Imagine this: A software update goes live, and a client’s system fails, costing them thousands in revenue. Or imagine a vendor’s outage delays your product launch, triggering a breach-of-contract claim that could have ripple effects across your business.
General liability (GL) is the backbone of most insurance programs. It covers bodily injury and property damage, which are critical protections, no doubt. But it doesn’t extend to the scenarios above.
Too often, business leaders assume GL is a catch-all. It’s not. And today — when social inflation and “nuclear verdicts” in the millions are increasing — relying on GL coverage alone can leave your company exposed to serious financial risk, especially when it comes to third-party liability.
Third-Party Liability Defined
Third-party liability arises when someone outside your company (clients, vendors, or customers) claims you’ve caused them harm. And that harm isn’t just a scratched laptop or a minor delay. It can be lost revenue, mismanaged services, or even reputational damage. That’s why a software glitch, late shipment, or a misstep by a board member can trigger claims that GL alone won’t cover.
The Exposures You Might Be Missing
The real question isn’t whether your company could face third-party claims, it’s which types of claims you’re exposed to and whether your coverage will respond when they arise. Here are additional coverage options you might consider:
- Errors & Omissions (E&O) /Professional liability
Protects against claims of negligence, misrepresentation, and financial harm resulting from professional services. - Directors & Officers
Shields board members and investors from third-party claims related to decisions made in their corporate roles. - Fiduciary liability
Safeguards the personal assets of fiduciaries against claims of mismanagement of employee benefit plans or plan assets. - Cyber Liability
Provides coverage for incidents like ransomware attacks, data breaches, and failures in network security or privacy protections. - Auto Liability
Even without a company fleet, coverage for hired and non-owned vehicles is essential for employees driving on company business. - Umbrella Coverage
Backup insurance adds an extra layer of protection when your standard liability coverage isn’t enough.
Don’t Overlook Defense Costs
When a claim is filed, legal defense costs can either be counted inside or outside your insurance policy limit. Understanding this section of your policy will help you understand how much protection it truly provides.
- Outside the limit: Legal fees don’t reduce your claim limit. You have full coverage for settlements.
- Inside the limit: Legal fees reduce the amount available for a payout. If an E&O policy is $1M and you spend $300K defending a claim, only $700K remains.
Why Contracts Aren’t Enough
Contracts feel safe, but in reality, they have limits. Indemnity clauses, certificates of insurance, and credit checks are standard, but they don’t guarantee coverage. A vendor may have an insurance certificate, but that snapshot doesn’t ensure active coverage or that exclusions won’t apply when you need it most.
Due diligence is important. Solutions from companies like Dun & Bradstreet can help assess a vendor’s financial stability.
How to Protect Your Business
To figure out if you have all the coverage you need, ask yourself: “If the worst-case scenario happened tomorrow, would my insurance protect me?” Then take these steps:
Conduct a risk assessment
Identify exposures from third-party relationships, data handling, and physical assets. Review your existing policies with fresh eyes and look for outdated limits, missing endorsements, or misaligned coverage.
Partner with a knowledgeable broker
You don’t need to be an insurance expert, but you do need a partner who understands the terrain, anticipates risks, and helps build a safety net that protects both your balance sheet and your reputation.
Educate your leadership team
It’s important that your leadership understands how coverage decisions impact financial resilience, reputation, and growth.
With the right coverage, you can focus on what matters most: growing your business with confidence, knowing that when third-party risks arrive, you’re ready.
Ready to strengthen your risk coverage?
Don’t wait for a claim to reveal the gaps in your insurance. Connect with a Sequoia advisor to assess your third-party risk exposure and build a coverage strategy that protects your business from every angle.
