Liability insurance

Question 1

Negligence

A person becomes liable to another by committing a tort. A tort is a civil wrong that violates the rights of another.

Answer 1

Unlike the commission of a crime, in which the government prosecutes the wrongdoer, torts are part of civil law and are concerned with the private relationships between people.

Question 2

Establishing negligence

Generally, the court must determine negligence. To establish negligence, four factors must be involved:

1: legal duty owed
2: breach of legal duty owed
3: proximate cause
4: damages

Answer 2

First there must be a legal duty owed on the breach of that duty. Legal duty owed to different people varies, but as a general rule, each person owes a duty to another to protect the others rights and property.

Each person is expected to behave like a reasonable or prudent person, following those ordinary considerations that guide human affairs. This is sometimes known as “the reasonable person rule”.

The duty owed by one person to another and sometimes expressed as a dual degree of care or standard of care.

For instance, property owner owes the greatest degree of care to an INVITEE, a person invited onto the premises involving potential benefit to the property owner.

A little less responsibility is owed to a LICENSEE, a person on the premises with the owners consent but for the sole benefit of the visitor.

The least degree of care is owed to a TRESPASSER, One who is on the premises without permission, either express or implied.

Question 3

Establishing negligence continued

Proximate cause

Answer 3

The proximate cause of loss is an action that, in a natural and continuous sequence, produced the loss.

This sequence is unbroken by other factors or events, and the loss would not have occurred without the proximate cause.

When an independent action breaks the chain of causation and sets in motion a new chain of events, the INTERVENING cause becomes the proximate cause.

Example: Farmer Jones has a green silo that is blown over in a windstorm. Five weeks later, he allows his neighbors cattle to feed on the water-soaked grain that was left laying on the ground. 17 cows contract an intestinal element as a result and die.

In this case, the windstorm was the proximate cause of the loss to the silo not the cattle. Farmer Joneses intervening negligent act (allowing the cattle to eat water-soaked grain) was the proximate cause of the loss to the cattle.

Question 4

Lability losses

… The irate person could win the suit and leave you and your business and financial ruin. It happens.

Answer 4

Losses incurred as a result of actions toward other people or their property.

The liability loss occurs when a person is determined to be have been responsible, or liable, for lost another person or another person’s property…

Question 5

Establishing negligence (cont)

Proximate cause (cont.)

At times, additional events may occur between the proximate cause of the loss and the loss itself, but these events occur as a chain reaction, with no other causal element interrupting the sequence.

Answer 5

Example: Lynn gas and electric company has a small fire in the control unit. This fire caused a short in the electrical wiring, which made a machine to stop operating.

Because this machine regulated another machine, the second machine ran out of control and flip the five flywheel off it’s shaft, which badly damaged adjacent machinery.

In this case, the fire is the proximate cause of the damage to the machinery because it started a chain reaction and there were no intervening causes.

Question 6

Defenses against negligence

Contributive and comparative negligence

Answer 6

Traditionally, to establish liability an individual must show that the other party was Negligent AND that the individual did not contribute to the loss through any negligence on his own part.

So if a person contributed to his own damages IN ANYWAY, another party cannot be held liable for them. Some states retain the system, ruling out liability when there has been contributory negligence.

In other jurisdictions, this doctrine has been softened to some degree by comparative negligence laws, which allow a finding of liability to be made even when both parties have contributed to the loss, with an award based on the extent of each parties negligence.

Question 7

Other defenses against negligence

In some states, …known as assumption of risk may apply. Assumption of risk applies when a person knowingly exposes himself to danger or injury.

When a person assumes this risk, the person may be prevented from recovering from a negligent party. This doctrine is frequently associated with injuries incurred by Spectators at sporting events.

Answer 7

Intervening cause – – when an independent event effects the chain of events – – may also serve as a defense against liability.

Another defense can be found in the statuets of limitations and acted in various states. Such laws provide certain types of lawsuits must be filed within a specified time of the occurrence to be valid under the law.

Question 8

Absolute/Strict liability

Earlier, we said that negligence had to be present to hold someone legally liable for an action. There are some exceptions, however.

Absolute liability is imposed by law on those participating in certain activities that are considered especially hazardous.

Individuals involved in such operations may be held liable for the damages of another, even though the individual was not negligent.

Absolutely liability is most frequently applied to activities involving dangerous materials, hazardous operations, or dangerous animals.

Answer 8

Another term that sometimes is used for absolute liability is STRICT liability. Strict liability is usually used in reference to products liability.

Suppose Larry keeps seven boa constrictors in a trailer for you use in his nightclub act. Despite precautions, one of the reptiles escapes and seriously injured as a child. Larry may not have been negligent, but he could still be held responsible by virtue of absolute liability.

Question 9

Vicarious liability

There are times when a person may be held responsible for the negligence of another person. This is called VICARIOUS ability or IMPUTED liability.

Answer 9

A very common form of vicarious liability involves the relationship between an employer and employee.

Often, the negligence of an employee can be imputed, charged, to employer because the employer has control over the employee.

For example, a pizza delivery driver made negligently caused an accident that injures to pedestrians.

The employer becomes responsible for the negligence because the employee was driving a company vehicle and the accident occurred on company time.

Question 10

Third-party losses

Liability losses are known in the insurance business as third–party losses. The insured is the first party.

The insurance company legally representing or defending the insured is the second party.

The third-party is the person who suffered the injury or damage.

Answer 10

(Property losses are considered first–party losses. The insured is the first party.)

Question 11

Damages: Compensatory and Punitive

The financial consequences of a liability loss can be devastating. If an individual is liable for the loss of another, the courts may require the individual to pay damages (monetary compensation) to the injured party. A number of different types of damages can be awarded.

Answer 11

Compensatory damages reimburse the injured party only for losses that were actually sustained.

There are two types of compensatory damages: special and general.

SPECIAL damages include all DIRECT and specific expenses involved in a particular loss, such as medical expenses, lost wages, funeral expenses, and the cost to repair or replace damaged property.

GENERAL damages compensate for such things as pain and suffering and disfigurement.

General damages also include mental anguish and loss of companionship.

SPECIAL = direct & specific damages
GENERAL = INTANGIBLE 

If the courts feel that the individual acted wantonly for willfully and causing the injured parties damages, it may award punitive, or exemplary, damages.

Punitive damages are intended to punish the defendant and make an example of him to discourage others from behaving the same way.

Question 12

Purpose of liability insurance

Answer 12

Measured against the potential consequences of a liability loss, the question becomes, “how can I protect myself against financial loss due to liability claims?”

The answer is liability insurance, which protects and insured from financial loss arising out of liability claims by transferring the burden of financial loss from the insured to the insurance company.

Question 13

Insuring agreement

Coverages

Most liability policies agreed to pay on behalf of the insured also for which the insured becomes legally liable to pay as damages because of bodily injury and property damage.

Answer 13

Terms are always defined in the policy, but in general, Bodily Injury (BI), means injury, sickness, disease, and death arising out of injury, sickness or disease.

Property Damage (PD) means damage to or destruction of property, including loss of use of the property.

Some liability policies also cover the insureds liability for Personal Injury (PI), such as slander, libel, false arrest, and invasion of privacy

Personal = “take it personal”…slander

(in the insurance business, “Bodily injury” and “Personal injury” have different meanings and are not used interchangeably.)

The insured must be directly liable for the damage before the company will pay damages on the insured’s behalf.

Earlier, we said that an insured could be found legally liable in a court of law. However, if the insurance company believes it’s insured was negligent, it is common practice to settle the claim out of court.

Question 14

Insuring agreement (continued)

Defense costs

Answer 14

In addition to paying for bodily injury or property damage, liability policies promise to defend the insured in any suit seeking BI or PD damages, even if the charges are groundless or faults. Defense costs are paid in addition to payments for claims.

The insurer pays for the defense, but it’s duty to defend ends once the amount it pays for damages equals the policy limit.

Question 15

Insuring agreement (continued)

Prejudgment interest

Answer 15

A court will sometimes award a third – party interest on an award for damages to compensate for the interest the third-party might have earned if the party had received compensation at the time of injury or damage rather than at the time of judgment. Most liability policies cover this prejudgment interest.

Some policies cover it along with the actual damages, up to the policy limits.

Other policies may include it as a supplementary or additional payment that is not subject to the limit of liability.

Question 16

Supplementary payments

Liability policies also provide certain supplementary payments that are paid in addition to the policies regular limit of liability. These coverages very from one type of liability policy to another, but in general they include:

Answer 16

1: defense costs;
2: expenses incurred in the investigation of a claim;
3: premiums for certain types of bonds, such as Bail bonds, appeal bonds, and release of attachment bonds;
4: first aid to others at the time of an accident;
5: reasonable expenses incurred by the insured at the companies request in the investigation or defense of a claim;
6: loss of earnings (when it is not included as a part of damages); and
7: pre-judgment interest (when it is not included as a part of damages); and
8: post-judgment interest (interest accruing on the judgment after an award has been made but before payment is made by the company).

Question 17

Suppose James has a liability policy with the $10,000 policy limit and the supplementary payments section that covers up to $250 for lost wages. A neighbor is injured because of Jameses negligence and files a lawsuit against him. The neighbor wins the suit, and a $10,000 judgment is awarded against James.

Answer 17

In addition, James loses $250 in wages when he missed work to appear in court for the lawsuit.

James’s insurance company will pay $10,250. Supplementary payments are paid in addition to the policies limit of liability, so the company will pay the $10,000 judgment and the $250 for lost wages.

Question 18

Policy limits

Although the purpose of liability insurance is to protect the insured from financial loss by shifting the burden of payment from the insured to the company, there is a limit beyond which the company will not go. The maximum amount the company will pay on behalf of the insured is stated in the policy limits.

The policy my stipulate separate limits for BI and PD (split limits), or there may be one limit that applies to both BI and PD (single or combined limit).

Answer 18

In general, these limits to play PER OCCURANCE. The word occurrence can mean either a loss that occurs at a specific time and place, such as when a person trips over a toy, or a loss that occurs over time, as one fumes escaping from an activity on the insured premises eventually damage the paint on the neighboring house.

Some liability coverage limits apply PER ACCIDENT, and older and more restrictive turn that limits covered losses to those that occur at a specific time and place. But you need to be careful here. Some policies use the term accident because it’s a more familiar word. But they do find it so it means the same as OCCURANCE. Only careful inspection of the policy will determine how it should be interpreted.

Some liability policies have a PER PERSON limit that states how much will be paid for injury to any one person in an occurrence or accident. Others have an AGGREGATE limit. This is a limit that applies to a loss is occurring within a within anyone Policy Period.

Question 19

Policy limits continued

With the exception of the aggregate limit, most policy limits are restored after payment of a loss.

Answer 19

Suppose the insureds liability policy has a $50,000 AGGREGATE limit and the $1000 PER OCCURANCE limit. If the insured has a $500 covered loss, it will be subtracted from the aggregate limit. However, the full $1000 per occurrence limit will be available for other covered losses that occurred during the policy period as long as the aggregate limit has not been EXHAUSTED.

Question 20

Exclusions

All liability policies contain certain exclusions. We’ll examine these in detail when we look at specific policies, but will mention some common exclusions here.

Answer 20

1: damage to property owned by the insured;
2: damage to property in the insured’s care, custody, or control;
3: bodily injury to an insured;
4: losses covered under workers compensation laws;
5: losses covered under nuclear energy liability policies; and
6: injuries or damages caused intentionally by the insured

Question 21

Conditions

Duties after loss

A number of conditions are commonly found in liability policies, many of which we’ve already discussed, such as cancellation, assignment and misrepresentation, and concealment and fraud.

Answer 21

The duties after loss condition has some unique requirements in liability policies.

The insured must notify the insurance company in writing of all losses.

In addition, the insured is required to forward all applicable demands, notices, or summonses and to give any necessary assistance to the case, such as testifying as required.

The insured cannot voluntarily assume any liability or make any restitution to another party without the knowledge and consent of the insurer. !!!!!!!!

Question 22

Conditions continued

Other insurance

Like property policies, liability policies contained other insurance clauses. In addition to the methods we’ve already discussed for handling insurance, liability policies may provide for contribution by equal shares.

Answer 22

Under contribution by equal shares, all insurers pay equal amounts, up to the limit of the policy having the smallest limit. Then that company, I haven’t paid it’s policy limit, stopped paying, and the other company show the remainder of the loss. This continues until each company has paid it’s policy limit or the loss is paid in full.

Question 23

Brandon’s auto policy has a $50,000 BI limit and a $25,000 PD limit. This is an example of:

1: an aggregate limit policy
2: A single limit policy
3: A split limit policy
4: A combined limit policy

Answer 23

Not Aggregate!!

A split limit policy has separate limits for BI and PD.

Question 24

All of the following must be present to establish negligence except

1: intent to cause harm
2: proximate cause
3: damages
4: legal duty owed and breach of duty

Answer 24

1: intent to cause harm

Negligence is the lack or reasonable care that is required to protect others from the unreasonable chance of her. The factors used to establish negligence are :

1: legal duty owed,
2: breach of duty owed,
3: proximate cause,
4: and damages

Question 25

Lability that an insured and incurs because of the actions of others, such as employees is

1: vicariously ability
2: proximate liability
3: absolutely ability
4: breach liability

Answer 25

Vicarious