1-K Liability Insurance & Policy Limits Flashcards
Liable:
Obligated according to law or equity; responsible
Liability Insurance:
Indemnifies a third party for damage or injuries you have caused
Legal Liability:
can be determined outside of court
Liability Insurance _____ indemnifies a third party, never the insured!
ALWAYS
Liability insurance protects the ______ by paying for such damage on behalf of the responsible, or liable, party. This is the main difference between liability insurance and property insurance.
policyholder
Even though liability is a legal term, liability insurance cases are most often settled _____ of court. This is because liability is often so clear that a court’s ruling is not necessary.
outside
Liability Insurance Example
If a driver runs a red light and crashes into someone in the process, it is clear that he is legally liable for the damages he caused, because he broke the law when he ran the red light. No court ruling is needed, and the liability insurance claim can be settled according to the insurance policy.
Liability Insurance only covers someone who is an “_____” by the policy.
insured
who counts as an insured?
Liability policies always list the “named insured” first, and then go on to add others who are considered “insured” according to the policy
Liability “named insured” example
An auto insurance policy may define the “named insured” as the owner of the car and then define other insureds as those who use the car with the “named insured’s” permission.
Negligence:
The failure to use a reasonable degree of care in a particular situation; includes both wrongful acts and acts of omission.
● Negligence is the legal cause of damages if the negligent act directly caused those damages
● Liability insurance indemnifies the third party for the damages caused by the policyholder
● Liability Insurance never covers intentional acts of wrongdoing on the part of the insured
Negligence Example
If Jack runs a red light and hits Sue’s car, Jack’s liability insurance will indemnify Sue for the damages and injuries caused by Jack’s negligence.
Intentional acts of wrongdoing are specifically listed among the _____ of a liability insurance policy.
exclusions
Vicarious Liability:
When an act of negligence is transferred from one party to another
What does vicarious liability apply to?
● Employers: If John’s negligent act takes place at work, his employer is
vicariously liable for his actions
● Parents: If John is under the age of 18, his parents are vicariously liable for his
actions
When someone’s _____ act causes damage or injury to a third party, the third party can blame both the individual who committed the act and any persons or organizations responsible for that individual.
negligent
Vicarious liability is common in the _____ between employer and employee.
workplace
Vicarious Liability Example
If an employee of a grocer leaves a mop lying across the floor of the store, and a customer trips on the mop and suffers injury, both the employee and the employer are negligent parties to the customer’s injury due to the employer’s vicarious liability.
Vicarious liability also applies to negligent acts committed by _____. Parents or guardians of minors are held legally _____ for their children’s negligent behavior.
minors; liable
Four Elements of Negligence (that must be proven in order to be indemnified for damages caused by a policyholder)
- The defendant(s) had a legal duty to act (or not act) in a prescribed manner
- The defendant(s) failed to act accordingly (called a breach of duty)
- The plaintiff suffered actual loss or injury due to the defendant’s action or
inaction - The loss or injury to the plaintiff was a direct result of the breach of duty of the
defendant
the person who caused the injury or damage is considered negligent if he should have reasonably _____ the general consequences that would result from his actions
foreseen
Elements of Negligence Examples
- Legal Duty
- Failed to act accordingly
- Suffered actual loss
- Loss was direct result of act
Warning in manual
Aimed and shot at Tom’s leg Bullet wound = medical bills
Jim shot Tom & caused injury
Tort Law suggests 3 degrees of liability:
- Full liability
- Partial liability
- No liability
Full liability:
the insured party is 100% at fault for damages to a third party
Partial liability:
the insured party is only partially at fault, or shares fault, with a
third party. The third party had some part in their own damages
No liability:
the insured party has 0% or no liability in the damages to a third
party
It often happens that a claimant is _____ responsible for his own loss.
partially
Partial Responsibility Example
Calvin is walking down the street when he sees a cute dog behind a fence. The sign on the fence says “Beware of Dog,” but Calvin loves dogs and this one is wagging its tail. Calvin goes over to pet the dog and ends up getting bitten. In this situation, one could argue that both parties were negligent
3 Defenses for a Negligence Claim
- Assumption of Risk
- Contributory Negligence
- Comparative Negligence
Assumption of Risk:
The claimant knew he had the potential to experience damage or injury
Contributory Negligence:
Can be understood as, “If you hadn’t played your part in the negligence, you would not have experienced any damages. Therefore, you receive no indemnification.”
Comparative Negligence:
An adjuster may seek to suggest a claimant was (for example) 75% responsible, and the policyholder was 25% responsible for damages
Contributory vs. Comparative Negligence Example
Contributory Negligence: under this rule, Calvin receives nothing for his loss
Comparative Negligence: if Calvin is found to be 40% responsible for his own loss, he will receive 60% of the damages
Modified Comparative Negligence:
Same as comparative negligence, except that the plaintiff receives no damages if she is found to be 50% (or 51%) or more at fault
Very few states use contributory negligence. Most states follow the doctrine of _____ comparative negligence.
modified
Res Ipsa Loquitur:
“The thing speaks for itself”
The circumstances of the injury make it obvious that the defendant is negligent; no proof is needed.
Res Ipsa Loquitur Example
A sponge is left inside a patient during surgery, and causes pain and discomfort for years before it is discovered. In this situation, there is no need to argue that the doctor was negligent, or that the patient was not negligent.
Strict (Absolute) Liability :
holds a party 100% liable for damages when the activity they are performing or the instrument they are using is inherently dangerous.
Dangerous Instrumentality Doctrine:
also known as the Inherently Dangerous Activity Doctrine—holds a party Strictly liable for damages caused during inherently dangerous activity.
Strict Liability/Dangerous Instrumentality Doctrine Examples
● Explosives ● Toxic gases & chemicals ● Guns ● Exotic or wild animals ● Automobiles (in Florida)
Strict Liability Example
A demolition company uses explosives in the implosion of buildings. If the building falls in the wrong direction, or debris injures someone during the implosion, the demolition company will be held strictly liable for the damages.
Limits:
establish the maximum payout value of an insurance policy
3 Types of Limits
- Single limits
- Split limits
- Aggregate Limits
Single Limit Liability Insurance:
establishes a maximum payout for liability damages caused by the policyholder(s)
Single limit figures are typically used in ______ insurance policies where liability insurance protects the homeowner from bodily injury or property damage caused by the named parties in the policy.
homeowners
Split Limit Liability:
establishes three different limits of payouts in a policy
Limit 1: Maximum payout for bodily injury for each person injured Limit
2: Maximum payout for bodily injury to multiple persons Limit
3: Maximum payout for property d amage
A split limit policy will look like this: 50/100/50
Aggregate Limit Liability:
establishes two liability limits; typically found in commercial liability policies
Limit 1: maximum payout for damage per occurrence Limit 2: maximum amount the policy will pay per term
An aggregate limit policy will look like this: 500,000/1,000,000
Aggregate limits are typically found in_____ liability policies, which are designed to provide liability protection to businesses and their operations.
commercial
Aggregate 500,000/1,000,000 Example
If the policy term is one year, then the maximum available payout on the policy over the course of one year will be $1,000,000.
Aggregate Limits Example
Construction, Inc.’s liability policy
● Aggregate limits: 300,000/900,000
● Accident causes: $450,000 covered damages
● Insurer pays $300,000 (occurrence limit of policy)
● Construction, Inc. must pay: $150,000
● New limits for remainder of term: 300,000/600,000
Split limits are typically used in _____ liability insurance policies, which are designed to protect the insured driver from bodily injury and property damage he may cause to others while operating a motor vehicle.
automobile
Liability Policy Limits:
maximum payout for each policy
- Single Limit:
a fixed limit for each type of damage
Example: $50,000
- Split Limit:
three different limits: a. bodily injury of one person b. bodily injury for multiple persons c. property damage Example: 10/20/10
- Aggregate Limit:
two limits:
a. one for a single occurrence
b. one for the entire term
Example: $20,000/$100,000
