Principle of Insurance
• Liability Insurance
• Liability insurance: Policyholder needs liability insurance not for their own loss, but for the loss of a 3rd party who sues the policy holder.— primary purpose of liability insurance is to protect 3rd parties. For example, auto insurance is the no fault insurance. Meaning even the driver is drunk for example, the insurer still pay for the injured.
• Moral Hazard Issue:
Generally, insurer will compensate 3rd party without recourse back to policyholder when policyholder is not responsible for the damages, will they take the necessary care?
However, this is addressed through implementation of higher premiums against the policyholder going forward; and sometimes insurer will go after policyholder.
• CGL policy commercial general liability
Section II—who is an insured
Section III—limits of insurance
Section IV—commercial general liability conditions
• Key questions to ask
• Who is the insured? (Individual
, partnership or joint venture, limited liability company, an organization, a trust) with respect to the business. (volunteer worker or employee )
• “Named Insureds” who is listed on the policy: E.g. Company itself and perhaps named individuals.
• Other entities are classified as insured by virtue of a certain status (e.g. employees).
• Additional Insureds”, typically other entities engaged in business with policyholder. Most common example is in construction projects involving general contractors & subcontractors usually GC requires SC to name it as an add’l insured under the subcontractor CGL policy
• What is the policy period?—see Declarations
• What is the coverage territory?
• Coverage A – Bodily Injury (BI) and Property Damage (PD)
• Definition: pay special attention of property damages, it has two different situations.
• Insuring agreement (P358): BI: Bodily injury must be caused by an “occurrence” that takes place in the “coverage territory”, Must occur during the policy period.
• Insuring agreement: PD: this must be property damage to another’s property (not the policyholder’s property, as that is covered by their own property insurance policy). However, if insured’s property causes damage to other property (e.g. as result of construction defects), this is what the liability policy should cover.
• Exclusions provided in policy (p. 359-362 in book)
• Acts that shouldn’t be insured (.e. intentional acts) (Controls the moral hazard element)
• Acts that are covered, but not in this particular policy (e.g. workers’ comp, aircraft/auto/watercraft, etc.) “market exclusions”
• Areas that fall in the middle (e.g. pollution )
• “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions (p. 371 in book).
• To get coverage for bodily injury or property damage, it must be caused by an “occurrence”.
Occurrence vs. Claims-Made:
Occurrence: occurrence happed at regulated time;
Claims-made: occurrence and claims-made both happed at regulated time
• Lee v. Interstate Fire & Casualty Co. (deals with “occurrence”)
• Who is insured?
Would priest be insured by policy of diocese?
Para. 2 “each of the following is also an insured…”
Includes employees in course of & scope of employment. Priest is an insured according to this definition.
• Will this behavior (sexual abuse) falls under the policy?
Depending on how priest’s duties are defined, this may not be as automatic as it may seem. But this is clearly an intentional act, so falling within the exclusions.
What is the diocese being sued according to this case?
Negligent supervision diocese is liable for failing to supervise priest’s behavior.
• Policyholder’s burden of proof.
• During policy period
• Within coverage territory
• Covered by the insuring agreement
• No exclusions apply
Insurer has burden of proving any exclusions
• Not a single occurrence, “a single negligent act undoubtedly can produce multiple occurrences the injuries are independent- consider the pharmaceutical company that negligently prepares a batch of drugs, injuring many users. ” “The same kind of negligent act can occur several times with separate injuries, producing several occurrences.
• Right and Duty to defend
• Insurer will step in and defend policyholder in claims liability insurance is litigation insurance. Insurer will hire lawyer policyholder is technically the client, but the lawyer is usually chosen and paid for by the insurer. Other than paying claims, this is the 2nd major obligation of insurer
• Insurers have legal RIGHT to defend they can choose the lawyer and control the litigation (e.g. decide what motions to bring, whether to settle, whether to take the case to trial, etc.) Policyholder essentially becomes a fact witness
• Insurers have legal DUTY to defend insurer is legally obligated to do so
• Supplementary Payments: these will not count against the policy limits
• All expenses they incur (e.g. atty’s fees/cost of defense) however, in some policies (such as professional liability – E&O insurance), these expense
• Intentional Act (exclusion of CGL)
Physicians Insurance Co. of Ohio v. Swanson
The court held that in order to avoid coverage on basis of an exclusion for expected or intentional injuries, insurer had to show that injury itself was expected or intended and not merely that insured's actions were deliberate. It’s about the damages being expected, not necessarily the act itself.
只要damages/injury 不是expected or intended, 就可以免于CGL exclusion。
Carter Lake v. Aetna Casualty & Surety Co.
Once city was alerted to problem, its cause, and likelihood of reoccurrence, it could not ignore problem and then look to insurer to reimburse it for liability incurred by reason of such inaction, and thus incidents subsequent to first incident were not unexpected, with result that they were not accidents covered under policy.
• Automobile Liability Insurance
• Auto policy example:
No exclusion for drunken driving need to make sure injured party gets compensated
Generally, insurers do not have a right of subrogation against policyholders
• Not in the contract
• Is there a statute or regulation that would even allow it?
• Arising out of the use of an automobile
Farm Bureau Mut. Ins. Co., Inc. v. Evans
• Mere use of an insured vehicle does not trigger coverage under an automobile liability insurance policy providing coverage for bodily injury “arising out of the ownership, maintenance or use” of the insured vehicle.
• In determining coverage for bodily injury claimed to have arisen out of the ownership, maintenance or use of an insured vehicle, a court must consider whether the injury sustained was a natural and reasonable incident or consequence of the use of the vehicle involved for the purposes shown by the declarations of the policy although not foreseen or expected.
• As a general rule, “arising out of the use” of a vehicle requires a finding of some causal connection or relation between the use of the vehicle and the injury.
• An injury does not arise out of the “use” of a vehicle within the meaning of an automobile liability insurance policy if it is the result of some intervening cause not identifiable with normal ownership, maintenance and use of the insured vehicle, even if there is some remote connection between the use of the vehicle and the injury complained of.