Moving to a temporary premises
- Internet and telephone bills
- Employee’s wages and payroll
In most cases, rates start at $100 per year for standard business interruption insurance.
Equipment Breakdown Insurance
Equipment breakdown insurance protects your machinery and equipment if they break due to internal damage. However, if your equipment malfunctions because of an external event, this policy won’t help (you need commercial property insurance for that).
Typical faults covered under this policy include electrical shorts, power surges, or mechanical breakdowns. Depending on the amount of coverage you purchase, it may fund the entire replacement or repair of the machine.
As for the type of equipment covered by the insurance policy, it applies to almost anything, including printers and other standard office devices.
Commercial auto insurance, sometimes known as commercial vehicle insurance or business auto insurance, provides coverage for automobiles used for work purposes. You should take out this sort of insurance for any vehicle used to transport tools, equipment, materials, people, or packaged goods.
The types of vehicles covered under such policies are almost limitless. However, trucks, vans, cars, or trailers are the most common.
Business auto insurance offers the same coverage as personal policies. But it’s often worthwhile to consider some optional coverages like the below to tack onto the standard commercial auto insurance:
- All perils coverage — All perils coverage is a mixture of comprehensive and collision coverage. It covers you for damages if your employee or someone in your household steals the automobile.
- Specified perils coverage — As you may have guessed by the name, specified perils coverage protects your work vehicle from the perils listed within the policy. It typically includes weather-related damage like hail and theft.
- Comprehensive coverage — Unfortunately, comprehensive coverage doesn’t provide complete protection. In auto insurance, comprehensive coverage protects your vehicle from natural disasters, severe weather, vandalism, and theft.
- Collision or upset coverage — It pays the repair or replacement cost of your vehicle if it’s totalled or damaged in an accident caused by you.
Commercial property insurance gives you financial coverage for physical loss or damage to your property and its contents following an external disaster, such as theft, fire, or vandalism.
Typically, it provides coverage in the following areas:
- Tenant improvements — It encompasses improvements like lighting, paint, carpeting, and other immovable updates you made to the building as a tenant.
- Building coverage — The replacement or repair costs of a property you own due to fire, flood, or another unforeseen disaster.
- Inventory — It gives you the money to replace or repair your inventory and merchandise. Usually, the inventory part of the coverage includes food.
- Electronics — It finances the replacement or repair of damaged or stolen electronics inside and outside your business premises.
- Equipment, fixtures, and furnishings — It provides coverage for replacing or repairing any equipment, furnishings, and fixtures lost or damaged during an unexpected disaster.
The cost of commercial property insurance varies wildly and depends on a variety of factors, including:
- Your business type
- The type of property you own or rent
- The property’s location
- The condition and the age of the property
- Your insurance claims history
Legal expense insurance ensures you have access to legal advice when necessary on several regular business topics. It covers the cost of retaining the lawyer or lawyers to deal with any issues.
While the policy specifics vary, you’ll usually find coverage associated with these areas:
- Employment dispute — Legal advice and defence if your current employee or a past employee files a lawsuit against you and your business.
- Property protection — Coverage for legal costs to endure legal proceedings after damage to your property.
- Bodily injury — Coverage if you pursue legal action against somebody for causing physical injury to you or your employee.
- Contract disputes and recovery of debt — It provides the money to chase a supplier or client who has breached their contract or has failed to pay any amount owed to you.
- Statutory license protection — If your business license is revoked, suspended, or altered, the policy provides legal representation.
- Tax protection — It gives legal advice if you want to appeal a decision made by the Canada Revenue Agency.
Why Choose LiabilityCover?
Here at LiabilityCover, we connect you with insurance brokers, agencies, companies, and digital portals that provide high-quality, customizable liability insurance policies to suit you. In short, we take the stress and confusion out of the insurance by making it simple to access the proper coverage.
Our easy-to-understand process gives you quotes from insurers with industry-specific experience in a matter of moments. You don’t have to worry about scouring the web for numerous quotes, all with different prices and coverage levels. Instead, you just need to fill in our form and let us do the hard work.
We make acquiring liability insurance coverage efficient and effective, so you can get on with doing what you do best — running your business.
Frequently Asked Questions
Do Independent Contractors Need Liability Insurance?
As a freelance or independent contractor, you are often exposed to the same risks as a bigger entity. Liability insurance coverage offers protection in lawsuits or claims brought against yourself or your business.
The easiest way to figure out which type of liability insurance you need is to think about your professional. Why? Because although all types of businesses need insurance, the type and amount differ depending on the risks associated with their industries.
Is Liability Insurance a Legal Requirement in Canada?
Legally, you don’t need liability insurance to operate your business in Canada. However, you’re typically at a higher risk of liability than others as a business owner.
Liability incidents can take a matter of moments to happen and months upon months for you and your business to recover. So, it’s best to be prepared to cover the potentially expensive legal costs associated with such situations.
What’s the Difference Between Commercial General Liability Insurance and Professional Liability Insurance?
The key difference between the two is the type of risks covered.
CGL or commercial general liability insurance provides legal and medical costs related to claims of third-party property damage or bodily injury.
Professional liability insurance (also known as errors and omissions) covers you for claims alleging failure to deliver a service as promised or negligence.
Do Remote Workers Need Liability Insurance?
As a remote worker, you still need liability insurance to protect your business from costs that occurred through lawsuits or claims. It’s not just about covering you in the event of slips and falls or property damage. Unhappy clients can file lawsuits if they’re unhappy with your provided remote service.