Liability Risk
What Does Liability Risk Mean?
A liability risk refers to the potential for a party to be held responsible for certain types of losses. In other words, it is the risk that an individual or business will take an action that results in bodily injury, death, property damage, or financial loss to third parties. If this occurs, the affected third party may sue the allegedly responsible party and seek civil remedies.
When an insured person or business receives a notice of civil action, they must report it promptly to their insurance provider. The insurance company will then investigate the claim, defend against the lawsuit, and, if found legally liable in court, pay any damages or settlements awarded to the plaintiff.
Many businesses and individuals face various types of liability risks daily, and the resulting losses can be significant. Therefore, liability coverage is crucial for both companies and individuals.
Insuranceopedia Explains Liability Risk
There are various liability risks that businesses and individuals may face. Some common examples include general liability risks, product liability risks, premises and operations risks, professional liability risks, and contractual liability risks. Here are a few examples of these risks:
- A customer slipping and falling on a wet floor in your store.
- Delivery staff accidentally knocking over an expensive vase at a customer’s home during delivery.
- A customer getting sick after eating takeout from your restaurant.
- Your engineering team making a mistake on blueprints, resulting in a structurally unsound building.
- A pizza delivery person accidentally hitting someone while out on a delivery.
A good commercial general liability policy can cover a wide range of these risks. For example, manufacturers should ensure they have solid product liability coverage in case something goes wrong with their product. While product liability coverage is often included in commercial general liability policies, it is not always guaranteed.
Professionals such as lawyers, engineers, or insurance professionals need to have adequate professional liability coverage, as this is typically excluded from most commercial general liability policies.
Individuals also face various liability risks daily. For example, drivers can face automobile liability risks every time they get into a car, such as hitting someone or something. Homeowners may be exposed to bodily injury risks if they fail to clear their sidewalks of snow and ice, as required by local by-laws.
Most individual liability risks are typically covered by home, tenant, or condo insurance policies, while mandatory automobile insurance policies address automobile liability risks.
