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Liability insurance: 7 questions (and answers!)

April 4, 2022

You forget a pot on the stove and it sets fire to a shared wall; your dog bites a delivery person; your washing machine floods the downstairs neighbours’ apartment: these are all situations where you may be liable for damage caused to others. Whether through negligence or simple bad luck, anyone can be held accountable for the consequences of their actions and have to pay the price. Liability insurance provides coverage against such situations. Read on for answers to your most frequently asked questions.

1. What is liability?

If you’re involved in a loss or collision, a victim or victims may hold you accountable for the damage caused and ask for compensation. In the case of events causing major damage or bodily injury, the amount claimed may be extremely high. For example, if a fire breaks out in your home and spreads to your neighbours’, destroying their property, their insurer may demand that you refund the amount they paid out in compensation.

Liability insurance protects you from financial consequences for which you may be held responsible. If you’re found liable, it generally covers your defence expenses and, if necessary, compensation for the person suing you.

2. Is liability insurance mandatory?

In Canada, the law requires all owners of a motor vehicle to have liability insurance that’s valid in Canada and the United States. Driving without this insurance is a serious offence that can result in a fine and suspension of the driver’s licence.

The law doesn't require owners and renters of residential buildings to have liability insurance. However, liability insurance is mandatory if you co-own a building and you live in Quebec. 

Having liability insurance is one of the best financial habits to adopt. Not only is it inexpensive, the benefits quickly outweigh the premium costs when you have to make a claim.

3. What does liability insurance included with auto insurance cover?

It covers damage to your vehicle when you're not at fault in an accident. Plus it covers damage to other vehicles when the Direct Compensation Agreement doesn't apply, like if you're involved in a collision outside Quebec. Damage to other people's property is also covered. For example, if you lost control on a slippery road and damaged someone's fence. It also covers injuries to other people who aren't already covered by a public insurance plan.

If you're at fault in an accident where your vehicle is damaged, you're on the hook for the repairs, unless you have auto insurance that covers them.

4. What does liability insurance included with home insurance cover?

You’ll be offered liability insurance when buying home insurance. It protects your home, your belongings and the members of your family against unexpected events. For example, strong winds causing your garden furniture to blow away and break a window on a neighbouring property, a young child tripping and injuring themselves on your property or your pet biting a delivery person.

Did you know?

Liability insurance also covers you for personal activities. This means you’re protected if, say, you collide with a jogger on your bike, you crash into someone while skiing, causing injury, or your child breaks a valuable object at a friend’s house.

5. How much liability insurance do I need?

The minimum amount of coverage offered with home insurance is usually $1 million. But it may vary, and you could need more, depending on your situation. For example, it might be $2 million if you own an apartment in a condo with more than 13 units. That's why we suggest talking to your insurer to assess your liability insurance needs.

6. Does liability insurance provide coverage outside Canada?

Liability insurance included with home insurance follows you wherever you go. So if you rent a vacation home in Mexico and cause water damage because you forgot to turn off the tap, your insurer will cover the claim.

The coverage included with auto insurance is only valid in Canada and the United States. Make sure to talk to your insurer and choose a product that meets your needs and gives you peace of mind.

7. What’s NOT covered by liability insurance?

Liability insurance is designed to protect you from sudden and unexpected events, based on the risk determined by your insurer. That means some types of damage aren't covered, like any damage caused intentionally or resulting from criminal activity on the part of the insured person.

You must also inform your insurer of any change that may affect your risk level, for example, if you use your home for work purposes.