Overview of the liability insurance policy

Liability insurance protects your company in case it is sued or held legally liable for injury or loss caused by a mistake made by your company. The development of your risk management plan as part of your business insurance plan will limit the risk of error; however, that risk cannot be eliminated. Liability insurance covers the business for this risk.

For small businesses, many insurers package liability insurance into a larger insurance policy including property and casualty insurance. Most insurers call this packaged policy the “business owners’ policy” or BOP. Your business may be better served by a separate commercial general liability policy or CGL. The coverage afforded under both types of policies are almost always the same.

There are two types of liability policy:

Claims Made – The insurer that covers your business when the claim is made is the insurer that will cover the claim. If you are a construction or design professional, this is the most likely liability policy choice because it can be years after the completion of a project for a defect to become apparent.

Occurrence – The insurer that insures you at the time of the occurrence is the insurer that will handle the claim. The insurer is obligated to work with you until the claim is resolved even if you do not renew your policy with the insurer. These liability policies are more prevalent for businesses that would typically be aware of a potential claim immediately.

The two types of policies are the same with the exception of when the insurer’s obligation starts and ends.

The liability policy provides coverage for damage from an “occurrence” during the policy period. An “occurrence” generally means “accident” occurring to a third-party (someone other than you or the insurer). However, your liability policy may include a definition of “occurrence” to include “continuous or repeated exposure to substantially the same harmful conditions” that includes coverage for injury to a third-party for those kinds of injuries that cause damage over time. An example could be a gravel pit where a neighboring homeowner becomes ill due to a constant inhalation of gravel dust from the pit.