2. Insurance Planning. 5. General Business Liability Flashcards
Module Introduction
Businesses that sell or serve liquor, such as bars and restaurants, are held responsible if they allow customers to become intoxicated while on the premises, and if those customers then leave the premises and injure or kill themselves or others. “Dram Shop Acts” hold those businesses selling alcoholic beverages to various levels of responsibility, including strict liability for foreseeable damages caused by intoxication. The enforcement of these laws is subject to local custom, but the trend recently has been toward stricter standards.
The General Business Liability module will explain general business liability.
The online portion of this module takes the average student approximately two hours to complete.
Upon completion of this module you should be able to:
* Discuss general liability insurance, and
* Outline special liability insurance
No matter how diligently you remove all possible hazards from your business, you could be sued successfully for accidents resulting from something as simple as the carelessness of a customer. General liability insurance is your last line of defense against devastating claims for things over which you may have little or no control.
To ensure that you have an understanding of business liability insurance, the following lessons will be covered in this module:
* General Liability Insurance
* Special Liability Insurance
Section 1 - General Liability Insurance
Comprehensive general liability coverage insures a business against accidents and injury that might happen on its premises, as well as exposures related to its products.
To ensure that you have an understanding of general liability insurance, the following topics will be covered in this lesson:
* Categories of liability insurance
* General liability insurance forms
* Business umbrella policies
After completing this lesson, you will be able to:
* Identify different categories of liability insurance,
* Discuss different types of general liability insurance forms,
* Define business umbrella policies, and
* Define excess liability insurance.
Business liability insurance can protect firms from which of the following losses?
I. Independent losses
II. Contractual liability losses
III. Direct liability losses
IV. Vicarious liability losses
* II only
* I and III
* II and IV
* II, III, and IV
II, III, and IV
* Risk managers may purchase liability insurance to protect their firms from direct, vicarious, and contractual liability losses.
Each of the following may be covered under a general liability and property package policy EXCEPT:
* Bodily Injury
* Property Damage
* Libel
* Errors & Omissions
Errors & Omissions
* A general liability and package policy can cover accidents, bodily injury, property damage, libel, slander, and false advertising.
* An errors & omissions (E&O) policy is a type of professional liability insurance that covers negligence while providing services or advice.
* E&O insurance primarily serves to protect against instances of financial harm imposed by a business professional.
Coffee distributor, The General Bean Factory, is found responsible for injuring W. Marlowe Rose, a visiting salesperson. The jury returns a $10 million verdict in favor of Mr. Rose. The General Bean Factory’s CGL policy has a coverage limit of $1 million for injuries of this type.
If The General Bean Factory had a $10 million liability umbrella policy, how much of an award would it pay in this situation?
* $9 million
* $10 million
* $1 million
* $11 million
$9 million
* In this situation, the $1 million of CGL coverage would apply first and the liability umbrella policy would pay the remaining $9 million of the award.
Section 1 - General Liability Insurance Summary
General liability coverage insures a business against accidents and injury that might happen on its premises, as well as exposures related to its products.
In this lesson, we have covered the following:
* Comprehensive general liability coverage insures a business against accidents and injury that might happen on its premises, as well as exposures related to its products. It is your last line of defense against claims for things over which you may have little or no control.
* Liability Insurance Categories: Include general liability, specialized liability, and worker’s compensation.
* Exposures: Include direct liability which arise out of the firm’s own actions.
* Vicarious liability: Often arises when a firm hires an independent subcontractor is also called indirect liability.
* Contractual liability: Occurs if a firm accepts by contract a liability it otherwise would not have.
General liability insurance forms include:
* A comprehensive policy is purchased by businesses to insure their liability exposures using the comprehensive general liability policy.
* A commercial policy includes an occurrence-based liability and claims-made form obligates the insurer to pay only for claims first made against the insured.
* Long-Tail claims insurance claims filed many years after an injury takes place.
* Tail coverage is useful, if a contractor ceased operations but wanted liability insurance for a few years in case some lawsuits were filed over previously completed work. It is also called the extended reporting period, and extends the time during which a claim may be filed for a loss occurring during the policy period.
Business Umbrella Policies may cover some exposures left uncovered by underlying policies.
* A commercial umbrella policy can be purchased to provide coverage after underlying liability policies have been exhausted.
The claims-made form places the insured in a more vulnerable position than occurrence-type policies.
* False
* True
True
* Because claims-made policies expose the insured to claims made after the policy expires, they place the insured in a more vulnerable position than occurrence-type policies.
Match the term with the correct definition.
Direct Liability
Vicarious liability
Contractual liability
* A firm that accepts a liability by contract.
* Also called indirect liability.
* Arises out of the firm’s own actions.
- Direct Liability - Arises out of the firm’s own actions.
- Vicarious liability - Also called indirect liability.
- Contractual liability - A firm that accepts a liability by contract.
Which of the following categories would the following example fall into, if an employee of an organization causes harm to a third party by actions such as assault and battery?
* Vicarious Liability
* Contractual Liability
* Premises and Operations Exposure
* Completed Operations Exposure
Vicarious Liability
* Vicarious liability is an indirect liability that arises when a firm hires an independent subcontractor, who in turn injures a third party.
* This liability can be extend to intentional wrongs acts done by employees or agents of an organization that cause harm to a third party.
* These include actions such as assault and battery.
Tail coverage would be useful, if a contractor ceased operations but wanted liability insurance for a few years in case some lawsuits were filed over previously completed work.
* False
* True
True
* The tail period, also called the extended reporting period by insurers, extends the time during which a claim may be filed for a loss occurring during the policy period.
* Tail coverage would be useful, if a contractor ceased operations but wanted liability insurance for a few years in case some lawsuits were filed over previously completed work.
Section 2 - Special Liability Insurance
Most organizations and individuals face loss caused by their general liability exposure. Many risk managers report spending a great deal of time dealing with specialized areas of liability insurance.
To ensure that you have an understanding of general liability insurance, the following topics will be covered in this lesson:
* Environmental Impairment Liability
* Professional Liability Insurance
* Employment Practices Liability
After completing this lesson, you will be able to:
* Define environmental impairment liability,
* Discuss professional liability insurance,
* Define the term professional,
* Discuss the types of liability coverage, and
* Discuss employment practices liability.
What are the three triggers of Triple-Trigger Theory?
If several insurance policies were in force when a developing injury is in progress, all the insurers would be responsible for providing coverage. This is called the triple-trigger theory. The three triggers are exposure, manifestation, and exposure-in-residence period.
The three triggers defined:
* Exposure: The insurer whose policy was in force when the first exposure to hazardous substance occurred.
* Manifestation: The insurer whose policy was in force when the disease was first recognized.
* Exposure-in-residence period: The insurer whose policy was in force when the disease developed.
Cristina was an New York City firefighter with Ladder No. 10. She and her team served as first responders at the World Trade Center on September 11, 2001. In 2013, Cristina suddenly developed chronic asthma that has persisted ever since. Lab results have concluded that toxins at the World Trade Center site led to the chronic condition. At the time Cristina’s asthma was first recognized, she was covered by an Ascendant Health Insurance plan.
According to the Triple-Trigger Theory, which of the three trigger types would apply to the Ascendant Health Insurance?
* Exposure
* Manifestation
* Exposure-in-residence period
Manifestation
* The Ascendant Health Insurance plan would be categorized as a manifestation trigger since it was the in-force policy when Cristina’s asthma was first recognized.
Describe Professional Liability Insurance
Professional liability is caused by errors of professionals. Such insurance typically commits an insurer to pay all sums subject to policy limitations that the insured becomes legally obligated to pay as damages resulting from providing or failing to provide professional services.
There are several types of professional liability insurance. See below for the most common types:
* Medical Malpractice Insurance: Covers health-related harm by a medical professional (e.g., Dr., RN, PA, DMD).
* Legal Malpractice Insurance: Covers litigation-related harm caused by failure of a legal professional to uphold the standards of ethical conduct.
* Errors & Omissions Insurance (E&O): Covers financial-harm facilitated by a professional that deals with client’s money (e.g., CFP®, CPA, CPWA).
In general, most professional liability policies do not give the insurer the right to settle suits without the insured’s consent. The reason is that the professional’s reputation and future earnings could be affected adversely by settlement of negligence claims even though sometimes it might be expedient for the insurer to offer a settlement. However, most of the newer professional liability policies have removed a previous requirement that the insurer obtain the consent of the insured before making an out-of-court settlement, to protect the insured’s professional reputation.
Practitioner Advice: As a financial professional, whether an insurance agent, financial planner, or other licensed advisor to the public, you will face liability risk to your clients. Errors & Omissions (E&O) insurance is a necessary coverage in any advisor’s personal risk management plan. Most professional associations offer E&O coverage to members at a reasonable cost.
Audio:
Describe Directors and Officers Liability Insurance
Director and Officers Liability Insurance (D&O) covers Directors of corporations and other organizations.
* It is necessary when to guarantee protection of individual serving on boards of directors.
In the absence of this coverage, board members might find their personal assets subject to liability claims, or might find they had to finance a legal defense of their alleged malfeasance from their own resources.
Exam Tip: Listen in for an overview of the common testing applicaiton of Directors & Officers Liability Insurance.
Audio:
* Person serving on the board of directors of a company - concerned for exposure from the role.
Would recommend Directors & Officers Liability Insurance.
Describe Errors & Omissions Insurance
Many professionals, such as real estate agents, insurance agents, accountants and architects, need this type of liability protection to cover clients’ claims alleging professional negligence.
Practitioner Advice: Errors & Omissions Insurance covers unintentional oversights by a planner that adversely impact a client’s financial circumstances. Though there may be certain policy exclusions (e.g., alternative investment products, private securities transactions, Regulation D offerings), E&O insurance is recommended for practitioners. The National Association of Professional Advisors (NAPA) provides E&O coverage options for several types of financial planning entities, including: Individual RIAs, RIA Firms & LLCs, and Registered Representatives. By joining the Financial Planning Association (FPA), membership benefits include preferred E&O coverage rates.
Section 2 - Special Liability Insurance Summary
Most organizations and individuals face loss cause by their general liability exposure, many risk managers report spending a great deal of time dealing with specialized areas of liability insurance.
In this lesson we have covered the following specialized areas of liability insurance.
* Professional Liability is caused by errors of professionals. It is sometimes called malpractice liability, or errors and omissions coverage. The types of liability coverage include, doctors’ liability, hospital liability, druggists’ liability, directors and officers liability, omissions insurance, and completed operations.
* Employment Practices Liability arises from hiring, terminating, and supervising personnel. The following are some of the reasons employers have been sued: negligent hiring, invasion of privacy, negligent supervision, negligent discharge, and negligent evaluation.
Environmental Impairment Liability describes a class of legal claims against individuals and organizations whose actions damage the environment.
* Pollution caused by industrial processes has destroyed the environment. Untold amounts of money will have to be spent to reverse the process.
* There are several different federal laws to promote a cleaner environment, one of which is The Superfund Amendments and Reauthorization Act of 1986 (SARA).
* Product liability arises when a manufactured item injures a consumer. A manufacturer of a product has a legal liability to design and produce a product that will not injure people in normal use.
