Limiting Liability: What Type of Small Business Insurance Do You Need?

by Thom Tracy

2 min read

No small business owner wants to experience the dreaded situation of facing a claim or loss for which the company has no insurance coverage. While insurance coverage is mandatory in some situations, you should be mindful of whether any aspects of your company’s operations demand insurance coverage that a comprehensive general liability policy would not provide. Rely on as many resources as possible to assess your company’s insurance needs.

Relying on a Business Plan Consultant

A business plan consultant (also known as a business plan writer) can help you assess your company’s insurance needs. However, a business plan consultant should not be your only resource for insurance coverage advice. Business plan consultants are not always insurance coverage experts. For example, although the business plan guide from Canada Business Ontario is a wonderful resource for planning a business, it has no mention of the subject of insurance. Insurance brokers are more knowledgeable about your company’s coverage needs and brokers have a financial incentive for providing you with a thorough analysis of your company’s exposure for liability claims, as well as business interruption losses. The Insurance Broker Association of Canada can help you find a broker.

Understanding the Insurance Requirements for Your Type of Business

Small Business British Columbia provides a comprehensive guide to small business insurance needs, which should be your starting point in assessing your insurance coverage. Contact professional associations for companies such as yours and inquire about your particular insurance coverage needs. You might learn that in some situations, special coverage is mandatory. For example, Transport Canada requires companies using aerial drones to maintain liability coverage with a $100,000 policy limit for damage resulting from drone accidents. Since some comprehensive general liability (CGL) policies exclude coverage for such accidents, it may become necessary to obtain a special endorsement or a separate policy covering liability for drone accidents. Professional associations can also advise you of provincial and territorial requirements concerning mandatory coverage for errors and omissions (professional liability) insurance.

Professional Liability Insurance

If your business provides professional services or advice, you may be required to carry errors and omissions (professional liability) insurance. Professional associations can advise you of provincial and territorial requirements concerning mandatory coverage for professional liability insurance. The medical and legal professions commonly refer to this as malpractice insurance. Officers and directors of corporations, as well as non-profit corporations face exposure to liability for breach of any duty, including the duty to exercise reasonable care and act in the organization’s best interests; the duty of loyalty, which involves placing the organization’s interests ahead of personal interests and the duty of obedience, which requires compliance with the organization’s by-laws.

Officers and directors can also face liability for failure to comply with statutory requirements to maintain records or file specific reports. Officers and directors can also be held liable for the organization’s statutory or regulatory violations. An insurance broker can be especially helpful in providing advice concerning this type of coverage because as an officer or director of your business, you might not receive coverage under the company’s CGL policy in some situations.

References & Resources

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