Tort

You can face a tort claim even without a contract—and even if no crime occurred.

• Torts involve civil wrongs where someone is harmed and sues for damages.
• Contract claims happen when someone breaks a signed agreement.
• Crimes are offenses against the state and can result in jail time or fines.

There are many different kinds of business torts. Some common ones include:

• Property torts: You damage someone else’s property.
• Liability torts: Your product or service hurts someone.
• Dignitary torts: Something you do or say harms a third party’s reputation.
• Infringement torts: You mistakenly or deliberately use another firm’s trademark or intellectual property.
• Negligence: In the course of delivering a service, you fail to meet professional standards, thereby harming your customer.

While tort law covers many situations, most small businesses run into a few core categories:

• Negligence: This is the most common business tort. It happens when you fail to take reasonable care and someone gets hurt as a result. For example, suppose a customer slips on a wet floor in your restaurant with no warning sign posted.
• Intentional torts: These generally involve deliberate actions, such as defamation (false statements that harm someone’s reputation), fraud or misrepresentation, or invasion of privacy.
• Strict liability: Some businesses are responsible for harm even if they weren’t careless. This often applies to product sellers and manufacturers. For instance, a defective product injures a customer, even though you didn’t know it was unsafe.
• Business and economic torts: These affect business relationships and income, such as tortious interference with contracts, unfair competition, or breach of fiduciary duty.

Here are examples of how tort claims can arise:

• A client sues your consulting firm for bad advice that caused financial loss.
• A competitor claims your marketing falsely damaged their reputation.
• A delivery driver damages a customer’s property while on the job.
• A fast food restaurant customer gets sick after eating a product you sold.

If your business interacts with customers, clients, vendors, or the public, tort risk is part of doing business—even when you act in good faith.

Different types of business insurance protect against different tort risks:

• General liability insurance covers bodily injury, property damage, and advertising injury (like libel or slander).
• Professional liability insurance, also called errors and omissions (E&O) insurance, covers mistakes, negligence, and failure to deliver promised services.
• Business owner’s policy (BOP) bundles general liability and commercial property insurance for less than it would cost to purchase them separately.
• Commercial umbrella insurance increases your liability limits for large lawsuits.

It's important to note that insurance typically doesn't cover intentional, illegal acts or criminal conduct.

You can’t eliminate all risk, but you can reduce it:

• Keep your workplace clean and safe.
• Train employees on proper procedures.
• Document agreements and expectations.
• Be careful with advertising and public statements.
• Carry the right business insurance for your industry.

The better your risk controls, the less likely you are to face a costly lawsuit.