What is commercial liability insurance

Commercial Liability Insurance: Risks, Types, and Industries

Why do I need liability insurance?

Even if you try to provide services for third parties without errors and to the full satisfaction of the client: Errors can always happen. Be it because you are behind schedule with a project, there is a misunderstanding in the interpretation of the task, you have damaged the property of third parties or you have unconsciously violated copyrights.

If the customer blames you for the financial damage, it is important that these claims do not threaten your very existence. Liability insurance can keep your back free here - because in the event of a claim it will cover the costs of pure financial losses.

All in all, liability - although it is not required by law - is indispensable, as the amount of potential claims for damages can quickly take on dimensions that threaten the existence of the company. Another argument in favor of liability insurance: Sometimes clients require proof of liability insurance before placing the order.

The right liability: calculate your needs

As different as the operational risks of the respective industries are, the corresponding insurance solutions are just as different. In order to protect yourself as a founder or self-employed person optimally (in terms of the risks, but also taking into account the respective costs) against relevant and insurable risks, it is worth answering the following four questions:

  1. What are the operational risks?
    Start with a little brainstorming and write down all the risks that you can protect yourself against (you cannot protect yourself against planning errors, for example). Ideally, this results in a list of five to ten operational risks.
  2. How high are the risks?
    The second step is about the probability of occurrence of the risks that have just been recorded. Write the percentage of the probability of occurrence of the risk next to the corresponding risk.
  3. What would the damage be if the risk occurred?
    In the third step, add the highest possible amount of damage that could result from the respective risk to the list.
  4. What are the two or three biggest risks?
    With the first three steps you have compiled an overview of the risks and you can decide which risks you want to cover and which you want to consciously accept (or e.g. try to reduce them through contractual agreements). Now limit yourself to the greatest risks and request offers from insurance companies in order to find out the respective costs for the protection of the corresponding risk. You can then carry out a cost-benefit analysis and finally decide which risk protection you would like to take out or which commercial insurance you would like to take out.

Example:You program on an order basis for your customers and have identified a central risk: damage that could arise due to your incorrect programming. You estimate the risk of faulty programming at up to 5% - the resulting damage at up to 250,000 euros, which would probably mean bankruptcy for you. The right commercial liability insurance - in this case the property damage liability insurance - would cost between 20 and 40 euros per month. In this case, the cost and benefit calculation is quite simple.

Which commercial liability insurance makes sense for your company? Make a free and non-binding needs analysis!

Check insurance needs

Public liability, professional liability or financial loss liability?

Different commercial liability insurances are relevant depending on the industry. For most founders, freelancers and self-employed, the first step is to check their public liability and / or professional liability insurance. But how do these two insurances differ?

Business vs. professional liability insurance

It is often not easy to tell the difference between these two types of insurance, as they both cover the damage suffered by third parties as a result of your activities. Both insurance policies cover personal and property damage as well as financial (consequential) damage. Only when you look at professional and business liability in detail does it become clear how the two differ from each other:

  • In the Professional liability the insurance cover applies to individuals as professionals - but can also be taken out by companies. It is even required by law in industries with a high occupational risk. In addition to personal injury and property damage, professional liability insurance also covers real financial losses, i.e. financial disadvantages for third parties without previous personal injury or property damage.
  • The Public liability protects the company in the legal sense against personal injury or damage to property. Although public liability insurance is not required by law, only a few professional groups can waive public liability insurance. In particular, craftsmen, retailers, the manufacturing industry and companies with employees in the field should consider public liability insurance. Only financial losses resulting from previous personal injury or property damage are insured under public liability.

Who must take out professional liability insurance?

The professional groups that are obliged to take out professional liability insurance include the following particularly responsible fields of activity:

  • Doctors, veterinarians
  • Architects, engineers
  • Lawyers, tax advisors, notaries

Basic liability: public liability insurance

Probably the most important commercial liability for companies is business liability insurance. It always comes into play when the company is confronted with legitimate claims for damages from third parties. This means damage that is preceded by personal injury or property damage. Owners, managerial staff and all other employees are also insured, insofar as the damage was caused in the course of their professional activities. Damage to employees themselves is not covered by this commercial liability insurance - this is covered by the statutory accident insurance.

Example: A case of damage that is covered by public liability could look like this: A painter is commissioned to paint the rooms of a residential building. The client allows him to smoke in the building. After a cigarette break, he does not express his cigarette properly and throws it into the container provided. However, he does not see that there is also some paper in it. After doing his job, he goes home. In the meantime the paper has ignited on the still glowing cigarette. Since nobody is in the house anymore, the fire can spread unnoticed. Most of the building burns down. The owner demands that the painting company the painter works for pays for the enormous damage. This takes over the business liability of the company.

Professional Liability Insurance

Another important commercial liability insurance is professional liability insurance, which is particularly interesting for people who work on an order basis, such as freelancers. In principle, it combines the types of damage covered by public liability and financial loss liability, as it covers personal injury, property damage and consequential damage to financial assets as well as real financial losses. The same applies here: You or one of your employees must have caused damage to a third party while performing your professional activity. Professional liability insurance is compulsory for some industries.

Examples:

  • Journalists harm people or companies by providing false information
  • Translators cause damage through errors in operating instructions
  • IT experts set up a company's security system carelessly and data theft occurs

The term professional liability is not used consistently in the insurance industry. So it may well be that you will be offered a professional liability insurance policy which, in terms of the scope of benefits, corresponds more to a financial loss liability insurance policy. Before taking out insurance, always check exactly which types of damage are actually covered.

Property damage liability insurance

In some professions, it is more likely that a customer will suffer purely financial damage, i.e. real financial damage, as a result of a mistake - e.g. wrong advice. This is defined by the fact that it was not caused by previous personal injury or property damage. In this case, a special commercial liability insurance, the financial loss liability insurance, is provided. However, spurious financial loss can also occur, which must also be insured.

Examples:

  • Real financial loss: As a management consultant, you advise your client to open a new company location; However, this recommendation is based on completely wrong calculations and so the entrepreneur incurs immense losses.
  • False financial loss: A customer trips over a cable in your office and injures himself. There is consequential loss of assets in which the customer demands compensation for pain and suffering, treatment costs and compensation for his loss of earnings.

Industry-specific commercial liability insurance

In addition to the three cross-sector commercial liability insurances, there is also a number of other commercial insurances that cover you in the event of damage. Here is a small selection of job-specific commercial liability insurance:

  • Product liability: All professional groups that manufacture and sell products should insure their products. Not only people who make goods, such as craftsmen or factories, belong to the target group of product liability, but also, in a broader sense, restaurateurs who make dishes.
  • Organizer liability: This commercial liability insurance for organizers takes effect if personal injury or property damage occurs during an event, which the organizer has caused culpably. Example: an employee is careless and damages the instrument of a performing artist.
  • D&O insurance: This company liability insurance is a special type of financial loss liability insurance. It is taken out by companies to protect their management and covers errors that result in financial losses for the company. Example: A manager forgets to collect claims from the company and the deadline is statute-barred. If the management is financially damaging the company because a decision turns out to be unfavorable in retrospect, then the insurance does not apply.
  • Carrier liability: Third-party damage is insured here in which transported third-party goods are damaged or destroyed. This commercial liability insurance is aimed in particular at the logistics industry.
  • Truck liability: With this insurance, commercially used trucks and delivery vans can be insured, whereby three components can be booked individually - insurance for the vehicle, partial and fully comprehensive insurance and insurance for the driver.

Commercial liability insurance is particularly advisable if you are liable with your private assets. Commercial legal protection insurance can also be a sensible form of protection.

Intellectual Property

Examples of commercial liability insurance

Which risks should one particularly keep an eye on for the individual industries? It is not possible to give a complete answer due to the large number of different industries and job profiles - so let's now take a detailed look at five industries and their risks.

BranchExamples
Cross-industry
  • Damage: Water damage in warehouse; Short circuit on IT; Equipment stolen from the office
  • Personal injury: You place a cable awkwardly at a customer appointment, the person you are talking to trips over and injured yourself through your fault
  • Financial loss: Accidental infringement of copyrights or trademarks
  • Cyber ​​Risks: Data loss; Theft of customer data

Online shop

  • Personal injury and property damage: A product triggers an allergic reaction in a customer; a technical device causes a short circuit at the customer and starts a fire
  • Financial loss: Because some of your employees are sick, there are delays in shipping the goods offered in the online shop. Your customers suffer financial damage and want you to compensate them; Violation of personal or trademark rights
  • Cyber ​​Risks: Your shop is paralyzed by a hacker attack
marketing
  • Financial loss: A deadline cannot be met; Errors in marketing or advertising campaigns; Misunderstandings in the task at hand
Consulting
  • Financial loss: You are making a mistake in advice; wrong decisions were made; accidental breach of confidentiality obligations
IT
  • Financial loss: You have made a programming error; You are installing the wrong software

How you can determine and insure your protection needs online

With our online quick calculator, you can calculate an individual offer in just a few steps:

  1. Give three pieces of information about your work
    Select your industry and enter your net annual turnover. If your company has been in existence for less than 12 months, you can look forward to a start-up discount of 15%.
  2. Select the scope of your insurance you want
    Here you can decide - would you like to combine your liability with protection against personal injury and property damage? And what coverage do you want?Important: Public liability, factual content and cyber insurance are not automatically included in liability insurance, but are optional for many insurance companies.
  3. Finished!
    Your tariff will be calculated without obligation and displayed immediately. Do you like our offer? Then you can take out your insurance online right away and, if you want, get your insurance cover today.

Conclusion: record and safeguard relevant risks

With the help of a small analysis, you can find out relatively quickly which operational risks you want to protect yourself against. Once this step has been taken, you should obtain insurance offers for the relevant commercial liability for the most important risks so that you can then compare costs and benefits. Benefit from our offer and request a non-binding offer below.

Request a non-binding offer for your liability

Author: Für-Gründer.de editors

As editor-in-chief, René Klein has been responsible for the content of the portal and all publications by Für-Gründer.de for over 10 years. He is a regular interlocutor in other media and writes numerous external specialist articles on start-up topics. Before his time as editor-in-chief and co-founder of Für-Gründer.de, he advised listed companies in the field of financial market communication.