What is Liability Insurance?
We have all done things at some point in our lives to unintentionally cause harm to someone else whether it be by neglect, laziness, or simply not thinking about the consequences of our actions. What happens after your actions cause an injury or property damage? Typically one of your first calls is to your insurance company. When speaking to your insurer they will ask you a lot of questions about all the details - where you where, what happened, what was the weather like, were there any witnesses etc. The more details you can provide helps your insurer and also yourself. And yes there is a very good reason why they want to know every detail possible. It all comes back to the liability laws in Canada.
In every province except Quebec our court systems rely on what is known as the Common law system. Judges use prior cases to determine the appropriate judgement for court proceedings. Insurance companies will only help you with Civil Laws (when someone sues you for money) - not Criminal laws (which can lead to jail or paying a fine). If you are caught drinking and driving or stealing from your neighbor, your insurer will not help to defend you as these are criminal offences in Canada. However if you forget to clear your driveway and someone slips and falls this is covered. The key to insurance is the act must be unintentional and be resolved in a civil court.
The most common lawsuits insurers see tend to be automobile accidents. This is because driving a vehicle can be quite dangerous and accidents occur quite regularly. Another reason is auto insurance in Ontario is mandatory, meaning that if you are on the road you must have basic insurance on your vehicle. Regardless of what the most common lawsuit, what actually happens when you are sued?
The first step is you will receive a letter from a law firm informing of their intent to sue. If you have insurance, you shouldn't panic. Inform your insurer as soon as possible and your insurance company will walk you through the steps. They have lawyers on their staff who deal strictly with insurance related lawsuits, and are very good at what they do.
What you should know:
What costs liability insurance covers: Liability insurance will cover the cost of the lawyer, experts, court fees, forensics, accident recreation specialists, accountants and whoever else they need to during the case. It also covers the settlement and any interest that has accrued up to your liability limit.
Liability limits: Your liability limit that is shown on your policy is THE MOST YOUR INSURER WILL PAY FOR A SETTLEMENT. I cannot stress this point enough - if you liability limit is not high enough, you will be responsible for the amount over your limit. If your liability limit is $1,000,000 and you are successfully sued for $1,500,000 then you now owe $500,000 plus interest. Your insurance company will only pay the limit listed on your policy for the settlement. For personal policies such as home insurance and auto insurance your defense costs such as the lawyer, legal fees, etc are not included in this limit - they are over and above. For any business or commercial policy this depends on the type of policy that you have purchased. There are situations where insurers may only pay $500,000 for a settlement, but pay $1,000,000 for legal fees and other court costs.
How much liability should I have?
There really is no one answer to this question. A large portion of the population is never sued during their lifetime, but the unfortunate reality is that Canada has become much more reliant on lawsuits over the past few years. You should purchase the highest limit you can reasonable afford. Umbrella policies offer great protection for reasonable costs, where they extend additional liability to all your existing insurance policies. We are happy to speak to you regarding your specific situation, and discuss what your needs are.
How do I know how much liability coverage I have?
Typically your liability coverage will be shown on your insurance documents. If you are unsure, please give your insurer a call and they can advise you what your current limit is.
Do all policies have liability coverage?
Not necessarily. Your typical auto or homeowners policy should have liability coverage included with a specified limit, but you should always make sure it is when purchasing a policy. You also need to be aware of the exclusions, which usually include intentional damage/injury, and any business pursuit and more. It is always a good idea to check with your insurer to see what the exclusions are on your policy.
What about special events such as weddings, and anniversaries?
Typically your homeowners policy will not cover special events you host outside of your home, and also does not include coverage for liquor liability. You should purchase either a short term extension on your policy, or get a specialized policy to cover special events. This becomes especially important when serving alcohol at these events.
What if I run a business?
Business insurance follows the same principles but has many more rules and responsibilities attached to it. Please speak to us directly if you have any questions regarding business liability, as they vary greatly depending on your business.
Liability insurance is something we should all have and is very affordable no matter what your budget is. If you have any questions please don’t be afraid to give us a call 905-623-4406 and let us help you.