What is Liability Coverage?

By Malds Menzon Jr.
Special to USInsurance.com

Liability insurance is a policy that will protect its holder in the event that a claim is filed against him. As the name suggests, if the holder incurs a liability because of negligence or an accident, the policy will obligate the insurer to handle the defense and shoulder the settlement claim.

Liability coverage functions like a shield. It will protect the holder but it will not cover his/her medical expenses and the cost of repairs. So for example if “A” files a claim against “B” (the Policy holder) for an accident that was the latter’s fault, the policy will pay for the repairs and medical expenses of “A” but not for those of “B.”

Liability Insurance for Businesses.
For any business regardless of the scale, third party claims are always a problem. In the course of everyday operations, there is always a chance that someone will get injured. This can result in resource consuming lawsuits and will be detrimental to the company’s financial and operational health.

Having liability insurance will save a business from having to litigate and settle a claim because the issuer will take over from the moment that the holder is held liable. The insurance company will step into the holder’s shoes and handle all settlement and legal proceedings. They will be the ones to negotiate the claim and will shoulder the expense once an agreeable amount is reached. This allows the business to continue its operations without lengthy interruptions.

Liability Insurance for Individuals.
If you have a lot of property or own a sole proprietorship business, you might want to consider covering your properties and operations from liabilities. The greater the number of assets you have; the greater the risk of damage or injury to others. An automobile accident or injuries that occur in your home for example, could tie you up in litigation and cost you potentially millions of dollars.

Liability Coverage vs. Full Coverage.
We’ve already established that liability coverage will only protect a holder from third party claims against him but will not compensate for personal injury or loss. The opposite is true for Full coverage insurance policies. With this type of policy the properties of the holder are protected as well. So in an accident, the insurance company will pay for the medical and repair expenses of both parties involved and not just the third party claimant.

Full coverage will also include a greater variety of incidents like fire, theft, flood, etc… Unlike liability coverage, it is not limited to incidents where there is an injured third party.

Types of Liability Insurance:

• General Liability Insurance.
Is the most basic business insurance and protects the company from any liabilities that it incurs in the course of its operations. Any bodily harm or property damage that results from a business activity or from the use of their products will be shouldered by the insurance provider. This is the most important of all business insurance policies and if a business can afford only one, this should be it.

• Director and Officers Liability Insurance.
This type of policy protects Directors and Officers from claims made against them. These claims normally arise from actions that are related to their positions such as management decisions that went wrong. Depending on the terms of the policy, the insurer may or may not be obligated to defend the insured. Most companies will only cover the cost of the defense and the claim.

• Professional Liability Insurance.
Professional liability insurance is a necessary investment for professionals working in high risk jobs. Medical practitioners, engineers, consultants and other professionals can make mistakes which could result in the physical harm or financial loss of their clients. In most instances these types of mistakes will not be covered by normal insurance policies or if they are, the coverage will not be enough to compensate for the total expense of the claim.

• Employer Liability Insurance.
This is usually made a requirement by law. It protects the employers from expenses that arise out of employee health or injury issues that are connected to business operations or workplace conditions. This is actually more beneficial for the employees as it guarantees their medical compensation.

 

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