Principles of Insurance Final Exam Study Guide Violation of a person s legal rights or a failure to perform a legal duty owed to a person or to society as a whole Chapter 19 The Liability Risk Legal Wrong Legal Wrongs Include Crime Breach of contract Tort Tort Legal wrong for which the court allows a remedy in the form of money damages The person who is injured plaintiff by the action of another can sue for damages Torts fall into three categories Intentional fraud assault Strict liability liability is imposed regardless of negligence or fault Negligence failure to exercise the standard of care required by law to protect others from an unreasonable risk of harm o The standard of care is based on that required of a reasonably prudent person Compensatory Damages Compensate the victim for losses actually incurred o Special damages provide compensation for medical expenses o General damages provide compensation for pain and suffering Punitive Damages Designed to punish people and organizations so that others are deterred from committing the same wrongful act Special Applications of the Law of Negligence Attractive Nuisance o Hazardous condition that can attract and injure children The occupants of land are liable for the injuries of children who may be attracted by some dangerous condition feature or article Ex A building contractor leaves the keys in a tractor and child is injured while driving it Owners and operators of automobiles who drive in a careless manner can be held liable for property damage or bodily injury sustained by another person o An owner who is not the operator can be held liable for the acts of operators if an agency relationship exists Doctrine of Respondeat Superior o Employer can be held liable for the negligent acts of employees while they are acting on the employer s behalf Worker must be an employee Employee must be acting within the scope of employment when the negligent act occurred o Parents can be held liable for the actions of a child if The child uses a dangerous weapon to injure someone The child is acting as an agent for the parents A minor child is operating a family car Defects In the Current Tort Liability System Include Inefficiency in compensating injured victims Rising tort liability costs Uncertainty of legal outcomes Higher jury awards Long delays in settling lawsuits Several Factors Help Explain the Substantial Increase in Tort Costs Over Time Juries and judges desensitized to the value of the dollar when damages are awarded Rising medical costs Abuses in class action lawsuits An increase in lawsuits against company officials Deep pocket syndrome Chapter 20 Homeowners Insurance Section I Homeowners Insurance Forms Drafted by the Insurance Services Office ISO widely used in the US A policy can be used to cover the family dwelling other structures personal property additional living expenses personal liability claims Six forms are available our focus will be on the homeowners 3 policy HO 3 Policy HO 3 Special Form Covers the dwelling and other structures on a risk of direct physical loss basis o All direct physical losses are covered except those losses specifically excluded o Losses to the dwelling and other structures are paid on the basis of full replacement cost with no deduction for depreciation if certain conditions are met o Personal property is covered on a named perils basis Analysis of HO 3 Policy Coverage A Dwelling o Covers dwelling on the residence premises and any structure attached to the dwelling Coverage specifically excludes land Coverage B Other Structures o Insures other structures on the residence premises Includes a detached garage tool shed etc Structures that are rented out or used for a business are excluded Amount of coverage is based on the amount of insurance in Coverage A Coverage C Personal Property o Insures personal property owned or used by an insured Personal property is covered anywhere in the world both on and off the premises The amount of coverage is 50 of Coverage A Coverage for personal property at another residence such as a vacation home is limited to 10 of Coverage C or 1 000 whichever is greater Covered losses to personal property are settled on the basis of actual cash value at the time of loss Actual cash value is the current replacement cost less depreciation It is not the price you paid less depreciation Ex You paid 1 000 for something It now costs 1 200 and it is 40 depreciated Actual cash value is 60 of 1 200 720 Coverage D Loss of Use o Provides protection when the residence premises cannot be used because of a covered loss Coverage is 30 of Coverage A Additional living expense incurred by the insured to maintain the family s standard of living Coverage applies if the home is not damaged but a civil authority is the increase in living expenses actually prohibits the insured from using the premises Additional Coverages The Following Persons are Covered Under Policy Named insured and spouse Children and other relatives residing in the home Other persons under 21 who are in their care Full time students away from home Section I Perils Insured Against Dwelling and other structures are insured for all direct physical losses unless Personal property is insured for a direct physical loss if it is caused by one of the specifically excluded perils listed in the policy o Named perils include Fire Windstorm Hail Explosion Riot Aircraft Vehicles Smoke Vandalism Theft Section I Exclusions Concurrent causation losses Losses due to earth movements including earthquakes landslides and sinkholes Certain water losses including floods Losses due to neglect power failure or faulty design Losses which are intentional Losses due to war or nuclear hazard Section I Conditions Losses to personal property are paid on the basis of actual cash value o If the insured purchases a replacement cost endorsement there is no After giving notice to the insured the insurer has the right to repair or replace any deduction for depreciation part of damaged property Losses to the dwelling and other structures are paid on the basis of replacement cost with no deduction for depreciation o If the dwelling is insured for at least 80 of replacement cost at the time of loss partial losses are paid in full o Replacement cost is the amount necessary to repair or replace the dwelling with material of like kind and quality at current prices If the dwelling is insured for less than 80 of the replacement cost the insured receives the larger