Insurance: The Last Defense

Posted on 09/23/2010

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No matter the steps you take, owning a business is not without risk. An employee can get injured on the job or a customer could slip and fall on a freshly mopped floor. An associate could miss a deadline or your partner might injure a patient. You and your business can be sued, and you might be liable.

That’s where insurance comes in. Proper insurance coverage is a key part of every business plan. Insurance policies reduce risk.  In addition to covering at least a portion of your potential liability, many insurance policies also cover the cost of defending a lawsuit, including attorney’s fees. As a business owner, you should make sure you have the following policies, at a minimum:

1. General Commercial Liability Insurance. This policy will cover damages suffered by customers and others from injuries that occur while visiting a  business location. Most commercial property leases require the tenant to carry this type of policy and also require that the landlord be named as an additional insured. Since personal injury cases are amongst the most common, general commercial liability insurance is a must.

2. Motor Vehicle Insurance. If employees use  motor vehicles in the course of their work, the business owner must ensure that adequate insurance coverage is obtained. Most states require that a vehicle be insured in order to be registered. However, the coverage an employee has on their own vehicle may not be sufficient to protect the business should the employee have an accident while on duty. Investigate what motor vehicle coverage your business needs to be adequately protected.

3. Worker’s Compensation Insurance. If a business has employees, by law it must carry worker’s compensation insurance. This insurance covers medical treatment for job-related injuries and illness, as well as payments to an employee for temporary and permanent disabilities caused by such injuries and illness. Worker’s compensation insurance will also protect the employer against most lawsuits that could arise as a result of employee workplace injuries.

4. Property Casualty Insurance.  Damage and loss of  business property due to fire, theft and many other hazards can be covered by property casualty insurance. While this coverage may not protect you from litigation (the topic of this post), a business owner would be remiss if they didn’t protect their business assets with this coverage. Additionally, if a business is involved in storing or holding customers’ property (ie. a dry cleaner or automobile mechanic), a policy should be obtained to cover damage or loss to such property, despite any disclaimers you may post on your walls.

5. Product Liability Insurance. If a business manufactures or sells products, it should secure product liability insurance. A simple, scalding hot cup of coffee resulted in a judgment of over $2 million against Mc Donalds. (the award was reduced, see http://www.lectlaw.com/files/cur78.htm).  Liability can result not only from injuries caused by a defective product, but also injuries caused by products that do not contain sufficient warnings or instructions. And you don’t have to be a manufacturer to sued–merely selling a faulty product can result in liability.

6. Malpractice/Errors & Omissions Insurance. Business professionals, such as doctors, therapists, attorneys and accountants, must obtain insurance to cover damages that could result from their mistakes. Medical malpractice can result in physical injury to a patient, while legal and accounting malpractice can cause a client to suffer financial losses. In either case, a professional is morally obligated to maintain insurance coverage to compensate their clients for such losses and injury. Additionally, professionals have a responsibility to themselves and to their own families to ensure that their mistakes don’t result in their own financial ruin.

Many other types of insurance are available and may be desirable, including coverage for business interruption,  identity theft, directors and officers liability, and death or disability of a key employee. Accordingly, it is critical that business owners add an insurance expert to their team of advisors. While the cost of insurance isn’t cheap, the cost of not being adequately insured can be staggering!

If you are an insurance professional and you have useful information you would like to add to this post, please feel free to comment.

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