Ch. 3 Casualty (Liability) Basics

All of the following statements regarding liability losses are correct

-Loss of consortium means the loss of companionship of a husband or wife. -Personal injury includes libel, slander, and false arrest -Property damage includes physical damage to tangible property, including loss of use of that property

H's liability policy has the following limits: $25,000 per person, $100,000 per occurrence, and $2,000,000 aggregate. This year, five separate claimants file in the amount $25,000 for injuries suffered in a single accident. How much will the policy pay?

100,000

P's liability policy has the following limits: $50,000 per person, $250,000 per occurrence, and $400,000 aggregate. During the policy period, the policy paid out $250,000 in liability claims. If P suffers another loss of $250,000 during the same policy period, how much will the policy pay

A $150,000

Certificate of Insurance

A document that shows evidence that specific types of insurance were purchased by the insured, at certain limits, and that they were in place on the date the certificate of insurance was issued. A certificate of insurance is not proof of insurance, as a binder is.

Proof of Loss

A formal statement made by the insured and provided to the insurer that provides necessary details for the insurer to determine its liability under a policy.

Additional Insured(s)

A person or organization not ordinarily protected by a policy but which, through the addition of an endorsement to the policy, is granted status as an insured. Under a liability policy, an additional insured is often a party to an indemnification or hold harmless agreement.

Insured

A person or organization protected by an insurance contract.

Accident

A sudden, unforeseen, unintended, and unplanned event from which loss or damage results.

A _____________________________ is a civil wrong committed by one person against another.

A tort is a wrongful act for which compensation ma be sought from the responsible party.

Z is a distributor of natural gas. While connecting gas to B's house, an explosion occurs and the house is destroyed. Z's defense is that B did not turn off the pilot light on her furnace before the hookup as instructed by the company. The court ruled that the activities of connecting gas lines were so dangerous that Z's defense did not relieve its liability. What legal principle is applicable in this case?

Absolute liability

Absolute liability

Absolute liability is most often associated with dangerous animal ownership, abnormally dangerous activities, and employers liability for injuries sustained by their employees. Dangerous animals include lions, bears, and certain dog breeds such as pit bulls and rottweillers. Absolute liability applies to the storage of explosives, highly flammable material and weapons or firearms.

Subrogation

After an insurer pays a loss, it is granted the insured's rights to seek recovery from the party responsible for the loss. For example, if Bob is legally responsible for injuring Sue in a car accident, Sue's insurance company may seek reimbursement from Bob for the claim payments it made to Sue.

Which term describes the maximum amount payable for loss from all occurrences within a policy period?

Aggregate limit

Occurrence

An accident includes continuous or repeated exposure to the same general harmful conditions.

Attractive Nuisance

An artificial condition on land that attracts children, such as a swimming pool, and requires the owner to exhibit a special duty of care. Legally, children are considered invitees to the premises if it contains an attractive nuisance even when they are not expressly invited.

Punitive Damages

An award to an injured party, in addition to compensatory damages, to punish and discourage a wrongdoer from repeating negligent acts or omissions. Most liability policies do not provide coverage for punitive damages.

Compensatory Damages

Awarded to the injured party for the actual loss sustained. Damages are Special or General. Special damages are an award to an injured party for actual and known expenses such as bills, loss of earnings, and the costs of repairing or replacing damaged property. Special damages are paid for tangible loss or damage. General Damages are an award to an injured party for pain, suffering, mental anguish, disfigurement, and similar types of losses. General damages are paid for losses that cannot be calculated objectively and assigned a specific dollar value.

Which of the following prevents all recovery for injuries if the claimant was also considered partially negligent?

Contributory negligence

Which of the following types of liability limits allow the most to be paid for a single occurrence without regard for the number of claimants?

Combined Single Limit

Which of the following is a common law defense used by the insured when the injured party is partially responsible for his own injuries?

Comparative negligence If the insured can prove that the claimant was negligent to any degree in causing the accident, contributory negligence will prevent recovery of damages by the claimant.

Loss of Consortium

Compensation to a husband or wife for the loss of companionship of a spouse.

Which term describes the equal sharing of a loss by two or more insurers until the loss is paid, or until each insurer has exhausted its limits of insurance, whichever comes first.

Contribution by Equal Shares

Medical Payments Coverage

Coverage for the bodily injury of third parties sustained on an insured location or as a result of the insured's activities. Coverage is provided for the payment of necessary medical, surgical, x-ray, dental, ambulance, hospital, professional nursing, and funeral expenses. Payments are made regardless of the insured's negligence. This coverage is provided to discourage liability claims and lawsuits and, when payments are made, are not an admission of liability.

Comparative Negligence

Damages are reduced in proportion to the degree of the claimant's negligence. For example, if the claimant is 5% negligent and the wrongdoer is 95% negligent, the claimant may only recover 95% of damages.

Limits of Liability

Each policy includes a provision that specifies the most it will pay in the event of loss. Certain limits of liability apply to any one loss; other limits apply to the total of all losses that occur within the policy period. In addition, the manner in which limits of liability are designated vary by coverage and policy type. The limit of liability, or limits of insurance, are shown on the policy declarations page and are the most paid by the policy regardless of the number of insureds, claims made, lawsuits filed, or parties making claims or filing lawsuits.

Which of the following relationships involves vicarious liability?

Employer and employee

Gross Negligence

Failure to exhibit any sort of care through recklessness or deliberate indifference to the well-being of others. For example, driving while under the influence of alcohol.

Negligence

Failure to use ordinary care. For example, running a red light.

Strict Liability Applies to Products

If a claimant can prove that a product caused the injury, the manufacturer will be held liable whether or not the product was defective. Liability may be asserted even in the absence of negligence. For example, the manufacturer of a dangerous product is always legally liable if the product causes injury or damage.

Excess

If the policy is excess, it makes payment only after all other insurance in place exhausts its limits or denies coverage.

Primary

If the policy is primary, it makes payment before all other policies in place make payment for a loss.

Elements

In order for an act or failure to act to be negligent, it must contain 4 elements: If any of the four elements is absent, an act, or the failure to act, is not considered negligent.

Notice of Loss

Insured must notify the insurer in writing as soon as possible in the event of any Loss or occurrence. The written notice should include the named insured, policy number, and details about the time, place, circumstances of the occurrence, and names and addresses of any claimants and witnesses.

A chain of events may be broken by which of the following, thus freeing the defendant from liability?

Intervening cause

A second negligent act that interferes with the chain of events leading to a loss is known as a(n):

Intervening cause

All of the following are true of negligence

It is a type of tort, it is the failure to use ordinary care, it does not include breach of contract.

Common Law

Law practiced as the result of judicial or court decisions (i.e., case law and precedents).

Insurer G decides to increase the first aid benefits for one of its insureds for no extra premium. What is the name of the provision which automatically applies this broader coverage without additional premium to all policies currently in effect by the same insurer?

Liberalization

Property Damage Liability

Legal liability arising from physical damage to tangible property, including loss of use of that property, caused by the acts of an insured. Property damage liability expenses include the actual cost of repair or replacement of the damaged property as well as the inability to use damaged property (loss of use).

Bodily Injury

Legal liability arising from physical injury, including sickness, disease, and death caused by the acts or omissions of an insured. Bodily injury liability expenses include medical bills, lost wages, mental anguish, pain and suffering, etc.

Personal Injury Liability

Legal liability arising from specific offenses committed by an insured that results in injury other than bodily injury or property damage. Examples of personal injury include libel, slander, false arrest, invasion of privacy, and copyright infringement. Personal injury is generally understood to affect one's reputation or emotional well-being and is not bodily harm or property damage.

All of the following are true about liability, except:

Liability policies pay costs incurred by an insured to sue negligent third parties

Payment of necessary medical expenses without regard to negligence is covered by which of the following insurance coverages?

Medical payments will also pay for surgical, x-ray, dental, ambulance, hospital, nursing, and funeral expenses incurred by a third party on the insured's premises.

Negligence is what kind of tort?

Negligence is an unintentional tort arising out of failure to use reasonable care.

Which of the following is true of medical payments?

Payments are made without regard to negligence

A primary liability policy is one that:

Pays first with respect to other policies

B has two policies on a property. Policy A is for $20,000; Policy B is for $40,000. If Policy A has a pro rata provision, how much will it pay for a covered loss of $15,000?

Policy A's coverage is 1/3 of the sum of all coverages on the property, so if the loss is shared on a pro rata basis, Policy A will pay 1/3 of the loss, or $5,000.

Intervening Cause

Prevents or limits recovery from the wrongdoer when a second, distinctly separate negligent act occurs after the original negligent act, but before damage occurs, and interferes with the chain of events that brings about the loss. The intervening cause must be unexpected and unforeseen.

Contributory Negligence

Prevents recovery for damages caused by a negligent party if the claimant was negligent to any extent. For example, if the claimant is 5% negligent and the wrongdoer is 95% negligent, the claimant is not permitted to collect damages.

Assumption of Risk

Prevents recovery if the claimant knowingly assumed the risk.

Which of the following is designed to prevent the insured from collecting more than the actual extent of a loss?

Pro rata liability is a clause that in the event more than one insurance policy covers a loss, each will pay its share of loss in proportion to the total insurance on the risk.

Policy A provides liability coverage to a Fred's Grocery up to $500,000. Policy B provides coverage for the same risks up to $1.5 million. Both policies pay on a pro rata basis. If Fred's Grocery is determined to have a legal liability of $400,000 to a claimant who was injured on the property, how much will Policy A pay?

Pro rata liability requires that each policy pays no more than its share of the loss. The total insured amount carried by Fred's Grocery is $2 million ($500,000 + $1.5 million). Policy A's share of that amount is 25% ($500,000/$2 million). Therefore its share of any loss would be 25% of the loss amount. 25% of $400,000 is $100,000.

The formal statement an insured provides to an insurer including all the details an insurer needs to assess its liability following a loss is known as a:

Proof of loss

___________ damages are ordered by the courts to punish a negligent party.

Punitive

Most liability policies do not provide coverage for:

Punitive damages are awarded to punish and discourage a wrongdoer from repeating negligent acts. Most liability policies do not provide coverage for punitive damages.

Foreseeable Consequence

Requires the injured party to prove the actual injuries or damages were a reasonably foreseeable consequence at the time the negligent action or inaction occurred.

Violation of Duty

Requires the injured party to prove the alleged wrongdoer not only owed a duty but also violated that duty. Basically, the alleged wrongdoer didn't exhibit reasonable care.

Duty is owed

Requires the injured party to prove the alleged wrongdoer owed a duty to the injured party or to the public.

Violation of Duty is Proximate Cause

Requires the injured party to prove the alleged wrongdoer's negligent actions or inactions were the proximate cause of actual injuries or damages.

Which of the following damages is awarded to the injured party for the actual medical expenses incurred?

Special damages are paid for tangible losses and general damages are paid for damages that cannot be objectively calculated, such as pain and suffering.

Pro Rata Liability

Specifies the process to be followed when more than one policy covers the same loss. Each policy pays no more than its share of the loss and the method of sharing varies by contract. Some policies require sharing of losses by the ratio of applicable limits of insurance each insurer writes with respect to the total of all limits available for the loss (pro rata). Other policies require the insurers to share the loss by contributing equal shares until each insurer has paid its limit of insurance (contribution by equal shares).

Which of the following document reports how and when a loss happened?

The Notice of Loss is the written document submitted by the insured that reports to the insurer/agent that a loss has occurred.

The ____________________ limit of liability applies to either bodily injury or property damage or both.

The combined single limit pays for any coverage wherever needed or in any combination.

Statute of Limitations

The length of time during which legal proceedings may be initiated. This time period is established by federal or state law and usually begins on the day an event occurs.

Vicarious Liability

The liability assigned to one party for the conduct of another, based solely on a relationship between the two. Examples include employer/employee relationships and parent/child relationships.

Per Occurrence Limit

The most the policy will pay for all losses arising out of any one occurrence, regardless of other policy limits. Example: The limit of liability for personal liability on a homeowners policy is a per occurrence limit.

Combined Single Limit

The most the policy will pay for all losses of all types resulting from any one occurrence, regardless of other limits. For example, the per occurrence limits on homeowners and general liability policies provide coverage for the sum of all bodily injury liability and property damage liability claims that arise from one occurrence.

Aggregate Limits

The most the policy will pay for all losses submitted during the policy period, regardless of other policy limits. • Each loss payment made under a per occurrence limit or per person limit reduces the aggregate limit of liability. ◦ For example, if a commercial general liability policy has a medical payments coverage per person limit of $5,000, a liability per occurrence limit of $1 million and a $2 million general aggregate limit, payment of a $3,000 medical payments claim would use up $3,000 of the general aggregate limit, leaving $1,997,000 available for the payment of future claims submitted during the balance of the policy term.

Split Limit

The most the policy will pay for loss of different types that occur as a result of any one loss, regardless of other limits. For example, the limits of liability on an auto policy for bodily injury might be represented as 100/300/100 ($100,000 is the per person limit for bodily injury liability, $300,000 is the per occurrence limit for bodily injury, and $100,000 is the per occurrence limit for property damage liability).

Per Person Limit

The most the policy will pay for loss to any one person injured in any one loss, regardless of other policy limits. For example, the limit of liability for medical payments coverage on an auto policy is a per person limit.

First Named Insured

The name of the person or organization that appears first on the Declarations page of a policy as "named insured."

Assignment

The owner of a liability policy cannot transfer policy ownership without the insurer's written consent. For example, a business owner cannot sell his business and then transfer ownership of the business' general liability insurance policy to the new owner without the written consent of the insurance company.

Which statement regarding liability coverage and limits is false?

The per occurrence limit is the maximum amount recoverable during the policy period

Named Insured

The person or organization designated on the Declarations page of the policy as being protected by an insurance contract.

Driver D slid into another car causing an accident in which three people in the other car were injured. Two injured parties claimed $15,000 in medical expenses and the third person claimed $25,000. How much will D's insurance company pay if her policy has 25/50 limits for bodily injury?

The policy pays up to $25,000 for each person injured, but no more than $50,000 per occurrence, regardless of the number of persons injured. Therefore, the limit for this accident is $50,000.

A party injured in an auto accident is not allowed to sue the negligent party who caused the accident under which of the following laws?

Tort Under no-fault, the tort system is abolished and a party who is negligent and causes injury to another does not have to pay for those injuries.

The ______________________ is the most the policy will pay for the sum of all the losses occurring within a policy period.

Under an aggregate limit, the payment for an accident during a policy period reduces the amount of insurance available for all future accidents that occur for the remainder of the policy period.

Defenses

When a claimant accuses an insured of negligence, the insured may use one of several defenses:

No-Fault Liability

When a no-fault liability system or law is in place, the injured party collects insurance benefits from his or her own insurance as if it were first-party coverage, thus eliminating the process of determining negligence or legal liability. No-fault laws vary by state and typically apply to auto insurance. • Most no-fault laws restrict the rights of the injured party to sue unless the injuries are severe (e.g., paralysis or death) and meet certain conditions. These conditions are called a threshold and can be either a monetary limit (e.g., $5,000) or described verbally (e.g., death, facial injuries, or broken bones). • Some no-fault laws allow the insured to choose whether their policy operates under a no-fault or tort basis. Other states allow policyholders to "add-on" no-fault benefits to their auto policies that are otherwise subject to tort liability. • Some states refer to their no-fault laws and coverage as personal injury protection (PIP).

Liberalization

When coverage under a particular form of insurance issued by an insurer is broadened without an additional premium charge, it automatically applies to all policies currently in effect. For example, Carrier A adds coverage enhancements to its Special Form homeowners policy, without an additional charge. Those changes automatically apply to all policies currently in effect.

Statutory Law

Written law enacted by legislatures.

Negligence

in a broad sense, is the failure to use ordinary care. Specifically, it is a wrongful act that is neither criminal nor a breach of contract that violates a duty or the rights of another - and for which the injured party may demand compensation. It is the failure to use the same degree of care a reasonable and prudent person would use when given the same knowledge and set of circumstances.

Strict and Absolute Liability

is a legal principle that imposes legal liability based on conditions, activities, or products that exhibit very high hazards; the degree of care exercised by the insured isn't considered when making a determination of liability.

Other Insurance

is a provision that specifies the process to be followed when more than one policy covers the same loss.

Tort

is a wrongful act, other than a breach of contract, that violates a duty or the rights of another and for which compensation may be sought from the responsible party. Torts may be either criminal or civil. Torts are either intentional, or unintentional. An intentional tort is a deliberate act that harms another and for which the injured party is permitted by law to sue the wrongdoer. An unintentional tort, also known as negligence, is an act, or failure to act that is committed without the same level of care a reasonable individual would have exhibited given the same knowledge and set of circumstances. Liability insurance provides coverage for most unintentional torts and excludes intentional torts.

Liability insurance

only provides coverage when the insured is legally liable for causing injuries or damage. Legal liability is the responsibility under law or contract for an act or failure to act.

legal liability

the responsibility, under law or contract, for an act or failure to act.