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A business may be held liable for injuries or other losses suffered by a member of the general public as the result of the firm's (or its employees') negligence or fault. Examples include:

  • A customer in a firm's building trips on a broken step
  • A defective product causes injury to its user
  • Improper installation of a product causes injury to a customer
  • A tenant is held responsible for a third-party injury occurring on the rented property, due to a clause he or she signed agreeing to such responsibility

Your daily paper will provide dozens of other examples. A firm that is found legally liable for harming a third party must pay damages to compensate the injured party. Sometimes the court also imposes punitive damages and, in cases involving violation of statutes designed to protect the community, the court may levy fines in order to discourage future violations.

Regardless of who wins or loses a law suit, litigation is time consuming and expensive. No matter how ridiculous or unfounded the suit may be, productive business hours are lost, lawyers must be retained and paid and other related costs must be met while the suit is being contested.

Liability to Employees

Every state has enacted workers' compensation laws. These laws require most employers to compensate employees for loss of income or medical expenses resulting from work-related disease or injury (except for certain self-inflicted injuries). Should an employee die as a result of a job-related accident or disease, the employee's family also collects a specified amount.

Although workers' compensation laws in some states do not apply to all kinds of businesses, a successful private lawsuit may require a normally exempt firm to compensate employees for losses resulting from work-related injury or disease.

So far, the exposures we have looked at have all been more or less external to the business. There are, however, several major exposures that have to do with the business itself.

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This article is reprinted by permission of the SBA and The Travelers, Hartford, Connecticut.
For more information on SBA programs go to www.sba.gov


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