Liability Insurance covers losses resulting from bodily injury to others or damage to the property of others for which the insured is legally liable and to which the coverage applies.
Liability insurance differs from property insurance in several ways: -
· Property insurance claims usually involve only two parties – the insurer and the insured. Liability insurance involve three parties; the insurer, the insured and a third party – the claimant who brings a legal complaint against the insured for injury or damage allegedly caused by the insured. Although the claimant is not a party to the insurance contract, he or she is a party to the claim settlement.
· In property insurance, insurers pay claims to an insured when covered property is damaged by a covered cause of loss during the period. In liability insurance, on the other hand, insurer pays a third party on behalf of an insured against whom a claim has been made, provided the claim is covered by the policy.
· Property insurance policies must clarify which property and causes of loss the policy covers. In contrast, liability insurance policies must indicate the activities and types of injury or damage that are covered.
In order to clarify the intent of the insuring agreement, the provisions of a liability insurance policy must answer the following questions:
· What parties are insured?
· What activities are covered?
· What types of injury or damage are covered?
· What costs are covered?
· What time period is covered?
· What factors affect the amount of claim payments?
What Parties are Insured?
The extent of liability coverage provided to parties other than the named insured is determined by their relationship to the named insured as well as by circumstances.
For example, the liability coverage of a typical homeowners policy applies to:
· The named insured and the named insured’s spouse, if the spouse is a resident in the household.
· Relatives of the named insured or spouse, if the relatives reside in the household
· Children in the care of the named insured or spouse
· Any person or organization legally responsible for animals or watercraft owned by an insured (except in business situations)
· Employees using a covered vehicle, such as a lawn tractor, and other people using a covered vehicle on an insured location with the named insured’s consent.
Commercial liability policies, apart from the named insured, also cover: -
· Employees of the named insured
· Real estate managers for the name insured
· Persons responsible for the property of a named insured who has died
· Any person who operates mobile equipment owned by the named insured while on a public highway
· Any organization that is newly acquired or formed by the named insured for up to a certain number of days after it is formed or acquired.
What Activities Are Covered?
Certain policies state the specific activity or source of liability covered.
In contrast, general liability insurance covers all activities or sources of liability that are not specifically excluded. In addition to excluding coverage for losses best handled elsewhere, general liability insurance policies contain exclusions dealing with uninsurable exposures, preventable losses, and exposures that would be too costly to insure.
What Types of Injury or Damage Are Covered?
Bodily Injury
Bodily injury is any physical injury to a person, including sickness, disease and death.
A typical commercial general liability policy defines bodily injury as follows: -
“Bodily injury” means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.
Given the above definition, the commercial general liability policy clarifies that it covers claims for injury, sickness, disease and death.
Property Damage
Property Damage is physical injury to, destruction of, or loss of use of tangible property.
Commercial general liability policy defines property damage as follows: -
“Property damage” means:
a. Physical injury to tangible property, including all resulting loss of use that property; or
b. Loss of use of tangible property that is not physically injured.
Under homeowner’s policy, the same is defined as follows: -
“Property damage” means physical injury to, destruction of, or loss of use of tangible property.
Hence the above definitions make it clear that property damage includes both direct losses and time element (or indirect) losses.
Personal Injury
In insurance, the term personal injury is generally used to mean injury, other than bodily injury, arising from intentional torts such as libel, slander, or invasion of privacy.
For insurance purposes, intentional torts are usually considered personal injury offenses and are either excluded from coverage or are specifically covered as a separate coverage.
A few policies define personal injury in a way that includes even bodily injury apart from the offenses listed above.
However, the more common interpretation allows for separate coverage for bodily injury and personal injury, in which case personal injury coverage supplements bodily injury coverage. For example, the commercial general liability policy automatically includes personal injury coverage under a separate insuring agreement. Coverage for personal injury liability can be added by endorsement to a homeowners policy.
Advertising Injury
Advertising injury typically includes the following types of offenses:
· Libel and slander
· Publication of material that constitutes an invasion of privacy
· Misappropriation of advertising ideas or business style
· Infringement of copyright, title, or slogan
The definitions of personal injury offenses and advertising injury offenses overlap somewhat. But this does not result in duplicate coverage. Furthermore, the policy clarifies that personal injury does not include offenses involving advertising activities and that advertising injury refers only to offenses committed in the course of advertising activities.
What Costs Are Covered?
Liability insurance policies typically cover two types of costs:
· The damage that the insured is legally liable to pay
· The cost of defending the insured against the claim
Some policies also cover other costs, such as supplementary payments and medical payments.
Liability Loss Exposures and Policy Provisions
