What Does Liability Insurance Not Cover in the Event of an Accident?

December 18, 2023

Around 14 crashes occur every minute in the United States, resulting in a total of 7.3 million accidents annually. This makes auto accidents a primary cause of both injuries and fatalities. Thus, every driver needs to have auto insurance.

Unfortunately, 14% of drivers in the U.S. are uninsured. IRC states that one in seven vehicle owners has no insurance policy. So, the question is, how can a person compensate for the financial and medical losses of the affected party in the event of an accident?

What Does Liability Insurance Not Cover in the Event of an Accident - 2

Source: IRC

To ensure your protection on the road and avoid legal complications, it is advisable to purchase an insurance policy. In this article, we will explain what liability insurance on a car is, its types, and the risks it covers. 

What types of claims does liability insurance cover? What does it not cover? How does car insurance work when you are not at fault? Read on to learn more about vehicle liability insurance.

Liability Car Insurance: Key Features and Types

Vehicle liability insurance is mandatory car insurance, which provides financial protection to the car owner and covers expenses resulting from accidents. It only applies if you caused an accident resulting in property damage and personal injury.

Generally, car liability insurance is the minimum component of any insurance coverage in all states except New Hampshire and Virginia. 

This form of coverage pays for third-party expenses if you are found to be at fault for an accident. In other words, you will not have to pay for damages out of your pocket. The insurance will fully cover repairs and medical services. Other parts of the policy reimburse the expenses of the perpetrator of the road accident. 

Let’s take a closer look at two types of liability insurance.

Responsibility for Bodily Injuries

This type covers the injured driver and their passengers in accidents that are not the driver’s fault. Compensation is provided for:

  • Medical expenses: ambulance services, surgery, hospital stay, emergency medical services, medications, rehabilitation, physiotherapy, and funeral expenses.
  • Lost income due to inability to work: salary, commissions, bonuses.
  • Mental anguish: emotional distress, physical disability, disfigurement, loss of consortium and enjoyment of life. 

Responsibility for Property Damage

It typically includes compensation for damage to the property of the affected party, such as damage to:

  • Vehicles
  • Personal belongings
  • Office buildings and houses
  • Fences, mailboxes, and other structures
  • Objects of public infrastructure

In addition to compensating for the injuries of other people and property damage, car insurance can cover legal expenses in case of legal proceedings.

Under the laws of many states, liability insurance does not cover the insured driver. Payment for damages is determined by state law and the terms of the insurance policy. 

If you need to cover damage to your own property, you should rely on other types of insurance or take out collision insurance to repair your car. Thus, liability insurance for cars will always protect policyholders and others on the road.

What Happens if I Don’t Have Enough Insurance to Cover an Accident?

If you’ve been involved in a traffic accident, it’s necessary to take the following actions:

  • Exchange insurance information with the other drivers
  • Contact the insurance company to settle claims

When the minimum amount of liability car insurance covers the expenses of the affected party, consider yourself fortunate. But what if the required amount exceeds your insurance limit? In such a case, there are likely to be serious legal consequences, and responsibility for paying the remaining amount is also possible.

An at-fault motorist without coverage who caused damage to the property and health of the second party involved must pay financial compensation based on a court decision. Otherwise, the affected party has the right to take legal action and obtain a judgment for the recovery of the driver’s wages.

In addition, different states have penalties for motorists who do not have an insurance policy, such as fines, suspension of driver’s licenses, suspension of vehicle registration, and criminal liability. 

The terms and conditions of most auto insurance policies include three liability limits, often displayed as three numbers separated by a slash. For example, on your auto insurance declaration page, where your coverages and expenses are listed, you may find this 50/100/50 combination. What does it mean?

Auto Liability Insurance Limit for Bodily Injury per Person

The first value is the amount of the policyholder’s maximum compensation for injuries sustained by one person due to an accident. That is, liability insurance for the injured person can cover damage to the automobile and medical expenses. In our example, this number is “50”, meaning the compensation amount would be $50,000.

Limit of Liability Insurance Auto for Bodily Injury Caused by an Accident

The second figure (“100” or $100,000) is the maximum payout for each injured person, excluding the perpetrator of the accident and their family members. This condition of the car insurance policy comes into force if several people are injured in the accident.

Limit of Liability Car Insurance Coverage for Property Damage for an Accident

The third number (“50” or $50,000) is the maximum amount of compensation to your insurance company for property damage caused by your fault, including damage to automobiles, buildings, road signs, and other infrastructure.

Note: Responsibility for bodily injuries is assigned to each individual, and responsibility for property damage is assigned for each traffic accident.

What happens if the damage caused to another driver exceeds the amount of the policyholder’s insurance policy? In such a case, an at-fault party can face legal consequences and pay the amount the insurance company does not cover. For example, the financial compensation for the damage is $70,000, and your insurance company only covers $50,000 of expenses. The injured person may then sue you for the missing amount. 

Remember that car liability insurance coverage will not cover your personal costs of repairing and restoring your car. In this case, you must cover any losses from your wallet.

Pro tip: If you want your insurance to cover not only the injured party’s expenses but also yours, consider purchasing full coverage auto insurance, including liability, comprehensive, and collision coverage.

What Does Liability Insurance Not Cover in the Event of an Accident?

Insurance companies define not only the occurrences that your policy will cover but also the exclusions to liability auto insurance coverage. In most policies, the company specifies exclusions — items, wrongful acts of the car owner, or other parties involved in accidents. 

Also, insurance policy exclusions and coverage limits should not be confused. In the second case, the insurance company stops payments that exceed the maximum amount of insurance. Then, the remainder of the compensation, according to the liability insurance contract, is paid by the accident perpetrator. 

What does liability insurance not cover? Most insurance companies can exclude from the policy:

  • Overlapping insurance policies: This is taking out insurance with two companies. Most car owners do so because one company offers more favorable terms of liability insurance and the other, for example, benefits. It will not be possible to include absolutely all risks in the policy; the contract will specify how much they will insure you and what type of insurance they will provide.
  • Bodily injuries: Employees of transportation companies, cab services, limousine drivers during the transportation of passengers, and bodily injury insurance are usually excluded. Workers’ compensation for these services will cover medical expenses in an accident.
  • Intentional damage: If a driver intentionally drives into a storefront window or commits vehicle arson in a fit of rage, most insurance policies will exclude coverage for any damage.  
  • Natural disasters: Will your insurance policy cover damage to your car caused by weather events? Auto liability insurance coverage does not apply to the cost of repairing an auto damaged by hail, falling trees, or other weather events. If you live in areas where hurricanes, tsunamis, tornadoes, and floods are common, include coverage in your insurance policy for events you are concerned about. 
  • Drag racing: Injuries you or your car sustained during sprint races are always excluded from insurance coverage.  
  • Driver’s exclusion: Do you enjoy an aggressive driving style or have a history of being cited for traffic violations? The insurance company has the right to exclude an unscrupulous driver from their policy.

Pro tip: Before you get behind the wheel of your car, carefully review the terms of your insurance policy to understand what situations are not included in the coverages.

Contact an industry expert for more information about your car insurance and liability auto insurance exclusions.

What Happens if the Claims Against Me Exceed the Amount of Liability Coverage I Have?

The owner of a car injured due to another driver’s misconduct receives financial compensation for bodily injury and property damage under the terms of liability insurance. 

What happens if my liability insurance coverage does not cover lawsuit? If the at-fault driver does not have insurance or the insurance payout does not cover all medical/material expenses, the injured party can file a lawsuit against the driver to seek full compensation for property and health damages.

Compensation for the affected party is due in such situations:

  • Repair or purchase of a new car
  • Towing
  • Rental of another vehicle for commuting to work
  • Medical bills
  • Emotional distress

The affected party must file a lawsuit against the at-fault driver and provide evidence of the actual monetary cost of the repairs, such as proof of damage, repair shop invoices, and other relevant documents.

What does liability insurance cover if you’re not at fault?

Car insurance liability covers only bodily injuries and property damage for the driver who is not at fault in the accident.

What does liability insurance cover in an accident?

Let’s recap the liability insurance meaning to answer this question. It’s a type of insurance where an unfortunate incident (such as a car accident) results in compensation being paid to the victim for the incurred damages, as specified in the insurance contract.

What does liability insurance not cover in the event of an accident?

Unfortunately, it does not cover theft. Liability insurance only provides compensation for bodily injuries and car repairs.

Who covers the damages that exceed the policy limits, and does liability insurance cover my car if I hit someone?

The driver compensates for damages exceeding the insurance policy limit found at fault in the accident. Liability insurance does not cover expenses for the damaged vehicle of the at-fault driver. An extended insurance policy provides such coverage.

What Does Liability Insurance Not Cover in the Event of an Accident? 2

Oleksandr Rohovnin is a Content Marketer at Phonexa.com and an expert contributor to CoverExplore. His passion is digital marketing, innovative technologies, tech industries, and – above all – distilling vast amounts of complex information into engrossing narratives anyone can relate to. At CoverExplore, Oleksandr stokes passion for auto insurance and the automotive industry in general in every story he curates.

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