How does liability insurance protect me against legal liability?


Liability insurance cannot per se protect you against legal liability, since the latter is determined by court at the end of a civil lawsuit. What liability insurance can do, however, is provide financial protection if you are found legally liable for somebody else's bodily injury or damage to another person's property. Liability protection typically applies to liability arising out of negligence, and cannot be extended to cover any intentional wrongdoings.

Determining Legal Liability

In order for a defendant to be found legally liable for committing a tort, the so-called "four elements of negligence" have to be present (without them, legal liability claims will not be awarded any compensation):

  • There has to be a legal duty of care present. This duty applies to the legal obligation of every citizen to protect the others against harm.
  • The defendant has to have breached or fallen short of meeting the standard of care.
  • The plaintiff must provide evidence that they have suffered losses as a result of the defendant's negligent act.
  • There must be a direct link between the losses the plaintiff has sustained and the failure of the defendant to satisfy the legal duty of care.

How Liability Insurance Works

  • In the insuring agreement, the insurer agrees to protect the insured's overall assets when the insured is found to be legally liable for causing damage or injury to a third party. The insurance company does that by paying the insured's defensive fees and any damages to the injured party on behalf of the insured. The maximum damages that a company will pay under a liability insurance policy are up to the liability limits specified in the policy contract.
  • The insurance company does not pay any damages unless the injured party has filed a legal liability claim in court, the insured has been found guilty and damages have been awarded.
  • Although most liability insurance policies cover third-party losses, such as property damage and bodily injury, some might also cover damages arising out of some specific intentional torts, such as libel, slander and violation of privacy.
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