Contingent liability insurance is insurance protection against potential perils or obligations that may or may not come to be, depending on how a particular event turns out. Companies often purchase it to protect against the possibility that an event would result in the party owing a large sum of money.
Product warranties and outstanding lawsuits represent common contingent liabilities. For example, a company who sells various consumer products is sued in a product liability case. The company does not what know the outcome will be nor the exact amount of losses it might incur. In the event the case went against their favor, contingent liability insurance would protect the company from substantial losses.
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