What does liability mean in the context of insurance?

In the context of insurance, liability refers to the obligation of an individual or entity to pay for damages or injury that they cause to another party, typically due to negligence. This concept is essential in understanding various types of insurance policies, particularly liability insurance, which is designed to protect against claims resulting from injuries and damage to people or property. For example, if a person causes a car accident, they may be liable for the damages incurred by the other party, and their liability insurance would help cover these costs.

The other options focus on different aspects of the insurance process. The legal method for resolving disputes pertains to the legal system and may involve lawsuits or arbitration but does not define liability. The right to file a claim with an insurer is related to insurance coverage but does not encapsulate the concept of liability itself. Lastly, an agreement to maintain coverage limits refers specifically to the stipulations in an insurance contract regarding the maximum coverage amounts, which is also distinct from the definition of liability.