What is Liability Insurance?

Liability insurance is a catch-all type of insurance that helps protect you against legal actions. Many home and business owners underestimate just how much even a minor lawsuit can cost, making liability insurance an essential coverage. Insurers offer multiple types of liability insurance, and you can choose how much coverage you want to carry. 

What is Liability Insurance?

As a general definition, liability insurance is a type of protection that helps you safeguard you or your business against claims made against you by customers, clients and other business owners. Though liability insurance won’t assist you in bringing legal action against someone else, it can help you pay for things like court fees, court costs and the money that you spend hiring an attorney to defend you.

Though no one wants to believe that they could ever be caught in a lawsuit, the unfortunate truth is that anyone can sue you for almost anything at any time — even if you haven’t done anything wrong. Even if a lawsuit is frivolous and thrown out of court, you’re likely to spend thousands of dollars defending yourself against these claims. These facts make it important to maintain liability insurance to protect yourself, your home and your business if you own one.

There are multiple types of liability insurance — and you may need more than a single type of coverage. Let’s take a look at a few of the most common liability insurance types and who they’re useful for.  

Bodily injury and property damage liability

If you own a car, you’re probably already aware that you need to maintain car insurance in order to stay on the road legally. The car insurance required in most states is property damage liability coverage and bodily injury liability coverage. Property damage liability coverage compensates anyone whose property you damage during an accident, while bodily injury liability coverage helps anyone who you injure in an accident to cover the cost of medical bills.

Homeowners liability insurance

If you own a home, you probably have homeowner’s insurance. In fact, if you purchased a home using a mortgage loan, your mortgage provider may have required that you carry at least a certain level of homeowner’s insurance as a term of your loan. What you might not know is that homeowners insurance doesn’t only protect you against damage done to the physical structure of your property — it also includes a liability component that protects you against legal action brought against you as the homeowner.

For example, imagine that your home has a deck and 1 of the steps of the deck is missing. You invite a friend over, and they step on the missing step and breaks her ankle. Your homeowner’s insurance can help pay for the cost of the friend’s medical bills if they sue you after being injured on your property.

General liability insurance

If you’re a business owner, a general liability insurance policy is an absolute must-have. As the name suggests, general liability insurance protects you against a range of claims that might be made against your business. Most general liability insurance policies include at least the following 3 types of coverage.

• Third-party property damage: If you or an employee on your payroll damages a piece of client’s property, they may sue you for the cost of a repair or replacement. Property damage liability coverage helps you pay for court fees associated with the damage and any court-awarded judgements you’re ordered to pay.
• Third-party bodily injury: Third-party bodily injury liability coverage helps you pay for legal expenses that you incur after a client or customer sues you for medical bills because they were injured on your commercial property. This type of liability coverage is similar to the liability coverage found on your homeowner’s insurance policy.
• Advertising injuries: Over the course of advertising your business, it’s possible to unintentionally commit an act of slander, libel or copyright infringement against a competing business owner. General liability insurance typically includes a clause that will help you pay for legal fees when you need to fight against a claim of an advertising injury.

Errors and omissions insurance

If you’re a professional who provides a service in exchange for payments from clients, you should probably have errors and omissions coverage. Errors and omissions coverage (sometimes shortened to “E&O insurance”) protects your business when an unsatisfied client or customer sues you, claiming that you’ve performed your duties in a negligent manner.

For example, imagine that you’re a travel agent who books travel itineraries for clients. You book a flight for a client which ends up being delayed, the client misses their connecting flight and loses out on a day of their vacation because there are no other flights until the next day. Regardless of the fact that you cannot control the air traffic schedule, this client might claim that your booking was negligent and sue you for a partial refund. In this instance, your errors and omissions coverage will help you pay for legal representation and any court-awarded judgements that you’re ordered to pay.

Workers compensation insurance

Workers compensation insurance also falls under the umbrella of liability insurance. If you have employees and an employee is injured on the job, workers compensation insurance can help you pay for the cost of that employee’s medical needs, lost wages and final expenses if the employee was fatally injured. Depending on the state you live in, you may be required to carry at least a certain level of workers compensation coverage as soon as you hire your first employee. 

What Does Liability Insurance Cover?

Though the specific coverages that will be included with your liability insurance will vary depending on the type of insurance policy you invest in, you can expect your liability insurance to cover at least the following.

• Attorney’s fees: You should never underestimate the costs that come with hiring an attorney to defend you or your business in court. Liability insurance can help you cover attorney’s fees, which can easily reach thousands of dollars.
• Court and administrative costs: In addition to paying your attorney, you may be required to pay court fees and administrative costs if you’re sued. Your liability insurance will help cover these fees on your behalf.
• Court-awarded judgements: If a court of law decides that you were liable for the injury or damage you’re being sued for, the court may order that you pay a fee to the victim. Your liability insurance will help you cover these expenses. Court-awarded judgments may include the cost of the victim’s medical treatment, the cost of replacing or repairing any property that was damaged or costs to rectify the expenses incurred by the victim.

The specific coverages that you can depend on from your liability insurance may be dependent on the situation you’re involved in. For example, general liability insurance will help you fight against a lawsuit brought by a former client who claims they were injured on your commercial property, but it will not cover a lawsuit that alleges that you performed work in a negligent manner. You’ll need to review the terms of your liability insurance policy to know exactly what’s covered. Select professions (for example, doctors or lawyers) may need industry-tailored liability insurance policies. 

How Much Liability Coverage Should You Buy?

The answer to this question will vary depending on your unique industry, the size of your business and how you operate. Many insurance companies recommend that you carry at least $1 million in liability insurance. However, the truth is that a lawsuit can quickly cause you to incur more than $1 million worth of damages.

For example, imagine that you’re sued for personal injury and the court awards the victim $500,000 in damages. In addition to the awarded judgement, the judge might also award punitive damages to the victim, which you must pay on top of any judgement. When you consider that these damages don’t include your attorney’s fees and administrative fees you must pay, it’s not hard to see how a single lawsuit has the potential to max out your liability insurance coverage — and even bankrupt your business.

We urge you to speak with an insurance agent in your area who’s familiar with your unique industry. A professional can help you more accurately assess your unique risks and recommend a level of coverage that’s right for your needs. 

Compare Liability Insurance

If you’re operating your business without liability insurance, you could be putting both yourself and your employees at risk. Browse a few of our favorite business liability insurance providers below.  

Try Simply Business

Simply Business offers a comprehensive suite of business insurance that specializes in making it easy to insure your business. Whether you’re looking for construction workers' insurance or liability insurance for your startup, Simply Business helps you find the liability coverage at the right price. This includes any business at any stage of development. Don’t turn to a thousand different carriers when you can get help from Simply Business. 

Tell Simply Business a little bit about your business and you'll get almost-instantaneous affordable quotes from top insurance providers to protect your business and safeguard employees if they’re hurt on the job. You can also look into business owner’s plans, additional liability insurance, commercial auto and more that will cover everyone on your team, and you can get covered in accordance with state law without overspending. 

Building your business is hard enough. Let Simply Business make it easier. Get a quote from Simply Business today.

Getting the Liability Insurance You Need

Few people who purchase liability insurance believe that they’ll ever need to use their coverage. However, liability insurance is an important protection that you’ll want to maintain, no matter if you’re a homeowner or if you’re a business owner. Consulting with a local insurance representative can help you decide exactly how much liability coverage you need — because you never want to find yourself with too little liability coverage. 

Frequently Asked Questions