Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
Updated August 07, 2023Casualty insurance is a broad category of insurance coverage for individuals, employers, and businesses against loss of property, damage, or other liabilities. Casualty insurance includes vehicle insurance, liability insurance, and theft insurance. Liability losses are losses that occur as a result of the insured’s interactions with others or their property.
For homeowners or car owners, it's important to have casualty insurance, as damage can end up being a large expense. In addition to auto and liability insurance, casualty insurance is an umbrella term traditionally used to describe many other types of insurance, including aviation insurance, workers' compensation, and surety bonds.
Just as you can purchase property insurance to protect yourself from financial loss due to theft, loss, or damage, liability insurance protects you from financial loss if you become legally liable for injury to another or damage to property. To be legally liable, one must have demonstrated negligence—the failure to use proper care in personal actions.
If negligence results in harm to another, the offending party is liable for resulting damages. People in the insurance industry often call liability losses third-party losses. The insured is the first party. The insurance company is the second party. The person to whom the insured is liable for damages is the third party.
Casualty insurance coverage begins when a policyholder purchases a casualty insurance policy from an insurance company or provider. The policy outlines the terms, coverage limits, premiums, and any exclusions specific to the type of casualty insurance purchased. The policyholder pays a regular premium (usually monthly or annually). The premium amount is based on various factors, such as the level of coverage, the insured's risk profile, and the probability of loss.
The casualty insurance coverage remains in effect for a specific period and can be renewed upon expiration if the policyholder continues to pay the premiums. If a covered event occurs during the policy period, the policyholder can file a claim with the insurance company. The policyholder contacts their insurance company to initiate the claims process and must provide the necessary information and documentation related to the loss or liability claim.
The insurance company reviews the claim to determine its validity and whether it falls within the policy's coverage. If the claim is deemed valid and falls within the policy's coverage, the insurance company will pay out the agreed-upon compensation or benefits to the policyholder or affected parties. The amount paid will be up to the policy's coverage limit. In other cases, the claim may be denied.
In 2022, $434 billion of direct premiums were written for U.S. property and casualty insurance policies.
Casualty insurance is a blanket term used to describe many different types of policies that protect a policyholder from liability claims, damage, or other risks. Below are many different types of casualty insurance, though this list is not meant to be exhaustive.
General liability insurance provides coverage for bodily injury, property damage, and personal injury claims. These claims often result from accidents that occur on the insured's premises or due to their operations. General liability protects businesses from lawsuits related to slip and fall incidents, product defects, or advertising injuries.
Auto insurance covers damages to vehicles and property as well as injuries to drivers, passengers, and pedestrians resulting from automobile accidents. It is mandatory in many jurisdictions and offers different coverage options, such as liability, collision, comprehensive, and uninsured motorist coverage.
Workers' compensation insurance provides benefits to employees who suffer work-related injuries or illnesses. It covers medical expenses, lost wages, and rehabilitation costs. Workers' compensation also protects employers from liability for workplace injuries.
Professional liability insurance, also known as errors and omissions (E&O) insurance, protects professionals from claims of negligence, errors, or omissions in their services. It is commonly used by doctors, lawyers, architects, and other professional service providers.
In a similar manner as professional liability coverage, product liability insurance covers businesses against liability claims arising from injuries or damages caused by their products.
Cyber liability insurance provides coverage for losses resulting from cyber incidents such as data breaches, hacking, cyber extortion, or business interruption due to cyberattacks. It helps businesses manage the financial and reputational risks of cyber threats should sensitive information be stolen.
Event liability insurance offers coverage for liability claims arising from events, such as concerts, conferences, weddings, or sports events. It protects event organizers from potential lawsuits and other liability risks from the occurrences planned for that specific event.
Contractor's liability insurance protects contractors and construction professionals from liability claims related to their work or construction projects. It covers bodily injury, property damage, and other risks in the construction industry.
Casualty insurance premiums can dramatically change year over year. During the turn of the millennium, average premiums increased up to 28.5% year-over-year; on the other hand, during the global financial crisis, premiums dropped an average of 13.5% year-over-year.
Casualty insurance covers a lot of things; however, there are also a number of exclusions. Consult your specific policy or policies to best understand what is excluded, which may or may not include:
Probably the best example of how casualty insurance works is an auto accident. Consider this hypothetical example: Let’s say Maggie backs out of her driveway and hits Lisa's parked car, resulting in $600 of damage.
Because Maggie was at fault, she is legally liable for those damages, and she must pay to have Lisa’s car repaired. Liability insurance could protect Maggie from having to cover the damages out of pocket. In this situation, Maggie would contact her insurance company and provide details about the incident. For example, she may communicate to her insurance company that the incident occurred outside of her house at 8 a.m. on the first of the month.
Maggie's insurance company would assign an adjuster to investigate the claim. The adjuster may interview Maggie, contact Lisa for more information, review damages to each car, and review medical records if applicable.
The adjuster would then determine whether or not the claim is valid. The insurance company may negotiate a settlement with Lisa's representatives. Once an agreement is reached, the claim is closed and the casualty insurance policy has officially covered Maggie's costs.
Certain types of casualty insurance, such as auto insurance and workers' compensation, are mandatory in many jurisdictions. However, other types of casualty insurance may be optional, depending on the individual's or business's needs and risk exposure.
Yes, many insurance companies offer the option to bundle casualty insurance with other types of coverage, such as property insurance or commercial liability insurance. Bundling can often lead to cost savings and simplified policy management.
Yes, casualty insurance typically covers personal injury claims such as bodily injury or emotional distress that result from accidents or negligence for which the policyholder may be held liable.
If you need to file a casualty insurance claim, contact your insurance company as soon as possible. Provide detailed information about the incident, including the date, location, description of damages, and any injuries sustained.
Casualty insurance is a type of insurance that provides coverage for losses and liabilities resulting from accidents, injuries, and unexpected events. Casualty insurance includes various types of coverage, such as general liability, auto insurance, workers' compensation, and professional liability. Note that specific events or situations may be explicitly excluded from casualty insurance coverage.