Webster’s defines liability as “the quality or state of being liable.” What does liable mean? According to Webster’s, it means “legally obligated; responsible.”
The purpose of a general liability policy is to protect against lawsuits arising from accidents occurring on insured premises or during an insured activity, producing injury, death, property damage or loss to third parties. Anyone can buy a general liability policy: homeowners, tour operators, hotels, restaurants, shops, manufacturers, etc. In addition to general liability, there are also specific liability insurance policies: automobile, product, professional, etc., but those will not be dealt with in this article.
In North America, liability has gone wild, with people suing each other for all sorts of trivial mishaps, judges handing out huge awards and legal eagles obtaining fat fees. In order to limit legal costs, insurance companies are paying liability claims even before they enter the legal system.
Things in Costa Rica are quite different. The National Insurance Institute (INS) never – or almost never – pays a liability claim before there is a court ruling on the matter. The legal system has a backlog – I have heard up to two years – and this tends to discourage trivial claims.
Most judges seem to believe that everyone should exercise reasonable care and look out for him or herself. I remember reading an article in one of the local papers about a man who sued the owner of a building because he had tripped and fallen on the sidewalk. The judge admonished the plaintiff to mind where he was walking, and dismissed the complaint.
In cases where there is clear negligence on the part of the defendant, the award given to the plaintiff is usually based on redress. In other words, the defendant pays for the amount the plaintiff is out of pocket as a result of the mishap. Awards for pain and suffering and punitive damage, if any, are usually insignificant.
In my opinion, in this country liability insurance is not a great priority for a normal homeowner, and businesses engaging in activities where there is liability risk can buy considerably less coverage than a similar business in North America would need.
Within the liability policy, two types of mishap are covered: injury, disability and loss of life or limb; and damage or loss of property.
The general liability policy offers a combined limit of the two, whereby INS will pay up to the chosen limit, regardless of the “mix.”
When determining the amount of coverage you want to buy, INS offers two types of limits for you to choose: limit per event, that is, the maximum INS will pay per accident or lawsuit; or aggregate annual limit, the maximum amount INS will pay out, per year, for claims against the policy.
To determine how much insurance to get, visualize a worst-case scenario of what could happen in an accident, and estimate how much it would cost to put things right – that would be the recommended limit.
The liability policy should be in the name of the person or people who could be sued if there were a mishap: the owner of the house, and/or the tenants if the house is rented; or the person or corporation running the business.
The process of getting the insurance is easy, but slow. INS requires an application form with all relevant information, signed by the applicant with a copy of his or her identification attached – you should meet with your agent to do this. Once the application is received, INS will take several days to nominate the inspector, who, usually after a week or two of drinking coffee (and with no advance warning or phone call), will go to inspect the risk, interview the applicant and corroborate the information on the application.
After he submits his report (more coffee!), the rate and premium are determined, and the agent will be authorized to collect the premium. The hard copy of the policy will follow about a week later.
The premium for general liability is a percentage of the insured amount, for homeowners usually a bit less than 1% per year.
INS fixes the exact rate on a case-by-case basis, according to the perceived risk. When the INS inspector is due to come to your house, don’t wax the floors, put away the pit bull, and make sure the yellow paint on the edge of the stairs is bright and shiny.