Liability Insurance: What Is Its Purpose?
Liability insurance is a type of insurance designed specifically to offer protection for third-party claims. These claims are paid usually not to the part insured but to the person who suffers loss but is not a party of the contract of the insurance.
Generally, liability insurance does not cover any damage or injuries caused intentionally or other contractual liabilities not covered. The insurance carrier has the right to defend the insured once any claims are made. Legal costs for defense are usually not affected by the insurance policy’s limits. This is useful since legal costs can be high where trials held to determine the fault or the amount of damage run long.
Public liability insurance is often included in the insurance portfolio of organizations engaged in industry and commerce even though such practice can be burdensome to the organization. This is because such companies are engaged in a range of processes and activities that can potentially affect third parties such as visitors, trespassers, subcontractors and other members of the public who may incur physical injury or property damage or both. Depending on the state, employer’s liability insurance or public liability insurance or both are compulsory by law.
Liability insurance is also important to private individuals. Private individuals also occupy land and can engage in potentially hazardous activities. This is most easily illustrated by the mandatory need of third-party liability insurance of vehicle drivers. Some states also require insurance companies to have a default fund they can offer to those physically injured in accidents where the driver does not have a valid policy.
Currently, new insurance practices are emerging, particularly in product and employment insurance.
Because of the emerging culture of compensation, most consumers are increasingly willing to claim for damages or injuries caused by a defect in the product of a company. Not all countries require product liability insurance but some countries have legislation that require companies to carry some form of product liability insurance which is usually a part of a combined liability policy. The scope of the potential liability can be illustrated by cases such as car manufacturers releasing dangerously unstable vehicles and electronic companies producing hazardous computer components. The full list, however, covers a great deal more products such as pharmaceuticals, food and beverages, medical equipment, agricultural products and equipment, mechanical and electrical products and other major product classes.
Insurance policies have also been developed to cover the liabilities that might be imposed on an employer in cases where an employee is injured in the course of their employment in the employee’s company. In a lot of states, insurers are not allowed to include in their policies conditions that would impose any unreasonably conditions precedent to the liability or requiring the insured part to impose reasonably precautions or to comply with the current legislations and regulations. In some countries that do not require compulsory insurance, smaller organizations are often bankrupted in cases where they are faced by claims that are not covered by their insurance.
by Maria-Goldsmith 19 years ago