Liability coverage

In plain English: liability coverage is the part of an insurance policy that pays other people when the policyholder is legally responsible for hurting them or damaging their property. If someone else caused your accident, their liability cover is usually where your compensation comes from.

Two halves of the same coverage

• Bodily injury liability pays for injuries to others: medical bills, lost earnings, pain and suffering, and other damages.
• Property damage liability pays for the other person's car, fence, shopfront or anything else damaged.

Liability cover never pays for the policyholder's own injuries or car. That's what first-party cover is for.

Where it's required

Almost every US state requires drivers to carry a minimum amount of liability cover, and those minimums are often low compared with the cost of a serious injury. In the UK, the Road Traffic Act 1988 requires third-party cover, and cover for injury to other people must be unlimited. Canadian provinces require third-party liability cover with a set minimum, and many drivers buy much more. Businesses, landlords and homeowners also carry liability insurance, which is what pays in many slip, trip and premises claims.

The insurer's two jobs

A liability insurer has a duty to defend its policyholder and a duty to pay covered claims up to the limit. When you make a claim, the adjuster is protecting their customer, not assessing your needs. That's why they'll look for reasons to reduce fault or damages. In many US states, if the insurer unreasonably refuses a settlement within limits and a larger verdict follows, it can be exposed to its own policyholder for the excess. That pressure can matter in serious cases.

How fault affects what it pays

Liability cover only pays if the policyholder is legally responsible. If you share some blame, most US states, the UK and Canadian provinces reduce your compensation by your share. A handful of US jurisdictions still bar recovery entirely under contributory negligence. In no-fault states and provinces, you may need to pass a threshold before you can claim pain and suffering from the at-fault driver.

Next: bodily injury liability coverage · policy limits · comparative vs contributory negligence.

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