C120 - CH5 - Underwriting the Risk: Liability

LO3 - Describe the types of exposures an underwriter considers when underwriting a commercial risk

*Premise* liability, *products* liability, and *employers* liability. -- Premises looks at the difference between trespassers, licensee, invitee. Premise also considers how well the property is maintained - more likely to have a loss if not. -- Products - injury to a 3rd party from the use of a risk's product. -- Employers liability - for times when WorkersComp doesn't apply.

A doctor applies for insurance. She lives on a 200-acre farm and rents the land to a cattle farmer. The applicant and her husband own two automobiles, a cottage, and a motorboat. Give FIVE (5) reasons why the applicant should purchase an umbrella policy. (5 marks)

- An umbrella policy will help protect the insured for certain unknown contingencies over and above coverages and to provide excess insurance - Society is litigious, and as a doctor, the insured is likely to be sued for a large amount of money - With the assets that the doctor has—farm, automobiles, cottage, motorboat, and the fact that she rents her farmland—the coverage that an umbrella policy will offer would be the most beneficial to the insured - The personal umbrella policy may expand the insured's liability coverage by dropping down to provide coverage that would not otherwise be available to the insured under just an ordinary personal liability policy - The broader coverage might include excess automobile liability coverage, employers liability coverage, broader premises liability coverage

There is a great deal for an underwriter to consider in underwriting the premises liability exposure. In general, which steps should the the underwriters analysis include? (9) *know*

- The *exposure, occupancy*, and *applicant's activities*; - Understand the *legal requirements* in the jurisdiction where the risk is located; - Review the risk's *loss history*; - Review the *loss control reports*; - Follow up on any *outstanding recommendations* from loss control reports; - Find whether the applicant tracks *losses or inspection records* and how far back?; - Find out what *contracts* the applicant is a party to; - Understand who *additional named insureds* on the application are and their relationship to applicant; - Find out of applicant is named as an additional insured on other policies, such as contractors policy.

What three main benefits does an umbrella policy provide in addition to those available under ordinary liability insurance? *know*

1. Limits of insurance in excess of those in the primary policy; 2. Drop-down coverage to cover certain exposures that the primary policy does not; 3. Territorial limits wider than those in the primary policy.

Define tort

A *legal wrong* arising from a duty fixed by law. A breach of this duty that causes injury to persons or property is repressible by legal action for damages. Liability for tort involves a private or civil wrong or injury and is distinct from liability under contract in that the duty is owed to people, generally, rather than to a specified individual.

Define contractural entrant

A person who enters onto premises under a contract with the occupier - ie. a hotel guest

Define Licensee

A person who has permission to enter a premises for their own purposes - ie. concert goer

Define invitee

A person who is expressly or impliedly invited onto the premises for some purpose involving economic or potential economic benefit to the occupier of the premises. For example, a customer entering a store to make a purchase.

Define tresspasser

A person who wrongfully enters onto someone else's land with neither the right nor permission to be there.

Define umbrella policy

A special form of liability policy designed to protect the insured for certain unknown contingencies over and above coverages and to provide excess insurance.

Define Indemnity agreement

A written contract entered into between indemnitor and surety in which the indemnitor secures surety against loss the surety may sustain as a result of having issued a bond for a third party (usually a company owned by the indemnitor) or for the indemnitor.

Define hold-harmless agreement

An agreement that allows one party to protect another party against any future losses or claims that may result from a particular activity. Also known as an indemnity agreement.

Define Employers liability insurance

Coverage for the legal liability imposed on an employer to pay damages to the employee injured by the employer's negligence. The is not worker's compensation insurance, where special acts of legislature set out specifically the relationship between the employer and employees in certain circumstances and the formula by which awards in each case are computed.

Define negligence *exam*

Failure to use the degree of care expected from a reasonable or prudent person. "A person is negligent when they omit to do something a reasonable person would do, or does something that a reasonable person would not do".

How is governmental power in Canada divided? What are the responsibilities assigned to each level of government? (5 marks)

Government power in Canada - Divided by the Constitution Act - Between the federal, provincial and territorial, and municipal governments - Federal: Military affairs, foreign relations, the national currency, the postal service, financial regulation of banks and insurance companies, etc. - Provincial and territorial: Property rights, education, health care, regulation of the insurance industry, etc. - Municipal: Police, fire, water, and other services that municipalities are authorized by provincial governments to provide or perform within their boundaries

Define Liability Insurance

Insurance that agrees to indemnify the insured for sums they may be required by law to pay to third parties as damages for bodily injury or damage to property. The maximum amount of insurance provided under a policy of liability insurance.

LO2 - Explain how the Canadian legal system impacts how liability insurance is handled in Canada

Legal liability is the subject of the system of *civil laws*, thus, civil courts determine fault and compensation. Common law - prescident, and Civic Code, statute law. Civil law may impose liability in two ways: *tort* and *breach of contract*. The most common torts are *negligence* and *nuisance*.

LO1 - Explain what third party insurance is

Liability insurance is purchased by the insured (first party) from an insurer (the second party) to compensate or indemnify another (the third party) for damage or loss for which the insured is lawfully liable.

Define and explain the difference between nuisance, private nuisance, and public nuisance.

Nuisance: In law, a class of wrong that arises out of unreasonable, unwarranted, or unlawful use by a person of their own property, or from their own improper, indecent, or unlawful personal conduct and producing an annoyance, inconvenience, discomfort, or hurt to others or to their property. Private nuisance is the unlawful interference of a person's enjoyment and use of his or her land. Public nuisance is an action or thing that interfers with the general public.

What is the primary intention of the commercial general liability policy? What must the plaintiff prove? (5 marks)

Primarily intended to protect the insured from legal liability for unintentionally caused bodily injury or property damage to other people. The plaintiff must prove: - the defendant *owed* the plaintiff a duty of care - the defendant *broke* that duty of care by his or her actions - the defendant's actions *caused injury* to the plaintiff

Define occupancy

The act of holding possession of a property or premises. The term implies the use of the building for the purposes described in the policy. An occupied building has furnishings and/or people in it.

LO4 - Explain the process for underwriting personal risks

To assess a liability exposure posed by an applicant for personal insurance, a liability underwriter will ask questions about the owner's lifestyle, occupation, and hobbies. They'll ask about previous losses, pets, swimming pools, how many families occupy?