Liability Insurance
Core Concepts
Liability insurance protects the insured against claims for bodily injury or property damage caused to third parties. It is based on legal liability, meaning the insured must be legally obligated to pay damages. Key concepts include negligence, which requires a duty of care, breach of that duty, causation, and damages. The standard general liability (CGL) policy covers bodily injury, property damage, personal injury, and advertising injury, and includes coverage for defence costs. Important exclusions are expected or intended injury, contractual liability, and damage to the insured's own property. In Quebec, the Civil Code's no-fault liability for things in one's custody (Article 1465) and liability for buildings (Article 1467) may apply. The concept of "additional insured" and "waiver of subrogation" often appears. Umbrella or excess liability policies provide coverage above primary limits.
Traps in Questions
A common trap is confusing "occurrence" versus "claims-made" policies. Occurrence policies cover incidents during the policy period regardless of when the claim is made; claims-made policies cover claims reported during the policy period. Another trap is the "your work" exclusion in CGL, which excludes damage to the insured's own work but may allow coverage for damage to other property. Questions may also test the "care, custody, and control" exclusion.
Worked Example
A contractor's employee accidentally damages a client's floor while working. The CGL policy may exclude damage to property in the insured's care, custody, or control. However, if the damage is to other property (e.g., a neighbouring building), it may be covered. The insured must be legally liable.
Rule of Thumb
Identify the legal basis of liability first (negligence, strict liability, contract), then check policy exclusions and conditions.