According to Nationwide Insurance Co., "General liability insurance coverage protects you, your business and your employees from claims involving bodily injury or property damage. Policies shield you from the expense of out-of-court settlements, litigation and judgments awarded by courts." In contrast, crime insurance, also called fidelity insurance, reimburses the insured for property losses resulting from robbery, theft, fraud, burglary, forgery and other criminal actions taken against the insured. The insured party has no liability risk in this case.
Liability Insurance Characteristics
Liability insurance defends and protects insured individuals, entities and their employees against damage claims brought by plaintiffs seeking monetary recovery for personal injury or property damage allegedly caused by the words or deeds of the insured, his employees or contracted agents. Most general liability policies will not cover fiduciary activities, such as consulting, investment advising or retirement plan administration. Professional liability insurance and a fiduciary liability rider covering plan administration would have to be added to the general liability coverage.
Types of Liability Insurance
The RJ Ahmann Co., a Minnesota based independent brokerage firm, explains, " In the event of financial loss due to an alleged error or omission in the professional services provided, the commercial general liability policy will not respond – no legal defense coverage and settlement coverage is provided." Because Errors and Omission (E&O) is a form of liability insurance, it does not defend the insured against intentional or criminal acts causing loss to the insured or the insured's clients. Only crime insurance will provide this protection.
Crime Insurance Characteristics
The Association of Certified Fraud Examiners (ACFE) estimates the typical business loses about 6 percent of gross revenues each year due to employee related crime. A "fidelity" or "crime" policy will reimburse the insured for named criminal acts up to the policy limits. Therefore, a fidelity policy that protected a business against employee embezzlement and theft would be considered property insurance, rather than liability coverage. On the other hand, a business consulting firm would want to be protected against customer lawsuits alleging damages caused by a consultant's intentional or illegal acts. In that case, the crime policy would be viewed as a special form of business liability contract.
Types of Crime Insurance
A good way to avoid liability claims from clients is to cover them with a "third party" fidelity policy. This type of crime insurance reimburses the insured's clients for monetary damages caused by the criminal acts of the business consulting firm's representatives perpetrated while at the client's place of business. Such coverage while indirectly protecting the insured from liability would not be considered liability insurance.
Business liability insurance alone would be like a homeowner policy that only defended the insured against injury claims. A comprehensive business liability policy must also include coverage to reimburse the insured against personal and real property losses. Such additional other coverages as business interruption, key person life and disability insurance should be part of the overall business insurance package that includes, general and special liability coverages along with first- and third-party crime insurance.