What is Liability Insurance?
You operate or manage a business, you may be liable for damages or injuries to another person or property.
Liability insurance protects a business against third party insurance claims. These claims can be as a result of either :
- bodily injury, or property damage liabilities
- Personal and advertising injury liabilities
- Error or omissions and professional mistakes
- Professional negligence liabilities
- Product failure resulting into financial losses
Businesses today are also providing professional services and expertise to their clients. There is an inherent risk of your business being sued by the client for injury due to your negligence, error or omission.
Liability insurance will help you financially to pay for these damages as well.
Unlike other traditional insurances, payment of a claim in liability insurance is not paid to the insured, but to a third-party suffering loss. This party is not a party to the insurance contract between the insured and the insurance company.
Though liability insurance is optional in most cases, it is strongly recommended for businesses across industries to purchase as the likelihood of being sued is unpredictable and very expensive.
Why Liability Insurance?
- People & Organisations can make mistakes that injures someone or damages property resulting into a legal liability.
- Lawsuits are expensive and could potentially bankrupt your business.
- Liability insurance protects your assets and pays for the financial loss.
What are the types of Liability Insurance?
There are several types of liability insurance that businesses should consider as part of their overall risk mitigation through insurance:
A Commercial General Liability insurance policy is one of the most important policies to be considered for all businesses. There are potential threats of an accident to a customer, vendor, or any third-party involved with your business. Even a simple slip and fall in the premises can be devastating resulting in a potential lawsuit. The Commercial General Liability Insurance policy will provide necessary financial support to businesses against any legal liabilities due to a bodily injury or property damage that can occur as a result of your business operations.
Commercial General Liability insurance is a combination policy covering both public and product liabilities under one single policy form.
- Covers for legal liability to pay damages because of bodily injury or property damages with no limitations for cover in terms of premises- owned/rented or at premises/out-of premises.
- Coverage includes all bodily injury and property damage arising out of products of the businesses.
- Product Liability Insurance will cover for cost of compensation against financial losses suffered by a third-party arising out of use or consumption of a faulty product.
The third-party has to suffer a bodily injury or property damage. Any damages because of personal and advertising injury caused by an offence arising out of business.
This insurance provides cover for payments, medical expenses and damages including:
- Legal liability expenses including claimant’s costs, fees and Defense costs.
- Damage costs – monetary sums pursuant to judgments or awards and settlements.
Directors and Officers (D&O) Insurance provides for financial protection for a manager, in the event of a claim against them, alleging a wrongful act in a managerial or supervisory role in the organisation.
“WRONGFUL” – – – In the Directors and Officers Insurance context, “WRONGFUL” means; any actual or alleged misrepresentation, misstatement, misleading statement, error, omission, defamation, negligence, breach of warranty of authority or breach of duty means.
Risks covered under D&O insurance:
- Regulatory investigations.
- Accounting irregularities
- Exposures relating to mergers and acquisitions
- Vulnerability to shareholder/stakeholder claims:
- Employment practice violations including harassment, discrimination allegations, wrongful termination.
- Securities claims, those related to shareholder value
The D&O insurance pays for Defense costs, Public Relations expenses, Extradition costs Emergency costs advancement.
Errors & Omissions insurance protects professionals and businesses providing professional services to their clients against any legal liability. This insurance covers for costs towards damages resulting due to any negligence, breach of professional duty due to an act, errors or omission committed or occurring in good faith and resulting in monetary loss or damage to clients.
Errors & Omissions insurance is also called as “Professional Indemnity insurance”.
Medical professionals including doctors, surgeons, and physicians are covered under a separate professional indemnity policy, popularly known as “Medical Malpractice insurance” or “Doctors Indemnity insurance”.
Errors & Omissions insurance policy covers the professionals, employees, partners, and the professional’s company or partnership for damages directly caused by providing or failing to provide professional services. “Damages” mean a monetary loss suffered by the client of the professional/ business as a direct result of their services.
This insurance will pay for settlements & judgment charges, attorney/court fees, and legal representation costs incurred towards investigation and defence of the claim.
Every employer is responsible to provide a safe and hygienic working environment for their employees. Accidents to employees during their course of employment can result in financial damages to both the employee and the employer.
The Workmen Compensation policy provides for required protection to employees’ against all accidents resulting during their course of employment. This insurance policy helps to pay for work-related injuries and occupational illnesses without the intervention of a lawsuit.
An employer is liable under law towards the employees in respect of any injury or occupational disease arising out of and in the course of employment. The employers’ legal liability may arise under the following conditions:
- Negligence in failure to use reasonable care and skill in the provision and maintenance of suitable, safe plant and safe place to work.
- Personal injury caused to workmen by accident arising out of and in the course of his employment.
- If the workman contracts any disease, specified in the Act (Workmen Compensation Act, 1923) as an occupational disease, the illness is deemed to be injury by accident arising out of and in the course of the employment.
With an increasing amount of transactions done over the internet, SMEs are susceptible to data security and cyber attacks resulting in both financial and reputation loss.
Cyber risk insurance will help SMEs mitigate this risk, focus on their business and stay afloat. A cyber risk insurance program helps an organisation mitigate the risk of data breach exposure by offsetting costs involved with management and recovery after a cyber-related security breach. It Covers direct loss, legal liability, and consequential loss resulting from cyber security breaches.
Cyber risk insurance covers for the following:
First Party risk – covers own business assets.
- Data breach/privacy covers for expenses related to the management of the incident, legal costs.
- Business interruption – monetary losses due to network downtime.
- Extortion and ransom payments.
- Crises management and public relations.
Third party risks – Covers for any damage to third-party.
- Multimedia/Media liability cover. Includes specific defacement of website and intellectual property rights infringement.
- Network security liability. Third-party.
- damages as a result of denial of access.
- Any liability of third-party loss due to negligence of an organisation.
Liability Risk Framework for Small Businesses
|Liability insurance policy||Liability arising from||Liability due to||Coverage||Who can buy|
|Directors and Officers Liability Insurance||External stakeholder (shareholders, creditors, suppliers, customers, competitors or regulators) or by an internal stakeholder (board of directors, employees).||Regulatory investigations, Accounting irregularities, Employment practice violations: Sexual harassment, discrimination, wrongful termination and failure to promote. Unfair business practices.||Defense costs – Legal expenses and costs, Extradition costs – Costs to have a legal adviser or tax consultant towards advice on extradition proceedings, and settlement costs.
|All businesses irrespective of non-profit or profit making.|
|Commercial General Liability Insurance||Non-employees, Customers, vendors, suppliers||Physical injuries, property damage, manufacturing defects for products||Legal fees, judgement and settlement costs.||SMEs in all industries|
|Employees Compensation Insurance||Employees||Bodily injury, and illness (occupational hazard related only) during the course of employment.||Death, disability (Permanent total and partial disability), loss of wages, medical expenses.||SMEs in all industries with employee count less than 20.|
|Professional Indemnity Insurance (Errors and Omissions Insurance)||Customers||Financial loss due to mistakes and negligence.||Legal fees, judgement and settlement costs.||IT/ITES industry, accountants, architects, professional services companies.|
|Doctors Professional Indemnity Insurance||Patients||Medical negligence||Legal fees, judgement and settlement costs.||Doctors, physicians, surgeons, healthcare companies.|
|Cyber Liability Insurance||Customers||Data compromise and breach, business interruption||Customer notification, data recovery expenses, Legal fees and||Retailers, healthcare organisations, financial service providers and other businesses managing customer payment related information, details,|