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What is Liability Insurance Policy? - Coverage, Claim & Exclusions

Liability insurance policies protect businesses from financial losses due to claims of injury, property damage, and errors in professional services.

  • 1,770 Views | Updated on: Sep 02, 2024

Ever wondered what happens if someone gets hurt on your property or if a client sues you for a mistake in your profession? That’s where liability insurance comes in. It’s like a safety net for your business, covering you when things go wrong. No matter if you’re running a small shop, a big corporation, or offering professional services, knowing liability insurance is crucial. Read ahead to explore what it covers, how to make a claim, and the common exclusions you need to watch out for.

What is Liability Insurance?

Liability insurance is designed to protect you financially if you’re found legally responsible for injuring someone or damaging someone’s property. It covers the cost of legal fees, settlements, and any judgments awarded by the court up to the policy limit. Without this coverage, you could be personally responsible for paying these costs out of pocket, which can be financially devastating.

Different Types of Liability Insurance Policies

Liability life insurance comes in many forms, each designed to cover specific scenarios. Let’s break down some of the key types of liability insurance policies that businesses often need to consider.

Commercial Liability Insurance Policy

Commercial Liability Insurance, also known as General Liability Insurance, is the foundation of business insurance coverage. It protects your business against claims of bodily injury, property damage, and personal and advertising injury. Whether a customer slips and falls in your store or you accidentally damage a client’s property, this policy helps cover the costs.

Director’s and Officer’s (D&O) Liability Insurance

Director’s and Officer’s (D&O) Liability Insurance protects the personal assets of corporate directors and officers and their spouses if they are personally sued by employees, vendors, competitors, investors, customers, or other parties. It covers legal fees, settlements, and other costs associated with defending against allegations of wrongful acts in their capacity as directors and officers.

Professional Liability Insurance

Professional Liability Insurance, also known as Errors and Omissions (E&O) Insurance, is tailored for businesses that provide professional services. It covers claims arising from mistakes or negligence in the services you provide. If a client believes your advice or service caused them financial harm, this insurance helps cover legal defense costs and settlements.

Commercial Crime Insurance

Commercial Crime Insurance protects businesses against losses resulting from criminal activities such as theft, fraud, and forgery. This policy covers both internal crimes (committed by employees) and external crimes (committed by outsiders).

Carrier Legal Liability Insurance

Carrier Legal Liability Insurance is specifically designed for businesses in the transportation and logistics sector. It provides coverage for legal liability arising from the loss or damage of goods while in transit.

Product Liability Insurance

Product Liability Insurance is crucial for manufacturers, wholesalers, distributors, and retailers. It covers claims of injury or damage caused by products sold or supplied through your business. If a product you sold causes harm, you could be held liable for the damages.

Trade Credit Insurance

Trade Credit Insurance protects businesses against the risk of non-payment from clients. It ensures that you receive payment for goods or services you sell, even if your customer is unable to pay due to insolvency or other issues.

Public Liability Insurance

Public Liability Insurance protects your business against claims of injury or damage to third parties arising from your business activities. It covers legal costs and compensation payments if someone is injured or their property is damaged because of your business operations.

How Does Liability Insurance Works?

Let’s walk through a typical scenario of a slip and fall at your business to understand how liability insurance works in real life.

Imagine you own a small café. One day, a customer slips on a wet floor, falls, and breaks their arm. They decide to sue you for medical expenses, lost wages, and pain and suffering. Here is how your liability insurance would come into play:

Filing a Claim: Once you’re notified of the lawsuit, you contact your insurance company to file a claim. You’ll need to provide details about the incident and any related documentation.

Investigation: Your insurance company will investigate the claim to determine its validity. They might review security footage, talk to witnesses, and assess the extent of the injuries.

Legal Defense: If the claim is valid, your insurance company will typically cover your legal defense costs. They might appoint an attorney to represent you.

Settlement or Court: If the case goes to court and you’re found liable, or if a settlement is reached out of court, your insurance will cover the awarded amount up to your policy limits. For example, if you have a ₹500,000 policy limit and the court awards ₹300,000 in damages, your insurance will cover the entire amount.

What all Liability Insurance Covers?

General Liability Insurance

General liability insurance is a must-have for most businesses. It covers a wide range of potential risks, including:

  • Bodily Injury
  • Property Damage
  • Personal and Advertising Injury

Professional Liability Insurance

Also known as errors and omissions (E&O) insurance, professional liability insurance is essential for service-based businesses. It covers:

  • Negligence
  • Errors and Omissions

Product Liability Insurance

If your business manufactures, distributes, or sells products, product liability insurance is crucial. It covers:

  • Product Defects
  • Design Flaws
  • Marketing Defects

Employer’s Liability Insurance

This type of insurance is specifically for businesses with employees. It covers:

  • Workplace Injuries
  • Employee Lawsuits

Eligibility Criteria to Buy Liability Insurance

Understanding the eligibility criteria for purchasing liability insurance is essential for ensuring adequate protection.

  • To get property insurance, you need to be the rightful owner of the home, commercial building, or land you want to insure.
  • There are different insurance plans for various types of properties, like apartments, houses, office spaces, or industrial properties.
  • Insurance companies have minimum property value requirements to offer coverage.
  • Before issuing a policy, they’ll assess the property’s condition to identify potential risks.
  • When you apply, you’ll need to provide documents such as proof of ownership, residency, and identity.
  • Having a clean credit record and a high CIBIL score can help you qualify for a lower insurance rate.
  • Older properties usually have higher coverage requirements and are considered riskier.
  • If you’ve made a lot of claims in the past, it might affect your eligibility for a new policy.

Liability Insurance Inclusion

Whether you’re a small business owner, a contractor, or an individual, understanding what’s included in liability insurance can help you make informed decisions to safeguard your assets and future.

  • The costs involved in filing a lawsuit against the insured person.
  • Fees for hiring a lawyer or an investigator because someone else is suing you.
  • Any damage or loss to someone else’s property.
  • Medical bills after an accident caused by your products or business operations that led to a third-party claim.

Liability Insurance Claim Process

If your business or organization needs to claim liability insurance, here’s what you should do:

  • Check Your Policy: Start by reading your policy documents to see if you’re eligible for compensation and understand how the process works.
  • Notify Your Provider: Contact your insurance provider to inform them about the issue. You can do this by calling, emailing, or visiting a nearby branch office.
  • Report the Incident: Report the incident to the relevant authorities, such as the police, in the case of theft or death. You’ll need to submit this report to the insurance company along with the claim form and any other necessary documents.
  • Gather Evidence: Collect all the evidence related to your claim.
  • Assessment: A supervisor from the insurance company will review your case. They will approve or deny the claim and determine the compensation amount if approved.
  • Follow-up: Regularly check in with the insurance company to stay updated on the status of your claim.

Documents Required for the Claim Process

To make a claim under different types of liability insurance, it’s important to know which documents you’ll need to submit. Here’s a quick look at them:

  • A fully completed claim form
  • Copies of relevant reports, such as an FIR report or other necessary documents from the hospital, fire department, or civic authorities
  • Business details
  • Photographs of the loss and any witnesses
  • Copies of required licenses, certifications, and permits
  • Surveyor report

Conclusion

Liability insurance is an essential part of protecting your business from the unexpected. It covers a range of incidents, from accidents on your premises to errors in your professional services. Knowing how to file a claim and understanding what your policy excludes can save you a lot of headaches down the road. Think of it as your business’s shield against potential financial losses and legal troubles. With the right liability insurance in place, you can focus on what you do best, knowing you have a safety net if things go awry.

FAQs on What is Liability Insurance


1

How much liability insurance coverage do I need?

The amount of coverage you need depends on your business’s size, industry, and risk level. It’s best to consult with an insurance advisor to determine the appropriate coverage.



2

What is the difference between general liability insurance and professional liability insurance?

General liability insurance covers bodily injury, property damage, and advertising injury. Professional liability insurance, also known as errors and omissions (E&O) insurance, covers claims related to professional services, such as negligence or mistakes.



3

How is the cost of liability insurance determined?

The cost is based on several factors, including the type and size of your business, industry risk, location, and your claims history.


4

Can liability insurance protect my personal assets?

Yes, liability insurance can help protect your personal assets by covering claims and legal fees up to the policy limit, reducing the likelihood of personal asset exposure.


5

What is the process for filing a liability insurance claim?

To file a claim, complete a claim form, gather necessary documentation (such as reports, photos, and witness statements), and submit them to your insurance provider. Follow up with the insurer for any additional information they may require.


6

What are the common exclusions in liability insurance policies?

Common exclusions include intentional harm, contractual liabilities, employee injuries (covered by workers’ compensation), and damages from illegal activities. Always review your policy for specific exclusions.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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