Personal liability insurance takes care of protecting your assets by paying up damages and claims in the event that you injure another person or cause damage to their property. Personal liability insurance is different from life insurance protection wherein you take out a policy to get your own protection. Not everyone has personal liability insurance but anyone will benefit from taking out a policy because this ensures that should anything happen because of you, others part of the event will be well taken care of.
What to expect
Insurance companies offering personal liability insurance have certain duties to fulfill to you when you take out a policy. These include:
- Defending you an insurance company duty to defend you begins when you are sued and you require a defense for a claim. Typically, this is done when a copy of the complaint is sent, along with letter that references relevant policies and demands immediate defense. At that point, an insurance company has the option to: defend, seek out declaratory judgment that no coverage is offered, or neither. If the insurance company chooses to defend you, they either waived their defense of no coverage or they must defend as guided by a reservation of rights. The latter simply means that the insurance company is given the right to stop defending you when it turns out that you do not have coverage for the claim and that whatever costs were incurred during the defense will be recovered from you. It depends on the insurance company but a personal liability insurance case may be defended by either in-house lawyers or from an outside firm. An insurance company may also do nothing but it is very risky. Most then just choose to defend as guided by a reservation of rights instead of doing nothing.
- Offering indemnification this means that the insurance company has the duty to pay for everything that you are liable for, as covered by policy terms and limits.
- Settling reasonable claims most jurisdictions have insurance companies adhering to only the first two duties. A third one, settling reasonable claims, generally comes into play when the settlement is demanding more than what a policy covers. The problem here is that this duty pits the insurance company interests with yours because if they adhere to this duty then they will have to pay the policy limit. This means they have to pay more and paying more does not make insurance companies happy. Besides that, the insurance company will benefit from not taking your case to trial since there are only two possible endings: either you lose your case in which the insurance company pays the policy limit or you win and no one has to pay for anything. But if the insurance company refuses a settlement then the case will go to trial, in which it is possible that you will be held liable for an amount that exceeds the settlement offer. This is where an insurance company duty in settling reasonable claims comes in. To prevent putting you in danger of even the remotest chance that you will have to use your personal liability insurance policy coverage (means they don’t have to pay too), the insurance company sets to defend you and when it is clear that you are at fault, come up as well with a settlement that everyone will generally be happy about.
If an insurance company breaches any of the duties mandated within the jurisdiction it belongs to, it will be slapped with a breach of contract infraction, as well as be held liable for a tort of bad faith insurance.