Does a Tech Startup need General Liability Insurance?
When we talk to the founders of technology companies and startups we often get the question: “do we really need general liability insurance?”
Let’s start this conversation by explaining what General Liability Insurance covers:
General Liability often referred to as GL covers a business for claims which arise from bodily injury and property damage losses from third parties. To put that into English, if a business is sued due to an injury to a non-employee (that’s what workers compensation insurance is for) or causes damage to someone’s property that business will need to respond to that lawsuit.
That response usually means hiring an attorney, paying them a retainer and if you’re unsuccessful in defending that lawsuit you’ll need to pay a settlement demand. All that costs money and lots of it, and general liability insurance pays for those costs.
There are other circumstances that liability insurance covers, including claims that arise from:
Libel, slander, and defamation; are often called reputational harm claims.
False advertising claims and copyright infringements.
and damage to rental property.
What Costs are Covered by General Liability Insurance?
Medical Expenses are covered for injuries sustained by others (non-employees) without them having to sue you for medical bills.
Legal costs – instead of having to hire an attorney when a claim is filed against you, your insurer will pay for your legal defense and related costs.
Settlements and judgments or awards. When your company is sued and loses that lawsuit in court, or your insurer determines it is more economical to settle the claim out of court, the amount of that settlement is paid by your insurance company.
Do you Need General Liability if your Company is an LLC or Incorporated?
Just because a company is incorporated or formed as an LLC does not protect it or you from lawsuits which must be responded to, and eventually settled.
What’s not covered by General Liability Insurance for a Tech Firm?
The biggest liability risks not covered by General Liability include:
- Claims that relate to Directors & Officers Liability or D&O. These usually relate to the management of the company and disputes that can arise from investors alleging some form of wrongful acts.
- Employment-related suits such as discrimination, harassment, or wrongful termination.
- Technology Errors & Omissions or Professional Liability risks.
- Cyber Liability risks.
- Plus several policy exclusions.
Why do I need it?
These exclusions may lead some founders and tech decision makers to say, then why do I need GL if there are so many other pressing risks and issues that aren’t covered?
It’s a legitimate question and one we hear often. Especially if the startup is virtual and doesn’t occupy an office or premises, and here are the reasons.
First, General Liability for Tech firms is typically purchased within a business owners policy or BOP policy which provides not only GL, but also some property coverage and a whole bunch of other business insurance extensions and coverages that are valuable to every business.
The good news is that it’s typically very inexpensive to purchase.
Next is that your investors, your customers, your vendors, and anywhere you may work – even in a temporary setting like co-working spaces, may require your company to demonstrate that you have GL.
Lastly, bodily injury and property damage claims do happen to tech firms and it’s better to be prepared than to be left holding the bag on a million dollar lawsuit without protection.
What does it cost?
As mentioned, General Liability for tech firms is commonly provided as part of a Business Owners or BOP policy. The factors that go into pricing a BOP are:
- The specific tech sector you’re in.
- Your Geography
- The limits of coverage you purchase for general liability as well as property insurance.
- The underwriting details as to the location, if any, you occupy including the area and protection of the location.
- Any claim history you’ve had.
How do you purchase General Liability Insurance for a Tech Firm?
It’s common for many tech founders to go online and seek out coverage options and quotes, but we don’t think this is the smartest or most economical way to purchase protection and here’s why.
- If you’re getting a quote from a direct provider and not a broker, how do you know that is the most competitive quote available?
- If you’re doing all the input without the guidance of an expert, how do you know if you’ve selected the best options or coverage endorsements?
- If you have multiple policies already or are purchasing different policies from different sources, how do you eliminate possible overlaps and gaps in coverage?
- How do you know if the insurance company you’re buying insurance from will be well-rated in terms of their claims paying ability and will your future customers accept a certificate from that insurer?
Those of course are somewhat biased and slanted questions coming from a skilled broker, but we think they’re important to consider. Too often a founder or other tech business leader puts themselves in a position of having to be the “expert” because an online search comes up with sellers that rank well for a search phrase. Those sellers may not be the best solution, so what’s the answer?
The answer is to work with a skilled insurance broker who understands the tech space and can help you with purchasing general liability insurance as well as every other form of coverage your firm may need now and in the future.
Does it cost more to buy insurance through an insurance broker?
In most cases, it does not. Insurance brokers earn a commission paid by the insurance company directly to them. Buying online from the same insurance company does not quote, cut out the middle man.
In fact, buying insurance directly from an insurance company usually means working with a big call center where every time you have a question or issue means you’re working with someone you’ve never spoken to before and who doesn’t know you or your account. Working with a skilled insurance broker typically means you’ll work with an entrepreneur like you who has a team of people who you’ll work with after the sale is made.
In our firm, clients get a dedicated account manager with years of insurance experience behind them that you’ll get to develop a relationship with and who is there when you need them.
To wrap it up, if you’re looking for general liability insurance or any other coverage for a tech firm, then we invite your call.