What type of damages are typically covered under a liability policy?

Compensatory damages are typically covered under a liability policy because they aim to reimburse the injured party for actual losses incurred due to the actions of the insured. This type of damage is divided into two categories: economic and non-economic. Economic damages cover tangible losses such as medical expenses, lost wages, and property damage, while non-economic damages may address pain and suffering that are not easily quantifiable.

In the context of liability insurance, the objective is to ensure that the policyholder's financial responsibility for harm they may have caused to another party is met. This aligns with the purpose of liability coverage, which is to protect against claims for damages that arise from negligence or wrongful acts.

While punitive damages are intended to punish the wrongdoer beyond compensating the victim, they are generally not covered by standard liability policies. Similarly, emotional damages might be included as a part of compensatory damages, but "emotional damages" alone is less definitive in an insurance context. Actual damages often refer to the measurable financial loss and can be a subset of compensatory damages, reinforcing the broader category's comprehensive coverage of financial losses.