Also known as: liability insurances · liability coverage
Written by attorneys · grounded in primary & secondary sources — see below
A contract under which an insurer agrees to indemnify the insured against liability to third parties for losses arising from the insured's negligence or other covered conduct. The policy creates a third-party relationship in which the insurer pays damages owed by the insured to an injured claimant rather than compensating the insured directly for the insured's own losses.
Luna Lang, a citizen of State A, sues driver Leo Lynch after a collision. She brings a direct action against Loyal Insurance without joining Lynch as a defendant. Loyal Insurance is incorporated in State B with its principal place of business in State C. Under the governing rule the insurer is deemed a citizen of State A, the state of the insured, for purposes of determining complete diversity.
Lena Lawson suffers catastrophic injuries in a crash with Landon Long, whose policy with Loyal Insurance has a $50,000 limit. Loyal Insurance refuses a reasonable settlement demand within limits despite clear liability and risk of excess judgment. The insurer's failure to give equal consideration to the insured's interests exposes it to liability beyond policy limits for the resulting judgment.
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Lunar Dynamics manufactures a prescription drug later linked to unforeseen side effects. The company faces strict liability claims from injured users. The additional expense of maintaining liability insurance to cover potential judgments is weighed against the public benefit of continued drug availability when determining whether to impose liability.
Several states sue major liability insurers alleging a conspiracy to restrict coverage terms in commercial policies. The insurers move to dismiss on the ground that the challenged conduct occurred outside the United States. The court applies the effects test to determine whether the alleged restraint on the liability insurance market produces substantial effects within the United States.
Evidence that a person was or was not insured against liability is inadmissible to prove negligence or other wrongful conduct. The same evidence may be admitted when offered for another purpose such as proving agency, ownership, control, or witness bias.
In a direct action against a liability insurer to which the insured is not joined, the insurer is deemed a citizen of every state of which the insured is a citizen, every state in which the insurer is incorporated, and the state of the insurer's principal place of business.
The insurer must give the insured's interests at least as much consideration as its own when evaluating a settlement offer. Breach of this duty of good faith and fair dealing can expose the insurer to liability for any excess judgment.
…as follows: “The argument that industries producing potentially dangerous products should make good the harm, distribute it by liability insurance, and add the cost to the price of the product, encounters reason for pause, when we consider that two of the greatest medical boons to the human race, penicillin and cortisone, both have…