Business Third Party Liability Insurance

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Third-Party Liability Insurance for Businesses

Starting and running a business is something to be proud of. You had a vision, and you went all in to make it a reality. Running a business comes with some pretty significant risks. Risks that you can’t always control or minimize. Why? Because you work with people and people are unpredictable. The good news is having the right insurance can protect you from unpredictable behaviors.

What is third-party business liability insurance?

Some business insurance policies, such as a Business Owners Policy, include third-party liability coverage. This valuable coverage protects your business when a third-party holds you responsible for damages. The coverage pays for legal fees, settlement payments, medical bills, or the cost to replace damaged property owned by the third-party.

Who is considered a third-party?

A third-party is anyone not involved in making decisions on behalf of your business. Typical examples include customers, visitors, suppliers, and contractors.

Why do businesses need it?

Every day businesses, like yours, work with third-parties. What would happen if one of your customers showed up at your location, tripped over uneven pavement, and broke their leg? Your business can be held liable for medical expenses, lost wages, and a possible settlement for pain and suffering. Without third-party liability coverage, you would need to fund the claim out of pocket.

Key Scenarios to Consider

Every business is different which means every business faces unique risks. Take a look at a few policies and how third party liability coverage can protect you.

Cyber Liability

Last year, businesses reported more than 400 data breaches that compromised more than 5.5 million customer records. Today’s technology-savvy business environment makes it mandatory for the majority of companies to do business online. Even if you don’t, you still house sensitive client information. What happens if an employee steals client credit card information or a hacker breaks into your electronic files?

If that happens, you will be face to face with a lot of angry customers, state-mandated reporting requirements, and potential financial obligations. In these scenarios, cyber third-party liability insurance can help to cover your financial obligations, so you aren’t forced to close your doors overnight.

Errors & Omissions

As much as you strive to be perfect, it’s not possible. Just like accidents happen, so do errors in your business. The good news is businesses can purchase errors and omissions, or E&O insurance, to pay for damages that result from incidents.

For example, if you are a plumber who is hired to replace the pipes in an older home, you do the job to the best of your ability. A few weeks later, the customer turns the water on, and one of the pipes burst in their basement causing a flood. After review, it’s determined that you didn’t have the right size pipes in place (error) and you are responsible for the damage to their home. The third party coverage on an E&O policy would pay the damages, so you don’t have to.

Commercial Auto

When businesses have a vehicle, they face significant driving risks. If an accident occurs and a third-party is injured, the business can be held liable for all expenses associated with the accident. Expenses include property damage to their vehicle, medical expenses, loss of wages, and pain and suffering depending on the severity.

If your business has a vehicle exclusively for business use, you need to purchase commercial auto insurance. Commercial or business auto insurance includes third-party liability insurance to protect your business from these out of pocket expenses.

Which policies cover third-party claims?

Keep in mind that not all insurance policies cover third-party claims unless you voluntarily select them upon purchasing the plan. One public insurance program that requires third-party liability coverage is the Employment Practices Liability Insurance (EPLI). Note that before finalizing your purchase with any insurance policy, you should read the fine print to determine what is covered because most companies exclude third-party liability coverage.

Here are two common policies with an option to include third-party liability insurance:

Commercial Auto Insurance

Third-party insurance is mandatory for all car policies. Accidents do happen without warning, and the financial responsibilities associated with it can be costly. By protecting you, your vehicle and other entities, it offers total peace of mind.

Commercial Liability

Acquiring this insurance policy ensures utmost protection against bodily injury and property damage claims made by non-employees such as customers. It provides coverage during unexpected incidents making it a must-have for all small to mid-sized business owners.

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What is a third-party claim in insurance?

Third party insurance is a form of liability insurance obtained by the insured (first party), from an insurer (second party) to protect against claims filed by others (third party). This policy is designed to provide coverage from any financial loss, should someone file a claim against you.

By looking at the above definition, it means that third-party insurance claim is a type of liability claim made by someone who is not the policyholder nor the insurance company. To make a clear distinction, a first party claim is the one you file with your own insurance company. While a third-party claim is one you file with another person’s insurance company in case of injury or accidental damages.

Business Insurance

Running a business is challenging enough without having to worry about lawsuits, employee injuries or property damage. Having the right insurance gives you the peace of mind to focus on what matters - running your business.

The coverage you need depends on the type of business you run. A restaurant owner needs to be covered against customers possibly getting food poisoning while an accountant needs to be covered against calculation errors. CoverWallet's intelligent assessment system will identify the insurance you need based on your specific business, get you a policy that fits your budget, and do it all in less time than you think.

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