Commercial Liability Insurance in Texas
Business liability insurance, also known as commercial liability insurance in Texas, refers to the kind of insurance that financially protects small businesses against liability claims for bodily injury, property damage, and personal and advertising injury. For instance, it will cover the medical expenses of a customer who got injured on the policyholder’s business property. It will also cover the legal expenses that may be incurred if such a customer were to sue. An insured business does not have to be directly responsible for the injury or damage sustained by an aggrieved party. This type of insurance policy covers both the medical and legal expenses that may adversely affect the state of the business. Possessing this type of insurance coverage enhances a policyholder’s chances of obtaining a lease or securing a contract.
In Texas, business liability insurance offers two main types of coverages, which are:
Premises/operations coverage: this covers bodily injury or damage to property that occurs on the policyholder’s business property during their business operations.
Products/completed operations coverage: this covers bodily injury or damage to property caused by the business' product or completed service, where this damage occurs away from the policyholder’s business property.
The Texas Department of Insurance (TDI) is the body responsible for regulating business liability insurance in Texas.
What is Business Liability Insurance for?
Business liability insurance is for protecting businesses against losses that may arise from liability claims for injuries to other persons or damage to their properties. It covers both:
Medical expenses required to take care of bodily injuries and the
Legal costs of being sued by the aggrieved party.
What is Considered Business Liability Insurance?
Business liability insurance is a kind of insurance that offers financial protection against personal liability claims for bodily injuries or damages to properties that occur on insured business properties. It also offers coverage for damages related to products or services offered by the insured business. For example, if a customer falls sick after eating food from a restaurant, business liability insurance will cover the medical expenses required to treat the sickness or the legal expenses needed to defend against liability claims if the customer was to sue the restaurant.
In 2020, there were about 198 domestic Property & Casualty (P&C) insurers in Texas, which was the most of any state within the United States. In Texas, the total amount of direct P&C insurance premiums written that year was over $63 billion, which was the highest amount by any state behind California, which recorded over $87 billion in P&C premiums that year.
Out of the $63 billion, commercial P&C insurance premiums written in Texas, in 2020, were at almost $30 billion. That is over 46% of all P&C insurance in the state. Commercial liability insurance premiums amounted to over $7.5 billion - nearly 12% of all Texas P&C in 2020.
What are the Types of Business Liability Insurance?
In Texas, the types of business liability insurance are:
General liability insurance: This type of business liability insurance protects a policyholder against personal liability claims for bodily injury, property damage, and personal and advertising injury.
Professional liability insurance: Professional liability insurance is a type of insurance that protects business owners from claims of negligence made by clients or customers.
Most common professional liability policies are:
Errors & Omissions (E&O) and
Malpractice (Medical or Legal)
Cyber Liability (also known as Cyber Professional Liability)
Product liability insurance: This kind of insurance covers the legal liability of a policyholder for bodily injury or property damage caused by their products to the injured party.
Excess liability insurance: This covers losses that exceed a policyholder’s business liability insurance dollar limit.
Umbrella liability insurance: This type of insurance covers liability for exposures not covered under your main business insurance policies and those included by the umbrella liability insurance policy.
Speak with a state-licensed insurance professional before deciding on a type of commercial liability insurance for your Texas business.
Do you Need Business Liability Insurance in Texas?
Although not required by any Texas law, if you are a business owner and you want to protect your business against losses that may arise from liability claims for bodily injury and property damage, it is in your best interest to get business liability insurance.
A policyholder needs business liability insurance because it protects them against financial loss that would adversely affect their business. Also, how much business liability insurance a policyholder needs depends on what they want to be covered under their insurance policy. This also applies to the kind of coverage they need under the insurance policy.
Why Do you Need Business Liability Insurance?
Obtaining a business liability insurance policy is important because it will help to minimize the risks your business may face. You need business liability insurance if you are a business owner looking to protect yourself against financial loss. This is because business liability insurance covers medical and legal expenses incurred by injury to a customer's person or damage to their property, as well as injuries sustained by employees during the course of business.
You would most likely need business liability insurance if:
Your business has properties like inventory, computers, and other equipment.
Your business may likely be sued for a considerable amount as a result of liability claims for bodily injury and property damage.
Although Texas law does not mandate that businesses have business liability insurance, it, however, gives policyholders an edge when trying to obtain a lease and securing contracts. Ensure to contact a Texas-licensed insurance agent to discuss your business liability insurance options.
How Much Business Liability Insurance Do you Need?
The amount of business liability insurance you need depends directly on the :
Liability exposures, and
Underlying assets of the business
You need to have enough liability coverage to cover your possible risks without exposing the company’s assets. For instance, a multi-billion dollar tech corporation may have large cash reserves and own all its buildings. At the same time it is open to a lot of liability risks through millions of customers who buy their products. Such a large company needs to plan for being able to defend itself from multiple product liability and other class-action lawsuits based on their services. If the business is publicly traded, it needs to protect the assets of the company and, by extension the shareholders. The more you stand to lose, the more coverage you need.
Similarly for small businesses that do not have a lot of assets. For example, a small neighborhood restaurant may have a loan from the bank for the buildout, a multi-year lease on the rented space, and enough cash in the bank to operate and pay employees for a few months. Besides protecting the cash in the bank (which is its only owned asset), such a business also needs to protect all the interested parties. The bank and the landlord need to be sure that if the business is sued, it can survive and be able to continue paying rent and the loan payments.
Discuss your insurance needs with experienced and state-licensed commercial insurance professionals, who are the only ones who can legally assess the business needs and provide options and suggestions of coverage.
What Business Liability Insurance Coverage Do you Need?
The kind of business liability insurance you need depends on the number of risks your business could face, the type of industry the business is in, its locations, as well as its operations. In other words, a policyholder’s business risks directly affect the kind of policy they need. For instance, in a business that operates in a low-risk industry, policyholders can cut premium costs by merging their commercial property insurance with their general liability insurance.
You also need to figure out the type of business liability insurance you need, whether it is general liability insurance or professional liability insurance. For instance, if you own a store, you would most likely need general liability insurance to cover injuries to your customers or damage to their property.
As an example, if you own a store and a drink gets spilled and a customer slips and falls, such an accident will be covered by general liability insurance. Professional liability insurance, on the other hand, is more suitable if you are a medical practitioner, an attorney, or a consultant, because it financially protects you against claims of negligence. If a business is exposed to both types of risks, it needs to get both general and professional liability insurance.
Knowing how much business liability insurance you need is also dependent on why you are getting it in the first place. For instance, a business may need to obtain commercial liability insurance because a lease or a contract demands it. In that case, the lessor or the other contracting party would communicate how much liability insurance they would need. If the business manufactures and/or sells products, the business itself and its customers need to be protected with product liability insurance. If the business stores personally identifiable information of its users or customers, it usually needs some sort of cyber liability insurance. If a business sells alcohol, it usually needs some form of alcohol liability insurance.
Deductibles: The amount a business is willing to pay out from the company cash funds in deductibles affects how much business liability insurance they would need. For instance, if a business cannot afford to pay for a higher deductible, they would need to get more coverage and lower deductibles for the higher-chance risks.
When deciding on how much business liability insurance you need, make sure to consult a knowledgeable Texas-licensed commercial insurance professional. An experienced insurance agent can assess the needs of your particular business and provide multiple options to cover them.
Is Business Liability Insurance Required by Law in Texas?
No, Texas law does not require business owners to possess business liability insurance and it is the only state that does not have such a mandate. This does not mean business owners should not look to protect their business assets by purchasing business liability insurance. In addition, although not required by Texas law, proof of business liability insurance is needed when trying to get a lease, secure a contract, get a business loan, or even to maintain a professional Texas state-issued license.
How Does Commercial Liability Insurance Work in Texas?
Since every business liability insurance is different, how they work depends on the type of coverage you decide to purchase. Generally, commercial liability insurance covers losses that may arise from liability claims for bodily injury, damage to property, financial damage, personal, advertising injury, cyber events with customer data, and more.
To get coverage for these risks businesses apply for different types of commercial liability insurance policies. Insurance companies then evaluate risks by asking different questions and quoting premiums depending on the applicant’s answers to those questions. Once accepted, the insured business is responsible for keeping up with the payment of their premiums to avoid policy lapses. (Note: In order to offer the lowest cost up-front, most commercial insurance is sold via an annual premium. As an alternative, the business may get a premium financing plan through a 3rd party financing company. Discuss premium financing with your agent).
Once a covered event occurs and someone files a claim or a lawsuit against the insured business, the business contacts the insurer to step in and resolve the issue in its stead. If the claim is paid out, the business accepts its portion of the fault, by paying the agreed upon deductible and continues to operate as normal.
Note: After a claim payout, a commercial insurer is likely to increase the cost of insurance during the next term, and possibly cancel coverage.
Seek the advice of an experienced Texas-licensed commercial insurance agent who can make professional recommendations based on your business’ needs.
What Does Business Liability Insurance Cover in Texas?
Business liability insurance protects business owners' financial interests in the event of liability lawsuits or third-party claims. Any direct financial loss incurred, as well as any legal defense costs are covered by such business liability insurance policy. The risks covered depend on the type of business liability insurance purchased. Below is a number of business liability insurance types and their coverage:
General Liability insurance: covers losses arising from liability claims for property damage or bodily injury.
Professional Liability insurance: covers losses arising from claims of negligence.
Cyber Liability insurance: covers losses arising from liability for customer information exposure.
Product Liability insurance: covers losses arising from liability claims for personal injury caused by a policyholder’s business products.
Speak with a knowledgeable Texas-licensed insurance agent to find out which of the commercial liability coverages is better suited for your particular business.
What is Commercial Liability Insurance Good for?
Commercial liability insurance is good for the protection of business owners from monetary losses that may adversely affect their businesses. These losses may arise from liability claims for injury to a person’s body (customer or client) or damage to their personal property.
What Does a Typical Business Liability Insurance Include?
Business liability insurance includes coverage for legal expenses incurred during liability lawsuits or claims. It also includes medical expenses necessary to take care of a person who has suffered a bodily injury within the business property or as a result of the business product or service rendered.
The kind of risk the business is exposed to, determines what coverages your insurance policy would include. For example, a restaurant with a high percentage of liquor sales (or a bar) are exposed to the risk of liquor liability claims (in case an intoxicated guest causes property bodily damage). Such businesses would need to purchase a liquor liability insurance policy that includes coverage for such risk.
Knowing the differences in the applicable coverage is one of the reasons why it is important to consult a state-licensed insurance agent to help your business pick the most appropriate coverage.
Who is Covered by Commercial Liability Insurance?
The insured business and its owners, their employees, and customers are all covered under commercial liability insurance. Commercial liability insurance covers the medical expenses needed to take care of a customer or an employee who has sustained bodily injuries, as well as the legal expenses involved if said customer or employee was to sue the insured business.
What is not Covered by Business Liability Insurance in Texas?
Business liability insurance is very essential for business owners to have, so they can protect their financial interests. However, every business owner should understand that this commercial liability insurance does not cover every loss their business may incur, as there are some exclusions within a business liability insurance policy.
Note: Always read the exclusions section of every insurance contract first.
What Does Business Liability Insurance Typically Exclude?
Business liability insurance usually excludes the following:
- Damage to a business owner’s work:
Usually, a business liability insurance policy does not cover property damage to a business owner’s work. Example: A home renovation company contractor is replacing the roof on the private house. The contractor is insured for liability and has shown the “proof of insurance” to the client. During the work, the roof was not secured properly and it collapsed inside the house, causing damage to the client’s attic and ruining the materials that were used for the build. In this case, business liability insurance will cover damage to the client’s property but not the damage to the poorly constructed roof and its materials.
- Damage to a product:
Loss arising from damage to a policyholder’s business product is not covered under business liability insurance. For example, if a policyholder installs a device or equipment that malfunctions and causes damage to a customer’s home, business liability insurance will not pay to fix or replace the faulty device or equipment.
- Contractual liability:
Business liability insurance also excludes bodily injury or property damage which a policyholder is contractually obliged to pay for. For example, if a policyholder signs a contract that they must finish a construction project within a stipulated amount of time and fail to meet that deadline, the insurance policy will not cover losses arising from that default. There are, however, two exceptions to this exclusion and they are:
Liability for damages that would have been imposed on the business without the contract being made.
Liability assumed in a contract that is an insured contract.
Note: An insured contract is generally one in which the Insured (the Indemnitor) undertakes the liability of another (the Indemnitee) for bodily harm or property damage to a third party that would otherwise be placed on the Indemnitee by law (in the absence of a contract).
- Recall of Products, Work, or Impaired Property:
Losses incurred by substandard products, work, or impaired property will not be covered under business liability insurance. A policyholder can, however, add this coverage to their policy and pay the extra premium.
- Workers' Compensation and Employer's Liability:
Business liability insurance will not cover workers’ compensation or employer’s liability. For instance, business liability insurance will not cover personal injury sustained by your employees during the course of business. To cover these risks, a policyholder can obtain workers’ compensation insurance and employer’s liability insurance.
- Pollution:
Injury or damage sustained by a third party or their property caused by pollution resulting from a policyholder’s business operations will not be covered under business liability insurance. Pollution in this context would be any solid, liquid, gaseous, or thermal irritant or contaminants, such as smoke, vapor, soot, fumes, acids, alkalis, chemicals, and trash. However, there are exceptions to this exclusion. For instance, injuries suffered by persons in a building due to fire, smoke, fumes, or vapors made by equipment used to heat or cool the building or produce hot water for personal use are covered under business liability insurance. However, if your business has a high risk of exposure to pollution, it is essential you purchase a separate pollution insurance policy to get additional coverage for those risks.
Speak with a knowledgeable Texas-licensed commercial insurance agent to discuss the exclusions in your business liability insurance policy.
What is an Example of Business Liability Insurance?
There are different types of business liability insurance available to policyholders across Texas. These commercial insurance policies offer different types of coverage depending on the needs of the policyholder.
The most common examples of business liability insurance in Texas:
Product Liability insurance - covers for damages caused by a manufacturer’s product. For example, a consumer buys a phone from a phone manufacturer and it explodes in their pocket leading to serious injuries. Product liability insurance will cover for this type of risk.
Errors & Omissions (E&O) insurance - covers for damages caused by an error and/or omission in the course of business activities resulting in financial loss. For example, a financial advisor gives bad advice and the client loses money and sues the advisor for the damages. Financial advisor’s E&O insurer will then use their own attorneys to proceed with the case.
Medical Malpractice insurance - covers damage caused by medical practitioners. For example, a surgeon severing the wrong limb of a patient. Medical malpractice insurance covers this type of damages.
What is the Most Common Use of Business Liability Insurance in Texas?
In Texas, business liability insurance is most commonly purchased as a part of the Businessowners Policy (BOP). BOP is a package of commercial coverages that includes property, liability, business interruption, and more. BOP can be used to cover losses that may be incurred by injury to a customer or damage to their property. For instance, if a customer were to slip and fall in a policyholder’s shop, business liability coverage of the BOP policy will cover the medical expenses needed to take care of the injuries, as well as the cost of legal fees if such a customer decides to sue.
The second most-common Texas business liability insurance is Errors & Omissions, which is purchased by anyone who provides a professional service or gives professional advice.
Other kinds of business liability insurance have different uses. For example, product liability insurance covers losses resulting from liability claims for injuries caused by the insured business’ product. For instance, if a policyholder owns a fast-food restaurant and a customer gets sick from eating the restaurant’s food, product liability insurance will cover the medical expenses of such customer and legal expenses if they were to sue.
Any questions about the uses of business liability insurance should be addressed to the state-licensed commercial insurance agent.
What is the Difference Between General Liability and Professional Liability Insurance?
General liability insurance is a commercial insurance policy that covers the insured business from personal liability claims for bodily injury, property damage, and personal and advertising injury. For instance, if an accident were to occur in a policyholder’s shop that led to the damage of a customer’s property or injury to their person, general liability insurance will cover for such an occurrence.
Professional liability insurance, however, covers losses arising from claims of negligence by customers. For example, if a doctor were to prescribe the wrong drugs due to negligence and the patient is adversely affected by the wrong prescription and sues, professional liability insurance will provide coverage for those losses arising from legal action.
What is the Difference Between a Bond and a Commercial Liability Insurance?
A bond differs from commercial liability insurance in terms of who they protect. Bonds usually cover certain obligations as opposed to commercial liability insurance which has a much broader range of responsibilities. Commercial liability insurance, in essence, protects the business owner, homeowner, professional, and others against financial loss. Surety bonds, on the other hand, safeguard the obligee who hired the principal to do specified work on a project and reimburse them when a claim is made.
Bonds are almost always required from the contractors participating in the government-sponsored projects. See the city of San Antonio as an example.
Do I Need Business Liability Insurance in Texas - FAQ:
You need business liability insurance if you are looking to start and run a business. You would also need it to secure leases, loans, and contracts. Although, the type of business liability insurance policy you get would depend on the kind of industry your business is in.
Do I Need E&O Insurance?
Errors and Omissions is a kind of commercial liability insurance policy that protects a business and its workers against claims of substandard work and negligence. This kind of insurance policy is generally needed by persons whose professional activity can have a significant effect on the well-being of the customer.
If your negligent actions or wrong advice can result in injuries, legal or financial trouble - you most likely need E&O insurance.
Typical professions to carry Errors & Omissions insurance are:
Medical professionals,
Lawyers,
Accountants,
Insurance agents,
Car dealers,
Financial Advisors, and
Consultants of any type.
Do I Need Malpractice Insurance?
This kind of professional liability insurance is mostly carried by medical practitioners to protect them or their business from claims of negligence.
Do I Need Commercial Umbrella Insurance?
Texas businesses would need a commercial umbrella insurance policy if they wish to have liability coverage for risks in excess of their commercial general liability insurance. Umbrella is a type of liability policy that is purchased as an add-on, not a replacement.
Generally, the more assets the company owns, the more it stands to lose, in case of a liability claim. At the same time, if a business is new or struggling, and the cash flow stream is limited, not having enough liability coverage can be detrimental too. If your business causes damage and the insurance coverage is not enough, your company may get sued for the unpaid balance.
Do I Need Business Liability Insurance if I am Self-Employed?
As long as you own a business, you will require business liability insurance. It does not matter if you are self-employed. If you make a product or sell a service - you are a business. If you employ others or work by yourself - you are a business.
Consult a licensed Texas commercial insurance professional when looking for a business liability insurance policy that best suits your business needs.
Do I Need Business Liability Insurance if I Work from Home?
Yes, you need business liability insurance even though you work from home. Your home-based business is still at risk of certain liabilities. In the post-pandemic life, a lot of self-employed Texas professionals work from home, especially in the consulting sector. Such home businesses may benefit from the Errors and Omissions coverage. On the other hand, if someone makes products at home and sells them online - such a business may need the product liability coverage - to protect it in case the customer gets hurt.
Discuss your business and its insurance needs with a state-licensed commercial insurance agent.
Do I Need Business Liability Insurance if I Have an LLC?
Yes. Even though your personal assets are protected under a Texas limited liability company (LLC), you need business liability insurance to protect your business assets in case of claims against you.
Do I Need Business Liability Insurance if I Don’t Employ Anyone?
Yes, you need business liability insurance regardless if you employ anyone or not. It all depends on if your business is able to cause any harm to others.
If you are unsure about what kind of insurance coverage your business needs, speak with a knowledgeable and experienced commercial insurance professional licensed in Texas. Only a licensed agent or broker is legally able to access the needs of your particular business and advise on multiple ways how to cover those exposures.
When Does Business Liability Coverage Begin?
When a business liability coverage begins depends on the type of insurance policy a policyholder gets. In Texas, a business liability insurance policy has a 30-60 day waiting period, before the coverage begins.
Who Can Get Business Liability Insurance in Texas?
Only business owners can get business liability insurance. If you are not a business owner, you do not need to obtain business liability insurance.
Who Qualifies for Business Liability Insurance?
Almost all Texas businesses qualify for liability insurance coverage. If the business can be at fault in any way, to anyone - it qualifies for business liability insurance. A qualification for a business insurance policy depends on:
the industry the business is in,
its location,
the size of the business, and
the number of risks such business encounters.
For instance, medical practitioners, especially those who operate private lage clinics, are at risk of personal liability claims for negligence and due to this would qualify for professional liability insurance.
Who Needs Commercial Liability Insurance?
The people who need business liability insurance are business owners and professionals who face a high risk of loss from claims of negligence. For example:
Medical practitioners - need malpractice insurance to protect them against losses arising from claims of negligence by injured clients.
Financial advisors, Consultants, Real estate agents, Insurance agents and brokers, CPAs, and more - need Errors and Omissions (E&O) coverage, to protect them from the mistakes they can make while giving advice.
Product manufacturers - need Product Liability insurance to protect themselves from the claims coming from the customers who got hurt by those products.
Online merchants - need Cyber Liability insurance, especially if they retain any Personally identifiable information (PII) about their customers or site members. With the rise in the cyber attacks and hacks, cyber liability and ransomware coverage is undergoing drastic restructuring - to balance the demand and the exposures.
If you have further questions about commercial insurance in Texas, speak with a state-licensed business insurance agent.
Who Should Get Business Liability Insurance?
Any individual who owns a business or offers services such as medical, legal, or financial should get a business liability insurance policy. This will protect them, as policyholders, from liability for covered personal injury that may occur within their business premises or injury caused by their product or service. If you have more questions, try consulting a licensed insurance agent.
What are the Benefits of Business Liability Insurance?
There are many benefits of having business liability insurance. As an insured, the financial interests of the business are protected against losses arising from liability claims for injury or property damage caused by your business to others.
What are the Pros and Cons of Commercial Liability Insurance in Texas?
While there are many benefits to having business liability insurance, commercial liability insurance comes with its disadvantages as well:
PROs of Business Liability Insurance:
Business liability insurance protects policyholders against unexpected losses their business may be at risk of. Adequate coverage ensures that the business and its assets are protected in the unfortunate event of a claim against it.
Many leases and contracts require that a business possesses sufficient business liability insurance. Obtaining a business liability insurance policy helps your business stay compliant with the industry requirements.
Business liability insurance offers a good degree of flexibility. Since it is customizable, you can modify the coverages to fit your business needs.
It also offers protection against lawsuits filed by customers or employees.
CONs of Business Liability Insurance:
If not enough coverage is purchased, liability insurance may not be sufficient to cover a significant judgment or lawsuit brought against the insured. This may result in having to use the company cash reserves to satisfy the judgment. In some cases the absence of liability coverage drives business to bankruptcy. The only way to gain more protection is to purchase additional coverage.
During the early years of a business, it might be difficult for business owners to afford business liability insurance or an insurance policy that covers all their business needs.
Is Business Liability Insurance Worth Buying?
Yes, business liability insurance is worth buying because it financially protects policyholders against certain risks. These risks could be damage to business property or personal liability claims for personal injuries. It protects businesses by providing coverage for these unexpected losses.
What Happens if you Don’t Have Business Liability Insurance?
If you do not purchase a business liability insurance policy, your business is exposed to some unexpected risks that may adversely affect it. If you do not have business liability insurance, risks such as personal liability claims will not be covered and you will have to pay out of your business savings to resolve the claims. This would, in turn, be bad for you and your business. For example, if a medical practitioner does not possess malpractice insurance and causes injury to a patient due to their negligence, they will not be protected from such liability. Consult with a licensed insurance agent to understand the specific risks your business is exposed to if you do not have business liability insurance.
Why is Business Liability Insurance Important?
The importance of business liability insurance cannot be overemphasized because of the protection it offers policyholders. Below are the reasons why business liability insurance is important:
It protects policyholders against unexpected losses that would be too burdensome for them to pay on their own.
It protects a policyholder’s business from liability lawsuits.
It makes it easier for business owners to secure leases and contracts since most require business liability insurance.
Business liability insurance is important because it guards your personal and business assets.
Contact a Texas licensed insurance agent for an assessment of your business liability exposures. A licensed commercial insurance professional is the only one who can legally provide such advice.
What Happens When your Business Liability Insurance Lapses?
Business liability insurance lapses occur when the insured business fails to pay their premium on time and the policy is subsequently terminated. If this happens, a business will no longer be able to enjoy any benefits under the lapsed insurance policy. Essentially, a business will not be financially protected against losses incurred from property damage or personal liability claims.
However, it should be noted that it is not every time a policyholder defaults on their premium payments that their insurance policy lapses. Insurance companies are legally obligated to give policyholders a grace period. This grace period is usually 30 days but businesses can purchase special policies that have grace periods of up to 60 days. An insured business can reinstate their policy during this grace period, however, it may be subject to higher premium rates as lapses pose a risk to insurance companies.
If you need clarification on any question about business liability insurance lapses, speak with a Texas-licensed insurance agent who has access to a variety of commercial insurers, for comparison.
