Casualty Insurance Fundamentals and Insurance Principles
Casualty insurance pays the financial consequences of legal liability to third parties - bodily injury, property damage, and personal and advertising injury. This domain tests application, not recall: can you use insurable interest, indemnity, fortuity, utmost good faith, subrogation, and proximate cause to explain how a liability claim actually moves?
Where casualty differs from property
- Property pays the insured for its own loss on a first-party basis. Casualty responds to a claim someone else makes against the insured.
- Indemnity means making the insured whole for sums legally owed, plus defense costs - not buying new for old.
- Insurable interest must exist at the time of loss; a party with no exposure to loss cannot collect.
- Subrogation lets the insurer stand in the insured's shoes against the responsible third party after paying.
Fortuity and the coverage trigger
- Coverage requires an accident or continuous exposure that is unintended from the insured's standpoint. Intent to act is not the same as intent to injure.
- Under an occurrence form, the date the injury or damage happens in the policy period drives coverage, even if the claim is reported years later.
- Under a claims-made form, the claim must first be made during the policy period and after the retroactive date.
Limits and how they behave
- A per-occurrence limit caps all damages from one accident; the general aggregate caps all covered claims in the policy period, but normally excludes products-completed operations, which carries its own aggregate.
- Defense costs are usually in addition to the limit; when they sit inside the limit, the limit erodes quickly.
Worked example
A subcontractor's crew breaks a sprinkler line, flooding a general contractor's finished drywall and injuring a security guard. Bodily injury and property damage both arise from one accident, so a single per-occurrence limit applies to the whole event, not one limit per claimant or per damaged item. The drywall is covered because it belongs to another party; the pipe the subcontractor installed is excluded as damage to the insured's own work. The payment then reduces the general aggregate.
Traps that cost marks
- Treating the aggregate as a fresh limit for every claim.
- Assuming a certificate of insurance proves coverage; it is evidence only.
- Confusing intent to act with intent to injure when testing fortuity.
- Ignoring the retroactive date on claims-made forms.