From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(June 23, 2005) — In today’s litigious society, a minor mishap could result in a large lawsuit. Obtaining the right kind and amount of insurance coverage can help business owners manage the financial risks associated with their companies. Here’s what the Virginia Society of CPAs says small business owners need to know to protect their assets and their businesses.

Coverage basics

General business liability insurance is essential for most business owners. This basic form of insurance, also called Commercial General Liability insurance, covers the costs to defend or settle claims of bodily injury or other physical injury or property damage. Business liability insurance typically covers: (1) payments to those who suffer bodily injury or property damage caused by your business; (2) medical expenses of such individuals; and (3) legal costs. For example, if a customer slips and falls on your business’s icy parking lot and then sues you, and you are found liable because you negligently failed to provide safe premises, your general liability insurance will cover the damages.

Be aware, however, that general liability insurance policies typically specify a maximum amount that the insurer will pay per occurrence during the policy period.

Business owner’s policy

Some small business owners may benefit from a business owner’s policy (BOP) package, which provides a combination of liability and property insurance. In addition to providing coverage similar to general liability insurance, it also includes business interruption insurance, which will cover losses from disaster-related events, such as a job loss. Generally, companies with 100 or fewer employees and gross revenues less than $1 million qualify for BOPs.

The need for product liability insurance

While all small businesses need general liability insurance, you may need additional coverage to protect you from risks specific to your business.

For example, small businesses selling or manufacturing products may need the added protection of product liability insurance. Product liability insurance protects your business’s assets in the event a person becomes injured as a result of using your company’s product.

The amount of coverage you need and the cost of that coverage depends on the type of product your business offers. A company selling fabric and sewing supplies faces far less risk that a company selling fireworks. Keep in mind that the more expensive product liability insurance is, the more you may need it, since the cost typically reflects the likelihood your product may bring on a lawsuit.

Insurance to protect providers of services

Professional liability insurance is another form of insurance that should be considered by business owners. In the past, doctors, lawyers and accountants were the main consumers of professional liability insurance. Today, anyone who claims to have expertise in a given field and provides advice or services based on that expertise should consider this coverage. This includes management consultants, Internet service providers, software developers, public relations consultants and the like.

Most professional liability policies protect the insured from claims of errors, omissions and failure to perform work consistent with the terms of a contract. Professional liability insurance typically pays for any resulting judgments against you, including legal defense costs, up to the coverage limits on your policy — even if a suit proves to have no merit.

Seek professional advice

Your CPA can help you determine the types and level of liability risk your business faces and assist you in choosing the policies that will best protect you and your business from liability risks. Before making a decision, be sure to review the policies carefully note what is covered, what the terms are and how you report injuries or incidents if necessary.

CPAs say that taking proper precautions is the best way to lower the chance of a liability claim. For example, set a high standard for quality control, be sure employees are properly trained, and speak to your insurance agent for safety tips that apply to your type of business.


The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at


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