The Do’s and Don’ts of Liability Insurance

Elizabeth Millard -- Expert Business Source, 4/4/2007 6:25:00 AM

Business liability insurance can take many forms, from covering a business owner against employee lawsuits to protection in a product recall dispute. Retailers might believe their status as a limited liability corporation or an incorporated entity affords them enough protection, but that could be a risky assumption. Insurance experts offer a few do’s and don’ts when reviewing your liability coverage.

Do: Consider the breadth of employment practice lawsuits, and expand coverage beyond the owner. Some business owners are covered by liability insurance if they’re accused of harassment or wrongful termination, but what if an employee is the one named in a suit?

“Retailers in particular deal with many third parties, and that gives them greater exposure to employment practice suits,” says Louis Lucullo, senior vice president of the financial lines division at AIG, a holding company for a number of underwriting firms. “Let’s say a customer feels harassed by a cashier. A lawsuit could hold the retailer responsible.” Lucullo notes that the number of customer-launched suits is increasing, so expanding coverage to employees is a smart move.

Don’t: Assume product liability is the responsibility of the manufacturer, not the retailer.
When a lawsuit related to a faulty product is filed, the manufacturer is usually the target. But some suits also name distributors, parts makers and retailers, says Kevin Theobald, vice president of Carpenter, Cammack & Associates, a commercial insurance agency based in Charlotte, N.C. “If you sell the product, you can be named in the suit, and that’s becoming more common,” he notes. “Having product liability for the items in your store is an added level of protection.”

Do: Understand precisely what your general liability insurance covers. The spectrum of liability is broad and deep, ranging from personal injury and property damage to negligence and even false advertising claims. In some professions, such as technology consulting or medicine, practitioners have to carry professional liability that protects against errors in judgment.

Most retailers will carry a form of basic insurance called Commercial General Liability that can be bundled with property insurance, Lucullo says. He advises that retailers have their agents articulate the nuances of these general liability policies. Are you protected, for example, if someone falls in the store? If you enlist volunteers instead of hiring employees, are they covered in the policy? “Go through multiple scenarios about what could go wrong,” suggests Lucullo.

Don’t: Talk to only one insurer when expanding your policy. Insurance providers are more willing to tailor a liability policy, says Theobald, and using an independent agent who can offer product and price comparisons may save you money in the long run. Bundling a liability policy with other insurance types usually results in a discounted rate from a single insurer, but that’s not always the case, he says. “Like anything else, you can negotiate,” he says. “Just think about what protection you want and where you need coverage, and be prepared to shop around.”

Elizabeth Millard is a freelance writer based in Minneapolis.