What Does Liability Really Mean?

When asking a business owner, “What liability does my business have?” The answer we hear most often has something to do with the requirement placed on them by their Landlord or bank. This requirement is typically associated with General Liability. This article will strive to define what General Liability is and to educate and define at least one other type of liability that many service businesses encounter. As an insurance professional, the difference between insurance driven by compliance and insurance and risk management driven by solid business decisions is a key distinction.

General Liability is often the first and sometimes only insurance a company will ever have. This type of liability generally covers three exposures and is typically required or compliance driven:

• Property Damage that I am liable for (Did I damage someone’s stuff?)
• Bodily Injury that I am liable for (Did I hurt someone?)
• Personal Injury (Did I call someone a name?)

This type of liability insurance is appropriate for many types of business. a retailer or a contractor where the possibility of loss falls in line with the above typical exposures. For example- if a customer were to walk into a retail store and slip on a banana peel that was on the floor- the retailer may be liable for the bodily injury and the General Liability would respond appropriately.

What if your business is a professional service where you create value and revenue based on the service or consulting provided? If I make a mistake- I tend not to damage someone’s stuff, I don’t hurt them and I don’t call them a name- if fact- they may want to call me a name! The damage your service or lack of service can have a negative financial impact on my clients bottom line. This type of insurance has a number of names but it serves the same purpose:

• -Errors and Omission
• -Mal Practice Insurance
• -Lawyers Professional
• -Professional Liability

Each of these policies helps to protect the insured related to the service they provide. Some of the occupations that have this exposure are defined within the name of the coverage- IE; Lawyers. Other professions that have this exposure include: CPA, consultants, Doctors, Architects and Engineers- the list goes on. An example of a professional liability exposure is if a Geotechnical Engineer is hired by a general contractor to conduct a soils analysis and recommends a certain type of construction material to withstand an earthquake in a new building. 5 years later, if an earthquake were to happen and the building was to fail because of the advice of the Geotechnical Engineer- that would be a professional Liability.

Professional Liability is just one additional type of liability a business may have based on their operations. The important thing to remember is that a knowledgeable business insurance advisor can help define your risks. You can move your organization from being compliance driven to actively managing your risks.

Tony Johnson is an Accredited Advisor in Insurance and can be reached at Davidson Insurance, 360-514-9550 or Tony [at] Davidsoninsurance [dot] com