When does a liability insurance policy apply to the insured?

A liability insurance policy is designed to protect the insured against claims made by third parties for damages or injuries resulting from the insured's actions. The correct answer centers around the concept that liability coverage specifically addresses situations where someone other than the insured (a third party) is claiming compensation for damages.

This means that the policy comes into play when a third party asserts a claim due to the insured's actions; the insurer will provide coverage for legal defense and any settlements or judgments up to the policy limits. Thus, the essence of liability insurance is to respond to these third-party claims, ensuring that the insured is financially protected against lawsuits or claims for damages.

In contrast, causing property damage or being directly liable pertains more to the circumstances that might trigger a claim, rather than the nature of the coverage itself. Similarly, filing a claim is a process that occurs after a loss or damage has been alleged, rather than a condition that defines when the liability insurance applies. Therefore, highlighting that liability insurance is activated in response to third-party claims accurately encapsulates the coverage's intent and application.