The last thing any business owner wants to think about is getting sued. Unfortunately, it’s a reality that many companies face. If you’re in the insurance industry, you’re especially vulnerable to lawsuits. Here are three ways to protect your business from an expensive legal battle.
Purchase the Right Type of Insurance
The first step in protecting your company is ensuring you have the right type of insurance. These are some types of insurance policies available:
General Liability Insurance
This policy will protect your business from third-party claims of bodily injury, property damage, and personal and advertising injury. Say you’re an insurance agent, and a client trips and falls in your office. If they decide to sue you, your general liability policy will cover the cost of their medical bills, any property damage, and legal fees.
General liability insurance is great for a business, but there are still some things it won’t cover. These include:
- Car accidents related to the business
- Employee injuries and illnesses
- Damage was done to property owned by the business
- Mistakes made in professional services provided
- Claims that exceed what the policy covers
- Illegal acts committed by employees or the owner of the company.
As reported, any small businesses choose to insure their business with a $1 million per occurrence on top of a $2 million aggregate policy limit for their general liability insurance. This policy would cover a claim of up to $1 million. All claims during the one-year policy period would be covered for up to $2 million.
Errors and Omissions Insurance
Also known as professional liability insurance, this policy will protect your business from third-party claims of negligence, errors, and omissions (E&O). So, if you’re an insurance agent and you give your client bad advice that results in them losing money, they could sue you for damages.
An insurance agent getting E&O insurance can expect to pay about $500 to $1,000 per year for a policy with a $1 million limit. With this, your policy would cover the cost of the lawsuit, including any settlements or judgments against you.
Most errors and omissions policies have a per-occurrence limit and an aggregate limit. It will cover up to $500,000 for each claim if your policy has a $500,000 per occurrence limit and a $1 million aggregate limit. And up to $1 million for all claims during the policy period.
Workers’ Compensation Insurance
You must carry workers’ compensation insurance in most states if you have employees. This policy will cover medical expenses and a portion of an employee’s lost wages if injured on the job. It will also provide death benefits to the family of an employee who dies due to a work-related injury or illness.
The cost of workers’ compensation insurance varies based on your state, your business type, and how many employees you have. For example, a Texas lawn care business with three employees would pay about $1,100 per year for workers’ compensation insurance.
Create a Solid Contract
Create a contract outlining the terms of the agreement when doing business with other companies and what will happen if one party doesn’t hold up their end of the deal.
Be sure to include the following in your contract:
- The names and contact information of all parties involved
- A description of the services to be provided
- The price of the services
- When the services will be performed
- Any deadlines that need to be met
- What will happen if the contract is breached
Putting everything in writing will help ensure that both parties are on the same page and know what to expect. A solid contract is especially important if you provide professional services, such as consulting, marketing, or web design. If you make a mistake or fail to deliver on your end of the bargain, your client could sue you for damages.
Be Careful With Social Media
Social media can be a great tool for promoting your business, but it can bite you if used incorrectly. Be careful what you post online, and don’t allow employees to post anything on behalf of the company without approval from a senior executive. You could be in a long and costly legal battle if someone sues your company based on something posted on social media.
In the insurance industry, social media is often used to sell policies and connect with customers. However, insurance agents must be careful about what they post on social media, as one wrong move could result in a costly E&O claim. For example, an insurance agent who sells life insurance policies could be sued for misrepresentation if they make a false claim on social media about the benefits of a policy.
As a business owner, you should have a social media policy that all employees must follow. This will help protect your company from liability if something is posted on social media that gets you into trouble.
In Summary
Being sued is stressful, and no one in business wants to think about it, but unfortunately, it’s a common occurrence. If you’re an insurance company, then you understand the risks all too well. Taking some easy measures can decrease your chance of being sued or at least improve your chances of winning if a lawsuit should be brought against you.