Business operations for a small business cover not only day-to-day operations but also legal responsibilities. Legal responsibility is known as liability. Most business owners know they need liability coverage from an insurance company. They don't always know why.
All it takes is a single lawsuit to shut a small business down. This is why business owners and their managers must understand and prepare for their business liabilities. This includes vicarious liability.
This article helps you understand what types of business liability exist, what business liability insurance is, and why insurance coverage is critical to your business's success. You will learn about risk management based on your business needs, liability forms and contracts, personal injury lawsuits, employer liability for the actions of employees, and more.
Employer Liability
Small business owners are responsible for their employees and any bodily injuries that happen to them on the job. Small-business owners are responsible even if they had no intention to cause harm and played no direct role.
Employers direct the behavior of their employees. The employers receive the benefit of employee efforts. However, the negative consequences also belong to the employer. Employers are also most likely able to compensate someone injured or harmed.
Employers must pay for workers' compensation insurance to help employees who are hurt on the job. It does not matter how the employee was hurt. This includes slip-and-fall and bodily injuries. If one worker injures another, they are compensated under workers' compensation rather than a liability lawsuit.
Employers are also liable for their employees' actions. This includes work-related accidents, incidents of harassment, and other employee acts. Independent contractors are not employees, so employers are not usually liable for their actions.
Negligent Hiring
Negligent hiring or retention, unlike job-related misconduct, arises from acts performed by an employee outside of their employment. The most common example is when an employer hires someone with a criminal record that puts their customers or the public at risk. Conducting a background check on employees, especially those in contact with the public, provides some insulation from liability.
Harassment
Harassment among employees is a growing source of liability for employers. Unless the small-business owner proves they exercised reasonable care to prevent and promptly correct any harassment, they must pay for personal injuries.
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Slip-and-Fall Accidents
Small business owners also have a duty to protect their customers or pay damages if injuries occur on the premises. When someone slips, trips, and falls on someone else's property and is injured, the property owner is responsible under premises liability. You may recognize this through your homeowners' insurance policy.
Small business owners must pay for any financial loss or personal injury when they own or control the building. This is particularly true when the property has:
- A dangerous condition
- Torn carpeting
- Changes in flooring
- Poor lighting
- Narrow stairwell
- Wet floor
- Rain, ice, snow, potholes, and other obstacles
In situations where the small-business owner created the condition, knew and did not correct it, or should have known and did not correct it, they must pay personal injury, personal property damages, and property damages.
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Protecting Customer Data
You have a responsibility to protect your customer data. Customer data includes the personal data of your customers, such as names, email addresses, and credit card or banking information. You must also protect against cyberattacks that attack your point-of-sale systems and other networks.
Product Liability
Small-business owners open themselves to product liability claims when they sell or manufacture products. Your company is liable even after your business closes.
Small Business Insurance
The type of business insurance and business insurance coverage your business needs depends on your industry. Insurance costs are often a deterrent for most business owners. You need to budget for insurance so your business assets are protected in the event of any lawsuits.
Many types of coverage options depend on your business insurance needs and budget. Insurance policies cover defense costs for an attorney from the insurance company to represent the business. Most have deductibles that may require your business to pay out of pocket initially, but the long-term savings are worth it.
Types of Business Insurance
A local insurance agent can walk you through what business insurance coverage you need. They can also provide an insurance quote for your budget. Keep a copy of your certificate of insurance somewhere safe and electronically for safekeeping.
A few examples of business insurance include:
Make sure to pay your premiums for your insurance on time, or else you will lose your business insurance coverage. Some insurance policies even cover your legal fees.
Know your policy limits and increase the limits as you expand. Your policy limits limit the payments your insurance company pays on your behalf. If a lawsuit exceeds that amount, you will use your business income or assets to compensate injured parties. Know your insurance policy exclusions and buy additional insurance to cover any gaps.
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Speak to a Business Attorney
If you are curious about your small business liability for employees or independent contractors, talk to a business lawyer in your state.
