A Guide to Liability Insurance for Small Businesses
Apr 22, 2020
Liability is a word that you're more than likely going to hear when it comes to small business insurance. That's why we understand it can be confusing when you're trying to differentiate between CGL, E&O, and D&O when looking at liability insurance for your small business. Having the right business coverage is crucial in protecting your business. There's no point in paying for a liability coverage you may not need for your small business. In our guide to liability insurance, we'll break down the different names you may come across and what they each mean:
Different Types of Liability Insurance Coverage:
-Liability Insurance or Commercial General Liability (CGL)
-Errors and Omissions Insurance (E&O) or Professional Liability or Malpractice Insurance
-Directors and Officers Insurance (D&O) or Management Liability
Commercial General Liability (CGL)
Liability Insurance, or Commercial General Liability insurance (CGL), can provide protection against Bodily Injury and Property Damage, Personal and Advertising Injury, Medical Payments, Tenants Legal Liability and in some cases can include Employers Liability and Non-Owned Automobile Liability coverages as well. Typically, all companies including home-based businesses should be carrying a CGL policy as it covers defense and damages against a lawsuit if your products or services cause or are alleged to have caused bodily injury or property damage to others. You can't predict or protect yourself from a lawsuit arising - litigation may be someone's only option to eliminate their liability or cover their medical expenses.
A simple way to differentiate CGL insurance from other types of liability insurance is that it mainly covers physical damage (CGL can also include slander and libel though) like if property gets physically damaged or a non-employee sustains bodily damage like an injury or ailment.
Errors and Omissions Insurance (E&O)
Errors and Omissions Insurance (E&O), Professional Liability Insurance or Malpractice Insurance can protect your company against claims arising from failure to provide the expected service level, or financial loss from wrongful acts that would not be covered under the commercial general liability insurance. Business, IT and Medical professionals such as insurance brokers, freight forwarders, architects, engineers, lawyers, health care practitioners, developers, management consultants and other professional service providers can usually benefit from these kinds of coverage.
All three of these names are often used interchangeably in the insurance industry since they all protect against negligence and errors in a professional setting. The difference between the three often comes down to the type of industry. Professional Liability Insurance usually applies to architects, accountants, and consultants whereas E&O Insurance usually applies for real estate and IT, and Malpractice Insurance typically for medical and legal sectors. Although, it is not uncommon for Professional Liability and E&O to be used interchangeably for all industries.
Directors and Officers Liability Insurance (D&O)
Directors and Officers Liability Insurance (D&O) or Management Liability typically provides coverage for a business and its corporate directors and officers (and their spouses) from lawsuits brought by customers, donors, shareholders, competitors, suppliers or other parties for the actual or alleged wrongful acts that arise out of managing a business. This coverage usually includes legal fees with the settlements, among other defense costs. This insurance can be vital for any business looking to attract the best officers and directors as they regularly expect a standard "hold harmless" agreement. Private and public businesses or non-profit organizations with a board or advisory committee require this coverage as they all face litigation risk from bankruptcy, fraud, misuse of funds, errors in judgement and many other mismanagement claims. Defense costs alone can be overwhelming for an organization at any revenue level.
Cyber Liability typically provides coverage for cyber-related incidents such as phishing or malware attacks, or system hacks and breaches. It covers all legal costs related to the claim
Liability insurance can be tricky between the different names and acronyms. Regardless, it is a crucial coverage for a small business to have. At Foxquilt, we believe in the power of numbers and community. That's why, we let small business owners and entrepreneurs join up with each other for exclusive group rates on their business insurance.
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