10 Types of Liability Insurance Every Small Business Should Consider

Liability Insurance is the Bedrock of a Small Businesses Shield of Protection

Liability Insurance is a way businesses can go about protecting itself from liabilities the business faces that are beyond the funds the business has on hand to cover. General Liability is required by law for most businesses in most states, but this is usually not the only type of liability insurance coverage a business should secure. Partnering with an experienced insurance professional with whom you trust is the first step to properly protecting a small business. This professional can help advise a business owner just what types of risks they face and just what types of insurance policies they should secure. Here are 10 types of liability insurance coverage every small business owner should consider securing.

Small Business Liability Insurance Coverage

General Liability Insurance Coverage

General Liability Insurance is required by law in most states and protects a business from lawsuits, bodily injury, property damage, personal injury and completed work. Two components are included in general liability insurance. Those two components are public and product liability. Public liability protects a business from third-parties filing suit against a business. The suit can be for something as simple as the third party slipped and fell in your store. No matter how trivial the suit is, it can amount to an enormous legal bill to protect the reputation of a business. Product liability protects a business for products or completed work. When a business makes or sells a product, the business is responsible for what happens with those products. It is important to remember product liability does not provide coverage for claims of defective or faulty design alone unless that defect causes injury or damage.

Professional Liability Insurance

Professional Liability Insurance Coverage is also frequently referred to as Errors and Omissions, E&O, or Medical Malpractice. Professional Liability covers a business for financial losses suffered by third-parties due to professional advice given by the insured. The types of professionals who need this type of coverage include: Accountants, Attorneys, Real Estate Brokers, Consultants, Physicians, Architects, and Engineers. A Professional Liability Insurance Policy does not cover bodily injury or property damage, these claims are usually covered by a general liability policy.

Cyber Liability Insurance Coverage

Cyber Liability Insurance is a type of liability that protects a business from the liability the business faces to third parties for a data breach that occurs within the organization. Cyber Liability Insurance covers the costs associated with the liability of a claim or suit related to a data breach, but it does not cover the first party damages to the business.

Dram Shop Liability Insurance

Dram Shop Insurance Coverage applies to businesses that sell and serve alcohol. A Dram Shop Liability Insurance covers a business for personal injury caused by an intoxicated customer. Dram Shop Liability grew from laws passed dealing with the actions of intoxicated patrons who were served when the business knew the patron was severely intoxicated. According to Vernet v. Serrano-Torres, 566 F.3d 254 (1st Cir. P.R. 2009), it was held that the theory of dram-shop liability has been described as one where a bar or tavern may be liable for the wrongful or injurious actions of a patron, if it served alcohol to that patron after it knew, or should have known, that the patron was already intoxicated.

Directors and Officers Liability Insurance is a type of liability insurance that is paid out to the officers and directors of a company or organization, as reimbursement for losses or advancement for defense costs in the event an insured faces a lawsuit as a result of alleged wrongful acts in the officers or directors capacity as a leader of the organization. Directors and Officers of a corporation or a non-profit may be liable for damages if they damage the organization in breach of their legal duty, if they mix personal and business assets, or if they fail to disclose any and all conflicts of interest.

Employer Liability Insurance Coverage

Employer Liability Insurance is an extremely important part of every businesses workers compensation insurance. Workers’ compensation pays a workers medical costs and some lost wages if they are hurt while on the job. If an employee feels their workers compensation benefit has not provided them enough, they can sue a business for damages. Some of those damages and the legal fees associated with those suits are covered under an employer liability insurance policy.

Product Liability Insurance

Product Liability Insurance Coverage protects a business from lawsuits that result from injuries, illnesses, or property damage linked to a product made by a business. These damages include manufacturing error, faulty design, malfunctions, and even misuse. This applies to manufactured products no matter if they are simple or complex.

Umbrella Liability Insurance Coverage

An Umbrella Insurance Policy is a type of coverage that sits on top of other existing policies. When there is a covered loss and the limits of that policy are met, the Umbrella Policy kicks in to cover additional costs up to the limits of the Umbrella Policy. They key part of this policy to understand is that the claim causing the loss has to be a covered loss. An Umbrella Insurance Policy does not cover additional losses that are not covered. The policy only kicks in when the limits of an existing policy are met.

Employment Practices Liability Insurance

Employment Practices Liability Insurance (EPLI) can protect a business in the event the business faces a lawsuits related to hiring, employing, and terminating employees. EPLI can protect a business when someone files a claim due to misconduct or violation of labor laws. These lawsuits could include claims of employee discrimination, wrongful termination, discrimination (age, racial, gender), breach of contract, sexual harrassment, or emotional distress.

Business Owner’s Policy (BOP)

Businesses can package all of the necessary liability policies in to a Business Owner’s Policy (BOP). A BOP includes several different policies.  They are usually designed for a specific industry because a carriers uses historical claims data to know which types of claims are common for businesses within a particular industry. BOP’s can be altered to meet the needs of a business and the level of risk a business owner is willing to take and most times carriers will offer a discount for buying multiple policies in one package.

What Insurance do Bars, Taverns and Restaurants need?

Bars, Taverns and Restaurants

Small Businesses in the Bars, Taverns and Restaurant Industry have many different risks that are unique to this industry. The difference between a dive bar and a four star restaurant are as different as a beauty salon and a gun club. There are different classification codes for different types of insurance coverage depending upon the operations of your business. This is because the risks of a coffee shop, is different from the risks of a cafe or a wine bar. Which classification code the business is classified in is a large part of what determines how much they pay for commercial insurance. This may determine whether the business wants to offer a certain type of food or service depending upon how much it will impact what the business pays for commercial insurance.

Overhead picture of a Restaurant.

Alcohol Consumption

Most states determine if a business is a restaurant (not a bar or tavern) if it makes a certain percentage of its revenue from food and not from alcohol sales. The typical amount to be determined a restaurant is less than 50%. If the business makes more than 50% of its revenue from alcohol sales it is a riskier business and is thus places in a riskier classification code. This causes the business to be charged a higher premium for commercial insurance. The next main factor that impacts a restaurants rate for commercial insurance is whether the restaurant offers alcohol or not at all. If the business does not offer alcohol at all, they obviously eliminate the risk of intoxicated customers. This lowers the most costly risk a bar tavern or restaurant faces.  Also, an additional factor in the amount of premium is if the business does offer alcohol, whether or not the business offers hard alcohol or just beer and wine. Hard alcohol causes intoxication at a faster rate, because of this the business is more likely to have problems related to alcohol consumption.

Picture of a bar or tavern.

Hours of Operation

Aside from alcohol consumption the next largest risk that faces Bars, Taverns and Restaurant is the hours of operation. There is much less risk in a diner open from 6:00 AM –  1:00 PM, compared to a bar that serves no food and stays open until 2:00 AM 7 days a week. The latter might carry a few more risks that might turn in to insurance claims. Because of this risk the business is going to pay more in premium for their commercial insurance. Limiting these risks before they turn in to insurance claims can save your business immensely over the long term.

Picture of a table with breakfast food and a laptop.

Types of Coverage for Bars, Taverns and Restaurant

Most insurance carriers have business owner’s packages designed specifically for Bars, Taverns and Restaurants. Here are some common coverages you will find included in those packages.

  • General Liability
  • Liquor Liability
  • Commercial Property
  • Business Personal Property
  • Workers Compensation
  • Business Income and Expense Coverage
  • Commercial Crime Coverage
  • Umbrella Coverage

General Liability Insurance covers a business for common slips and falls that happen on the property, Liquor Liability is required by law in most states and the amount of coverage is usually determined by the amount and type of alcohol a restaurant serves. Commercial Property Insurance covers damages to the building and most fixtures attached to the building. Workers’ Compensation is required by law in nearly every state and is coverage to prevent lawsuits for injuries that occur to your employees as part of normal business operations. Business Income and Expense Coverage is an addition to a Commercial Property Policy and will cover your business for loss of revenue due to being closed after damage to your premises. Commercial Crime Coverage will cover your business for crimes committed by your employees while acting on behalf of the company.  Umbrella Coverage is designed to extend the limits of existing policies when those limits have been met. It is important to note that Umbrella Policies only kick in on top of other existing policies. If the cause of the damage is not a covered peril than the Umbrella Policy will not be activated.

 

Below is a list of all the classification codes that might be included as a Restaurant, Bar or Tavern.

Business ISO General Liability:

  • Code: 16920- Restaurant- alcohol sales >75%- Table service, dance floor
  • Code: 16921- Restaurant- alcohol sales >75%- No table service, but dance floor
  • Code: 16930- Restaurant- alcohol sales >75%- Table service, no dance floor
  • Code: 16931- Restaurant- alcohol sales >75%- No table service, no dance floor
  • Code: 16940- Restaurant- alcohol sales >75%- Bar service only, with dance floor
  • Code: 16941- Restaurant- alcohol sales >75%- Bar service only, no dance floor

NCCI Class Codes:

  • 9082 – Traditional Restaurant.
  • 9083 – Fast Food Restaurant
  • 9058 – Restaurants owned or operated in a hotel.
  • 9084 – Restaurant who receives more than 50% of their revenue from the sale of alcohol.