Slander, libel and your business: Are you protected?
No matter how large or small your business is, it runs the risk of being sued.
Any of the more than 27 million businesses in the U.S. could face a defamation lawsuit, says Pete Moraga, a spokesman for the nonprofit Insurance Information Network of California.
Generally speaking, defamation refers to a false statement issued about another person that causes the person to suffer somehow. If the statement is written -- such as in a magazine or newspaper -- it's called libel. If the statement is spoken, it's known as slander.
Coverage for slander and libel charges usually is included in a business liability insurance policy. Small and midsize businesses may be able to get liability insurance through a business owner policy (BOP). This coverage typically includes several types of insurance, such as property, business income and liability.
Here's a breakdown of the slander and libel risks your company faces, as well guidelines to help protect your business -- before you're slapped with a costly lawsuit.
Understanding slander and libel
For a business, slander involves a false statement, heard by someone else, that harms the company and its reputation. For instance, saying that a company has committed a crime -- when it has not and you have not contacted the police about it -- could be grounds for a slander case. This is because it could hurt the company's reputation. As a result, its revenue could slump if customers stop buying its products or services.
Libel covers a wide range of publications, from an article in a newsletter to a statement posted on a website.
For online activities, businesses confront an increased risk when it comes to libel cases. "We're finding that even bloggers are being sued for information they cover in their blog," Moraga says. If, for instance, you post false information about a company's financial situation on your blog and that company's stock falls as a result of the published material, you could be sued.
To make a claim regarding defamation against your business, a number of criteria must be met. The following elements are required in a defamation case:
- A statement, either spoken or written, was made.
- The statement is not true.
- The statement caused injury or harm.
- The defendant caused this injury or harm.
On the other hand, if your business is accused of defamation, one defense is to show that the statement is, indeed, true. Another defense could involve proving the statement was an opinion based on facts. The latter might be the case in an op-ed piece, which is an article that expresses a writer's opinion.
For defamation cases, liability insurance covers your legal expenses, says Tim Dodge, a spokesman for Independent Insurance Agents & Brokers of New York, a trade group. Your insurance also may cover a settlement up to the limit established in the policy. To receive coverage, you'll need to have either acted inadvertently or to have acted unknowingly, Dodge says. In other words, if you publish material you know is false, your liability policy may not protect you.
Getting the right liability coverage
Here are four guidelines for buying business liability insurance.
1. Know how much coverage you need.
Before buying liability insurance, looking at your business' financials can help determine what you need to protect, says John Higdon, a broker at HSHC Insurance, an independent insurance agency in St. Louis. Say you have a business with $10 million in annual sales; taking out a liability policy of $1 million will offer a low amount of coverage. On the other hand, if your annual sales are $1 million, you might not need a policy for $10 million. For a business with $5 million in sales every year, taking out a policy with $5 million in coverage can help make sure your business will continue running, even you're fighting a lawsuit.
2. Look at your risks.
The amount of insurance you'll need also will depend on the nature of your business, says Dan Weedin, founder of Toro Consulting, an insurance and risk management consulting firm. If you run a construction company, your overall liability risks will be higher than if your company operates in a lower-risk industry, such as retail.
3. Understand what's covered in your policy.
Your liability policy might come with two set limits: one limit that's applied to each lawsuit and another that's the overall limit on the policy. So if you're hit with two lawsuits in one year, they'll each be subject to the first limit. The sum of these two lawsuits will be applied to the overall limit of the insurance policy.
4. Buying more might cost less.
For liability insurance, you might find that buying extra coverage isn't as expensive as what you pay for the initial amount. Say you run an ice cream shop, and want to buy a liability policy with $1 million in coverage. That policy might cost $1,000 a year. If you buy another $1 million in coverage, you may have to pay only $500 more, Higdon says. If you want $5 million in coverage, it might cost $3,000 to $5,000 in total.
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