Casualty insurance policies provide coverage for several types of liability exposures. Bodily injury refers to physical harm suffered by a person, including sickness, disease, and death. Medical payments coverage pays reasonable and necessary medical, surgical, hospital, and funeral expenses resulting from injuries that occur at an insured location or arise from the insured's activities. These payments are generally made regardless of whether the insured was negligent. By paying smaller medical expenses promptly, this coverage may help reduce the likelihood of a liability claim or lawsuit. Property damage liability covers physical injury to or destruction of tangible property belonging to another person. It may also cover the resulting loss of use, which occurs when the damaged property cannot be used. Personal injury refers to certain nonphysical injuries that harm another person's reputation, privacy, or emotional well-being. Examples include libel, slander, false arrest, and invasion of privacy. Advertising injury involves similar offenses that arise while the insured is advertising its goods, products, or services. Examples may include copyright infringement, misappropriation of advertising ideas, or the unauthorized use of another party's advertising material.
A tort is a wrongful act that violates another person's legal rights or breaches a duty owed to that person. Liability insurance generally covers unintentional torts, which are commonly known as negligence. Negligence occurs when a person fails to exercise the level of care that a reasonably prudent person would use under similar circumstances. For an act to be considered negligent, the person must have owed a legal duty of care to the injured party, breached that duty, and caused an actual and substantial injury or loss. The breach must be the proximate cause of the injury, meaning there must be a direct and legally sufficient connection between the negligent act and the resulting damage. In addition, the injury or damage must have been a reasonably foreseeable consequence of the person's actions.
A person accused of negligence may rely on several legal defenses. Some defenses are based on common law, which develops through court decisions, while others are based on statutory law, which is established through legislation. Contributory negligence is a common law defense that may prevent a claimant from recovering damages when the claimant's own negligence contributed to the loss, even to a small degree. Comparative negligence, by contrast, generally allows a partially negligent claimant to recover damages. However, the amount awarded is reduced according to the claimant's percentage of responsibility for the loss. The exact rules governing comparative negligence vary by state. Assumption of risk is another common law defense. It may prevent a claimant from recovering damages when the claimant knew about a particular danger, understood the risk involved, and voluntarily chose to accept that risk. When a covered liability claim is made against an insured, the liability insurer generally has a duty to defend the insured, as provided in the policy's Insuring Agreement. This duty may include investigating the claim, hiring legal counsel, and defending the insured against a lawsuit. Certain claim-related expenses, known as supplementary payments, are generally paid in addition to the policy's liability limits.
Liability may arise even when negligence is not established. Strict liability and absolute liability impose legal responsibility automatically because certain activities, property, or conditions create an unusually high risk of harm. These forms of liability may apply to owners of dangerous animals or to individuals who possess or use firearms, explosives, highly flammable chemicals, and other significant hazards. Strict liability may also apply to manufacturers and sellers of defective products. Property owners may also be held liable for an attractive nuisance, which is an artificial condition on the property that is likely to attract children and expose them to injury. Examples may include swimming pools, abandoned machinery, or construction equipment. Vicarious liability occurs when one party is held legally responsible for the actions of another person. This type of liability may arise from certain relationships, such as an employer being held responsible for the actions of an employee performed within the scope of employment or, under certain circumstances, a parent being held responsible for the actions of a child.
Casualty insurance policies provide coverage for several types of liability exposures. Bodily injury refers to physical harm suffered by a person, including sickness, disease, and death. Medical payments coverage pays reasonable and necessary medical, surgical, hospital, and funeral expenses resulting from injuries that occur at an insured location or arise from the insured's activities. These payments are generally made regardless of whether the insured was negligent. By paying smaller medical expenses promptly, this coverage may help reduce the likelihood of a liability claim or lawsuit. Property damage liability covers physical injury to or destruction of tangible property belonging to another person. It may also cover the resulting loss of use, which occurs when the damaged property cannot be used. Personal injury refers to certain nonphysical injuries that harm another person's reputation, privacy, or emotional well-being. Examples include libel, slander, false arrest, and invasion of privacy. Advertising injury involves similar offenses that arise while the insured is advertising its goods, products, or services. Examples may include copyright infringement, misappropriation of advertising ideas, or the unauthorized use of another party's advertising material.
Liability insurance policies may contain several limits that define the maximum amount the insurer will pay for covered claims. These limits apply regardless of the number of insureds, claims submitted, lawsuits filed, or parties seeking damages. A per-occurrence limit is the maximum amount the policy will pay for all covered losses arising from a single event. A per-person limit is the maximum amount the policy will pay for bodily injury sustained by any one person in a single occurrence. An aggregate limit is the maximum amount the policy will pay for all covered losses during the entire policy period. Some liability policies use split limits, which establish separate maximum amounts for different types of losses. For example, an automobile policy may include one limit for bodily injury to each person, another limit for total bodily injury arising from a single accident, and a separate limit for property damage resulting from that accident. Instead of split limits, an automobile policy may provide a combined single limit. This is one maximum amount available for all covered bodily injury and property damage arising from a single occurrence. The insurer may allocate the limit among the covered losses as needed, but the total payment cannot exceed the combined single limit.
If the insured files for bankruptcy or becomes insolvent, the insurer remains responsible for fulfilling all duties and obligations required under the policy.