If you wish to have a quick idea on what liability insurance is all about, let me tell you,
Liability is basically what we are liable to pay and the insurance which covers such expenses is called Liability insurance.
There is a thin line that disallows the payment of such liabilities or penalties in case of any illegal activity.
For example: If you visit a hotel and your vehicle is damaged as a Plant drops on the front screen from the first floor of the hotel. Then the hotel can claim under its liability insurance policy to pay to the customer for the damage that happened to the car.
But if the extension on the first floor where the pot was placed was illegal then the claim is disqualified.
The liability insurance is to protect from any liabilities arising out of any negligent and unintentional activity of the insured.
So this type of liability, where there is damage to property or bodily injury of a third party is involved, is called public liability.
If by chance a customer picks up a food parcel to home from a restaurant. The customer founds that food was burnt, then the liability to that customer can be claimed under Product liability insurance.
If there is a notice of penalty from the pollution board regarding the smoke released out of the chimney from that restaurant, such liability can be claimed under pollution liability.
If by chance the chef of that restaurant gets severe burns while cooking or any other worker getting some bodily injury, then the liability of the restaurant to its employee can be claimed under the employer’s liability policy.
There is another interesting fact about Liability Insurance. In some cases, it is difficult to trace the fault immediately after its occurrence. It might take 1 year or more also when the liability due to that fault comes out.
Hence there are 2 types of policies available in the market.
1) Claims Made basis
Under this type, the benefit is available when the claim is made irrespective of whether the event has occurred during the policy period or not.

2) Occurrence basis.
Under this type, the claim is payable based on whether the policy was in force during the occurrence of that event irrespective of – when the claim is brought into notice.
Some of the liability insurance policies are compulsory by law in India. Such as
1) Third-Party Liability insurance under Motor Policies.
2) Public Liability policy for businesses dealing in hazardous environments.
3) Workmen Compensation policy