A liability insurance policy offers to cover the business owners, professionals and self-employed people against the cost of compensation claims due to malpractice, injury or negligence. There are different types of liability insurance policies as mentioned below:
1) Commercial general liability (CGL) policy:
A CGL policy protects the businesses against the claims arising out of bodily injury and property damage arising out of:
- Completed operations
It also covers the losses caused due to advertising and personal injury.
A customer visits a construction company to look for the sample flats of its newly constructed residential project. During the visit, the customer trips on the loose flooring and suffers a leg injury. The commercial general liability policy taken by the construction company covers the loss caused due to the medical expenses of the bodily injury of the customer.
2) Directors and Officers liability insurance:
It is a type of liability insurance which covers the directors and officers against the claims made by
- Other stakeholders
The dismissal of the four employees of the firm was based on cost-cutting measures, but the female employee filed a suit claiming that a particular director had always discriminated her on the grounds of her gender.
However, upon investigation, it was cleared that she was dismissed based on the cost-cutting measure of the firm. Thus, the directors and officers liability insurance taken by the firm protected its director against the claims.
3) Professional indemnity insurance:
A Professional Indemnity Insurance is a type of liability insurance that covers the businesses or individuals who provide advice or a professional service to clients. It covers the compensation claims when the business is sued by its clients for making a mistake.
An investment firm was approached by a client for giving an investment advice. Upon implementation of the advice, the client suffered huge financial losses.
The professional indemnity insurance policy covered the investment firm for the losses suffered by the client and helped it to settle the claim.
4) Cyber risk insurance:
A cyber insurance policy is designed to help an organization or business to cover against the liability and property losses arising due to any electronic activity that the business engages in. This policy helps to offset the risk involved with recovery, after a cyber-related security breach.
A dismissed employee of the IT company stole the names, addresses, social security numbers from the customer files. She gave this information to a fraudulent person who in turn used it to obtain credit cards.
The affected customers filed a complaint against the IT company for their breach of identity. However, the cyber risk insurance policy obtained by the IT firm helped to settle the claims of the customers.
5) Commercial crime insurance:
A Commercial Crime Insurance policy offers to protect the businesses against the losses due to third-party fraud or employee fidelity. It protects the business against:
- Employee dishonesty
- Theft of money
- Computer fraud
An employee of a cable manufacturing company stole bundles of cables from the inventory which was later discovered at a salvage yard. The inventory was found in a damaged state.
The commercial crime insurance policy protected the business against the loss caused due to robbery.
6) Carrier legal liability insurance:
Carrier legal liability insurance covers the insured for the physical loss or damage to goods or merchandise directly caused by fire or/and accident to the vehicle while such goods or merchandise are in transit. It covers for the losses of the goods or merchandise when they are in the custody of the insured.
A transportation company was in the business of transporting assignments of other companies to their destined locations. During one such transit, the goods of a small business owner were damaged due to the accident. However, the carrier legal liability insurance secured by the transportation company helped it to cover the financial loss caused to the business owner.
7) Product liability insurance:
A product liability insurance covers the business against the claims arising with respect to its products and services. The claims may arise due to personal injury or property damage caused due to the products or services of the business.
A paint manufacturer imported the cardboard material required to produce color charts for different paints. However, the finished product of cardboard supplied by the vendor was of a sub-standard quality which caused the final coat of paint to appear a shade lighter. As a result, the paint manufacturer suffered losses and sued the vendor for the same. The product liability insurance policy of the vendor helped him cover the losses.
8) Trade credit insurance:
This insurance helps the business owners to protect their accounts receivable from loss due to credit risks such as protracted default, insolvency or bankruptcy.
A steel company sells a large shipment of raw product to its major client company, who in turn makes other steel products and sells it in the market. In the case where the client company is unable to pay back to the steel manufacturer, due to loss of business, the trade credit insurance policy will cover the steel manufacturers for the portion of the debt.