Insurance is an operation whereby, in exchange for payment of a premium, the insurer undertakes to compensate a natural or legal person for loss or damage caused by the occurrence of an insured risk or to provide a benefit covered by the policy.
Liability is the obligation to be answerable:
- for one’s actions;
- for those of someone else;
- for something.
The aim of liability insurance is to cover the financial consequences of the criminal or contractual liability incumbent on the insured as a result of loss or damage caused to third parties (others) and for which the insured is civilly liable. The civil risks for professional misconduct, except for acts of gross negligence or wilful misconduct, can be insured by taking out third-party liability insurance.
Objective: insurance can cover the civil liabilities of the business (staff, vehicles, equipment, furniture, buildings, merchandise and raw materials) as well as those of the business manager.
Who is concerned
Available to the self-employed and any type of business, liability insurance linked to business activity applies from the creation of the business and throughout its development. The different triggering elements for taking out this type of insurance are:
- the legal obligation to take out certain types of insurance (vehicles);
- the occupation of a building as owner or lessee;
- the presence of customers, suppliers or other third parties on the business’ production/sales site;
- the carrying out of work in external locations, including at customers’ building sites;
- investments in furniture and equipment or lease contracts for equipment;
- the sale of merchandise that might represent a risk for customers (food, vehicles, machinery);
- risky activities;
Any natural person can take out an insurance policy provided said person is not declared legally incapable of doing so.
Legal persons can also take out an insurance policy provided that the commitments are entered into by duly authorised persons.
Information required by the insurer to make an insurance proposal
- type of risks to be insured;
- definition of elements (manager, staff, assets, etc.) covered by the insurance;
- definition of extended or additional cover;
- amount of cover required.
Documentation or description of the business
- copy of the company’s articles of association;
- minutes of the general meeting indicating the persons that are duly authorised to bind the company;
- copy of the identity cards (or passports) of the persons that can bind the company.
How to proceed
Taking out the insurance
Risk to be covered
The risk to be covered is:
- a future event (it cannot already have taken place);
- an uncertain event (definite or indefinite, but the date thereof is unknown);
- outside of the insured party’s control (hence exclusion of intentional acts).
Benefits provided by the insurance company
In the event of the occurrence of the insured risk, the insurer may:
- pay a benefit which is set after the loss occurs;
- pay a lump sum which is determined when the policy is taken out;
Obligations of the insured
The insured is obliged to:
- pay the premiums. Non-payment of premiums may result in the cancellation of the policy by the insurer;
- declare claims within the time frames for declaration specific to each type of insurance.
The cost of insurance is made up of the following elements:
- the premium (payable in advance) which constitutes the remuneration required by the insurer in exchange for its commitments. It should be enough to settle any claims;
- management and business expenses of the insurance company;
- expenses which represent a fixed fee per management service;
Duration and amount
The duration and amount insured differ from one insurance policy to another insofar as all insurance policies are tailored to the insured party's specific requirements.
The reviewing and processing times depend on the complexity, size and urgency of the case.
Types of third-party liability insurance linked to business activity
Operation of the business
The business is sometimes liable for bodily injury and material and consequential damage caused to a person during its normal operation of the declared activity (usual or occasional activity).
Business liability insurance covers the financial consequences of damage for which the business is liable (as a result of its assets, employees, etc.).
Comments and precisions: the business liability insurance policy should be checked to ensure that it covers the business’ liability caused by the following equipment or activities and up to what amount:
- external activities (damage caused by fire, explosion, water, movable and immovable assets, etc.);
- leased, entrusted or deposited assets (during work carried out at third parties' premises or within the business);
- motor vehicles: sometimes the cause of traffic accidents falling under compulsory car insurance (if they are used as vehicles) or accidents linked to business operation (if they are used as work tools);
- sub-contracting: depending on the terms of the sub-contracting contract, business liability insurance must, if necessary, be adapted;
- the notion of insured: it is also important to thoroughly examine, and clarify with the insurer, the notion of insured parties (legal representatives, trainees, subsidiaries, company entities, etc.) and the notion of third parties;
- the business’ staff and internal departments (damage caused to employees or by employees, occupational illness, gross negligence, wilful misconduct, etc.).
Environment or pollution
The business may be responsible for pollution damage caused by a sudden accident (rupture of parts, explosion, handling error, etc.) or non-accidental pollution damage (corrosion, deterioration of tanks or pipes, etc.).
In this case, an optional extension of guarantees to the business liability insurance or a specific insurance policy is recommended, in particular to cover non-accidental damage.
The business is liable for the financial consequences of bodily injury and material and consequential damage caused to others (third parties and customers) by its products from the moment they are placed on the market.
For this specific risk, product liability insurance should be taken out.
Business managers (company managers) are professionals whose liability is frequently invoked because of faults committed (de jure or de facto errors, omissions, negligence, etc.).
For this specific risk, directors’ and officers’ liability insurance should be taken out. It is generally the subject of a separate policy.
Many legal and administrative conflicts can upset the business’ activity (disputes with customers, suppliers, the public authorities, etc.).
Legal protection insurance is specifically designed to support professionals and relieve them of these problems. It offers information by telephone, the amicable management of disputes and defence of the business’ interests before the courts of law. Legal expenses (legal representation, bailiffs’ and legal experts’ fees) are paid by the insurer within the limits stipulated in the policy.
Advantages, disadvantages and risks
- compensation if the insured risks materialise;
- protection of the business against unexpected expenses;
- continuation of the business’ activity even after a large material loss;
- creation of a climate of security for members of staff and the business manager.
- costs can sometimes be high, thereby increasing operating expenses;
- need to classify and quantify the risk correctly;
- need to regularly reassess the risks in order to adapt the insurance policies accordingly.
Legal or contractual exclusions which are not covered by insurance policies, hence the importance of carefully looking at the general terms and conditions.