RMIN Test 4 Flashcards
Legal Wrong
violation of a person’s legal rights, or a failure to perform a legal duty owed to a certain person, to a business or organization, or to a society as a whole
Types: Crime, Breach of Contract, Tort
Tort
Legal wrong for which the court allows a remedy in the form of monetary damages
Plaintiff → person who is injured
Tortfeasor → alleged wrongdoer
Types of Torts
Intentional Tort
Strict liability (absolute liability)
Negligence
Intentional Tort
Intentional act or omission in harm or injury to another person or damage to their property
Ex: libel, slander, invasion of privacy, assault, battery, false arrest
Strict liability (absolute liability)
Liability imposed regardless of negligence or fault
Ex: defective products, damages caused by animals (dog bite), hazardous activities, workers compensation
Negligence
failure to exercise the standard of care required by law to protect others from harm
Standard of care
- Based on the care requires by a reasonably prudent person
- Not the same for each wrongful act
Elements of Negligence
- Existence of a legal duty to protect others from harm
- Failure to perform that duty
- Damage or injury to the plaintiff
- Proximate cause relationship between the negligent act and the
infliction of damages
Defenses Against Negligence
- Contributory negligence
- Comparative negligence
- Last clear chance rule
- Assumption of risk
Contributory negligence
Injured person cannot collect damages if his or her care falls below the standard of care required for his or her protection
Under strict application of common law, injured party cannot collect damages if his or her conduct contributed in any way to the injury
Comparative negligence
Financial burden of the injury is shared by both parties according to their respective degrees of fault
Pure rule → Can collect damages even if you are negligent, but your reward is reduced in proportion to your fault
50 percent rule
Cannot recover if you are 50 percent more at fault
51 percent rule
Cannot recover if you are 51 percent to more at fault
Last clear chance rule
A plaintiff who is endangered by his or her own negligence can still recover damages from the defendant if the defendant has a last clear chance to avoid the accident but fails to do so
Assumption of risk
A person who understands and recognizes the danger inherent in a particular activity cannot recover damages in the event of an injury
Compensatory Damages (type of damages)
Compensate the victim for losses actually incurred
Special Damages (type of damages)
Provide compensation for medical expenses, lost earnings, or property damages
General Damages (type of damages)
Cannot be specifically measured (pain and suffering)
Punitive Damages (type of damages)
Designed to punish people and organizations so that others are deterred from committing the same wrongful act.
Imputed Negligence—Negligence of One Person Imputed to Another Person
A. If there is an employer–employee relationship
B. If a vicarious liability law applies
C. If there is a joint business venture
D. If a dram shop law applies
Res Ipsa Loquitur
this term means the thing speaks for itself
Three elements must be present for it to apply: Res Ipsa Loquitur
(a) the event must be such that it would not have occurred unless someone was careless;
(b) the instrumentality causing the accident must be in the
exclusive control of the defendant; and
(c) the injured party has not contributed to the accident in any way.
Specific Applications of the Law of Negligence
A. Ownership of Property
1. Degree of care required for trespasser, licensee, or invitee
2. Attractive nuisance doctrine—a condition that can attract
and injure children
B. Employer and Employee Relationships
1. Must be an employee
2. Must be acting within the scope of employment
C. Parents and Children
1. Under common law, parents usually were not liable for a
child’s tort
2. Today, parents can be held liable if a child is given a dangerous instrument or if a child is acting as an agent for the parent
General Liability Loss Exposures
A. Premises and Operations
- Liability because of ownership and maintenance of premises
- Liability because of operations, either on or off premises
B. Products Liability → arising out of the manufacturing and sale of products
C. Completed Operations
- Typical insureds: plumbers, electricians, heating/cooling system repairpersons
- Provides coverage for losses that occur after the work is completed
D. Contractual Liability → arising out of the assumption of legal liability through a written or oral contract
E. Contingent Liability → arising out of work done by independent contractors
Commercial General Liability (CGL) Policy
Coverage A—bodily injury and property damage liability
Covers stuff you do to others properties
Coverage B—personal and advertising injury liability
covers legal liability for false arrest, slander, privacy violations
Coverage C—medical payments regardless of legal liability to promote goodwill
Employment-related practices liability insurance coverage, the insurer agrees to pay damages resulting from a “wrongful act” arising out of:
Demotion or failure to promote
Termination
Negligent hiring or supervision
Retaliatory action against employees
Coercing an employee to commit an unlawful act
Work-related harassment
Employment-related libel
Other work-related abuse
Workers Compensation Insurance
A. Workers compensation insurance provides medical care, cash
benefits, survivor benefits, and rehabilitation services to workers
who are injured or die from job-related accidents or disease
B. Benefits are paid on the principle of liability without fault: the
employer is held absolutely liable for job-related accidents and
diseases regardless of fault
Commercial Umbrella Policy
A. Pays the ultimate net loss in excess of the retained limit for bodily injury, property damage, and personal and advertising injury to which the insurance applies
- The ultimate net loss is the total sum the insured is legally
obligated to pay as damages - The umbrella policy is excess over the required underlying
coverages.
Cyber Liability Insurance
covers damages arising from the failure of a data holder to protect private information from being accessed by
an unauthorized party
- Purchase a stand-alone cyber liability form
- Purchase a cyber liability endorsement
- Purchase cyber property and liability coverage in a single policy
Directors and Officers (D&O)
A (D&O) liability policy provides financial protection for the directors and officers
and the corporation if they are sued for mismanagement of the company’s affairs
Overview of Commercial Property Policy
- A monoline policy contains only one type of coverage
- A package policy is one that combines two or more coverages into a single policy
Building and Personal Property Coverage Form
A. Covered Property
- Building
- Business personal property & inventory
- Personal property of others
- additional coverage (debris removal, preservation of property, fire
department service charge, pollutant cleanup and removal,
increased cost of construction, and electronic data)
Causes-of-Loss Basic Forms
Provides coverage for 11 basic causes of loss:
Fire
Lightning
Explosion/Windstorm or hail
Smoke
Aircraft or vehicles
Vandalism
Riot or civil commotion
Sprinkler leakage
Sinkhole collapse
Volcanic action
Cause-of-loss Broad form
This form includes all causes of loss covered by the
basic form plus falling objects; weight of snow, ice, or
sleet; and water damage.
Collapse is also covered under certain conditions.
Causes-of-Loss-Special Form
This form insures against direct physical loss to
covered property. This means that all direct physical
damage losses are covered unless specifically excluded.
Coverage Form- Building and Personal Property Coverage Form
- Building and personal property coverage form
- Business income and extra expense coverage form
- Commercial crime coverage form
- Inland marine coverage form(s)
- Equipment breakdown protection coverage form
- Commercial general liability coverage form
- Business auto coverage form
Reporting Forms
- The value reporting form is used to insure fluctuations in business personal
property
-Premiums are based on the actual value of the covered property
-A peak season endorsement increases the amount of insurance in force during a
specified period to reflect higher inventory values.
Business Income Coverage Form
The form covers the net profit or loss (before taxes) that would have been earned and continuing normal operating expenses, including payroll
Extra Expense Coverage Form
The form covers the extra expenses incurred by a firm to continue operations following a loss.
Other Commercial Property Coverages:
Builder risk coverage form
insure building under construction
Other Commercial Property Coverages: Condominium association coverage form
covers commercial and residential condominiums
Other Commercial Property Coverages: Equipment breakdown insurance
losses due to the accidental breakdown of covered equipment
Other Commercial Property Coverages: Cyber property insurance
damage to property and computer networks
Other Commercial Property Coverages:
Terrorism insurance
covers direct physical damage to the insured’s property resulting from an act of terrorism
Other Commercial Property Coverages: Ocean mariner insurance
protection for goods transported over water
Other Commercial Property Coverages: Inland Marine
protection for goods shipped on land
Other Commercial Property Coverages: Business floaters
covers property that frequently moves from 1 location to another, in such as contractors equipment and garments in the process of manufacturing
Businessowners Policy (BOP)
Eligible Business Firms: Package policy specifically designed for small-to medium sized retail stores, office buildings, apartment buildings, and similar firms
BOP provides property and liability coverage in 1 policy
Coverage included buildings described in the decorations, fixtures, permanently installed machinery and equipment
BOP Coverages:
- Buildings
- Business personal property
- Covered causes of loss
- Additional coverages
- Deductible (one for all lines)
- Business liability insurance
Other coverage available with a BOP:
Outdoor signs
Money and securities
Employee dishonesty
Mechanical breakdown
Peak season provision
Property in the insured’s care
Debris removal and collapse
Interruption of computer operations
Commerical Crime Insurance Program
Commercial crime coverage form
Commercial crime policy
Government crime coverage form
Government crime policy
Employee theft and forgery policy
Government employee theft and forgery policy
Kidnap/ransom and extortion coverage
–The first six forms listed can be written in two versions—a discovery version and a loss-sustained version.
Discovery Version
covers losses discovered during the policy
period or within 60 days after the policy expiration date, regardless of when the loss occurred
Loss-sustained version
covers losses that occur during the
policy period and are discovered during the policy period or within one year after the policy expires
Kidnap and ransom (K&R) Insurance
Protects individuals and business from the financial losses that can result from kidnapping, extortion, and ransom demands:
Coverage:
1. Ransom payments
2. Loss of income
3. Interest on bank loans
4. Medical care
5. Business interruption
6. Crisis management consultants
7. Support services
8. Public relations expenses
9. Hostage negotiation services
10. Emergency evacuation
Commercial Crime Coverage Form
- Employee theft
- Forgery or alteration
- Inside the premises—theft of money and securities
- Inside the premises—robbery or safe burglary of other
property - Outside the premises
- Computer and funds transfer fraud
- Money orders and counterfeit paper currency
Employee Theft (commerical crime coverage form)
coverage pays for the loss of money, securities, and other property that results directly from theft committed by an employee
Forgery or alteration(commerical crime coverage form)
coverage pays for a loss that results directly from forgery or from the alteration of checks drawn by the insured or the insured’s agent
Inside the premises-theft of money and securities(commerical crime coverage form)
Loss of money or securities due to theft, disappearance, or destruction inside the premises or a bank
ex: A thief breaks in at night and steals cash from a locked drawer
Inside the premises—robbery or safe burglary of other property (commerical crime coverage form)
robbery or safe burglary of other property pays for the loss or damage to other property inside the premises by the actual or attempted robbery of a custodian, or by safe burglary inside the premises
Outside the premises (commerical crime coverage form)
agreement covers the theft, disappearance, or destruction of money and securities outside the premises while in the custody of a messenger or an armored-car company
Money orders and counterfeit paper currency (commerical crime coverage form)
Covers losses that result from accepting invalid money orders or counterfeit paper currency in good faith during the normal course of business
Computer and funds transfer fraud (commerical crime coverage form)
agreement covers the loss of money, securities, and other property if a computer is used to transfer property fraudulently from inside the premises to a person or place outside the premises
covers the loss of funds that result directly from fraudulent instructions that direct a financial institution to transfer or pay funds from the insured’s account
Commerical Crime Coverage Form Exclusions
- Dishonest acts or theft committed by the named insured, partners, or members
- Knowledge of dishonest acts of employees prior to policy period
- Dishonest acts or theft by employees, managers, directors,
trustees, or representatives - Confidential or personal information
- Data security breach
- Indirect loss
- Inventory shortages (applies to the employee theft insuring agreement)
- Trading losses
Financial Institution Bonds
designed for commercial banks and other
financial institutions
7 types of Financial Institution Bonds
A. Fidelity Coverage
B. On-Premises Coverage
C. In-Transit Coverage
D. Forgery or Alteration Coverage
E. Securities Coverage
F. Counterfeit Money
G. Fraudulent Mortgages
Agreement A- Fidelity coverage (Financial Institutions Bonds)
covers loss that result directly from the dishonest or fraudulent acts of employees acting alone or in collusion with others, for the purpose of causing the insured to sustain such loss
Agreement B – On premises coverage (Financial Institutions Bonds)
covers loss of property on the premises for a broad list of perils, including robbery, burglary, misplacement, mysterious unexplainable disappearance, and theft
Agreement C – In-transit coverage (Financial Institutions Bonds)
covers losses to property in-transit for a broad list of perils
Agreement D – Forgery or alteration coverage (Financial Institutions Bonds)
covers loss from forgery or alteration of most negotiable instruments
Agreement E – Securities coverage (Financial Institutions Bonds)
covers losses to the insured because securities accepted in good faith have been forged, altered, lost, or stolen
Agreement F – Counterfeit currency coverage (Financial Institutions Bonds)
covers loss to the insured from accepting counterfeit money
Agreement G – Fraudulent mortgages coverage (Financial Institutions Bonds)
covers loss that results directly from having accepted or acted upon any mortgage on real property that proves defective because of a fraudulent signature
Principal (Obligor)
the party who agrees to perform certain acts or fulfill certain obligations
Obligee
the party who benefits from the bond if the principal fails to perform
Surety
the party who agrees to answer for the debt, default, or obligation of another
Types of Surety Bonds
- Contract bonds
A. A bid bond
B. A performance bond
C. A payment bond
D. A maintenance bond
E. A completion bond - License and permit bonds
- Public official bonds
- Judicial bonds
A. Fiduciary bond
B. Attachment Bond
C. Court Bond
D. Bail Bond
some bonds cannot be classified in any other group such as:
An auctioneer’s bond
A lost-instrument bond
An insurance agent bond
Contract Bonds
these bonds are used in connection with
construction contracts and guarantee that the principal will fulfill all contractual obligations.
Bid Bond (type of contract bonds)
If a contractor wins a bid but then backs out or fails to follow through, the bid bond compensates the project owner (obligee) for the difference in cost to hire the next lowest bidder.
Obligee: Property woner or party requesting bids
Principal: firm or party subtmitting the bid
Guarantee: Party whose bid is accepted will sign a contract and furnish a performence bond
Performance bond (type of contract bonds)
If a contractor fails to finish the job or doesn’t do it properly, the performance bond protects the project owner by ensuring the job will still get done—either by:
Paying the owner for the losses, or
Hiring another contractor to finish the work
Obligee: Property owner or party having work done
Principal: Contractor doing the work
Guarantee: Work will be completed according to contract specifications
Payment Bond (type of contract bonds)
If a contractor fails to pay their team or suppliers, the payment bond protects those people by ensuring they still get paid—without having to sue the project owner
Obligee: Project owner or party having work done
Principal: Contractor doing the work
Guarantee: bills for labor and materials will be paid when due
Maintenance bond (type of contract bonds)
If something breaks or fails due to poor workmanship or materials after the project is done, the maintenance bond ensures the contractor comes back to fix it—or pays for repairs
Obligee: Party having work done
Principal: Contractor doing the work
Guarantee: faulty work of principal will be corrected, or defective materials replaced
Completion Bond (type of contract bonds)
If a contractor runs out of money, time, or resources, the completion bond guarantees the project will still be completed—usually by the surety stepping in to fund or finish the job
Obligee: Lending institution or lessor
Principal: Contractor doing the work
Guarantee: guarntees completition of the building or improvement
License and permit bonds (type of surety bonds)
guarantee that the principal will comply with all laws and regulation that govern his or her activities
Public official bonds (Types of Surety Bonds)
guarantee that public officials will faithfully perform their duties for the protection of the public
Judicial bonds (Types of Surety Bonds)
guarantee that the principal will fulfill certain obligations specified by law
Fiduciary bond (type of judicial bond)
If someone is legally responsible for managing another person’s money, estate, or assets, a fiduciary bond protects the beneficiaries in case the fiduciary acts dishonestly, misuses funds, or makes costly mistakes
Principal: fiduciary (e.g., executor, trustee, guardian)
Obligee: The court or party requiring the bond
Surety: The bonding company that guarantees the fiduciary’s actions
Attachment Bond (type of judicial bond)
If you’re suing someone and want to freeze or take their property (like money or assets) while the case is ongoing, a court may allow it—but you need an attachment bond to protect the defendant in case it turns out the seizure was wrong
Principal: The plaintiff (person requesting the attachment)
Obligee: The defendant (person whose property is being seized)
Surety: The bond company backing the plaintiff’s responsibility
Court Bond (type of judicial bond)
financial guarantee that you’ll follow the court’s rules or pay for damages if you don’t. If you fail to comply, the other party can make a claim on the bond to recover their losses
protects the ward (minor/ incapable)
Bail Bond (type of judiclal bond)
allows a person accused of a crime to be released from jail while awaiting trial, under the condition that they will appear in court when required
Principal: The defendant (the accused person)
Obligee: The court
Surety: The bail bond company (or bondsman)
An auctioneer’s bond (not classified in a group)
If an auctioneer breaks the rules—like failing to pay sellers, misrepresenting items, or committing fraud—the auctioneer’s bond protects the public and ensures victims can be compensated
Lost-Instrument Bond
used to replace a lost, stolen, or destroyed financial instrument—such as a check, promissory note, stock certificate, or bond—that was originally issued to the holder.
Insurance Agent Bond
If an insurance agent fails to act properly (e.g., misrepresents policies, steals premiums, or commits fraud), the insurance agent bond ensures that victims can be compensated for financial losses, and that the agent will comply with the law
