It’s no secret that insurance companies hire from among the best attorneys available, and those attorneys defend you when you get into a legal incident covered by a liability policy that you have secured. But you might ask these two questions: Is it still cost effective to get such legal defense through an insurance policy and what policies does a business need to secure to get the best legal guns to defend themselves in a given situation?
If you get an attorney demand letter or any kind of notice of legal action, who do you call? Well you can always call an attorney who might be a friend, done a trust for you, or might have put together some contracts for you, but would they be the best litigation attorney for you if it came to that? Keep in mind the plaintiff will probably know if you have a qualified attorney or not and that will dictate how they will proceed and how much they are willing to settle for. The less qualified your attorney is, the more leverage the opposition will have against you and the more likely it is that they will drag out a settlement or even take the case to litigation. The worst part of this is when these legal issues take away time and distract you from running your business.
The bottom line: Hiring an attorney yourself can be very costly when compared with the benefits of going through your insurance company. Insurance company claims departments handle these kinds of incidents every day, and they know exactly how to keep costs low without compromising on skill. They specialize in managing attorneys and claims incidents. The bottom line is, they are so efficient that it costs them less to settle than it will ever cost you doing it by yourself. This savings is built into the cost of the premium for liability coverage. The good news is, this cost is capped every year for whatever your insurance policy premium is. By not having a policy, legal expenses can easily run into six figures, even before any settlement or litigation takes place. Also, in many cases those taking action against you, most especially if it is frivolous, would rather not face an insurance company attorney and this puts you in a much better position.
Does a liability policy cover every incident? Of course not, but you can mitigate your legal risks by making sure you have the right policies in place. Here are the most common policies that your business will need to cap your legal exposure:
General Liability (GL). This is the most common type of business liability policy. GL covers injuries caused to others, damage to the property of others, and may cover personal and advertising injury coverage, such as incidents caused by libel or slander. Many of these policies include products liability, which covers defective products that might cause injury or property damage.
Employment Practices Liability (EPLI). EPLI insurance is becoming more and more necessary for employers, both large and small alike. EPLI provides protection against employee lawsuits such as discrimination, sexual harassment, failure to employ, and many others. This coverage generally does not pay for punitive damages, but instead will pay for the company’s legal costs associated with a covered lawsuit.
Errors & Omissions Coverage (E&O). Also known as malpractice insurance, E&O provides coverage to individuals and firms who provide a certain expertise and counseling to their clients. When a professional receives payment in exchange for services, they are held to a high standard by both the client and the legal system. Although incidents are not common, when they do happen they are very costly. Having the right insurance coverage in place helps to allow continuity of a practice, while minimizing possible huge financial burdens and distractions by transferring these burdens to the insurance company.
Directors & Officers Liability (D&O). This type of insurance is taken out to protect legal action against directors and officers of a company. Any firm that has a board of directors, such as privately held companies, non-profit organizations, and homeowners associations, need this coverage. Anyone serving on a board without this coverage is putting their own personal assets at risk. Legal action against Directors and Officers can come from competitors, government agencies, creditors, employees, stockholders, and other third parties.
Pollution Liability. A Contractor’s Pollution Liability insurance policy covers environmental liabilities excluded by standard General Liability insurance. This coverage helps protect contractors against pollution incidents, such as contaminated soil disposal, accidental release of fuel oil, chemicals/toxic gases from broken pipelines, utilities, and stationary and mobile fuel tanks.
Auto Liability. A business should not neglect getting Auto Liability even if they don’t own any vehicles. If an incident happens during working hours and the injured employee was using their personal vehicle for business use, the business may be named as a party to legal action on any injury or property damage that may occur. If the business is using personal vehicles on the job full time, it is probably best to have those insured under the company to make sure the company has coverage against legal action due to an automobile incident.
Each business is different, which is why it’s so important to review all potential exposures with your agent to determine if any of these exposures can be covered by insurance. A business owner truly gets a great bang for their buck when having these liability policies because as mentioned earlier, you are dealing with experts who know how to leverage their expertise most effectively. These types of insurance policies also bring more certainty to your business, the premium is all you pay, you have no worries of losing your business or facing significant setbacks due to spending tens or hundreds of thousands of dollars defending and paying claims that most people have no idea how to handle.
