8.1 Negligence, Torts, and Legal Liability

Liability Insurance and the Source of Legal Obligation

Liability insurance (also called third-party coverage) protects an insured against amounts they become legally obligated to pay because they injured another person or damaged another's property. Unlike first-party property coverage, which pays the insured directly, liability coverage pays a claimant on the insured's behalf.

Legal liability arises three ways on the exam:

• Tort - a civil wrong other than breach of contract (the main driver of claims).
• Contract - a duty voluntarily assumed by agreement (generally excluded as assumed liability).
• Statute - liability imposed by law, such as workers' compensation.

Torts: Three Categories

A tort is a civil wrong for which a court may award damages. Tests classify torts into three buckets:

Exam trap: a crime is a wrong against society prosecuted by the state, while a tort is a wrong against an individual. The same act (a drunk-driving crash) can be both a crime and a tort, but only the tort liability is insurable.

The Four Elements of Negligence

To win a negligence suit, a plaintiff must prove all four elements. If any one is missing, there is no negligence and the liability policy does not respond:

1. Duty of care - a legal obligation to act as a reasonably prudent person would.
2. Breach of duty - failure to meet that standard (an act or omission).
3. Proximate cause - an unbroken chain of causation linking the breach to the harm.
4. Damages - actual, measurable injury or loss.

Think "D-B-P-D." A store owner who fails to mop a known spill (breach of duty) and a shopper who slips and breaks a wrist (damages from proximate cause) satisfies all four - coverage triggers.

Putting the four elements to work in a claim

Examiners reward candidates who can apply Duty-Breach-Proximate cause-Damages to a fact pattern rather than just recite them. Trace a slip-and-fall: a grocer owes a duty of reasonable care to customers (duty); the grocer ignores a spill reported an hour earlier (breach); a shopper steps in it and falls (proximate cause, because the harm is the foreseeable result of leaving the spill); the shopper fractures a wrist and incurs $9,000 in bills (damages). All four are present, so the liability policy responds.

Remove any one - say the spill happened seconds before with no chance to clean it - and breach fails, defeating the negligence claim and the coverage. The exam often hides the missing element.

Degrees of negligence and why they matter

Negligence comes in degrees the exam may name. Ordinary negligence is the failure to use reasonable care; gross negligence is a reckless disregard that can expose the defendant to punitive damages; and negligence per se presumes breach when the defendant violated a safety statute (running a red light) that caused the type of harm the statute meant to prevent. Distinguishing these matters because punitive damages tied to gross or willful conduct are uninsurable in many states as a matter of public policy, so coverage for the same accident can differ depending on how the conduct is characterized.

Assumed (Contractual) Liability and the "Insured Contract"

Standard liability forms exclude liability the insured assumes under a contract, because the insurer never priced for promises the insured chose to make. The ISO Commercial General Liability (CGL) Coverage Form CG 00 01 restores coverage for liability assumed in an "insured contract" - defined categories such as leases of premises, sidetrack agreements, and that part of any contract where the insured assumes the tort liability of another.

Bold rule: the policy never covers an insured's own breach of contract or warranty; it covers tort liability that an insured contract shifts to the insured. Expected or intended injury is also excluded, except reasonable force used to protect persons or property.

The Reasonable-Person Standard and Standard of Care

The standard of care measures conduct against what a hypothetical reasonably prudent person would do under the same circumstances. The standard rises for those with special skill: a professional is held to the standard of a competent member of that profession, which is why negligence by a professional becomes malpractice (errors and omissions, covered by professional liability rather than the CGL).

Negligence per se is a related shortcut: when a defendant violates a safety statute (running a red light) and the violation causes the type of harm the statute meant to prevent, breach of duty is presumed. The plaintiff still must prove proximate cause and damages.

Proximate Cause and Foreseeability

Proximate cause is the legal cause that, in a natural and continuous sequence unbroken by an intervening cause, produces the injury. Courts ask whether the harm was a foreseeable result of the breach.

• A clerk leaves a floor wet; a shopper slips - foreseeable, so proximate cause holds.
• A clerk leaves a floor wet; a meteor then strikes the shopper - the meteor is a superseding cause that breaks the chain, defeating liability.

Exam trap: "cause in fact" (the but-for test) is necessary but not sufficient; the cause must also be legally proximate. Remote or unforeseeable consequences are not the insured's liability.