Liability Insurance
Liability Insurance policies are designed to indemnify an Insured for their legal liability to pay Damages (including Claimants' defense costs and expenses) in addition to the Insured's own defense cost as a consequence of claims against the Insured for
- Death, Bodily Injury, Illness or disease or
- Physical loss of or damage to property
emanating from the business activities of the Insured.
Under the conditions of a typical Liability insurance policy insurers have two major duties to the Insured: the duty to defend and the duty to indemnify which are generally defined as follows:
The duty to defend is triggered when the insured is sued and in turn "tenders" defense of the claim to its liability insurer.
The duty to indemnify means the duty to pay "all sums" for which the insured is held legally liable.
Subject to the specific terms, conditions, limitations and exclusions contained within the Insured's policy document.
Types of liability insurance
Depending on the country in which the Insured is operating, liability insurances can be either compulsory or non-compulsory. The usual classes of compulsory liability insurance would be in relation to the ownership and operation of motor vehicles & those who manufacture particularly hazardous products, and in some European countries for those who offer employment. Although the type and range of liability policies has increased in line with the rise of contingency fee litigation offered by lawyers most liability policies fall into three main classes as follows:
Public liability
Industry and commerce undertake a wide range of processes and activities that have the potential to affect third parties (members of the public, visitors, trespassers, sub-contractors, etc. ) who may be physically injured or whose property may be damaged or both. In the event of a claim from any of these third parties, out-of-pocket costs for legal defense or settlement could be enough to shut down a small business, or have a material impact on the financial stability of a larger business.
Most organizations therefore include public liability insurance in their insurance portfolio as part of the Risk Management function of their business.
Businesses must consider all potential risk exposures when deciding whether liability insurance is needed, and, if so, how much coverage is appropriate and cost-effective. Those with the greatest public liability risk exposure are occupiers of premises where large numbers of third parties frequent at leisure including shopping centers, pubs, clubs, theaters, sporting venues, markets, hotels and resorts, the risk increasing dramatically with consumption of food & alcohol.
Product
Product liability insurance is not a compulsory class of insurance in all countries, but some legislation such as the UK Consumer Protection Act 1987 and the EC Directive on Product Liability (25/7/85) require those manufacturing or supplying particular goods to carry some form of product liability insurance, usually as part of a combined liability policy. The scale of potential liability can vary dramatically between industries such as those industries and or businesses that supply pharmaceuticals and medical devices, asbestos, tobacco, recreational equipment, mechanical and electrical products, chemicals and pesticides, agricultural products, food and other consumables.
Employers
Employers Liability insurance provides cover for an employer's legal liability in relation to death, injury or disease suffered by an employee within the workplace or as a consequence of a particular work practice, occurring within the course of employment.
As with other classes of liability insurance risk exposure can vary dramatically between industries and the business process applied.
Liability insurance and the technology industry
Because technology companies represent a relatively new industry that deals largely with intangible yet highly valuable data, some definitions of legal liability may still be evolving in this field. Technology firms must carefully read and fully understand their policy limits to ensure coverage of all potential risks inherent in their business which may require the purchase of other classes of liability Insurance such as professional indemnity Insurance.
Typically, professional indemnity insurance protects technology firms from litigation resulting from charges of professional negligence or failure to perform professional duties. Covered incidents may include errors and omissions that result in the loss of client data, software or system failure, claims of non-performance, or negligent overselling of services. For example, some client companies have won large settlements after technology subcontractors' actions resulted in the loss of irreplaceable data. Professional liability insurance would generally cover such settlements and legal defense, within policy limits.
In relation to all the above liability insurance policies claims are normally dealt with under common law principles established through a long history of case law and, if litigated, are made by way of civil actions in the relevant jurisdiction.
