Liability insurance for businesses
What liability insurance covers, the difference between general, product and professional liability, and which companies need which.
Liability insurance can help when someone makes a claim against your business for injury or damage it has caused. If the claim is covered, the insurer can investigate it, negotiate on your behalf and pay compensation where your business is liable. It can also defend you against unfounded claims.
How liability insurance works
If your company injures a customer or a visitor, or damages someone else's property, you may be liable to pay damages. Liability insurance can help in three ways:
- It investigates whether the company really is liable for the damage.
- It negotiates and may pay compensation for a covered claim.
- It defends the business against covered claims, including those that turn out to be unfounded.
The last point is worth remembering. Even a groundless claim costs time and money to answer. Other disputes, such as when your company is the one claiming money from someone, belong to legal protection insurance instead.
General liability is included in most business insurance packages. But it is not the only kind of liability a company may need cover for.
Three kinds of liability
General liability
When the company injures a person or damages someone else's property in the course of its business. Usually included in business insurance.
Product liability
When a product you have made, imported or sold causes damage after it has left you. Important for manufacturers, importers and retailers.
Professional liability
When a mistake in advice or a service makes the client lose money, without anything being broken. This is called ren förmögenhetsskada, a pure financial loss, and general liability does not normally cover it. Read more about professional indemnity insurance.
Example: The electrician and the burst pipe. An electrician drills through a water pipe in a customer's home, and the water ruins the floors in two rooms. The customer wants the company to pay. The liability insurer investigates what happened. If it is clear the electrician was at fault and the damage is covered, the insurance can compensate the customer, subject to any deductible.
Which type of liability insurance do you need?
- Every company with customers, visitors or work on other people's premises benefits from general liability, not least in construction and trades.
- Companies that make, import or sell goods should look at product liability. This applies especially to importers, who can carry the same liability as a manufacturer.
- Companies that sell expertise, such as consultants, advisers, architects and IT firms, often need professional liability. Clients also commonly require it in the contract. Read more about insurance for consultants.
How high the limit needs to be depends on what is at stake in your assignments and what your contracts require.
Good to know. Read the limitation of liability clause in your client contracts. If your contractual liability exceeds your insurance cover, your business may have to meet the difference.
Frequently asked questions
Is liability insurance included in business insurance?
General liability is included in most combined business insurance policies. Product liability and professional liability can be included, but are often add-ons or separate policies. Check the policy terms.
What is a pure financial loss?
A financial loss that does not come from a person being injured or property being damaged, for example when a client loses money because of incorrect advice. In Swedish it is called ren förmögenhetsskada. It is normally covered by professional liability, not by general liability.
