What is liability insurance?
Liability insurance provides the insured with protection against claims resulting from injury and damage to persons and / or property.
Liability insurance policies cover both legal fees and all payments for which the insured would be responsible if found legally responsible. Intentional damage and contractual liability are generally not covered by these types of policies.
[Important: Liability insurance is also called third-party insurance.]
How does liability insurance work
Liability insurance is essential for those who can be held responsible for injuries to others, or in the event that the insured damages the property of others and is considered to be at fault. Liability insurance policies are taken out by anyone who owns a business, drives a car, practices medicine or the law – essentially anyone who can be sued for damages and / or injuries.
A product manufacturer can take out product liability insurance to cover them if a product is defective and causes damage to buyers or any other third party. Business owners can purchase liability insurance that covers them if an employee is injured during business operations. The decisions doctors and surgeons make at work also require liability insurance policies. And when it comes to auto insurance, 49 of the 50 states as well as D.C. all require drivers to have some form of liability insurance in the event of an accident and / or injury.
According to the most recent data from the Insurance Information Institute, the United States is the largest market for commercial liability insurance. There were $ 86.6 billion in civil liability claims across the country in 2020, followed by $ 10.6 billion in the United Kingdom. The global liability insurance market has experienced a lot of movement in the past two decades. Statisa said the market reached a total of $ 3.3 billion USD in 2020, the highest since 1994.
Types of Liability Insurance
Business owners are exposed to a range of liabilities, each of which can subject their assets to significant claims. All business owners must have an asset protection plan based on available liability insurance coverage.
Here are the main types of liability insurance:
- Employer liability and workers’ compensation is mandatory coverage for employers that protects the company from liability resulting from the injury or death of an employee.
- Product liability insurance is for companies that manufacture products for sale on the general market. Product liability insurance protects against lawsuits resulting from personal injury or death caused by their products.
- Compensation insurance provides coverage to protect a business from claims of negligence due to financial loss resulting from errors or failures.
- Directors ‘and officers’ liability insurance covers the board of directors or the directors of a company against any liability if the company is prosecuted. Some companies provide additional protection for their management team, although companies generally provide some degree of personal protection for their employees.
- General liability policies are personal liability policies designed to protect against catastrophic loss. Comprehensive liability coverage generally occurs when the limits of liability for other insurance are reached.
- Commercial liability insurance is a standard commercial liability insurance policy also known as general liability insurance. It provides insurance coverage for lawsuits resulting from injuries to employees and the public, and property damage caused by an employee, as well as injuries suffered from employee negligence. The police can also cover intellectual property infringement, slander, defamation, contractual liability, tenant responsibility and responsibility for employment practices.
- General Liability Policies (CGL) are tailor-made for any small or large business, partnership or joint venture, company or association, organization or even newly acquired business. The insurance cover of a CGL policy includes bodily injuries, property damage, personal and advertising injuries, medical payments and liability for premises and operations. Insurers offer coverage for compensatory and general damages for lawsuits. Punitive damages are generally not covered, although they may be covered if authorized by the jurisdiction in which the policy was issued. The amount of risk associated with the business and the size of the business determine total coverage.
The overall policy provides for compensation for the defense or investigation of a legal action, legal costs, including attorneys’ fees, police reporting fees and witness fees, any judgment or settlement resulting from legal action, medical costs of injured people, etc. Insurers retain the right to defend any lawsuit against the insured company resulting from bodily injury or property damage.
Key points to remember
- Liability insurance protects against claims resulting from injury and damage to persons and / or property.
- Liability insurance covers legal fees and payments for which the insured would be held responsible.
- Uncovered provisions include intentional damage, contractual liability and criminal prosecution.
Filling the gaps in general liability insurance
Commercial general liability insurance protects against most legal hassles, but it will not protect directors and officers from lawsuits, and it will not protect the insured from errors and omissions. Companies require special policies for these cases. Below, less well-known liability insurance policies are worth considering for special professional cover.
Errors and omissions liability insurance (E&O) provides coverage for lawsuits arising from the negligent provision of professional services or the failure to exercise professional functions. Lawyers, accountants, architects, engineers or any business providing a service to a client for a fee should take out this form of insurance.
This type of policy does not cover criminal proceedings, acts deemed fraudulent or dishonest, or any claim against bodily harm. The insured is however covered for attorneys’ fees, legal costs and any settlement up to the amount specified by the insurance contract.
Directors and officers Insurance (D&O) protects the directors and officers of large companies against judgments and costs resulting from illegal acts, erroneous investment decisions, non-maintenance of property, disclosure of confidential information, hiring and firing decisions, conflicts of interest, gross negligence and other errors.
There are three different types of coverage – personal / employee coverage, corporate coverage, and entity coverage – which provide businesses with varying degrees of insurance protection. Most D&O policies exclude coverage for fraud or other criminal acts. Factors such as size and form of business, location, mergers and acquisitions, type of industry, and loss experience determine the premium rates in a typical D&O policy.
Why buy personal liability insurance?
Personal liability insurance policies are purchased primarily by wealthy individuals or large assets, but this type of coverage is recommended for anyone whose net worth exceeds the combined coverage limits of other personal insurance policies, such as home and auto insurance. blanket.
Liability insurance makes sense for people who are at higher than average risk of being sued, such as homeowners.
Home insurance covers liability claims in the event of an accident occurring on the property of an insurance policyholder, but only up to a specified limit. Homeowners facing costs greater than this amount could face financial disaster.
Commonly known as the general insurance policy, personal liability insurance makes payments on behalf of the policyholder in the event of material and automobile accidents, as well as in situations involving defamation, slander, vandalism or damage to privacy. The policy also covers injuries that occur in second homes or seasonal homes, in recreational vehicles, on rental property, or on a boat or boat belonging to the policy holder.
Not everyone is happy with the cost of an additional insurance policy, although most carriers offer discounted rates for bundled coverage plans. Personal liability insurance is considered a secondary policy and may require policyholders to meet certain limits on their home and auto policies, which may result in additional expenses.