Liability Insurance

Legal Liability: Legal obligation imposed on a party for its negligence, failure to fulfill contractual obligations or violation of law.

 

Liability can arise because of:

1. Tort

2. Breach of Contract

3. Statue

 

1. Tort: A tort is wrongful act or omission that invades a legally protected right. Ex.: Right of individual to liberty, the right to be secure in one’s own property and reputation, and the right to privacy.

 

Element of tort:

                                      i.            A legally protected right.

                                    ii.            A wrongful invasion of that right

                                  iii.            Damages as a proximate or direct , result of that invasion

In a tort case, to prove, a plaintiff has to establish all element of tort

 

Types of tort:

1.      Negligence

2.      Intentional Tort

3.      Strict Liability Tort

4.      Vicarious Liability

 

1. Negligence: Negligence is an unintentional tort involving the failure of a person to exercise the degree of care that a reasonably prudent person would have exercised, under similar circumstances, to avoid harming another person or a legally recognized entity.

 

Element of Negligence:

 

       I.            A legal duty owed: A legal duty is a mandatory obligation to exercise reasonable care for the safety of others. Legal duty can are created by

a.      Common Law

b.      Statute

 

    II.            Breach of legal duty owed: The failure to observe the standard of care required the circumstances is a breach of the legal duty owed. Courts have adopted “the reasonably prudent person test” to evaluate the conduct of a defendant.

 

 III.            Damages: Plaintiff must establish actual damages of type recognized by law and measurable in monetary terms. Types of damages are

a.       Compensatory damages: which compensate the plaintiff. Represent combined total monetary losses (Actually sustained and any additional monetary losses that can be inferred from the facts and circumstances. They are of 2 types

                                                              i.      Special damages: are compensatory damages that have resulted or will result in measurable dollar amounts of actual loss to the plaintiff. Example: Medical expenses, Damage to property, Loss of earning, Physical disability etc

 

                                                            ii.      General damages: are compensatory damages for intangible losses that may be inferred from the special damages and the other facts and circumstances of the case, such as the intangible losses from physical pain, suffering, Mental anguish, bereavement, loss of consortium,

 

 

 

b.      Punitive damages: which punish the defendant. (Awarded in case of gross negligence, wanton, willful, or outrageous)

 

c.       Injunction: is an equitable remedy where by the court orders the defendant to stop doing something (Such as unfair employment discrimination) or to do something (such as clean up a toxic landfill)

 

 IV.            Casual Connection: The wrongful act must also have been the proximate, or direct, cause of the injury.

 

    V.            Proximate Cause: is the cause that, in a natural and continuous sequence, unbroken by any new and independent cause, produces an event and without which the event would not have happened.

 

 

Defenses to negligent actions:

1.      The defendant can preclude in the plaintiff from establishing any of the elements of negligence can be considered a defense against the negligence action.

2.      Other defenses are:

a)      Contributory negligence: refers to a situation in which the negligence of one person in a law suit is contributing cause of the person’s own damages.

 

b)      Comparative Negligence: Court will apportion damages between the plaintiff and the defendant when both are at fault.

 

c)      Assumption of risk: Person who knowingly and voluntarily expose themselves to the danger of injury are said to have assumed the risk involved. The common law rule referred to as assumption of risk defense.

 

d)     Statutes of limitation: State statutes set forth the period of time within which various types of action must be brought.

 

e)      Immunities: A person or organization that has tort immunity can not be held liable for torts that it has committed within the scope of immunity granted. Example: Public officials, Governmental entities.

 

 

2. Intentional tort: unlike unintentional tort they involve a wrongful act or omission that was intended to cause harm. How ever for some of these are, no actual intent to harm is necessary. Few examples of intentional tort is following

 

1.      Intentional torts against the person: Examples

·         Assault: Consist of an intentional, unlawful threat of bodily harm to another under circumstances creating a well founded fear of imminent harm. Ex: your money or your life

·         Battery: Consist of any unlawful and unprivileged touching of another person.

·         False imprisonment: intentional and unlawful detention of one person by another.

·         False arrest: intentional unlawful physical restraint of another.

2.      Defamation: A person has right to maintain the reputation he or she has established. Types of defamation cases are

·         Libel: consist of any thing of a defamatory nature which is published. Ex. Pictures, cartoons, moving pictures, signs, and statutes.

·         Slander: Consist of defamation of oral nature, conveyed by speech alone.

3.      Invasion of right of privacy :

a.       Intrusion on solitude or seclusion: Ex. Placing of hidden microphone, eavesdropping, the tapping of telephone lines, and the use of telephoto lenses.

 

b.      Physical invasion: Ex. searching a shopping bag, unauthorized taking of blood sample.

c.       Public discloser of Private facts: The right to sue however depends on the plaintiff’s public prominence.

 

d.      Unauthorized release of confidential information: Ex. Medical or financial record.

4.      Fraud: fraud, deceit, and misrepresentation are interchangeable. Fraud is a deception to induce another to part with property or to surrender a legal right.

5.      Bad Faith: based on theory that, in certain cases, the plaintiff is entitled to additional damages above those typically awarded for breach of contract. These cases involve alleged outrageous or extreme conduct, or the defendant breach of an implied duty of good faith and fair dealings. Ex. Liability insurer refusal to defend it’s insured. Breach of employment contract involving wrongful discharge or discrimination

 

 

6.      Interference with relationships between others:

a. Injurious falsehood: includes disparaging statements with respect to quality of merchandise or the validity of person’s title to property.

b.Unfair competition: under common law no person can pretend that his or her goods are the goods of a competitor by the use of similar trademarks, labels, wrappers, or other fraudulent imitations or devises. Unfair competition commences when the imitation deceives the public into buying one party’s goods in the mistaken belief that they are another party’s product.

c. Interference with employment: Tort provides right of action in following situations:

A discharge employee may have right of action against third party who used unlawful means to procure the employee’s discharge by an employer

A person may have right of action against another person who prevented him or her from obtaining employment through some unfair means such as false statement or threats.

d. Interference with copyrights, patents, or trademark

7.      Misuse of legal process:

a.Malicious prosecution: improper institution of criminal proceedings without probable cause, with malice and with an end of the proceedings favorable to the defendant in criminal action. Civil proceeding such as actions to have a person declared bankrupt or incompetent as well as to criminal proceedings.

b.Malicious abuse of Process: is use of civil or criminal procedure for a purpose for which they were not designed. Such as a creditor’s commencing a criminal case to compel a person to pay a debt.

 

8.      Intentional torts against property:

                                                              i.      Trespass: real property is land and building, as well as items attached to building. Personal property is anything else a person can own.

1.      Trespass to real property: The owner and occupier (renter) of property has the legally protected right to exclusive possession and use of land. It may occurred on the surface of the land, beneath it, or over it within the airspace required by the owner for peaceful enjoyment of the property.

2.      Trespass to Personal Property: is the forcible interference with another person’s possession of the property. Thus if a person unjustifiably kills another person’s dog, the killing would be a trespass to personal property.

 

 

                                                            ii.      Conversion: is the intentional and unlawful exercise of control over personal property to the detriment of the person who is entitled to control it. The tort applies to tangible, movable and personal property and not land. E.g. entrustment of auto.

 

 

9.      Nuisance: Nuisance: is broadly anything interfering with another person’s enjoyment or right.

a.Private nuisance: unreasonable and unlawful interference with another person’s use or enjoyment of his or her real property. E.g. undue noise

b.Public nuisance: affect public at large or at least substantial segment of public. E.g. Pollution of river.

 

 

3. Strict Liability tort: Tort liability can be imposed when the defendant acted neither negligently nor with intent to cause harm. The term strict liability also used to describe liability imposed by certain statutes, such as workers compensation laws.

 

Strict liability imposed under tort principles includes the following:

 

1.      Abnormally dangerous instrumentalities: Any person who owes, possess, maintains, or stores an “abnormally dangerous instrumentalities” can be held liable by any one who is injured by instrumentalities. E.g. dynamite, gasoline, noxious chemical, explosives, wild animals while in captivity and domesticated animals.

 

2.      Ultra hazardous activities: An abnormally instrumentality can result in injury or damage to others even when no active role is played by the owner of the instrumentalities. In event any person or organization can be held strictly liable for engaging in an activity that is unreasonably dangerous and produce injury to others. E.g. blasting, oil well drilling, mining, the manufacturing dangerous and produces injury to others.

3.      The sale of dangerously defective products: Strict liability generally applies to the sale of products that are defective and unreasonably dangerous to the person or property of users or consumers. Mere proof of the defect and the resulting damages are sufficient to support a cause of action against the seller.

 

4. Vicarious Liability

 

In some situations, a person or organization that has not behaved wrongfully can be held legally liable for torts committed by others. This “indirect liability” is known as vicarious liability.

Respondeat superior, or “let the employer answer,” is the legal phrase that describes an employer’s vicarious liability for employees torts

 

Generally, an employer is not vicariously liable for torts committed by his or her independent contractor, as they have right to direct or control how the result will be achieved. But an employer of contractor can be held liable for following duties

 

1.      Nondelegable duties: this duty can not be sifted to any one else, including an independent contractor. E.g. A landlord, for example has the non delegable duty to keep common area of rented property safe.

2.      Inherently dangerous activities: People who employ independent contractor to carry out inherently dangerous activities. Are strictly liable for ensuing harm. E.g. An employer is strictly liable for harm cause by blasting operations performed by an independent contractor on behalf of the employer.

 

 

 

2. Contracts:

Legal Liability based on Contracts can arise because of the following reason

 

1.      Breach of contract: Is a legally enforceable promise or set of promises between two or more parties. Each party to the contract has the legal duty to perform the promise.

2.      Hold Harmless and indemnity agreements (Indemnity agreement): Under hold harmless or indemnity agreement , one party to the contract (A) promises to pay another party (B) for certain losses sustained by B. In some cases A may agree to pay for damages to B’s own property. For example Tenant in a building may agree in its lease with the building owner to pay for any fire damage to building that occurs during the term of lease.

 

Building lease, auto rental agreement, elevator maintenance agreement, construction agreement, purchase orders, and vessel charters are example of many types of contract under which an organization might enter into a hold harmless agreement or indemnity agreement.

 

In other cases A may agree to indemnify B for defenses costs and damages resulting from third party tort claims against B.

 

In above case A is indemnitor and B is called indemnitee. Liability assumed by indemnitor is frequently referred to as ‘Contractual Liability’. Such arrangements are non insurance transfer.

 

3.Statutes

 

Legal liability based on statutes: This type of obligation is the form of strict liability, except that it is based on entirely on requirement imposed by statute rather than on tort law principles.

 

Workers Compensation Laws

Other Statute imposing strict liability:

a.       Uniform aeronautics law: Adopted in some states, impose absolute liability on owner of an aircraft for bodily injury or property damage, occurring on land as the result of ascent, decent, or flight of the aircraft or dropping or falling of any object from the aircraft.

b.      Auto owner legally liable: Some states have statutes that make every auto owner legally liable for negligent operation of the auto by anyone who operates the auto with the owners’ permission.

Under common law, an auto owner usually cannot held liable for the negligence for permitted user unless (1) the user is an agent or employee of the owner (2) the owner negligently entrusted the auto to the user.