Liability & Negligence Concepts

What Casualty Insurance Covers

Casualty insurance (also called liability insurance) protects an insured against financial loss arising from legal liability to third parties — that is, the obligation to pay for bodily injury or property damage the insured causes to someone else. This differs from property insurance, which pays for damage to the insured's own property. Most civil liability arises from torts — civil wrongs other than breach of contract for which the law provides a remedy.

Torts fall into three broad groups. Intentional torts are deliberate acts (assault, libel, slander, false arrest). Negligence is the failure to exercise the degree of care a reasonable person would use, and it is the basis for the vast majority of liability claims. Absolute (strict) liability imposes responsibility regardless of fault. Because negligence drives most claims, the exam tests its structure heavily.

The Four Elements of Negligence

To recover for negligence, an injured party (the plaintiff) must prove all four of the following elements. If any one is missing, there is no legal liability:

A useful exam memory aid is that a near-miss with no injury is not negligence, because damages are absent. Likewise, a careless act that harms no one creates no liability. Proximate cause is the element most often litigated: the harm must be a natural and foreseeable consequence of the breach, not a remote or freak result.

Defenses to Negligence

Even when negligence is alleged, the defendant may raise defenses that reduce or eliminate liability:

• Contributory negligence — if the plaintiff's own negligence contributed to the injury at all, recovery is completely barred. This harsh common-law rule survives in only a handful of states.
• Comparative negligence — most states have replaced contributory negligence with this rule, which reduces the plaintiff's recovery in proportion to their share of fault. Under a pure comparative system, a plaintiff 90% at fault still recovers 10%; under a modified (50%/51%) system, a plaintiff recovers only if their fault is below the threshold.
• Assumption of risk — a plaintiff who voluntarily and knowingly exposes themselves to a known danger (e.g., a spectator hit by a foul ball) may be barred from recovery.
• Last clear chance — a doctrine that lets a contributorily negligent plaintiff still recover if the defendant had the final opportunity to avoid the harm.

Exam scenario: a worker ignores a posted hazard sign and is injured. In a comparative-negligence state, the award is reduced by the worker's percentage of fault, not eliminated.

Types of Damages

When liability is established, the defendant owes damages. The exam divides them into two main families:

Compensatory damages make the injured party whole and split into two subtypes:

• Special damages — specific, measurable economic losses: medical bills, lost wages, repair costs, future earnings.
• General damages — non-economic, harder-to-quantify losses: pain and suffering, disfigurement, loss of consortium.

Punitive damages (also called exemplary damages) are awarded in addition to compensatory damages to punish willful, wanton, or grossly negligent conduct and deter others. Many liability policies exclude punitive damages, and several states prohibit insuring them as against public policy.

Special Liability Doctrines

Three expanded-liability concepts appear on the exam:

• Vicarious liability — one party is held responsible for another's negligence because of a relationship, such as an employer for an employee acting within the scope of employment (respondeat superior), or a vehicle owner for a permissive driver.
• Absolute (strict) liability — liability without fault, applied to ultrahazardous activities (blasting, keeping wild animals), defective products, and many workers compensation and dram-shop statutes. The plaintiff need not prove a breach of duty.
• Liability exposures — the sources from which claims arise: premises and operations, products and completed operations, personal/advertising injury, contractual liability, and the use of autos.

Occurrence vs. Claims-Made Coverage Triggers

Liability policies are written on one of two trigger bases, a frequently tested distinction:

• Occurrence form — covers injury or damage that occurs during the policy period, no matter when the claim is reported (even years later). It responds to the date of loss.
• Claims-made form — covers claims first made against the insured during the policy period (subject to a retroactive date). It responds to when the claim is filed.

Claims-made policies use a retroactive date (the earliest loss date covered) and offer an extended reporting period (tail) to cover claims reported after the policy ends but arising from earlier covered events. Occurrence coverage is generally preferred by insureds because it has no reporting gap, but claims-made is common for professional liability and products lines with long-tail exposures.