Contingent liability insurance

There are three main types of contingent liabilities that insurance will cover:

• Probable contingent liabilities: These are financial responsibilities that are likely to happen based on available information. Probable contingent liabilities must be recorded on financial disclosures because they can affect the company’s bottom line. For example, if a customer sues your business for breach of warranty and you’re expected to lose, the estimated settlement would be considered a probable contingent liability.
• Possible contingent liabilities: A possible contingent liability means that there is a small chance of a lawsuit occurring, but not enough to report on a financial statement. These liabilities are disclosed in the financial statement footnotes. For instance, if your business gets sued for a warranty or defect claim and it’s not completely certain which party will win the lawsuit, it would be considered a possible contingent liability.
• Remote contingent liabilities: These are liabilities that have a very small chance of happening and aren’t typically disclosed in the business’s financial statements. For example, if your business is facing a product warranty lawsuit but you’re expecting to win the suit based on evidence and legal analysis, it would be considered a remote contingent liability.

There are several types of contingent liability risk insurance that will cover liabilities that could arise based on potential future events:

• Contractual liability insurance: Contractual liability insurance protects your business against liabilities you assume when signing a contract. This type of insurance coverage is often included with general liability insurance.
• Environmental liability insurance: Environmental liability insurance covers lawsuits related to pollution that your business causes. It’s often required for construction companies, manufacturing businesses, and healthcare facilities.
• Professional liability insurance: Professional liability insurance covers claims of negligence, professional mistakes, and errors that cause financial loss for a third party. There are several industries that can benefit from professional liability insurance, including consultants, accountants, engineers, IT professionals, and real estate agents.
• Occupational accident insurance: Occupational accident insurance covers medical treatment and partial lost wages for independent contractors who get sick or injured at work but aren’t covered under workers’ compensation insurance. It also protects the business against potential lawsuits related to the contractor’s injuries.