Does Business Insurance Cover Lawsuits?

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Do I need a special business insurance policy for lawsuit coverage?
Which types of lawsuits does general liability insurance cover?
Which types of lawsuits aren't covered  by general liability insurance?
Are there limits on what the  policy will pay?
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Do I need a special business insurance policy for lawsuit coverage?

When I bought business insurance, lawsuit coverage wasn't my primary concern. Although I'm careful about how I conduct business, there's always the risk of a lawsuit. Am I covered if I have general liability insurance for my business?

The answer to this question is not as cut-and-dried as most people might think. The right answer will vary from policy to policy. You may be covered under some policies but not others. Let me explain.

General liability insurance - insurance that every business is required to have - covers some types of lawsuits, but not others. However, you'll need special coverage for certain types of lawsuits, like professional errors or employee injuries. 

The basic gist is this: Coverage is based on the types of damage alleged. If it's an excluded issue, you aren't covered. If it's included, you're generally covered.

What types of lawsuits does general liability insurance cover?

I have general liability insurance. Which types of lawsuits can I rely on that to cover and what costs will be covered?

As a starting point, it's important to know that as an employer, you're liable (i.e., responsible) for the actions of your employees while they're on the job. This means that you don't just have yourself to worry about, but everyone you employ, too.

That being said, your general liability insurance covers the following types of lawsuits:

• Third-party bodily injury: Let's say a customer gets hurt on your property. The most common scenario is slipping and falling on a wet floor. If this happens, general liability insurance kicks in to pay that customer's medical bills. If they sue you at some later time, general liability insurance will cover the costs of hiring an attorney to defend your business and negotiate the claim.
• Third-party property damage: The same idea applies to property damage. Let's say an employee damages a customer's property. If that happens, general liability insurance could kick in to cover the cost of whatever was damaged.
• Products liability: Product liability is legalese, and all it means is that your product caused injury to a customer or their property. As you can imagine, that customer will sue for damages. And if they do, general liability insurance will cover your attorney fees.
• Other:  General liability insurance covers some other lawsuits, too. Libel and slander - both of which are defamation lawsuits - are often covered. You would need this if an employee made some sort of false statement about someone and they decided to sue. Sure, we're oversimplifying, but you get the idea.

It's important to remember that not every lawsuit will be covered. Your policy limits may restrict what's covered or when it's covered. Your policy may cover third-party injuries and property damage, but not some of the "other" lawsuits we discussed above. Generally, it will. But it's best to check your policy to ensure everything we mentioned here is covered.

Which types of lawsuits aren't covered by general liability insurance?

OK - so if some lawsuits are covered by general liability business insurance, which aren't covered?

The answer to this question is even more important than the answer to what is covered. It's more important because then you'll know which additional policies you need to ensure you're fully protected from any potential lawsuit. 

The good news is that a lot of the lawsuits that aren't covered by general liability are covered by different types of insurance that many states legally require. This means you're probably already covered for these, too.

• Professional mistakes (i.e,. malpractice): Malpractice insurance is a special type of insurance that kicks in when a customer or client sues you for making some sort of professional mistake. Most licensed professionals need malpractice insurance, though you can choose the level of coverage.
• Employee injuries: Workers' compensation insurance covers employee expenses when they're injured on the job. While workers' compensation covers medical expenses and lost wages, an employee might pursue a separate lawsuit instead of settling with the insurance company. This is when you'd need coverage.
• Discrimination: Employment discrimination isn't covered by your general liability policy. You'll need employment practices liability insurance for that. Keep in mind that this covers everything from harassment to wrongful termination and everything in between.

Keep in mind that there are additional policies you can purchase, too. Directors and officers liability is a separate coverage area. It protects directors and officers who may get sued individually for any number of types of damage. These could include:

• Bodily injury
• Property damage
• Wrongful termination
• Community damage if there is a poor business decision
• Employee benefits

The best way to make sense of what's covered, what's not, and what additional policies you may want to purchase is to speak with your TrustedChoice.com independent insurance agent.

Are there limits on what the policy will pay?

I get that legal costs are covered by these various types of insurance. Are there limits on what's paid?

There isn't just one limit when it comes to insurance coverage for lawsuits. Here's what you need to know:

• For general liability coverage, the limit applies to any one occurrence/incident. 
• There's a general aggregate limit, which is a limit on how many incidents you can have in one year or during the policy period.
• There are also other areas that can have separate occurrence limits, like if you are sued for libel, slander, or a privacy-related lawsuit.

You can think of the aggregate limit as a bank account for the entire year. However, not all aggregates are from the same pool of money. There's a products and complete operations aggregate that is separate from the general aggregate. The reason is that if you have product liability claims against your company, those claims will come in batches. Without segregation, you would draw down your entire yearly total because of one incident.

It's important to know how these are separated, because it will affect your policy coverage. You can speak to your independent insurance agent to determine how yours breaks down and what you need.