What Is Liability Coverage and Who Does It Cover?

Liability coverage provides compensation to victims of a car accident from the at-fault party’s liability insurance policy. Liability coverage insures the named insured on the policy, the spouse and any family members of the named insured so long as they reside at the named insured’s residence, and any person using the vehicle listed on the policy with the express or implied permission of the named insured or a person in lawful possession of the vehicle.

Named Insured

The named insured is the person listed on the policy as the policyholder. If you wonder where this information is located, look at the Declarations page. This is also commonly referred to as the “dec page.”

Family Member

Under the current standard North Carolina automobile insurance policy, a family member is defined as “a person related to you by blood, marriage or adoption who is a resident of your household. This includes a ward or foster child.” Common examples of “family members” include, brothers, sisters, mothers, fathers, and children.

Resident of Your Household

Whether a person related to you resides within your home is a fact-specific inquiry. The facts that courts have considered are, mailing address, where the person sleeps, how often the person visits the residency, items left at the residency by the person, and other factors which would leave a court to conclude that the person calls the residence, “home.” A person can reside at more than one location entitling that person to coverage. In one North Carolina case, a minor who lived with the mother part-time and the father part-time, evidenced by court paperwork, was considered a resident of both parents’ homes.

Because “resident” is not defined within the insurance policy, courts apply the plain meaning of the word. Many times, the court resorts to the dictionary definition. Further, when a policy does not define a word, courts read the broadest interpretation to allow coverage. As a result, whether a person is a resident of a location is sometimes against what one might consider the usual “everyday home you come to sleep at every night.”

Coverage for a Resident Related to the Named Insured

If the person is a family member and resident of the named insured, then liability coverage will apply to that family member even if that family member is not listed on the insurance policy and not driving the vehicle listed on the policy. As an example, a father and mother of a home have a 16-year-old son who just got his license. The son is still in school and resides within the home every day of the week. A friend of the son brings his new Jeep and allows the son to drive it. While test driving the jeep, the son gets into a collision that is his fault. In this situation, the parents’ liability insurance will cover the damages from the accident.

There are exceptions to that rule, however. If the family member is driving a vehicle of the named insured but that vehicle is not listed on the liability policy, then liability coverage will not apply. In addition, if the vehicle driven by the family member is furnished to the family member for “regular use” then the liability insurance of the named insured will not cover any losses from an accident involving that vehicle even if the person driving is a family member and a resident of the named insured’s household. The rationale behind the exceptions is to prevent insurance companies from being forced to cover automobiles that it does not know about and are being used regularly by the insured and family members.

Permission to Use the Vehicle

Any person who the named insured permits to use the vehicle listed in the auto policy is covered under its liability coverage. Commonly, a named insured would allow a friend to use their vehicle as a courtesy. If the friend is in an accident while driving the named insured’s vehicle with his permission, the named insured’s liability policy would apply and cover the damages. However, if the named insured’s vehicle is stolen and later in an accident, the named insured’s liability coverage would not pay the damages because the thief did not have the named insured’s permission to use the vehicle.