Liability insurance is designed to offer specific protection against third party claims, i.e., payment is not typically made to the insured, but rather to someone suffering loss who is not a party to the insurance contract.

In many countries, liability insurance is a compulsory form of insurance for those at risk of being sued by third parties for negligence. The most usual classes of mandatory policy cover the drivers of vehicles, those who offer professional services to the public, those who manufacture products that may be harmful, and those who offer employment.

The reason for such laws is that the classes of insured are deliberately engaging in activities that could put others at risk of injury or loss. Public policy therefore requires that such individuals should carry insurance so that, if their activities do cause loss or damage to another, money will be available to pay compensation.

In addition, there are a further range of perils that prudent people insure against and, consequently, the number and range of liability policies has increased in line with the rise of contingency fee litigation offered by lawyers (sometimes on a class action basis). Such policies fall into four main classes:

Public Liability Insurance

A general term applied to forms of third party liability insurance with respect to both bodily injury and property damage liability. It protects the insured against suits brought by members of the public.

Industry and commerce are based on a 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). It varies from country to country as to whether either or both employer's liability insurance and public liability insurance have been made compulsory by law. Regardless of compulsion, however, most organisations include public liability insurance in their insurance portfolio even though the conditions, exclusions, and warranties included within the standard policies can be onerous.

Private individuals also occupy land and engage in potentially dangerous activities. For example, a rotten branch may fall from an old tree and injure a pedestrian, and many ride bicycles and skateboards in public places. The vast majority of countries require motorists to carry insurance and criminalise those who drive without a valid policy. Many also require insurance companies to provide a default fund to offer compensation to those physically injured in accidents where the driver did not have a valid policy.

Employers (Business) Liability Insurance

This is a vital type of insurer for any employer. It includes liability for bodily injury, property damage, personal injury, advertising injury, and fire damage.

New policies have been developed to cover any liability that might be imposed on an employer if an employee is injured in the course of his or her employment. In many countries, the insurers are prohibited from including conditions within their policies that seek to impose any unreasonable conditions precedent to liability, or require the insured either to take reasonable precautions or to comply with current legislation and regulations. In those countries where such insurance is not compulsory, smaller organizations are often driven into bankruptcy when faced by claims not covered by insurance.

You may also be able to add wrongful termination coverage under general liability, but there may be a clause preventing it through what is known as a "insured vs. insured" exclusion, that is, you can't use insurance to protect against internal strife.

Professional Liability Insurance

Organizations employing professionals who see clients should ensure that their employees are covered under professional liability insurance, either individually or as provided by the agency, and that the agency is named as an additional insured.

The cover protects the organization in the event of a claim for negligence, errors or omissions that injure their clients physically or result in an unacceptable monetary loss. Those requiring this type of cover include accountants, architects, financial brokerages, freelance consultants, healthcare & social services professionals, media & IT consultants and solicitors.

Product Liability Insurance

In the emerging compensation culture, consumers are increasingly willing to claim for injury or damage caused by a faulty or defective product. Product liability insurance is not a compulsory class of insurance in all countries, but legislation such as the U.K. Consumer Protection Act 1987 and the EC Directive on Product Liability (25/7/85) require those manufacturing or supplying goods to carry some form of product liability insurance, usually as part of a combined liability policy.

The scale of potential liability is illustrated by cases such as those involving Mercedes-Benz for unstable vehicles and Perrier for benzene contamination, but the full list covers pharmaceuticals and medical devices, asbestos, tobacco, recreational equipment, mechanical and electrical products, chemicals and pesticides, agricultural products and equipment, food contamination, and all other major product classes.

How can Candour Consultancy help?

Candour Consultancy advises on a wide range of corporate liability products. To speak to a liability insurance specialist to ascertain your potential liabilities or obtain a comparative quotation, just click here to provide us with your preferred contact details and a brief overview of your company and/or existing cover.