8.1 Negligence, Torts, and Legal Liability
Key Takeaways
- A tort is a civil wrong (other than breach of contract) for which courts award damages; most liability claims arise from the unintentional tort of negligence.
- Negligence requires ALL FOUR elements: Duty, Breach, Proximate Cause, and Damages (memory aid: DBCD).
- The standard of care is the reasonably prudent person; professionals are held to the higher standard of their profession.
- Proximate cause has two parts: cause in fact (the but-for test) and legal cause (foreseeability with no superseding intervening event).
- Liability insurance is THIRD-PARTY coverage and obligates the insurer to a duty to defend (broader) and a duty to indemnify (narrower).
Torts and the Sources of Legal Liability
A tort is a civil wrong, other than a breach of contract, for which the law provides a remedy in the form of money damages. Liability insurance exists to respond when an insured commits a tort that injures a third party. Understanding torts is the gateway to the entire casualty half of the Property and Casualty (P&C) exam.
Legal liability can arise from three sources:
| Source | Basis | Example |
|---|---|---|
| Tort | Civil wrong | Negligently causing a car crash |
| Contract | Voluntarily assumed | A hold-harmless agreement |
| Statute | Imposed by law | Workers' compensation duties |
Categories of Torts
- Intentional torts — deliberate acts such as assault, battery, libel, or trespass.
- Negligence (unintentional torts) — carelessness, the source of most insured claims.
- Strict (absolute) liability torts — liability without fault for ultrahazardous activities or defective products.
Trap: Insurance covers unintentional harm. Standard liability forms exclude intentional injury because insuring deliberate harm violates public policy.
The Four Elements of Negligence (DBCD)
Negligence is the failure to use the degree of care a reasonably prudent person would exercise under similar circumstances. To recover, the claimant must prove all four elements.
- Duty of care — a legal obligation to act with reasonable care toward others.
- Breach of duty — failure to meet that standard (e.g., texting while driving).
- Proximate cause — the breach directly and foreseeably caused the harm.
- Damages — actual, measurable injury or loss occurred.
Miss any one element and there is no negligence and no insured obligation.
The Reasonable Person Standard
The yardstick is an objective, hypothetical person of ordinary prudence. The standard adjusts in two tested situations:
- Professionals are judged against a reasonable member of their profession (the basis for malpractice and E&O).
- Children are judged against a reasonable child of similar age and experience, unless engaged in an adult activity like driving.
Proximate (Legal) Cause: Two Parts
- Cause in fact — the but-for test: but for the breach, would the harm have occurred?
- Legal cause — the harm must be a foreseeable result, with no superseding intervening cause breaking the chain.
Scenario: A driver negligently parks a car; an hour later a tornado hurls it through a window. The negligent parking is a cause in fact, but the tornado is an unforeseeable superseding cause, defeating proximate cause.
Which list correctly states the four elements a claimant must prove to establish negligence?
Liability Insurance: Third-Party Coverage
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 always third-party coverage.
| Coverage Type | Who It Pays | Example |
|---|---|---|
| First-party | The insured | Collision repairs YOUR car |
| Third-party (liability) | Others you harm | Your negligence injures another driver |
The Insurer's Two Duties
When a covered suit is filed, the insurer owes two distinct duties:
- Duty to defend — provide and pay for a legal defense. It is broader than the duty to indemnify because it is triggered by the mere potential for coverage; the insurer must defend suits that are groundless, false, or fraudulent.
- Duty to indemnify — pay damages the insured is legally obligated to pay, up to the policy limit, only once liability is established by judgment or settlement.
Exam phrasing: "The duty to defend is broader than the duty to indemnify" is a near-certain test statement.
Why It Matters
Defense protects the insured from the process of litigation (depositions, experts, motions), which costs thousands even when the insured wins. Indemnity protects against the outcome (the judgment). Because defense begins as soon as a potentially covered suit is filed, the policy delivers value even when no damages are ever paid.
Bottom line: Know DBCD cold, distinguish intervening from superseding causes, and remember liability is always third-party with two separate insurer duties.
Why is the duty to defend described as broader than the duty to indemnify?
Special Negligence Doctrines
Two doctrines change how a plaintiff proves breach and are routinely tested.
| Doctrine | Meaning | Classic Example |
|---|---|---|
| Res ipsa loquitur | "The thing speaks for itself" - negligence inferred from circumstances | Surgical sponge left inside a patient |
| Negligence per se | Violating a safety statute equals an automatic breach | A driver runs a red light and hits a pedestrian |
Res ipsa loquitur shifts the burden when (1) the event does not normally occur absent negligence, (2) the instrumentality was in the defendant's exclusive control, and (3) the plaintiff did not contribute to the harm. Negligence per se treats violation of a protective statute as the breach element, leaving the plaintiff only to prove causation and damages.
Defense, Settlement, and Supplementary Payments
Liability policies give the insurer the right to investigate and settle any claim. Under the cooperation condition, the insured generally cannot voluntarily admit fault, assume an obligation, or make a payment (other than first aid) without the insurer's consent; doing so can forfeit coverage.
Most forms also pay supplementary payments in addition to the limit:
- Defense attorney fees and court costs taxed against the insured
- Premiums on appeal bonds and bonds to release attachments
- Post-judgment interest that accrues after a judgment is entered
- Reasonable expenses the insured incurs at the insurer's request, including limited lost earnings to attend trial
Because these are outside the limit, a $500,000 personal liability policy can pay well over $500,000 in total. Contrast this with a defense-within-limits (wasting) policy common in professional lines, where every defense dollar reduces what remains to pay the claimant.
Exam connection: The standard of care, the four DBCD elements, and the two insurer duties together explain why every casualty coverage in this guide exists - to fund the defense and indemnity of a tort the insured commits.