You might have a booming business with high profits and a popular following. You might be making amazing sales and looking to open a second location, but all that can fall apart if you lose a liability lawsuit.
All business owners, especially those who own brick-and-mortar operations, must understand liability and how it affects them. Here are some things every startup entrepreneur should know.
1. What’s Considered Liability
To be liable for something means you are financially responsible for an event. You can only be held liable if the event occurred on your property or it happened because of something you did or failed to do.
Unfortunately, accidents happen all the time, and if an accident happens on your property, you could be held liable. They’re called “accidents” because you don’t see them coming. Someone could trip and break a hip or there could be an accident with your commercial vehicle. The best way to prevent an accident is to do your due diligence and keep your property in tip-top shape.
If it truly is an accident, and there was nothing you could have done to stop it, you may not face legal repercussions. However, if someone trips because you failed to fix a broken tile or you left a mop out, the victim would have a strong case against you.
There are other kinds of liability as well, including employee error, professional mistakes, slander, libel, and errors and omissions. Basically, if someone’s way of life is altered negatively because of something your company has done, they can serve you with a lawsuit.
2. You Need Insurance
Although you should do your due diligence and try to prevent accidents whenever possible, you may not be able to prevent a lawsuit. As mentioned earlier, accidents do happen, no matter what you do to mitigate them. If you have liability insurance, you’ll be protected from the financial damages.
Insurance companies not only pay for your financial obligations in a personal injury suit, but they can also help to reduce the charges, depending on the circumstances. For example, if a disgruntled employee fails to put up a sign on freshly mopped floors and a customer slips, that’s not entirely your fault. The insurance company can assess blame and take some of the responsibility off your shoulders.
3. Coverage Options
All businesses should carefully consider their liability risks and discuss them with their insurance agents. The agent will then offer a variety of insurance options for you to choose from. Every situation is different, so one business might be fine with the basic professional liability insurance package, while others need additional policies to fully protect them.
The most common types of coverage options include:
General Liability Insurance: This is the most basic package. It protects your business from property damages, insurance claims, advertising claims, and claims of negligence.
Product Liability Insurance: If you manufacture, wholesale, distribute, and/or sell products, this insurance will protect you from financial loss if a defective product causes harm.
Professional Liability Insurance: If your business offers a service of some kind, this coverage can protect against things such as malpractice, errors and omissions, and negligence. Some professions (such as doctors practicing in certain states) are legally obligated to purchase this kind of insurance.
Worker’s Compensation: If you have employees, worker’s compensation insurance is a huge asset. It protects you, financially, if an employee is injured while on the job, covering costs like medical expenses, lost wages, and an altered lifestyle.
4. Off-Site Asset Coverage
Many organizations do business outside of their physical property, and they need to make sure their property will be covered. This includes vehicles, off-site machinery, and other equipment. If there’s an accident involving any of these assets, you could be held liable.
Make sure your insurance provider will not only cover damage to the vehicle, but also any personal injuries that result. They might also help with lawyer fees if you’re faced with a personal injury suit.
5. Incorporation Limits Liability
There are two main types of liability: personal and business. If you’re the sole proprietor of a business, the lawsuit will be in your name. Suddenly, all of your personal assets including your house, car, and retirement will be at risk.
If you incorporate your business, by forming an LLC or corporation, your business will exist as a separate entity. Any lawsuits will be served in the name of your business, and it’s only your revenue and business assets that are at risk. It’s still an unpleasant situation, but it’s better than having your personal well-being at high risk because of a lawsuit.
It’s vital that all businesses take action to protect themselves against a lawsuit. Understanding liability, conducting trainings, getting proper coverage, and other steps can act as a shield against financial claims. As you work to make your business safe and prevent accidents on your property, you’ll have fewer risks and a better shot at success.