Liability Insurance

Question 1

Liability Insurance

Answer 1

Legal liability insurance provides protection against the financial impact of lawsuits. Liability losses occur as easily as property losses.

Question 2

Umbrella Policy

Answer 2

It is important to protect yourself from legal liability by purchasing an umbrella policy. For example, if someone is injured at your home or you have an auto accident that causes personal injury, an umbrella insurance policy will begin providing coverage after the underlying homeowners’ or personal auto policy has been reached.

Question 3

Categories of Loss

Answer 3

Bodily Injuries Wages lost while the plaintiff was recovering from an injury.

Personal Injuries Suffered when a person is deprived of his or her rights.

Property Damages Destruction and loss of use of tangible personal property.

Question 4

Collateral Source Rule

Answer 4

The collateral source rule allows that damages for bodily injury can be assessed against the negligent party even when the injured person recovers the amount of his or her loss from other sources. For example, an injured party who was fully compensated by an insurance company can still sue the negligent party for the amount of medical expenses and lost income incurred due to his or her injuries.

Question 5

Punitive Damage

Answer 5

Punitive damages are awards made to plaintiffs not as compensation for injuries suffered, but as a means of punishing defendants for outrageously offensive acts. What constitutes such an act is a question of fact. The insurer usually agrees to pay for injuries inflicted by negligence on behalf of the insured individual. Punitive damages usually imply gross negligence, something for which the insurer may not have contemplated making payment.

Question 6

Legal Liability

Answer 6

Legal liability is imposed by the courts when it has been established that all of the following occurred:

1. There was negligence
2. There was actual damage or loss
3. The negligence was the proximate cause of the damage.

Question 7

Case of negligence

Answer 7

To establish a case of negligence, the law requires the plaintiff to prove all of the following:

1. Defendant had legal duty to protect the plaintiff
2. Defendant failed to perform that duty
3. The plaintiff suffered injury.

Question 8

Negligence Suit Defense

Answer 8

A tort predicated on negligence alone carries certain defenses that may negate legal liability in spite of the negligent behavior. A defendant has three main lines of defense against a charge of negligence:

contributory negligence
assumption of the risk
comparative negligence

Question 9

Contributory Negligence

Answer 9

Assuming the plaintiff establishes the defendant’s negligence, the defendant may counter with a defense of contributory negligence. If it can be shown the plaintiff’s own negligence contributed to or led to the injury sustained, the court will not allow recovery of damages from the defendant under the contributory negligence rule.

Question 10

Assumption of Risk

Answer 10

A second line of defense involves establishing that the plaintiff knowingly assumed the risk of injury. If the defendant establishes assumption of the risk, the plaintiff will not be awarded a judgment.

Question 11

Comparative Negligence

Answer 11

The contributory negligence rule is harsh. Even slight negligence on a plaintiff’s part can relieve a grossly negligent defendant of responsibility for an accident. Today, most states apply a modification of the contributory negligence rule called the doctrine of comparative negligence. The comparative negligence doctrine allows plaintiffs some recovery despite contributing to their own injuries.

Question 12

Tort

Answer 12

A tort is a private or civil wrong or injury, other than breach of contract, for which the court will provide a remedy in the form of an action for damages. While contract law is designed to compensate one person for injuries caused by another’s failure to perform under a contract, tort law provides compensation for legal wrongs committed against a person or his or her property arising independently of any contract between the parties. A person who commits a tort is known as a tortfeasor, and acts or omissions constituting torts are said to be tortious

Question 13

Tort Actions

Answer 13

Tort actions, like other civil actions, begin when a person injured by another’s act or omission files a complaint in court, alleging that the defendant has committed a tort, and requesting damages.

Three categories of tort liability are:

1. intentional torts - defendant’s actions are calculated to cause injury to another
2. negligent torts - defendant unintentionally acts or fails to act in a prudent manner, and
3. strict liability torts - damages result from dangerous activities.

Question 14

Strict Liability

Answer 14

In certain cases, tort liability is imposed in the absence of both negligence and intent to interfere with the plaintiff’s legally protected interests. Such liability is known as strict liability, or liability without fault. In other words, a person is said to be “strictly liable” if legal responsibility is imposed even though he or she has not acted intentionally and has exercised the utmost care to prevent the harm.

Two other forms of strict liability are imposed upon:

suppliers of defective products that cause personal injury or property damage, and
common carriers for goods lost or damaged in transit.

Question 15

Umbrella Policy needs

Answer 15

While high-net-worth clients need umbrella policies due to their higher risk of being sued, many other clients could benefit from this inexpensive protection. Families with young drivers in the household, people who travel and drive internationally, and owners of swimming pools and trampolines should learn more about the costs and benefits of this policy. An insured should purchase an umbrella policy from the same insurer that provides them with homeowners and auto insurance to guard against gaps in coverage.

Question 16

Business Umbrella Policies

Answer 16

As the risk manager contemplates worst-case possibilities, a commercial umbrella policy can be purchased which provides for coverage in the following ways:

Excess coverage over underlying liability coverage is available when those policy limits are not sufficient to pay for judgments against the insured.
More comprehensive coverage is available for losses and exposures left uncovered by underlying policies.
Drop-down coverage is available meaning the umbrella becomes the underlying coverage after underlying liability policies have been exhausted, if the insured absorbs the first dollars of the loss.

Question 17

Types of Liability Losses

Answer 17

Workers Compensation Claims arise from injury to a firm’s employees while they are at work.
Product Liability Occurs when a firm’s products allegedly injure the public.
Environmental Impairment Liability Arises from violating federal or state statutes designed to protect the environment, or from lawsuits from parties claiming injury caused by a firm’s improper handling of toxic substances.
Employment Practices Liability Describes the loss potential arising from lawsuits from employees or job applicants alleging wrongful hiring, promotion, demotion, termination, and sexual harassment.

Question 18

What are the various federal environmental protection acts?

Answer 18

1. Superfund
2. Superfund (Amendment of 1986)
3. Clean Air Act (Amended in 1990)
4. Water Pollution
5. Environmental Protection Act (EPA)

Question 19

Environmental Impairment Liability (EIL):

Answer 19

Environmental Impairment Liability (EIL): describes a class of legal claims against individuals and organizations whose actions damage the environment.

Question 20

Pollution

Answer 20

Implies destruction of the environment by the introduction of toxic substances, heat or noise.

Question 21

Products Liability Insurance

Answer 21

A manufacturer of a product has a legal liability to design and produce a product that will not injure people in normal use.

Question 22

Professional Liability Insurance

Answer 22

Professional liability is caused by errors of professionals. Professional liability insurance is sometimes called malpractice liability, or errors and omissions coverage.

Question 23

Directors’ and Officers’ liability insurance (D&O)

Answer 23

Another type of professional liability insurance includes Directors’ and Officers’ liability insurance (D&O) which covers Directors of corporations and other organizations.

Question 24

What are two clauses of professional liability insurance?

Answer 24

Coverage Clause: The language of the coverage clause of a professional liability policy for lawyers makes the insurer’s intentions clear.

Claims Settlement: The legal obligation to pay damages implies litigation establishing the professional’s negligence.

Question 25

What is Errors & Omissions Insurance?

Answer 25

Errors and Omissions Insurance protects your company from claims if your client holds you responsible for errors, or the failure of your work to perform as promised in your contract.