Liability Coverage: The Unsung Safeguard of Your Insurance Policy

How your home or renters insurance covers you if punch someone in a bar (and other unfortunate things)

liability coverage protects you in civil lawsuits

Okay, let’s start with this: please do not go punch someone in a bar. We’re not endorsing any bad behavior in this article. We’re merely trying to highlight an area of insurance coverage which most consumers don’t know exists, and which can have their backs if they get into precarious legal situations. What the heck are we talking about? Your liability coverage.

You know your home insurance policy or your renters insurance policy keeps your home protected in cases of damage or property theft, right? But if you check your policy, there’s this incredible thing called “liability coverage” which you might overlook.

What is liability coverage?

Liability coverage is intended to protect the insured (you, the purchaser of the policy) against lawsuits or insurance claims made by another person for any damage you might cause.  

How does liability coverage fit into your home or renters insurance?

Considering that homeowners or renters insurance policies protect all, or most, of your personal belongings anywhere in the world (and in the case of homeowners insurance, the structure of your home as well), it’s easy to lose sight of the importance of additional coverage (read: liability coverage). Exposure to liability isn’t something people like to think about and it’s much easier to focus on all of the things on which you’ve spent your hard-earned money. This does not, however, diminish the importance of ensuring you are covered in the event of unforeseen accidents or mistakes on your part.

Not all policies are created equally. Homeowners and renters policies can have various exclusions that can vary by provider, so it’s important to understand how your policy would apply in the event of a worst-case scenario. After all, the worst time to find out you are not covered for a certain event is after it has occurred.

It is important to note that, while liability coverage on a homeowners or renters insurance policy can apply to a broad range of incidents, the decision to provide coverage for any particular claim is up to your insurance company and is based on the wording in your policy and the specifics of the incident. Still, we explore some common unfortunate situations in which your liability coverage could save the day.  

Your home or renters insurance company has a duty to defend you in a civil lawsuit.

How Does Liability Coverage Protect Your (Not-So-Great) Behavior?

1. Getting in a Fight

Although we live in a (generally) civilized society, misunderstandings can lead to unintended physical altercations. Say a driver cuts you off or an overserved bar patron spills a beer on you – for these and many other scenarios, tempers may flare and lead to fisticuffs.

First and foremost, we don’t endorse throwing punches. But in the event you lose your composure out of anger, feel the need to defend someone, or otherwise opt to strike another individual, you could face serious criminal and civil consequences (not to mention physical injuries of your own). Criminally, you could face potential jail time or community service, and further, a judgement against you in a civil lawsuit could lead to a crippling financial situation.

Since your insurance company has a duty to defend in the event of a civil action taken against you, your policy would likely pay for your defense in court – unless specifically excluded by your provider. And since there is no guarantee of a positive outcome, your liability coverage would also cover any judgment against you up to the limit listed on your policy. A civil judgement of an amount greater than your liability coverage would mean that you end up paying that out of your own pocket, so it’s important to carry limits as high as you can afford.

2. Defamation

We’ve all made statements that can be regretful and hurtful in the heat of the moment or when we’re in stressful situations. What many may not realize is that making certain statements or comments can actually be considered libel, a written false and malicious statement, or slander, spoken defamation, that financially or emotionally damage another person’s reputation. With the rise of social media, and the integration of it in our daily lives, it is even easier to say or write things that could end up leading to a lawsuit if our statements “injure” another person or entity.

tabloids libel slander liability

Defamatory statements can have negative financial and emotional implications on the person to which your statement is directed and lead to a lawsuit. We’ve all heard the high-profile allegations of celebrities, politicians, and other well-known names. For example, former Governor of Minnesota and Navy SEAL, Jesse Ventura, sued another former SEAL, Chris Kyle, after Kyle recounted a story in his autobiography which alluded to a fight between Ventura and himself. Ventura claimed the entire story to be false, sued Kyle in court for the damage caused to his reputation, and was awarded $1.8 million dollars, which was overturned in June 2016. Other famous actors including Cameron Diaz and Sharon Stone have filed and won defamation lawsuits because of false written and spoken statements that damaged their reputations as well.

Defamation and character assassination is not something that only happens to celebrities. For example, if you were to make a false statement about a coworker that led to them being fired, you could be sued for financial damages. Even if it is difficult for the other party to prove you were to blame for their firing, a legal battle can be costly and time consuming.

If you opted for a defamation endorsement on your homeowners insurance policy, your company should provide representation in the event of a lawsuit from a defamatory off-the-cuff statement. There are stipulations to this coverage endorsement, so it’s always a good idea to get clarification on how your coverage would apply in the event of a legal battle. For example, insurance companies normally exclude coverage for liability for incidents that happened during the course of business, so bloggers and journalists would need separate media or professional liability policies to protect themselves. This is similar to a doctor carrying malpractice insurance.

3. Riding a Bike

Believe it or not, it’s possible to cause serious injury or damage to another party while riding a bicycle. Whether blowing through an intersection to beat a red light or if you’re distracted by the sights and sounds on your ride, you are liable for a crash on your bike just as you are in an automobile. The trouble is, auto insurance will not provide coverage for damage or injury you cause while on a bicycle.

For those who commute or regularly ride a bike, homeowners or renters insurance will follow a rider for the duration of their trip. Any damage for which the rider is liable would be covered by either of those policies.

For those that use their bicycle for delivery or courier services, riders may require a separate commercial or business liability policy. This is an important aspect on which you should consult your agent before taking your bike on the road for work purposes.

protected bike lanes

4. Damage Your Kids Cause

From sleepless nights in the early days to parent-teacher conferences in a child’s formative years, parenthood often ranges from fulfilling to daunting. A major part of being a parent is teaching your child right from wrong (and remembering that kids are kids and accidents are bound to happen). Since you are responsible for your child until they reach adulthood, the liability for any damage they cause falls to you. So if your kid hits a baseball through a neighbor’s window or breaks an expensive vase while playing at a friend’s house, it’s up to you to repair or replace the damaged object. And although it can be embarrassing to face a friend or acquaintance after the damage is done, an inability to pay for the damage could make the situation even more uncomfortable.

It’s possible to find yourself in a situation where an incident can range from hundreds to thousands of dollars, making the reality of paying for the damage out of pocket financially burdensome. Fortunately, most damage that a child may cause falls under the liability portion of the parent’s homeowners or renters insurance policy. If you have children of any age, it’s best to consult with your insurance agent about how your specific policy applies in the event that you are responsible for damage your child might cause.

If you file many or extreme liability claims, your insurer could raise your rates or cancel your policy.

How Filing a Liability Claim Affects Your Insurance

While it may be comforting to know that your homeowners or renters insurance liability coverage can help protect you and your assets in the event of a lawsuit or insurance claim, it’s also important to minimize exposure to unnecessary risk. As mentioned above, physical altercations are never a good idea, and of course you never want your child destroying property. Not only could you face criminal charges (like assault or vandalism, respectively), you could experience a whole slew of other legal issues outside of what your liability covers.

Something else to consider, though, is the impact any liability claims you may make would have on your insurance premium. Although liability claims do not require a deductible (which is often the case of any damage or theft in your home or apartment), insurance companies could charge a significant increase in premium or they could altogether refuse to renew your policy after making a large claim payout on your behalf. And in the latter case, the riskier you are to insure based on your past behavior, the harder it will be to find an affordable policy. In the worst case scenario, you may not be able to find a company willing to insure you at all. Mitigating as much risk as possible will help you to maintain an affordable policy while keeping a coverage level sufficient enough for your needs.

When It Comes to Liability, Don’t Be Afraid to Ask Your Agent Questions

With so much exposure to risk, it should go without saying that you need to be insured. Protecting your personal items, covering the structure of your home, and ensuring your liability is protected is most easily accomplished by consulting an agent about your specific needs. Since renters and homeowners insurance are intended to protect your most precious and valuable assets, it’s extremely important to ask questions about any details that are even remotely unclear to you.

Go ahead, walk through your policy line by line. Your insurance agent’s job is to explain the breadth of your coverage and make sure you are comfortable with all the specifics before issuing a policy. Even though it’s impossible to insure against every circumstance, having an understanding of how your policy applies will help you better understand your exposure to risk. (And if you have any questions about terms or coverages, feel free to ask me.)