Liability Insurance is a part of the General Insurance System of Risk Transference. Risk Transference refers to shifting the burden of loss to another party through insurance. Historically, individuals or companies that faced a common peril formed a group and created a self-help fund out of which to pay compensation should any member incur a loss. Our modern system relies on dedicated carriers to offer protection against specified perils in consideration of a premium.

Liability Insurance is designed to offer specific protection against third party claims. For example: If you accidentally damage someone else’s property and are held legally responsible, Third Party Liability coverage pays their claims on your behalf, up to the specified limit. Damage caused intentionally, and contractual liability is not covered under Liability Insurance Policies. When a claim is made, the Insurance carrier has the right to defend the insured. The legal costs of a defense are not affected by any policy limits, which is useful where long trials are held to determine either fault or the amount of damages.