A liability in insurance terms is something that can hinder or place a group or individual at disadvantage or alternatively it indicates the responsibility for something that has happened or might happen in the future.
A liability can be enforced legally and is normally set out in contractual agreements between an insurer and the insured party. If an area of liability is not set out in the contract between the two parties then it cannot be assumed that this is not enforceable by law, but it is reasonably likely that legal enforcement may be difficult or impossible. The exception to this rule may be if a state body changes its laws on specific policy liabilities during the period of coverage and an insurer is expected to apply these changes immediately and to include existing policies, in this instance the liability area may not be specifically highlighted in the insurance contract but would be able to be enforced through legal action as necessary.
It differs from legal liability which is the obligation on an individual to pay their debts, or comply with specific instructions from a legal authority.
It also differs from public liability which is part of tort law that concentrates on civil wrongs and liabilities.
What is my liability under my policy?
Your policy will clearly define areas of liability that you are given cover for and where the insurance company will meet the costs of your liability should you incur circumstances in which you become liable that are covered by the policy provided.
Each individual insurance policy covers different areas of personal and/or corporate liability, in most cases these policies are there to protect you in instances where you will become liable through no fault of your own or the company.
Most insurance companies will not accept liability for deliberate actions on the part of the policy holder that increase the level of risk of them being held liable for their actions. For example an auto insurance policy may refuse liability if the driver is found to be under the influence of illegal drugs or prescription medicines with appropriate warnings or alcohol or a combination of these factors. In this instance the driver is knowingly endangering themself and others and as such it is unlikely that an insurance company would accept the liability because the level of risk is unjustified by the client’s premium.
(To read more about liability insurance outside of our glossary, please read our more detailed article on the subject.)