Liability Insurance: Do You Know How It Works?

by Alex Musk

It’s every company’s nightmare. Things are going well, and the day is calm when suddenly an accident happens, and someone gets hurt. To make matters worse, the person goes to court with a lawsuit. This is where liability insurance saves countless businesses and professionals, ensuring coverage for claims and related costs.

However, not all professionals know and use this insurance. So let’s talk a little more about it and explain its main features below, check it out:

What is liability insurance?

Civil liability insurance (CR) is the insured coverage of losses resulting from bodily and material damage caused to third parties, provided that they are involuntary and accidental damages.

Such damage can be, for example, accidents involving heavy machinery in the workplace, in which workers or third parties are injured, as well as material damage to equipment or structure. 

Civil liability insurance guarantees reimbursement of amounts liable to insured companies after a final court decision or in written agreements authorized by the insurer. 

There are two basic ideas that exclude the right to CR insurance and that define the meaning of an illicit act causing harm to third parties, they are:

  1. Action or omission is practiced by someone who acts with guilt. It involves deceit. Guilt comes from negligence, recklessness, or malpractice. It happens in bad faith. 
  2. Abuse of rights exercised by those who exceed the permitted limits.

Article 927 of the Brazilian Civil Code obliges the individual or company responsible for an unlawful act to repair the damage caused by means of compensation. 

Considering that no person is exempt from causing accidents, the principle of civil liability applies to everyone. That is why insurance covering CR is essential in risky activities.

Common types of RC insurance

Civil liability insurance, then, protects companies and professionals in the event of accidents and lawsuits. 

There are some common RC types for different claims; see below:

  • General Civil Liability: Protects companies in the event of bodily or material damage caused to other people under their responsibility (employees and customers);
  • Professional Civil Liability: It can be collective or individual. Aimed at professionals who deal with some type of risk and who can generate civil, administrative, and criminal proceedings. E.g., doctors, dentists, veterinarians;
  • Environmental Civil Liability: Protects companies with polluting potential. Ex.: A construction company drops oil in a local river, harming fauna and flora; The RC Environmental Risks covers personal and material damages, amounts in legal proceedings, and expenses with analysis, identification, and treatment of the damages caused.
  • Civil Liability of Directors and Administrators: Protects the assets of senior executives. Covers defense and indemnification costs in the case of civil, labor, criminal, administrative, or arbitrary proceedings;
  • Civil Liability Works ;
  • Liability Products: Protects against prosecution in the event of failure of supplied products. In Brazil, currently, more than 12 million cases are being processed in this area, 
  • Civil Liability Cyber ​​Crimes: Protects companies and professionals against lawsuits for damages caused by vulnerabilities and hacker attacks.

In addition to these optional CR modalities, there are mandatory and already well-known ones. They are RETA, for air transport; DPVAT, motor vehicles on land; RC-TRC, road freight transport; and DEPEM, vessels or cargo. 

How does RC insurance work?

To be able to use civil liability insurance, two points are normally required:

  1. The insured cannot recognize responsibility or confess to the action. He will also not be able to enter into an agreement with the aggrieved third party without the express authorization of the insurer;
  2. Once the action against the insured (professional or company) has been notified, he must notify the insurer about the dispute.

It is worth noting that, as the collection of indemnity for civil liability remains mandatory, the repair occurs with or without the presence of insurance.

Thus, whoever has this coverage guarantees that the indemnity amounts are paid directly from the insurer to the third party and also pays legal fees, expertise, legal costs, etc.

The relevant point is that, within the same insurance, the limits for different damages (moral, material, and bodily) can be different.

If you want to know more about how insurance works in general.

What is the biggest benefit of liability insurance?

Again, let’s go back to the scenario we created at the beginning of this article, now in more detail. 

Imagine that a heavy machinery operator injures a passerby for reasons of distraction while performing his work. Carelessness takes that third party to the hospital, where he has to bear the costs of hospitalization and care. 

After that, the person notices the aftermath of the accident and decides to take legal action. It is at this point that civil liability insurance stands out: unlike insurance models that protect the contractor himself by guaranteeing financial restitution, such as automotive insurance, RC insurance offers this to third parties in the face of a lawsuit.

In the case of companies like the one in the example mentioned above, which deal with heavy machinery and risky activities on a daily basis, this coverage is essential to avoid headaches. 

According to the Justice in Numbers report of the National Justice Council for the year 2019, more than 6 million cases related to civil liability/compensation for moral damage are being processed in the State Courts. 

A high volume of lawsuits can stretch for years and hamper the growth of the business through the negotiation of indemnities and legal costs.

Why adopt RC insurance?

Civil liability malpractice insurance covers accidents and damages (bodily, material, and moral). Therefore, it is widely used in civil construction, by health professionals, and even in agribusiness, where accidents with heavy machinery can always occur. 

Talk to our team if you want to know more about RC and need to clear your doubts.

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