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How business lawsuit insurance can protect you

Lawsuits, even frivolous lawsuits, can cost your business valuable time and money.

Business insurance safeguards your bottom line

Small businesses can get sued for a number of reasons. A server outage, data breach, or a car accident can land your company in court. Even the most careful business owner can be hit with a frivolous lawsuit. Fortunately, business lawsuit insurance can reduce your risk.

Here are the most common types of lawsuits that small businesses face, along with examples of how business lawsuit insurance coverage can protect your bottom line.

General liability insurance

General liability insurance covers the cost of lawsuits brought by people outside your company. A general liability policy can pay for lawsuits over:

  • Bodily injury
  • Property damage
  • Copyright infringement
  • Defamation, such as libel or slander

This type of insurance is pretty affordable for most small businesses. For example, IT businesses pay an average of $28 per month for general liability insurance.

A general liability policy is often required in client contracts, and for office leases and mortgages. However, this policy is a smart investment for any type of business. It’s especially beneficial for businesses that have a public storefront, like a computer repair shop.

Depending on your needs, you may also want to consider a business owner’s policy (BOP). This coverage bundles general liability insurance with commercial property insurance and provides protection from a range of liability and property risks.

A server outage, data breach, or a car accident can land your company in court. Fortunately, business lawsuit insurance can reduce your risk.

Here are a few examples of general liability lawsuits:

A job candidate walks into your IT staffing office and trips over a loose cord. They break their ankle, go to the hospital, and end up needing surgery to correct the problem. In this case, your business would be responsible for covering their medical expenses and other costs. A general liability insurance policy would pay for legal costs, including any judgments or settlements.

Let’s say you’re revamping your business intelligence company's website. In a blog post, an employee falsely claims a business rival is unreliable. The competitor takes notice and sues your business for libel. With a general liability insurance policy, your insurance company would cover the costs of a defamation lawsuit.

An employee at your web design company visits a prospective customer for a product demo and spills coffee on the customer’s monitor and laptop. To recover the cost of replacement equipment, they take you to court. General liability coverage would pay for your legal costs and the new computer and monitor.

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Errors and omissions insurance

Errors and omissions insurance (E&O) is also known as professional liability insurance. This policy protects business owners from third-party lawsuits related to negligence, mistakes, or professional oversights. It covers things like:

  • Work errors
  • Undelivered services
  • Incomplete work
  • Missed deadlines
  • Budget overruns
  • Breach of contract
  • Accusations of negligence

Errors and omissions insurance will protect your company from business lawsuits regardless of fault. Any small business that provides services or expert advice should consider an E&O insurance policy.

The median cost of this policy is $61 per month, or $728 per year. However, your business may pay more or less depending on your type of business, how many employees you have, and the deductible and policy limits you choose.

Examples of how errors and omissions insurance protects businesses include:

A designer at your web development company is building a new website for a client ahead of a big product launch. The project takes longer than expected and the website gets delivered two weeks late, forcing the client to postpone their launch. The client sues your company for their lost profits and the missed deadline. E&O would cover your legal fees and the settlement with the client.

Your IT consulting company is working on a database migration for a new client. When the project is finished, the client notices that certain files have gone missing. They accuse your employees of negligence, and sue your company for the damages. With an errors and omissions policy, any judgment against you would be covered.

Your web hosting business suffers a DDoS attack, knocking several of your customers' websites offline. One of them, an online retailer, sues for lost revenue. Your errors and omissions coverage would cover your legal bills.

Any small business that provides services or expert advice should consider an E&O insurance policy.

Cyber liability insurance

Cyber liability insurance pays for costs related to data breaches and other cyber incidents at your business or your client’s. It covers legal costs and damages like:

  • Regulatory fines and penalties
  • Customer breach notifications
  • Finding and fixing the security flaw
  • Credit and fraud monitoring services
  • Crisis management and public relations
  • Cyberextortion demands

There are two types of cyber liability insurance policies: first-party cyber liability insurance and third-party cyber liability insurance. Here is what each covers:

Any business that stores or manages sensitive information should consider cyber liability coverage. It’s also recommended for businesses whose services put them at increased risk of being blamed for a client’s data breach, such as:

The average cost of cyber liability insurance for small companies is $145 per month, or $1,675 per year. But the cost can vary based on the volume of data and the type of data your business handles.

A popular policy among tech businesses is called technology errors and omissions insurance, or tech E&O. This coverage bundles cyber liability insurance with professional liability coverage. Many technology or IT businesses choose to buy tech E&O because it’s generally cheaper than buying each policy separately.

Scenarios where your business could face a cyber liability lawsuit include:

One of your clients requests a full analysis of their network security system. A few months after the audit is complete, the client gets hit with a massive cyber breach. They sue your cybersecurity company for their financial loss, claiming that you should have prevented the breach. Third-party cyber liability coverage will pay for any settlement or judgment against you.

Your computer repair store gets hit with a cyberattack and the hackers steal your customers’ credit card numbers, and the breach makes local news. Your first-party cyber liability insurance would pay for costs like public relations and damage control, customer notifications, and credit/fraud monitoring services.

Your company’s lead data analyst is fired and leaves the company on bad terms. This angry former employee hacks into your network and steals all of your employees’ Social Security numbers and other personal data. You decide to hire a data recovery expert to find the flaw and repair the network. First-party cyber liability insurance would cover the cost of the data expert and other recovery services.

Employment practices liability insurance

Employment practices liability insurance (EPLI) protects against employee lawsuits related to harassment, discrimination, or other violations of employee rights. These may include claims of:

  • Discrimination
  • Wrongful termination
  • Mismanagement of benefits
  • Breach of employment contract
  • Privacy invasion

An employment practices liability insurance policy may be a smart investment for your business – especially if you have several employees. Most tech companies pay $182 per month, or $2,178 annually, for this coverage.

Keep in mind that EPLI is typically sold as a claims-made policy. That means your insurance policy must be active when the incident took place and when the lawsuit was filed.

It’s also important to note that EPLI doesn’t cover employee injuries. Lawsuits related to employee injuries or illnesses are covered by workers’ compensation insurance.

Here are three scenarios where employment practices liability coverage would protect your business:

Let’s say you own an app development business and one of your engineers is consistently underperforming. You decide to fire them without much explanation. A few weeks later, the employee sues your company for wrongful termination, claiming that they were never notified about their poor performance. Your employment practices liability insurance would pay for your lawyer fees and any settlement or judgment in court.

Your cloud computing company has a policy that says employees are only required to work Monday through Friday. But one of your key employees is consistently asked to work on Saturdays to meet client demands. The employee eventually gets burned out, quits, and sues your business for breach of contract. In this case, an employment practices liability insurance policy would cover your business’s court costs and other legal fees, up to the policy’s limit.

A worker at your computer repair shop is accidentally dropped from an employee benefits plan due to an administrative error. The employee sues your business for mismanagement of benefits, and you end up in court. Employment practices liability insurance would cover your company’s legal fees and settlement.

Directors and officers insurance

Directors and officers insurance (D&O) protects board members and corporate officers from lawsuits related to decisions they make on behalf of the company. D&O insurance covers common lawsuits regarding:

  • Employment practices
  • Mismanaged funds
  • Failure to follow corporate bylaws
  • Failure to comply with industry regulations
  • Intellectual property infringement or libel

D&O insurance ensures executives won’t have to pay legal fees out-of-pocket. It’s a safe bet that most directors, officers, and even investors will ask to see proof of D&O insurance before they will agree to work with your company.

The median cost of D&O insurance is $451 per month or $5,408 per year. However, the cost varies based on the size and makeup of your board of directors.

Some examples of liability claims that D&O insurance would cover include:

An investor provides working capital to help your app development company get off the ground. In the annual report, your board members claim that the business had a profitable year, but you’re actually losing money and facing a large amount of debt. When the investor learns the truth, they decide to sue your board members. D&O insurance would cover the board members' legal expenses.

Your IT staffing company hosts a charity hackathon to raise money and find potential job candidates. The terms and conditions of the hackathon state that the money will benefit a STEM nonprofit. Instead, the director of the board decides to use the money for advertising. Your company’s stakeholders find out and sue the director. In this case, D&O insurance would pay for the director’s legal defense and settlement costs.

Your cybersecurity business has been consistently growing, but after losing a top client, your board of directors decides to lay off a large group of employees. The board isn’t transparent about the company’s financial situation and offers no explanation to the terminated employees. The former employees file suit against the board for poor employment practices. D&O coverage would pay for any legal costs or judgments.

It’s a safe bet that most directors, officers, and even investors will ask to see proof of D&O insurance before they will agree to work with your company.

Hired and non-owned auto insurance

Hired and non-owned auto insurance (HNOA) protects business owners from liability lawsuits over accidents in rented, leased, and personal vehicles used for business purposes. Specifically, it covers:

  • Bodily injury liability
  • Property damage liability

If your employees use their own vehicles to visit clients or make deliveries, having hired and non-owned auto insurance is important. Personal car insurance policies generally don’t cover vehicles when they’re being used for business purposes.

Note that standard hired and non-owned auto insurance only includes liability coverage. If you want protection against damage to your own vehicle, look to commercial auto insurance and make sure it includes comprehensive or collision coverage.

The cost of hired and non-owned auto insurance varies. The annual premium is based on the number and type of vehicles you have, your employees’ driving records, and your coverage limits.

Situations where a business would want to have HNOA could include:

One of your employees drives their personal vehicle to meet with a client at their office. On the way, the employee rear-ends another car, and the other driver is taken to the hospital for whiplash. Hired and non-owned auto insurance would pay for your legal fees in the event of a lawsuit.

You drive a leased service van to check on a client’s data servers at an offsite location. During the trip, you miss a stop sign and accidentally hit another driver. The other driver isn’t injured, but their vehicle has moderate damage. When the driver sues you to recoup the repair costs, your HNOA policy pays for your legal defense and court-ordered judgment.

Protecting your business from liability lawsuits

Every small business faces a variety of business risks, and liability lawsuits can catch business owners by surprise. Even if you’re not at fault, the costs of a lawsuit can quickly add up.

Liability insurance is your best defense against a business lawsuit. Speak with one of our expert agents to evaluate your risks and find the right policies for your business and your budget.

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