When business owners consider risk management for their business, one of the least understood are liability risks, despite them potentially having the largest financial impact. These risks arise from bodily injury or property damage to a third party who alleges that the company and/or its employees are at fault.
It is common practice for business owners to insure their physical assets like electronic equipment, motor vehicles or office contents as their value is easily quantifiable. For example, if a company has
R10 000 worth of computers which are lost due to theft, the loss cannot be more than the insured value of R10 000.
A loss caused by a company for which they become legally liable, on the other hand, will not depend on the size of the company that caused the loss, but rather the value of the damage someone else (the third party) has suffered. Until the third party submits a claim specifying the value, the potential financial loss to a business remains unknown. If a third party claims for injury caused by either advice, services or products sold to them by a business, for example, the third party’s claim could include the cost of medical attention, pain and suffering, rehabilitation and loss of earnings they incur over a period of time. The third party would not claim any less in damages from a small business than they would from a larger corporate.
The key difference would be the financial impact this has on a small business in comparison to a large one.
A large corporation would most likely have the financial and legal resources to absorb the loss.
For the small business owner, it's a different story entirely. They would most likely end up dealing with every aspect of the matter; ranging from briefing their legal team, to being part of negotiating a settlement. This will be as much of an emotional strain on the owner as a financial burden and can wear one down.
How your business’ cash flow would be impacted by payments for legal fees, covering case preparation and legal representation in court? Depending on the complexity, length and type of legal expertise required, these legal costs could be substantial.
This is where having a good liability insurance product in place becomes an absolute necessity.
The insurer will provide the financial and legal resources that are required by the business to defend itself. This cover would protect the business’ financial position and avoid it having to divert operating funds to defend against a third party legal claim. It will also provide the business with access to legal representation that understands the risks faced within the industry in which the business operates.
Unforeseen liabilities can arise at any time and have the potential to ruin your business financially.
You should therefore look at getting a suitable liability insurance cover that meets your business needs.
Article written by Ken Van Sweeden
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