The Liability policy primarily covers which type of damages?

The Liability policy primarily covers compensatory damages, which are intended to reimburse an injured party for actual losses suffered due to the actions or negligence of the policyholder. These damages are categorized into two main types: special damages, which cover quantifiable losses like medical expenses and property damage, and general damages, which address non-economic losses such as pain and suffering.

Compensatory damages aim to restore the victim to the position they would have been in had the incident not occurred, making this the fundamental principle of liability insurance. In contrast, punitive, exemplary, and nominal damages serve different purposes; punitive damages are imposed to punish wrongful conduct and deter similar actions in the future, while nominal damages recognize a breach of rights without substantial loss. Thus, liability insurance does not cover those forms of damages, reinforcing the importance of understanding that compensatory damages are the primary focus of liability coverage.