Definition of Liability Insurance: The simplest definition of ‘liability insurance’ is the Insurance coverage to protect against claims alleging that one’s negligence or inappropriate action resulted in bodily injury or property damage.
People & organizations can and do mistakes for which they become liable if and when these acts ruled to be the cause for damaging the bodies or the properties of others. This is when insurance policies come to provide the protection. Liability coverage pays when the insured is legally liable for the negligent act. In some situations, the coverage provides protection if the insured becomes ‘morally obligated’ to a party that is damaged by the non-negligent acts of the insured.
People/ organizations vary widely in their social and business conduct, and so does the coverage that is needed to protect them. For each category of people/ organizations there are different coverages that provide the protections. Different people/ organizations need different types/ amounts of liability coverage.
Classification of Liability
Personal vs Commercial Liability: Personal liability insurance provides coverage for individuals while commercial liability provides coverage for a business entity. A 4-door sedan car needs personal auto liability policy. If the same vehicle is used for delivery, then it may require a commercial auto policy.
Personal Liability Protection normally comes in personal policies such as Personal Auto Policies (PAPs), Homeowners Insurance Policies, boat policies, and Personal Umbrellas. These coverages pay for damages that the Insured causes to the bodily injuries, personal injuries, property damages, legal defense in connection with claims brought against the Insured.
Business/ Commercial Liability Protection: Comes to cover businesses and/or individuals in connection with their business conducts.
Premises Liability applies when someone other than the insured or insured’s employees sues the business for damages due to an injury sustained in business premises. This means that the injured party must first suffer an injury on your premises, and then must make a claim for the damages they suffered.
Product Liability includes liability protection for business completed products or services. Similar coverage is provided under the term ‘completed operations’ such as operations of many contractors in the event that they cause damages to others in the course of their service rendering. Professional service businesses such as physicians, lawyers, real estate brokers, and insurance agents have special professional liability coverages.
Professional Liability. Provides protection for many classes of individuals and businesses for any bodily injury damages their service/ advice may cause to others. Examples include malpractice insurance for doctors and medical staff, errors & omissions for insurance & real estate agents, etc.
Employer’s Liability provides coverage for employees during their employment. The employer has to be at fault or negligent for the coverage to kick in. In the case of Workers Compensation, fault and negligence do not have to be proved for employee to collect for any work related injury.
Director’s and Officers insurance provides protection against any lawsuits against the officers of the business by its owners. Garage Liability applies in situations where a business deals with vehicles owned by others. The coverage provides protection from the risks of being sued because of using vehicles owned by the business and vehicles that are owned by others (clients.) In the event that a business/ individual works with or takes possession of other people’s vehicles, a special coverage called “Garage Keeper Liability” is needed. Garage Keeper Liability provides comprehensive and collision coverage on vehicles NOT owned by the business while the vehicles are in possession of the business. Auto service stations, valet parking businesses, towing services, and car washes are examples of businesses that need garage liability and garage keeper liability protection. Garage keeper liability can be written on Direct Basis or Excess. In the even of Direct Basis, the policy will pay for damages of vehicles of the clients of the Insured regardless of who is at fault. In the case of Excess, the policy will pay for damages of vehicles of the clients of the Insured only if the Insured is negligent.
Liquor Liability provides protection for establishments that sell liquor (Packaged liquor, taverns, manufacturers of liquor) against loss or damages claimed as a result of a patron of the business becoming intoxicated and injuring themselves or others.
Inland Marine/ Cargo Liability provides protection for business involved in hauling merchandise and properties of others. It pays for damages of the properties hauled in the event the Insured is liable for the damages.
Time Factors of Liability Insurance Polices
Some commercial liability insurance policies are written on Claim Made Basis. This means that the policy in force at the time a claim against the insured will pay for losses, regardless of when they occurred in the past. Most professional liability policies are written on Claim Made basis. Most commercial liability policies are written on Occurrence Basis, where even though the policy may have expired, provided the policy was in force at the time that the bodily injury or property damage occurred, a claim can still be made against it.
CSL or Combined Single Limit policies allow insurance companies to combine both bodily injury liability and property damage liability insurance under a single limit. The insurance company would pay up to the stated limit on a third party claim regardless of whether the claim was for bodily or property damage. In Split Limit policies, the policy would break down limits to, for example, bodily injury limit per person and bodily injury limit per accident and property damage per accident.
Example, an auto policy with CSL $300,000 will pay up to that limit for any and all claims whether they are bodily injury for one person, many people, or property damage that was caused by the Insured. If the policy limits come separated (100/300/50) it means that the insurer will pay the maximum of $100,000 for bodily injury of 1 person, $300,000 for bodily injuries of all other people hurt, and a maximum of %50,000 for property damage caused by the insured negligent act.