Understanding Liability and Your Insurance Policy

What does liability insurance cover?  The following article explains this critical coverage and how it applies to you.

Eileen Evans Jankowski, CIC

By Wendy Jane Henson

Liability coverage appears in nearly all insurance policies. Insured parties, however, can have a hard time understanding what the term”liability” means and to whom it refers.

My dictionary defines liable as:

1. Justly or legally responsible as for damages; answerable. 2. Subject or susceptible, as to injury, illness, etc. 3. Officially obligated to be available. 4. U.S. Informal, Likely.

An additional definition of liability, taken from another source, includes “that for which one is liable, as the financial obligation for a debt.”

In other words, for insurance purposes, whether it covers your car or your home, liability involves legal responsibility for you to make payment in the event that there are damages to another party.
Your insurance policy always specifies your “limits of liability.” That is the highest amount your insurance carrier will pay for damages that are related to your coverage. If your liability coverage is for $50,000, that is the most that your carrier will pay per occurrence (incident). Higher limits of liability coverage can cost you a bit more in premiums, and, above a basic amount, you are free to decide how much liability you want. But a nice chunk of liability coverage really isn’t that expensive. (On my homeowner’s policy, my limit is $300,000. The liability portion of my premium is $18 per year.)

Again, your carrier will pay only to the liability limits you purchase. That leaves you responsible for costs above and beyond the covered amount. For example, let’s say you cause an auto accident, and your liability coverage is $50,000. The other party’s bills, however, total $95,000. You are on the hook for $45,000. You can be sued for everything you own, the claimant can take your home, garnish your wages, and in general make your life miserable. While you can skimp in other areas, you are well advised to carry as much liability coverage as you reasonably can afford.

For insurance companies, liability claims hinge entirely on who is at fault. They assign adjusters to investigate the incident and determine where blame belongs. Not at all a black and white process, liability determinations often have many shades of gray. The more fuzzy the facts, of course, the longer it can take to investigate and to determine who is responsible for the problem.

With auto policies, liability protects the other car and its driver or passengers if you are found at fault for an accident. Conversely, when someone hits your car, their liability should pay for your damages.

Be forewarned, however, that if you file a claim against another driver, that person’s insurance carrier has to accept liability in order to help you. That means they must first speak with their insured and get that person’s side of the story. It is highly unlikely adjusters will take any action against their insureds without speaking to them first. Then the adjuster determines, through investigation, who was at fault.

Frequently, the person who hit you will admit to being at fault, and the claim will move forward. But this is by no means automatic. Sometimes an adjuster will conclude that both parties are to blame. (S)he will accept only a percentage of the liability and pay accordingly. Sometimes the adjuster will not have enough evidence that his/her customer was at fault. Unless their insured confesses to wrong doing, the adjuster can deny your claim and refuse to pay. It’s an unpleasant prospect, but it can happen.

Also, if the other carrier has trouble reaching their insured, this can drag out the process. On rare occasions when they cannot, for some reason, reach their insured, it is possible they will deny the claim. Again, these are unpleasant prospects for a victim, but it is better to know about them than to be surprised.

Sometimes liability decisions take longer than you are willing to wait for repairs. If someone does hit you, and you decide to go through your own carrier for repairs, you will have to use your collision coverage. While there is never a deductible on liability, using collision means you must pay your deductible. Many people are unaware of this fact, and they become upset about it. But the reality exists. If you believe the other driver was at fault, and you want his/her company to pay for your damages, you must wait for the other carrier to make a liability determination.

For homeowners insurance, liability protects people who come onto your property and suffer physical injury and/or sustain damage to their property. The incident can occur on any part of any property that you own, inhabited or not. Nor does it matter whether the people were invited. For example, some friends drop by, parking in your driveway. Suddenly, your birch tree falls, smashing their RV. Your liability insurance will pay to replace their Suburban.

A dog biting a postal worker or delivery person is a common homeowners liability claim. But your policy also can cover a dog who escapes from your yard and bites someone down the street. While a visiting friend who trips on your stairs has an obvious claim, a neighbor kid who skateboards on your sidewalk also could be taken care of.

Sometimes, however, homeowner liability claims make you wonder. You posted a sign that says, “Beware of dog.” Yet the delivery person came into your yard. You told the kid on the skateboard to go home. But he ignored you. Are these accidents really your fault, or do they result from the other person’s carelessness? Won’t a judge and jury agree that the people should have heeded your warnings?

Maybe. Or maybe not. The best lawyers in the world never know for sure what a judge and jury will do. But the worst part is that litigation typically takes years. If you hire a lawyer and go to court, even when you win, it can cost you a fortune.

Claims generally are best left to adjusters. They investigate, hear both sides of the story, discern the facts and decide who is liable. While you may think you are not at all to blame for the dog bite, your adjuster might say, “Yes, you owe that postal worker.” Then the adjuster makes an offer designed to heal the wounds and restore the worker’s dignity. Or the adjuster might decide, “No, the kid on the skateboard was trespassing. We won’t pay.” In most cases, the adjusters’ decision will be final, one way or another, and your ordeal ends.

If you get sued, however, your liability coverage puts the power of your carrier’s lawyers on your side. They will go to court with you and provide “…a defense at our expense by counsel of our choice even if the allegations are groundless, false or fraudulent.” Meaning their considerable resources can help you get a fair hearing and an impartial judgment.

As is always the case with insurance policies, there are some liability losses that your carrier simply will not cover. Very strict liability exclusions can range from residence employees (housekeepers, gardeners, etc.) to illegal drugs (use and/or manufacture thereof). A loss that rises from a criminal act or an intentional act by yourself or member of your family probably will be excluded. So if, while robbing a bank, you crash your car into it, or if you punch that invading delivery person in the nose, you’re on your own.

In fact, on homeowner policies, you sometimes find an exclusion that can give you a giggle. For example, if anyone makes a claim against you, directly or indirectly, because of an act of war, especially nuclear war, you are completely out of luck. (Even if discharge of the weapon is accidental.)

All kidding aside, however, you always should read your policy, know what is in it, and direct all questions to your insurance agent.

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