Liability Exposure – Cost of Loss
Cost of loss
Cost of loss is the financial consequence of incurring a loss. This is the monetary loss caused by a loss exposure. The extent of a financial consequence depends on the type of loss and the cause of the loss.
Liability cost of loss
This is often referred to as the financial consequence of a loss. Under a liability exposure, the primary cost of incurring a loss is the cost to pay the injured party and the cost to defend the claim in court. The amount to be paid for a liability claim is hard to predict, the damages awarded by a court cannot be estimated. Theoretically, the cost of loss of a liability claim is limitless, although most court systems will cap the total amount paid for a single claim. In most cases, a liability claim is settled and paid outside of court. The court system is used to determine the appropriate payment if a settlement cannot be reached outside of court.
The cost of a liability loss is based on three expenses:
- Damages – this is the actual amount of money paid by the liable party to compensate the injured party for their damages.
- Defense – this is the legal fees paid to defend a liability claim in court.
- Investigation – this is the cost incurred to investigate a liability claim.