Starting a business in this generation is always an outstanding achievement and has its challenges. Running a company may be tough, but it is rewarding and can change lives. Every business owner and CEO in 2022 want their business to succeed and grow further. The first step of growing a business is the idea and then employing talented people to help execute the vision. With the right employees, location and strategies, that idea can become a reality.
Well, after turning the idea/dream into a growing business, one would assume it would be all smooth sailing, right?. Sadly, business challenges never end, and there are always possible risks that could negatively affect the company. As soon as one starts a business, they are automatically liable for a large number of duties and responsibilities. Some of these liability risks include internal risks, and many include risks from third parties, which are not easy to manage.
Liability risks could include a product or service negatively affecting a customer, client or shareholder. When a person feels they have been harmed or betrayed by a business, they have the right to take action, even if it may not be the business’s fault. Unfortunately, such actions can result in the business suffering financial loss and reputation damage. These risks are precisely why many companies purchase a range of liability insurances. Liability insurances will help the business face these risks and reduce the negative impact. This article will explain the scope of different liability insurances that can save a business in 2022.
What Are Liability Insurances?
Liability insurances are crucial for any business in 2022. Unfortunately, things don’t always go as planned, and unpredictable events can lead to lawsuits. Liability insurances protect the business against claims resulting from bodily injuries, property damage or financial damage. In addition, liability insurances ensure that the business is not ruined due to a mistake and a surprising lawsuit.
The different liability insurances include professional indemnity (PI) insurance, director and officer (D&O) insurance, product liability insurance and public liability insurance. Each liability insurance has its unique purpose and specific cover.
The 4 Types Of Liability Insurances
Professional Indemnity Insurance (PI)
To be human is to make mistakes- Employees and professionals are not perfect; mistakes in a workplace are common and are unintentional. Most mistakes are small and something to learn from- like an employee forgetting to email the complete set of documents to the client (an easy fix). However, some mistakes can be considered negligence and are taken more seriously. Especially when the professional error leads to third-party bodily injury or property damage. A third party can sue the professional and the business for negligence, leading to costly lawsuits and huge reputation damage.
For instance, an accountant and their company can be sued by their clients for not communicating professionally. There have been many cases where accountants have been sued for not providing information in writing, resulting in clients’ financial damage. Even if the accountant feels the message was passed on verbally, the client still has the right to label it as negligence of duty. It is a small mistake that can be made by any professional but can cost them a large sum of financial loss and reputation damage.
In such cases, professionals and businesses will be thankful they purchased professional indemnity (PI) insurance. Professional indemnity insurance, also known as professional liability insurance, provides coverage for professionals and businesses to protect against negligence claims from clients or customers. PI insurance covers negligence, copyright infringement, injury or damage due to professional’s advice. In addition, the insurance will pay for any damages caused, legal fees and settlement costs. Having PI insurance in 2022 can save a business or sole professional from significant financial and reputation loss.
Director and Officer Insurance (D&O)
As a CEO, director or manager, you are directly and personally liable for any decision you take for the company. These roles are known as directors and officers and lead the business to grow and succeed. The roles come with great power and, as you guessed-great responsibility. The directors and officers have a range of duties to their employees, shareholders, and even the government- known as Fiduciary Duty. If a manager or director breaks or disobeys their commitments- shareholders and employees can sue the responsible manager or director. A lawsuit can affect the person and the business, causing negative business reputation and income loss. Additionally, it may not be the director/officer’s fault or an accident, but they will still be liable.
A breach occurs when a director or officer decides to act for their own personal benefit instead of in the company’s best interest. For example, a manager may share company secrets with a family member, who uses them to open their own company. As a result, the shareholders will sue the manager for breaking the duty of loyalty. In addition, there are various cases where the director or manager are sued by their shareholder or employees for not obeying their commitment to the company.
In such situations, Directors and Officers Liability (D&O) insurance protect personal liabilities for its board members and management staff. Therefore, D&O insurance will provide the business with legal funds to defend its management staff, including compensation and settlement costs. Therefore, any company, small or big, must purchase D&O insurance to protect managers, HR and CEOs from these risks and any unforeseen mistakes.
Product Liability Insurance
Thousands of products worldwide and countless businesses are involved in designing, manufacturing, and distributing products. Products include anything sold physically, including food, medicines, toys and many more. A company involved in any product stage has to be careful of the risks that follow. The businesses involved are liable if the product has defects. Hence, It could be a design defect, manufacturing defect or failure to warn. When a product does lead to harm or damage, the third party has the right to sue the responsible party for compensation and settlements. A lawsuit can cost a business a large amount and even brand damage due to a product.
Product claims can happen to any product -from simple food to technical technology products. For example, a food product may get customers sick due to the distributor not storing it correctly or specific ingredients. The third party have the right to sue the brand and claim compensation for their illness. On the other hand, a customer may also sue a business if a product has not accurately warned the customer about the use and danger. For example, a toy company not warning customers about small parts that kids may swallow. The company will have to pay for the medical bills of the customers and compensation costs
Product liability insurance covers most claims linked to product defects. Insurance is essential to companies that design, manufacture, or sell a product. The primary purpose of product liability insurance is to cover legal costs and damages for the business due to the claims. In addition, the insurance will provide compensation to the third party and settlement costs. It is essential to understand that product liability insurance won’t cover product recall, and policyholders can add an extension of product recall insurance to cover recall costs.
Public Liability Insurance
Many businesses sell/work on their product or services in a specific store/site. A site that allows third party members to walk in and walk out is liable for their safety when on business premises. You may think, if one of these members slips, it would be their fault for not looking where they are going. Unfortunately not, the business is responsible for their injury and could negatively affect the business. A third party can sue a business for bodily injuries or property damage due to company activities.
Every company faces public liability risks; even if you and your work doesn’t invite third party members on-site, there is still a chance of injuring the public in some way. For example, employees may be on the way to an important meeting off-site. On the way to the meeting, the employee accidently runs into an elderly woman, resulting in her falling. The woman can sue the employee for bodily injury. Even though it’s off-site, the business is liable for its employee’s actions during working hours/working activities.
Public Liability insurance protects a business if a third party (a member of the public) sues the business, alleging that company negligence caused them some bodily injury, death or property damage. Public liability will cover all legal costs, bodily injury, property damage, settlement and compensation costs. In addition, the insurance allows the business to run normally, prevents financial loss and brand damage.
Why Is It Important to Be Protected By The Right Liability Insurance?
The range of liability insurances is crucial to protect against the various possible claims. Unwanted claims are unpredictable; a small mistake could lead to a significant financial loss and ruin a business. These insurances will cover these risks and ensure the company can recover from the impact.
As you can tell, each liability insurances is different and covers different possible risks. However, every business should consider at least three of the four insurances to be completely safe, whether small or big. For example, F&B companies may only need D&O, product liability and public liability insurance. Additionally, a finance office-run business would need PI, D&O and public liability. The right combination of liability insurances will protect a business from most possible risks, allowing the company and employees to focus on the work rather than unexpected outcomes.
Additionally, liability insurances will reduce financial loss and reputation damage– if a business does face a liability claim. It’s time to grow your business to the next level in 2022 and protect the company from surprising claims with liability insurances.