General liability insurance covers claims that your business caused bodily injury or property damage to a third party. A client slips at your office. You damage a client's property during a job. Your product causes an injury. General liability pays for legal defense costs and settlements up to your policy limit. It also covers advertising injury claims including copyright infringement or defamation in some circumstances.

General liability does not cover employee injuries. That is workers compensation. It does not cover your own business property. That is commercial property. It does not cover professional errors or bad advice. That is professional liability. It does not cover vehicle accidents. That is commercial auto. Understanding these boundaries matters because a claim that falls outside your general liability coverage becomes your personal financial responsibility.

According to the SBA between 36 and 53 percent of small businesses face a lawsuit in any given year. Most small business owners think of litigation as something that happens to larger companies. A single uninsured liability claim can exceed what many small businesses earn in a year. Thirty five percent of small businesses do not carry general liability at all according to Hiscox 2023.

Workers compensation pays for medical expenses and a portion of lost wages when an employee is injured or becomes ill as a result of their work. It also provides death benefits to families of workers killed on the job. Workers compensation is a no-fault system meaning it pays regardless of who caused the injury. In exchange employees generally cannot sue their employer directly for workplace injuries covered by the policy.

Workers compensation does not cover injuries that occur outside of work. It does not automatically cover independent contractors though misclassification of workers is a common and costly issue. Workers compensation does not cover the business owner themselves unless they specifically elect coverage. The definition of who qualifies as an employee versus a contractor varies and getting it wrong creates significant exposure.

Workers compensation requirements apply to most employers. Operating without required coverage creates two separate problems. First regulatory penalties from state enforcement. Second direct personal financial liability for any employee injury that occurs while operating without required coverage. The penalty for non-compliance is typically the full cost of the injured employee's medical treatment and lost wages paid directly by the business owner.

Professional liability insurance, also called errors and omissions or E&O coverage, pays for claims that your professional advice, service, or work product caused financial harm to a client. If a client claims your work was negligent, contained errors, or failed to meet the professional standard of care they expected, professional liability covers your legal defense and settlements. This applies to consultants, designers, technology professionals, contractors, and anyone whose professional judgment or services could generate a client claim.

Professional liability does not cover intentional wrongdoing. It does not cover bodily injury or property damage which are covered by general liability. It does not cover employment disputes which require employment practices liability coverage. Claims arising from work performed before the policy period may be excluded depending on the retroactive date in the policy. Reading the retroactive date in your professional liability policy is important.

General liability covers physical harm. Professional liability covers financial harm from your professional work. Many professionals carry one without the other and discover the gap when a claim falls in the uncovered category. A design firm with only general liability has no coverage when a client claims the deliverable caused them financial loss. A contractor with only professional liability has no coverage when a client is physically injured on the job site.