Understanding General Insurance Risk & Liability Exposures Self … Three.pdf · 2020-05-28 · The...

Understanding General Insurance Risk & Liability Exposures

Self-Study Course # 43

2 Understanding General Insurance Risk & Liability Exposures – SSC # 43

Pro-Seminars Limited. All rights reserved © 05/20

What will the Financial Advisor learn by taking this course?

Liability is an important concept in the world of risk management and general insurance. Yet, what is meant by liability and how it actually works is not always well understood. This course is intended to clarify the concept of liability and risks that are found in general insurance coverages.

Individuals and businesses have significant liability risk. The following material details these risks and explains a variety of the insurance products that can be used to mitigate this exposure. It also discusses how these risks are underwritten.

This course covers:

• The Canadian legal risk management system.

• Risk and liability exposures.

• Law of Large Numbers as it pertains to liability issues & society.

• Losses, Fraudulent Claims & The Basis for Liability Claims.

• Liability as it pertains to Torts, and contracts.

• Negligence - Imputed & Presumed Negligence.

• Breach of Duty, Moral & morale hazards and what is a wrong?

• What the defenses in a Negligent Act are – Contributory Negligence and Assumption of Risk are covered.

• Tort Liability Exposures, Business Liability Exposures, Fiduciary liability & Personal Liability Exposures.

• Forms of liability insurance such as general, personal, and professional.

• Business, Physicians’, Surgeons’, Dentist, & Druggists' Liability are covered.

• Errors and Omissions Insurance, Director and Officers , Accountants, Insurance Agents & Brokers, lawyers, Trustees & Fiduciaries, Employee Benefits Manager, Actuary`s Liability Insurance.

• Automobile insurance in addition to No Fault Automobile Insurance.

• Workers' Compensation Laws, Statutory no-fault compensation.

• What is Employment Practices Liability Insurance (EPL)?

• Aviation Insurance, Boiler and Machinery Insurance, Engines, Electrical Machinery & Turbines ,Glass Insurance, Credit Insurance, Accounts Receivable Insurance , Valuable Papers & Records Insurance and Title Insurance are covered.

• The importance and role that underwriting plays in the liability and risk process.

• Business and Auto underwriting will be looked at.

• What the Agent's Role in the underwriting process is.

• The Underwriting Selection Process



INTRODUCTION

Canada: Legal Risk Management in a Nutshell

Legal departments serve important roles managing the risks that their organization faces. Insurance is an important risk transference mechanism whereby a financial institution can assume all or part of the risk.

Insurance policies are first and foremost legal contracts but with certain special features and pitfalls. As such, the legal department’s involvement in the risk transference process is important. The legal department’s role should include the following:

• Coordinating with the risk management department/personnel to identify the risks that are proposed to be transferred via insurance.

• Ensuring that the terms of the policy in fact achieve the risk transfer - while insurance intermediaries are specialists in insurance coverages, most are not legally trained.

• Ensuring the integrity of the application process - misrepresentations in the application can undermine the whole policy.

• Presenting the insurance application facts in a way that will enhance the underwriting and maximize the coverage while minimizing the premiums.

• Presenting the coverages to management and especially the board of directors; and

• Acting as a resource to ensure that insured claims are properly handled.

Each of these topics are discussed below.

Coordinating with Risk Management

Risk identification and management is being recognized more and more as an important area requiring discipline, resources, and expertise. Operational, reputational, liquidity, technology, regulatory, and reputation risks can damage, cripple, and even kill an organization. Identifying the risks and managing them on an enterprise wide basis have become important disciplines with some organizations having separate departments and even Chief Risk Officers. The risks are ever evolving as are the publics’ and the regulators’ expectations of how companies must address them. For example, cyber-risk is a new and rapidly developing risk and in the United States the authorities from the SEC to the President have issued directives to address it.

Boards of directors are focusing more and more on risk as an integral element of their governance oversight.



Since time immemorial, commercial enterprises have been developing mechanisms to share and/or transfer all or some of the risks that they face. For hundreds of years, insurance has been an important risk transfer mechanism and in the western world all enterprises obtain insurance.

In common law jurisdictions both statutes and judicial decisions over the centuries have developed special rules for insurance contracts and their interpretation. These provide opportunities and pitfalls for organizations that legally trained knowledgeable professionals are well suited to deal with.

Identifying the risks that the organization faces, determining which can be insured, to what extent it can and should be insured (policy limits) and at what cost is a multidisciplinary task. The risk department/officer; the insurance intermediary; and the market all have a role to play.

The policies to transfer these risks are important legal documents that, like other important legal agreements, should involve the legal department.

Insurance Policies

Most insurance contracts are structured in a similar manner: the coverage clause(s) that specify the risk being assumed by the insurer; exclusions that cut back the risks assumed; definitions; conditions to coverage and reporting claims including the issue of defense of claims; and general terms. Depending on the origin of the policy and the breadth of coverage, a number of these elements can get intermeshed. Definitions may contain exclusions. Exclusions may have carve-backs whereby certain matters are excluded from exclusions. It is usual for general policy terms to be supplemented (amended) by endorsements, sometimes many endorsements.

Underlying all of this is important policy structures and interpretation approaches that the courts have developed over the years, including the following:

• Policies can be either occurrence or claims based contracts.

• Pure occurrence-based policies respond to a claim arising from an event that occurred during the policy period regardless of when the claim is made. Property policies are usually occurrence based and some old liability policies are as well. It is important to archive these policies as otherwise the opportunity to make a claim may be compromised.



• Pure claims-based policies respond to claims made during the policy period regardless of when the event giving rise to the claim occurred. Most liability policies including Directors & Officers and Errors & Omissions Policies are of this kind.

• Courts have held that the general rules of contract interpretation apply to insurance policies. However, courts recognize that for the most part insurance contracts are not negotiated and are drafted by the insurers and thus, courts have developed some special rules:

• The onus is on the insured to prove that the coverage clause applies to the claim. However, coverage clauses are to be interpreted widely in favour of the insured.

• Once the insured has shown that the insurance clause applies, the onus shifts to the insurer to show that an exclusion applies. Exclusions are to be interpreted narrowly, again in favour of the insured.

• In the case of an ambiguity, it is to be resolved in favour of the insured.

• Where a policy is unclear, the reasonable expectation of the insured can be used in interpreting the policy.

• Just because insurers have maintained a position over the years does not mean that the courts will approve it. “Accident” which is a lynchpin of a number of insurance policy coverages has been undefined for years and was only recently defined by the Supreme Court of Canada. The Supreme Court of Canada recently interpreted a Comprehensive General Liability policy in favour of an insured and contrary to the way the insurers have been interpreting it for decades.

• Insurance coverages are not written in stone. If a particular definition or term is inappropriate to your organization, raise it and get the policy endorsed to deal with it. Examples include unanimous shareholder agreements and income trusts in the context of Directors & Officers policies.

• The insurance industry is notorious for providing a certificate of coverage but not providing the policy contract terms until later.



As the claims arising from the events of 911 involving billions of dollars, which were analyzed based on whether the policy counted it as one occurrence or two, having the policy contract terms nailed down can be important. Legal departments can impose some discipline in this regard.

• As you would expect, insurers modify their policies to address court decisions. However, older forms or older occurrence policies may have different wording and, hence, apply differently. This is particularly true for old liability policies in the area of pollution claims.

The Application Process

Accuracy in the insurance application is crucial to ensure coverage. The courts have held that misrepresentation (including non-disclosure) of a material fact that is objectively reasonable for an underwriter to determine whether or not to accept the risk or to set the premium enables the insurer to void the policy whether or not the application expressly addresses the fact.

Since the application is the lynchpin of the coverage, the legal department should understand what the policy provides, who needs to be part of the disclosure and that mechanisms are in place for such full disclosure to be made.

Lawyers are also trained to make disclosure in a way that is most favourable to the company, and in particularly complicated areas of the application form, it may be especially important to involve persons with a legal training.4

The disclosure may involve proprietary, sensitive, or privileged information. As in other cases of disclosure, the legal department should ensure that the appropriate legal safeguards are put in place to protect the company or the privilege.

If it is subsequently determined that a material misrepresentation may have been made, the legal department may be able to remedy the matter before a claim arises after which remedies will be difficult if not impossible to affect.

Understanding and Explaining the Coverages

The various components of the organization may not all have the same interests in particular circumstances. Boards of directors are a good example. Not unreasonably, directors may assume that they are covered by the organization’s D&O policy. However, most directors would not have much knowledge about what the policy covers, who the policy covers and the implications.



When the insurance market is soft, as the D&O market is now, insurers add coverage to justify maintaining the premium level. This is how the Side B coverage reimbursing the company for its director indemnification obligations arose. However, as these coverages are added, they all share the same policy limit. Directors might be surprised to learn that events partly related or unrelated to their activities might cannibalize the policy limits.

They might also be interested in understanding what is excluded and how that risk is addressed, if need be by an additional policy. An example is pension plan liabilities where the company is the plan sponsor.

The legal department may be the appropriate place to have such policies reviewed periodically and presented to the board in a format that assists the directors in understanding and addressing the risks that they face.

Claims

Policies cover risks in two especially important ways:

• They provide for how the claim is to be defended. Litigation is expensive and a vigorous defense may be your organization’s most important protection. Who has the duty to defend - the company or the insurer? What conditions must be met before defense counsel is engaged? Who is the defense counsel? Is there a need for more than one? How is/are defense counsel paid? The law department is equipped to deal with litigation matters including those covered by insurance policies; and

• They provide indemnification if the claim proves to be successful. Insurers sometimes deny claims, sometimes provide a defense with reservation of rights, sometimes resist, or try and control counsel and minimize their costs. Legal departments can be extremely helpful in understanding and resolving these types of issues and should be involved.

Policies contain claim reporting procedures, conditions and requirements that need to be adhered to, like contract provisions in general, failing which, rights might be lost or compromised.



SOME TERMS YOU SHOULD KNOW & UNDERSTAND

Risk and Liability Exposures

The following will cover the definition of risk, the law of large numbers and a person's liability exposures.

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.

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 may surely 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 insurance 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."

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 numbers," 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 impossible.

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 and 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 E-Coli in beef products and Listeria in luncheon meat. 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. All 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 or a home, a new employer, new car - all have significant legal consequences.

The Liability Risk

Operating a car opens a person up to a liability risk. With the prevalence of claims, this may 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 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 the 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.

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 also 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.

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 provinces and territories failure to pay such a verdict will result in the loss a driver's license or even result in a jail sentence.

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.

The insurance industry has the professional fakers, who after being in an accident head to bed and experience numerous symptoms. 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. In Quebec Torts do not apply – the province is governed by “the law of obligations.”

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.

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. Intentional torts may classified as:

1. Intentional interference with the individual, and 2. Intentional interference with the property of others.

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 unprivileged contact with another individual. It includes contact with anything connected or associated with the individual. No harm needs 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 is 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 favour.

Recovery usually is limited to just the lawyer'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.

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.

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 oneself 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.

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 give away 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 provinces have passed laws that make owners of businesses dispensing liquor responsible for their intoxicated patrons. Some jurisdictions have also passed laws making people who throw New Years 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.

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 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.

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:

1. The plaintiff's injury was caused by a defective object, 2. The injury could not have occurred without the defendant's negligence,

and 3. The 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. Lets go over that 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.

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, as well as the employees themselves. If an employer uses independent contractors whose employee negligently causes an injury, that employer could be held liable if it provides faulty instructions or tools. For example, in October of 1996 a contractor was demolishing a building with a wrecking crane. The workers operating the crane missed the building they have been contracted to demolish and hit the building next door bringing down the roof on the shoppers inside. The contractor could be held liable for the actions of the employees as well as the employees themselves. Imputed negligence can occur even to unaware individuals. Landlords whose tenants cause an injury from a negligent act could be held liable. Parents could be held liable for the actions of their children.

Vicarious liability laws imputes liability to automobile owners even though they are not driving or even riding in their cars. Even if the car were borrowed by a friend, the owners of the vehicle could still be liable for the actions of the driver.

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.

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 take a look at 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 jurisdiction to jurisdiction.

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 plainclothes 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 that injures a party was done without intent to do injury or if motive behind the act good, the injured party has little case.

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? Different courts conclude things differently based on 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.

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 jurisdictions 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.

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 involves various liability insurance contracts, but the significance of loss prevention cannot be overstated.

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 effect 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.

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 owner 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 be 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 jurisdictions do not apply the attractive nuisance doctrine at all, although juries may be sympathetic toward children anyway. Other jurisdictions vary in how they apply this concept against the tenants or property owners and also the age of the children, normally under ten is the magic number.

Attractive nuisance exposes both the business owners and the property owners alike. They should be aware of objects that might attract children to harmful situations. This is an area which loss prevention as a part of good risk management should be emphasized.

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 are 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

Pub, bar, tavern, and night club owners are exposed to the "dramshop" 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.

FORMS OF LIABILITY INSURANCE

There are three broad areas included in general liability insurance and three basic types of coverage.

Previously we discussed some liability exposures and two types of losses that can result from them. One of the ones that affect people the most is the cost of a defense against a lawsuit. The other is the obligation to pay damages awarded to the plaintiff. The insurance coverage that can protect a person from such losses on behalf of the insured is called liability insurance.

Insuring One's Liabilities

Liability insurance is third-party coverage. The first and second party is the insurance company and the policy-owner. Liability contracts generally cover four broad areas.

The liability policies contain the equivalent of the usual four sections of insurance contracts, which are declarations, insuring agreements, conditions, and exclusions. One benefit that liability policies offer is the understanding of the coverage.

Declarations

The declarations include statements that identify both the insured and the insurance company. Essential information about the contract terms are typed in on the form to show who, what, where and when the liability insurance covers something. The declarations provide that by accepting the policy the names insured agree with the representations made and that the policy is issued in the reliance upon the truth of these statements.



Provisions

The provisions common to all general liability insurance policies are also outlined. Three sections are generally identified as:

1. Supplementary Payments: This is applicable to all of the coverage parts that may be used with it. It mentions several extra costs which are payable by the insurance company in addition to the policy liability limit. These would include:

a) Premiums on bonds to release attachments relating to lawsuits defended by the insurance company,

b) Bail bond costs arising out of vehicles to which the contract applies, and

c) To reimburse the insured for reasonable expenses incurred at the insurance company's request in assisting the company in the investigation or defense of any claim or suit, including actual loss of earnings.

2. Definitions: Some of these are more important than others for particular types of liability insurance contracts. Some of the definitions covered include the definition of an accident, who the insured is, the basic of an occurrence, what bodily injury means, how property damage is defined or clarifications of words such as product liability and completed operations coverage.

3. Conditions: The policy would also include several important conditions upon which the obligations of the insurance company and the insured are based. This spells out clarifications of the duties of each of the parties in the event of an occurrence, claims, or suit. The other insurance condition determines what happens when there is more than one insurance company. Instead of prorating or apportioning with other applicable insurance, this condition states that when the insurance is intended to be primary coverage, it shall pay before excess or contingent liability contracts contribute to the loss. If both insurance contracts are primary coverage, then the two would pay on an "equal shares" basis. Conditions of less importance are those pertaining to financial responsibility laws, premium bases, and assignment. Conditions that have stayed the same are those permitting policy changes in writing, cancellation, the right of subrogation by the insurer and action against the insurance company by the insured only after the insured has complied with all policy provisions and the final judgment of settlement of the claim has been determined.



Just about all liability policies require the insurance company to pay the injured party directly rather than reimburse the insured. The insurance company's obligations are restricted to claims under civil law and will not cover criminal prosecution. Obviously, the insurer will not serve the insured's jail sentence or pay the fine. In addition to the insurance coverage covering all expenses of negotiating settlements, defending suits and paying damages the insurance company agrees to pay premiums on appeal and release-of-attachment bonds, all reasonable expenses incurred by the insured at the insurer's request and in most policies immediate medical and surgical expenses of others needed at the time of the accident.

Coverage Parts

The addition of a coverage part includes the insuring agreement and exclusions pertaining to the insurance, which completes the contract. Many different coverage parts can be used to develop completed general liability insurance contracts.

The most common types of coverage parts added to the standard policy are divided into three basic types of liabilities that individuals and employers face.

They are:

1. General liability, 2. Automobile liability, and 3. Employer's liability.

In what follows we will be discussing general liability.

General Liability

The general liability insurance program is similar to many fire and inland marine programs available. General liability exposure falls into three broad categories:

1. Personal liability, 2. Professional liability, and 3. Business liability.

Personal Liability

Personal liability provides coverage for liability losses stemming from bodily injury and property damage to others. These losses must result either from the conditions of the insured's premises or the personal activities of the insured.



The business activities of the insured must be covered under a business liability contract or policy. There are generally two types of personal liability written: one for nonfarmers and the other for farmers.

The comprehensive personal liability policy: The personal liability exposure may be covered either by a separate comprehensive personal liability policy or by a homeowners policy.

Individuals need liability protection for numerous personal or individual situations that we all encounter every day. The ownership of property, participation in sporting events, the owning of pets or animals and many other normal everyday activities place us all in a position of responsibility to prevent injury or damage to other persons or their property.

In the past, a person could own several separate liability policies such as residence liability, a sport liability or even a dog liability insurance policy. Now these coverages are almost always insured by the comprehensive policy. In the liability insuring clause, the comprehensive personal liability policies cover under a single limit the liability of the insured for damage on account of bodily injury to members of the public and to employees, and for damage to the property of others caused by an occurrence. This is unlike most liability insurance policies.

The farmers' personal liability policy: A farmer needs liability protection, which is offered by the farmers' comprehensive personal liability policy. These policies cover the insured while they are farming. It includes some business liability coverage. This type of coverage includes limited contractual coverage and products liability coverage.

The farmers' personal liability policy is an example of a multiple-line insurance contract which combines personal and business multiple-line insurance. This type of coverage is similar to that of the homeowners' insurance.

Professional Liability

This type of protection is taken out by professional individuals who need liability protection against malpractice suits and may even be deemed as malpractice liability insurance coverage. The malpractice suit must result from either faulty services or failure to meet a standard of service expected under the circumstances. Professional liability insurance was first written to indemnify medical professionals for loss or expense resulting from claims on account of bodily injuries.



Today, many other professional individuals need this type of coverage which includes physicians, druggists, beauty parlor operators, architects, engineers, lawyers, employee benefit managers, real estate agents, financial planners, corporate directors and officers, fiduciaries, insurance agents, stock brokers, actuaries, and any other profession that has become increasingly important in this "sue-happy" society. Professional liability insurance has been extended into these fields to cover losses where monetary damages are a consequence of the negligent professional services of the insured.

Professional liability policies are written on either:

1. A claims-made basis, or 2. An occurrence basis.

The difference between the two are obvious in the name. Claims-made basis means the insurance company is responsible for only claims filed during the policy period. Occurrence basis means the insurance company is responsible for all claims resulting from events occurring during the policy period regardless of when these claims are filed.

When a policy is written on an occurrence basis, the insurance company is contracted to pay for any and all claims filed long after the policy expires. These kinds of delays make it hard for insurance companies to plan their financial future. The claim-made basis was designed and invented to remedy this problem. Normally delays do not occur in auto liability and general liability coverage, so these policies can be written on an occurrence basis. With product liability and professional liability coverage the delays are frequent, so these policies are written on a claims-made basis.

There is also something new to the insurance industry in relative terms to claims-made basis and occurrence basis policies that is called discovery basis. Under discovery basis policies the insurance company is responsible for liability for injuries or damages discovered during the policy period. The discovery basis can be questionable because of the moral hazard it creates. The plaintiff can wait until the defendant increases their insurance before revealing a covered injury.

Moral hazard is the possibility that an insured will deliberately bring about a loss that is covered by the insurance policy. Moral hazard usually arises from a combination of moral weakness and financial difficulty.

Morale hazard is closely related to moral hazard. Morale hazard arises from indifference concerning loss, often brought about by feeling secure under their insurance protection, which may lead to carelessness. The morale hazard is difficult to recognize.



People leave cars unlocked, keys in the ignition, garage doors open in the middle of the night, and so on. Morale hazard may tend to merge into moral hazard.

Many of the professionals today buy the professional liability coverage to protect their reputations. They know that their liability insurance carrier use some the best defense attorneys available. Winning the case brought against them is important since losing can tarnish their reputations.

Some professional liability claims can be settled out of court saving the insurance company time and money by not having to deal with lengthy court battles. Though, with the case of physicians and surgeons, the court battle may not be avoided. The voluntary settlement could be construed as an admission of guilt. This interpretation can tarnish their reputations. Thus many professional liability policies are written so that the insurance company cannot settle out of court without the permission of the policy-owner. The insurance company must receive the written consent of the insured before settling any claim. Some new forms are limiting this risk by prescribing arbitration for certain conditions or by deleting the requirement that the insured consent to claim payments.

Business Liability

For business liability coverage, one of three types of coverage may be added to the standard general liability policy to complete a business liability policy.

These added coverages are:

1. Owners', landlords' and tenants' coverage (OL&T), 2. Manufacturers' and contractors' coverage (M&C), 3. Comprehensive general liability coverage (CGL).

All of these coverages contain coverage extensions and exclusions designed to meet special needs of the policyowners.

Comprehensive general liability coverage includes coverage for the products and completed operations liability exposure. Liability coverage for the exposure generally may not be written with the owners', landlords' and tenants' coverage or the manufacturers' and contractors' coverage. For businesses that have products and completed operations exposure, purchase of the comprehensive general liability coverage is necessary. The comprehensive general liability coverage also covers liability exposures arising from new construction, structural alterations, and demolition operations. Under manufacturers' and contractors' coverage these exposures are excluded only if the work is performed by an independent contract.



The owners', landlords' and tenants' coverage excludes the exposures regardless of who performs the work. Both contracts can be amended to cover these exposures. The comprehensive general liability coverage provides the broadest coverage, which means that it is the most flexible of the three forms when covering business liability exposures.

The owners', landlords' and tenants' coverage (OL&T) is purchased mainly by retailers, wholesalers, service firms, owners and operators of movie and other entertainment industry businesses, hotels, office buildings and apartment complexes. This contract provides insurance for liability claims resulting from the ownership or use of the covered premises. It covers liability for damages to those who incur bodily injury or property damages in and about the designated premises. The owners', landlords' and tenants' coverage covers liability for damages off the premises if these damages are related to the business.

The owners', landlords' and tenants' coverage cannot be used for coverage in activities other than those arising from the designated premises. Building contractors would need liability coverage that existed at the job site as well as the contractor's office. Obviously then, the OL&T coverage would not provide adequate coverage for the contractor.

The manufacturers' and contractors' coverage provides liability coverage for those businesses when the OL&T coverage is not adequate enough. The manufacturers' and contractors' coverage (M&C) covers liability arising from new construction, demolition operation and structural operations changing the size and/or location of buildings, only if the operations are performed by the policyowner's own employees. This coverage is excluded in the OL&T contract. The M&C contract is similar to the OL&T contract in that it does not cover liability arising from the use of independent contractors in either demolition operation or construction operations that change the size and/or location of buildings.

The owners', landlords' and tenants' (OL&T) coverage and the manufacturers' and contractors' (M&C) coverage are not suitable for businesses that need broad all-risk insurance coverage.

OTHER LIABILITY COVERAGE

Physicians', Surgeons’, and Dentists' Liability

The Physicians', Surgeons' and Dentists' liability policy can be attached to a general liability contract to provide coverage for liability arising out of professional acts or omissions committed by the insured or by any person for whom the insured is legally responsible.



Negligence is not required as many medical acts are performed intentionally, and these are covered because the injury does not have to result from an accident.

The Physicians', Surgeons' and Dentists' liability policy does not cover the personal liability of the insured for claims that cannot be traced to the professional practice of the insured. The policy excludes claims arising by reason of the liability of the insured as a proprietor, superintendent or executive officer in any hospital, clinic, laboratory, or other business enterprise.

The distinguishing features of the medical forms of professional liability insurance contracts, as compared to other liability insurance, include:

1. Importance of the defense factor for maintaining professional reputation, 2. Consent of the insured before settling claims, 3. Broad coverage of negligence and even intentional acts on an occurrence

basis, 4. Per claim and per occurrence limits, 5. Insuring clause for all damage claims, and 6. High-coverage limits needed, but high cost and limited market for some

professional fields.

Druggists' Liability

The Druggists' liability contract is a malpractice coverage, which also extends to provide product liability insurance protection. The policy provides insurance against claims for damages on account of bodily injury or death that resulted from actual or alleged error on the part of drugstores or their employees in preparing, dispensing, selling, or delivering drugs, medicine, or merchandise. The policy coverage extends to losses caused by errors in labeling or delivery, or in reading or interpreting the physician's handwritten prescriptions.

An exclusion of this policy with respect to claims attributable to illegality assumes some significance in connection with this coverage. This means that if an unqualified person issues a prescription that is not under the pharmacist’s supervision, the druggists' liability policy will not cover so far as these acts give rise to claims. However, if the insured or manager does not intentionally violate the law, the policy protects the drugstore from the illegal actions of the employees who may not have knowingly committed an illegal act.



Errors and Omissions Insurance

Normally, professional liability insurance is called errors and omissions insurances when it applies to non-medical professionals such as insurance agents. These policies often use deductibles of $1,000 or more and ordinarily do not require the consent of the insured to settle a claim. A limit of liability on a per claim and in the aggregate for the policy period applies. Individual contracts are written, although many of these exposures are written in group policies offered to all members of professional agents or advisors.

With the growing responsibilities of insurance agents, financial planners and investment advisors comes the need to reserve special attention for them, especially with many persons and agencies expanding to offer broader financial services. Potential legal problems and liability claims are serious, as written financial plans involving purchase or sale of securities require federal registration and compliance with many jurisdictions licensing and regulatory acts. A planner must be loyal to clients and disclose any conflicts of interest to avoid liability.

One of the major purposes of errors and omissions insurance is to provide the best possible defense for any claims which may damage the reputation of the professional individual(s). Errors and omissions insurance is not for bodily injury claims. It is property damage liability losses which are insured, and only a few exclusions apply:

1. Fraudulent or criminal acts, and 2. Libel or slander.

There is a type of error and omissions insurance which protects mortgagees. It actually provides the insured mortgagee with property insurance against indirect losses, rather than liability insurance against third-party claims. However, it is known as E&O insurance and is similar to what we have already talked about. This insurance protects against losses arising out of failure to have in force proper insurance to protect the mortgaged property as a result of error or omissions. True, lenders require such insurance, and even though they may painstakingly check that proper insurance is in force, exceptions can and do happen. The insurance policy protects only the mortgagee, not the mortgagor (owner) and it applies only when through error and omission, specific insurance is invalid, insufficient or has not been provided. Failure to record changes in ownership, insufficient insurance to coinsurance requirements, incorrect description, failure to report change of occupancy or increase of hazard when known, error in ordering or renewing coverage, incorrect statements of ownership are some examples of the protection provided by E & O insurance.



Director' and Officers' Liability Insurance

Directors' and Officers' liability insurance is an example of a specialized type of professional liability insurance policy. Directors' and Officers' liability insurance pays on behalf of the executives for claims arising out of wrongful acts such as error, neglect, breach of duty, misleading statements, or to reimburse their organization if the executives receive indemnification. Directors' and Officers' liability insurance protects one of the most important assets of an organization - its management.

Early forms of this important coverage were written only for the large corporations, but in today's world the markets have expanded to include many smaller companies also. The need for what can be referred to as D&O liability insurance protection is evident from the increasing lawsuits by stockholders or even competitors for antitrust or unfair competition, this in spite of the yearly premium costs which often run into the thousands. The intent is to cover negligence of innocent and loyal directors and officers and defense of such claims except for active and deliberate fraud by someone.

This type of professional liability coverage is being inundated with new exposures. For instance, alleged discrimination suits is an example of an exposure that few insurance companies insure for. Court rulings may award punitive damages in liability cases which go beyond ordinary compensatory payments to the insured party.

Accountants' Professional Liability Policy

Accountants' professional liability insurance covers all sums, which the insured must legally pay as damages because of acts or omissions of the insured. Any business predecessor of the insured to any other person for whose acts or omissions the insured is legally responsible for are also covered. The act or omission must result from performing professional services for others in the insured's capacity as an accountant. The policy does not cover bodily injury or death or damage to tangible property. Dishonest, fraudulent, criminal, or malicious acts or omissions of the insured are normally not covered unless these acts are committed for the insured by an employee without the insured's knowledge. Some states require accountants to post a bond. Where this is applicable the policy often can be used instead.



Insurance Agents' and Brokers' Liability Policy

The insurance agents' and brokers' liability policy is classified as a professional liability form, which protects agents and brokers from claims cause by errors, omissions, or negligence in business conduct. The insurance agents' and brokers' liability policy may be extended to cover agents' liability to insurance companies for losses caused them through failure to follow instructions. The policy generally is written with a single limit per policy year and is subject to a per loss deductible.

Lawyers' Professional Liability Policy

Lawyers can purchase insurance to cover their liability because of any act or omission attributed directly to them or to any person for whose acts or omissions the insured is legally responsible for arising from the performance of professional services for others in the insured's capacity as a lawyer. The insuring agreement provides broad coverage, but because lawyers perform many different services, borderline cases concerning whether or not a service was rendered in the insured's capacity as a lawyer arise.

Trustees' and Fiduciaries' Liability Insurance

Trustees and fiduciaries can be held personally liable for damage resulting from a breach of their fiduciary duty. Liability coverage is available to cover this exposure.

Employee Benefits' Manager Liability Policy

The employee benefits managers' liability policy protects against suits alleging negligence for improperly advising employees and for incompetent bargaining with insurance companies for benefits where employees must pay part of the cost.

Actuary’s Professional Liability Policy

The actuary’s professional liability policy protects actuaries for negligent acts, errors, or omissions performed in a professional capacity relative to their duties as employee benefit plan consultants.



AUTOMOBILE INSURANCE

Almost no one would object to the fact that everyone needs automobile insurance if they drive or even own an automobile. The cost of owning such insurance can be expensive. There are two types of automobile liability insurance: fault and no-fault.

Is there really a need?

Automobile liability insurance protection is one of the most widely held coverages purchased by both individuals and businesses. Most provinces require all drivers to purchase it.

It would be inaccurate to describe this type of insurance as tort liability automobile insurance. "Tort" implies fault, so tort insurance would be fault insurance. Nor would it be accurate to describe this type of insurance as no-fault insurance, which is not based on negligence. And as anyone who drives knows, there are negligent drivers on the roads. Thus the best description would be a compromise: fault and no-fault automobile liability insurance. Simply stated: it says that the solutions for the future will contain both systems of automobile insurance. It is expected that the complex changes will adjust to a combination of both concepts.

As we look around us today, we see that just about everyone in a family owns some type of automobile. A wife has hers, the husband his and if the kids are old enough to drive, they normally have theirs. Even after couples retire, they normally still keep their automobiles. They may even move up to an RV. All these people need auto liability coverage.

With so many people driving to and from work or school, we see the awesome effects in terms of death, injuries, and monetary costs. Annual tolls of such events have reached alarming rates. Which brings us back to the fact that automobile drivers/owners need insurance protection. Because of this need, it is no wonder that the insurance industry has grown in leaps and bounds. More than 60 percent of the premiums are for liability and related insurance. The remainder amount is for physical damage coverage on the automobile of the insured.

There are three viewpoints that are pertinent for appraising the need for automobile liability insurance. They are:

1. The society, 2. The automobile motorist, and 3. The injured victims of the automobile accidents.



Automobile liability insurance protection must be regarded as not only an individual solution to an individual problem of risk, but also in its social or public aspects. We could probably all agree that anyone owning or using an automobile should have liability insurance protection. The uncertainty of financial disaster due to an automobile accident is an outstanding risk today that few individuals are exempt from.

Statistically speaking, 9 out of 10 accidents involve individual negligence, such as failure to obey traffic laws, driving while under the influence of alcohol or drugs as well as the persons out there that are looking at the scenery rather than the road. Some accidents may involve factors that make it difficult to assign blame to one individual and can be categorized as social negligence. For instance, could the cause of the accident be partially to blame for poor lighting, the lack of adequate roads, improperly engineered highway grades, curves, and traffic signals, and so forth? So the obvious cause of the accident may be the person behind the wheel, but other factors, like the ones mentioned above, may also lend to the cause of the accident.

Individuals as well as families may suffer a death or disability loss due to medical care expenses and lost income as a result of an automobile accident. In many accident cases, these individuals or families may have a hard time covering these lost income expenses. The medical expenses are normally covered adequately. The greatest loss comes from short-term losses of income because the insurance companies are not as quick to come up with the loss of income the family experiences. Another circumstance that can cause a major inconvenience to a family is when the policy limits of the responsible person's insurance policy are met. This means that any exceeding amounts due may not be included and must be covered by the family's automobile coverage. The family may be able to sue the responsible party for the additional expenses, but if the responsible party does not have anything of value to receive as payment, it is a loss on the family's part for the legal expenses.

If the family or the victim may become burdens of the state through various welfare or social insurance programs, the costs become high for everyone. The victim's property is damaged, one of both parties involved may be injured, income could be lost. Because of this growing problem, government has stepped in with studies and laws relating to accident causes, repair costs, auto safety features and auto insurance costs and market inadequacies.

There is no question that the automobile is needed vital to our lives. There is also not question that the automobile driver is the cause of many financial and physical losses. As a result, insurance is necessary and, in some jurisdictions, mandatory.



Automobile insurance premiums are related to another major aspect of this problem - determining how the costs to the injured victim can be met through the insurance company and government action.

Why you need car insurance

All drivers must have car insurance if they own a car or other vehicle. Car insurance may protect them from:

• Having to pay to repair their car or other vehicle if it is damaged or in an accident

• Liability claims if they are held responsible for an accident causing damage to another person’s vehicle or injury to other people

Insurance companies may refer to car insurance as property and casualty insurance. Property and casualty insurance also includes home insurance, business insurance and disaster insurance.

If a vehicle owner decides to lend his car to someone who is not listed on the insurance policy and that person has an accident, the vehicle owner’s insurance record may be affected, and his premiums may increase.

Who will a car insurance policy cover?

If the insured gets into a car crash, the insurance may cover:

• the driver • All passengers • Other people who are involved

In some provinces, injured passengers or other people involved in the accident who have their own insurance policy must make a claim under their policy first.

The principal driver is the person who drives the car most often.

Additional drivers are other drivers in the household who may use the car as part of their routine, such as driving to school or work. Insurance policies must list all additional drivers. If additional drivers have a poor driving record, the policy’s premiums may increase.

Occasional drivers are drivers who only use the car from time to time.



Mandatory insurance coverage

Canadian provinces and territories require drivers to have mandatory coverage. Some provinces may require more coverage than others.

Liability insurance

Liability insurance covers losses, such as injury or death, which the insured vehicle causes to other people. It also covers damage that an insured vehicle causes to other vehicles. If the cost of the losses or damage is more than the liability limit, the insured will need to pay the balance of the settlement themselves.

Liability insurance does not cover the cost of repairs to the insured vehicle. Additional coverage is required to cover these costs.

Accident benefits/bodily injury insurance

Accident benefits cover the cost of the insured drivers own medical expenses and loss of income when they are in a car accident.

In Quebec, drivers are automatically enrolled for insurance that covers bodily injury. Premiums are paid as part of driver’s licence registration. Residents of Quebec do not need to buy extra coverage for this.

Collision insurance

Collision insurance covers the cost of repairing or replacing an insured vehicle if it hits another car or object. This is sometimes included as part of the policy’s mandatory insurance coverage.

Comprehensive insurance

Comprehensive insurance covers the cost of repairing or replacing an insured vehicle due to other types of damage or loss. This may include:

• vandalism • damage to the windshield • theft

Comprehensive insurance does not cover loss or damage to a car if it is hit by another car or object in a collision.



Optional insurance coverage

Depending on an insured’s driving record, they may not be eligible for all types of optional insurance.

There are a variety of optional insurance “riders” available to cover risks not covered in a basic policy. Insureds may want to consider if they need additional insurance coverage for:

• Renting a car or using alternate transportation while a car is being repaired

• Repair to physical damage to a rental car • Emergency road-side assistance • Collision forgiveness which keeps premiums from increasing following the

first accident for which the insured is at fault • Depreciation to make sure the insured receives the full value that they

paid for a car

What a car insurance policy does not cover

Most car insurance policies do not cover the loss of personal possessions, such when a thief steals golf clubs, clothing, or personal electronics from a vehicle. An insured’s home or tenant’s insurance usually covers these losses.

How an insurance company calculates premiums

Premiums are the amount the insured pays to buy insurance. When determining how much an insured will pay for premiums, insurance companies may consider factors such as:

• Age • Gender • Where the insured lives • What type of car the insured drives? • How much the insured uses his car • The insured’s driving record • The insured’s claim history • The type of coverage chosen • The amount of the deductible

A deductible is the amount of an insured’s claim the insured agrees to pay before the insurance company pays the rest.



Smart shopping

An insured’s premiums will vary from one insurance company to another. It is important to shop around, ask for quotes, and compare prices before deciding on one insurance company. In some cases, the insured may be eligible for a discount by combining home and car insurance.

When shopping for a car, check the insurance rating for the car before buying. Insurance companies assign ratings based on the claims made on different makes and models. Cars with better ratings are cheaper to insure.

In most provinces and territories, an insurance company can charge higher premiums based on your credit rating.

What to do if your car insurance premiums increase

In some cases, car insurance premiums may increase.

If this happens, insureds should review their insurance needs with their insurance company. They may want to consider asking about the following options for lowering your car insurance premiums:

• Raising the deductible • Dropping collision coverage if the insured vehicle has a low resale value • A package deal for insuring home and car, or more than one car, with the

same insurance company

Insureds should shop around, get quotes, and compare prices from different companies and brokers to make sure they are getting the best deal.

Car insurance settlement options

An insurance company will review each claim and decide how it will be settled.

When an insured makes a claim, he or she is always responsible for paying the deductible. How much money a person gets from the claim depends on the insurance benefits that were purchased.

Remember that the amount of the deductible may reduce the amount received from a claim.



Repair or replace

An insurance company will pay for a car to be fixed or rebuilt to the same condition it was in before it got damaged.

The insurance company will only pay for a car to be fixed to the same condition it was in before it got damaged. If a car needs any additional repairs on things that were broken before the accident, the insured will be responsible for paying the additional cost for these improvements to the car.

The insurance company may decide to treat the damaged car as a write-off instead of repairing it, if the cost to fix your car is more than the value of the car before it was damaged. In this case the insurance company would provide the insured with a cash settlement based on the value of the car before it was damaged.

Settling a claim if there is a car loan

If the insured has a car loan, the car insurance policy will usually include a loss payee clause. A loss payee clause makes the lender the beneficiary. In case of loss or damage to an insured car, the insurance company will pay the lender (the beneficiary) up to the remaining balance of the car loan when a claim is made.

When an insured makes a claim, the insurance company may, at its discretion, give the money to either:

• The insured, so he or she can fix their car • The lender, who would then give the insured the money for repairs after

he or she has submitted receipts proving the work was done

The Increasing Insurance Premiums

Automobile insurance may be one of the most important costs in operating an automobile. A car owner is faced with depreciation, maintenance, gas, insurance, and tax expenses. Some policyowners will pay more for their automobile insurance than they will for gas or maintenance. A few years ago this may have shocked some. Now it is not surprising to find that the annual cost of a young driver's insurance premiums may exceed the value of the car they are driving.

The basic reason that automobile insurance increases, sometimes doubling in the last ten years, is traceable to the loss portion of the premium dollar paid for automobile insurance.



Policyholders probably do not analyze the losses paid out by their automobile insurance companies for bodily injury liability. The reasons for much greater premiums might be highlighted if they did. In analyzing these factors, we can see the reasons for the increases in premium costs:

1. More automobiles, more drivers, more mileage driven, thus more accidents,

2. Sharply rising hospital and medical costs for treating accident victims, 3. More loss income, which is based on rising wages when injuries do occur,

and 4. A sharp upward trend in size and number of claims made, the settlements

paid, and the verdicts granted by juries in personal injury cases.

What about property damage liability, collision, and physical damage premium costs? We could again analyze another set of factors:

1. Higher property values. This includes cars as well as the property which automobiles damaged, and

2. Higher repair costs (especially for automobile repairs) based on increased labour and material costs, which does not include the increased costs if the car is a foreign model.

When investing for retirement, inflation is the number one risk for those savings. Inflation is also an underlying factor in many of the reasons for the rising automobile premiums. The prices of items important to insurance have increased drastically. Policy-owners are quick to blame these increases on the insurance companies themselves. What they do not see is that the insurance companies do not have any control over a great many things such as inflation itself, as well as hospital and medical costs, repair costs, car design, highway construction, and driver and/or car licensing. Another huge factor to the rising insurance premiums are the increased payments under automobile insurance contracts from fraud or exaggerated claims.

Premium Rates

It is no secret that prices charged for automobile insurance contracts vary, even when identical. Though this is no secret, people in general do not understand why. There are factors that lend to the different premiums charged. The following is an examination of a couple of these less highlighted reasons.

1. Premium Competition - There may be a couple of reasons for policy-owner's lack of understanding variations. The first may by that many of the pricing mechanisms for automobile insurance are not simple.



These pricing mechanisms include many variations in both regulation and practice. The regulatory provisions among the provinces and territories differ greatly. These differences appear in sharp focus when one analyzes the numerous automobile insurance markets and the actual practices of the competing insurance companies. The second reason may be that insurance consumers do not take the time to investigate their decisions. These decisions are not always carefully calculated. The consumer's backgrounds vary in education, ability, initiative, and interest. Automobile insurance may be purchased on emotional factors and partial information instead of on the basis of rational decisions made with all the facts obtained.

2. Non-premium Competition - If life and health insurance premiums vary widely, why not automobile premiums also? The insurance contracts do differ in their terms. Even in identical contracts the product is largely a bundle of services and not limited merely to indemnification for loss. The difference in premium rates also includes many hard-to-measure benefits. Other important factors important to people, besides the premium cost itself, are needs such as:

a) The opportunity to learn about their requirements, and how insurance can provide the best solutions,

b) The advice and counsel of the insurance company and agents in making the decisions for proper coverage,

c) The promptness, efficiency, and fairness of the loss payments, d) The careful protection of the insured's right to own and drive an

automobile by meeting the various vehicle regulations of the provinces and territories.

No Fault Automobile Insurance

One of the first no-fault plans passed, called the Colombian Plan, advocated a true no-fault plan in 1932. The Colombian Plan would replace liability payments with no-fault compensation benefits as the only payment to injured parties.

Canada has been a leader in the development of no fault automobile insurance plans. Since 1946 the Saskatchewan Plan has required compulsory automobile accident insurance in quite limited amounts, regardless of fault.

In the United States a variety of plans have been experimented with in the past.



These include:

1. The Family Compensation Plan: introduced in the 1950s making available to their policyholders the option of purchasing limited alternative compensation benefits for all injured persons in an automobile accident. This type of coverage was discontinued in 1967 when studies showed that filing tort claims was not discouraged.

2. The Conard Plan was not adopted by any state. This plan would have integrated social security disability income (SSDI) payments and Medicare-Medicaid medical expense payments by deducting such payments from tort liability claims.

3. The Keeton-O'Connell Plan: introduced in 1965, a modified no-fault plan called basic protection insurance. The plan's purpose was to do away with most automobile tort liability lawsuits by having the insurance companies pay the insured for most out-of-pocket medical expenses and income losses of up to $10,000 per person. It permitted regular tort claims only for pain and suffering losses exceeding $5,000.

4. The Guaranteed Benefits Plan: offered automobile accident victims a choice of taking advance payments for some medical expenses and lost income or suing under normal tort liability law. Competing insurer organizations advocated these types of voluntary approaches.

5. Complete Personal Protection Plan: proposed by the American Insurance Association. This plan proposed a system where the insured's own insurance company provided complete personal protection for automobile accident injury payments. This plan abandoned the fault concept completely for economic losses, medical expenses, and wages.

6. The Social Protection Plan: became effective in Puerto Rico in 1969. The plan pays unlimited medical benefits, death benefits up to $10,000, disability income of 50 percent of salary for two years with low weekly maximums, and other scheduled dismemberment and funeral benefits.

7. The Canadian Plan: adopted by most Canadian provinces in 1969. Under this plan private insurance companies pay injuries on an optional no-fault basis up to $5,000. Poorer risks are reinsured in a reinsurance facility that reduces the alleged social stigma of being placed in an assigned risk or automobile insurance plan. An evaluation of this plan has found continual problems of underwriting losses.



Supporters of no-fault laws contend that there are benefits besides costs. They also contend that the purpose of no-fault laws is to pay the accident victims more of the insurance premium dollar in a quicker manner and more equitably. The overall effectiveness may not be fully known for quite a few years. In short term studies, it has been found that the victims still do not receive the premium dollar amounts for the injuries suffered. On the positive side, the frequency of bodily injury liability claims has been cut substantially in provinces with no-fault laws.

Opposers of no-fault laws contend adamantly that they do not reduce automobile costs and argue that legislation should not take away an individual's right to sue for pain and suffering. The effect of no-fault laws on personal responsibility for negligence, with possible increased carelessness as a result, is pointed out as a major defect. As the short-term studies showed, injured parties may suffer serious losses and only be partially compensated under the no-fault system. Their rates could also be increased while the negligent party has only to apologize for their irresponsibility. The negligent party suffers no losses and no rate increases.

EMPLOYER LIABILITY

The following will discuss the employers' responsibility when they hire employees. The employer assumes many responsibilities. These responsibilities can cost the employers large amounts of money. One of the most expensive costs can be the legal obligations under workers' compensation laws for occupational disability because of work injury or disease.

Employer’s liability is a type of business insurance that covers employers for liability to employees that suffer from work-related injuries or diseases. EL is a separate liability, providing coverage that does not fall under the workers’ compensation insurance, which is generally required by law through the Workplace Safety & Insurance Board (WSIB). EL is an important investment for companies whose workers are not required by law to be insured under the worker’s compensation insurance.

To further minimize the costs of work-related accidents, many businesses purchase employers liability in addition to the workers compensation insurance. This type of employers liability is called Contingent Employers Liability (CEL). CEL provides coverage at times when workers compensation has been denied or not applicable. However, certain exclusions apply and unlike workers compensation, employers must be found negligent and legally liable for this coverage to apply.



An Employers Liability

The development of employers' liability has been progressing from common-law liability, to employers' liability statutes and then finally to the workers' compensation laws we have today.

Common-law Liability

Under common law, an employer could be held responsible by the employee for damages when the negligence of the employer is the cause of such damages. The burden of proof, however, lies upon the employee to show that there was employer negligence and that this negligence was the cause of the employee's damages.

The employer could then turn around and use one or all of three strong defenses against employee claims under common-law liability.

1. Contributory Negligence Rule: Under this rule the employee must show, along with the above requirements that they did not contribute to the negligence. When the employee had knowledge of the ordinary risks associated with their employment and they were paid for assuming those risks, they cannot recover for injuries caused.

2. Assumption-of-Risk Rule: Under this rule an employee cannot collect damages in cases in which the employee continues to work without complaint after the discovery of failure on the part of the employer to provide proper protection.

3. Fellow-Servant (or Common Employment) Rule: Under this rule, the employer is relieved of the responsibility when the cause of the injury was the willful wrongdoing or negligence of a fellow employee (servant).

The injured employee was faced with not only the burden of proof, but also was made to defend oneself against the above defenses afforded to the employers under common-law liability laws. This difficulty in establishing a case had caused favorable rulings on the side of the employers. Through statutory enactments the class of fellow-servant employees was narrowed to exclude supervisors or manages. Other laws followed but were to a degree nullified by employers who required workers to sign contracts releasing them from any liability.



Workers' Compensation Laws

The theory behind workers' compensation legislation completely disregards the idea of liability based upon negligence. Workers' compensation is based on the theory that the cost of occupational disabilities is to be paid by the employer, regardless of liability, and then passed on to the consumer as a part of the cost of production.

Workers' compensation laws make the employer responsible for indemnity to the disabled employee without regard to the matter of fault or negligence. The amount of indemnity to apply in particular cases is predetermined by the law, although it does not equal the full income received while employed. The laws relate payments to injuries for sicknesses and if fatal, death benefits for the employee's dependents. Medical expenses, income and rehabilitation benefits are included.

In the beginning, workers' compensation laws were enacted only for employees working in occupations regarded as hazardous such as coal mining, blasting operations, and explosive manufacturing. The tendency in compensation legislation has been to enlarge the application of the law.

Covered Perils

Employees receive compensation for all injuries and diseases arising out of and occurring in the course of employment. There are no benefits under compensation acts when it is proven that the injury was occasioned by the willful intention of the employees or by their intoxication (by alcohol or non-prescription drugs) while on duty. An exception to the regulation covering intoxication is sometimes made if the employer knew that the employees were intoxicated or that they were in the habit of being intoxicated themselves while on duty.

An occupational disability would include both injury and disease. Occupational diseases are defined as diseases peculiar to the occupation in which the employee is engaged and due to causes in excess of the ordinary hazards of employment. In the last couple decades employers have seen suits claiming compensation for such diseases as those developing from exposure to chemical fumes and dust, radioactivity, prolonged industrial noise and so on.

Liability for occupational disease is based on the common-law doctrine requiring the employer to use all reasonable precautions to safeguard employees from injury and to warn them of the existence of any particular danger. By statute in one form or another, occupational diseases have been covered in all jurisdictions, in some by the workers' compensation laws and others in separate occupational disease acts.



There must be a cause-and-effect relationship between the occupation and the disease as well as a frequency and regularity of the occurrence of the disease in the particular occupation for the disease to be attributed to the work or its nature.

Types of Benefits under Workers' Compensation

The basic types of benefits would include:

1. Medical Expenses. 2. Income Benefits 3. Death Benefits 4. Rehabilitation Benefits

Workers' compensation is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence. The trade-off between assured, limited coverage and lack of recourse outside the worker compensation system is known as "the compensation bargain." One of the problems that the compensation bargain solved is the problem of employers becoming insolvent as a result of high damage awards. The system of collective liability was created to prevent that, and thus to ensure security of compensation to the workers. Individual immunity is the necessary corollary to collective liability.

While plans differ among jurisdictions, provision can be made for weekly payments in place of wages (functioning in this case as a form of disability insurance), compensation for economic loss (past and future), reimbursement or payment of medical and like expenses (functioning in this case as a form of health insurance), and benefits payable to the dependents of workers killed during employment.

General damage for pain and suffering, and punitive damages for employer negligence, are generally not available in workers' compensation plans, and negligence is generally not an issue in the case.

Statutory no-fault compensation

Workers' compensation statutes are intended to eliminate the need for litigation and the limitations of common law remedies by having employees give up the potential for pain- and suffering-related awards, in exchange for not being required to prove tort (legal fault) on the part of their employer. The laws provide employees with monetary awards to cover loss of wages related to the accident as well as to compensate for permanent physical impairments and medical expenses.



The laws also provide benefits for dependents of those workers who are killed in work-related accidents or illnesses. Some laws also protect employers and fellow workers by limiting the amount an injured employee can recover from an employer and by eliminating the liability of co-workers in most accidents.

Common law remedies

In common law nations, the system was motivated by an "unholy trinity" of tort defenses available to employers, including contributory negligence, assumption of risk, and the fellow servant rule.

Common law imposes obligations on employers to provide a safe workplace, provide safe tools, give warnings of dangers, provide adequate co-worker assistance (fit, trained, suitable "fellow servants") so that the worker is not overburdened, and promulgate and enforce safe work rules. Claims under the common law for worker injury are limited by three defenses afforded employers:

• The Fellow Servant Doctrine is that employer can be held harmless to the extent that injury was caused in whole or in part by a peer of the injured worker.

• Contributory negligence allows an employer to be held harmless to the extent that the injured employee failed to use adequate precautions required by ordinary prudence.

• Assumption of risk allows an employer to be held harmless to the extent the injured employee voluntarily accepted the risks associated with the work.

Workers' compensation was Canada's first social program to be introduced as it was favoured by both workers' groups and employers hoping to avoid lawsuits. The system arose after an inquiry by Ontario Chief Justice William Meredith who outlined a system in which workers were to be compensated for workplace injuries but must give up their right to sue their employers. It was introduced in the various provinces at different dates. Ontario and Nova Scotia was first and second in 1915, Manitoba in 1916, British Columbia in 1917, Alberta and New Brunswick in 1918, Saskatchewan adopted in 1930. It remains a provincial responsibility and thus the rules vary from province to province. In some provinces, such as Ontario's Workplace Safety and Insurance Board, the program also has a preventative role ensuring workplace safety. In British Columbia, the occupational health and safety mandate (including the powers to make regulation, inspect and assess administrative penalties) is legislatively assigned to the Workers' Compensation Board of British Columbia WorkSafeBC. In most provinces the workers' compensation board or commission remains concerned solely with insurance.



The workers' compensation insurance system in every province is funded by employers based on their payroll, industry sector and history of injuries (or lack thereof) in their workplace (usually referred to as "experience rating").

A New Kid on the Block

Since 1998, there has been a “new kid on the block” in the insurance world that is a child of the times. It is called Employment Practices Liability (EPL) insurance, and its growing presence in both the Canadian and U.S. insurance markets reflects the fact that Canadian and American workers are becoming more aware of their human and civil rights and are more prepared than ever to seek redress for rights violations. Since the mid-1980’s, American employers and insurers have faced increasing numbers of employment related claims for such wrongs as age, race & sex discrimination, wrongful termination, sexual harassment, and breach of employment contract. Until that time the standard commercial general liability policy did not address these types of claims. These employment related claims had long fallen outside the scope of coverage, whether because of the generally held belief that workers’ compensation insurance would encompass such claims, or because for public policy reasons these types of claims were not appropriate subjects for insurance coverage. In response to this emerging trend of employment related claims, insurers initially began providing defences for certain claims under the general liability and employment liability policies; however, these historical policies did not fully and adequately respond to newly emerging claims. In some instances, insurers litigated coverage to establish circumstances where coverage did not apply. Eventually, insurers added employment related exclusions to the directors and officers liability (D&O), homeowners and CGL policies; thereafter, EPL policies emerged.

Gone are the days when EPL policies cover only sexual harassment, discrimination, and wrongful termination. These policies now cover such claims as retaliation, defamation, and invasion of privacy, and will likely continue to expand the coverage possibilities of this saleable and comprehensive product. A growing number of claims, and increased liability, have had a cascade effect, first in the business and employment worlds, and now in the insurance world. While employers have been scrambling to modify their workplace practices and are asking what they can do to protect themselves against claims, insurers have been confronted with claims for coverage under policies that were never intended to respond to such risks. The result has been a growing awareness of the need for insurance coverage, coupled with the knowledge that existing products do not fit or adequately address the risks. And so, EPL policies were born.



Today, EPL policies are an important risk management tool in the insurance marketplace for employers. However, they will continue to evolve with the changing economic and legal landscapes.

What is Employment Practices Liability Insurance (EPL)?

EPL refers to liability stemming from discrimination in the workplace, sexual harassment and other employment-related practices and conduct that may give rise to legal liability. Most claims in Canada fall under the jurisdiction of administrative tribunals, with some exceptions.

Typical claims in Canada would include:

• Complaints before a federal or provincial human rights tribunal involving work place discrimination based on sex, race, colour, ancestry, place of origin, political beliefs, or some other prohibited ground

• Complaints before the courts or federal or provincial tribunals involving either sexual harassment or sexual abuse in the workplace

• Lawsuits in the courts relating to defamation or negligent supervision of the workplace, resulting in sexual harassment

• Complaints before a provincial workers compensation board or the federal labour relations board with respect to occupational health and safety matters

• Complaints before a federal or provincial labour relations board relating to hazardous chemicals or substances

• Complaints before a federal or provincial labour relations board relating to wages or other employment standards

The key feature of EPL claims is that they are brought against employers or fellow employees, usually by other employees, employee applicants or customers, and relate to employment conduct, policies, or conditions.

Specific complaints include allegations that as a result of the conduct, policies or conditions, the claimant:

• Failed to get a job • Lost his or her job (whether by express or constructive means) • Failed to be advanced or promoted • Received a lower level of compensation than they were otherwise entitled

to • Caused them to be subject to a hostile, humiliating, distressing or harmful

environment or actor



The relief sought in EPL claims ranges from monetary or compensatory damages, to reinstatement, declaratory relief, apologies, changes to workplace policies, practices, and structures, to punitive and exemplary damages. EPL claims typically name not just the perpetrator of the harmful conduct, but also name the employer organization or the supervisors, directors, or officers of the company. Allegations include vicarious liability, negligent supervision, or negligent policy-making – in other words, failing to have appropriate policies in place to prevent the harmful conduct. In the United States most claims are heard in the Courts, although in some instances the claimant may first have to seek permission to sue from the Equal Employment Opportunity Commission. The fact that most EPL claims in the United States are heard in a Court proceeding means that in the United States there is an opportunity for pretrial discovery and deposition which is not available (in most instances) in Canada. In Canada, the provincial administrative tribunals employ staff investigators and staff to assist complainants through the complaint process. Lawyers are often not even involved. The exceptions in Canada are EPL claims alleging defamation or false imprisonment and, more recently, lawsuits in Ontario alleging infringement of the Ontario Human Rights Code (provided they are brought together with another cause of action), which claims may proceed directly to Court.

Why Now?

The growth in EPL claims and the corresponding push for EPL coverage that originated in the United States has now firmly planted itself Canada. Until approximately 20 to 25 years ago, EPL coverage was virtually unheard of in either country. Today, EPL policies (or endorsements to a D&O policy) are well-known and have simply become one product amongst a “standard suite” of insurance products being marketed to employers in the U.S. Faced with a similar need, Canadian insurers now offer similar coverages. The growth in EPL claims can be attributed to a number of factors which together have created a receptive environment for the claims.

These include:

• A strong civil rights movement • The resulting passage of protective human rights legislation • An increasing awareness generally of human rights • A growing intolerance and distaste for violations and discrimination • An increasing willingness on the part of victims to disclose sexual

misconduct • Public support for the imposition of restitution and penalties on violators



We have only to think about the publicity surrounding the testimony of Professor Anita Hill at the Clarence Thomas hearings, and more recently, allegations involving former President Bill Clinton, to realize the broad impact and “fuel of support” that such infamous claims do generate on the wider public at large. One commentator has estimated that after the Clarence Thomas hearings, claims in respect of sexual harassment jumped 70 per cent.

The publicity generates awareness; spawns those who have been victim to similar injustices to give pause; and then empowers them to take the necessary steps to demand justice in their own circumstances. More and more as well, such real public support is turning into legal clout for people seeking redress for human rights injustices or other employment law “wrongs”. Whereas, for example, certain conduct used to be kept “in the closet”, due to embarrassment or due to prevailing “blame the victim” public attitudes (e.g. sexual misconduct claims or claims alleging discrimination on the basis of sexual orientation), now, due to changing public attitudes, victims of misconduct are able to feel more confident going public with their complaints. The support is reflected not just in the media coverage; the public’s abhorrence of discriminatory behaviour has been given significant teeth in the form of legislative additions to human rights, employment, and criminal law. The legislation not only lists prohibited conduct so as to codify the violations; it provides a concrete and accessible framework for redress. Armed with public backing and legal authority, claimants are now both more willing and more able to pursue their rights of action.

The Canadian Experience

Perhaps because Canada’s human rights movement is less cohesive than that in the United States, or perhaps because Canadians are less litigious, EPL claims have been slower in coming to the forefront in Canada. However, surely but steadily, the frequency of such claims has been growing, following the American lead. Recently in Canada, there has been a burgeoning of public and legal intolerance and distaste for discriminatory and otherwise illegal or improper conduct by employers. It is easy to think of recent examples which received wide media attention. In the mid 2000s, allegations of sexual misconduct at both Simon Fraser University and the University of British Columbia generated waves of public concern - not only over the allegations of harassment, but over the manner in which the allegations were investigated and managed after the fact. Now in the spotlight are numerous allegations of sexual misconduct within the top ranks of the Canadian military, as well as the Canadian federal government’s continuing struggle with the pay equity legislation. The fact that the foregoing events have become “media moguls” is a testament to the fact that human rights and employment continue to be significant issues and liabilities to be reckoned with..



MISCELLANEOUS PROPERTY LIABILITY

Miscellaneous property and liability insurance is a broad field. It includes things like aviation insurance, boiler and machinery insurance, glass insurance, credit insurance and title insurance. One of the biggest challenges to this type of insurance is unlimited variety of exposures and coverage, so an agent must be familiar with dozens of contracts covering substantially different perils.

An agent's daily agenda may normally just involve automobile, fire, and liability insurance needs of the clients, but it will also require their immediate attention to at least several other kinds of insurance exposures or losses. A policyholder may need a special "all risk" policy for jewelry and furs. An agent could be faced with a merchant's need for theft insurance or coverage for a private yacht or airplane.

Aviation Insurance

The first aviation insurance contract issued made use of the fire and automobile forms. The impact of airplane travel on life in the world is evident by the billions of miles flown every year. In terms of safety, there is no comparison with automobiles. But when accidents do happen, they are serious and well publicized.

There are thousands of airplanes and helicopters used by businesses and for personal uses. The increased use of aircraft is sufficient to label this the aerospace age. Other uses of airplanes/helicopters include rentals, crop spraying, advertising, cattle herding, pipeline patrols, fire fighting, hovercraft, and many others.

Not all insurance companies sell aviation insurance, but dozens of companies do. For many years nearly all aviation risks were written by insurance companies organized into underwriting groups, also known as syndicates. These syndicates account for a substantial part of the business, especially the protection for the large airline transportation and aircraft manufacturing companies. Some of the larger insurance companies now cover many planes and helicopters that are privately owned or used by business firms.

With the cost of the aircraft itself combined with the liability limits carried on each plane, one might logically wonder if adequate insurance facilities exist. The desired liability limits on an aviation policy can be as high as $300 million or higher which illustrates the large and increasing exposures in the aviation insurance field. There are insurance facilities that adequately handle most aviation risks. With the increasing risks and costs, adequate market capacity for aviation insurance often requires many insurers and reinsurers throughout the world.



Basic nature

Aviation insurance is closely related to ocean marine and automobile insurance in that the aircraft owner needs both physical damage (hull) and liability insurance. They can be divided into two classifications:

1. Direct loss, and 2. Liability coverage.

The major difference would obviously lie in the perils covered. Aviation insurance perils are very distinct.

Another difference between aviation risks versus automobile risks is that aviation insurance involves primarily a total loss business, and much larger sums of money. A jet liner equipped to carry more than 300 people can easily cost $30 million or more. Direct loss insurance, depreciation, and obsolescence are factors of tremendous importance. Losses in many instances are much greater than and totally different from those attached to the automobile. One of the most important of the factors influencing aircraft losses is the physical condition, training, and experience of the pilot. Although it is true that inexperienced drivers of automobiles are responsible for many accidents, incompetence of a pilot can be disastrous. Airplanes are equipped with warning systems to try to reduce pilot error of many kinds. Some of these warning systems include radar and ground proximity warning systems.

The liability peril for Canadian domestic passengers stems from the same source as that of automobile liability and is based on the accepted common-law rules of negligence. However, several international agreements hold many foreign operators of aircraft absolutely liable and sometimes even apply a limit of liability of about $75,000 per person. The debate that may go on for years with the infamous Flight 800 is whether or not the plane went down in international waters or the United State's waters. Deciding this will determine the settlements given to the families. The destinations and the original departure country of these victims will also determine the settlement amounts.

Because of the large settlement amounts being awarded to the victim's families and the peculiar nature of the risk, underwriting problems are usually handled by agents or managers who are specialists in aviation insurance coverages. The aviation insurance business has become an unusual blend of combining aspects of automobile, fire, liability, and inland marine insurance in a specialized insurance area which also has closed dependence on reinsurance availability around the world.



Airplanes are classified into five different categories by the plane's use:

1. Air Carriers: this applies to large scheduled and non-scheduled air carriers.

2. Private Business or Pleasure: this applies to individually owned aircraft.

3. Industrial Aid: this applies to corporate owned aircraft used to transport employees, executives, and guests.

4. Commercial: this applies to charter aircraft operated by a fixed base operator.

5. Special-Uses: this applies to a number of risks involving unusual conditions, such as flying clubs, crop dusting, photography, law enforcement, and dealers.

Boiler and Machinery Insurance

Most property insurance contracts exclude steam boiler and machinery losses leaving that protection to boiler and machinery policies (B&M). Insurance companies issuing boiler and machinery policies are among the oldest in existence. In 1860 a group of engineers in Hartford, CT formed an organization known as the Polytechnic Club, which in 1866 organized Hartford Steam Boiler Inspection and Insurance Company to locate latent causes of explosion and provide indemnity in case an explosion or a related loss occurred. The tradition of boiler and machinery insurance continued and today insurance companies provide extensive safety engineering and inspection services.

Insurance policies issued to many businesses upon boilers, turbines, electrical machinery, and similar objects provide coverage for two classes of loss:

1. Direct loss, and 2. Indirect loss.

A single policy may cover boilers or machinery, or both. Another name for boiler and machinery insurance is Engineering, Breakdown and Power Plant insurance.

Examples of loss causes would include explosions, cracking pressure vessels, electrical short circuits (without fire), lack of proper lubrication, bursting flywheels, and many more. The size of loss is large, often $200,000 up to millions of dollars. The exposures continue to grow.



Engines, Electrical Machinery & Turbines

Coverage may be written to insure breakdown of engines that derive their power from steam, oil, or gas. Pumps, compressors and refrigerating machines are objects insurable under the form. The insurance contract covers damage caused by sudden and accidental breaking, deforming, burning out, or rupturing of the insured machine or any of its parts. Lack of lubrication, loosened parts, or crystallization of moving parts by fatigue can result in such losses. Flywheel insurance covers many types of revolving machinery, such as wheels, fans, blowers, dryers, and separators. Insurance for electrical machinery and turbines provides similar protection for breakdown losses. Motors, generators, transformers, switchboards, and circuit breakers are examples of this coverage.

Glass Insurance

Glass insurance is not limited to just covering the ordinary window or plate glass. The comprehensive glass policy may also cover many special types of glass bricks and blocks, Thermopane, safety glass and other building glass. Stained glass set in leaded sections may be covered under a form that also includes marring, scarring, and scratches. Neon and glass signs may also be insurable under the comprehensive glass policy. Such signs are written on either as a deductible basis or on a full-coverage basis. The deductible varies. It can be up to $100 for each insured object, with a corresponding reduction in premium as the deductible increases.

Glass insurance covers the business use of glass in buildings and interiors for light, display and ornamentation. The growing use of large plates tends to concentrate substantial values. Glass is easily subject to breakage, especially when used in show windows. Riots, windstorms, explosions, strikes, runaway automobiles, accidental breakage or even deliberate breakage by vandalism are some the common hazards covered by glass insurance.

Credit Insurance

Credit insurance protects eligible types of businesses from excessive credit losses due to debtor insolvency. Legal insolvency or bankruptcy of a debtor is not required for a claim. Claims may occur when a debtor leaves town quickly or hides from the debt. Claims can also occur if a sole debtor dies, a sole debtor is declared insane and so on. The protection is available to manufacturers, wholesalers, and service organizations but not to retailers. Credit insurance does not extend to normal credit losses. The normal loss percentage is determined by the insured's experience or that of a similar business.



Most credit insurance contracts are written under the optional collection form. At the insured's option, past-due accounts are turned over to the insurance company for collection. The insurance company charges a collection fee for this service. If the insurance company fails to collect the accounts and the debtor is insolvent the insurance company must pay the insured. Credit insurance normally covers all accounts of the insured although it is possible to cover only particular account classes or even just a specific account.

Most businesses insure their physical property assets against a loss caused by perils such as fire or windstorm. Credit insurance is surprisingly under-used by businesses to insure their assets against uncollectible accounts and bad debts. If a business does not collect on enough debts, the business itself could fail, thus not be able to pay their own debts. Most businesses rely on selecting the customers to whom they extend credit and writing off normal bad debts as a part of operating expenses. This is not always the wisest choice for the businesses that have a much greater exposure to larger credit losses.

Credit insurance is a contract under which the insurance company covers the insured against abnormal credit loss occasioned by the insolvency of debtors. The percentage of most insured purchasing this kind of insurance are wholesalers.

In the early days of credit insurance, the question was raised as to whether it was a contract of insurance or a surety guarantee. The courts have held, though, that credit insurance agreements are contracts of insurance for two reasons:

1. The credit risk is not based on the individual standing of the primary debtor but rather on the credit experience of a large group of debtors belonging to a certain class, and

2. In credit insurance, the policy may be obtained without any knowledge or consent on the part of the debtor, rather than as an accommodation to the debtor in securing credit.

Accounts Receivable Insurance

A firm may be unable to collect all outstanding accounts following the destruction of its records. Insurance is available to cover this loss plus additional expenses that may result such as extra collection expenses, cost of reconstructing records and interest on money borrowed to offset impaired collections. The policy contract is written as all-risk coverage.



The exclusions include:

1. Dishonest acts of the insured, officers, directors, or partners, 2. Loss caused by manipulation of records to conceal another dishonest act, 3. Loss due to bookkeeping, accounting, or billings mistakes, 4. Loss from electrical or magnetic injury of electrical recordings, except by

lightening, 5. Nuclear and war hazards, and 6. Loss where proof is entirely dependent on an audit or inventory

computation.

Valuable Papers & Records Insurance

A business can cover inscribed documents and records, including books, maps, films, drawings, abstracts, deeds, mortgages, media for electronic data processing and manuscripts against all risk, either on a scheduled or blanket basis under a valuable papers and records insurance policy. Property covered on a schedule basis is written for an agreed amount while property on a blanket basis is written for its actual cash value. The exclusions are those found in inland marine policies, plus dishonesty of the insured, partner, officer, or director. Irreplaceable property is excluded under blanket coverages but covered when scheduled. For libraries, loss by failure of borrowers to return books or other documents is excluded. Rate decreases of 10 to 40 percent are allowed if particular types of safes or vaults are used.

Title Insurance

The peril covered by a title insurance policy is loss growing out of undiscovered defect in the title to the insured property. The insurance contract guarantees the title search to a purchaser, mortgagee or other interested party covering the insured against loss arising from any undiscovered defects in existence at the time the policy was issued.

In contrast to other forms of insurance, title insurance looks backwards for the source of the claim rather than forward. The usual insurance contract covers loss growing out of the happenings of some unfavorable contingency subsequent to the issuance of the policy. Title defects which may arise following the issuance of a title policy are not within the scope of the coverage. To support a claim, the defect must have been in existence and undiscovered when the policy was issued.

The term real property refers to land and to rights issuing from the possession of land.



Title to real property may be acquired in a number of ways, the more common being transferred with the consent of the owner, by will, and by descent regulated by statute. To secure title to the rightful owner, the law sets up certain formalities governing transfers which must be followed with in detail, otherwise the transfers may be considered defective.

THE IMPORTANCE OF UNDERWRITING

The underwriting process is normally a combined effort performed with the insurance company, its agents, and some organization outside the insurance business. Insurance companies have the main responsibility for the selection and rating of insured because they are accepting the risk of loss. However, the initial responsibility often falls on the agents themselves. The agents are the ones who solicit the prospects for insurance or accept applications.

This chapter may seem obvious as to the necessity of underwriting automobile insurance when we see the statistics of the rising costs of such accidents and the driving records of some drivers. This chapter will explore the different aspects of underwriting that people go through for insurance protection of any kind.

The Role Underwriting Plays

Underwriting is the process of accepting or denying risks of the prospective insureds. If a prospective insured's risk is accepted, underwriting is further concerned with the term under which the particular risk is insured. The main purpose of underwriting is to maximize earnings by accepting a profitable distribution of risk. Adverse selection can occur if these risks are not balanced out. If an insurance company accepted all applicants selection occurs, but by the insured, especially if competing insurance companies practice selective underwriting. Selection by buyers is referred to as adverse selection because the insurance company is left with the short end of the stick. The insurance companies could be left with insured that are ill, thus costing the insurance company money in claim payments. The premium dollar would not be sufficient to carry the financial burden of many claims.

A person may say, "Since insurance is based on the law of averages, why not accept all prospective insured and trust the laws of probability?" This sort of comment is deceptively simplistic. To rely of the law of averages would be inefficient and unprofitable for the insurance companies.

Prospective insured are not selected at random, nor do they have the same loss expectancies.



Those prospective insured with loss expectancies substantially higher than provided for in the rate should either:

1. Be charged a higher rate (premium) or 2. Be declined coverage.

If an insurance company (insurer) accepted applicants that did not meet the standards contemplated in the rate, the insured would have to pay higher premiums for the insurance company to remain solvent. These higher rates would force policyholders to drop coverage or go to insurers that practice selective underwriting. Only people who were ineligible for coverage through insurers that practiced selective underwriting would pay the non-selective higher premiums. As the non-selective insurer charged continually higher premiums fewer and fewer healthy policyholders would stay with the company. Only those people with underwriting problems would remain. This would not allow an accurate prediction of losses. For this reason, underwriting is necessary.

Underwriting helps achieve equity in premium rates, thus a broad range of insureds are charged a proportionate amount with their loss expectancy. Automobile insurance underwriting includes function of selection and rating. As with any type of insurance, whether it be life insurance, disability insurance, or automobile insurance, the purpose is to obtain a group of insured who will in total provide the insurance company with a reasonable profit and maintain its financial strength.

Insurance companies must develop a workable selection process to classify acceptable exposures accurately and to maintain enough insured with loss expectancies low enough to offset the insureds with loss expectancies above the class average. The insurers must set a limit for the degree to which an applicant's loss expectancy can exceed the average without rejection or assigning to a higher premium classification.

The primary purpose of this risk selection by the insurance companies is to obtain a profitable distribution of policyholders. With regard to automobile insurance, the insurance company may "drop" an insured if they experience too many accidents, or too many speeding tickets. The high-risk insured may be forced, if they live in a state that requires automobile insurance, to purchase insurance through another company at a much higher rate since they would classified as a high-risk driver.



The Agent's Role in Underwriting

As with any type of insurance, the agent asks preliminary questions to appraise the risk exposure of the prospective insured. In fact, many agents have completed extra schooling for such designations as a Chartered Life Underwriter (CLU). Agents who complete this extra class work and pass a series of examinations are awarded these designations, regardless of the functions they perform in the business. Not only do the agents attend more schooling to be eligible for these designations, they are required to meet additional CE hours above the state-required CE hours to keep these designations.

Agents perform only a limited underwriting function. When writing any kind of policy, the agent learns of the high liability exposures or a driving record that is crammed with traffic violations, thus the risk to the insurer is too high for the insurer to accept. The agent has several choices:

1. Turn the application in with a check from the prospective insured. The insurer's underwriting department then has the decision to issue the policy with different terms or premiums.

2. The agent can reflect their experience to the applicant as being too high of a risk. Insurers may give certain driving requirements that have to be met, such as not having more than two accidents on the driving record. In this case the agents can weed out the unwanted prospective insured.

3. Turn the application in on a COD basis; waiting to see if the insurer accepts the risk of the applicant to collect funds. This is not possible with auto insurance but does apply to other types of insurance. This may alleviate the chances of a having to put the applicant through a refund process. If the prospective applicant's funds are limited, this may be a wise choice for them. As with the first choice, the insurer's underwriting office makes the choice.

THE UNDERWRITING SELECTION PROCESS

Underwriting includes both pre-selection and post-selection of risks. Pre-selection involves gathering pertinent information concerning the risk and deciding to accept or reject the risk of the prospective insured. Once this risk is accepted, the insurer must then practice post-selection. Post-selection is the process of reviewing insured and dropping those, which are no longer desirable. Post-selection is available only if the policy is cancelable, not guaranteed renewable. As already mentioned, drivers that experience too many driving infractions can be dropped.



The application is normally a signed written statements by the prospective insured, which includes basic information about the automobile, its location and use, its drivers, the amounts, and types of insurance desired and the insurance accidents and traffic infraction records. One of the goals of agents who can bind coverage immediately is to obtain a reasonable group of insured for their insurers because if they do a poor job of selecting, many insurance companies do not want them as representatives. For agents that work for one company, it is appealing to insure a family with their agency for their home, health, life, boat, and car. Once the agent has submitted an application to the insurer, it is given to the underwriter. The underwriter then obtains information about the prospective insured to make an equitable and profitable decision. Some applicants show a higher probability of loss than other applicants. The obtaining of information may also help identify cases of possible adverse selection. The underwriter must deny or approve an application on obtainable information. The information is restricted by the cost and difficulty of gathering these facts. The most important types of information are:

1. The applicant's past driving record and use of the automobile, 2. The applicant's age, sex, marital status and/or living habits, 3. Driver training and/or good student qualifications, 4. The physical condition of the applicant or property, 5. The postal code 6. The financial standing of the applicant.

To gather this information, the underwriter relies on the sources available to them. These sources chosen are a function of the particular risk, practicality, and cost. The sources listed below may not apply directly to automobile insurance coverage but is included to give an overall picture of the underwriter's sources.

These sources include:

1. The Agent: Agents provide underwriters with valuable information beginning with the application containing the basic information regarding the risk of the applicant. Agents may be required to submit a report containing the application, answering questions regarding the risk, and giving their recommendation as to the probability of risk. An underwriter can deny or accept an application solely on the agent's recommendation.

2. Motor Vehicle Department: A driving record of the person in question may be requested for a full picture of the individuals driving habits.



3. Inspection Reports: An inspection company provides underwriters with valuable information. These companies provide insurers with a nationwide investigating service. The inspection companies submit reports concerning an applicant. A typical insurance applicant would be amazed at the amount of information, accurate and inaccurate, these investigating companies can uncover.

4. Medical Information Bureau (MIB): Underwriters can refer to the files prepared by the MIB, a cooperative organization of life insurers formed to centralize information of special interest to members about physical condition or previous applicants for life insurance in a member company. The files do not record the action taken by the insurer on the application.

5. Physical Examination: This may not apply to auto insurance, but for other types of insurance, this is one way to decline high-risk individuals applying for coverage.

6. Other Sources: There are many other sources of information for underwriting purposes. Insurers often consult engineers who provide safety information. Commercial underwriters may seek information from companies publishing financial ratings and data useful for evaluating the moral hazard and the applicant's ability to pay. There are many other sources of information. This may be sub-marginal when weighed against the cost and hassles involved in obtaining the information.

Auto Underwriting

As agents, we may run into the precept that everyone is entitled to insurance coverage, as everyone is entitled to own property. This precept has caused great concern to insurance companies because they want to have the right to screen or select their insured. The complete freedom of an insurance company to choose its insured is impossible today. The complete right of an individual to own insurance is limited by several practical exceptions, which are:

1. Motorists who regularly abuse alcohol, 2. Drug addicts, and 3. Habitual traffic offenders.

This limitation affects less than one percent of the population. This means that individuals who are extremely bad risks may lose their right to own insurance. Some of these extremely bad risks may be able to buy it, but it will cost them a much higher premium than normally charged. In addition to paying higher premiums if the individual wanted to purchase broader coverage and/or limits, they may also be limited by the insurance company.



Insurance companies have elected to have the right to cancel an insurance policy, which further illustrates the growing restrictions. Some insurance companies have started guaranteeing that the policy would not be canceled by the insurance company after an investigation period of about 60 days, except for a few very obvious reasons which include:

1. Nonpayment of premiums, 2. Fraudulent misrepresentation, 3. Loss of the driver's license by the insured, 4. Several serious motor vehicle offenses, such as driving while intoxicated,

leaving the scene of an accident without reporting, or three moving traffic violations within 18 months.

This non-cancellation agreement has been broadened by most insurance companies to include cancellation only for:

1. Nonpayment of premiums, or 2. Suspension or revocation of the driver's license or motor vehicle

registration of the insureds who ordinarily drive the automobile.

There are a few additional exceptions to the basic ones mentioned above which are:

1. Convictions for hit-and-run accidents, 2. Driving while intoxicated or drugged, and 3. Motor vehicle homicide.

Rating

We could probably safely say that nearly all motorists are insured, and if they are not, they should be. So with this many people, the emphasis of underwriting shifts from the selection process to the rating process, or pricing of the automobile insurance contract.

Automobiles are classified into five different groups:

1. Private passenger, 2. Commercial, 3. Public, 4. Dealers', and 5. Miscellaneous.

These classifications are based in some portion upon the type of automobile and to a greater degree upon the use of the automobile.



These designations are then used for the purpose of differentiating among the various major types of automobile risks. The miscellaneous category includes a number of automobiles designed for special purposes such as fire vehicles, police vehicles, ambulances, hearses, motorcycles, snowmobiles, and trailers or semi-trailers to name a few. Automotive equipment not insurable under the automobile policy includes golf carts, lawn mowers and power shovels. Risks of this type are normally insured under separate inland marine or other contracts.

Commercial vehicles are classified by size of the vehicle and the business use classification of the insured. In addition to factors of weight and use, some areas give consideration to a mileage-radius factor. Commercial trucks involving long-distance operations usually more than 50 miles are definitely more hazardous than those confined to a local area. Public vehicles include private and public livery, taxicabs, and buses. Public vehicles are rated higher, but because there is no risk when the car is not in operation, a system has been devised on an earnings basis per $100 of gross receipts or on a mileage basis. Garage, service station and other automobile dealers are insured under special contracts. When there are five or more commercial or public cars under a single ownership, a "fleet" policy is issued, based upon discounts and the estimated average future exposure. The advance premium charged is adjusted at the end of the policy term by determining the actual number of vehicles and their use during the policy term.

Private passenger automobile liability premiums: the rating procedure illustrates the process of determining automobile insurance premiums. There are different factors that are important to determine the premium charged by the insurance company for the various basic coverage. The major portion of the price of automobile insurance applies to the liability and physical damage coverage. The medical payments coverage and the uninsured motorists coverage are relatively small parts of the total premium and therefore are not included in this description of the rating system.

The base premium for bodily injury and property damage liability is determined by two factors:

1. The territory (area), and 2. The limits of liability chosen for the insurance contract.

Tables showing the basic premiums for the minimum limits for bodily injury liability coverage and property damage liability coverage are developed for each territory. Higher limits are also available. The territorial designation used is according to the province and territory in which the automobile is principally garaged and used. Some provinces have as many 50 separate rating territories, while others have only a few.



These differences are based upon the loss experience in the territory for several years. Claims statistics in changing the rates are determined by accidents charged to the location where the car is principally garaged and used. Thus an accident caused by a person from a large city is not charged to a small city where the accident may have occurred. The rates vary considerably by territory. Even within the same province, the rate for the same coverage may be several times higher in one section as in another.

Primary Rating Factors

There are two sets of classification factors that are considered primary and secondary which determine the total that is applied to the base premium. The primary classification factors are:

1. Age, sex, and marital status of the automobile operators. 2. The use of the automobile. 3. Driver training and good student qualifications.

There has been a growing controversy over the use of age and sex differentials in automobile insurance rating. Research indicates that these characteristics are reasonably good predictors of actual loss experience and therefore do not constitute unfair discrimination.

Should the age of a driver be an important factor to determine a drivers' premium? Many research studies have shown that the younger groups of drivers cause many more accidents, particularly fatal and serious ones, than the proportion of the total number of drivers would indicate. The younger drivers may take chances that a prudent person would not take. Younger ones may be more likely to speed in conditions that warrant a lower speed. The rate does go down gradually from age 18 to 29, perhaps in correlation of the added responsibilities one has to their growing family. Older ages may also experience problems. Older drivers can no longer see and hear as well, handle stressful situations logically or react quickly. The older ones may experience blackouts, memory loss or panic attacks and cause an accident before they are willing to admit they should not be driving - thus taking away their independence.

Older operators are divided into three groups (no youthful drivers):

1. Females, ages 30 - 64, only operator. 2. Age 65 or over, one or more operators. 3. All others.



The youthful operator classifications also reflect the fact that, in general, the youthful male drivers have more accidents that youthful female drivers and youthful unmarried men have more accidents than youthful married men. The classes developed are in four groups with further breakdowns for age 17 and under, each year to 20 and combined age classes for ages 21-24 and 25-29.

The number of classes developed total more than 100:

1. Females, unmarried, under age 25. 2. Males, married, under 25. 3. Males, unmarried, under 25 and not owners or principal drivers of the

insured automobile. 4. Males unmarried, under age 30 and owners or principal drivers.

The way an automobile is used also affects its classification and premium. Among the different categories of use are:

1. Pleasure use. 2. Used to or from work less than 15 miles one way. This can be 10 miles in

some plans. 3. Used to or from work more than 15 miles one way. Again, this can be 10

miles in some plans. 4. Business use. 5. Farm use.

When the first group is rated as 1.00, the factor applied to the groups 2 to 4 is higher and the factor applied to group 5 is lower.

Driver training is important for youthful drivers from age 17 through age 20. Statistically it saves lives, reduces accidents, and lowers insurance premiums. The standards for qualified courses are usually set by province authorities. This often involves about 30 hours of classroom work and 6 hours of driving. Those with driver training receive a lower rating factor, about 5 to 10 percent less than that of drivers of the same age without driver training. This one factor can make a substantial dollar difference for many youthful drivers and their parents.

Good students also receive lower premiums from some insurance companies by meeting certain qualifications. The insurance company may require the student be full-time and have a B average. The rates average about 20 percent less than those for other students. The theory is that the better students use automobiles less than other students.



Secondary Rating Factors

There are three types of secondary classification factors:

1. Multi-car, 2. Type of vehicle, and 3. Safe-driver rating plan.

The multi-car exposure factor is based on the idea that if more than one private passenger car is owned by one person, or by relatives of the same household in joint names, the cars will not each be used as much as if the household only owned one car. This factor results in a combined premium that is at least 15 percent less than the total premium for a single car exposure would otherwise be.

The type of vehicle is classified to automobiles into standard, intermediate and high performance cars, and sport cars.

The safe-driver rating plan is used by many insurance companies to distinguish among drivers on the basis of their accident record, traffic convictions, and experience, applied for by principal drivers of the automobile only. The insurance companies have devised a type of point system, which it uses to classify drivers into five groups. Chargeable accidents during the past three years count one point each whenever they involve bodily injury or property damage of more than $200. The premium rates could go up 30 percent for one accident, 70 percent for two accidents and as high as 120 percent for three accidents. These percentages could even go higher. Most plans vary somewhat, but 1 to 3 points are assigned against the insured for motor vehicle violations such as driving while intoxicated, hit-and-run accidents and license suspension or revocation. Lack of experience (licensed for less than three years) by the principal driver of the insured automobile counts as one point against the insured right out of the running gate. Although it is a secondary factor, the importance of the safe-driver plan in preventing increasing rates is apparent in the indicated rate increases.

Other Rating Factors

As previously mentioned, Moral hazard & Morale hazards are looked at when underwriting liability and risk.

UNDERWRITING FOR BUSINESS LIABILITIES

If the property covered is a business structure of high value, underwriters consider the risk more carefully. The factors involved in the decision process are essentially the same as those in underwriting a dwelling.



Dwellings are classified according to construction, type of roof, number of dwelling units, occupancy, and degree of fire protection. The degree of fire protection is a significant factor in determining the class and thus the premium rate.

People may find it surprising that some factors that affect automobile insurance premiums also affect dwelling premiums. Some of these common factors are the dwelling's age, neighborhood, construction, value, size, occupancy, and moral hazard. Underwriters weigh these factors and many other arrive at a decision.

The principal consideration in classifying and rating a business structure is the construction, occupancy, exposure, and protection.

With regard to the construction, it refers to the building materials used. For fire insurance, buildings are classified as frame, brick or fire-resistant. Construction alone has a minimal effect on the building's acceptability for insurance coverage. All three types of construction are insurable. The construction of the building may not be the only thing an underwriter considers. The geographical location of the building and its occupancy may also weigh on the underwriter's decision.

The occupancy of a building is the purpose for which the building is used. To the underwriter a frame structure may be acceptable for office work but not acceptable as a dry-cleaning plant.

The effects of occupancy may be divided into three parts:

1. Ignitability, 2. Combustibility, and 3. Damageability.

1. Ignitability measures the likelihood of a fire occurring as the result of a given occupancy. The ignitability may be high for buildings that warehouse chemicals, paints, gasoline, and similar flammable products that are produced or used in large quantity present a considerable ignition hazard.

2. Combustibility is the measure of the likelihood of an existing fire fed by a given occupancy. For instance, a lumberyard or dry-cleaning plant may pose high combustibility likelihood. And in the instance of the lumberyard, while the lumber itself pay pose a small likelihood that it will cause an ignition, once started could burn quickly.

3. Damageability measures the susceptibility of contents to the amount of fire loss. The damageability of items is closely related to their values.



For instance, a fire would have to destroy a great quantity of ink pens to produce a loss even closely approaching that of small fire in designer clothing store. Not because one burns faster or slower, but because the value of one to the other is so different. A characteristic of damageability also is susceptible to water or heat damage in addition to combustion.

An exposure is the likelihood of a damage occurring to the insured object caused by an outside source. Where the building is located may have an impact on the insurability of the building. For instance if a power plant or gasoline manufacturer were the neighbours, this may warrant a rejection of the policy even though the rate for the coverage supposedly reflects the adverse exposure.

Protection of the building may consist of private or internal protection such as fire alarm systems, fire doors, fire blocks in the walls, automatic sprinkler systems, etc.. Protection also includes public protection furnished by city fire departments. Premium rates may be affected by how far the fire station is away from the premises.

CONCLUSION

Your client’s businesses has been running for quite some time. Things have been smooth. Perhaps they only sell certain services, like operating their business from home on their computer, and they don’t think there’s really much risk or liability involved.

They may be the sole proprietor, the only employee, or they could have several people working for them. Whatever the case may be, they need to consider the prospect of being sued or held liable for certain damages, real or perceived.

Depending on the type of business they operate, they could be one lawsuit away from going under. One simple lawsuit could cost them thousands or even tens and hundreds of thousands of dollars in legal fees to fight. These lawsuits can drag on for years and, whether they are completely free and clear of the charges or not, it can still be devastating.

Most people have a tendency to assume liability coverage is only necessary for retail or other physical store presences.

If they leave their business open to liability, it could cost them everything they built and possibly even their own personal assets if they haven’t gone about protecting their personal assets and business properly from the beginning.

Understanding General Insurance Risk & Liability Exposures Self … Three.pdf · 2020-05-28 · The...

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