Alabama Property and Casualty Practice Exam

What does a liability policy typically cover?

1. Property damage only

2. Personal injury only

3. Both property and personal injury

4. Only defense costs

The correct answer is: Both property and personal injury

A liability policy is designed to provide coverage for claims made against an individual or entity for damages caused to another party. This includes both property damage and personal injury. When we talk about property damage, this can involve situations where the insured's actions or negligence cause physical harm to someone else's tangible property. For example, if a homeowner accidentally damages a neighbor's fence, a liability policy would typically cover the costs associated with repairing that damage. On the personal injury side, liability coverage addresses non-physical harm that might occur, such as allegations of slander, defamation, or emotional distress. This means that the policy can respond to claims that do not involve physical damage to property but still cause harm to the well-being of others. In summary, liability policies are comprehensive in their scope as they balance both aspects – covering tangible damages and non-physical injuries – thus ensuring a more holistic protection against various types of claims that can arise from one’s actions or conduct.