The History of Liability Insurance

(Credit: The History of Liability Insurance) The History of Liability Insurance(Credit: The History of Liability Insurance) The History of Liability Insurance
August 6
7:59 PM 2021

Liability insurance is a relatively new occurrence in relation to most other types of insurance. A small number of policies were written before 1890, but it was the emergence of the vehicle after that year that sparked the fast rise of this type of insurance, which currently covers a wide range of areas in addition to automotive operations.

For instance, guest passenger liability, a form of motorcycle insurance that protects any passengers that ride behind you, wouldn't have been created without the initial expansion of liability insurance.

Liability insurance began as a sort of mutual agreement between individuals or corporations that shared a similar risk and shared money that could be used by any single participant in the case of a loss due to a specific type of liability.

The structure for executing this form of insurance evolved through time. Today's liability insurance system is based on designated carriers that sell liability insurance policies. Normally, these providers are for-profit insurance firms.

The Development of Liability Insurance

Originally, liability insurance was a reaction to a need for protection that emerged only after developments in British and American law throughout the 19th century. Following the passing of employer liability legislation in Germany in 1871, the Employers' Liability Law was established by the English Parliament in 1880.

These were the first laws that allowed injured workers to be reimbursed without having to fight and prove that their injuries were caused by their employer's carelessness.

Starting in the 1880s, similar laws were passed in the U.S., eventually leading to the first workers' compensation legislation in the early 20th century. As a result, the first independent liability insurance coverage was employer liability (EL).

There was an average of between $150,000 and $200,000 in employers liability premiums issued in the U.S. in 1887. All liability plans were often referred to as "employers liability" and "accident insurance" until 1915.

Physicians and surgeons liability, car liability, general liability (later renamed owners, landlords, and tenants liability), elevator liability, and many other types of liability insurance were available by 1915.

Original Liability Insurance Limits

Early EL insurance provided around $1,500 per wounded worker and an average of $5,000 for all persons hurt in the same accident in the 1880s. Standard (basic) liability policy limits were fixed at an average of $5,000 per individual and $10,000 for all people injured in a single event by around 1910.

Until the 1920s, property damage liability was not commonly considered, although the basic property damage (PD) limit was eventually set to around $5,000. 

Higher limits were regularly mentioned in agency newsletters in the 1920s as a strategy to boost insurer premium volume or agents' commission revenue. High limits were also marketed by certain insurers for risk management reasons, claiming that businesses needed additional insurance than the basic policy limits to be properly covered against the kinds of accusations that could emerge.

The need for increased liability limits prompted the creation of new liability insurance markets. The U.S. approach, on the other hand, continued to rely on distinct schedule policies for each hazard protected, as well as a distinct set of schedule policies for each site or property.

Liability Insurance in the Automotive Industry

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In the late 1800s, the first motor insurance coverage was produced. Before this period, there were automobiles, but they were mostly steam-powered and inefficient. The advent of the fuel-powered engine, on the other hand, completely transformed it all. 

Truman J. Martin purchased the first liability automobile insurance coverage in the U.S. in 1893. Auto insurance, on the other hand, was not required for almost 30 years. This changed in 1927 when Massachusetts became the first state to implement legislation requiring auto owners to acquire liability insurance.

The other 49 states followed suit decades later, enacting legislation requiring liability insurance and implementing similar vehicle liability insurance requirements. The need to make liability insurance mandatory even greatly impacted the history of traffic signals and other driving laws.

Until the mid-1990s, when the web grew in popularity, auto insurance remained basically unchanged. The internet opened the door for a slew of new businesses to enter the market, and they could now provide insurance quotations directly to customers at home without having to travel.

Liability Insurance in Current Time

The History of Liability Insurance
(Photo : The History of Liability Insurance)

A general liability insurance coverage protects the assets of many company owners, car drivers, and homeowners. This insurance protects you from claims such as: 

  • Advertising injury
  • Bodily injury
  • Copyright infringement
  • Medical costs
  • Property damage
  • Reputational harm

Liability lawsuits are widespread and might arise during routine company operations if someone is hurt on your property or if you were involved in a car accident recently. These lawsuits may be costly, and many people do not have the financial means to cover a liability claim. 

People would have to pay these charges out of pocket if they didn't have liability insurance. 

Keep in mind that general liability insurance does not cover all claims. For example, if you were at fault in a vehicle accident because of distracted driving or if one of your workers was injured while on the job, it won't help your firm with claims.

To cover your automobile in an accident that you caused, you would need full-coverage insurance that includes comprehensive and collision protection. Alternatively, to be protected against claims made by injured employees, you would need workers' compensation insurance.

No matter the industry you are seeking general liability coverage in, all forms of liability coverage usually have a basic level of coverage. When purchasing liability insurance, it is essential to read what exactly is and isn't covered.

Generally speaking though, liability coverage covers for damage to another person's property or injuries caused by an accident in which you are at fault. Most states require this coverage for you to lawfully operate your car or run certain businesses. Property damage and physical harm are the two aspects of liability coverage.

Although many insurance companies provide general liability coverage, not all of them specialize in business, vehicle, or residential liability. To locate the best liability coverage, customers must obtain many quotes from several firms for various types of coverage.

Insurance professionals are widely accessible (both independently and with various insurance companies) to ensure that consumers have the insurance coverages they require.

Your Insuring Agreement

After you have found an insurance company that offers the right rates and types of liability coverage you are looking for, you will sign an insuring agreement. 

The coverage provided under bodily injury and property damage liability is described in detail in the insuring agreement. It specifies that if you (the named insured) are legally compelled to pay damages as a result of physical injury or property damage, the insurer will pay those sums.

About The Author: Imani Francies writes and researches for the insurance comparison site, She enjoys helping people learn about auto insurance and the policies that meet their specific needs.

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