Which type of damages are liability insurance policies typically intended to cover?

Liability insurance policies are designed primarily to cover compensatory damages that arise from the insured's legal responsibility to another party. Compensatory damages can include both economic losses, such as medical expenses and lost wages incurred by the victim, as well as non-economic losses, such as pain and suffering. The primary purpose of liability insurance is to protect the insured from financial loss due to claims or lawsuits brought against them for damages they cause to others.

While certain other types of damages or losses can be considered in different contexts, they are not typically covered under liability insurance. For instance, direct losses sustained by the insured or future lost income are not usually addressed within the scope of liability insurance, which focuses on the insured's responsibility to third parties rather than their own financial effects. Additionally, fines imposed by regulatory authorities are generally not covered by liability insurance, as they do not fall under compensatory damages resulting from a liability claim.

Therefore, the main focus of liability insurance is to adequately protect against compensatory damages that may arise from various forms of liability, making this answer the most appropriate choice.