Liability Coverage and How It Works

Liability coverage is different from other common auto insurance coverage types for a couple important reasons. First, rather than providing monetary claims benefits to us if we have been injured or our property has been damaged, liability coverage on our own auto insurance policies protects us if we cause (or are accused of causing) injuries to other people and/or damage to their vehicles and property.

Second, liability coverage of some sort is legally required in almost every state (even those with one of the various forms of "no-fault" insurance). In California, the minimum coverage required by law is bodily injury liability coverage of $15,000 per person and $30,000 per accident, as well as property damage liability coverage in the amount of $5,000 per person.  The "evidence of coverage" we have to provide in California when registering our vehicles is confirmation that we have automobile insurance policies with at least this minimum amount of bodily injury and property damage liability coverage.

How Does Liability Coverage Impact Us?

We may be impacted by liability coverage in two different ways:

• If we have caused (or are accused of causing) a motor vehicle incident that has resulted in damage to property or injuries to a person, the people who were injured or who sustained property damage are likely to make claims against the bodily injury and property damage liability coverages under our auto policies. If this happens, our insurance companies have the responsibility of investigating, evaluating, and resolving these claims.  If we are sued, then our insurance companies also have the responsibility of hiring defense attorneys to represent us in those lawsuits.
• Conversely, if we have been injured and/or had property damaged by another person who negligently causes a motor vehicle accident, then we may be able to make injury or property damage claims against their automobile liability insurance companies. Those insurance companies then have a similar obligation to fairly and promptly resolve our claims.  (If it turns out that the person who caused our injury is not properly insured, then we would typically have uninsured motorist claims against our own insurance company – if we have this important UM coverage.

An important consideration when an accident has actually occurred, and people have been injured and/or property has been damaged is which bodily injury and property damage liability policies may be available to cover claims.  There are often more than one policy available, and sometimes multiple policies.  We will discuss this in more detail in regard to "third-party claims" and "third-party insurance carriers."

Third-party just generally refers to claims made against someone else's insurance policy rather than your own – but in general, the bodily injury and property damage policies that may apply include:

• The policy for the vehicle that the negligent driver was driving 
• The policy for the negligent driver, if he was driving someone else's vehicle
• The policy for the negligent driver's employer, if the negligent driver was on the job at the time of the accident

Comparative Negligence

Another important consideration is the legal theory of "comparative negligence." The way that fault is assigned legally for a traffic accident -- "legally" meaning with regard to any claims and/or lawsuits that are brought for injuries and damages, rather than to a separate determination made by a police officer or an insurance adjuster – varies from state to state. 

In some states, legal responsibility must rest with a single person, but in many states (including California), the concept of comparative negligence means that one, two, or even many people may be found legally liable for the injuries and damages someone sustains in a traffic collision.  For example, if your car is sitting at a stoplight and you are hit from the rear by a negligent driver, that driver (and any liability coverage policies that cover him or her) will be responsible for compensating for your injuries.  However, if just seconds after that collision a third driver then rear-ends the vehicle behind you, pushing that vehicle into a second impact with yours, then the driver of that third vehicle (and any liability policies covering him or her) will also be to compensate you for the injuries you sustained in the incident -- and the two drivers may each be found to bear some percentage of the fault for your injuries. 

Likewise, if you did something negligent that either contributed to the accident occurring, or which made your injuries worse than they otherwise would have been, then you may be found to be responsible in some percentage for your injuries and damages. Sorting out the complexities of which policies provide coverage when, and to whom, and in what amount is a primary task for a personal injury attorney.

In any of these liability situations, from the simple to the complex, the liability insurance companies have a duty to defend the person(s) whom they cover – that is, to resolve claims made against them and to hire and pay defense attorneys if they are sued  -- and to pay reasonable claims for bodily injury and property damage that are presented to them under their coverages.

What Does Liability Insurance Cover?

Property Damage – Property damage liability insurance covers damage negligently caused to other people's vehicles and personal property.  If we cause an accident, then our property damage coverage will compensate the other people for repair/replacement costs to the vehicle, as well as personal property inside the vehicle that was damaged in the incident.  The amount that is paid out is up to the maximum amount of property damage coverage that we carry – the minimum coverage in California being $5,000.  It also covers damage to stationary objects other than a vehicle that we might negligently hit – if we run into our neighbor's mailbox, he can bring a claim under our property damage liability coverage.

Bodily Injury -- Bodily injury liability insurance covers a larger variety of damage types than does property damage, since physical injuries and their consequences may have a huge range of results on people's lives.  If we negligently injure someone while driving a vehicle – whether they are in another car, riding a bicycle, walking as a pedestrian, etc. -- then our bodily injury liability policy provides coverage up to the maximum amount that we carry on our policy.  The minimum bodily injury liability coverage in California, again, is $15,000 per person and $30,000 per incident.  Among the several types of damages that are covered in this type of claim are:

• Medical bills past and future
• Wage loss to date and in the future
• Pain and suffering
• Loss of consortium

What Does Liability Coverage Not Cover?

Liability insurance is intended to cover damage that was caused through negligence – the results of unintentional actions or failure to take action.  Liability insurance policy is usually written not to provide coverage in a couple instances:

• Punitive Damages -- Liability insurance does not cover punitive damages for drunk driving. Punitive damages are just what they sound like – damages award to punish.  The law says that when someone has done something found to be especially (and legally) egregious that a trial verdict can include punitive damages.  The most common place where we see this is in injury cases resulting from drunk driving.  
• Intentional Acts -- Liability insurance does not cover deliberate acts by the policyholder -- if one person deliberately and intentionally causes injury to another person, the responsible person's liability insurance can decline to cover the claim. Injuries resulting from "road rage" incidents are a good example of this. 

How Much Liability Insurance Coverage Should I Have?

This is a tough question, and it's one that we are frequently asked by our clients.  The possible answers are complicated, but usually, come down to answering two questions of economics:

• How much liability insurance can I afford to purchase?
• How much liability insurance can I afford not to purchase?

The first question is certainly the simpler of the two.  Automobile liability coverage costs money, and having it is required by law.  Add it together with all your other recurring expenses, and it may make up a significant portion of your monthly expenses.  For folks with limited income, it may be a real challenge just to afford the minimum required $15,000/$30,000 bodily injury coverage and $5,000 property damage coverage.  For folks with somewhat more income, it may be feasible to add more liability coverage, and that's where the second question comes in to play.

The Purpose of Liability Coverage 

Remember the purpose of liability coverage – it protects you from being sued if you cause (or are accused of causing) injuries and/or property damage to someone else.  If you don't have enough liability coverage to adequately compensate someone for injuries or property damage you negligently caused to them, there is nothing that says they are required to accept the lesser amounts – your policy limits -- that your insurance company may offer them.  They may choose instead to sue you and require that you pay additional amounts out of your own income and assets.  Can you afford the risk of having this happen?  This is where folks of moderate and higher incomes face the second question of how much coverage you can afford not to purchase.

Another important consideration is that the amount of your liability insurance coverage almost always limits the amount of uninsured motorist coverage that your insurance company will offer you.  If you only have a "15/30" minimum liability coverage, then your insurer is only obligated to offer you the same "15/30" uninsured motorist coverage.  And as we go into more detail about elsewhere, uninsured motorist coverage is a good deal that most folks should get as much of as they can afford.

Additional Information on Insurance Coverages

For information on more of the coverages you may (or should) have on your automobile insurance policy, check out:

• Collision coverage 
• Comprehensive coverage 
• Uninsured motorist (UM) coverage
• Underinsured motorist (UIM) coverage  
• Medical payments (med-pay) insurance
• Gap coverage 
• Umbrella insurance coverage

And for more information on insurance companies, their claim tactics, and how an experienced personal injury attorney should deal with them, see:

• Insurance Company Tactics -- Dirty Tricks Insurance Companies Play in Accident Claims  
• Our Tools -- How an Experienced Personal Injury Attorney Deals with Insurance Company Tactics 
• The Insurance Industry and Individual Companies -- Huge and Hugely Profitable 

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