What Is Casualty Insurance?
Casualty insurance is a broad category of insurance coverage for individuals, employers, and businesses against loss of property, damage, or other liabilities. Casualty insurance includes vehicle insurance, liability insurance, and theft insurance. Liability lossesare losses that occur as a result of the insured’s interactions with others or their property.
For homeowners or car owners, it's important to have casualty insurance as damage can end up being a large expense. In addition to auto and liability insurance, casualty insurance is an umbrella term traditionally used to describe many other types of insurance, including aviation, workers' compensation, and surety bonds.
Key Takeaways
- Casualty insurance includes vehicle, liability, and theft insurance.
- Just as you can purchase property insurance to protect yourself from financial loss, liability insurance protects you from financial loss if you become legally liable for injury to another or damage to property.
- One essential casualty insurance that businesses should have is workers' compensation.
- Be mindful there are often many exclusions from casualty insurance policies.
Understanding Casualty Insurance
Just as you can purchase property insurance to protect yourself from financial loss, liability insurance protects you from financial loss if you become legally liable for injury to another or damage to property.To be legally liable, onemust have demonstratednegligence—the failure to use proper care in personal actions.
If negligence results in harm to another, the offending party is liable forresulting damages.People in the insurance industry often call liability lossesthird-party losses.The insured is the first party. The insurance company is the second party. The person to whom the insured is liable for damages is the third party.
How the Casualty Insurance Process Works
Casualty insurance coverage begins when a policyholder purchases a casualty insurance policy from an insurance company or provider. The policy outlines the terms, coverage limits, premiums, and any exclusions specific to the type of casualty insurance purchased. The policyholder pays a regular premium (usually monthly or annually). The premium amount is based on various factors, such as the level of coverage, the insured's risk profile, and the probability of loss.
The casualty insurance coverage remains in effect for a specific period and can be renewed upon expiration if the policyholder continues to pay the premiums. If a covered event occurs during the policy period, the policyholder can file a claim with the insurance company. The policyholder contacts their insurance company to initiate the claims process and must provide necessary information and documentation related to the loss or liability claim.
The insurance company reviews the claim to determine its validity and whether it falls within the policy's coverage. If the claim is deemed valid and falls within the policy's coverage, the insurance company will pay out the agreed-upon compensation or benefits to the policyholder or affected parties. The amount paid will be up to the policy's coverage limit. In other cases, the claim may be denied.
In 2022, $434 billion of direct premiums were written for U.S. property and casualty insurance policies.
Types of Casualty Insurance
Casualty insurance is a blanket term used to describe many different types of policies that protect a policyholder from liability claims, damage, or other risks. Below are many different types of casualty insurance, though this list is not meant to be exhaustive.
General Liability Insurance
General liability insurance provides coverage for bodily injury, property damage, and personal injury claims. These claims often result from accidents that occur on the insured's premises or due to their operations. General liability protects businesses from lawsuits related to slip and fall incidents, product defects, or advertising injuries.
Auto Insurance
Auto insurance covers damages to vehicles and property as well as injuries to drivers, passengers, and pedestrians resulting from automobile accidents. It is mandatory in many jurisdictions and offers different coverage options such as liability, collision, comprehensive, and uninsured motorist coverage.
Workers' Compensation Insurance
Workers' compensation insurance provides benefits to employees who suffer work-related injuries or illnesses. It covers medical expenses, lost wages, and rehabilitation costs. Workers' compensation also protects employers from liability for workplace injuries.
Professional Liability Insurance
Professional liability insurance, also known as , protects professionals from claims of negligence, errors, or omissions in their services. It is commonly used by doctors, lawyers, architects, and other professional service providers.
Product Liability Insurance
In a similar manner as professional liability coverage, product liability insurance covers businesses against liability claims arising from injuries or damages caused by their products.
Cyber Liability Insurance
Cyber liability insurance provides coverage for losses resulting from cyber incidents such as data breaches, hacking, cyber extortion, or business interruption due to cyberattacks. It helps businesses manage the financial and reputational risks of cyber threats should sensitive information be stolen.
Event Liability Insurance
Event liability insurance offers coverage for liability claims arising from events, such as concerts, conferences, weddings, or sports events. It protects event organizers from potential lawsuits and other liability risks from the occurrences planned for that specific event.
Contractor's Liability Insurance
Contractor's liability insurance protects contractors and construction professionals from liability claims related to their work or construction projects. It covers bodily injury, property damage, and other risks in the construction industry.
Casualty insurance premiums can dramatically change year over year. During the turn of the millenium, average premiums increased up to 28.5% year-over-year; on the other hand, during the Global Financial Crisis, premiums dropped an average of 13.5% year-over-year.
Exclusions from Casualty Insurance
Casualty insurance a lot of things; however, there are also a number of exclusions. Consult your specific policy or policies to best understand what is excluded which may or may not include:
- Intentional Acts: Casualty insurance typically excludes coverage for damages or injuries caused intentionally by the policyholder or covered individuals.
- Employee Dishonesty: Casualty insurance may exclude coverage for losses due to dishonest acts of employees, such as theft or embezzlement. Employers can obtain different fidelity bonds or crime insurance to protect against such risks.
- Employment Disputes: Claims related to employment disputes, such as discrimination or wrongful termination, may be excluded from general liability policies.
- Contractual Liability: Casualty insurance may exclude coverage for liability exposures assumed through contracts or agreements. Businesses may need separate contractual liability coverage for such obligations.
- Product Recalls: Losses resulting from product recalls may be excluded unless specifically included in the policy. Note that damages resulting from recalled products may be covered, though the costs of actually withdrawing the product from the market may not.
- Fraud and Misrepresentation: Claims arising from fraud, false advertising, or misrepresentation are typically excluded.
- Punitive Damages: Many casualty insurance policies exclude coverage for punitive damages which are meant to punish the responsible party for their actions.
- Illegal Activities: Damages or liabilities resulting from illegal activities or violations of the law may be excluded. Insurance typically does not cover losses resulting from illegal actions.
Example of How Casualty Insurance Works
Probably the best example of how casualty insurance works is an auto accident. Consider this hypothetical example: Let’s say Maggiebacks out of herdriveway and hits Lisa's parked car, resulting in $600 of damage.
Because Maggiewas at fault, she is legally liable forthose damages, and she must pay to have Lisa’s car repaired. Liability insurance could protect Maggiefrom having to coverthedamages out-of-pocket. In this situation, Maggie would contact her insurance company and provide details about the incident. For example, she may communicate to her insurance company that the incident occurred outside of her house at 8:00am on the 1st of the month.
Maggie's insurance company would assign an adjuster to investigate the claim. The adjuster may interview Maggie, may contact Lisa for more information, review damages to each car, and potentially review medical records if applicable.
The adjustor would then determine whether or not the claim is valid. It may negotiate a settlement with Lisa's representatives and, once agreement is reached, the claim is closed and the casualty insurance policy has officially covered Maggie.
Is Casualty Insurance Mandatory?
Certain types of casualty insurance such as auto insurance and workers' compensation are mandatory in many jurisdictions. However, other types of casualty insurance may be optional, depending on the individual or business's needs and risk exposure.
Can I Bundle Casualty Insurance With Other Types of Insurance?
Yes, many insurance companies offer the option to bundle casualty insurance with other types of coverage, such as property insurance or commercial liability insurance. Bundling can often lead to cost savings and simplified policy management.
Does Casualty Insurance Cover Personal Injury Claims?
Yes, casualty insurance typically covers personal injury claims such as bodily injury or emotional distress that result from accidents or negligence for which the policyholder may be held liable.
What Should I Do If I Need to File a Casualty Insurance Claim?
If you need to file a casualty insurance claim, contact your insurance company as soon as possible. Provide detailed information about the incident, including the date, location, description of damages, and any injuries sustained.
The Bottom Line
Casualty insurance is a type of insurance that provides coverage for losses and liabilities resulting from accidents, injuries, and unexpected events. Casualty insurance includes various types of coverage, such as general liability, auto insurance, workers' compensation, and professional liability. Note that specific events or situations may be explicitly excluded from casualty insurance coverage.
