How to Understand Liability Insurance
Hi, this is Jerry Becerra with Barbary Insurance Brokerage. Today, we’re going to talk about how to understand liability insurance. Now liability insurance is really based on the concept of liability under tort law. So somebody who has been wronged then is seeking monetary damages against you and so a liability insurance policy is designed to do two different things. The first thing it does is it defends you in court. That means the policy is going to pay for you to get an attorney. The insurance company may actually help you obtain an attorney and guide the case through court. The second thing it’s going to do is pay damages. Usually, the defense cost is outside the limit of liability and so even after paying a lot of money to get you through a court case, you still have your full limit of liability available to you. There are exceptions to this that I will come to. Liability insurance falls under many categories. The first would be personal liability covering slip and fall in your home, maybe your dog bit the neighbor. It’s going to cover those kinds of exposures and pay damages. Secondly, auto liability which may be required by law in a lot of places. Auto liability we’re all familiar with, you hit somebody’s car, you’re going to have to be financially responsible for that. Worker’s compensation which is actually a liability line of coverage. It helps get your employee back to work and also is going to defend you if you’re sued because the employee felt they were wronged, general liability which covers primarily bodily injury and property damage claims against third parties. Those claims can arise out of your premises, your operations away from premises, anywhere in the coverage territory. It’s also going to pay for product liability and coverage for something called completed operations which is really contractor work. An insurance policy is not a guarantee that you do good work, however, if your work causes damage or hurts somebody it is going to pay for those damages. Finally there’s some policies that are not quite the same as others. Professional liability and errors and omissions, employment practices liability which is your discrimination, wrongful termination coverage and director’s and officer’s liability. In those policies, the defense coverage is within the limit of liability. So if your defense runs a couple of hundred thousand dollars and you’ve got a million dollar limit you then have eight hundred thousand dollars left to pay a claim. So those are sort of the basics of understanding liability insurance. Talk to your agent or broker about how to get something specific for you.