Study 8: Liability Insurance - LO

Question 1

Explain how the Canadian legal system impacts how liability insurance is handled in Canada.

Answer 1

• Insurance is governed by provincial and territorial laws
• Other laws can be federal or municipal
• Civil law is used for legal liability
• A civil action (lawsuit) seeks monetary compensation

• A negligence suit involves deciding if the individual in question acted as a reasonable person
o The reasonable person owes a duty of care to the third party
o The ABC Rule tests for true negligence

• Nuisance law can be public or private nuisance, which is determined by who is affected

Question 2

Outline the liability exposures that arise from civil law and a client’s activities.

Answer 2

• Liability arises from
o Behaviours o Actions o Inactions

• Civil law governs our responsibilities to each other to avoid causing injury

• Duty of care is altered by status or category of individual on premises:
o Trespasser o Licensee o Contractual entrant o Invitee

• Intermediary must understand insureds’
o Lifestyle 
o Where they live 
o What premises they occupy 
o What activities may put them in contact with others

• Ownership of animals and dangerous things is subject to strict liability
• Host liquor liability and libel and slander are evolving exposures

Question 3

Outline the liability exposures and insurance needs particular to businesses and farms.

Answer 3

• Business liability risks include
o Premises
o Products
o Completed operations exposures
o Actions of employees (vicarious liability)

• Farms have similar exposures:
o Premise (residence or farm buildings)
o Agri-products
o Secondary farming operations

• Be aware of potential exposures when assessing business liability for clients

Question 4

Describe the coverage provided by personal liability policies, highlighting the benefits of the major insuring agreements.

Answer 4

• Types of liability exposures covered in personal-lines package policies:
o Personal liability
o Premises liability
o Tenants legal liability
o Employers liability

• Insureds under a personal liability policy are covered for
o Cost of defending, settling, or making supplementary payments
o Voluntary medical payments
o Voluntary payment for damage to property
o Voluntary compensation for residence employees

• Personal liability coverage has special limitations and exclusions

• Farmers liability combines personal and residential liabilities and the business liabilities arising from
farming

Question 5

Describe the coverage provided by a commercial general liability policy, highlighting the benefits of the major insuring agreements.

Answer 5

• CGL (a commercial general liability policy) is designed to include almost all liability coverages needed by any commercial enterprise in one policy

• CGL includes liability for o Bodily injury o Property damage
o Personal injury
o Medical payments
o Tenants legal

• Possible named insured (subject to limited extensions):
o Individual o Partnership o Joint venture o Company

• Common exclusions apply to liability for
o Injury to employees
o Automobiles, watercraft, aircraft
o Property in care, custody, or control of the insured
o Pollution

Question 6

Describe the purpose of various other liability wordings and policies and the coverage provided by each form.

Answer 6

• Some business operations have exposures excluded from the CGL

• In these cases, an intermediary should consider including additional liability coverages and policies
such as
o Non-owned automobile liability (NOA)
o Employers liability
o Advertising injury liability
o Professional liability/errors and omissions (E&O)
o Environmental impairment liability (EIL)
o Cyber liability

Question 7

Explain the benefits of an umbrella liability policy and an excess liability policy and the differences between these policies.

Answer 7

• Umbrella liability insurance allows higher limits of coverage and broader coverage at a reasonable
cost

• Umbrellas provide
o Excess coverage over underlying policies
o High limits
o Wide territorial limits

• Umbrellas can drop down to cover exposures not covered on the underlying policies

• Umbrellas may be subject to
o Aggregate limits
o Self-insured retentions

• Provides increased limits but subject to same terms and conditions as underlying insurance