07. Liability Insurance and Policy Limits

Question 1

Liable

Answer 1

Obligated according to law or equity; responsible

Question 2

Liability Insurance

Answer 2

Insurance that protects the policyholder against any damage or injuries he may cause to another party

• liability always indemnifies a third party, never the insured
• legal liability can be determined outside of court

Question 3

Negligence

Answer 3

Failure to use a reasonable degree of care in a particular situation; includes both wrongful acts and acts of omission

• liability insurance never covers intentional acts of wrong doing on the part of the insured
• liability insurance indemnifies the third party for the damages by the policyholder
• negligence is the legal cause of damages of the negligent act directly caused those damages

Question 4

Vicarious Liability

Answer 4

The transfer of negligence from one party to another

often applies to:

Employers: if John’s negligent act takes place at work, his employer is vicariously liable for his actions

Parents: if John is under the age of 18, his parents are vicariously liable for his actions

Question 5

Four Elements

Answer 5

1. The defendant had a legal duty to act ( or not act ) in a prescribed manner.
2. The defendant failed to act accordingly ( called a breach of duty ).
3. The plaintiff suffered actual loss or injury due to the defendant’s action or inaction.
4. The loss or injury to the plaintiff was a direct result of the breach of duty of the defendant.

Question 6

Example: the Four Elements ( application of )

Answer 6

1. Legal duty ~> warning in manual
2. Failed to act accordingly ~> aimed and shot at Tom’s leg
3. Suffered actual loss ~> bullet wound
4. Loss was direct result of act ~> Jim shot Tom and caused injury

Question 7

Degrees of Liability ( Tort Law suggests 3 degrees of liability )

Answer 7

1. Full Liability: the insured party is 100% at fault for damages to a third party
2. Partial liability: the insured party is only partially at fault, or shares fault, with a third party. The third party had some part in his own damages.
3. No liability: the insured party has 0% or no liability in the damages to a third party

Question 8

Defenses to a claim of negligence

legal doctrines

Answer 8

1. Assumption of Risk: the claimant knew he had the potential to experience damage or injury
2. Contributory Negligence: Can be understood as, “if you hadn’t played your part in the negligence, you would not have experienced any damages. Therefore, you receive no indemnification.”
3. Comparative Negligence: An adjuster may seek to suggest a claimant was (for example) 75% responsible, and the policyholder was 25% responsible for damages

Question 9

Contributory vs. Comparative Negligence

Answer 9

Contributory Negligence: under this rule, Calvin receives nothing for his loss

Comparative Negligence: if Calvin is found to be 40% responsible for his own loss, he will receive 60% of the damages

Question 10

Modified Comparative Negligence

Answer 10

Same as comparative negligence, except that the plaintiff receives no damages if she is found to be 50% ( or 51%) or more at fault

Question 11

Res Ipsa Loquitur

Answer 11

• Latin phrase that translates to “the thing speaks for itself”
• The circumstances of the injury make it obvious that the defendant is negligent, no proof is needed
• example: a man who has pain and discomfort for year finally discovers that a sponge was left inside his body from a previous surgery. It is obvious that the doctor is at fault and there is no need to argue about who is negligent and to what degree

Question 12

Strict Liability & Dangerous Instrumentality Doctrine

Answer 12

Strict ( Absolute ) Liability holds a party liable for damages when they or instrument they are performing is inherently dangerous.

Dangerous Instrumentality Doctrine - also known as the inherently Dangerous Activity Doctrine - holds up party strictly

Question 13

Policy Limit

Answer 13

The maximum amount a month policy will pay for covered losses

Three types of liability policy limits:

• single limits
• split limits
• aggregate limits

Question 14

Single Limit Liability Insurance

Answer 14

• establishes one maximum payout for liability damages caused by the policyholders
• limit applies for each occurrence

Question 15

Split Limit Liability Insurance

Answer 15

Establishes three different limits on how much the policy will pay out

• limit 1: maximum payout for bodily injury for each person injured
• limit 2: maximum payout for bodily injuries to multiple persons
• limit 3: maximum payout for property damage

Question 16

Aggregate Limit Liability Insurance

Answer 16

• typically found in commercial liability for the policies ( for businesses )
• establishes two liability limits:
  
  • limit 1: maximum payout for damage or injury
  • limit 2: maximum amount the policy will pay per term

Question 17

Aggregate Example

Answer 17

• aggregate limits: $300,000/$900,000
• accident causes: $45,000 covered damages
• insurer pays $300,000 ( occurrence limit of policy )
• Construction, Inc must pay: $150,000
• new limits for remainder of item: $300,000/$600,000