Casualty Insurance: General Concepts

Question 1

Explain casualty insurance

Answer 1

People and businesses purchase casualty insurance to protect themselves against liabilities and to reimburse the cost of paying legal settlements. Specifically, casualty insurance protects against civil wrongs, also known as torts, which involve the private (non-contractual) relationships between parties

Wikipedia: Casualty insurance, often equated to liability insurance, is insurance not directly concerned with life insurance, health insurance, or property insurance. It is mainly liability coverage of an individual or organization for negligent acts or omissions.[1]

Question 2

Casualty insurance protects against (1) _____, also known as (2) _____, which involve the private (non-contractual) relationships between parties.

Answer 2

1. civil wrongs

2. torts

Question 3

What are the 2 types of torts coverable by casualty insurance?

Answer 3

1. Bodily or Personal Injury to another person that results from the insured’s alleged failure to take proper care
2. Damage to another person’s personal property that results from the insured’s alleged failure to take proper care

Question 4

True or False
Casualty insurance does not protect against criminal acts, which are prosecuted by authorities at the state and federal level.

Answer 4

True - A person or business convicted of a criminal act may pay fines that are not covered by insurance.

Question 5

Proximate cause

Answer 5

is a natural and continuous action that results in damage or loss

Question 6

An action cannot be considered a proximate cause unless:

Answer 6

1. It occurs as a chain or sequence unbroken by independent factors
2. The loss would not have occurred if the action had been absent
   ex. Assume, for instance, that a fire causes structural damage to a department store and the owner fails to exercise proper care in making repairs. The damage then leads to structural collapse that injures a shopper, who then sues the store and receives a settlement. The fire would be considered a proximate cause because it set off an unbroken chain of events that led to a loss (the settlement). Next, assume a thunderstorm occurs shortly after the structural damage. Water seeps into the store, which damages some of the merchandise. The fire is not the proximate cause of the damaged merchandise because the sequence of events was interrupted by an intervening cause (the thunderstorm) whose occurrence was not caused by the fire.

Question 7

Negligence

Answer 7

Negligence is an unintentional tort, and is caused by the insured’s accidental failure to exercise reasonable care to prevent injury or damages.

Question 8

In most cases, casualty insurance does not cover _____.

Answer 8

intentional torts

Question 9

The insured cannot be held liable for damages unless the accuser can prove negligence, which requires establishing what 4 factors?

Answer 9

1. A legal duty must be owed. The insured is legally obligated to act in a reasonable and prudent manner to protect the safety and property of another person.
2. The legal duty owed must have been breached. The insured may owe different levels of protection to different people. These different levels are known as a degree or standard of care.
3. The insured’s failure to act must have been the proximate cause of the act.
4. There must be an actual injury or property damage.

Question 10

Contributory Negligence Law

Answer 10

According to the contributory negligence law, if a person has sustained damages or injury through some fault of his own, he cannot hold another party liable, even if they share responsibility for those damages.

Question 11

Comparative Negligence Law

Answer 11

According to the comparative negligence law, if a person has sustained damages or injury due to his own fault and the fault of a separate party, the court will assess and award damages based on the level of responsibility held by each party.

ex. Consider, for instance, a person who is injured while shopping at a store. The court may rule that the person is 20% responsible for his injuries and the store is 80% responsible. Consequently, the person would receive 80% of the possible damage settlement.

Question 12

What are the 5 defenses people and organizations can use against accusations of negligence?

Answer 12

1. Assumption of risk
2. Intervening cause
3. Last clear chance defense
4. Contributory negligence
5. Comparative negligence

Question 13

Assumption of risk

Answer 13

The injured party has no right to collect damages if he knew the risks beforehand and still placed himself in the situation.

Question 14

Intervening cause

Answer 14

The accused is not liable if the damage or injury was caused by an intervening cause beyond his control.

Question 15

Last clear chance defense

Answer 15

The injured party has no right to collect damages if he had the last clear chance to circumvent the loss and ignored it.

Question 16

Contributory negligence

Answer 16

The injured party cannot hold another party liable if his injuries were partly his own fault.

Question 17

Comparative negligence

Answer 17

The injured party is only entitled to part of the damages if he was partly responsible for his injuries.

Question 18

What are the damages that can be required to pay when a party is found liable?

Answer 18

punitive and or compensatory, which includes special damages (fixed expenses such as medical bills) and general damages (non-economic expenses such as pain and suffering)

Question 19

Liability Insurance

Answer 19

Liability insurance covers any legal defense costs or damages resulting from another person suffering bodily injury or property damage

Wikipedia: Liability insurance is a part of the general insurance system of risk financing to protect the purchaser (the “insured”) from the risks of liabilities imposed by lawsuits and similar claims. It protects the insured in the event he or she is sued for claims that come within the coverage of the insurance policy

Question 20

What are the 7 types of liability insurance?

Answer 20

1. General liability
2. Personal liability
3. Professional liability
4. Business liability
5. Advertising liability
6. Vicarious liability
   7 Strict (absolute) liability

Question 21

General Liability Insurance

Answer 21

covers the usage and maintenance of a property and the operation of a business

Question 22

Personal Liability Insurance

Answer 22

covers the activities of a person and his or her family when those activities are not business related

Question 23

Professional Liability Insurance

Answer 23

covers the liabilities associated with a particular profession

Question 24

Business Liability Insurance

Answer 24

covers business conduct

Question 25

Advertising Liability Insurance

Answer 25

covers personal injuries (libel, slander, copyright infringement, privacy violations, etc.) resulting from advertising

Question 26

Vicarious Liability Insurance

Answer 26

This covers damages incurred as a result of one person’s legal responsibility for another person or animal.

ex. For instance, parents can be held liable if their children vandalize another person’s property.

Question 27

Strict (Absolute) Liability Insurance

Answer 27

This covers injuries resulting from dangerous practices and defective products. Negligence is not a consideration with this type of liability.

Question 28

What are the types of injuries and damages that liability insurance pays on behalf of the insured?

Answer 28

1. Bodily Injury
2. Personal Injury
3. Property Damage
4. Advertising Injury

Question 29

Describe Bodily Injury and what is included in coverage

Answer 29

Bodily injury includes any bodily harm, disease, sickness, service loss, income loss, and/or death caused by an accident or occurrence for which the insured is liable.

Question 30

Describe Personal Injury and what is included in coverage

Answer 30

Personal injury includes any mental or emotional anguish caused by the following: incarceration, false arrest, malicious prosecution, slander, defamation, libel, invasion of privacy, and/or wrongful eviction or entry.

Question 31

Describe Property Damage and what is included in coverage

Answer 31

Property damage includes property that has been damaged or destroyed. It also includes physical property that has not been damaged, but has sustained a loss of use.

Question 32

Describe Advertising Injury and what is included in coverage

Answer 32

Advertising injury includes the following:

1. Oral and written statements slandering or libeling the goods, products, or services of an individual or organization
2. Oral and written statements infringing upon an individual’s right to privacy
3. Advertising ideas or business methods that have been misappropriated
4. Copyright, slogan, or title infringement

Question 33

Supplementary Costs

Answer 33

Supplementary costs are any costs covered by liability insurance, except damages and injuries. They are paid on top of the regular liability limit of the policy

Question 34

Name 8 examples of Supplementary Costs paid on top of the regular liability limit of the policy?

Answer 34

1. Defense costs
2. First aid rendered to people during and immediately after the accident
3. Costs resulting from claim investigation
4. Bond premium payments, including appeal bonds, attachment bonds, bail bonds, etc.
5. Any reasonable costs resulting from a request by the insurance company to investigate or defend claims
6. Loss of earnings – In many cases, the insured loses income because he has to miss work or leave early to appear in court.
7. Prejudgment interest, if it is not listed as a damage under the insuring agreements section
8. Post judgment interest

Question 35

Defense Costs

Answer 35

Defense costs include the expenses of defending the insured against liability lawsuits, including lawsuits that are completely false. Liability insurance pays for defense costs in addition to the regular liability limit of the policy. However, the policy will cease to pay defense costs once it has reimbursed damages up to its limits.

Question 36

Prejudgment Interest

Answer 36

Prejudgment interest is the amount in damages the injured party would have earned if he had started receiving payments immediately after the injury. In many cases, courts award prejudgment interest to the injured. Policies generally cover prejudgment interest either by including it as part of the insuring agreement or by making additional payments.

Question 37

Post Judgement Interest

Answer 37

Post judgment interest is the amount that accrues between the time the damage settlement is awarded and the time the company begins issuing payments.

Question 38

Policy Limit

Answer 38

A policy limit is the maximum amount an insurance policy will pay for any one loss, and is listed in the declarations section.

Question 39

What are the 3 methods Policy Limits can be applied as?

Answer 39

1. Per occurrence
2. Per accident
3. Per person

Question 40

Explain Policy Limit applied as Per occurrence method

Answer 40

Per occurrence – The loss occurs in a particular place over a period of time. This method will cover losses caused by repeated exposure to a harmful condition over a long period of time.

Question 41

Explain Policy Limit applied as Per accident method

Answer 41

Per accident – The loss occurs in a much more specific place over a set period of time. This method is not used to cover losses caused by repeated and lengthy exposure to harmful conditions.

Question 42

Explain Policy Limit applied as Per person method

Answer 42

Per person – There is a maximum reimbursement limit for any single person for a particular injury.

Question 43

Aggregate Limit

Answer 43

An aggregate limit places a limit on the amount a policy can pay out per year. This limit is restored on an annual basis.

Question 44

Liability insurance generally excludes the following losses from coverage:

Answer 44

1. Bodily injury sustained by the insured
2. Property damage when the insured owns the property
3. Property damage when the insured has custody of the property
4. Injuries and damages that the insured inflicts intentionally
5. Losses already insured by worker compensation laws
6. Losses already insured by Nuclear Energy Liability policies

Question 45

Liability insurance normally includes the following conditions:

Answer 45

1. Duties after a loss – The insured must send written notification to the insurer of all losses, demands, notices, and summonses, and must assist the insurer during the case. The insured cannot willingly reimburse another party for a loss or assume liability for a loss without first getting consent from the insurer.
2. Other insurance – When multiple policies are covering the same loss, liability policies handle reimbursement on a contribution by equal shares basis. This means that each insurer reimburses an equal amount up to the smallest policy’s limit until the loss has been paid off.