When considering the insurance needed for a new small business, most owners consider public liability insurance with a view of cost versus reward – or, is this a needed expense. Many will consider that the actual business type is a very low hazard business without great likelihood of causing a large amount of monetary damages to another business or person.
While for some business types it’s obvious that liability insurance will be required, others might consider that since the possibility of an explosion, or malfunction is slim, general liability coverage is optional. There are three major factors that need to be taken into consideration before dismissing general liability insurance as unnecessary: existing or potential contract requirements; foot traffic exposure; and nuisance lawsuit defense costs.
For a new small business with any interactions with another business entity, more than likely that other business entity will require general liability coverage to be in place. This could include a landlord renting the premises to the small business; a potential business customer who would require services or delivery at their location; or even a customer retailing or wholesaling the product. Having coverage in place in advance will aid in both completing the transaction and enhancing the professional reputation of the small business.
If the business is working with individuals rather than other businesses, there’s a strong possibility of people coming to the location. With every footstep on the business premises comes the potential responsibility for any injuries or damages that happen to the customer. This can include simple slip and fall injuries both inside and outside the premises, to falling objects hitting customers; damage to customers’ possessions, or even injuries caused by catching a hand in a door or drawer. Even without the potential of a lawsuit, since many general liability policies include a goodwill, “no fault” medical payments coverage; it can deter a potential lawsuit while maintaining a working relationship with the injured party.
The lawsuit itself is one of the most deadly things that can happen to a newer small business. That lawsuit doesn’t HAVE to be legitimate – some unscrupulous people will try to file for fake claims or imagined injuries, with the goal of “settling” for an easy cash payment without actually going to court. General liability coverage provides for legal defense expenses for covered loss types, even if the allegations are blatantly false. Without the general liability insurance coverage, a small business could conceivably pay an attorney tens of thousands of dollars to defend a lawsuit that eventually goes to court. Even if the lawsuit is won, the actual attorney fees can bankrupt a young business. The alternative is usually paying a blackmail type settlement (usually thousands of dollars) to avoid paying the attorney defense fees, even though the claim is frivolous. Even the settlement amount might be enough to close the business, or worse, leave the owner personally responsible for debt even after the business is defunct.
The entire point of public liability insurance – indeed, any type of insurance – is transferring the risk of something that could destroy the business, to the insurance company, in exchange for a manageable insurance premium payable to the insurance company. One of the best ways to doom a business to eventual financial crisis, is to retain that unaffordable risk. Because general liability insurance does much more than simply pay for direct damage caused by the business, it should be one of the first things considered, when the operation begins.