Liability Claim

Updated: 29 February 2024

What Does Liability Claim Mean?

A liability claim occurs when an insured reaches out to an insurance company asking them for help or financial assistance with a third party’s allegation that the insured is responsible for some loss or damage.

In the course of an insured's daily life or in the course of their business operations, there are actions with the potential to cause financial loss or physical injury to third parties. Common examples getting into a car accident while driving or accidentally knocking over an expensive vase while doing an installation at a customer’s home.

When this happens, third parties that have been negatively affected may send a legal demand letter to the insured asking that they compensate them for the loss.

When an insurance company receives a notice of claim for a liability incident, their claims department will evaluate it to see if the type and cause of the loss or damage suffered by the third party is insured.

If the insurance company deems the loss insurable, their claims department will take action to take charge of the legal defense and investigation of the claim, negotiate a settlement, and if you are found legally responsible, they will also pay compensatory damages you are legally obligated to pay to the third party.

Insuranceopedia Explains Liability Claim

If the insured makes a mistake or is alleged to have made a mistake that causes financial loss, physical injury, or even death to a third party, they could be on the receiving end of a legal notice demanding compensation for the loss or injury. If the insured has liability insurance coverage, they can file a liability claim with the insurer asking them for help.

The insured may file a liability claim if, for example, they are involved in a car accident that causes bodily injury or damage to another person’s property or are negligent on the job. All of these can result in suffering to a client or causing a product to have untoward consequences to a customer.

When a notice of claim is delivered to an insurance company, it is first received by their claims department who will conduct an initial evaluation to see whether the type of damage being claimed and the alleged cause of loss is insured by the policy.

If it is, then the insurance company will engage their legal team to take over the investigation and defense of the case. In most liability insurance policies, the insurer has both the right and duty to defend liability claims.

They also have the right to settle with the claimant if they believe that they are unlikely to win or that going to court would be too expensive. If you carry adequate liability insurance, the insurance company will assist you in various ways including paying settlements, compensating the aggrieved third party for loss or damage, and providing legal assistance when facing litigation.

Related Reading

Go back to top