About General Liability Insurance
All businesses, regardless of industry, face risks that should be covered by insurance. The most common and comprehensive type of policy business owners invest in is general liability insurance (or CGL).
Some of the risks CGL insurance covers are:
- Bodily injury
- Property damage
- Medical payments
- Legal defense and judgment
- Personal and advertising injury
While businesses aren't legally required to carry general liability insurance, operating without it is extremely risky. If your business is sued, you could end up facing fees totaling hundreds of thousands of dollars (or more). Having a sufficient CGL policy in place to help compensate for these damages is the only way to prevent this type of event from devastating your business.
Learn more about the risks covered by general liability insurance.
COMMON SITUATIONS THAT GENERAL LIABILITY INSURANCE WOULD COVER FOR A LAW FIRM
Example 1: A client is coming up the steps to your office when she slips and breaks her ankle. She decides to sue your firm, claiming the steps were unsafe. Your general liability insurance will pay for your legal defense fees, including the cost of a settlement.
Example 2: One of your paralegals is rushing to file paperwork when she rounds a corner and accidentally knocks down a client. The client breaks her wrist and asks that your business pay for her medical treatment. Your general liability insurance would likely cover this expense.
Example 3: You have been using a new logo that you think really represents your firm. Unfortunately, a competing law firm has filed a lawsuit over the logo, claiming it is too similar to their own. Your general liability insurance policy will pay for your legal fees to defend your business.
Of course, this is not an exhaustive list of perils a general liability insurance policy will cover, and some conditions may result in a particular peril not being covered. It's always best to talk to your agent in-depth about the specifics of your policy to avoid blind spots in coverage.
Cost Of General Liability Insurance
On average, law firms in America spend between $400 - $700 per year for $1 million in general liability coverage.
Check out the chart below for a snapshot of average CGL expenditure across a variety of industries:
Several factors will determine the price of your policy. These include your:
- Number of employees
- Per-occurrence limit
- General aggregate limit
You may be able to acquire general liability insurance at a discounted rate by purchasing it as part of a business owner's policy (BOP) rather than as a standalone policy. A BOP is a more comprehensive solution that includes multiple forms of coverage, such as business interruption and property insurance.
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Other Types Of Coverage Law Firms Need
While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all law firms should obtain:
Workers’ Compensation Insurance
Your state likely requires that you carry workers’ compensation insurance if you have employees. Your policy will protect your employees if they are injured performing job-related duties. For instance, if a receptionist gets carpal tunnel on the job, your policy would pay for her medical treatment and help to cover her lost wages while she recuperated.
Professional Liability Insurance
A professional liability policy designed specifically for your law firm would help protect your business against negligence claims due to mistakes or failure to perform. If a client claims that your firm caused him or her injury, your policy would pay for your legal defense and for a settlement if one was necessary.
Types Of Coverage Some Law Firms May Need
In addition to the policies outlined above, there are a few other types of coverage your law firm may require depending on certain aspects of your operations. Some of these might not apply to you, so be sure to ask your agent which policies are right for your business.
Commercial Umbrella Insurance
While a general liability insurance policy is usually enough to protect your business, there are circumstances where the limits of your policy could be exceeded—like if you lose a major lawsuit. An umbrella policy kicks in when the general liability insurance stops paying so you can avoid having to pay the remaining damages out of pocket.
Commercial Property Insurance
All of your commercial property, including office furniture, computers, and legal references, would be costly to replace if they were lost in an unexpected event like a fire. Your commercial property insurance would help to pay for replacement costs as long as the loss was caused by a covered event.
Additional Steps To Protect Your Business
Although it's easy (and essential) to invest in business insurance, it should not be your frontline defense. Yes, insurance will compensate for your business' financial losses after an incident occurs, but it's much better to avoid losses altogether.
With this in mind, here are three things you can do to better protect your business:
- Use legally robust contracts and other business documents. (We offer free templates for some of the most common legal forms.)
- Set up a limited liability company (LLC) to protect your personal assets. (Refer to our guide for step-by-step instructions on how to form an LLC in your state.)
- Streamline your business' internal processes. This will remove unnecessary variables from common tasks and create a safe, consistent environment for conducting business.
Frequently Asked Questions
What is included in a business owner’s policy?
A typical business owner's policy includes general liability, business interruption, and property insurance. However, BOPs are often customizable, so your agent may recommend adding professional liability, commercial auto, or other types of coverage to your package depending on your company's needs.
What is the difference between business insurance and general liability insurance?
"Business insurance" is a generic term used to describe many different types of coverage a business may need. General liability insurance, on the other hand, is a specific type of coverage that business owners need to protect their assets.
Do I need insurance before I start a business?
You should invest in coverage for your business before your first interaction with a customer. Although the cost of insurance may seem high for a brand new business, it's best to be proactive when it comes to protecting your assets. After all, you can't buy insurance to cover a loss that has already occurred.
Will insurance protect my business from everything?
Not necessarily. Certain exceptions may be written directly into your policy, and some perils may be entirely uninsurable. Be sure to discuss the scope of your policy in-depth with your agent to avoid being blindsided by holes in your coverage.