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What is personal liability insurance? Understanding coverage

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Many people recognize that the U.S. is a litigious society, but few take steps to protect themselves from the financial impact of a lawsuit. Personal liability coverage can help you safeguard your assets if you are ever named in a lawsuit. But what is personal liability insurance?

Could you be named in a lawsuit?

You might think that lawsuits only happen to other people, but the reality is that anyone could be named in a lawsuit – and for many different reasons. Some of the common situations that result in lawsuits against individuals include:

  • Someone being hurt on your property. If someone is injured on your property, you could be sued for negligence. For example, a guest might trip on a loose rug while at your home, or someone might slip on an icy step while walking to your front door. You could even be held legally and financially responsible if a trespasser is injured on your property. This is especially common in cases involving children and “attractive nuisances” like swimming pools and trampolines. However, even criminals have filed lawsuits for injuries. In one brazen example, Fox 59 says a convicted burglar sued a homeowner who shot him in Indiana.
  • Your pet causing trouble. There are many ways your dog could trigger a lawsuit. For example, it could destroy a valuable flowerbed on your neighbor’s property. Even worse, your neighbor’s children could annoy the dog, prompting it to bite one of them. The American Veterinary Medical Association says more than 4.5 million people are bitten by dogs each year in the U.S. and 800,000 receive medical attention for dog bites. Any dog can bite, including friendly ones, when provoked, and children are the most common victims. Other animals, such as horses, can also cause injuries or property damage that results in lawsuits, making personal liability insurance a means of financial protection.
  • Your children making mischief. Kids will be kids – but if yours cause problems, you could be legally responsible. For example, if your child is riding a bicycle and runs into an elderly woman, knocking her over and injuring her, you could be sued for the medical costs that ensue. You could also face a lawsuit if your child breaks a neighbor’s window or otherwise damages someone else’s property while playing.
  • You leave a bad review. Although many lawsuits involve property damage or bodily injury, defamation is another possible cause. Even something as common as leaving a bad review could result in a lawsuit against you. According to CNBC, lawsuits against dissatisfied customers who leave bad reviews have become more common. For example, after a man left a bad review for a veterinary practice, detailing how his dog died while waiting for a surgeon who never showed up, the veterinary practice sued him for defamation, which resulted in more than $25,000 in legal bills. Other examples include a couple who was sued after leaving a bad review for a flooring company and a man who was sued after leaving a tepid review on TripAdvisor.
  • Your guests getting drunk. If you like to throw parties that include alcohol, you could be exposing yourself to liability. If one of your guests overconsumes, drives under the influence and is involved in a car crash, you could be named in the resulting lawsuit. According to the Insurance Information Institute, social host liability laws (also called Dram shop liability laws) vary between states. In some states, hosts may be liable for injuries that occur on or off their property. Many states have laws that make hosts liable if they serve alcohol to minors.

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How much does a personal lawsuit cost?

Lawsuits can be expensive. If you’re named in a lawsuit, you could incur significant defense costs. According to Insuranceopedia, these may include the cost of hiring a lawyer, court fees, investigations, the filing of legal paperwork and other related costs. And, this amount is on top of any settlements or awards. A lawsuit can easily end up costing tens of thousands of dollars – some lawsuits cost hundreds of thousands of dollars or more.

What is personal liability insurance?

Personal liability insurance is provided under personal lines insurance coverage. If you are sued for a covered claim, your personal liability insurance will cover the following, up to the policy limits:

  • Legal costs incurred in the defense of the lawsuit
  • Settlements
  • Awards

Some personal liability insurance policies also provide coverage for medical expenses without the need for a lawsuit.

How can you buy personal liability coverage?

The good news is if you already have a renters’ or homeowners’ insurance policy to protect your property, you likely have some personal liability insurance, as it is typically included in these policy types. According to the Insurance Information Institute, liability limits usually start around $100,000.

In addition, your auto insurance will include liability coverage for losses involving car collisions. Most states require drivers to carry auto liability insurance, but the minimum coverage amounts vary by state.

If you want additional personal liability insurance, you should consider buying an umbrella insurance policy. This provides additional liability protection on top of policies like homeowners and auto insurance. In addition to raising your coverage amounts, umbrella insurance may provide coverage for additional types of claims.

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What does personal liability insurance cover?

The personal liability insurance included in homeowners’ and renters’ insurance typically includes coverage for claims involving bodily injury or property damage. It may also cover claims alleging defamation.

It will not cover certain types of losses. For instance:

  • Homeowners’ and renters’ insurance policies exclude losses involving car collisions – your auto insurance policy provides this coverage.
  • Policies typically exclude losses involving intentional and criminal acts. If a guest accidentally trips on your property and sues you, your personal liability insurance will likely cover the claim. However, if you assault a guest, you probably won’t have coverage.
  • Liability insurance provides protection against third-party claims – i.e., claims that other people lodge against you. It excludes injuries and property damage you and your household members suffer. If a guest slips on your property and sues, your personal liability insurance will likely cover the claim, but if you slip on your property, your personal liability insurance will not cover your medical costs.
  • Policies may exclude some types of animals. Most homeowners’ and renters’ insurance policies provide coverage for lawsuits involving dog bites, but they may exclude certain dog breeds and dogs with a history of aggression. They may also exclude other types of pets, such as exotic pets or horses.

As with any type of policy, terms can vary. Read your policy carefully to ensure you understand the limits and exclusions.

Do you need personal liability insurance?

Lawsuits can be hard to predict. To protect your assets, you need to make sure you have coverage in place before a lawsuit occurs. Although standard homeowners and renters insurance policies include some personal liability insurance, you may want additional coverage. This is especially important for people with significant assets to protect, such as a vacation home, fine art collection, savings or a ranch. If a lawsuit award exceeds your coverage, you could be held personally responsible for the difference, which puts your assets at risk.

Whether you want to review your personal liability insurance policy and determine if you need more coverage, or want to secure liability insurance to protect yourself and your assets, our team at Higginbotham is ready to assist you. Contact us to learn more.

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