Liability Insurance and Coverage

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Your insurance company under Liability Insurance or Coverage will not pay for anything that is not reasonable and necessary (actually they will never pay anything that is not reasonable and necessary). This concept has been the cause of litigation for many years. What is reasonable and what is necessary? It depends on the circumstances, and the third party will have to justify that the expenses they incurred fit this definition.

For example, say you hit someone in a Ford Taurus, and they go out and rent a luxury car. Your insurance company should (and probably will) object. It is not reasonable or necessary to rent a luxury car when you only hit a Ford Taurus. This is subjective, if the luxury car is the only car available in certain town at the time of the accident (believe this has happens), then it could be both reasonable and necessary to pay for that expense.

Your insurance carrier will not be as kin to pay for Bodily Injury damages (Special and General Damages). The reason for this is simple. The Insurance carrier has a duty to gain a Release of All Claims against you and the policy.

This release is a contract between the claimant and the insurance company that says that in exchange for payment of medical bills and payment for pain and suffering, the claimant agrees to discharge forever any kind of lawsuit against you, the insured, and in essence they would be providing Liability Insurance or Coverage. This contract is enforceable in a court of law.

Since this is the case, the insurance company bargaining power is on these payments. They will not pay unless they know there will be no litigation coming against you or them (unless you are in Montana, where insurance companies owe advance payments).

This is good for you, but often times can put a claimant in a bad position. If the claimant does not have medical coverage, they will have to pay out of their own pocket for their injuries and expenses.

They will be reimbursed once they settled or their bills will go unpaid. This is completely legal and your insurance company uses it as leverage to get that release of any and all claims on your behalf.

But what happens when the insurance company and the claimant cannot agree on a number?

The claimant can sue you directly. If this is the case, then the insurance company is obligated under Liability Insurance or Coverage to provide you with an attorney to protect you (note: they select the attorney). If they lose in court, then the insurance company will pay the judgment award against you (up to the limit agreed in the declaration page under Liability Insurance or Coverage).

There are of course limitations on this. The limitations are right on the policy (in different sections).

Liability Insurance or Coverage has a limit (the most the insurance company will pay on your behalf). These limits are put forward in the Declaration page (usually the first page of your policy where your car, name, coverages, and limits are). For more information on the Declaration page and limits of coverage please go to (Read the Policy).

The next topic under Liability Insurance or Coverage that is worth looking at is Actual Cash Value v. Replacement Cost. Your insurance carrier will without a doubt agree to pay for Actual Cash Value (ACV) of the damages caused.

This sounds pretty good, but if you look at the definitions (they have a definition page), you will realize that they will only provide coverage for what the item is worth that day. Again, that sounds good until they explain that they will depreciate everything.

Therefore, if you damage a power tool that is 5 years old, they will depreciate that tool by five years. They use depreciation tables, and a power tool is virtually worthless in 5 years, meaning that they will only pay few cents on the dollar.

This can make you enemies and reel you into court. This is the reason why when there is a total loss of a vehicle, the insurance company will pay what the car is worth and not what is owed in a loan.

Replacement Cost is what we would all like to have in all policies (homeowners and renters policies do pay for replacement cost). This is the actual cost to replace your property. This is real insurance. So in the example of the power tool, they would pay the cost of going and getting the same power tool.

Some situations where you need to keep Liability Insurance or Coverage in mind:

If you are driving and you cause an accident, the passengers in your vehicle could make a claim against you (potentially sue you) for their damages (property damage, injuries, medical bills, pain and suffering if any). Liability Insurance or Coverage will protect you against your own passengers!

There are no limitations on this; your husband, wife, or children, or friends can be entitled to this protection and a settlement. Insurance companies will often offer a substantially lower amount for this type of situation because you are not aware that this situation can occur.

Many times, they will only pay for the medical bills under Liability Insurance or Coverage and call it good. Remember, they are entitled to a settlement for pain and suffering and your insurance company should get a release of all claims from them for exchange of some compensation.

The second situation in which you can use Liability Insurance or Coverage is when the policyholder (the person paying the premium) becomes the actual third party or claimant. What? Yeah. Say that you pay your own premium on your car. One day you decide to let your neighbor drive, and you are his passenger. If he gets in an accident where he is at fault, you now have a claim against your neighbor.

You will see that the definition of an insured under most insurance policies is a. the policyholder or b. The permissive driver of your car (your neighbor). Since your neighbor meets point b. now you have a third party claim against your own policy!

One last thing to note is that this coverage has no deductible; the insurance company will pay 100% of damages up to the limit amount.

What is a deductible?

Deductible is the amount of money you would have to pay for damages. Say your damages are $ 1000, and your deductible is $200. Your Insurance company will only pay $800. The total amount of damages minus your deductible ($1000 - $200 = $800). To read more on deductibles please refer to (how to read a policy).

Read Page 1 of the "Liability Insurance or Coverage Article".

Liability Insurance or Coverage defends you against potential law suits because of a car accident. Learn how insurance companies deal with uninsured drivers.

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