Military service teaches you how to assess risks, plan for the unexpected, and protect what matters most. These same skills are essential when running a business, particularly when it comes to safeguarding your company. Just as you wouldn’t deploy without proper gear, you shouldn’t launch or operate a business without adequate liability insurance.
Liability insurance is designed to protect your business from claims that could arise from accidents, injuries, or negligence that occur during business operations. For sole proprietors and general partnerships, business liabilities can directly impact personal assets. Forming an entity, whether as an LLC or corporation, will provide some personal asset protection, but robust liability insurance adds another important layer of security.
This article explores the key considerations for military veterans who own businesses, including when liability insurance is necessary, why it is important, and when assistance from insurance professionals and legal counsel should be sought. The goal is not just to comply with the law, but to build a resilient business that can weather any storm.
Basic Training: Understanding Liability Insurance
At its core, liability insurance protects your business from financial losses arising from claims of negligence, injury, or damage to third parties. Think of it as your strategic reserve, ready to deploy when unforeseen incidents threaten your operations. Without it, a single lawsuit could impact not only your business but also your personal assets, especially if your business structure doesn’t offer robust personal liability protection (like a sole proprietorship).
There are several types of liability insurance available, and it is important to seek the advice of an insurance professional to discuss your specific commercial insurance needs.
- General Liability Insurance (GL): This is the bedrock. GL covers claims of bodily injury, property damage, and advertising injury (like libel or slander) that occur as a result of your business operations. For example, a customer slips and falls in your storefront, your employee accidentally damages a client’s property, or a competitor alleges defamation – GL steps in to cover medical expenses, repair costs, and legal defense fees, even if the claim is not valid and may provide coverage for defense costs even if the claim might not be covered under the insurance. Many commercial leases and contracts require GL.
- Professional Liability Insurance (Errors & Omissions - E&O): If your business provides professional services or advice (e.g., consulting, IT services, design, healthcare), E&O is indispensable. It protects you from claims of negligence, errors, or omissions in the services you provide that cause financial harm to a client. Even the most meticulous planning can’t eliminate the possibility of human error, and E&O is your safeguard.
- Product Liability Insurance: For veterans manufacturing, distributing, or selling physical products, this coverage is vital. It protects against claims arising from product defects that lead to injury or property damage. From a faulty component to inadequate warnings, product liability can be a significant risk.
- Cyber Liability Insurance: Cyber liability insurance covers the financial fallout of data breaches, cyberattacks, and cybersecurity incidents, including notification costs, legal fees, and potential regulatory fines. Given the military’s emphasis on information security, this is a natural extension of your risk management mindset.
- Workers’ Compensation Insurance: If you have employees (even part-time or seasonal), this is generally a state requirement (and often required even for sole proprietors in riskier professions). It covers medical expenses and lost wages for employees injured or made ill on the job and shields your business from related lawsuits. The injured worker does not have to show that anyone was at fault but as long as the state required workers’ compensation insurance is in place, it should shield you from lawsuits by the injured employee.
When Do You Need Liability Insurance? The “Always Be Ready” Principle
Don’t wait to get liability insurance. As a veteran, you know the importance of being prepared. The same applies to your business – get coverage as soon as you start operating, even if you’re working from home or on your own. In many cases, you may be legally required to carry certain types of insurance before you can obtain a business license or sign contracts with clients. From day one, as soon as you begin operations, even as a sole proprietor working from home, you face potential liabilities and should consider liability insurance.
Once you bring on staff, workers’ compensation becomes a legal necessity in most states. General liability also becomes more critical as you have more individuals representing your business. As your business grows and diversifies, your risk profile changes. New services, products, and/or locations introduce new potential liabilities that your existing policies may not cover, and that’s when it is time to revisit with your business insurance coverage professional.
Get the right insurance coverage as soon as possible. Buying only the minimum might save money now, but it could cost you much more if a big claim comes up. On the other hand, paying for too much coverage can strain your budget. Work with a trusted insurance agent to find the right balance and review your policy every year to make sure it still fits your business.
Also, consider the nature of your business, your industry, the size of your workforce, and the types of clients or customers you serve. For example, if you run a retail store, your risks may include customer slip-and-fall accidents. If you provide consulting services, you may be exposed to claims of professional negligence. Identifying these risks will help you determine the type and amount of liability insurance you need.
Strategic Deployment: When to Seek Legal Counsel
Insurance policies are legal documents, and the fine print can make a big difference. While your insurance agent can help you choose a policy, there are times when you should talk to a lawyer – especially if things get complicated. It’s like calling in a specialist for a tough mission.
Legal counsel can help business owners pay close attention to exclusions, deductibles, and coverage limits. Some policies may exclude certain types of claims, such as those arising from intentional acts or specific professional services. Others may have high deductibles that could leave you with significant out-of-pocket expenses. If you are unsure about any aspect of your policy, seek clarification from your insurance provider or legal counsel.
Here are some other ways in which legal counsel can be beneficial to helping business owners with liability insurance:
- Policy Review and Negotiation: Before purchasing a liability insurance policy, have a lawyer review the terms and conditions to ensure you are adequately protected and understand your obligations. Legal counsel can identify gaps, ambiguous language, or unfavorable clauses that could leave you exposed. This is particularly important for specialized coverages or high-value policies.
- Claim Denial, Delay, or Underpayment: If your insurance company denies a legitimate claim, delays payment, or offers an unreasonably low settlement, it is time to consult an attorney. They can assess if the insurer is acting in bad faith, breach of contract, or violating state regulations. In the event of a claim, thorough documentation can make the difference between a successful defense and a costly payout. Maintain detailed records of your business operations, safety protocols, employee training, and any incidents that occur. This documentation can be invaluable in demonstrating that you took reasonable steps to prevent accidents or address complaints, which can help limit your liability.
- Complex or High-Value Claims: When a liability claim against your business is substantial, involves multiple parties, or presents intricate legal questions, an attorney can help manage the process, gather evidence, and strategize your defense. If your business has a serious incident that will likely result in litigation, the sooner counsel is retained the better and the advice you receive from counsel on the strategy and tactics to handle that should be protected by attorney-client privilege and therefore confidential. If a claim is filed against your business, legal counsel can help you navigate the process, communicate with your insurer, and protect your interests in settlement negotiations or litigation.
- Understanding State-Specific Regulations: Insurance laws vary significantly by state. For example, while Louisiana requires workers’ compensation for businesses with employees and commercial auto insurance for business-owned vehicles, general liability isn’t legally mandated. However, as noted, many contracts will require it. An attorney can clarify specific state and industry requirements and ensure your compliance.
- Reviewing Business Contracts with Insurance Clauses: When negotiating significant contracts with clients or vendors that include indemnity clauses, insurance requirements, or hold-harmless agreements, your attorney can ensure these align with your insurance coverage and don’t expose you to undue risk.
- Changes in Business Structure or Operations: If you’re fundamentally changing your business (e.g., shifting from a sole proprietorship to an LLC, acquiring another company, or entering a new, higher-risk market), consult both your insurance broker and an attorney. They can advise on necessary policy adjustments and legal implications.
- Threat of Lawsuit or Summons: If your business receives a demand letter, a threat of a lawsuit, or a summons, contact both your insurance provider and legal counsel. Your attorney can guide you through the legal process, ensuring you respond appropriately and protect your rights, while your insurer prepares to defend the covered claims.
Conclusion: Fortifying Your Future with Liability Insurance
As a veteran business owner, your discipline, strategic thinking, and resilience are tremendous assets. Extend these qualities to the financial protection of your business by prioritizing comprehensive liability insurance. It’s not merely a regulatory checkbox; liability insurance acts as a financial shield, allowing you to focus on your operations rather than ruinous legal battles.
Carrying adequate insurance demonstrates professionalism and a commitment to responsible business practices. It signals to clients, partners, and employees that you’ve proactively managed potential risks. By understanding when to deploy various types of coverage, recognizing their crucial role in safeguarding your enterprise, and knowing when to call on legal counsel, you can fortify your business against unforeseen challenges and ensure its mission continues to thrive.
Just as you served with distinction, let your business operate with the same level of preparedness and protection.
