More than half of the private companies interviewed for the new Private Company Risk Survey by Chubb Corp. said that they chose to forgo certain types of liability insurance because they felt they were already covered through their Commercial General Liability Insurance policy.
It’s true that General Liability Insurance does cover a lot, and most of the time, it does so at an affordable price (for more on that, check out our General Liability Insurance Cost Analysis). However, this coverage does not and cannot cover all forms of liability. For example, a typical Commercial General Liability policy does not cover…
- Directors and officers liability. This would be a situation in which someone accuses one of your directors or officers of foul play that resulted in a financial injury. (This is most often a concern for nonprofit businesses.)
- Employment practices liability. This includes harassment, discrimination, or retaliation related to employment.
- “Expected or intended” incidents. Once example of this is workplace violence and the related expenses. Specialized coverage is usually available on its own or as an addition to an EPLI policy.
- Fiduciary liability. This includes breaches of fiduciary duty.
- Professional liability. Expenses related to professional errors or mistakes.
- Employee theft and dishonesty liability. Sometimes your employees take advantage of their position to commit crimes. This liability involves incidents related to employee fraud.
- Cyber risk liability. The costs associated with data breaches – when private company information is compromised.
Here’s the really troubling thing about the report: 44 percent of the surveyed companies experienced at least one of the above loss events in the past three years, meaning that lots of business owners likely found out the hard way that their General Liability Insurance didn’t protect them as fully as they thought it did.
What Small-Business Owners Need to Know About Their Liability Exposures
It’s not that business owners don’t understand the existence of their liability exposures – they just tend to think that their Commercial General Liability Insurance can do more than it can. Take a look at some of these numbers from the Chubb report. They represent the number of surveyed “non-buyer” business owners who mistakenly thought their liability exposures were remedied by CGL policies:
- Directors & officers liability: 65 percent. According to the report, the average lawsuit against a director or officer costs business owners nearly $700,000. (Related blog post: “Do I Need D&O Insurance for My Nonprofit? Hint: Yes”)
- Professional liability: 52 percent. It’s important to realize that if your business provides a professional service, it can be sued over errors and omissions. (Related blog post: “Do Freelancers Need E&O Insurance?”)
- Fiduciary liability: 51 percent. About 75 percent of private companies use third-party services for employee benefit plans – but only 25 percent carry fiduciary liability protection.
- Employment practices liability: 60 percent. Every single business is at risk for an EPL lawsuit, but only about 30 percent but businesses carry the insurance that would cover related costs. (Related blog post: “The Paula Dean Debacle & Employment Practice Liability Insurance (EPLI)”)
- Cyber liability: 39 percent. It’s estimated that only 5 percent of private companies carry Cyber Risk Liability Insurance, despite the uptick in data breaches across the country. YIKES.
In all cases, the number of businesses who thought they had coverage is close to half. But business owners need to add the corresponding (and specially designed!) insurance policy to their small business insurance plans if they want protection for the above exposures.
Common Situations that Leave Small Businesses at Risk for Liability Lawsuits
As a small-business owner, are you certain that all your liability exposures are covered by the appropriate insurance policies? According to the Chubb report, there are a few common situations that can leave businesses unwittingly at risk for liability claims, including…
- Using a cloud provider. Whenever you enlist the help of a third-party technology company, your business is still ultimately responsible in the event of data loss or a privacy breach. So the data you store in the cloud is under your jurisdiction. And making sure electronic equipment like point-of-sale systems have proper firewall and privacy protection is also up to you.
- Maintaining a hiring policy that excludes those with criminal backgrounds. An EEOC investigation or EPL suit could easily result from a broad policy that excludes people with criminal backgrounds from employment opportunities.
- Increasing or decreasing your workforce. Whenever you make major changes to your staff, you increase your risk for an EPL lawsuit that alleges discrimination, wrongful termination, etc.
Take a good look at your General Liability Insurance policy and your liability exposures. You may find that it’s time to discuss your small business protection plan with your insurance agent.