As a small business owner, you probably juggle countless responsibilities. From managing inventory and payroll to marketing your products and services, your to-do list is likely overflowing. Consequently, it’s easy for insurance to slip down your list of priorities.
However, every business faces many risks—from accidentally damaging customer property to being hit with lawsuits. These incidents can be very costly. In fact, just one of them can produce a financial burden that is more than a small business can manage. Sadly, many companies go out of business because they didn’t have adequate insurance and the cost of an incident exceeded their ability to pay it.
That’s why every business owner should consider general liability insurance. Sometimes called commercial general liability insurance, it covers many of the most common claims small businesses have. A general liability policy is a critical safety net that can protect your business from unexpected financial hardships.
In this guide, we’ll dive into the common claims covered by general liability insurance and, just as importantly, how you can proactively prevent them.
Understanding General Liability Insurance
General liability insurance isn’t just another expense; it’s an investment in your business’s future. It safeguards your company from a wide range of potential risks, including:
- Bodily Injury: General liability covers medical expenses and legal fees if someone is injured on your premises or due to your operations.
- Customer Property Damage: Your policy can pay the cost of repairing or replacing property that your business damages.
- Advertising Injury: General liability insurance protects against claims of libel, slander, copyright infringement, and other forms of reputational harm.
- Legal Defense Costs: Coverage includes paying attorney fees and court costs, even if the claim against your business is frivolous.
These types of incidents can occur at any time, so having financial protection in place is critical.
Common Claims and How to Prevent Them
General liability insurance covers the broad categories of incidents listed above, but what are some real-world scenarios that companies encounter? Below are examples of common general liability insurance claims along with suggestions for how to prevent them.
Keep in mind that safe operations and accident prevention are essential since the cost of your general liability insurance (or any business insurance policy) is based, in part, on your claims history. The more claims you have, the higher your cost will be.
Customer Injuries: A Multifaceted Risk
Scenarios: A customer trips over a loose carpet in your office or a delivery person slips on your icy sidewalk.
Coverage: General liability insurance covers medical expenses, legal fees, and even potential lost wages if the injured party sues you.
Proactive Prevention:
- Regular inspections. Walk through your premises regularly, identifying potential hazards like uneven flooring, loose railings, or cluttered walkways.
- Warning signs. Clearly mark areas that could be hazardous, such as wet floors or low ceilings.
- Maintenance. Address weather-related issues promptly and ensure equipment is in good working order, especially if it’s used by customers or the public.
Damage to Customer Property: Beyond the Accidental Spill
Scenarios: A customer’s car gets scratched in your parking lot, a client’s artwork is damaged while in your care, or a water leak in your building ruins a customer’s inventory stored in your warehouse.
Coverage: Your general liability policy can cover repair or replacement costs for the damaged property, potentially saving your business thousands of dollars.
Proactive Prevention:
- Security measures. Implement security cameras, proper lighting, and controlled access to protect customer property on your premises.
- Careful handling. Train employees on proper handling procedures for customer belongings.
- Insurance requirements. If you store customer property, consider requiring them to have their own insurance as an added layer of protection.
Product Liability: A Complex Issue
Scenarios: A customer suffers burns from a faulty appliance you manufactured, a child chokes on a small part of a toy you sold, or a client gets sick from food prepared by your catering business.
Coverage: General liability insurance can cover legal defense costs, settlements, or judgments if a customer sues you due to a product-related injury or illness.
Proactive Prevention:
- Quality control. Rigorously test your products to ensure they meet or exceed safety standards.
- Clear instructions and warnings. Provide detailed instructions and clear warning labels on your products, especially those that could pose a risk if misused.
- Product liability insurance. Consider adding product liability insurance to your policy for extra protection, especially if your products are inherently risky.
Advertising Injury and Reputational Harm: Protecting Your Brand
Scenarios: You unintentionally use a copyrighted image in a social media post, a disgruntled employee spreads false rumors about your business, or a customer launches a smear campaign online due to a misunderstanding.
Coverage: Your general liability policy can cover legal fees and damages if you’re sued for copyright infringement, libel, slander, or other advertising injuries. Some policies may offer limited coverage for reputational harm.
Proactive Prevention:
- Legal review. Have a lawyer review your advertising and marketing materials to ensure they comply with copyright laws and don’t make false or misleading claims.
- Employee policies. Implement clear social media and communication policies for employees to prevent the spread of misinformation.
- Customer service excellence. Strive for exceptional customer service to minimize complaints and negative reviews.
Does Your Business Need General Liability Insurance?
The examples above demonstrate that, for most businesses, the answer is a resounding yes. If you have a physical location, interact with customers, sell products, or provide services, general liability insurance is a vital safety net. Even if you operate a home-based business or work as a freelancer, having general liability insurance can provide peace of mind and protect your personal assets.
Choosing the Right Coverage
The appropriate amount of coverage depends on several factors, including your industry, location, number of employees, and the types of risks you face. An insurance professional can help you assess your needs and tailor a policy that offers adequate protection.
General liability insurance is not just a formality—it’s a critical component of risk management for any small business. By understanding the common claims it covers and taking proactive steps to prevent them, you can safeguard your company’s future and focus on what truly matters—operating a thriving business.
