Liability Risk

Updated: 29 February 2024

What Does Liability Risk Mean?

A liability risk is a vulnerability that can cause a party to be held responsible for certain types of losses. Put another way, it is the risk that an individual or business will take an action that causes bodily injury, death, property damage, or financial loss to 3rd parties. When this happens, the affected 3rd party will have the option to sue the allegedly responsible party and exercise civil remedies.

When an insured person or business receives such a notice of civil action, they must report it to their insurance provider in a timely manner who will then step in to investigate the claim, defend the lawsuit, and if found legally liable in court, pay any damages or settlements awarded to the plaintiff.

Many businesses and individuals face various types of liability risk on a daily basis, the losses for which can be quite substantial. Liability coverage is, therefore, extremely important for companies and individuals.

Insuranceopedia Explains Liability Risk

There are many different liability risks that a business or individual may be exposed to. For example, a company could face general liability risks, product liability risks, premises & operations risk, professional liability risks, or contractual liability risks.

Some examples of the above-noted risks include:

  1. A customer slipping and falling on the wet floor in your store.

  2. Your delivery staff accidentally knock over an expensive vase at your customer’s home while on delivery.

  3. A customer gets takeout from your restaurant and gets sick after eating it at home

  4. Your engineering team made a mistake on some blueprints causing the final building to be structurally unsound.

  5. Your pizza delivery person accidentally hits someone while out on a delivery.

A good commercial general policy can provide a wide range of coverage for liability risks. It is especially important for manufacturers to have solid product liability coverage in case something goes wrong with one of their products. Product liability coverage is often included in commercial general policies, but not always.

Professionals like lawyers, engineers, or insurance professionals on the other hand, need to carry adequate professional liability coverage as it is usually excluded from most commercial general liability policies.

Individuals are also subject to a wide variety of liability risks on a daily basis. Drivers can face automobile liability risk of hitting someone or something every time they get in the car. Homeowners can face bodily injury risk if they fail to clear their sidewalks of snow and ice following a snowstorm according to local by-law requirements.

Most individual liability risks are adequately addressed with a home, tenant, or condo insurance policy. Mandatory automobile insurance policies also help individuals address their automobile liability risks.

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