Liability insurance is a part of general insurance system of risk financing to protect the policyholder from the risks of liabilities accused by clients and other parties on the business owner that results in lawsuits. Basically, liability insurance protects the policyholder in the event that they get sued for claims. Even small businesses will benefit in having small business liability insurance coverage as this will certainly help in protecting their financial interest. After all, some lawsuits over liabilities are now being made as a means of getting financial support from business owners over issues that are obviously aimed to benefit from certain flaws and loopholes in the justice system. Nevertheless, if the claims are legit, having liability insurance coverage can still help the business owners in ways that are within the confines of the insurance policy.
When running a business, whether the business is fairly large or is just a small startup one, having business insurance can greatly help in protecting your investment and business assets. Although the cost of the insurance may seem like an unnecessary cost on your part, still, the help, assistance, and protection that it can potentially provide your business, particularly under certain circumstances will truly prove invaluable on your part. Surely, you would not want your business to get involved in any liability lawsuit or other legal matters without the protection of an insurance.
Liability insurance is an insurance protection policy on things you and your business are considered liable for. If you have a liability insurance policy, the duty of your insurer mainly involves: 1) to serve in your defense, 2) indemnification, and 3) provide settlements on reasonable and well-clarified claims.
- To Defend – when a business owner gets sued over liability claims, the duty of the liability insurer is provide defense over the claim as brought by the affiant. Normally, this is done by sending a copy of the complaint along with a cover letter referencing the relevant insurance policy that demands an immediate defense. At this point, the insurer will be left with three option, to: 1) defend the policy holder, 2) seek declaratory judgment of no coverage, or 3) refuse defense or refuse the sought declaratory judgment.
- To Indemnify – indemnifying means that all sums that the policyholder is being held liable for will be paid and settled, but at a certain set policy limit, depending on the written policy stated within the policy of the policyholder. The set policy limit may also be dependent on the premium the policyholder is paying.
- To Settle Reasonable Claims – in certain jurisdictions, a third duty exists wherein the duty will be to settle the claim if the claim made is a reasonably clear claim against the insured. This claim can be seen as a legitimate claim that is true beyond reasonable doubt. If the settlement exceeds the policy limit, the insurer’s incentive will be not to settle as they will be then required to pay the policy limit. Going to trial leaves the insurer with two possible outcomes – policyholder loses and insurer pays the policy limits, or policyholder wins leaving the insurer with no liability to pay or settle.
As a business owner, it is important that you fully understand the risks involved in business and that is mainly the risk of loss or the possibility of profit. However, it should come as a great consideration that safety and protection of your investment and best interest is very important. This is where business insurance comes in as it helps in protecting you as well as your assets from uncertain or unexpected financial loss.