There are many types of insurance. Aside from liability insurance, examples include health insurance, which pays for medical costs; homeowner’s insurance, which protects against financial losses associated with covered incidents; and disability insurance, which compensates a policyholder if they’re unable to earn a salary or income. Travel insurance covers the cost of damages on a vacation or business trip. However, liability insurance, which is a focus of claims in most of our practice areas, works a little differently. We’ll explain what it is and the different types of insurance it includes.
How Does Liability Insurance Work?
Many insurance products protect against losses involving your belongings and assets; filing a claim can result in a direct payment. However, liability insurance covers damages and losses incurred by someone other than the insured. It can cover payouts for which the policyholder is found responsible.
Also known as third-party insurance, liability insurance does not pay the policyholder directly (a first-party claim made through, for example, homeowner’s insurance, will pay you to repair the roof). With liability insurance, the first party is the person/entity responsible for the damages, while the insurance company is the second party. The third party is the person or business that files a claim for damages. If someone was hurt by your negligent driving or by slipping on your front steps, a third-party claim pays their medical bills.
What Types of Liability Insurance Are There?
Various types of insurance provide liability coverage. Each applies to specific events and losses. The most common insurance products in this category include:
1. Automobile Insurance
Auto insurance is a form of liability insurance required in most states. To be eligible to drive, one must meet minimum requirements for bodily injury and property damage coverage. This liability insurance type provides you with financial protection if you’re at fault for an accident and pays for damages to vehicles, other drivers, and passengers. Premiums are determined by various factors, including the policyholder’s age, history of accidents or serious violations, and where they live.
As previously mentioned, the two primary components of auto insurance include:
- Property Damage Coverage: Covers repairs to the other driver’s vehicle, their rental vehicle costs, and damage to buildings, fences, and other personal property.
- Bodily Injury Coverage: Covers the medical bills, prescriptions, lost wages, and pain and suffering of the other driver or their passengers.
However, liability coverage does not cover collision damage to your vehicle. Other policies must be purchased to cover it. You can also choose personal injury protection to cover your accident-related medical expenses. Uninsured/underinsured motorist coverage, which covers accident-related expenses when an at-fault driver has no insurance or limited coverage, is also available.
2. Umbrella Personal Liability Insurance
Umbrella insurance provides extra liability coverage beyond your existing auto, home, or business coverage limits. It tends to cover a broader range of claims than a standard policy. An umbrella policy usually doesn’t significantly increase an insurance premium, especially if you purchase one from the same insurer as your existing policy. However, business losses, contract disputes, and damages related to criminal acts are not covered.
3. General Liability Insurance
This diverse insurance type is often referred to as business liability insurance or commercial general liability insurance. It covers claims that your business caused harm to others. To cover property damage to your business, you need commercial property insurance. However, general liability insurance protects against claims involving:
- Bodily Injury: Covers expenses if a customer, client, or other third party is injured on your property by, for example, slipping on a wet floor, tripping over an uneven step, or otherwise being hurt due to negligence or a known issue you failed to resolve.
- Property Damage: Covers costs involving damage you or your employees cause to a third party’s property, whether a worker broke a window or caused plumbing or electrical damage in a client’s home.
- Reputational Harm: If another business accuses your company of harming its reputation, general liability can cover your legal costs. Examples of reputation harm include libel, slander, and violation of privacy.
- Advertising Errors: Your insurance can cover legal defense costs if you’re accused of copyright infringement by, for example, using photos or other assets in marketing materials without permission.
4. Workers’ Compensation/Employer Liability Insurance
Your employees are not covered under a general liability insurance policy. To cover your employees should they get injured or sick due to job-related activities, you need workers’ compensation insurance. It’s a type of employer liability insurance that pays the cost of their medical care and can protect your business from a lawsuit. Depending on the situation, workers’ comp can cover disability benefits, missed wages, or funeral costs.
In return for receiving coverage for medical bills, employees must often agree not to sue their employer. However, employer liability insurance can protect a business if someone chooses to take legal action against it. An employee may decide to do so because they believe:
- Their injury or illness was caused by an intentional act.
- Their employer retaliated against them for filing a workers’ comp claim.
- The company has violated workers’ comp laws.
Third-party action lawsuits may be covered by employers’ liability insurance. It can apply if a worker is injured while using a piece of equipment and sues the manufacturer, which in turn files a lawsuit against the worker’s employer.
However, employers’ liability insurance doesn’t cover lawsuits that don’t involve workplace injuries or illnesses. To receive financial protection against lawsuits due to discrimination, wrongful termination, and other employment practices, a business must purchase employment practices liability insurance.
Business Liability Insurance
Workers’ compensation, employer liability, and employment practices liability insurance are all forms of business liability insurance. However, these aren’t the only types of insurance available to businesses. Beyond the insurance products already mentioned, here are some other different types of insurance that can protect a business:
5. Product Liability Insurance
Product liability insurance protects companies that manufacture products sold to the general public. If a lawsuit arises from an injury or death caused by using a dangerous or defective product, an insurance policy can cover legal fees, medical costs, and other damages. All types of products, including toys, recreational equipment, chemicals, and agricultural products, are covered.
6. Indemnity Insurance
Indemnity insurance protects a business against negligence claims that arise due to mistakes or failure to perform that cause another party financial damages. Financial and legal services professionals are required to carry indemnity insurance. Specific to certain types of service providers, it is an agreement in which one party guarantees to compensate another for the losses or damages it incurs.
7. Management Liability Insurance
If a company’s managers, directors, board members, or partners are sued for how they run the business, this covers legal defense costs. An example is directors’ and officers’ insurance for claims filed by employees, customers, vendors, investors, or competitors. Management liability insurance is available for nonprofit organizations, publicly traded companies, and financial institutions.
8. Professional Liability Insurance
Also known as errors and omissions insurance, this can cover claims arising out of an error your business made in services provided. It can cover legal defense costs related to claims of negligence, misrepresentation, or violation of good faith and fair dealing.
If a professional is sued for providing inaccurate financial advice and a client suffers financial losses as a result, a lawsuit can be costly to the provider. Professional liability insurance can cover attorney fees, court costs, and the cost of settlements or judgments. Administrative expenses, such as costs related to gathering medical records, business receipts, and written testimonies, can also be covered.
Frequently Asked Questions
Do I Need Liability Coverage In a No-Fault State?
In California, a no-fault state, drivers are required to purchase auto insurance. An injured victim must file a car accident claim with the at-fault driver’s insurance company, and prove their fault in the process.
What Types of Businesses Require General Liability Insurance?
General contractors in California who hire employees must have workers’ compensation insurance and general liability insurance. Professional liability insurance is not required for most businesses but may be a requirement for those who work on state or local government contracts.
Am I Eligible for Backdated Liability Coverage?
For an insurance policy to cover a claim, coverage must usually be in effect before the event happens. Backdated liability insurance can cover a claim for an event that occurs before the policy was purchased. It’s typically only available to businesses and is not a common insurance type.
Call Jacob for Help with Your Personal Injury Lawsuit
At The Law Offices of Jacob Emrani, our Los Angeles personal injury attorneys specialize in numerous practice areas. They work with many different types of insurance companies to get our clients the compensation they deserve. We have helped victims of car, bicycle, bus, truck, motorcycle, electric scooter, pedestrian, defective product, and premises liability accidents. Our legal professionals also specialize in medical malpractice and workers’ compensation law. To request a free consultation, call (888) 952-2952 today.