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All You Ever Wanted to Know About Insurance

Debunking the Dangerous Myths of Commercial Insurance

We see the news littered with headlines about major companies being sued for countless reasons and we assume only the majors players are liable for legal complications, but even small businesses --- including your mom-and-pop stores --- can come under fire without insurance protection. It can happen to any business at any time. Are you fully protected?

We’ve compiled some common myths we’ve encountered about commercial insurance and just how much you need with Kellie Broadway and Shaun Webb, Pepper Johnstone & Company’s insurance experts.

A limited liability company (LLC) or an incorporated company is protected from liability and commercial general liability (CGL) insurance is unnecessary.

Both Kellie and Shaun agree this isn’t true: just because you operate as a LLC or an incorporated company doesn’t mean you’re incapable of being sued. Corporate veils for Members of a LLC or the Officers, Directors for an Incorporated Company (including managers for both types of entities) can be legally bypassed for claims involving management errors and omissions which is excluded in most commercial general liability policies. Some examples of these types of claims include: harassment; discrimination; failure to hire or promote; retaliation; breach of fiduciary duties to shareholders; investors or employee benefits program; contractual disputes with customers or suppliers; privacy violations; failure to comply with regulatory and/or government regulation; and errors and omissions liability associated with consulting. These claims are just a small sample of why everyone should understand why they need liability and what is covered and what may not be covered.

Bottom line is: “Buying liability insurance is the responsible and smart thing to do,” says Kellie. It not only protects you from potential lawsuits but also gives the business the ability to manage their own risk as it relates to what is covered and what is not.

Only big companies need commercial liability insurance.

Kellie says small companies can be just as responsible for damages as a larger company. It’s unwise to think that a small business would not be held as accountable as a larger, more powerful company. All businesses are equally punishable and without commercial insurance those businesses run the risk of self-insuring their own defense, court costs and fees, monetary damages, time and harm to their company’s reputation.

My commercial liability insurance would cover me in the event of cyber theft.

Again, untrue. Cyber liability is excluded in most commercial general liability policies. It can be added by an endorsement or purchased as a stand-alone cyber liability policy. The reality is that companies are moving toward a paperless world which means that information is subject to a privacy or security breach. Cyber liability insurance provides coverage for businesses that can be liable for third party damages (to others) such as legal defense; settlements; damages and judgements; cost of responding to regulatory inquiries; as well as any fines and penalties associated with such.

In addition, first party damages (direct costs for responding to a privacy breach) such as forensic cost associated with the investigation of a breach; legal advice to determine your notification and regulatory obligations; direct notification costs to affected parties; and public relations expense and loss of business income associated with your network being shut down. For those reasons, businesses should evaluate the cost and coverage for purchasing cyber liability insurance.

Having an Employment Practices Liability policy makes it more likely that my employees will sue me.

Having Employment Practices Liability coverage via an endorsement to your commercial liability policy or as a stand-alone policy covers businesses and their members, directors, officers and managers in the event of an employee-related lawsuit. Shaun says, “It doesn’t encourage your employees to sue you, but even if it did, you would be foolish to forgo Employment Practices Liability coverage simply because of such.” Bottom line: lawsuits involving employees and the conduct of their management are in the news every day. Corporate Veil is not enough in today's legal climate. Claims involving employment related issues will and do expose individuals personally to legitimate and fraudulent claims made against the company and management by it’s employees, says Shaun.

My company just gives advice (we consult), so I don't need commercial liability insurance.

Consultants or consulting firms main exposure is their professional expertise. Claims brought against a company or individual related to an error or omission relative to their work as a consultant is excluded in commercial general liability insurance. They need to be covered by a stand-alone errors or omissions policy or added by endorsement to their current commercial general liability policy. Consultants need professional liability insurance, to shield their professional liability associated with possible damages from ill advisement. Additionally, having liability insurance signals to your client that you’re serious about rectifying any potential damages from your business advice.

Shaun says that without errors or omissions liability coverage, firms and consultants are at greater risk of lawsuits and losing current or potential business.

Other Myths:

Oftentimes Kellie finds that businesses aren’t aware of the insurance needed for subcontractors -- they need commercial insurance, too! She says that a lot of companies don’t understand how insurance works for audits or subcontractors and don’t feel like general insurance matters.

However, Kellie and Shaun say that as time goes on, getting commercial insurance for your business, no matter how big or small, will be a good investment in your future.

Pepper, Johnstone & Company protects your family with a choice of multiple insurance agencies to choose from for home, auto, and business. We've helped countless people save money on their insurance while making sure they're properly covered. Visit us today at our website, or give us a call at 256-232-7818 to get us working on a quote for you today. You can also request an online quote here.