Business liability insurance: why not go into business without it?

What is business liability insurance?

Employers’ liability insurance is a type of insurance protection that covers damage caused by your business activities to third parties. This could be bodily injury, property damage or financial loss. Such insurance can be taken out by a self-employed person, a small business or a large company.

Imagine, for example, that you are in business as an electrician and during installation you cause a short circuit that destroys your client’s office equipment. Without insurance, you would pay for the damage out of your own pocket, and the amount could run into hundreds of thousands.

What types of liability insurance are there?

Any entrepreneur or business can inadvertently cause damage in the course of their business – whether it’s personal, property or financial. Business liability insurance or self-employed liability insurance is designed to protect against these risks. These are the basic four types of liability insurance.

1. General liability insurance

This type of insurance tends to be the basis of any business insurance policy. General liability insurance covers damages to health, life or property that arise in the normal course of business. The policy can therefore pay for injuries to a customer on the premises (e.g. slipping on a wet floor), damage to someone else’s property (e.g. furniture is damaged while working in a client’s home) or damage to property in transit (e.g. if a courier damages a parcel).

This business insurance is taught to almost every entrepreneur or tradesman – from cafe owners to electricians to e-shops.

Practical example: The owner of a joinery workshop is assembling cabinets at a client’s premises. In the process, he damages the parquet flooring in the customer’s apartment. The cost of the repair comes out of his liability insurance, not his pocket.

2. Professional liability insurance

Some professions carry specific risks, especially those where you can cause financial loss to a client through your professional error. In this case, it is not enough to have ordinary business insurance, but you need to have so-called professional liability insurance.

This covers errors in accounting that lead to damages (e.g. penalties from the tax office due to a poorly kept tax return), incorrect legal advice from a solicitor, or perhaps design mistakes by an architect that cause construction complications. It can therefore be used by accountants, tax advisors, architects, lawyers, IT specialists or doctors and other professions with a high level of professional responsibility.

This liability insurance for self-employed workers is even compulsory by law in some fields, for example for tax advisers or lawyers.

Example from practice: a tax advisor mistakenly files an incorrect tax return and the client is fined CZK 50,000. If the adviser has professional liability insurance, the insurance company pays this amount for him.

3. The adviser pays the insurance company a sum of money for the client’s liability insurance for damages caused by a product defect

If you manufacture, assemble or supply physical products, definitely consider product liability insurance. This type of insurance covers damage caused by your product after it has been placed on the market. This could include injuries caused by a defective product (e.g. electric shock from a faulty charger), damage to customer property (e.g. fire caused by a malfunctioning appliance), or having to recall a defective batch of products from the market. It can be used by manufacturing companies, assemblers, craftsmen as well as importers and distributors of products from abroad.

This business insurance is particularly important if you export goods abroad, where legal claims for compensation are often higher than in the Czech Republic.

Practical example: A small businessman manufactures toys. One of the series develops a dangerous sharp edge that causes injury to a child. The injured parent claims compensation. The insurance company will cover the damage if the trader has product liability insurance.

4. Employers’ liability insurance

If you have employees, your liability may be even broader. Employers’ liability insurance covers damages that your employees incur while on the job. This could be an accident at work (e.g. a fall from height, a burn, an injury while handling machinery), an occupational disease (e.g. hearing damage due to noise in the workplace) or damages resulting from an employer’s neglect of safety rules.

It must be used by every employer, whether they have one or one hundred employees. The policy is legally compulsory, but its specific scope can be tailored by the company.

Practical example: a warehouse worker injures his back while handling heavy goods. The employer is responsible for the treatment and any compensation. Since the business must have employer’s liability insurance, the costs are covered by the insurance company.

Is employers’ liability insurance compulsory?

In some professions, yes. For example, lawyers, tax advisers, auditors, doctors and bailiffs are legally obliged to have professional indemnity insurance. Carriers must have compulsory liability plus cargo insurance. And some self-employed people in selected fields may have insurance provided by a professional chamber.

In other cases, liability insurance for sole traders is voluntary, but we strongly recommend it based on our experience. Even a small loss can be an existential problem for a business.

What does the insurance cover?

Covered situations: damage to the customer’s health (e.g. accident in the shop), damage to property (e.g. a fallen shelf, spilled coffee on a laptop), financial damage caused by improper advice (typical for accountants, consultants, etc.), damage caused by a defective product.

Exclusions: damage caused by intent or intoxication, breach of statutory duties (e.g. working without a valid licence), damage caused by cyber-attacks (only covered under special insurance), outdated or false information in the policy.

Is there a difference in business insurance and business insurance?

Generally speaking, business insurance is a broad term that can include business liability insurance, property insurance (buildings, equipment), vehicle insurance or business interruption insurance.

On the other hand, business insurance generally covers only naturalpersons-entrepreneurs and their liability. It always depends on the specific policy – its structure and scope vary between insurers.

How to choose the right liability insurance?

Business liability insurance is not an unnecessary expense. It’s a smart investment in peace of mind for your business. Whether you’re self-employed or a business owner, keep in mind that accidents happen and that liability can be liquidating. That’s when a reliable insurance policy comes in handy.

First, analyze your risks. Focus on the most common types of claims in your industry. Then compare quotes from multiple insurance companies. Don’t just look at price, but also limits, exclusions, availability of assistance. Watch out for time constraints. With the “claims made” option, you need to have insurance even when the damage occurs – not just when it was caused.

Summary

Employers’ liability insurance is a key protection for anyone in business – from tradespeople to consultants to e-commerce operators. It covers bodily injury, property damage or financial loss that occurs to third parties in connection with your business. There are four main types – general insurance (e.g. customer accident on the premises), professional insurance (e.g. errors by accountants, lawyers, IT specialists), product liability insurance (e.g. injuries caused by your product) and statutory employer’s insurance (e.g. injury to an employee). In some professions, insurance is compulsory by law, in others it is voluntary but highly recommended – even a small mistake can have fatal financial consequences. However, insurance doesn’t cover everything – for example, damage caused deliberately, by drink or as a result of cyber attacks without special cover. The scope of the policy and exclusions vary by insurer, so it pays to check everything carefully, ideally with a professional.