Study 5: Underwriting the risk: Liability Flashcards
What is liability insurance? (1) Third party insurance? (1)
Liability Insurance - insurance that agrees to indemnify the insured for sums they may be required by law to pay for injuries or damages to third parties.
Third party insurance - Liability insurance is purchased by the insured (1st party) from an insurer (2nd party) to compensate or indemnify another (3rd party) for loss or damage in which the insured is liable.
What are some potential challenges of administering liability insurance? (3)
- Potential involvement of the courts make liability insurance in some ways more difficult to underwrite than other types of insurance, mainly for two reasons:
- – An applicant can be sued for almost anything from other parties who seek to recover damages from applicant.
- –Once a lawsuit goes to court, it is uncertain whether applicant will be found liable for TP loss, and if they are, its impossible to determine how much court will award in damages to TP.
Why are premiums lower for liability insurance compared to other types of insurance? (1)
The reason they are lower is because an injury or loss suffered by a TP does not automatically become a loss under a contact of liability insurance.
What are some considerations that must be made before a third parties injury or loss can become a loss under a liability policy? (3)
- TP must consider the injury or loss serious enough to pursue grievance.
- The grievance must be difficult enough to resolve that the parties are unable to settle out of court.
- The resulting trial must end in favour of the TP.
Third party insurance coverage - What is an important consideration for liability underwriters when it comes to third parties and additional named insureds? (4)
- An important consideration for them is whether a TP would be added as an additional named insured to a policy the insurer would issue if the risk was accepted.
- Once TP’s are added as additional named insured, they effectively cease to be TP’s and instead become first parties in the contract.
- Policy wording ensures that coverage for TP’s extends only to liability they might insure from their relationship to the original insured.
- Certain larger corporations or government entities may insist on being added as additional named insureds to protect themselves.
What are the three levels of government in Canada and the responsibility of each? (3)
- Federal - Military affairs, currency, postal service, financial regulation of banks and insurance companies
- Provincial and Territorial - Property rights, education, health care, regulation of insurance industry
- Municipal - Police, fire, water, and other services they are authorized by provincial governments to perform or provide
What are the two systems of civil law in Canada? (2)
Civil Code of Quebec - courts role is to settle disputes according to the civil code - not to make law but to interpret it.
Common Law - Mixture of case law and statute law (law set down in government act and passed by legislature.) If there is conflict between both, statute law supersedes case law. Common law is based on principal of precedent, that is looking at prior similar cases to reach a decision.
What are two ways civil law imposes liability? (2)
- Tort - most common way, it is a wrongful act that causes damage or injury to another. The wrongful act may be an intentional act, a negligent act, or a failure to act.
- Breach of contract - Occurs when one of the parties fails to fulfill one of its obligations under the contract.
What are the two most common torts? (2)
Negligence - 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 a reasonable person would not do.
Nuisance - A person, thing, or circumstance causing inconvenience or annoyance
- There are two types of nuisance
- –Private nuisance - interference with another persons enjoyment or use of their land
- –Public nuisance - interference with the general public
What is the definition of a reasonable person? (7)
-Mythical creature of the law whose conduct is the standard by which courts measure the conduct of all other persons and judge it proper or improper in particular circumstances
- The reasonable person is NOT:
- -extraordinary or an unusual creature
- -Superhuman
- -Required to display highest skill of which anyone is capable
- -A genius who can perform unusual feats
- -In possession of unusual powers of foresight
*A reasonable person is someone with normal intelligence
How can someone establish a legal action for negligence? (3)
They must follow the ABC rule. Three things must be shown to exist to satisfy a court.
1) A duty of care exists.
2) The duty was breached.
3) There is a casual relationship between the breach and the damage.
What are the two biggest types of liability exposures that an underwriter must consider when dealing with a commercial risk? (2)
- Premises liability
- Products liability
What is premises liability? (2)
- Premises liability arises out of the risk’s use of physical premises, such as a building or land, or both, or from an owner, a landlord, or a tenant.
- To assess a risk’s premises liability exposure, an underwriter’s analysis should include an examination of the occupancy and also, the duty of care owed to others by the applicant as the occupier of the premises.
Premises liability - What are the 4 categories of entrants that an occupier of a premises owes a duty of care to? (4) (provide definitions, duty of care owed to each and examples)
Trespasser - A person who wrongfully enters onto someone else’s land without their permission. An occupier owes them the least duty of care but must treat them with common humanity.
Licensee - A person who has permission to enter a premises for his or her own purpose. Owed a greater duty of care and an occupier must protect them from known traps or dangers. (Ex: Concert goer)
Invitee - A person who is expressly or impliedly invited onto the premises for some purpose involving economic or potential economic benefit to the occupier. They are owed the greatest duty of care and occupiers duty is to exercise reasonable care to prevent damage to such a person from unusual dangers they know about or ought to have known about. (Ex: customer of store)
Contractual entrant - A person who enters onto a premises under a contract with the occupier. Occupiers duty is specified under terms of the contract, and if not specified, than its implied within terms of contract that the premises is safe. (Ex: Hotel guest)
What are the factors that determine whether an occupiers duty of care to a trespasser has been breached? (5)
- Gravity and likelihood of probable injury.
- Characteristics of the trespass or intrusion.
- Nature of premises trespassed upon.
- Knowledge the occupier had or ought to have had of the likelihood of a trespassers presence.
- Cost to the occupier of preventing harm to the trespasser.
