What is liability insurance?

Liability insurance coverage is the result of a real need to shelter individuals and business from negligent acts.  In order for a liability claim to be valid there must be clear indicators that negligence has occurred.  Negligence can be determined by evaluating a given situation involving an insured person or business (the entity with the liability insurance) and a claimant (the entity harmed by the negligent acts of the insured).  In order for negligence to be proven and liability insurance to come into play, there must be a duty for the insured person to act, failure to perform that duty, and someone has to experience some form of damages as a result of the failure to act.  With this basic definition you can imagine wide ranging implications and it’s easy to see just how important liability insurance can be.  Having begun my insurance career as a claims adjuster, I’ll never forget my first claim that involved a case of pure negligence and how liability coverage factored into the equation.  I represented a company that provided homeowners insurance.  My case involved a home that was severely damaged when significant rainfall inundated it during renovation.  The owner was adding a second floor to the house and the hired contractor did not adequately seal off the exposed areas from the elements.  It was a disaster.  As the company representing the claimant in this case—I was responsible for quickly estimating damage and paying my insured customer for the damage.  But this was only the beginning…  It was up to the contractor to make the situation right by filing a claim with his business liability insurer.  Eventually, the liability coverage the contractor had purchased made my customer whole again.  Negligence was acknowledged and the insured—and my company—were reimbursed adequately for damage. 

Liability Insurance can be a stand-alone product, but most commonly you see it bundled together with other types of coverage like auto insurance and homeowners insurance.

 
You have a duty to drive responsibly—if you drive with negligence and hurt someone—the liability insurance integrated into your auto policy covers you up to a certain limit.  Incidently—states require that all drivers carry certain minimum amounts of auto liability coverage.  It is possible to purchase auto insurance policies that cover you for liability only.  Owners of older cars commonly purchase liability coverage only since old vehicles have little value.  The financial ramifications of “totaling” the vehicle aren’t significant enough to warrant complete coverage for the car’s value.  Similarly—you have a duty to ensure that your sidewalk is shoveled clear of snow in the winter.  If it’s not and someone slips and gets hurt—you will be deemed negligent and the liability portion of your homeowners policy will cover it. 

Other forms of liability insurance include:  Malpractice Insurance (covering negligent acts of a doctor or other professional), Employer’s Liability (such as Worker’s Compensation), and D&O Liabilty (Directors and Officers Liability to cover negligence of a person in charge of making decisions for a company so that the entire company cannot be held responsible).