PROPERTY & LIABILITY LOSS

EXPOSURE
 Property Insurance
• Provides protection against most risks to
property, such as fire, thefts, weather damage
etc.
• Covers a business’s building & its contents-
money & securities, account-receivables
records, inventory, furniture, machinery,
supplies & even intangible assets such as
trademarks- when damage, theft / loss occurs.
 Risk

Property Liability

Ownership (Use)
Real property Contract Tort
of Property

Personal property Products Automobile

Intellectual property Services Premises

 Property Loss Exposures
• Financial stake or interest in the property has to be
present. That is, if there is a loss to the property
you suffer a financial loss.
– Owned and non-owned property
– Real and personal property
– Intangible property
• Intellectual property
• Accounts receivable
• Leasehold interest (or a legal right to use)
 Property Loss Exposures
• Real property
– Land, all structures permanently attached to the
land, and whatever is growing on the land
– Examples include buildings, attachments to
buildings, crops
• Personal property
– All property other than real property
• Examples include cars, money, clothes, furniture,
textbooks, airplanes, animals
• Direct loss
– Occurs when there is damage to property
• Indirect loss
– Occurs when a direct loss causes expenses to increase or
revenues to decline
• Many insurance contracts insure both direct and
indirect losses in the same contract
• When dealing with property insurance, there are
usually only two parties to the contract
– The insured and the insurer
• Not all types of property are insurable
– Coverage cannot be purchased for loss of goodwill
or loss of a copyright
– Raw land is difficult to insure
• Animals and property loss exposures
– For insurance purposes, animals are considered
property
– Firms must be able to manage loss to or from the
animals
 Liability Exposures
• One of the most serious financial risks that risk
managers must deal with
– Loss through legal liability for harm caused to others
• Insurance for liability losses is more complex than
property insurance
– Because people other than the insured and the insurer are
involved
• Liability is usually determined by proving negligence
 Types of Liability Damages
• Insurance contracts are designed to pay only
for certain types of losses
– Usually restricted to pay for
• Bodily injury
• Property damage
• Personal Injury
• Legal expenses
• Bodily injury
– Includes liability for losses a person may incur because his
or her body or mind has been harmed
• Includes payments for medical bills, loss of income, rehabilitation
costs, loss of services, pain and suffering damages, punitive
damages
• Property damage
– Loss may be due to a loss from actual damage to the
property, as well as loss of use of the property
• Personal injury
– Result from libel, slander, invasion of privacy, false arrest,
etc.
• Legal expenses
 Criminal & Civil Law
• Criminal law
– Directed toward wrongs against society
• Examples include murder, robbery, rape, assault with a
deadly weapon
• Civil law
– Directed toward wrongs against individuals and
organizations
• Examples include breach of contract and negligent acts
 Torts
• Legal injury or wrong to another that arises
that of actions other than breach of contract
– Courts will provide a remedy by allowing recovery
in an action for damages
• Legal injury
– Results when a person’s rights are wrongfully
invaded
• Right of personal privacy, right to enjoy one’s property
and right to be free from personal injury
 Basic Law of Negligence
• The negligent act
– Negligence is the failure to exercise the degree of care
required by law
• Conduct that a reasonably prudent individual would exercise to
prevent harm
• A negative act
– Failure to do something
• Negligence maybe the failure to act when there is a duty to act
• A positive act
– The doing of something
• A voluntary act
– One that is done voluntarily
• An involuntary act is excusable
– A negligent act is not excused because there is no intention to harm
• An imputed act
– One is liable not only for one’s own actions but also for the negligent
acts of service or agents acting in the course of their employment or
agency
• Employers may be sued because of negligence acts of their employees
– Vicarious liability
• Proximate cause of the loss
– There must be an unbroken chain of events leading from the negligent
act to the damage sustained
 Defenses Against Negligence Claims
• Contributory negligence
– If both parties are to blame in a given accident
– May not collect against the other, even if the defendant was 90
percent to blame and the plaintive only 10 percent to blame
• Assumed risk
– Defendant may raise the defense that the plaintiff has no cause for
action because the plaintiff assumed the risk of harm from
• The conduct of the defendant
• The condition of the premises
• The defendant’s product
• Guest-host statutes
– Relate to the standard of care by an automobile driver to a passenger
Factors Leading to Higher Standards of
Care
• Expanding application of liability
– Courts tend increasingly to impose liability in new factual
settings
• Weakening of defenses against a liability
– Most states have enacted a statute that replaces the
defense of contributory negligence with comparative
negligence
• The liability of the defendant is reduced by the extent to which the
plaintiff was contributively negligent
– Last clear chance rule
• A plaintive who was contributively negligent may still have a cause
of action against the defendant
– If it can be shown that the defendant had a last clear chance before
the accident to avoid injuring the plaintiff but failed to do so
• Res Ipsa Loquitur
– “The thing speaks for itself”
– Plaintiff may sometimes collect without actually proving negligence on
the part of the defendant
• Expansion of imputed liability
– Joint and several liability
• When an accident occurs and several different parties are negligent
– The plaintiff may sue and collect from one or more of the negligent parties
 Types of Liability Exposures
• Contractual liability
– One’s liability maybe imputed to another by contract
• For example, a city may require that its street paving contractor hold the
city harmless for all negligence arising out of the operations of the
contractor
• Employer-employee liability
– Employers are still subject to the law of negligence with respect to
employment not covered by workers’ compensation laws
• Duties owed to employees
– Must provide a safe place to work
– Must employ individuals reasonably competent to carry out their tasks
– Must warn of danger
– Must furnish appropriate and safe tools
– Must setup and enforce proper rules of conduct of employees as they relate
to safe working procedures
• Property owner–tenant liability
– The tenant or owner owes a certain degree of care to those who enter
the premises
• Invitees
– Individuals who are invited on the premises for their own
benefit as well as for that of the landlord or tenant
• Licensees
– Those who are on the premises for legitimate purpose with
the permission of the occupier
» Include meter readers, milk delivery drivers, police
officers
• Trespassers
– All those other then invitees and licensees who enter on the
premises
» No care is owed to a trespasser but an owner cannot set a
trap for or deliberately injure a trespasser
• Current trend is to abolish the classifications and to hold the
occupier of the land liable under most circumstances for failure to
exercise due care
• Assumption of liability by attendant
– When an individual leases a building, the question arises
as to what extent the landlord is responsible for injuries to
tenants
• Generally, the tenant takes on whatever duty the landlord owes to
members of the public
• Attractive nuisance doctrine
– Liability of the occupier of land may be changed so that a
trespassing child is considered, in many jurisdictions, to be
an invitee
 Consumption or Use of Products
• A manufacturer, wholesaler, or retailer is
required to exercise reasonable care and to
maintain certain standards in the handling and
selection of the goods in which it deals
– If injury to person or property results from the use
of a faulty product there may be grounds for legal
action
• Breach of warranty
– A warranty maybe expressed or implied
– Breach of this written contract may give rise to a court action
– Under the Uniform Commercial Code the seller is held to have made
certain unwritten or implied warranties
• Seller warrants that the goods are reasonably fit for their intended
purpose
• Seller warrants that that when the goods are bought by description
instead of by actual inspection the goods are saleable in the hands of the
buyer
• Strict tort
– The manufacturer or distributor of a defective product is liable to a
person who is injured by the product
• Regardless of whether the person injured is a purchaser, a consumer, or a
third person such as a bystander
• Negligence
– If the defendant was negligent in the preparation or
manufacture of the product
– Or failed to provide adequate instructions or warning
• A person injured may be entitled to sue for damages
– During the past several years the product liability area has
been very explosive
• Courts have continued to expand manufacturers’ liability
Completed Operations of a Contractor
• The damage must occur after the contractor
has completed the work
• The work has been accepted by the owner or
abandoned by the contractor
 Professional Acts
• The seller of services is required to use reasonable care not to injure others
in the performance of those services
– Examples include physicians , accountants, architects, insurance agents,
lawyers, pharmacists, beauticians
• The standard of care required of professional people is broadly interpreted
– These individuals must possess the skill, judgment, and knowledge
appropriate to their calling
– Must conduct themselves according to recognized professional
standards
• Standards vary from profession to profession and are constantly
changing as each particular field develops
• Use of res ipsa loquitur in medical malpractice cases appears to have had
the effect of turning doctors into insurers
– May result in doctors being unwilling to try new procedures and
treatments for fear of financial bankruptcy if the treatments should fail
 Principal-Agent Liability
• Under the doctrine of respondeat superior
– A master is liable for the acts of servants if the service or agents are
acting within the scope of their employment
• An employee imposes liability on the employer for negligent harm to a
third party
– Even if the employee is acting contrary to instructions as long as he or she is
doing the job
• A distinction is made between acting as an agent or a servant
and acting as an independent contractor
– The employer is not held liable for the carelessness of an independent
contractor to as great a degree as for the carelessness of an agent or a
servant
• However, exceptions to this exist
 Ownership and Operation of
Automobiles
• Under common law, an automobile owner or
operator is required to exercise reasonable care in
the handling of automobiles
• Important areas of negligence
– Liability of the operator
– Liability of the owner for the negligence of others
operating the car
– Liability of employers for the negligence of their servants
or agents using automobiles in their employer’s business
• Even when the employer is not the owner
• Liability of the operator
– Typical damage suit in the field of automobile liability
– Impossible to lay down a comprehensive statement of what
constitutes negligence in the operation of an automobile
• Liability of the owner-non-operator
– The courts have generally agreed that the automobile is not
a dangerous instrumentality in itself
• One is justified in assuming that the borrower of an
automobile is competent to handle it unless there is
obvious evidence of incapacity or known recklessness
– However, in many states, vicarious liability laws have the
effect of making the parent of a minor child liable for
damage done by negligent operation of the car by a minor
– Family-purpose doctrine
• An automobile is looked upon as an instrument to carry
out the common purposes of the family
– The owner ought to be responsible for its use when
any family member uses it because this member is
the agent of the family head and is carrying out a
family function
• Liability of employers
– Even those who do not own automobiles may be
liable for damages through their negligent
operation
• If by some legal construction the non-owner can be
shown to be responsible
– The legal construction normally employed is respondeat
superior