November 8, 2021

Business Liability Insurance

Business Liability Insurance

A business’s liability refers to its obligation to pay for any damages or compensation for loss suffered by a third party on account of the business’s activities or products.

Businesses undertake multiple types of liability in their day to day operations- whether it’s releasing products, hiring new workers, or running consultancy activities. Any accident occurring during these activities can result in hefty lawsuits or fines that can be hard to recover from.

That’s where Commercial Liability Insurance can help. This policy protects your business’s assets and finances by covering all legal expenses, medical costs and payable damages that may arise when:

  • A customer gets hurt on your business’s property
  • Your product causes adverse reactions
  • Your chief officers commit wrongful acts,

 and other such instances.

Liability Insurance policies form perfect additions to Fire Insurance by greatly reducing your risk exposure and offering you all inclusive coverage. These policies also help corporations that are bound by a contract with their clients to procure liability insurance before commencement of a new project or assignment.

Let’s look at some essential Commercial Liability Insurance policies available in India:

This insurance provides a broad liability coverage to your business protecting it from general liability risks including bodily injuries or property damage to third parties due to business products or operations. More commonly known as a CGL policy, this insurance also covers defense costs incurred by the business in event of a lawsuit filed against them.

Commercial General Liability Insurance is considered an “all risk” policy and is often a business’s first line of coverage as it offers general indemnification for all the covered events. It must be noted that this policy excludes certain specific risks such as professional indemnity and Directors’ & Officers’ liability that can be covered by taking separate liability policies.

Your company’s chief managerial staff functions with a lot of autonomy and authority. They are responsible for directing the course of your organization, and make frequent decisions that have a big impact on your company’s growth, profits and reputation.

Directors and Officers Liability Insurance protects all Directors & other senior management employees from any legal liability arising out of negligence in their decision making process. Under this policy, the defense costs, any payable compensation to third parties and other financial losses can be covered. All managerial and supervisory personnel are covered under this policy.

Professional Indemnity Insurance is ideal for consulting firms, lawyers, professionals, and businesses that are service-oriented like brokerage firms, financial institutions, clinics, and hospitals.

It offers protection against legal claims, lawsuits, and settlements that may occur due to these businesses’ negligent acts or misconducts during the course of their professional duties. With the help of this policy, businesses can recover any legal costs, and compensation paid to claimants.

The Consumer Protection Act, 2019 formally introduced the concept of product liability to protect consumers from the adverse effects of commercial products. According to this Act, businesses are liable for any injuries or death caused to consumers because of defects of faults in their products.

This liability is effectively covered with the help of of Product Liability Insurance policy. This policy is especially useful to pharmaceutical firms, electronic companies, and car manufacturers that frequently face consumer complaints for product defects. Regardless, all manufacturers and suppliers purchase this policy to secure themselves from legal or financial trouble arising out of their products. In fact, Product Liability Insurance is mandatory in some countries particularly for business operating in the food and beverages industry.

Public Liability Insurance offers one of the most basic coverages, protecting your business from claims of bodily injury, property damage or death made by a third party. This insurance is more often than not purchased as an additional coverage to other insurance policies like Property Insurance, General Liability Insurance, or Commercial Auto Insurance, among others.  

Third party, here, refers to anyone who is not an employee or stakeholder of your business. This includes customers, employees of other businesses, visiting consultant, or any other member of the public. In the event of an accident occurring on your business property, for example, a customer tripping on uneven pavement and breaking their leg, your liability for such an injury will be covered by Public Liability Insurance.

Businesses like restaurants, hotels, and shopping establishments very commonly purchase this cover.

Workmen's Compensation Insurance protects a business from any workplace accidents that may result in bodily injuries or death of the worker. In India, it is compulsory for business organizations to purchase a Workmen's Compensation policy.

This policy helps businesses easily cover an injured worker's medical expenses and lost wages and pay monetary compensation to them in the event of accidents at the workplace. In this way, it lifts the financial and legal liability from the business, protecting them form any unexpected lawsuits while also providing sufficient recompense to the worker.

A cyber risk policy can protect your business from first and third party liabilities that occur due to cyber threats and crimes. Risks such as loss of electronic funds or data, e-vandalism, crisis expenses and business interruption costs can be covered through this insurance.

Cyber Liability Insurance also helps businesses recover costs of hiring a professional negotiator or surrendering payments for cyber threats, as well as credit monitoring expenses. In our current digital age where cyber crimes are only on the rise, this policy has become crucial.

Extended Warranty Insurance offers extended warranty to an asset over and above the Original Manufacturer’s Warranty (OMW). It protects the insured assets from damages or breakdown that occur due to manufacturing defects during the policy period. This is the only cover offered by this policy, and losses due to accidental damage, normal wear and tear, theft, etc. are not covered.

Since this is a very small policy offering single event coverage, it is generally taken in conjunction with a Fire Insurance policy to cover manufacturing defects.

Liability Insurance forms an important part of a business’s risk management portfolio. Coupled with Property Insurance policies, it can equip your company with complete financial security, leaving you free to focus on growing your organization and servicing your customers.

Insurance is not reserved for well-established businesses. Startups also need it to ensure steady growth. Check out some essential Insurance policies for Startups here

Opinions, conclusions and statements of intent expressed in this article are that of the author and Verak does not accept liability for the views expressed unless confirmed by an authorized representative of the Company independently of this communication.