Commercial liability insurance is designed to coverage legal fees and any damages that might be awarded to the plaintiff if the company is sued for personal injury, advertising injury or property damage. In some cases, this coverage is bundled with a standard business owner's policy (BOP), but the amount of coverage within a BOP is usually rather limited; so most medium size and large business purchase liability insurance as a separate plan.
For a small firm with only a few employees, a business owner's policy might be adequate. A BOP's specific contents will vary, but a typical policy will include property insurance, business interruption insurance, business contents insurance, and commercial liability insurance.
The amount of coverage a company needs to purchase will depend largely on the location of the business and the type of business. The location can make a huge difference in premiums, since some cities and states are statistically more litigious than others.
Some industries are inherently high risk, like food and construction, compared to industries with less risk of liability suits, like publishing. But even ostensibly low-risk business can run into unexpected lawsuits, such as those for advertising injury (e.g. trademark and copyright infringement). Don't underestimate the potential for customers and rivals to find grounds for mounting injury claims.
One probably with standard commercial liability insurance, even when purchased as a standalone policy, is that the coverage limit per occurrence may fall short of whatever lawsuit a company might face. The policy might cover $1 million per occurrence, but the company might be sued for $1.5 million; and the company would be on the hook for the difference.
To overcome this limitation, most companies purchase umbrella liability insurance, which pays the balance between the original policy's limit and the amount awarded in a settlement or judgment. The umbrella policyholder would only have to pay the deductible of that balance, which is usually 25 to 30 percent. For any company who works in a high risk industry, adding an umbrella policy is the best way to augment their Commercial Liability Insurance.
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