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Flashcards in Liability Risk Deck (27)
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10 ways to reduce hazards:

1. Prevent the creation of the hazard
2. Reduce the hazard
3. Prevent the release of an existing hazard
4. Modify the rate of release of an existing hazard
5. Separate the hazard from what you are protecting by time and space – chemical company pipeline example
6. Separate the hazard of what you are creating by physical barrier
7. Modify the hazard – use less toxic components.
8. Modify what you are protecting
9. Initiate countermeasures – portable defibrillator
10. Stabilize and repair – post-loss control


3 defences against product liability claims.

- State of the art defence - todays standard of design cannot be applied to a product that was manufactured 10 years ago.
- Compliance with laws and regulations - sometimes it does not matter and you may lose – Johnson&Johnson Tylenol example
- Alteration of the product - could you reasonably expect that someone would use the product in this way.


Current Tort Liability Problems

♠ Defective Tort Liability System
♠ Medical Malpractice Crisis – Healthcare costs
♠ Corporate Fraud and Lax Corporate Governance
♠ Increase in Mass Tort Liability Lawsuits e.g. Asbestos; Toyota Braking Systems; Ford and Michelin Tires / Rollovers


Defective Tort Liability System

♠ Rising tort liability cost
♠ Inefficiency in compensating injured parties
♠ Uncertainty of legal outcome - there is no one person making all legal decisions.
♠ Higher jury awards - desensitized to large numbers
♠ Long delays in determining the outcomes
♠ Increase in frequency of lawsuits? Not really, increase in media coverage.


Alternatives to the defective tort liability system

♠ Increase in liability courts
♠ Court ordered mediation
♠ Limit on damages
♠ Expand the use of state of the art defence


5 steps to improve corporate governance

1. Increase diversity - geographic, cultural experience
2. Appoint competent directors to the board
3. Provide timely information and appropriate distribution
4. Prioritize risk management activities within the organization - bottom down
5. Evaluate the board and executives performance


Basic requirement for an enforceable contract:

♠ You have to have offer and acceptance - "meeting of the minds" - there has to be a mutual understanding.
♠ There has to be consideration - it cannot be prospective. Typically cash.
♠ Competent parties - over 18, sound mind...
♠ The contract has to have a legal purpose
♠ Contract has to be written - parol evidence rule


Parol evidence rule

requires that contract has to be in writing if a contract takes more than 6 months to complete or is over $500. The reason we require writing is that it gets rid of subjectivity.


Special Characteristics of an Insurance Contract

An insurance contract is:
♠ An aleatory contract
♠ Unilateral
♠ Conditional
♠ Personal
♠ A contract of adhesion


Aleatory contract definition

An agreement concerned with an uncertain event that provides for unequal transfer of value between the parties. Insurance policies are aleatory contracts because an insured can pay premiums for many years without sustaining a covered loss. Conversely, insureds sometimes pay relatively small premiums for a short period and then receive coverage for a substantial loss.


Contract of adhesion definition

A standard form contract (sometimes referred to as a contract of adhesion, a leonine contract, or a take-it-or-leave-it contract) is a contract between two parties, where the terms and conditions of the contract are set by one of the parties, and the other party has little or no ability to negotiate more favorable terms and is thus placed in a "take it or leave it" position.


Appeals bond

An amount of money placed in holding while the appeal is being decided. An appeal bond is supplied by the appellant (plaintiff) who is appealing the court's judgment, and is usually in the amount of the original judgment (though it could be more). Referred to as a safety net bond which helps protect the court from frivolous appeals that cost the court time and money, an appeal is always posted by the losing party in a court case.


3 areas of product liability

1. Defective product manufacturing
2. Defective product design
3. Defective product warning – subjective


The four corners rule

Four corners (law) is the meaning of a written contract, will, or deed as represented solely by its textual content. This term may also be applicable to other legal instruments. From the four corners of the document: as derived from the text of the agreement itself, without relying upon other resources or witnesses.


Doctrine of reasonable expectations

What would a reasonable person believe was covered under the insurance policy?


Flesch–Kincaid readability tests

Readability tests designed to indicate how difficult a reading passage in English is to understand.



Particular jurisdiction



When one party makes a representation to the other party, that other party reasonably relies on that representation, to the extent it would be unfair for the first party to deny it. No misleading people. Its the principle that precludes a person from asserting something contrary to what is implied by a previous action or statement of that person or by a previous pertinent judicial determination.


Basic Parts of an Insurance Contract

♠ Declarations Page
♠ Definitions
♠ Insuring Agreement
♠ Exclusions
♠ Conditions


Declarations Page

The front page (or pages) of a policy that specifies the named insured, address, policy period, location of premises, policy limits, and other key information that varies from insured to insured. The declarations page is also known as the information page. Often informally referred to as the "dec" or "dec page."


Two basic types of coverage (insuring agreement)

♠ The named perils type - its specific
♠ All risk policy


3 types of exclusions

◦ Excluded perils, e.g., flood, intentional act
◦ Excluded losses, e.g., a professional liability loss is excluded in the homeowners policy
◦ Excluded property, e.g., pets are not covered as personal property in the homeowners policy


Exclusions are necessary because:

◦ Some perils are not commercially insurable - e.g., catastrophic losses due to war
◦ Extraordinary hazards are present - e.g., using the automobile for a taxi
◦ Coverage is provided by other contracts - e.g., use of auto excluded on homeowners policy
◦ Moral hazard is present or it would be difficult to measure the amount of loss - e.g., coverage of money limited to $200 in homeowners policy
◦ Coverage not needed by typical insureds - e.g., homeowners policy does not cover aircraft


4 conditions for an enforceable insurance contract

1. Notice of loss - as soon as reasonable - never admit fault.
2. You have to do a proof of loss - a sworn statement as to the nature of the loss
3. Duty to preserve and protect the property
4. Assist the insurance company in the defence



Its a type of insurance in which the insured pays a share of the payment made against a claim. Designed to promote people getting the appropriate amount of insurance. The typical coinsurance clause is 80%


Coinsurance calculation of percentage of coverage

Percentage of coverage = (insurance coverage/ required insurance coverage)*loss


Maximum possible retained loss

Loss incurred by a business, which is recorded within the retained earnings account in the equity section of its balance sheet. The retained earnings account contains both the gains earned and losses incurred by a business, so it nets together the two balances. Thus, obtaining the cumulative retained losses of a business can be difficult to derive, unless the business has incurred nothing but losses since its inception.