Liability Insurance 101

Life can be expensive, and we have all had the experience of an unexpected cost arising right when we least expect it.

While we take measures to be careful, there will always be experiences which are totally out of our control, despite our very best efforts.

On such occasions, liability insurance can be the answer to your prayers. Investing a smaller amount in regular lower payments can help to save you the stress of a large payout if something goes wrong.

What is Liability Insurance?

Liability insurance exists to help provide injured parties with protection against any claims which arise as a result of injuries and damage to people or property. The policy will help cover legal costs, as well as any payouts for which the insured party is responsible if they are found to be legally liable.

Liability insurance covers a range of industries and is part of several insurance policies, including:

• Business
• Auto
• Personal and public industries

Liability insurance helps to eliminate the responsibility of an incident from your side and provides you with financial and legal protection in many circumstances.

What Does It Cover?

Any claims which arise as a result of injuries and damage to people or property are covered by liability insurance. It will help the insured party be protected against any legal costs of payouts for which they may be found liable.

This coverage can include:

• Damage to a vehicle
• Cost of replacing a vehicle
• Loss of wages if a third party is injured
• Damage done to your property by an employee
• A whole host of other scenarios

What is Not Covered?

While liability insurance is relatively comprehensive, it will not cover any claims which include:

• Intentional damage
• Incidents involving criminal prosecution
• Contractual liabilities

An alternative solution would need to be found for these and similar circumstances.

In essence, obtaining public liability insurance will not cover any omissions or errors which may occur in your work. There are other policies available, and it may be worth researching the combination which best suits your personal needs or those of the company.

Types of Liability Insurance

As we have discussed, there is a range of different kinds of liability insurance, including:

Product Liability Insurance

This insurance is a must-have for any business that produces and manufactures products designed to be sold to the general public on the open market.

If injury or death occurs as a result of a consumer purchasing or using one of your products, product liability insurance will protect you against any resulting lawsuits.

Employers Liability and Workers Compensation

This mandatory insurance is compulsory for all employers. It protects the business against any possible liability which arises as a result of death or injury of an employee.

Director and Officer Liability Coverage

This insurance is designed to cover the company board of directors or officers against any liability if an external party sues the company. As a general rule, most corporations will offer personal protection to their employees against the risk of being liable if sued.

There is usually additional protection available for the top levels of the executive team.

Indemnity Insurance

If financial harm occurs to a company which is a direct result of failure to perform or mistakes, the company faces a risk of negligence claims. This insurance can help to protect the firm if this occurs.

Umbrella Liability Policy

An umbrella policy acts as a personal liability policy and protects an individual against catastrophic losses. This policy will usually kick in when the liability limits of all other types of insurance have been reached.

Comprehensive General Liability (CGL) Policy

This policy is specially designed for small or large businesses, any joint venture or partnership businesses, an organization, corporation, association, or newly acquired company.

It is essential for such setups, as it can cover you for:

• Property damage
• Personal or advertising injury
• Bodily injury
• Any medical payments
• Premises
• Operations liability

The insurer will provide full coverage for any general or compensatory damages which arise from lawsuits.

As a general rule, punitive damages will not be covered, though if the jurisdiction in which the policy was issued allows this, they may be considered. The coverage you receive will depend on the amount of risk associated with the business, as well as the size.

As the name suggests, a comprehensive policy is thorough and will provide full compensation if you are required to investigate or defend a lawsuit.

Also included are:

• Police report costs
• Witness fees
• Attorneys fees
• Court costs
• Any settlement which arises from the lawsuit
• Any medical expenses for the injured persons
• Other costs associated with the incident

Commercial Liability Insurance

Alongside the CGL policy, a commercial liability policy will provide full insurance coverage from:

• Lawsuits which occur as a result of injury to the public
• Lawsuits which occur as a result of any employees of the business
• Property damage caused by an employee
• Any injuries which occur as a result of the negligent actions of an employee

Also covered by the policy are:

• Tenant liability
• Infringement on intellectual property
• Slander or libel
• Employment practices liability
• Other examples detailed in the policy

Auto Liability Insurance

Auto liability insurance is another necessary type of liability insurance which primarily offers the same benefits in a different context.

If you are found to be at fault in an accident, this policy will cover any bodily injuries to the other driver, as well as the cost of their property. There are two main types of auto coverage:

• Bodily injury liability – this protection covers the medical expenses of the other driver if you are found to be at fault in an accident. This coverage can even include any legal fees or loss of wages if the injured party decides to file a lawsuit.
• Property damage liability – this applies to any damages to property which result from an accident covered by the policy, in which you are deemed to be at fault. Property covered involves the repair or replacement of a vehicle or property involved in the accident, such as phone poles, structures, and fences.

It is important to remember that there are minimum liability limits for the different auto insurance coverage types, and these will vary from state to state. This means in each state the car insurance companies will have at least a minimum amount of coverage for liability.

You will not be able to use liability coverage to pay for any of your injury costs or damage to your vehicle. If this is what you need, you will have to use collision or comprehensive coverage.

Collision Coverage

Collision coverage will protect you, allowing you to pay for any damage to your vehicle which is caused by another car hitting you, you hitting another object or vehicle, or your vehicle rolling over. You will be responsible for paying the deductible.

Comprehensive Coverage

Comprehensive coverage will pay for any damage which occurs to your vehicle, but is not the result of a collision. The damage covered includes things like:

• vandalism
• accidents involving an animal
• theft
• fires
• civil commotion or explosions
• falling objects
• damage from debris
• weather events, such as hail

The main difference between these two and other types of liability insurance is that the former protects you and your vehicle, while the latter covers another driver.

Do I Need Liability Insurance?

For some situations, such as auto liability insurance, many states make this compulsory, and it is as much a legal requirement as registering your documents.

For other types of liability insurance, such as those purchased by businesses, the law is not there to make it a requirement. This fact does not mean, however, that it should be skipped over.

If any part of your operation involves dealing with the public, you should invest in public liability insurance. This would include the sale and manufacture of goods, offering a service or solution, or any other suggestion of an activity which connects the members of your business to members of the public.

While we would all like to think that the worse won’t happen, the truth is it is impossible to predict what is around the corner. Protect yourself, your investment, and your business by purchasing a policy—if you ever need it, you will be happy you did.

Liability Insurance Bottom Line

Liability insurance may not be mandatory in many cases, but it is nonetheless a beneficial resource with which to arm yourself. Taking the time to make small payments can be seen as making a significant investment in your future, and acts as an extra layer of protection.

Being faced with court and legal fees, or the prospect of replacing an entire motor vehicle is a scary concept and is essential for your peace of mind, as well as security and financial well-being.