This was a concern for me also and I asked the same question. I was told that if you see an unsafe incident (drowning, OOA, crash dive to the abyss, etc.) you should try to intercede only if you can do so without endangering yourself. That goes back to my rescue course where you might have to wait until the wild flailing drowning guy goes unconscious before approaching. Not an easy thing to do, but the alternative means two bodies to be recovered.Could you explain, in basic terms, what an instructors liability might be if they saw someone 30ft below them heading for the abyss? Do you have a duty to attempt rescue? A duty to inform responsible party, or what? Insurance has to insure against something, and the bounds of that insurance are the dictates of what you are actually liable for.
This is one of my primary fears of becoming an instructor.
If you followed your procedures and training standards for whatever agency you operate under then you should not be able to be held liable. However, carrying insurance is a no-brainer if you are a professional DM or Instructor. Stuff, as they say, inevitably happens.