What is liability coverage and to what does it apply?

Personal liability insurance is rather like third-party liability car insurance, but for the owners and occupants of buildings. It applies anywhere in the world to bodily injury you may unintentionally inflict on others, or to your accidental damaging of their property. At your home, for example, suppose a visitor or a household employee were to be injured by a falling brick, and you were judged to be legally responsible; there would be no deductible and you would be covered for legal liability arising out of your personal actions. This coverage does not apply to injuries sustained by you, however, nor to members of your immediate household. Also, there’s no coverage for “punitive” damages assessed by a court as punishment for your actions.

Trailers, boats, golf carts: Your liability insurance automatically covers for losses arising from your ownership or non-business use of:

  • small boats (see your policy for exact limits and talk to your broker about coverage for larger craft);
  • golf carts on a golf course;
  • self-propelled lawnmowers, snow blowers, garden tractors (used mainly on your own property);
  • motorized wheelchairs. Liability coverage for all-terrain vehicles (ATVs), snowmobiles, and similar vehicles must be purchased separately under an automobile policy.

Business and business property: Home insurance is not business insurance. However, you are insured against claims arising from the occasional rental of your home to others (with certain restrictions pertaining to boarders).

Legal defense and settlement: If someone alleges that you are responsible for injuring him or her – or for damaging his or her property – your insurer will defend you against any resulting suit for compensation, even if the suit is groundless, false or fraudulent. (The suit must be related to your insurance coverage.)

Note: Your insurer has the right to investigate, negotiate and settle any claim or suit as it sees fit. Legal insurance – a product that is unrelated to property and casualty insurance – might be useful in the event that you were to disagree with your insurer’s settling out of court on your behalf.

Voluntary payments: You may not be legally responsible for accidentally injuring someone or damaging someone else’s property, but you may feel morally obliged to make amends. Or you may wish to reimburse others for direct property damage caused, even intentionally, by a child (12 years of age or younger) in your household. That’s where “voluntary payment for damage to property” and “voluntary medical payments” coverage can be useful. (Although this provision can apply to loss or injury experienced by household staff, members of your household are not covered.)