The secret to understanding a liability policy

There are usually three kinds of loss which the policy provides for. These are

  • Injury, which also includes death and illness
  • Damage, which includes theft and other loss to tangible property
  • Pure economic loss, which is a loss where there has been no Injury or Damage
    • Example, the Insured is sued for breach of copyright
    • A pure economic loss (PEL) is also referred to as a pure financial loss
  • Like a PEL, a consequential loss is also of a financial nature, but it arises out of Injury or Damage
    • Example, as a result of an Injury the Insured is unable to earn an income. That loss of income is a consequential loss.
  • The terms Insured and Damage are capitalised because they have a special meaning e.g. Injury includes sickness.
  • The word ‘Insured’ is also capitalised because it includes not only the insured company but also the staff when they become personally liable in the course of their employment duties.
Introduction to Liability