How does liability insurance respond when the insured is at fault in an accident?

The correct choice reflects how liability insurance functions in the context of an accident where the insured is at fault. Liability insurance is designed to protect the insured against claims made by others when they are found to be responsible for causing damage or injury.

When the insured is at fault in an accident, liability insurance will cover damages to the other party's vehicle, as well as any bodily injuries incurred by the other party as a result of the insured's actions. This means that the insurance company will pay for repairs to the other person's vehicle and for medical expenses related to injuries sustained in the accident, up to the policy limits.

This mechanism serves to fulfill legal responsibilities and financial obligations the insured has to third parties when they are deemed liable, ensuring that those injured or whose property has been damaged can receive compensation without the insured having to pay out of pocket.

Other options describe circumstances that do not align with the purpose of liability insurance; for example, covering only the insured's vehicle damages or medical expenses do not accurately represent the role of liability insurance in an at-fault situation since that insurance specifically addresses the coverage for damages or injuries to others involved in the accident.