Liability Concepts
When the insured violates society’s law, the insured has committed a crime. When the insured
violates the rights of another person, the insured has committed a tort. The person committing a
tort is known as the tortfeasor.
It is important to note that liability insurance applies only to the financial consequences of torts.
The insured cannot buy liability insurance to protect against the consequences of crimes.
If the insured is angry at his neighbor and intentionally burns down his house, the insured
have committed the crime of arson—and liability insurance will not cover the damages.
However, if the insured is having a backyard barbecue and accidentally start a fire that
burns down the insured’s neighbor’s house, liability insurance may cover the damages.
Accident. An unplanned event, unexpected and undersigned, which occurs suddenly and at a
definite place
Occurrence. An event that results in an insured loss. In some lines of insurance, such as
liability, it is distinguished from accident in that the loss does not have to be sudden and
fortuitous and can result from continuous or repeated exposure which results in bodily injury or
property damage neither expected nor intended by the insured.
Unintentional Torts. The majority of personal liability cases involve unintentional torts.
The basis for unintentional torts is usually negligence, so we had better have a working definition
of negligence. In order for negligence to exist, four elements must be present:
• Duty to act. The duty to act in a reasonably prudent manner toward another
(such as driving the insured’s car safely down the street in a manner that
avoids hitting other cars or pedestrians).
• Breach of the duty to act. The tortfeasor does not act in the prudent manner
described above.
• Occurrence of injury or damage. Another party actually must suffer an injury
or damage.
• Negligence . The proximate cause of the injury or damage. The tortfeasor’s
breach of duty is actually what caused the injury or damage.
If any of these elements is absent from an event, negligence does not exist and the insured will
not be held liable due to negligence. But when the required elements are present, the injured
party usually has a valid claim for damages based on negligence.
Damages is an important term to understand in any discussion of liability. When someone is
held liable for injury or property damage to another, that person can be required to pay
compensation to the injured parties. For these types of claims, we need to be concerned with
two broad types of damages:
• Compensatory damages—which simply means compensation for the loss
incurred. These may include specific damages (the documentable, actual
expenses incurred by the injured party, such as medical bills, wages lost and
property replacement costs) and general damages (monetary awards for more
subjective, less quantifiable aspects of the loss, such as pain and suffering, or
loss of consortium).
• Punitive damages—these are damages that the court can compel the
tortfeasor to pay in addition to the compensatory damages awarded. Punitive
damages represent a fine, or punishment, for outrageous, severe or intentional
conduct.
Negligence
Negligence. Failure to use that degree of care which an ordinary person of reasonable
Comparative Negligence. In some states the negligence of both parties to an accident is
established in proportion to the degree of their contribution to the accident. Several states have
comparative negligence laws, and each one varies somewhat from the others.
• Comparative Negligence. In some states the negligence of both parties to an
accident is established in proportion to the degree of their contribution to the
accident. Several states have comparative negligence laws, and each one varies
somewhat from the others.
• Contributory Negligence. If an injured party fails to exercise proper care and in
some way contributes to his or her injury, the doctrine of contributory negligence will
probably negate or defeat the claim, even though the other party is also negligent.
Contrast with Comparative Negligence
Liability
Liabilities. Generally, a personal umbrella policy will not cover business liability. However,
some business exposures may be covered by personal liability policies. For example, an umbrella
policy may cover certain home office exposures.
Legal Liability. Liability under the law as opposed to liability arising from contracts or
agreements. In insurance, it is most often used to refer to the liability that an individual has if he
or she should negligently injure another party. For example, an owner of an automobile may be
held legally liable if he or she is negligent in the operation of the automobile and injures another
person or damages another person’s property as a result of that negligence.
Absolute Liability. A type of liability that arises from extremely dangerous operations. An
example would be in the use of explosives: A contractor would almost certainly be liable for
damages caused by vibrations of the earth following an explosive detonation. With absolute
liability it is usually not necessary for a claimant to establish that the operation is dangerous.
Strict Liability. Usually used when referring to products coverage. The liability that
manufacturers and merchandisers may be subject to for defective products sold by them,
regardless of fault or negligence. A claimant must prove that the product is defective and
therefore unreasonably dangerous.
Vicarious Liability. The law says that under certain circumstances a person is liable for the
acts of someone else. For example, in matters related to an automobile a parent might be held
responsible for the negligent acts of a child. In such a case the parent would be vicariously liable.
Gross Negligence. Willful and wanton misconduct
No Fault Laws. “Pure” no fault laws do not exist.
“Modified” no fault laws allow for each driver’s own policy to absorb a certain dollar limit of loss.
If that threshold is exceeded by the claim, then the injured person can seek damages against the
“at fault” driver at that point. California does not have a no-fault plan. In states with no-fault
plans, the driver must accept responsibility for his or her own loss and must recover loss from his
or her own insurer.
Intentional Torts. So far, we’ve discussed unintentional torts. Intentional torts can involve
infringement of property and privacy rights (for example, trespassing). Property rights also
can be violated by nuisance-type activities that interrupt a property owner’s ability to use the
property (for example, when the insured tests the volume limit on the his new 2500-watt CD
player while the insured’s neighbor is trying to relax on a Sunday afternoon). Other intentional
torts involve personal injury, which includes bodily injury and damage to reputation through
untrue statements, libel (in print) or slander (spoken).
These are by no means the only examples of personal liability exposures. The insured’s children,
the insured’s pets, the insured’s premises, the insured’s hobbies, the insured’s car and many of
the insured’s daily activities create exposure to personal liability.