8.1 Negligence, Torts, and Legal Liability

Liability Is Always Third-Party

Liability insurance pays sums the insured becomes legally obligated to pay as damages because of bodily injury or property damage to a third party. It is the largest source of questions on the casualty half of the Property & Casualty exam. Contrast it with first-party coverage, which pays the insured's own loss.

Trap: If a question shows the insurer paying the named insured's own loss, that is property/first-party coverage, never liability.

Sources of Legal Liability

Legal liability — a legally enforceable obligation to pay — arises from three sources tested on the exam:

• Torts — civil wrongs (other than breach of contract) for which a court awards damages. The dominant source of insured liability.
• Contract — liability the insured assumes by agreement (a lease, a hold-harmless clause). The ISO CGL form covers limited "insured contracts."
• Statute — liability imposed by law, such as workers compensation or dram-shop statutes.

Three Categories of Torts

Trap: Liability policies cover negligence, not intentional acts — the standard CGL and Homeowners forms exclude "expected or intended" injury. Strict liability (e.g., a products claim) is covered because no intent is required.

The Four Elements of Negligence (DBCD)

Negligence is the failure to exercise the care a reasonably prudent person would use under similar circumstances. To recover, the claimant must prove ALL four elements:

1. Duty — a legal obligation to exercise reasonable care, arising from a relationship, foreseeability, or statute.
2. Breach — failure to meet that standard (speeding, failing to salt an icy walk).
3. Causation (proximate cause) — the breach directly and foreseeably caused the harm.
4. Damages — actual, measurable harm occurred.

Without all four, there is no liability and the insurer owes nothing.

Proximate Cause: A Two-Part Test

• Cause in fact ("but-for") — but for the breach, the injury would not have occurred.
• Legal cause — the harm was a foreseeable result, with no superseding intervening event breaking the chain.

Exam point: An intervening cause is foreseeable and does NOT break the chain; a superseding cause is unforeseeable and DOES break it, defeating proximate cause.

Special Negligence Doctrines

Res ipsa loquitur shifts the burden of proof when (1) the event does not normally occur without negligence, (2) the instrumentality was in the defendant's exclusive control, and (3) the plaintiff did not contribute to the harm.

The Reasonable Person Standard

The yardstick for both duty and breach is the reasonably prudent person — an objective hypothetical individual. The standard adjusts: professionals (doctors, agents, attorneys) are held to the standard of a reasonable member of their profession, which is why E&O and malpractice coverage exist; children are judged against a reasonable child of similar age — unless engaged in an adult activity like driving, when the adult standard applies.

Liability of Special Parties

The law adjusts the duty owed based on relationships the exam tests:

• Premises liability grades the duty by the visitor's status: an invitee (a customer) is owed the highest duty (inspect for and warn of hidden dangers); a licensee (a social guest) is owed a duty to warn of known dangers; a trespasser is generally owed only a duty not to willfully injure, except the attractive nuisance doctrine raises the duty toward child trespassers drawn by something like an unfenced pool.
• Bailees who hold another's property for mutual benefit owe a duty of reasonable care and can be liable for damage to the bailed property.
• Common carriers and innkeepers historically owe a heightened duty to passengers and guests.

Absolute (Strict) Liability in Practice

Strict liability attaches without proof of fault for abnormally dangerous activities (blasting, storing explosives, keeping wild animals) and for defective products that reach the consumer without substantial change. Because no intent or carelessness need be shown, liability policies generally cover strict-liability exposures - products claims are a core CGL coverage - whereas they exclude the insured's intentional torts.

This is why a manufacturer can insure product-defect claims but not deliberate fraud. Recognizing which tort category a scenario falls into (intentional, negligent, or strict) usually tells you immediately whether a standard liability policy will respond.

Tying Sources of Liability to Coverage

Map each source of liability to its insurance solution: tort negligence is the core of CGL Coverage A and auto liability; assumed contractual liability is picked up by the CGL's "insured contract" provision; statutory liability such as workers' compensation has its own dedicated policy. When a question describes a hold-harmless agreement, think contractual liability and the insured-contract exception; when it describes an injury on the premises, think negligence and premises liability.