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Liability

Liability is a term that refers to being responsible for something, especially by law. In the context of insurance, liability means the legal responsibility a person or business has if their actions or products cause harm to others. This can include causing physical injury, damaging property, or causing financial loss.

What is a Liability in Insurance?

Liability in insurance is a coverage that protects you or your business from the financial burden of being legally responsible for harm caused to others. This harm can be in the form of injury, property damage, or other types of losses.

For example, imagine a customer slips and falls in your store due to a wet floor. If they get injured, they might sue your business for their medical expenses and other damages. Liability insurance would help cover these costs, so you don’t have to pay out of pocket. It ensures that if you’re found at fault for an accident or damage, your insurance will cover the associated costs, up to the policy’s limits.

Key Components of Liability

  1. Duty of Care: This is the legal obligation to ensure the safety or well-being of others while performing any acts that could foreseeably harm them. For businesses, this means taking reasonable steps to ensure that their premises are safe and that their products are not defective.

  2. Breach of Duty: This occurs when a person or business fails to meet the expected standard of care. If a business fails to put up a wet floor sign, and someone slips and gets hurt, that’s a breach of duty.

  3. Causation and Damage: For liability to be established, it must be proven that the breach of duty directly caused the injury or damage. If a customer falls and injures themselves due to the wet floor (causation), and they incur medical expenses (damage), liability is established.

Types of Liability Insurance 

General Liability

This type of insurance covers common risks that any business might face, such as bodily injuries or property damage caused by the business's operations, products, or accidents that occur on its premises.

Professional Liability

Also known as Errors and Omissions (E&O) insurance, this covers professionals who provide services or advice, such as consultants, lawyers, and architects. It protects against claims of negligence, mistakes, or failure to perform a service.

Product Liability

If your business manufactures or sells products, product liability insurance protects against claims of injury or damage caused by those products. This is crucial for businesses that deal with physical goods.

Employer's Liability

This type of insurance covers claims from employees who get injured or sick because of their job. It's different from workers' compensation insurance, which is mandatory in many places, but it provides additional coverage for legal costs and damages.

How Insurance Covers Liability

When a claim is made against your business, your liability insurance policy steps in to cover the costs, provided the incident falls within the terms of your policy. Here’s how it generally works:

  1. Investigation: Once a claim is reported, the insurance company investigates the incident to determine if the claim is valid and if the policyholder is liable.

  2. Legal Defence: If the claim results in a lawsuit, the insurance company provides legal defence. This means they will cover the cost of hiring lawyers and other legal fees.

  3. Settlement and Judgment: If the investigation finds that the policyholder is liable, the insurance company will negotiate a settlement with the injured party. If the case goes to court and the policyholder is found liable, the insurance will cover the damages awarded, up to the policy’s limit.

  4. Claim Limits: Each policy has limits on how much it will pay per incident and in total. For example, a policy might cover up to $1 million per claim and $2 million in total for all claims during the policy period.