Liability Insurance Glossary

In this modern era of high litigation and digital interconnectedness, liability insurance is not only a security net, but also an effective risk management tool. Whether it is corporate boards, medical professionals, MSMEs, or large enterprises, it is important to know the language of liability insurance to manage exposures and protect assets.

This comprehensive glossary breaks through the insurance and legal jargon to provide you with a coherent, well-organized idea of the important terms in liability insurance policies in India.

Why This Glossary is Important

Legal liability may occur due to a slip-and-fall accident in your company, a data breach, or even an incorrectly phrased social media post. Although insurances are in place to cover such occurrences, the majority of the population lacks an understanding of the jargon used, and this has resulted in underinsurance, denial of claims, or loss of money.

This glossary attempts to simplify the terms of liability insurance as understandable, approachable, and practical, whether you are a startup founder, corporate legal counsel, or an insured professional in India.

Basics of Liability Insurance

Liability insurance covers individuals and businesses against financial losses that are incurred as a result of third party liability claims, including ( but not limited to):

• Bodily injury
• Property damage
• Negligence or mistakes
• Defamation or reputational damage

In India, liability insurance plans cut across different sectors-healthcare, construction, finance, IT, manufacturing, etc. Each of these sectors has its own set of risk exposures.

Expanded Glossary of Liability Insurance Terms (A–Z)

Here’s a comprehensive breakdown of essential terms, grouped for easier reading.

A–C

• Aggregate Limit
  The total maximum payout by the liability policy provider for all claims during the policy period.
• Additional Insured
  A third party added to an insurance policy, who receives protection under the insured’s coverage.
• Admitted Liability
  An acknowledgment by the liability policy provider that a claim is covered under the policy.
• Arising Out Of
  A broad term used in exclusions and coverage to link the cause of loss with the event.
• Bodily Injury
  Physical injury, sickness, or disease sustained by a third party.
• Business Interruption Loss
  Loss of income resulting from a covered event (especially relevant in cyber or product liability).
• Certificate of Insurance (COI)
  Proof of insurance coverage provided to clients, vendors, or regulatory bodies.
• Claim
  A formal request for compensation due to a covered event or loss.
• Claims-Made Policy
  Covers claims made during the insurance policy term, regardless of when the incident occurred (subject to retroactive date).
• Coverage Trigger
  The event that activates insurance coverage—either “occurrence-based” or “claims-made”.

D–F

• Deductible
  The amount of the claim that the insured is responsible to pay before the insurance claim gets initiated.
• Declaration Page
  The summary section of the policy that enumerates some of the most important terms such as the named insured, limits, and effective dates.
• Defamation
  False communication that harms the reputation of another-covered in personal or advertising injury.
• Duty to Defend
  The legal obligation of the insurer to offer and finance legal defence even in case of a baseless claim.
• Discovery Period
  An extension of time following the expiry of a policy within which a claim may be reported.
• Endorsement
  A document that modifies the initial policy- used to add, exclude, or modify coverage.
• Exclusion
  Conditions or risks that are not insured under the policy.
• ERP (Extended Reporting Period)
  Extra time provided to report claims, which is often at an additional cost, under a claims-made insurance plan.
• Excess Liability Insurance
  Coverage that offers limits over and above what’s mentioned in a base policy..
• Fiduciary Liability
  Indemnity against mismanagement of employee benefit plans or trust funds.

G–L

• General Liability Insurance
  Covers basic third-party claims involving injury, property damage, and reputational harm.
• Good Faith
  A legal principle requiring both insurer and insured to deal honestly and fairly.
• Gross Negligence
  Severe carelessness or reckless disregard, often excluded in base policies.
• Hazard
  A condition that increases the risk of loss or damage.
• Hold Harmless Agreement
  A clause in contracts where one party agrees not to hold the other responsible for specific liabilities.
• Indemnity
  Compensation for damage or loss; fundamental to all insurance contracts.
• Insurable Interest
  Legal or financial interest in the subject of insurance (e.g., a director’s role in a company).
• Insured
  The individual(s) or entity entitled to coverage under the policy.
• Legal Liability
  Court-imposed obligation to compensate for harm or loss.
• Loss Adjustment Expense
  Costs incurred by insurers during claim investigation, including expert fees and legal counsel.
• Limit of Liability
  Maximum amount payable under a policy for a covered claim or aggregate across the policy period.

M–R

• Medical Payments Coverage
  Compensates for the medical expenses incurred for minor injuries without proving liability.
• Material Misrepresentation
  Misrepresentation by the applicant that can invalidate the liability insurance policy.
• Named Insured
  The main individual or organization listed on the insurance policy schedule..
• Negligence
  A failure to exercise reasonable care, which is the cause of harm to others..
• Occurrence
  An event causing bodily injury or property damage during the liability policy term.
• Occurrence Policy
  Covers losses from events that happened during the insurance policy period, even if the claim is reported later.
• Personal and Advertising Injury
  Covers claims arising from libel, slander, invasion of privacy, or misleading advertising.
• Product Liability
  Covers legal liability originating from defective products sold or manufactured.
• Professional Services
  Activities requiring specialized knowledge or certification—often the basis for professional liability claims.
• Reinstatement of Limit
  Restoring the liability insurance policy limit after it has been exhausted, usually after paying additional premium.
• Retroactive Date
  Earliest date an incident can occur for insurance coverage under a claims-made policy.

S–Z

• Self-Insured Retention (SIR)
  Similar to a deductible, but the insured handles claims up to a certain limit before insurer involvement.
• Statute of Limitations
  The legal timeframe within which a claim must be filed.
• Subrogation
  The right of an insurer to recover from a third party after paying a claim.
• Suit
  A formal legal proceeding filed in a court of law.
• Tail Coverage
  Another term for extended reporting period under a claims-made policy.
• Third-Party Administrator (TPA)
  An external firm that manages claims processing on behalf of insurers.
• Third-Party Liability
  Covers losses caused to someone not part of the insurance contract (e.g., a customer or pedestrian).
• Umbrella Policy
  Provides additional liability limits beyond primary insurance and may cover some exclusions.
• Underwriting
  The process insurers use to evaluate risk and determine policy terms and premiums.
• Waiver of Subrogation
  Clause where one party agrees not to seek recovery from another—common in contracts between businesses.
• Wrongful Act
  Any negligent act, error, omission, or breach of duty that leads to a liability claim.

Specialized Liability Terms by Policy Type

Professional Indemnity / Errors & Omissions

• Breach of Duty – Failure to meet expected standards of care.
• Claims-Made Coverage – Essential for professional liability policies.
• Disciplinary Proceedings – Coverage for legal defence against professional misconduct allegations.
• Libel & Slander – Defamatory statements made verbally or in writing.
  

Directors & Officers (D&O) Liability

• Corporate Entity Coverage (Side C Coverage) – Coverage to protect the organisation itself.
• Derivative Action – Legal action initiated by shareholders on behalf of the company.
• Regulatory Investigation Costs –Legal and compliance expenses incurred by the insured in response to SEBI or RBI investigations..

Commercial General Liability (CGL)

• Tenant’s Legal Liability –Damage to premises taken on rent by the insured.
• Fire Legal Liability –Insurance coverage against any accidental fire damage to the property of a third party, due to actions by the insured
• Blanket Additional Insured –A provision that allows the addition of multiple third parties automatically.

Cyber Liability Insurance

• Ransomware – malicious software that encrypts files and requires ransom for rectification and recovery.
• Notification Costs –Costs that are incurred when trying to notify affected customers of a breach.
• Data Restoration – The cost of recovering lost or damaged data and rebuilding it..

Employer’s Liability Insurance

• Repetitive Strain Injury (RSI) – Coverage is provided for injuries as a result of repetitive activities..
• Contractual Liability – Responsibility undertaken due to an employment contract.
• Occupational Hazard – Any risk at work that causes injury or illness..

Legal and Regulatory Terms (India-Specific)

• Public Liability Insurance Act, 1991 – Mandates insurance coverage for industries that handle hazardous materials..
• IRDAI Compliance – Every insurer is expected to comply with the guidelines stipulated by the Insurance Regulatory and Development Authority of India..
• Consumer Protection Act, 2019 –Establishes the legal rights of the claimant in case of failure of a product or a service.
• Legal Notice – Official communication to start a claim prior to litigation
• Compulsory Third-Party Insurance –This is a requirement under the Motor Vehicles Act on vehicle owners.

Claims and Settlement Terms

• First Notice of Loss (FNOL) – The first claim notification made to the insurance provider.
• Claim Denial – Rejection of coverage on grounds of violation of policy provisions or inapplicability of specified policy terms & conditions.
• Salvage Value –The estimated value of damaged property that can be recovered after a  claim.
• Partial Settlement –  Payment that is made when only a portion of the claim is approved.
• Settlement Negotiation –Communication between the insured and the insurer to come to a conclusion on the compensation of the claim.

Final Thoughts:

The liability insurance world is not a puzzle, but it is complicated. Be it your first policy or you are handling a multinational risk portfolio, understanding the terminology will enable you to make informed and strategic decisions. This glossary will fill that gap between insurance policy documents and practical knowledge- making liability insurance accessible, actionable and transparent.

Bookmark this or print it out. Whenever you have a moment of uncertainty, whether it is drafting a contract, responding to a lawsuit, or reviewing insurance coverage, it will act as your personal insurance translator.