Liability insurance is a type of insurance that provides security to the insurance holder in case of a lawsuit. The insured get covered against lawsuits filed by a third-party. It gives the duty of providing security to the client to the company. A company or an individual may buy this type of insurance. This insurance is a part of risk-free management.
In many countries it is mandatory for businesses to buy liability insurance if they run the risk of getting sued by a third-party. The insurance only covers cases that arise as a result of strict liability torts or negligence from the insurance holder’s side.
Liability insurance is very important for corporations :
Liability insurance is very important for corporations that may lose millions in the case of a lawsuit. Such companies need protection to cover them against losses that may arise out of a lawsuit. In such a scenario, the insurance company does not make any payment to the insured, but to the third-party (the one that sues).
For example: If an individual sues the insurance holder for something, the losses will be covered by the insurance company if the case falls within the specified cases. However, the company will not make any direct payments to the insured, but to the third-party instead. The third-party, even though not a party to the contract, will be reimbursed in this case without the insured having to make the payment.
Liability insurance policies differ from company to company :
Liability insurance policies differ from company to company. In such a policy, damages caused intentionally or by contractual liability are not covered. It is because law does not provide security to a wrongdoer. In such a scenario, the insured cannot hold the company liable
In addition to these, the policy may have other points. The insurer and the insured must agree to the contract at the time of signing so that there are no issues.
Generally, liability insurance companies have three main duties. They are:
– The duty to indemnify the insured
– The duty to defend the claim
– The duty to reasonably settle claims
The liability insurer will have to defend a case for the insured when the case is tendered to the insurer by the party sued. The insured is required to send all the relevant details with a copy of the complaint letter to the liability insurer.
The company, after going through the request, decides if the application falls within the policy. If yes, the liability insurer has to provide its services to the client. If no, the insurer must write to the insured explaining the scenario.
As mentioned above, the insurance company is also responsible to indemnify the insured against all the sums that the insured is liable for. However, there is often a policy limit that has to be considered.
Lastly, in certain conditions, there is a third duty that the insurer has to perform. The duty is to reasonably settle claims. This duty is very important, especially in situations where the settlement exceeds or equals the policy limits.
A liability insurer must adhere to the policy and fulfill all the aforementioned duties. If the insurance provided fails to do so, without providing a justified reason to the client, the client has the right to apply for the breach of contract and sue the liability insurer for the same.
If you are also running a business that involves the risk of getting sued by a third party, you should get liability insurance right away. It provides security against third party claims and is very important to keep a business running. Individuals may also get this insurance if they need security against third-party lawsuits.
John Bower is a mercantile lawyer who works for a multinational company. He shares his experiences through his blog and is a big advocate of liability insurance. He considers it very important for every business.Google+