How Does Liability Insurance Work?

The United States has become a very litigious society.  In order for citizens to protect themselves from potential lawsuits, an entire line of insurance products has been developed – liability insurance.  The purpose of liability insurance is to protect you against any financial costs that could be incurred due to any loss or damage as a direct or indirect result of your actions.

The general public is probably most familiar with liability insurance as a component of automobile insurance.  Typically gross negligence or malice would be exclusions on a liability policy.  There are a few types of liability insurance, with slightly different intents for each.

• Cover your business against injury and damage to members of the general public with a public liability policy.  The policy would typically cover visitors to the business as well as sub-contractors who perform work on the property, and even those who trespass illegally.  Though a business may not be required to carry this type of insurance, a business is an asset and income stream for its owners, and it would be wise to protect that asset as much as possible.


• Protect yourself against errors and omissions with a professional liability policy.  This is more commonly known as errors and omissions insurance, but it can also protect against malpractice and even negligence.  This type of policy is required for medical doctors in most states.


• Protect your company against product defect with a product liability policy.  Depending on the specific product, it may be necessary to carry more or less of this type of insurance.  This policy would protect the company if their product caused injury to a member of the public.


• Protect your company from your own employees.  This is, unfortunately, a necessity in dealing with today’s workforce.  Though the federal government has required employers to make their workplace safe, injuries and deaths still occur in the workplace.  In the unlikely event that this occurs, an employer’s liability policy will protect the company against those types of claims.