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4.1 Liability Insurance Concepts

Negligence​

A tort is a wrongful civil act that violates a legal duty or another person's rights. It is separate from a criminal offense or a breach of contract. A person who suffers harm because of a tort may seek monetary compensation, known as damages. Torts may result from either intentional conduct or unintentional actions.

Unintentional torts occur without deliberate intent to cause harm. They result when a person fails to act with the level of care that a reasonable and prudent person would exercise under similar circumstances. Negligence is the most common type of unintentional tort and occurs when a person fails to use the degree of care required by law to protect others from an unreasonable risk of injury or damage.

An Insurance Story

Liam and Sofia invite several friends to their home for dinner. One of the steps leading to the front porch has been broken for several months. Although Liam and Sofia know about the unsafe condition, they fail to repair the step or warn their guests about the hazard.

When the guests arrive, one person trips on the broken step, falls, and fractures a wrist. This situation is an example of negligence because Liam and Sofia failed to exercise the level of care that reasonable homeowners would use under similar circumstances. A reasonable person would have repaired the step, restricted access to it, or warned guests about the danger.

Liability insurance generally provides coverage for unintentional torts resulting from ordinary negligence. However, coverage may be excluded for gross negligence, which involves an extreme lack of care, reckless conduct, or deliberate indifference to the safety and well-being of others.

Example

A driver who unintentionally runs a red light may be considered negligent. A driver who runs a red light while under the influence of alcohol may be considered grossly negligent because the conduct demonstrates a reckless disregard for the safety of others.

Intentional torts are deliberate wrongful acts that are planned or knowingly committed and result in harm to another person. The injured party may bring a civil lawsuit against the wrongdoer, even when the specific injury or amount of damage was not intended or anticipated. Because liability insurance is designed primarily to cover accidental losses, it generally excludes bodily injury or property damage resulting from intentional acts.

Elements of Negligence​

For an action or failure to act to qualify as negligence, all four required legal elements must be present:

A duty of care is a legal obligation to act toward another person with an appropriate standard of caution and responsibility. For example, a homeowner generally owes invited guests a duty to maintain reasonably safe conditions and warn them of known hazards. However, the duty owed to a trespasser is typically more limited.

Breach of Duty​

For negligence to exist, the defendant must have breached the duty of care owed to another person. A breach occurs when the defendant fails to meet the standard of conduct expected under the circumstances. For example, a driver who fails to obey a traffic signal breaches the duty to operate a vehicle safely and prudently.

Proximate Cause​

As in property insurance, proximate cause is the primary and legally significant cause of a loss. To establish negligence, the defendant's action or failure to act must have directly set in motion the chain of events that resulted in the injury or damage. If an independent event interrupts that chain and becomes the actual cause of the loss, the defendant's conduct may no longer be considered the proximate cause, and negligence may not be established.

Loss or Damage​

To recover damages under a negligence-based liability claim, the claimant must have suffered an actual and substantial bodily injury or property loss. In addition, the negligent act or failure to act must be the proximate cause of the loss, and the resulting injury or damage must have been a reasonably foreseeable consequence of the defendant's conduct.

An Insurance Story

When the Nelsons' guest trips on the broken step and fractures a wrist, the Nelsons may be found legally negligent. As homeowners, they owe their invited guests a duty to maintain reasonably safe conditions and provide warnings about known hazards. They breached that duty by failing to repair the step or warn their guests about its condition. The broken step directly caused an actual bodily injury requiring medical treatment, and such an injury was a reasonably foreseeable consequence of leaving the hazard uncorrected.

Defenses Against Negligence​

Because all four elements of negligence must be established, proving a negligence claim can require substantial evidence. The burden of proof rests with the claimant, also known as the plaintiff, who must demonstrate that each required element is present. The insured who is accused of negligence is the defendant and may rely on several legal defenses to challenge or reduce the claim.

Common Law Defenses​

Common law defenses are legal defenses that have developed through judicial decisions and court precedents rather than through statutes enacted by a legislature.

Contributory Negligence​

Contributory negligence is a legal defense that may prevent a claimant from recovering damages when the claimant's own negligence contributed to the injury or loss to any degree. Even a small amount of fault by the claimant may completely bar recovery. However, this defense is recognized in only a limited number of states.

Example

Under the contributory negligence rule, a claimant who is found 5% responsible for an injury cannot recover damages, even when the defendant is 95% responsible. Because the claimant contributed to the cause of the injury to some degree, recovery is completely barred.

Assumption of Risk​

The assumption of risk defense may prevent a claimant from recovering damages when the claimant knew about a particular danger, understood the risk involved, and voluntarily chose to accept it. By knowingly accepting the risk, the claimant may reduce or eliminate the defendant's duty of care.

Example

A property owner prominently displays signs warning visitors about a steep cliff. If a claimant sees or reasonably should have seen the warnings but chooses to ignore them and enters the dangerous area, the claimant may be considered to have knowingly assumed the risk.

Last Clear Chance​

When both the claimant and the defendant contribute to an accident, the last clear chance doctrine may apply. Under this doctrine, either party may argue that the other had the final reasonable opportunity to prevent the accident but failed to do so. This doctrine may serve as an exception to or limitation on the contributory negligence rule.

Intervening Cause​

The intervening cause defense may prevent or reduce the original wrongdoer's liability when a separate negligent act occurs after the original act but before the injury or damage takes place. The later act interrupts the chain of events leading to the loss and may replace the original act as the proximate cause. To qualify as an intervening cause, the later event must generally have been unexpected and not reasonably foreseeable.

Example

ABC Auto Repair improperly repairs Q's brakes. After leaving the repair shop, Q approaches an intersection but cannot stop when Z runs a red light, resulting in a collision. If the brake failure alone had caused the accident, ABC Auto Repair could have been held responsible for the resulting damages. However, Z's decision to run the red light introduced a separate negligent act into the chain of events. ABC Auto Repair may still be partially liable because the defective brakes contributed to the accident, but it may use the intervening cause defense to reduce its responsibility by arguing that Z's negligence also contributed to the loss.

Act of God or Act of Nature​

A defendant may avoid liability when an accident results entirely from an extraordinary natural event that could not have been reasonably anticipated, prevented, or controlled through human action. This defense argues that the unforeseeable force of nature, rather than the defendant's conduct, was the proximate cause of the injury or damage.

Sudden Emergency​

A defendant may avoid liability when an injury results from a sudden and unforeseeable medical emergency. This defense applies when the defendant was exercising reasonable care before the emergency occurred but was unexpectedly rendered unable to continue acting safely. For example, a driver who suddenly faints without prior warning and causes an accident may not be considered negligent.

Statutory Defenses​

Statutory law defenses are those based on legislation. These include the following defenses.

Comparative Negligence​

Under comparative negligence, a claimant who is partially responsible for an injury may still recover damages. However, the award is reduced according to the claimant's percentage of fault. Most states use some form of comparative negligence rather than the contributory negligence rule. Many states also set a threshold—commonly 50% or 51%—at which the claimant's degree of fault prevents any recovery.

Example

If a claimant is found to be 20% responsible for an injury and the defendant is found to be 80% responsible, the claimant's damages are reduced by 20%. For instance, an award of $100,000 would be reduced to $80,000.

Statute of Limitations​

The statute of limitations is the legally established period during which a claimant may initiate a lawsuit. This time limit is determined by state or federal law and commonly begins on the date the injury or loss occurs, although certain exceptions may apply. If the claimant files a lawsuit after the statute of limitations has expired, the claim may be dismissed, preventing the claimant from recovering damages.

Damages​

Damages are monetary amounts awarded by a court to compensate an injured claimant or, in certain cases, to punish the wrongdoer. Damages are generally classified into two categories: compensatory damages and punitive damages.

Compensatory Damages​

Compensatory damages are monetary awards intended to reimburse an injured party for losses actually sustained. These damages are classified as either special damages or general damages.

Special Damages​

Special damages compensate an injured party for specific, measurable financial losses. These losses vary by claimant and may include medical bills, lost income, and the cost of repairing or replacing damaged property.

General Damages​

General damages compensate an injured party for noneconomic losses that do not have a specific monetary value and are therefore difficult to calculate. These losses commonly result from the nature of the injury itself and may include pain and suffering, mental anguish, disfigurement, and loss of consortium, which refers to the loss of a spouse's companionship, affection, or support.

Punitive Damages​

Punitive damages are monetary awards imposed in addition to compensatory damages to punish a wrongdoer and discourage similar conduct in the future. They are generally reserved for cases involving intentional misconduct, gross negligence, or a reckless disregard for the rights and safety of others. Because punitive damages are intended as punishment rather than compensation for an actual loss, most liability insurance policies do not provide coverage for them.