Understanding Risk and Liability

Neil Macdonald

If you’ve been on this Earth for any length of time, you know a thing or two about risk. Like death and taxes, it can’t be avoided. Some of us are more comfortable with it than others, but whether we’re crossing the street or jumping from an airplane, each one of us takes risks every single day.

Essentially, risk boils down to recognizing that when you take a certain action, there’s a chance that you or somebody else will suffer some kind of loss or injury. Hurting ourselves is bad enough, but it’s even worse when we cause harm to another person. 

Of course, there are different degrees of harm. When we accidently step on our best friend’s toe, a quick apology smooths things over. However, it’s another matter entirely when a product we’re selling or service we’re delivering hurts a customer or client. 

When you’ve caused serious damage, it becomes a question of liability and you’re legally obliged to compensate the person you’ve harmed. Nowadays, financial compensation can mean paying out hundreds of thousands or even millions of dollars to the person you’ve injured. Needless to say, that would ruin most small businesses.

However, you can take steps to prevent the loss of your business. That’s where insurance come in. As a small business owner, you need to consider a few basic insurance products:

• Product liability insurance – if your business makes a product for sale to the general public, you run the risk that it will cause injury or death to your customers. Product liability insurance will protect your business from claims arising from such harm.
• Indemnity insurance – protects your business against any claims that your mistakes, or your failure to perform a job as promised, have financially harmed a customer or client.
• Employer’s liability – if you have staff, this insurance protects your business against liabilities arising from injuries or the death of an employee.

There are many other kinds of insurance products. For instance, an umbrella policy protects against catastrophic losses; and there are policies to protect against claims for infringement on intellectual property, slander, libel, or employment practices liability. Businesses with boards of directors can also purchase director and officer liability coverage.

Insurance coverage is usually optional, but prudent business owners will ensure that they’re covered against the risks their business is likely to encounter. However, certain kinds of businesses are legally required to have insurance to cover risks peculiar to their business.

It’s a good idea to examine all your options before buying insurance. If you’re looking for advice on the policies that are right for your business, give us a call. Our business experts will help you get the coverage you need to protect you and your enterprise.

Neil Macdonald is a freelance writer based in Toronto. He has worked in the not-for-profit field for several years, and provides marketing and communications support to small businesses. Neil has been a volunteer with ACCESS since 2015.