What is the primary purpose of liability insurance in a commercial policy?

Liability insurance in a commercial policy primarily serves to protect businesses from claims made by third parties for damages or injuries resulting from the business's operations, products, or services. This type of insurance is designed to cover legal expenses, settlements, and judgments that may arise from such claims, thereby safeguarding the financial stability of the business.

Businesses often face risks associated with accidents or incidents that could lead to injury or property damage involving clients, customers, or other third parties. For instance, if a customer slips and falls on a business's premises, liability insurance would help cover the costs associated with that claim. By protecting against these potential liabilities, businesses can operate with greater confidence, knowing they have financial backing in the event of unexpected incidents.

In contrast, the other options focus on areas outside the primary intent of liability insurance. Coverage for physical damage to property is more aligned with property insurance, while refunding lost inventory pertains to stock insurance. Insulating against market fluctuations relates to financial instruments and risk management strategies, which do not fall under the purview of liability insurance. The core function of liability insurance is to ensure that businesses can handle claims for damages or injuries, which is fundamental to maintaining their viability and reputation in the marketplace.