What amount of liability insurance is adequate?  Why do home insurance limits start at $1,000,000? Why does my broker encourage a minimum of $2,000,000?   Aren’t these numbers just a little bit ridiculous? After all, I’m not going to get sued….

These are all very good questions and they are questions that we as brokers get asked quite regularly.  Typically property owners are a little confused over what liability insurance actually provides and when it would ever be used.  So, in this week’s blog we will look at some basic “Liability 101” scenarios so that you can hopefully understand a little more clearly what you are purchasing.

Liability insurance covers damages sustained to a third party’s property as a result of negligence.  This means that liability coverage only extends to things which are accidental in nature. The very definition of negligence in insurance context is “committing an action that a reasonable person would or would not do.”  This means that willful damage to a third party’s property is not covered, nor is there liability coverage for criminal activity, or conducting an activity that is inherently dangerous…. Which one could argue is something that “a reasonable person would not do.”

So, a couple practical examples might help with breaking this down further:

Example 1

You are in a hurry to leave for the weekend.  You leave the house in a rush and as a result you leave the coffee maker on.  In the middle of the night, said coffee maker shorts out, which starts a fire.  Your house burns down, and melts all the siding and seals on your neighbor’s house and windows.  The damage to your neighbor’s house? Well your liability coverage would pick that up! After all, the damage was your fault in this scenario, so why would your neighbor make a claim under their policy?

Example 2

You are driving your car at night.  You are a little sleepy – so your reflexes are a little slower than normal, and when they do kick in, they are exaggerated.  Driving along you think you see a deer running up the ditch on your right. Out of reflex you swerve to the left, but there is an oncoming car.  The oncoming vehicle swerves to miss you and in doing so, hits the ditch and collides with a telephone post. The resulting damage to the oncoming car?  Covered by your liability insurance! After all, your actions are the reason for the other car to be in the ditch, right?

Example 3

You are having a Roman Candle fight with your neighbor in your front yard, and instead of aiming your firework at your neighbor, you start shooting them at his home.  One of the fireworks gets under the vinyl siding and causes extensive damages to one side of his home. The verdict? NOT COVERED. The reason? The argument could be made first of all that you are doing an activity which is inherently dangerous.  Secondly, the argument could be made that since you were aiming your firework at the home, it could be said that it was a willful action to damage the property.

As for the values of liability coverage, it’s easy to justify the limits once you realize the types of losses that need to be covered by liability.  Once you start factoring repairing neighboring homes, or vehicles along with injury payments, it can get pricey!

Next time you are reviewing your policy, remember these examples, and consider the limit you carry.  Do you have enough coverage? For as little as $20 per year, you can upgrade your policy limit from 1 million to 2 million. Higher limits are available if required, please contact your broker for more information.