If you’re running an ecommerce business, you need to carry liability insurance just like brick-and-mortar stores. While you don’t need to worry about customers slipping and falling in your building, you still have plenty of situations that require financial coverage. For example, online customers could sue you for things like advertising injuries and defective products, while other businesses could sue you for trademark and copyright infringement.
If you deal with physical inventory, you might end up with damaged goods resulting from intentional or unintentional acts. For instance, if you’re storing products in a self-storage unit and that property floods, you could lose all your merchandise to water damage. If you store your products in your home, someone might break in and steal your inventory.
Even if you don’t do anything wrong, your business isn’t impervious to financial loss. The only way to protect against financial loss is by carrying small business insurance.
1. You don’t have to be guilty to get sued
Consider that anyone can file a lawsuit against any person or business at any time. While it’s possible that you could make a mistake that warrants a lawsuit, you don’t need to be guilty to get dragged through the court system.
If you employ other people, whether they’re employees or independent contractors, you are legally responsible for anything they do on behalf of your company with or without your consent. General liability insurance can protect you against employee mistakes like using a copyrighted image on Facebook.
Don’t pass on business insurance just because you aren’t doing anything wrong. You’ll still have to spend time and money responding and showing up to court until the case is thrown out, settled, or you’re vindicated at trial.
If you’re unfortunate enough to be ruled against in court, without insurance you’ll pay every penny of your judgment out of your pocket.
2. You don’t have to lose a lawsuit to go bankrupt
Many business owners believe the myth that they aren’t at risk of going bankrupt from a lawsuit unless they lose their case. That’s not always true. For instance, if you settle rather than go to trial, you’ll need to pay all of your own legal fees.
During your settlement discussions, your lawyer might tell you your only option is to pay the plaintiff. That’s what happened to the company Airborne in 2008 when they agreed to pay $23.3 million to customers. Airborne was sued for making misleading claims that their product can boost the immune system. The lawyer who brought the class action suit claimed there was no scientific basis for their claims. Airborne never admitted to any wrongdoing, yet still had to pay millions of dollars to avoid going to trial.
The worst case scenario would be if your case goes to trial and you win, but have no way to recoup the cost of your legal fees from the plaintiff. Even if you counter sue and win a judgment, that doesn’t mean you’ll get your judgment. You may not see payments for months or years, if at all. If you want to pursue a lien or wage garnishment you’ll need to hire someone to make that happen.
All of these frustrating and time-consuming issues can be avoided by carrying a general liability insurance policy that covers legal fees.
Getting business liability insurance can save you from an expensive legal nightmare if you obtain a policy that specifically covers legal fees.
3. One data breach could wipe you out financially
With 43% of all cyberattacks targeting small businesses, few are set up to defend themselves. Unfortunately, these attacks cost small businesses an average of $200,000 per incident. Many of these incidents are data breaches that make the personal data of customers available to people looking to commit identity theft and other forms of fraud.
It may only take one data breach to bring your business into bankruptcy. This is especially true if you’re just starting out and are in the process of becoming profitable.
Even if you have a strong IT security strategy, you still need business insurance that covers the fines and losses associated with a data breach. Cyberattacks become increasingly sophisticated over time and even the strongest security protocols aren’t invincible.
Ecommerce businesses are susceptible to loss
Your business may not be prone to the same kind of loss as brick-and-mortar establishments, but loss is always a possibility. Get yourself insured as quickly as possible to avoid having to bear the financial burden if it happens to you.