Liability, Insurance and Policy Limits

Question 1

Negligence

Answer 1

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 causes those damages.
• Liability insurance indemnifies 3rd party for the damages caused by the policyholder.
• Liability insurance never covers intentional acts of wrongdoing on the part of the insured.

Question 2

4 Elements of negligence (Role of negligence in a liability case)

Answer 2

1. ) The defendant (negligent party) had a legal duty to act (or not act) in a prescribed manner.
2. ) The defendant failed to act accordingly (breech of duty)
3. ) The plaintiff (claimant) suffered actual loss or injury due to the defendant’s action or inaction.
4. ) The loss or injury to plaintiff was a direct result of the breach of duty of the defendant.

Ex.: 1.) legal duty: warning in manual; 2.) Failed to act accordingly: Aimed and shot at Tom’s leg; 3.) Suffered actual loss: Bullet wound; 4.) Loss was a direct result of act: Jim shot Tom and caused injury. The negligent act was the cause.

Question 3

Three degrees of legal liability (Tort law)

Answer 3

1. ) Full liability: insured party is 100% at fault for damages to a third party.
2. ) Partial liability: insured party is only partially, or shares fault, with a third party. The third party had some part in his own damages.
3. ) No liability: insured party has 0% or no liability in the damages to a third party.

Question 4

Defenses for a negligence claim

Answer 4

1. ) Assumption of risk: claimant knew he had the potential to experience damage or injury.
2. ) 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.”
3. ) Comparative negligence: An adjuster may seek to suggest a claimant was (for example) 75% responsible, and the policyholder was 25% responsible for damages.

Question 5

Three type of liability policy limits

Answer 5

(maximum amount a policy will pay for covered losses)

1) Single limits
2) Split limits
3) Aggregate limits

Question 6

Liability insurance

Answer 6

Insurance that protects the policyholder against any damage or injuries he may cause to another party.

• always indemnifies a third party
• Legal liability can be determined outside of court.
• Only covers people or organizations that are listed as insured on the policy.
• ex.: Auto insurance policy: Named insured: Owner of the car; Insured: Someone who uses the car with the owner’s permission.

Question 7

Certificate of insurance

Answer 7

• Small businesses need a COI to work with and for customers.
• COI is proof of insurance, and shows the clients that it can pay for any damages it causes.
• Contains the policyholder’s name, mailing address, description of work, and insurer or insurers’ info.

Question 8

Vicarious libaility

Answer 8

Transfer of negligence from one party to another.

-Often applies to employers and parents.

Question 9

Contributory vs. Comparative negligence

Answer 9

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.

Question 10

Modified Comparative Negligence

Answer 10

Same as comparative negligence, except that the plaintiff receives no damages if she is found to be 50% (or 51%) or more at fault.

Question 11

Res Ispa Loquitur (“The thing speaks for itself”)

Answer 11

The circumstances of the injury make it obvious that the defendant is negligent; no proof is needed.

Question 12

Strict Liability & Dangerous Instrumentality Doctrine

Answer 12

Strict (absolute) liability: holds a party 100% liable for damages when the activity or instrument they are performing is inherently dangerous.

Dangerous instrumentality doctrine (aka Inherently Dangerous Activity Doctrine): holds a party strictly liable for damages caused during inherently dangerous activity.
-Ex.: Explosives; toxic gases and chemicals; guns; exotic or wild animals; automobiles (in Florida)

Question 13

Liability insurance

Answer 13

Protects policyholders when they cause damage or injuries to another party.

Question 14

Negligence

Answer 14

Failure to use a reasonable degree of care that results in injury or damage to another party.

Question 15

Vicarious liability

Answer 15

When negligence is transferred from one party to another.

Question 16

Full liability

Answer 16

policyholder is 100% at fault for damages to a third party.

Question 17

Partial liability

Answer 17

third party is responsible for a percentage of his own damages.

Question 18

No liability

Answer 18

policyholder has 0% or no liability in the damages to a third party.

Question 19

Single limit liability insurance

Answer 19

• Establishes one maximum payout for liability damages caused by the policyholder(s)
• Limit applies for each occurrence
• Ex.: A homeowners policy:
• Bodily Injury Liability: $150,000
• Property Damage: $50,000

Question 20

Split limit liability lnsurance

Answer 20

• Establishes 3 different limits on how much the policy will pay out:
• limit 1: maximum payout for bodily injury for each person injured.
• limit 2: maximum payout for bodily injuries to multiple persons.
• Maximum payout for property damage.

Ex.: If limit 1 is $50,000, limit 2 is $100,000, and Limit 3 is $50,000, the split limits will look like this: 50/100/50.

Question 21

Aggregate limit liability insurance

Answer 21

• Typically found in commercial liability policies
• Establishes two liability limits:
• limit 1: maximum payout for damage or injury per occurrence.
• limit 2: maximum amount the policy will pay per term.

-Ex.: If limit 1 is $500,000 per occurrence and Limit 2 is $1,000,000 per term, the aggregate limits will look like this: 500,000/1,000,000.

Question 22

Aggregate Example (Construction, Inc’s liability policy)

Answer 22

• 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.

Question 23

Liability Policy Limits

Answer 23

Maximum payout for each policy.

Question 24

Single limit

Answer 24

A fixed limit for each type of damage.

Question 25

Single limit

Answer 25

A fixed limit for each type of damage. (per occurrence?)

Question 26

Aggregate limit

Answer 26

1. ) maximum payout per occurrence.

2. ) maximum payout per policy period.