Before going into a discussion on public liability insurance, it is important to understand what liability insurance is all about. Liability insurance is actually a subset of the general insurance process for risk financing. In the past, individuals or a group of companies used to form a closed group among themselves out of mutual interest and create a self-help fund in order to financially compensate any member who might incur some loss. In the modern system, such emergency compensatory measures are usually adopted by third party insurance providers. This constitutes the essence of liability insurance which exists to offer varying degrees of protection against third party claims. What is important to realize here is that the payment is usually not made to the insured, but rather to someone who has suffered some kind of compensatory loss due to some actions of the insured.
When a liability insurance claim is made, the insurance provider has the legal right to act in the interest of the insured and defend him. Fortunately, the legal costs involved in the defense proceedings are not usually limited by the actual scope or range of the policy. This can easily save the insured substantial costs resulting from overlong trials held to determine either fault or the amount of damages.
Public liability insurance is based on the belief that much of industry and commerce comprises processes and activities that have the potential to affect third parties adversely. Such third parties include members of the general public, visitors, sub-contractors and so on, who might be physically injured or whose property might suffer damage, or both. In some states, public liability insurance is compulsory and along with employer’s liability insurance, a company is required to include it in its insurance portfolio. It is interesting to note that most companies, as part of good business practice, takes up public liability insurance even if it’s not compulsory.
