Liability insurance is a part of commercial insurance which is there to protect the purchaser of the policy (i.e. policyholder). Various risks of liabilities can arise from lawsuits and similar claims. There are various types of liability insurance policies, like cyber risk, directors’ & officers’ liability insurance, product liability, etc. Commercial general liability insurance is also one of the parts of insurance. The policy offers protection against claims which may arise due to bodily injury or damages caused to the third party’s property for which your business may be held responsible.
What Role Does Liability Insurance play in a company?
The policy plays a crucial role by offering protection in case of a wide range of liabilities. In most cases, commercial general liability insurance acts as a foundation for most of the company’s liability insurance plans.
Similarly, if you work in a technology-driven industry, you can have professional liability insurance which safeguards against litigation charges which may arise from professional negligence. Professional negligence can result in software failure, loss of client’s data, the disclosure of client’s confidential information, etc.
Such liability insurance policies offer you complete protection in case of third-party claims. It means the person who suffers losses due to your actions and who is not part of the insurance contract gets the payment.
However, in any case, the insurance will not cover those losses or damages which are caused intentionally along with contractual liability.
Duties of Insurance Company :
In the case of liability insurance policies, the insurance company has two or three major duties. These primarily depend upon their jurisdiction as well –
- The duty to defend
- To indemnify the policyholder
- The duty to settle the claim
When someone files a claim against the policyholder, the insurance company defends the policyholder. It covers the legal costs of defense. Usually, the legal costs of defense do not have limits unless the policy document mentions the same explicitly.
Read more: What are the different types of liability insurance?
Case: liability insurance
Incepted in 1999, K.S Engineering is a pioneer name in the engineering field. It is through the sheer hard work of its over 200 employees that the company maintains a wide clientele base. This includes foreign companies as well.
Last year, the company grabbed a huge deal of exporting engineering items worth Rs 1 crore. As per the agreement, the company had to export goods to a buyer situated in the Maldives. Since the contract was huge, the buyer insisted on a physical inspection of the goods. As agreed, the buyer visited K.S Engineering’s warehouse in Pune to check the quality of the items. While inspecting the consignment in the factory, the buyer tripped over the power cord and caused severe damage to his right leg and back.
It was the prime responsibility of K.S engineering to ensure the complete safety of its workplace, however, it failed to ensure safety. Here, the buyer filed a case against K.S Engineering who, fortunately, had bought a commercial general liability insurance policy. As soon as the case reached the court, K.S Engineering approached the insurer who appointed a surveyor to inspect the cause and extent of losses or damages. Here, the verdict in the court was given in favor of the buyer, and K.S Engineering was asked to pay compensation.
Read more: Who is Insured under Commercial General Liability Insurance?
Conclusion
The general liability insurer found the claim legitimate and therefore, settled the claim on behalf of K.S Engineering, which included both the compensation and legal costs. As K.S Engineering incurred legal expenses in defending itself in court, the insurer also settled the legal expenses.
The commercial general liability insurance paid the compensation on behalf of K.S Engineering and thus saved it from a heavy financial loss.
