Liability Insurance
Chapter 1
Risk
This chapter will cover the definition of risk, the law of large numbers and a person's liability exposures. This chapter will only go briefly into some of this information pertaining to risk and liability insurance.
Risk:
The concept of risk has several meanings depending on the context and the scientific discipline in which it is used. Simply defined, the concept of risk is an exposure to adversity or danger.
The definition of risk, as it pertains to insurance, is a simple one: risk is uncertainty concerning loss. This definition contains two concepts:
1. uncertainty, and
2. loss
While both concepts are important to insurance, the risk portion is the uncertainty and the loss is not. The basic function of insurance is to handle the risks that the insurance coverage was purchased for.
While the loss will be ascertained by appraisals done on the items insured, the degree of uncertainty or risk may not be. The accuracy with which losses can be predicted is the measure of degree of risk. This degree of risk is measured by probable variation of actual experience from expected experience. The lower the probable percentage of variation, the smaller the risk. The percentage variation decreases as the number of exposures increases. In other words, the larger the group of experiences, the more predictable the risk. If an insurance company found that a loss was certain, insurance could not be obtained; rates could not be feasibly obtainable. Risk makes insurance desirable and possible. Insurance thrives because people do not know what will happen to themselves or their property.
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Risk makes insurance desirable & possible. |
Unlike the insured, the insurance company is exposed to speculative risk. Speculative risk is the value of actual claims incurred that may be higher or lower than that projected in the rate structure. If they are higher, the insurance company loses because they are paying out more to settle claims than premium collected. If they are lower, the insurance company gains because the premiums collected are retained. Risk for the insurance company is defined as the exposure to fluctuations between actual claims incurred and those that are expected.
Terminology of policies dealing with liability insurance most likely would include such words as risk. The insurance company must determine the degree of risk of the prospective policyholder. Hazard is defined as a condition that may create or increase the chance of loss from a given peril. A peril is the cause of the loss. People are exposed to loss or damage from many perils, especially if we commute for any distance. Risk is the uncertainty, while peril is the loss producing entity. Perils that expose property and income to loss must be correctly analyzed by prospective insureds and their insurance agent to adequately cover their losses. A loss is an unintentional decline in or disappearance of value. Loss does not always imply the loss of a physical object. People have lost millions in junk bonds. Pure losses include those where a physical article is damaged or destroyed caused by a disability and/or death, by outliving one's income and/or resulting from liability suits. These losses are generally insurable.
Insurance may be defined as a way for an individual to reduce risk by obtaining an adequate number of exposure units to make their losses collectively predictable. The predictable loss is then shared proportionately by all units in the group. This transfer of risk is called insurance. Insurance allows a person to obtain coverage to substitute a small, definite cost (the premium) for a large but uncertain loss under an arrangement that will reimburse the insured for the covered losses incurred. The purpose of insurance is to provide indemnity. Indemnity may be defined as "compensation or remuneration for loss or injury sustained."
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Indemnity may be defined as "compensation or remuneration for loss or injury sustained." |
Law of Large Numbers
It may seem odd that a combination of individual risks would result in the reduction of the total risk. The principle that explains this occurrence is called the "law of large number," sometimes referred to as the law of averages or the law of probability. This is only a portion of the subject of probability, which is not a law but a field of mathematics. For instance, the insurance industry has mortality tables. The law of large numbers, named in the 19th century by Simeon Denis Poisson, is based on the regularity of events. What may seem to be a random occurrence in the individual happening appears so because of insufficient data of what is expected.
The law of large numbers is the basis of insurance. With this law, the art of predicting an occurrence in an individual case is replaced by the demonstrable ability to predict collective losses from a large number of cases. Insurance companies use the benefits of the law of large numbers by insuring the largest possible number of acceptable exposures to facilitate loss forecasting. Insurance companies also target these exposures to be spread out widely to reduce deviation from the underlying probabilities occurring when the exposures are concentrated in one locale.
Insurance does not eliminate risk completely. This is not possible because to achieve an infinite number of policyholders is not possible.
Liability & Society
In today’s world, we can look at the news and see multitudes of people filing lawsuits against other peoples and companies. Some may even say we live in an age of "sue happy" people. We can conjure up in our minds, scenes on television of attorneys chasing ambulances in hopes of a liability case. In humanity's history, injuries or damages were assumed by the injured person. Today, peoples and companies are exposed to claims and losses because of alleged or actual legal responsibilities.
Some may ask 'What has changed in our society to create such great uncertainty in exposures to liabilities?' There is no easy way to answer this question. There are many factors involved. One of the most obvious is the change in personal or moral values and attitudes toward such things as the family, employment, government and religion. In the underwriting process, an underwriter has to look at the moral and morale hazard. This type of hazard has to do with a person's apathy or indifference to things. Or the obvious attempt to steal from the insurance policy.
Our social environment has even changed. Some trends may have improved society, while others may set society back.
Over the years there were tragedies such as the Jack-in-the-Box scare when the hamburger was not cooked thoroughly and the hamburger itself was not processed correctly by the manufacturer causing some to get sick and/or die from E-coli. There was the Tylenol scare with cyanide where an individual had contaminated capsules. This resulted in a recall of the product causing a loss to the company, not to mention the loss of future sales. Both of these examples ended with millions of dollars being paid in defending and/or paying individuals and class action suits filed against these companies. There was also the case of "Is McDonald's coffee too hot?" Can we find fault in these situations? If so, who was at fault in these situations? How much responsibility should individuals, companies and insurers take? As already discussed, moral values have changed.
Ideas of individuals, corporate and social responsibility have changed dramatically. These changes have been reflected in a pronounced reliance upon law to determine the extent of liability risk. One thoughtless act, defective product, hazardous property condition or mistake, intentional or not, can result in a nightmare of legal battles for the accused.
We are all exposed to risks: a birth, a death, a marriage, a divorce, the purchase of a home, a new employer, new car - all have significant legal consequences. The liability risks which accompany these and many other everyday events of a person's lifetime will be discussed in this chapter.
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We can rarely make an important decision without considering their legal implications. |
The Liability Risk
Operating a car opens a person up to a liability risk. With the prevalence of claims, this should be an obvious risk. However, some may not understand the entire scope of liability risk. If a negligent act or omission interferes with the rights of any individual, the responsible party is liable for the damages incurred by the injured party. These risks, in some degree, can come in the form of personal, business, or professional activity. We cannot overlook that there is a danger of allegations which may result in litigation. This can be very expensive. To meet these growing exposures, liability insurance has become essential in our society.
Losses
The individual owners of a property (car, house, building) know that the limit of direct loss is the value of the property. For instance, if an individual owned a car worth $9,000 and it was stolen, the car represents a loss of no more than $9,000. The loss would not include money put into the car (engine repair, body work, etc.). In the case of liability claims, the limit may not be fixed with any reasonable certainty. This characteristic is in contrast to direct property insurance, where the direct maximum possible loss can be readily determined as the total property value.
Liability insurance claims may far exceed the capital invested in a property. For instance, if the individual who owns a car worth $9,000 ran into a car worth $25,000, the liability claim would exceed the capital of the property. To add to the risk, an individual may at some point require a large sum of money to prove that there is no liability when a groundless claim is made.
Not obtaining liability insurance can be a dangerous situation considering our "sue happy" generation. If there is a liability claim against an individual or company and the injury is serious, the verdict can bring financial ruin. In fact, in recent times it has been discovered that former limits for which liability insurance policies were written are no longer regarded as adequate coverage. The courts are taking judicial notice of a depreciating dollar, inflation. Verdicts in the past that may have been thought to be excessive are no longer regarded as such. In fact, quite the opposite. The verdicts may be regarded as inadequate to compensate an injured person for the loss sustained as the result of an injury.
To add to the confusion, liability verdicts are extremely variable and unpredictable for an individual or business. Years ago, a liability verdict of $50,000 to $100,000 was considered large. Today, we can give numerous examples of verdicts well over a million dollars, and the number keeps rising. For a single accident involving a number of individuals, the claims and verdicts can go well into the millions of dollars. The high verdicts are not limited to one category. They can result from automobile accidents, fires, falls, airplane crashes and so on. There are numerous situations that may create a liability lawsuit.
The majority of liability claims that are settled or receive a verdict are for far less than the original sum asked for in the court suit. This is a poor consolidation for the individual or company that is faced with a claim which may result in financial ruin after several years of uncertainty. With the trend of awards becoming higher and higher, the risk is significant for the defendant since they may be required to pay an award far beyond any expectation of the maximum loss at the time the liability policy was purchased.
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A defendant may be expected to pay a judgment far beyond any expectation of the maximum loss at the time the liability policy was purchased. |
It should be noted that liability claims are not limited to just companies or large corporations, individuals can be liable for damages also. In the news we hear about the more outrageous liability claims made against individuals. Is it a sign of the times we are living in? Quite a few years ago, in the news was a report of a burglar who broke into a couple’s home. The burglar broke the window, and upon exiting the home, he cut himself. The burglar sued the couple for that very fact. In another instance, a burglar was leaving the premises out a window that he did not enter through and landed in a hole outside the window and broke an appendage. The individual sued the couple because the hole was not adequately marked. People are liable for their dogs if they bite another person. People are liable for swimming pools that neighborhood children can get into and drown. In many instances, the individuals are justifiably liable for the verdicts against them. The point is that everyone is at risk for having a liability suit brought against them.
Results of Verdicts
A liability claim obligates the party held responsible for the loss or injury to make payments for years in the future. Not only is there the direct loss or damage to the property which destroyed values already established, but there can also be costs far into their future. A key thing to remember is that legal obligations for serious negligence are not excused by a bankruptcy. Individuals who believed themselves to be judgment proof for one reason or another, may find themselves obliged to make contributions out of their income until judgments are satisfied. A court judgment may reach into an individual's bank deposits, securities, real estate, and as stated before, earnings for years to come.
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Bankruptcy does not excuse legal obligations for serious negligence. |
Bankruptcy has been suggested as a way out for an individual without assets, and that is said to be judgment proof. This is not as simple as it may sound. The consequences of injuring ones credit report and business reputation may be a lasting consequence for years to come and in many states failure to pay such a verdict will result in the loss a driver's license or even result in a jail sentence. If a collision happened in another state, the accident falls under the jurisdiction of the state where the accident occurred. The traveler may find that reciprocal agreements in another state may cost them the right to drive.
Fraudulent Claims
Fraudulent claims cost the insurance industry millions of dollars. Not only in paying undetected fraudulent claims but also the preventative measures that the insurance industry uses. Insurance companies have organized central index bureaus in different sections of the country for the filing and tabulating of claims. The central index bureaus bring to light duplication of claims for the same alleged injury, and the frequency with which the names of doctors and lawyers appear in connection with doubtful claims. These claims are dubbed for observation, as are the doctors and lawyers.
The insurance industry experiences people who make a living from faking injuries. They are the individuals who suddenly become bedridden with multiple complaints. The insurance companies know that it is expensive to contest a suit and that the defendant, disliking negative publicity, prefers a quick settlement. Insurance companies use professional loss-adjustment services to minimize the ill effects of the fraudulent claims.
The Basis for Liability Claims
What is the legal basis for a liability claim? Answer: A claim that is based on a liability imposed by law which develops as the result of the invasion of the rights of others. This legal right is more than a moral obligation of one person to another. This legal right has the backing of the law to enforce this right. Legal rights impose many specific responsibilities and obligations. The invasion of such legal rights is deemed a legal wrong. The legal wrong may be:
1. criminal (public), or
2. civil (private).
A criminal wrong is an injury involving the public at large and is punishable by the government. The action on the part of the government to effect a conviction and impose fines or imprisonment is termed a criminal action.
A civil wrong is based upon two things:
1. torts, and
2. contracts.
Torts are wrongs independent of contract wrongs. In other words, they involve actions of the agent or others and not the contract. This includes false imprisonment, malicious prosecution, trespass, conversion, battery, assaults, defamation (libel and/or slander), fraud and negligence are examples torts. The chapter will expound on some of these on the next page.
Contracts may involve legal wrongs when implied warranties are violated, or contract obligations are breached.
Civil injuries are rectified by court action taken by the injured party in a civil action. The government takes action with respect to crimes, criminal action. Civil injuries are rectified usually with an award of monetary damages. The liability consequences of a crime are not usually insurable, but liability for damages growing out of a civil wrong may be insured.
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Liability consequences of a crime are usually uninsurable. Liability consequences of a civil wrong are usually insurable. |
For liability insurance the emphasis is on civil wrongs and particularly on the many legal wrongs based upon torts. Torts resulting from negligence (unintentional acts or omissions) are of greatest importance. It is said to encompass more than nine out ten claims for personal injury or property damage to others.
Liability under Torts
As stated before, torts include all civil wrongs not based on contracts. As a result, they are a broad residual classification of many private wrongs against another person or organization. Torts occur independently of contractual obligations and may result from:
1. intentional acts or omissions,
2. strict (or absolute) liability imposed by statute law, or
3. negligence. Most torts are based on negligence.
Intentional Acts or Omissions
Intentional torts are the result of an injury to another whether or not the intention is to benefit or harm. Unless the individual's conduct is "privileged," the consequences may be liability for an intentional tort. ("privileged" will be discussed later in the chapter.) Intentional torts may be classified as:
1. intentional interference with the individual, and
2. intentional interference with the property of others.
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Torts occur independently of contractual obligations. |
Lawsuits can occur because of injuries or damages caused by intentional acts or omissions. For instance, battery was listed as one of many torts. Battery is the intentional, unpermitted and unpriviledged contact with another individual. It includes contact with anything connected or associated with the individual. No harm need to be done or any hostility intended; only absence of expressed or implied consent to contact customary in everyday life.
Assault is the attempt at or threat of physical violence to another individual. It is different than battery in that assault involves apprehension over threatened contact. Battery requires contact. Intent to carry out the threat is not a factor with assault. A belief that the threat may materialize into action is sufficient. Assault and battery frequently accompany one another.
Liability may arise from intentional acts that cause an individual severe and extreme mental or emotional distress. Serious illness resulting from distress often is necessary to qualify for damages. For example, a collection agency that continually batters a debtor and causes a nervous breakdown may be liable for inflicting emotional distress. Some debtors may like to know this information.
Defamation involves damaging another individual's reputation. Defamatory acts may be either:
1. libel (written), or
2. slander (oral).
The distinction is based on the permanence of the form or the potential to harm with the more permanent or harmful forms considered libelous. For the action to be a tort the defamatory statement must be intentionally or negligently communicated to someone other than the defamed party. They must also be reasonably understood by the third party. Libel and slander laws differ substantially among jurisdictions and are characterized by inconsistency and confusion.
False arrest or detention is the intentional unprivileged restraint of an individual's freedom of movement. Harm to the individual's reputation and mental stress which is bought on by the false charges could also add to the liability. The restraint must be intended but does not have to be malicious. Which means that even if the individual believes that the restraint is necessary for the good of the person restrained, they may be liable for false imprisonment. Furthermore the restraint need not be physical but may consist of threats of force that intimidate another into compliance.
Malicious prosecution may be confused with false imprisonment. Malicious prosecution means knowingly instituting groundless civil or criminal action against another party. Sufficient grounds for damages require the plaintiff to show that:
1. in the court proceedings no probable cause existed for the action, and
2. the court decided the case in their favor.
Recovery usually is limited to just the attorney's fees and costs incurred in defending oneself against the groundless action and any special injuries to the plaintiff. These special injuries could consist of damage to their professional reputation.
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Trespassing upon real property requires no proof of damage to establish liability. |
Trespass on to real property is the wrongful entry on the land of another or failure to remove property from an individual's land. Trespass could include invasion of the area above and below the land as well as the surface of the land. Trespass to personal property is the intentional interference with the possession or physical condition without legal justification. An innocent mistake is no defense against liability. Though, proof of damage is required to establish liability for any trespass to personal property and for an unknowing trespass to real property. Willful trespass to real property requires no proof of damage to establish liability. The term real property refers to land and to rights issuing from the possession of land - real estate. The term personal property is somewhat obvious. It refers to that which is owned by an individual. For instance, some insurers will insure replacement cost coverage on personal property, paying fully for losses of items even if they cost more now than when the individual bought them. This would be that furniture, appliances and clothes that would be covered for additional premium. Insurance companies have to be careful of the moral hazard in this area. Moral and morale hazard will be discussed later in the text.
Intentional interference with property can encompass trespass to real or personal property and conversion which can be actionable.
Conversion is the wrongful disposition and detention of the personal property of others. Trespass and Conversion differ in that prior to conversion the converter is legally justified on, possessing the property. Tort law pertaining with conversion give the wronged individuals a cause of action in a civil court to recover their property values.
"Privileged"
An individual will not be held liable for an intentional tort if the conduct is "privileged." Privileged has many meanings. From a legal standpoint, it refers to a privilege as a legal freedom for an individual to act in a given manner. It can be hard to determine whether or not an action is privileged. It depends on the circumstances and the courts attitude on the subject. Common types of privilege free from intentional torts are mistakes, consent and protective acts. Since there is no advanced way to determine what the court will decide, there is no assurance if an act will be deemed privileged or not.
Under limited conditions mistakes may be deemed privileged. Individuals are privileged to use reasonable force as a protective act to prevent interference with their property, person, or to defend others who have privilege to defend themselves. An individual defending themselves against a rapist, whether by shooting or other means would probably be considered reasonable and thus privileged.
Strict Liability Imposed by Statute (contract) Law
Strict liability is imposed when public policy demands an individual be held liable for injury to others even though the injury may be neither intentionally nor negligently inflicted. The seriousness of the liability exposure is seen in instances where persons are held responsible for injuries or damages no matter how careful they may have been in trying to avoid losses to others. Individuals can be held responsible (liable) for damages, regardless of whether or not fault or negligence can be proved against them. This type of liability exposure arises from three sources:
1. dangerous instruments,
2. extra-hazardous operations, and
3. defective products.
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Strict liability can also be referred to as liability without fault. |
Families are most affected by the dangerous instruments exposure and businesses are affected mostly by the defective products exposure.
Many people have domestic animals. With rising crime rates, many people own dogs that are deemed dangerous. If these animals are dangerous, their owners are exposed to a liability without fault, not to mention the arrest that could occur should an animal bite, mangle, or even kill an individual. Warning signs such as "Warning! Watch Dog" and "Beware of Dog" are a dead giveaway to the dangers. Many people have firearms in the home adding to their absolute liability. The rationale for absolute liability for dangerous instruments is they create an unreasonable hazard to others. The same rationale applies to the extra-hazardous operation exposure.
Where applicable, liability without fault is most commonly applied to products liability. The manufacturers and merchandisers are held liable for injuries caused by defective products sold or marketed, regardless of fault or negligence. The key point here is that the claimant must prove the product to be defective and that the defect existed at the time of the sale and was the approximate cause of the injury. Furthermore, proof must be established that the product was used for the intended purpose. If the claimant can provide these proofs, the defendant is held "strictly liable." This is without regard to fault or negligence. Thus strict liability is not absolute for a products liability exposure. Strict liability is only one basis for collecting damages for defective products that may have been purchased. Liability without fault is not limited to common law. Strict liability has been created by statutes. A tavern or pub may be liable under certain circumstances for injuries to others resulting from a drunken person being allowed to drive. Several state have passed "dram shop" or liquor liability laws that make owners of businesses dispensing liquor responsible for their intoxicated patrons. Some states have also passed laws making people who throw New Year’s Eve parties liable for injuries resulting from a person who became intoxicated at their party, then letting them drive, resulting in an injury to another party. Employers are responsible for the conditions their employees work in. In the last few years we have seen employees file suits against their former employers for asbestos poisonings. The employers may have not even known that asbestos was destroying their employees’ lungs.
Negligence
Negligence is a tort - a civil wrong not based upon a contract. Negligence is often the result of carelessness, thoughtlessness, or it may be due to forgetfulness, ignorance or just plain and simple stupidity. The majority of the liability imposed by laws stem from accidents derived from negligence. If negligence can be shown to be the proximate cause of an injury to another, the negligent party is libel for the injuries or damages sustained. Negligence could be defined as the failure to exercise the proper degree of care required by the circumstances. Negligence never involves intent. A negligent act may include not doing what was required under the circumstances, or doing something that fails to measure up to what would be expected of a prudent person in like circumstances. A faulty judgment may result in liability of negligence, even though the motive behind the act was purely innocent.
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Everyone is at risk of losses arising from a negligent act. |
There are laws that require all persons to use prudence in their actions so that others will not suffer bodily injury or property damage. Failure to heed such prudence gives the injured party a right of action against the negligent party for damages. Prudent behavior required is based on what society expects of the individual. The conduct must be reasonable in light of the risk involved.
Presumed Negligence
Ordinarily the burden of proof lies on the plaintiff (claimant) in a negligence case. The plaintiff must prove that the defendant failed to exercise the reasonable care of a prudent person. However, this may not always be the case. If the facts presented justify a reasonable form of judgment of negligence the courts may lift the burden of proof requirement by applying the common law doctrine of res ipsa loquitor (the thing speaks for itself). Negligence is presumed without the plaintiff having to prove it. The burden of proof is then shifted to the defendant. Under this law a legally sufficient case of negligence can be established and referred to the jury if the:
1. plaintiff's injury was caused by a defective object,
2. injury could not have occurred without the defendant's negligence, and
3. object causing injury was controlled by the defendant.
These conditions establish presumed negligence.
The law of presumed negligence applies when an accident causes an injury preventable by the use of prudent care and or safety inspections. For example, if the defendant is knowledgeable about the accident's cause and if the plaintiff is otherwise unable to establish proof of negligence. Presumed negligence has been applied to a number of accidents that occur where there are no witnesses available; railroad or aviation injuries, medical malpractice claims, and/or damages from defective products are examples of this. The last example of product liability it appears to be difficult to apply res ipsa loquitor. This is because the claimant, not the defendant, controls the product. Again, the claimant controls the product, in how it is used properly or improperly. However, the courts have held defendants in control of the product if it has not been changed since leaving the manufacturer. The courts are not consistent with these decisions though.
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Presumed Negligence requires the defendant's behavior to be the single and only cause of the accident. |
When negligence is presumed, the plaintiff must not be guilty of contributory negligence. The circumstances of the accident must be unquestionable as to the negligence as the cause. If the accident could be caused by any other means the res ipsa loquitor law is not applicable. Presumed negligence does not exist if the accident results from circumstances beyond the control of the defendant and/or the accident must have been of a nature that the injury could not have occurred ordinarily without the negligence of the defendant. An accident resulting from a third person's involvement or from any physical or mechanical actions is also not applicable.
Imputed Negligence
Imputed negligence makes an individual responsible for negligent acts of others. Employers may be liable for the actions or negligence of their employees, even when the employee appears to have partial or full negligence. If the employer uses an independent contractor, for example, and the contractor’s employee negligently causes an injury, the employer could be held liable if it provided the contractor with faulty instructions or tools. Contractors can be held liable for the actions of their employees and their actions. That liability can travel upwards to the company employing the contractor. It is not just contractors that have imputed negligence risk. Those who are often not aware of their risk include landlords; when their tenants, through a negligent act, cause injury to others landlords may find themselves involved in the lawsuit along with the tenants. We have seen news stories of parents held liable for the acts of their children. Vandalism, arson, and other actions of children under the age of 18 may bring imputed negligence claims to their parent’s door.
Vicarious liability laws impute liability to automobile owners even when they are not driving or even riding in their cars. Even if the car was borrowed by a friend, the owners of the vehicle could still be liable for the actions of the driver, because he was using their car with their permission. Under the family purpose doctrine, liability applies particularly to the automobile owner whose family members negligently use the vehicle.
In February, 2013, a Connecticut Superior Court clarified the employer relationship for Regional School Districts and their member municipalities. The Court’s decision came about due to a student who was injured during a high school soccer game. In the lawsuit seeking compensation for his injuries, the plaintiff and his parents filed suit against the regional school district, as well as the three municipalities that comprised the school district. The premise for naming each of the municipalities as a defendant was that each of them was an “employer” of the negligent school employee as defined by state law.
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Imputed negligence can occur even to unaware individuals. |
Although presumed negligence may not apply if a third person is involved in the negligent act, imputed negligence does apply to third persons who may not be directly involved like the example shown above.
Negligence in Tort Liability
Lawsuits filed where allegations of negligence are made present major issues in tort liability. Some of these include:
1. the required elements of a negligent act,
2. defenses in a negligent action, and
3. statutory modifications of the common law on negligence.
We will now go into the first two of the above list to examine how allegations of negligence present major issues in tort liability. The third one changes frequently and is different from state to state, so it will not be covered.
1) The required Elements of a Negligent Act
Before a court will award damages to a plaintiff, four requirements must exist before negligence liability is present. They are:
1. a legal duty to protect the injured party,
2. a breach of that duty or wrong,
3. an injury or damage to the plaintiff's person, property, legal rights or reputation, and
4. a reasonably close proximate relationship between the breach of duty and the plaintiff's injury.
Legal Duty
The law does not obligate anyone to help another in distress and may even penalize a person for doing so. The law is clear. For a successful lawsuit an obligation to exercise a particular standard of care toward the victim is essential. Whether or not a legal duty is owed to another party is decided by the courts, and many factors determine the degree of care required.
A few years ago there was a story in the headlines of a woman who jumped off a bridge to her death because she feared the man whose car she had hit. Although he was physically beating her, onlookers stood still, not becoming involved. Some reports even indicated that some onlookers encouraged her to jump to her death. The woman left behind a family. Have the relatives of the woman a cause action against these observers? Suppose there were plain clothes police officers in the crowd of onlookers; would the victim's survivors have a valid case against them?
Suppose in this instance given, that the woman survived the jump but could not swim. Brave Smith jumped in after her to try to help. Brave Smith was not a good swimmer. If Brave Smith fails in his rescue attempt, he might be held liable and sued by the victim's family. Suppose Timid Jones was standing nearby. Timid Jones was a good swimmer and would have jumped in if Brave Smith had not. If Brave Smith does fail, would Timid Jones be liable too?
If an individual were drowning in a swimming pool, the owner, operator and even the life guard who was not paying close attention may be held liable for the drowning of the individual.
To whom responsibility belongs and to whom restitution is owed is a complicated question. As you already may be thinking, the answer varies with the changing social conditions, relative abilities of the parties to bear the losses, or the desire to encourage greater care. Whether restitution is owed to the injured party and whether that responsibility was breached is decided by the courts. The judge decides who is responsible and to what degree restitution should be made. Or it could be said that the judge decides questions of the existing law, while the jury questions the facts. As in the case of the woman who was burned by McDonald's coffee, the jury awarded her an astronomical figure, but the judge lowered that judgment against McDonalds. Such prevalence of unwarranted verdicts and awards has led some members of the bar to call for a discontinuation of jury trials in negligence cases.
Often judgments are made on the basis of the individual or company's ability to pay, and the size of the liability insurance policy one owns.
Breach of duty / A Wrong
As stated earlier, the most important tort claims are based on negligence and are the most common wrongs. The plaintiff must show not only that the alleged tort-feasor (wrongdoer/defendant) had a duty to the injured party, but also that the duty was breached. A wrong is a breach or a legal duty, based upon a standard of conduct that is determined by what a prudent person would have done or not done in a similar circumstance. A trial judge may conclude that the defendant did perform in a prudent manner thus fulfilling their duty and dismiss the case. Nearly always, questions concerning breach of duty are decided by jurors. To do a wrong that is pertinent to this type of liability, a person must commit an act or omission voluntarily. For instance, if a person in the process of avoiding an ominous danger injures another party without intent, there was no voluntary act and hence no liability. If the act which injures a party was done without intent to do injury or if motive behind the act good, the injured party has little case.
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The plaintiff must show not only that the defendant had a duty to the injured party, but also that the duty was breached. |
Injury and/or Damage
An injury must result from a breach of duty or a wrong for a successful suit. The injury or damage may be to property, bodily and other personal injuries, loss of income due to disability, pain and suffering, disfigurement, and any other losses for which the negligence is the proximate cause. As a general rule, mental disturbance is not an injury unless accompanied by physical harm. A bystander's right to damages normally requires:
1. the plaintiff to be near the scene of the occurrence,
2. the event to cause a direct emotional impact, and
3. the plaintiff and victim to have a close relationship (for example a mother - son relationship).
Loss of income due to an inability to work often involves a large portion of bodily injury liability cases. In rare cases bodily injury may be extended to include cases where no actual physical injury is suffered, but mental anxiety results from a near accident. A family may be able to collect from a woman's inability to perform normal household duties, or for "consortium" (the term the law applies to companionship of a wife with her husband). It may be possible to collect for the care of the injured person if a nurse or other medical practitioner visits the injured person.
Property compensation is determined by the difference in the value of the property before and after injury. Although the cost of the repair and replacement may serve as a measure of damage, this does not always reflect the actual amount of the damage. Losses resulting indirectly from the loss of use of the property may also be a part of the property damage liability. When determining the value of the damaged property, if the cost of the repair is higher than the value of the property, then the measure of damage would be the value of the property immediately before the accident, minus the salvage value after the accident.
Proximate Relationship
The breach of duty must be a proximate cause of the injury incurred. The courts generally decide questions of proximate cause. Their interpretation may be unpredictable. For the act, or breach of duty, to be held a proximate cause, there must have been a continuous succession of events from the act to the final event causing the injury. If, though, there were an independent and intervening cause, the continuous succession of events would be broken. Thus, no liability for the injury would attach to the party responsible for the breach of duty.
Some problems involved in deciding whether an act was a proximate cause of the injury are the interpretations of the origin of the chain of events leading to the loss. The question is, at what point in the chain of events will the court conclude the cause is proximate in any given situation? The courts in different states conclude things differently based on their laws and regulations. In most courts remoteness in time and space are important but not decisive factors in determining liability. The decisions made by the court will be based on numerous variables rather than on clear-cut rules.
In many cases the question of proximate cause can be handled by the sine qua non rule, meaning without which not. Under this rule an individual's conduct is not held to be the cause if the loss would have occurred anyway. Sine qua non does not mean liability will always be automatic if the injury occurred from the defendant's actions. Before concluding what the proximate cause of the action was, other factors are considered.
2) Defenses in a Negligent Act
Since there are never absolutes, a plaintiff may prove all four elements (legal duty, breach of duty, the injury, and proximate relationship) of a negligent act and still not be awarded damages. The defendant has several successful defenses available. Two principal ones are:
1. contributory negligence, and
2. assumption of risk.
Contributory Negligence
If the plaintiff is also negligent and that negligent action contributed to the loss incurred, they may be denied damages. If the defendant used this as a defense, this would be called contributory negligence. The defendant played a role in their own injury or loss. Contributory negligence does not, however, relieve the defendant of duty to the plaintiff. Instead, it denies the award of damages to the plaintiff if both parties are at fault.
In a strict sense, the doctrine of contributory negligence does not always produce equitable results. A slight degree of responsibility, negligence, on the part of plaintiff could result in no award of damages.
There are two substantial variations of contributory negligence rules:
1. comparative negligence, and
2. last clear chance.
Under comparative negligence the court, often the jury, attempts to scale, or diminish in proportion the awards according to the comparative degrees of negligence of the parties involved. Not all states have comparative laws. Partial comparative negligence statutes are more common.
Legal authorities stress faults in both types of comparative negligence doctrines: the extreme difficulty or even impossibility of charging a jury to define percentage of liability with a precise measuring stick and the tendency towards increased litigation. Slight negligence tends to be disregarded. Settlements made outside the courtroom frequently ignore slight negligence or take it into consideration in making partial awards.
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The last clear chance doctrine holds that although the defendant is negligent, there is liability if the plaintiff could have avoided the accident altogether. |
The last clear chance doctrine accepted in some form by many courts, originated in Davies v. Mann, tried in England in 1842. The last clear chance doctrine is most applicable to the courts when the defendant is able to prove the plaintiff has the last clear chance to avoid the accident. The last clear chance doctrine states that the defendant with the last clear chance to avoid the accident is guilty of contributory negligence by failing to avoid the accident. If both plaintiff and defendant were inattentive, this doctrine does not apply.
Tort Liability Exposures
A risk manager should be concerned with all tort liability exposures, but the primary emphasis is liability resulting from negligence. In respect to businesses, risk managers should be aware of and plan for all tort exposures, primarily with strict liability, liability arising from negligence and liability imposed by a contract.
It has been stated that everyone is at risk of a loss due to a negligent act, no matter how unintentional the act. The solutions to these exposed risks often involve various liability insurance contracts, but the significance of loss prevention cannot be overstated. There will be many examples throughout the text to refer to. These are just a few.
Real Property / Personal
Individuals must be aware of the exposures that increase the chance of personal liability. A dangerous or defective condition maintained on a property is termed in law as a nuisance. Owners of these properties are responsible for injuries attributable to the dangerous conditions. Sidewalks, stairways, ramps or unsecured rugs may increase the chance of loss from liability exposure. Tenants (renters) are responsible for nuisances created by themselves or created by the property owner if the tenants do not affect corrections. In the winter sidewalks may get icy. This may or may not be a liability exposure to the property owner or tenants. The general rule is that the owners or the tenants are not required to remove ice from the sidewalks resulting from natural conditions. However, if the ice on the sidewalk is caused from gutter leakage or overflow from a clogged drain, the tenants or property owner may be held liable for the injuries. Municipal codes may require the removal of the snow within a certain period of time after the accumulation. It is important to remember that not all jurisdictions have the same laws.
The prudence and diligence required by property owners differs with respect to the positions occupied by individuals entering upon their property. The same prudence and diligence is not owed by the property owner or tenant to trespassers, invitees or licensees except in a few states. The law divides such persons into two classes:
1. the trespassers, and
2. the invitees.
A trespasser may be defined as an individual that goes without any right upon the lands of another. An invitee may be defined as an individual who is expressly invited to enter upon the land of another primarily for the occupant's benefit. Customers, letter carriers and trash collectors fall into the invitee class. A licensee may be defined as an individual who has the tenant's or property owner's consent to be on the premises, although they are there for their own benefit. The owners or property owners owe licensees the same reasonable care as they would trespassers. Solicitors, door-to-door insurance agents or Avon ladies fall under the licensee class. The distinction between the classes is of little value because the tenant or property owner does not know before an accident the standard of care that will be expected by the court. The classifications are of minimal use in studying liability hazards except for obvious attractive nuisance cases.
Generally it is held that trespassers take the risk upon themselves of defects in the premises whether these defects are hidden or open. The trespassers, however, cannot be intentionally injured by a trap or other dangerous situation. The invitee is under a different set of parameters. The invitee may hold the tenant or property owner liable for any loss or damage caused by a defect which though unknown by the tenant or property owner could have been averted had they exercised reasonable diligence or prudent judgment. The tenant or property owner owes the invitee a certain standard of care. This standard of care is to inspect, correct and/or warn of the dangerous conditions of any kind which make the property unsafe.
Attractive Nuisances
An extremely important exception to the normal liability for injuries to trespassers is the case of injuries to children because of an attractive nuisance. Situations that may entice children to play on or around unsafe areas may be deemed an attractive nuisance. Usually the nuisance is an artificial or uncommon object that attracts children and the threat to them because they are too naive to realize the possible dangers. The laws in some states do not apply the attractive nuisance doctrine at all, although juries may be sympathetic toward children anyway. Other states vary in how they apply this concept against the tenants or property owners and also the age of the children, normally fewer than ten is the magic number.
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Attractive nuisances expose both the business owners and the property owners alike. |
Attractive nuisances expose both the business owners and the property owners alike. They should be aware of objects of situations that might attract children to harmful situations. This is an area which loss prevention as a part of good risk management should be emphasized.
In many states the attractive nuisance doctrine has been replaced by Section 339 of the Restatement of Torts (second). Under this statute the property owners or tenants are held liable for injuries to trespassing children under the following conditions:
1. A condition exists on the property which may reasonably be expected to attract children who may be unable to discern the hazards, and
2. the condition provides the property owner or tenant small utility compared to the risk involved for young children.
There are defenses to the attractive nuisance doctrine. The property owner or tenant could contend that they could not reasonably be expected to know that the condition would attract children or that the condition was unreasonably hazardous to the children. Another is that the utility of the condition to the property owner or tenant was far greater than the disutility of the hazards involved. Remember with the adult trespasser, the defendant need only prove that the injury was not deliberate.
Business Liability Exposures
One source of liability claims can result from property owned or rented by the business. Liability claims may also result from injuries caused by business operations. An employer may be held liable for the negligence of their employees. Employers are exposed to liability under workers' compensation law for injuries to their employees. Employers are also exposed to liability for injuries to independent contractors and their employees while working for that business and even for the losses to others caused by the actions of the independent contractors and their employees while performing their duties. In any case, business owners should be aware of their exposure to large losses.
Certain businesses are considered bailees. Dry cleaners, warehouses, laundries and repair establishments which handle a customer's goods are examples of bailees. Bailees have a legal liability for goods deposited with them. This liability is not absolute. Bailees are not responsible for all losses. Losses incurred because of "acts of God" rather than negligence on the bailees’ part is not reimbursable. However, many business owners dealing with the public would rather reimburse the loss to prevent the loss of the future business. The practice of this type of responsibility is becoming rarer. Consumers are generally unaware that the bailee is not liable for every loss of the consumer's goods regardless of the cause.
Fiduciary liability is another hazard which business owners, especially those with pensions, must consider. The investment managers of these pension funds are exposed to risks for making bad investment decisions causing pension funds to disappear. In the past, fiduciaries needed only to conform to a "prudent man's" conduct in which the investment decisions were analyzed according to what was expected of a prudent man. The Employee Retirement Income Security Act of 1974 requires these pension fund managers to observe and conform to a "prudent expert" standard of care. This means the investment decisions will be analyzed in comparison to how a prudent expert would have performed in similar circumstances. With this new rule, increases in the number of fiduciary liability claims have risen.
Pub, bar, tavern and night club owners are exposed to the "dram shop" hazard. This type of liability exposure holds owners (the seller of alcoholic beverages) responsible for bodily injuries and property damages committed by persons under the influence of alcohol consumed in the seller's establishment. This type of liability can be extended to even wrongful death or injury of loss or consortium damages to the descendant's spouse. This type of liability is also being extended to persons not owning a business of the type mentioned, who throw a party where alcoholic beverages are consumed.
Personal Liability Exposures
People may often think that they are not exposed to the dangers of liability suits brought against them. Homeowners need to be aware of their sidewalks, stairways, freshly waxed floors, defective floors, rugs, falling ceilings, unprotected pipes and swimming pools as an increase of the chance of loss from a liability suit. As stated before, an icy sidewalk may or may not prove to be a liability hazard. The homeowner or tenant needs to know when they would be liable.
Even a person playing golf may find themselves in liability litigation for those misplaced tee shots which injure other golfers, unless ample warning was given by shouting "fore" loudly and clearly. If the ball strikes another golfer after ricocheting off a tree, the wild golfer would not have been duty-bound to give a warning. The injured golfer assumes to have accepted the risk of the injury.
End of Chapter 1