What is Legal Liability in Liability Insurance?

What is Legal Liability in Liability Insurance? - Definition

Legal Liability in Liability Insurance means when the Policyholder is responsible for the loss of another and is obliged to provide compensation for the loss. The Policyholder becomes “legally liable” to pay for the losses of the party who has suffered the loss.

A Liability Insurance Policy provides coverage for what the Insured is “legally obligated to pay”, the legal obligation is the trigger point for Liability Insurance.

Legal Liability can arise out of Intentional Tort or Negligence (Unintentional Tort).

What is an Intentional Tort?

A Tort is a civil wrong arising out of breach of some duty such as Libel, Slander, Assault which leads to a civil cause of action and for which Damages or Compensation are recoverable. A Tort is a breach of the private right of an individual which affects only the victim. The victim may sue the person who commits the wrong for financial compensation in a civil court. When the victim sues the person in a civil court, the court can only award financial compensation. Civil Courts cannot impose jail time. The Law of Tort imposes a duty on each person to regulate his actions to not cause injury to another person.

What is an Unintentional Tort?

An Unintentional Tort is also known as negligence. Negligence is defined as “the breach of a duty caused by the omission to do something which a reasonable person, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable person would not do.” Negligence, thus, means absence of care. The following conditions must be satisfied for an Act to be classified as Negligence:

1. Existence of Duty of Care
2. Breach of that Duty of Care
3. Injury or Damage as a consequence of Breach of Duty of Care
4. Casual Connection between Breach of Duty and the Injury or Damage

Duty of Care

An Individual or a Company owes a duty of Care to not injure others who could reasonably be foreseen to be likely affected by their actions or omissions. Each individual or organization has a duty to act reasonably towards others.

Breach of Duty of Care

An Action can qualify as negligent only if there is a breach of duty of care. The courts determine whether there has been a Breach of Duty of Care with reference to standards of Care expected by Law. The test of Duty of Care is what would a reasonable man do in the same situation. If your action is not how a reasonable man would behave in the same situation, the action can be qualified as negligent and there is a Breach of Duty to Care.

Injury or Damage

The 3rd condition for an Action to qualify for an Unintentional Tort is that the victim should have suffered an Injury or Damage as a consequence of the Breach of Duty to Care. An Injury can be Death or Bodily Injury while Damage can be Property Damage as well.

Causal Connection between Breach and Injury

The final condition is that the negligent act should result in an injury or damage. There has to be a causal relationship between Breach of Duty and Injury or Damage. Under Common Law, the burden of proving negligence rests with the victim who has suffered the injury or damage.

How to protect yourself from Legal Liability?

When a victim sues you, the legal costs and damages can run to lakhs of rupees. These costs can cause a huge financial setback. Liability Insurance can protect you from both intentional and unintentional torts by providing coverage for legal costs and Compensatory Damages.

If you need any assistance for Liability Insurance Policy such as Cyber Insurance, D&O Liability Insurance Policy or Commercial General Liability Insurance Policy, you can reach out to us at insurance@qian.co.in or call us on 022-35134695. We would be glad to assist you.