The potential risk of someday being liable for an accident is just one of the many reasons that small business owners consider purchasing insurance. No matter how thorough your safety practices, accidents still happen on the job every day — but if you’re insured, then your insurance carrier can pay the damages.

Many small business owners perform their work on location and in close proximity to other people, which could result in an accident. Or they may sell products or services that can injure the user or cause property damage. If you have crafters or landscaping insurance, however, then you may not have to pay the damages on your own.

What are insurance damages?

Simply put, insurance damages are payments made as compensation for injury or damage. However, fines, penalties, or injunctive relief usually don’t constitute damages.1

For instance, if a landscaper is watering a front yard and creates a slippery sidewalk that causes the injury of a neighbor strolling by, the landscaper may be held liable for damages resulting from the claimant’s medical expenses.

Or if you’re a crafter who allows customers to visit your workshop, someone could accidentally rip their handbag on one of your displays. If their belongings are damaged, you could be liable for the property damage.

What are the types of insurance damages?

Two of the most common types of insurance damages a small business owner will encounter with insurance are compensatory damages and punitive damages.

Compensatory damages are the monetary award given to the claimant to compensate for the financial losses caused by the product or services provided by the business in question. The monetary award is roughly equivalent to the claimant’s financial loss or the costs associated with an injury for which the defendant is found to be responsible.

Punitive damages, on the other hand, are an additional penalty imposed upon the defendant above and beyond the value of the financial losses experienced by the claimant. Punitive damages are essentially a punishment for the negligence that resulted in the claimant’s loss or injury.

What are compensatory damages?

When awarded in a civil lawsuit, compensatory damages are a financial payment the defendant must pay the third party when proven that the defendant caused the third party’s losses. This type of insurance damage can be further broken into two separate categories: special and general damages.

Special damages refer to insurance damages paid to a claimant that are equivalent to the actual financial loss they have experienced as a result of the accident. As an example, if a contractor is in the process of building a new front porch for a customer and accidentally backs his or her truck into the picket fence in the front yard, the customer may be entitled to the costs associated with repairing the fence damage in the form of special damages. In this scenario, the contractor might benefit from having property damage liability coverage, which would help pay for the cost of repairing the picket fence.

With general damages, the dollar amount does not result from the cost of a specific financial loss. Rather, the amount is roughly estimated by the pain or suffering caused by the claim. Suppose a candlemaker sells a few boxes of her product to an online customer, and one of the candles proves to be defective and starts a small fire but doesn’t result in extensive damage or medical costs. It could still cause trauma and suffering that may entitle the customer to receive general damages. Luckily for the candle maker, obtaining product liability coverage (included with general liability insurance) would help pay for the damages.

What are punitive damages?

In a civil suit, punitive damages are a financial punishment imposed upon a defendant that exceeds the cost of the actual financial losses experienced by the third party. For instance, if a third party’s financial loss was $20,000, the defendant might have to pay $25,000 in damages, with the additional $5,000 reflecting the punitive damages.

The penalty of punitive damages is levied when the actions of the defendant are deemed by the court to be exceedingly careless or even malicious and are meant to serve as a deterrent to the defendant from allowing the egregious acts to happen again.

This penalty is usually reserved for an individual who has demonstrated blatantly irresponsible behavior, like a janitor’s employee driving drunk on the job in a company-owned truck and injuring someone else at a stoplight, or a landscaping employee texting while operating a riding mower and harming a bystander.

Protect yourself from the financial impact of damages

Small business owners already have a lot to juggle to ensure that their business is successful. Worrying about the possibility of an accident that could result in shelling out expensive damages adds another layer of concern. Getting an insurance policy that helps cover the financial consequences associated with insurance damages just might offer some peace of mind. And who couldn’t use more of that?

General liability insurance is one of the most essential coverages for any business, as it can help the insured cover the costs of property damage, bodily injury, and personal and advertising injury to a third party. Professional liability insurance can also protect small-business owners who provide professional services that result in financial losses for their customers. Both coverages also provide a coordinated legal defense for actual or alleged wrongful acts and false or frivolous claims for damages.

To learn more about which policies can safeguard you against insurance damages, simply click “Get a Quote” and answer a few quick questions. You can receive your customized quote in minutes. How’s that for a real-time response?


  1. IRMI. Insurance Definitions: Damages.