I had an exchange with a rental company a few months back. Here is part of what they told me.

Liability insurance does not cover renters. It covers the other car, in the event of an accident. Yes, car rental companies are required to have all cars insured with liability coverage, which we sell to renters. It’s entirely up to the renter to decide whether they want to purchase it, or not.

Hence, when renting a car, purchasing the liability insurance in highly recommended but not mandatory. Some car rental companies here claim that it’s mandatory by law for customers to purchase the liability insurance, but that’s entirely untrue. Some people actually claim to have their own liability coverage, so we don’t coerce them to purchase it.

If someone else damages your rental car and the police decided it’s their fault, then you’re not responsible for anything. Their insurance has to fix your car.

If you cause damage to someone else’s car/property etc, and the police decide that you’re at fault, then:

1. If you purchased the liability coverage, then that covers the other person’s car.

2. If you didn’t purchase the liability coverage, then you’re fully responsible for the damage to the other person’s car.