Liability policies are designed to cover which type of damages?

Liability policies are primarily designed to cover compensatory damages. Compensatory damages are intended to reimburse the injured party for actual losses incurred due to the actions or negligence of the insured. This includes both economic losses, such as medical expenses and lost wages, and non-economic losses, such as pain and suffering.

In the context of liability insurance, when a policyholder is found liable for causing harm or damage to another party, the insurance will cover these compensatory damages up to the policy limits. This ensures that the injured party is made whole to the extent possible by compensating them for their measurable losses.

While punitive damages, general damages, and nominal damages might arise in tort cases, they are generally not covered by liability policies. Punitive damages are intended to punish the wrongdoer and deter similar conduct in the future and are typically not insurable. General damages relate to non-economic losses and may not always be fully covered depending on the specific terms of the policy. Nominal damages are small amounts awarded when a legal wrong has occurred but has not resulted in any substantial loss, thus they are unlikely to be the focus of liability policies.