What does business liability insurance cover?

Liability insurance can offer protection in the event that your company is sued for unintentional harm to a client. It covers property damage or bodily injury sustained by clients, as well as defence costs if a client files a lawsuit. The damage must be related to your business's operations, and thus to its activities and the premises on which they are held, as well as to the products and services it offers.

For example, if a client suffers serious injuries as a result of a fall at a store, they could take legal action against the business that owns the store. This could pose a threat to the company's financial health. Liability insurance is designed to reduce the financial impact of this type of situation on your business. 

Is it mandatory for a company to have liability insurance?

Liability insurance is not mandatory for businesses. However, some regulated professions require it, including but not limited to:

• Healthcare: To help protect physicians or dentists in the event of a medical error or a defective product.
• Consulting: Including lawyers, guidance counselors and nutrition advisors.
• Accounting: To help protect accountants from unintentional mistakes.

Landlords could be required this insurance coverage in order to do business with them. A company looking to lease a space in which to operate may have to take out liability insurance at the landlord's request, for example.

Are there different types of business liability insurance?

There are several kinds of liability insurance available to businesses. Each company can therefore choose the insurance that's best suited to their situation.

General business liability

This insurance can cover the company if it's sued for property damage or bodily injury sustained by third parties. This coverage also covers defence costs.

Say, for example, a fire breaks out at a business and spreads to neighbouring buildings. The business may be liable for fire damage and may therefore have to pay the ensuing costs. These costs could be covered by general liability insurance.

Professional civil liability

This commercial insurance, sometimes referred to as errors and omissions insurance, is designed specifically for professionals who provide services and advice. It can protect them in the event of professional misconduct. It was originally designed for lawyers, physicians and engineers, but an increasing number of professionals are now requesting it.

For example, a professional whose work is completed late or with an unintentional error would be covered by this insurance.

Directors' and officers' liability

Directors' and officers' liability insurance helps protect your business financially in the event of a lawsuit or an allegation of liability.

A company's directors and officers have an obligation to ensure that it is well managed and that its activities are carried out properly. If they fail to do so, they could be sued. Directors' and officers' liability insurance offers coverage against the financial implications or legal fees such a situation might incur.

How much does business liability insurance cost?

It's difficult to estimate the cost of liability insurance, as there are many factors to consider. Here are some of the main determining factors:

• Industry: The sector in which your business operates or whether you sell goods or services has an impact on cost due to the risks involved in certain activities.
• Size of the business: The cost varies depending on whether you own a micro or small business or are self-employed, but also based on the number of employees, the volume of products or services offered, the company's annual income, the spaces where activities take place and the number of clients who frequent them, etc.
• Location of the business: Where your business is located is considered when determining the cost of insurance. For example, is it an area frequented by many people? Is it downtown or in an outlying area? Are there fire services nearby? These are some of the things we'll check.
• Business management experience: Starting a business for the first time versus having extensive experience in the field also plays an important part.

A business's insurance premium is based on its annual income, location, level of use, the value of its materials and other factors.

What happens if the company subcontracts?

The company that signed the contract with the client may not be the one primarily responsible for the damage. For example, if a construction contractor subcontracts the electrical work and the subcontractor causes damage to the building, the construction contractor may be held liable. Liability insurance therefore also protects the company against the misconduct of a subcontractor, provided it's related to the company's activities.

Check with us before purchasing liability insurance, as it may already be included in your business's existing policy. The Personal commercial-lines damage insurance agents are standing by to help you choose the insurance coverage that's right for you.