8.1 Negligence, Torts, and Legal Liability

Why Legal Liability Drives Casualty Insurance

Liability (casualty) insurance pays sums the insured becomes legally obligated to pay as damages to a third party. The key word is legally. An insurer does not pay because the insured feels guilty or made a moral promise; it pays only when the law would force the insured to pay. On the national P&C exam, establishing that legal obligation almost always means proving negligence.

Torts vs. Contracts vs. Crimes

Legal liability arises from three sources, and the exam tests the boundaries among them.

Trap: Liability policies cover tort liability, not contractual liability the insured assumes by agreement, except for the limited "insured contract" exception in the CGL.

Categories of Torts

Torts split into three groups, and only one is the bread and butter of liability insurance.

• Negligence (unintentional tort) — failure to use reasonable care. This is what liability insurance is built to cover.
• Intentional torts — deliberate acts such as assault, battery, false arrest, libel, and slander. Most are excluded, though ISO Coverage B (personal and advertising injury) carves back libel, slander, and false arrest.
• Strict (absolute) liability — liability imposed regardless of fault, applied to abnormally dangerous activities (blasting, keeping wild animals) and defective products.

The Reasonable-Person Standard

Negligence is measured against an objective benchmark: what an ordinarily prudent person would have done under the same circumstances. The insured's personal good intentions or below-average skill do not excuse conduct that falls short of that standard. Professionals (doctors, attorneys, accountants) are held to the higher standard of a reasonable professional in their field, which is why their exposure is covered by professional liability rather than ordinary CGL.

The Four Elements of Negligence

A claimant must prove all four elements. Miss one and there is no negligence, no legal liability, and nothing for the insurer to pay.

1. Duty — a legal obligation to exercise reasonable care toward the claimant (e.g., a driver owes other motorists a duty of safe operation).
2. Breach — failure to meet that standard of care, by either an act or an omission.
3. Proximate cause — an unbroken causal chain linking the breach to the harm. The harm must be a reasonably foreseeable result of the breach.
4. Damages — actual, measurable injury or loss. Without real harm, even careless conduct creates no liability.

Proximate Cause and Intervening Acts

Proximate cause is heavily tested. A superseding intervening cause — a new, independent, unforeseeable event — breaks the chain and relieves the original wrongdoer of liability. If, however, the intervening act was foreseeable, the chain remains intact and the original negligent party stays liable.

Memory aid: The four elements spell out the claimant's checklist — Duty, Breach, Causation, Damages. Drop any letter and the claim collapses.

Negligence Per Se and the Res Ipsa Loquitur Doctrine

Two doctrines make a claimant's burden easier to prove, and both appear on the exam.

• Negligence per se — when the defendant violates a statute designed to protect the public (running a red light, ignoring a building code), the breach element is presumed established by the violation itself. The claimant need not separately argue the conduct was unreasonable.
• Res ipsa loquitur ("the thing speaks for itself") — negligence is inferred when the harm would not normally occur without negligence, the instrumentality was under the defendant's exclusive control, and the claimant did not contribute. A classic example is a surgical instrument left inside a patient.

Legal vs. Moral Obligation

The exam repeatedly contrasts legal obligation with moral obligation. A liability policy never pays simply because the insured feels responsible. There must be a legally enforceable obligation — typically a negligence judgment or a settlement made with the insurer's consent. This is also why voluntary payments the insured makes on their own, without the insurer's agreement, are generally not reimbursed: they were not legally compelled.

Absolute (Strict) Liability and Products Liability

Some activities impose liability regardless of fault. Strict (absolute) liability attaches to abnormally dangerous activities (blasting, storing explosives, keeping wild animals) and to defective products that injure users. The injured party need not prove negligence - only that the activity or defect caused the harm. This is why products-completed operations is a separate, heavily-reserved CGL exposure with its own aggregate.

Trap: A manufacturer can be liable for a defective product even if it used all reasonable care - strict products liability does not require proof of negligence, only a defect that caused injury.