C13: Insurance Against Liability-Part 1 cheat sheet

Liability insurance indemnifies the insured for sums legally owed to third parties and funds the defense of covered claims; it is third-party coverage, unlike first-party property insurance.

Civil wrongs divide into torts (negligence, intentional torts, strict liability), breach of contract, and statutory violations; liability policies respond mainly to tort claims.

Compensatory damages restore the claimant (medical bills, lost wages, pain and suffering); punitive damages punish the defendant and are uninsurable in many states as against public policy.

The four elements of a negligent tort: duty owed, breach of that duty, proximate cause, and actual damages; all four must be present for recovery.

Sources of liability law: common law (judge-made), statutory law, administrative regulation, and case precedent; the policy responds regardless of which source creates the obligation.

A legal duty arises from relationship, statute, or foreseeability; no duty means no negligence claim, so duty analysis is the threshold question in any liability review.

Joint and several liability allows a claimant to collect the full judgment from any one liable party in many jurisdictions; comparative fault rules vary by state and affect recovery.

The insured's legal obligation must be established by suit, settlement with consent, or written agreement; a policy does not pay a mere allegation without legal foundation.

Negligence standard: conduct falling below the reasonable person standard; professionals are held to the skill of an ordinary member of the profession in good standing.

Negligence per se: violation of a statute designed to protect a class of persons to which the claimant belongs, where the violation causes the injury.

Res ipsa loquitur permits inference of negligence when the instrumentality was under the defendant's exclusive control and the event would not normally occur absent negligence.

Defenses to negligence: contributory negligence (complete bar in a few states), comparative negligence (pure or modified), and assumption of risk (voluntary knowing exposure).

Intentional torts (battery, assault, false imprisonment, trespass, conversion) generally fall outside the CGL occurrence definition and are excluded.

Strict liability applies without proof of fault: abnormally dangerous activities, defective products, and animal ownership; the CGL covers many strict liability exposures unless excluded.

Vicarious liability holds one party liable for another's acts, typically employer for employee within scope of employment; independent contractors generally do not create vicarious liability.

Statutes of limitation bar stale claims and statutes of repose set outside deadlines from the act; both affect when a claim is legally viable.

Coverage A insures sums the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which the coverage applies, caused by an occurrence.

Bodily injury includes sickness, disease, and death; emotional distress alone is generally not bodily injury unless it arises from physical injury or is covered by endorsement.

Property damage means physical injury to tangible property (including loss of use) or loss of use of tangible property not physically injured.

The insurer's duty to defend applies to suits seeking damages for covered injury even if the allegations are groundless, false, or fraudulent; the duty is broader than the duty to indemnify.

The policy territory and the occurrence must both satisfy coverage; injury must occur during the policy period for occurrence-based coverage.

Defense costs are paid in addition to the limits for most CGL forms and do not erode the limit until the limit is exhausted.

The insured's duty to cooperate and give prompt notice of an occurrence is a condition precedent to coverage in many forms.

Damage to the insured's own work or product is handled through the impaired property and your-work exclusions rather than the core grant of coverage.

Coverage B covers sums the insured becomes legally obligated to pay as damages because of personal and advertising injury caused by an offense arising out of the insured's business.

Personal and advertising injury includes false arrest, malicious prosecution, wrongful eviction, libel, slander, and invasion of privacy.

Advertising injury covers oral or written publication of material that disparages a person's or organization's goods, products, or services, and infringement of copyright, trade dress, or slogan in an advertisement.

Coverage B is offense-based, not occurrence-based; the offense, not the resulting injury, must occur during the policy period.

The knowing-violation exclusion bars coverage for injury caused by an offense committed by or at the direction of the insured with knowledge of falsity.

The breach-of-contract exclusion bars coverage for injury arising out of breach of contract, except an implied contract to protect another's reputation or privacy.

The insured's duty to defend applies to suits alleging offenses covered under Coverage B; the insurer may defend under a reservation of rights.

Coverage B does not apply to advertising injury arising out of infringement of trademark, trade name, or service mark in some older forms; verify the specific form used.

Coverage C pays reasonable medical expenses incurred within one year of the date of an accident for bodily injury caused by an accident on the insured's premises or arising out of the insured's operations.

Medical payments coverage is no-fault: the insurer pays regardless of the insured's legal liability, so it does not require a claim or suit.

Coverage C applies to persons other than the insured and excludes the insured's employees (workers compensation), tenants, and persons covered under a workers compensation law.

Payment under Coverage C does not constitute an admission of liability and does not affect the insured's rights.

Coverage C limits are usually small (commonly $5,000 or $10,000 per person) and are separate from Coverage A limits.

The insurer may pay medical expenses without the injured person's consent or a release; payment is voluntary and does not waive defenses.

Coverage C excludes injury to a person covered by workers compensation or similar law and injury to a person engaged in the insured's business.

First aid rendered at the time of the accident is covered; ongoing medical treatment beyond the one-year window is not.

Key Coverage A exclusions: expected or intended injury, contractual liability, liquor liability, workers compensation, employers liability, pollution, aircraft, auto, watercraft, mobile equipment, war, and damage to your product/work.

The expected or intended injury exclusion bars coverage for injury the insured expected or intended; it does not bar injury resulting from reckless conduct in many jurisdictions.

The contractual liability exclusion bars liability assumed under contract, with exceptions for insured contracts such as leases and easement agreements.

The pollution exclusion bars bodily injury or property damage arising from actual or threatened discharge of pollutants; the absolute pollution exclusion is broader than earlier forms.

Conditions include duties after loss (notice, cooperation, proof of loss), legal action against the insurer, separation of insureds, and the insured's right to settle.

Definitions control the scope: occurrence, bodily injury, property damage, personal and advertising injury, insured contract, and your work.

Endorsements modify the base form: additional insured, waiver of subrogation, primary and noncontributory, and pollution buy-backs.

The separation of insureds condition means coverage applies as if each insured were the only insured, except for limits and specific exclusions.

Occurrence policy: coverage applies to injury or damage that occurs during the policy period, regardless of when the claim is reported (subject to notice conditions).

Claims-made policy: coverage applies to claims first made against the insured during the policy period, and the wrongful act must occur on or after the retroactive date.

The retroactive date bars coverage for wrongful acts occurring before that date; a prior-acts endorsement can extend coverage backward.

The extended reporting period (tail) extends the time to report claims after a claims-made policy expires; it does not extend the policy period for new acts.

Trigger theories: exposure (injury occurs at exposure), manifestation (injury discovered), continuous/injury-in-fact (injury occurs over multiple periods), and double trigger for property damage.

The continuous trigger can implicate multiple policy years and multiple insurers, leading to allocation disputes among carriers.

Occurrence-based coverage generally provides broader protection for long-tail exposures like pollution and construction defects than claims-made forms.

Notice of circumstances that may give rise to a claim can be reported under claims-made forms to preserve coverage before a claim is made.

Umbrella liability provides coverage above underlying policies and can drop down to cover gaps in the underlying coverage, subject to a self-insured retention.

Excess liability follows the terms of the underlying policy and pays only after the underlying limits are exhausted; it generally does not broaden coverage.

Umbrella policies typically require scheduled underlying coverage with specified limits; failure to maintain underlying coverage can trigger a self-insured retention.

Professional liability (errors and omissions) covers negligent acts, errors, or omissions in rendering professional services; it is often written on a claims-made basis.

Directors and officers liability covers wrongful acts of directors and officers; employment practices liability covers wrongful termination, discrimination, and harassment claims.

Cyber liability covers data breach, privacy, and network security exposures, often including notification costs and regulatory defense.

Commercial auto and workers compensation are typically excluded from the CGL and must be insured separately.

Umbrella and excess policies often include their own defense obligations that apply only after the underlying limits are exhausted.

The general aggregate limit is the most the insurer pays for all covered claims under Coverage A and B in a policy period, other than products-completed operations.

The products-completed operations aggregate limit applies separately to bodily injury or property damage arising from the insured's products or completed work.

The per-occurrence limit is the most paid for all damages arising out of any one occurrence, regardless of the number of claimants.

The personal and advertising injury limit is a separate limit, often equal to the per-occurrence limit, subject to the general aggregate.

A deductible is the amount the insured pays before the insurer pays; it may be per occurrence or per claim and may or may not reduce the limit.

A self-insured retention (SIR) is a specified amount the insured retains before coverage applies; unlike a deductible, the insured typically controls the defense of claims within the SIR.

Defense costs are generally outside the limits for CGL forms but may be inside the limit for professional liability and excess policies.

The damage to premises rented to you limit and the medical expense limit are separate sublimits within the CGL form.