Unit 5 Basic of Causalty Insurance

Question 1

What’s the difference between property and casualty?

Answer 1

Me v.s. The Other Guy

Property–covers personal belongings and real property
• Example: If my house burns down,
insurance pays me to rebuild
Casualty–pays the “other guy”
•Example: If the mailman gets bit by my dog, my insurance
company pays the mailman to pay for his medical claims due to my negligence.

Question 2

What are 3rd Party Losses?

Answer 2

Third-party losses occur when a person claims to have been injured by an insured, or when a person’s property has been damaged by the insured’s actions.

• The first party is the insured.
• The second party is the insurance company legally representing or defending the insured.
• The third party is the “other guy”

Question 3

What is a tort (civil wrong) and negligence?

Answer 3

A tort is a civil wrong that unfairly causes someone else to suffer loss or harm resulting in legal liability
for the person who commits the tortious act. Liability insurance provides coverage for unintentional torts involving negligence. Negligence is failure to exercise the care that a reasonable person would exercise in like circumstances. It is failure to do (or not do) something that ordinarily should be (or not be done that results in a loss
Unlike a crime, in which the government prosecutes the wrongdoer, torts are a part of civil law and are concerned with the private relationships between people and businesses. If an insured robs a bank, the insured can possibly go to jail. But if an insured is guilty of a tort, the insured can only be made liable
to pay money.

Tort and Negligence
Liability insurance covers
nintentiona forts
• Tort–civil wrong that causes
someone e se to suffer loss
• Negligence–failure to act or not act reasonably

Question 4

What four factors help determine negligence?

Answer 4

To establish negligence, all of the following four factors must be involved:
1. Legal duty owed
2. Breach of legal duty owed
3. Proximate cause
4. Damages

Elements of Negligence
• Owe a duty
• Breach the duty
• Be the proximate cause
• Damages
• A drunk driver is guilty of a crime but is not guilty of negligence unless it causes
harm to another

Question 5

Example of establishing negligence

Answer 5

Suppose the insured is driving to work on the highway. The insured receives a phone call on her mobile phone and reaches down to the floor of the car to find it. While reaching for the phone, the insured takes her eyes off the road and swerves into the next lane, hitting the car beside her. We can establish negligence with the following:

1. The insured has a legal duty owed to the other drivers on the highway to drive safely and responsibly.

The insured breached her legal duty because she was distracted by the phone call and hit the car next to her.

3. The proximate cause of the damage to the other person’s car was the insured by swerving into the next lane. The loss would not have occurred if the insured would have stayed in her lane.
4. Lastly, the other person suffered damages the cost to repair the car.

Question 6

What is contributory and comparative negligence?

Answer 6

A contributory negligence doctrine says that if a person contributed to his/her own damages in any way, another party cannot be held liable for the damages. 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. Some states retain this system, ruling out liability when there has been contributory negligence. As an example, the insured (Jake) pulls out in front of another car and an accident occurs. The driver of the other car (Linda) wants to be paid for medical bills and damages to her car. Jake argues that the accident was partly caused by the bald tires on Linda’s car which caused her to not stop quickly enough. The judge agrees and finds Linda 30% at fault. Using the argument of contributory negligence, Jake owes Linda nothing because Linda contributed to the cause of the accident.

Comparative negligence laws 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 party’s negligence.
Using the previous example, comparative negligence says that Linda would be responsible for 30% of her damages and Jake must pay the other 70%.

Question 7

Defenses Against Negligence

Answer 7

Defenses Against Negligence

When the other party claims the insured is liable to them for damages, there are several arguments the insured and the insurance company can use to claim no money, or not all of it, is owed.

Question 8

What is assumption of risk?

Answer 8

Assumption of risk
bars or reduces the right of recovery against a negligent third party when he voluntarily and knowingly participated in the dangerous activity that caused his own injury. This doctrine is frequently associated with injuries incurred during sporting events. The quarterback of a football team can’t expect to be paid for his own injuries caused by a player from the other team who hits him and breaks his arm. The quarterback assumed responsibility by playing in the game.

Question 9

What is intervening cause?

Answer 9

Intervening cause is when an independent event affects the chain of events.
It may also serve as a defense against liability. If an insured suffers a heart attack while driving and it causes an accident that seriously injures another person, the insured could argue that the heart attack was an unexpected
intervening cause and that he has no liability.

Question 10

What is statutes of limitations?
(Think must be filed in a specified time frame)

Answer 10

Statutes of limitations laws provide that certain types of lawsuits must be filed within a specified time of the occurrence to be valid under the law. Don’t wait too long to sue if you think someone else is at fault.

Question 11

What is last clear chance?

Answer 11

The last clear chance is a doctrine that is employed in contributory negligence jurisdictions. Under this doctrine, a partially negligent person can, nonetheless, recover if he is able to show that the defendant had the last opportunity to avoid the accident.

Question 12

Defenses Against a Claim of
Negligence by Another

Answer 12

Defenses Against a Claim of
Negligence by Another
• Contributory
• comparative
• Assumption of risk
• Statutes of Limitations
• Intervening cause
• Last clear chance

Question 13

What is absolute(extremely dangerous)or strict liability?

Answer 13

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 tried to be as careful as possible. Absolute liability is most frequently applied to activities involving dangerous materials, hazardous operations, or dangerous
animals.
Suppose Larry keeps seven boa constrictors in a trailer for use in his nightclub act. Despite precautions, one of the reptiles escapes and seriously injures a child. Larry may not have been negligent, but he could still be held responsible by virtue of absolute liability (owning the snakes).
Another term that is sometimes used for absolute liability is strict liability.

Strict liability is usually used in reference to products liability. The injured party does not have to prove negligence when suing a tire manufacturer. The only proof necessary is that the tires were defective and caused the accident.

Absolute/strict-liability without negligence

Question 14

What is vicarious liability?
(Think -held liable due to someone else)

Answer 14

Vicarious liability is when a person may be held responsible for the negligent acts of another person who has direct liability.

A very common form of vicarious liability involves the relationship between an employer and an employee.
Often, the negligence of an employee can be imputed (charged) to an employer because the employer has control over the employee. For example, a lumber delivery driver may negligently cause an accident that injures two pedestrians. The delivery driver has direct liability, and the employer also becomes responsible for the negligence because the employee was driving a company vehicle and the accident occurred on company time. Parents also have vicarious liability for the activities of their underage children. General contractors, many times, have vicarious liability for the negligent acts of a subcontractor.

Liability for the actions of another

Question 15

What are types of damages?

Answer 15

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 specitic 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 things such as pain and suffering and mental anguish.

Punitive damages are intended to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit. An individual suffered burn injuries when his car burst into flames during a rearend collision. At the trial, the evidence showed that the vehicle manufacturer had known the probability of such fires from its own previous testing, and an inexpensive design change could have been made to prevent fuel tank fires. The court held that the evidence supported a finding of malice, justifying an award of punitive damages.

Types of Damages

• Compensatory(reimburse)
• Special-provable monetary losses
• General–nonmonetary losses
• Punitive-gross negligence

Question 16

What is liability insurance?

Answer 16

Liability insurance protects an insured from financial losses arising out of liability claims by transferring the burden of the loss from the insured to insurer (insurance company). ‘The insurer pays up to the limit of liability, for which the insured becomes legally liable to pay because of bodily injury and property damage.
• 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.
• Personal injury (PI) includes slander, libel, false arrest, and invasion of privacy. (In the insurance business, “bodily injury” and “personal injury” have different meanings.) Personal injury causes
“hurt feelings” but does not cause bodily injury. Most liability policies don’t cover “personal injury” because personal injury is considered to be an intentional act.

Liability
• Bodily injury–injury to the body
• Medical bills, lost wages, pain
and sullering, and death
• Property damage–injury to property
• Cars, buildings, etc.
• Personal injury- hurt feelings of a
person or business

Question 17

Limits of Liability (Dollar Amounts of Coverage) (per occurrence)

Answer 17

The policy limit for liability insurance may be issued in several different formats.
• Split limit liability policies have separate limits for bodily injury (BI) per person and per accident, and property damage (PD) has a separate limit per accident. Example: 100/300/50 means a $100,000 limit per person, $300,000 limit for all persons in an accident, and $50,000 for the total property damage per accident.

• Single or combined single limit policies have one limit that applies to both BI and PD. Example:
300,000 means a total of $300,000 in coverage for all bodily injury and property damage per accident.
• A per person limit states how much will be paid for injury to any one person in an occurrence or accident.

Question 18

Limits of Liability (Dollar Amounts of Coverage) (continued)

Answer 18

The three limits above apply per occurrence. The word occurrence can mean either an accident, such as a car wreck, or a loss that occurs over time, such as living in an old home with lead paint (multiple exposures). Policies usually have no limit on the number of occurrences that can happen.

• An aggregate limit, however, is a limit that applies to all losses occurring within any one policy period. If the policy is renewed, the aggregate is renewed. For example, a business has a liability policy with a limit of $100,000 per occurrence and a $1 million aggregate. The policy has a term of one year. The most that will be paid out for a single claim is $100,000, and the total or aggregate of the claims cannot exceed $1 million. If the business has five $100,000 liability claims made during the first three months of the policy, only $500,000 of the aggregate remains for the rest of the year. However, if, at the end of the year, the policy renews for an additional year, the $ 1 million aggregate starts over.(replenish with renewal)

Limits of Liability
• Split
• Bodily injury
• Property damage
• Combined single
• Per person
• Aggregate

Question 19

Restoration of Limits/Non-Reduction of Limits. (Does not reduce after payment of claim)

Answer 19

With the exception of the aggregate limit, most policy limits are restored after payment of a loss.
Suppose the insured’s liability policy has a $50,000 aggregate limit and a $1,000 per occurrence limit.
If the insured has a $500 covered loss, it will be subtracted from the aggregate limit. However, the full $1,000 per occurrence limit will be available for other covered losses that occur during the policy period as long as the aggregate limit has not been exhausted.

Restoration of Limits/Non-Reduction of Limits
• Policy limit restored after loss
• Payment of loss reduces aggregate limit
• Aggregate limit is restored upon
renewal

Question 20

Supplementary Payments

Answer 20

Liability policies also provide certain supplementary payments that are paid in addition to the policy’s maximum limit of liability and do not cost extra to have on the policy. These coverages vary from one type of liability policy to another, but in general they include the following (remember the acronym

BAILED:
• Bonds-Premiums for certain types of bonds, such as bail bonds, appeal bonds, and release of attachment bonds
• Aid (first aid)-First aid to others at the time of an accident
• Interest–Prejudgment interest is the interest on court-ordered payments, and postjudgment interest is the interest accruing on the judgment after an award has been made but before payment is made by the insurance company.
• Loss of earnings–Loss of earnings for the insured (such as when the insured is required to miss work for court appearances)
• Expenses–Expenses incurred in the investigation of a claim, including claims adjuster costs, expert witness fees, etcetera; reasonable expenses incurred by the insured at the company’s request in the investigation or defense of a claim
• Defense costs–The cost of hiring an attorney to defend the insured if sued, even if the insured is not liable, paid in addition to the per occurrence or policy aggregate limits

• Paid in addition to policy limits
• Provided at no additional charge
Remember BAILED

Question 21

Supplementary Payments (Example)

Answer 21

Suppose James has a liability policy with a $100,000 policy limit and a supplementary payments section that covers up to $250 for lost wages. A neighbor is injured because of James’s negligence and files a lawsuit against him. The neighbor wins the suit, and a $100,000 judgment is awarded against James.
In addition, James loses $250 in wages when he missed work to appear in court for the lawsuit. Also, the lawyer who defended James charged $15,000. Supplementary payments are paid in addition to the policy’s limit of liability, so the company will pay the $100,000 judgment for the neighbor’s injury, the $15,000 lawyer bill, and the $250 for James’s lost wages.

Question 22

Duties After a Loss

Answer 22

Duties After a Loss
• Notify company promptly
• Forward Notices
• Assist the company
• Don’t assume liability

Question 23

Liability Policy Exclusions

Answer 23

All liability policies contain certain exclusions. We’ll examine these in detail when we look at specific
policies, but well mention some common exclusions here. in general, there is no coverage for: (the other guy)

• damage to property owned by the insured;
•damage to property in the insured’s care, custody, or control;
• bodily injury to an insured;
• losses covered under workers compensation laws;
• losses covered under nuclear energy liability policies; and
• injuries or damages caused intentionally by the insured.

Exclusions

• Damage to property of an insured
•Bodily injury to an insured
• Bodily injury to an employee
• Nuclear energy liability
• Intentional damage caused by an insured.