Most homeowners policies include personal liability coverage, which can respond to claims of bodily injury or property damage arising from incidents at the home, and in some cases from certain activities away from the property as well.

This coverage typically includes a duty for the insurer to defend the policyholder, meaning the insurance company generally provides and pays for legal counsel to handle the lawsuit, in addition to paying any covered damages up to the policy limit.

Homeowners policies commonly exclude coverage for intentional harm caused by the policyholder, since liability insurance is generally designed to cover accidents, not deliberate conduct.

Other frequent exclusions include certain animal-related incidents depending on the policy and jurisdiction, business or professional activities conducted from the home, some vehicle-related incidents, and any claim amount exceeding the policy's stated limits.

Policyholders are generally expected to notify their insurer promptly after being sued or even after an incident that could lead to a claim, since delayed notice can jeopardize coverage under many policies.

Once notified, the insurer typically evaluates whether the claim is covered and, if so, assigns defense counsel to handle the case. If coverage is uncertain, the insurer may proceed under a reservation of rights while it investigates further.

If a judgment or settlement exceeds the liability limits of the homeowners policy, the policyholder can become personally responsible for paying the remaining amount out of their own assets or future income.

This risk is one reason some homeowners purchase an umbrella policy, which adds an extra layer of liability coverage above the limits of the underlying homeowners policy.