RMI Assignment 7 – Ch. 19 & 20 Chapter 19 REVIEW QUESTIONS 2. What is the meaning of strict liability? Strict liability means that liability is imposed regardless of negligence or fault. 3. Explain the following types of damages: a. Compensatory damages (special damages and general damages) - Compensatory damages are awards that compensate injured victims for the losses actually incurred. b. Punitive Damages - Punitive damages are awards designed to punish people and organizations for egregious acts so that others are deterred from committing the same wrongful act. APPLICATION QUESTIONS 1. Smith Construction is building a warehouse for Raymond. The construction firm routinely leaves certain construction equipment at the building site overnight and on weekends. Late one night, Fred, age 10, began playing on some of Smith’s construction equipment. Fred accidentally released the brakes of a tractor on which he was playing, and the tractor rolled down a hill and smashed into the building under construction. Fred was severely injured in the accident. Fred’s parents sued both Smith Construction and Raymond for the injury. a. Based on the elements of negligence, describe the requirements that must be met for Smith Construction to be held liable for negligence. i. First, the existence of a legal duty to protect others from harm. ii. Second, failure to perform the legal duty required by law. In other words, you fail to comply with the standards of care to protect others from harm. iii. Third, damage or injury to the claim set. iv. Fourth, a proximate cause relationship must exist. b. Describe the various classes of persons that are recognized by the law with respect to entering upon the property of another. In which class of persons would Fred belong? i. Property owners have a legal obligation to protect others from harm. A trespasser is a person who enters or remains on the owner’s property without the owner’s consent. A licensee is a person who enters or remains on the premises with the occupant’s expressed or implied permission. An invitee is a person who is invited onto the premises for the benefit of the occupation. Based on the classes of persons, Fred would be classified as a trespasser. c. What other legal doctrine is applicable in this case because of Fred’s age? Explain your answer. i. The attractive nuisance doctrine would apply in this scenario. An attractive nuisance is a condition that can attract and injure children. This doctrine is based on the principles that children may not be able to recognize the inherent danger that may be present and may be insured, and that it is in the best interest of society to protect them rather than the owner’s right to land. 2. a. Parkway Distributors is a wholesale firm that employs several outside salespersons. Emily, a salesperson employed by Parkway Distributors, was involved in an accident with another motorist while she was using her car to make regular sales calls for Parkway Distributors. Emily and the motorist are seriously injured in the accident. The motorist sues both Emily and Parkway Distributors for the injury based on negligence. i. Describe the requirements that the motorist must establish to show that Emily is guilty of negligence. The motorist must establish the following requirements: existence of legal duty, failure to perform that duty, damage or injury to the claimant, and proximate cause relationship between the negligent act and the infliction of damage. ii. On what legal basis might parkway Distributors be held legally liable for the injury to the motorist? Explain your answer. 1. Respondeat superior means an employer is held liable for the negligent acts of employees who are acting on the employer’s behalf. 2. Vicarious liability law states the employer can be held liable for negligent acts of an employee while operating an automobile. b. Tom asks his girlfriend, Megan, to go to a supermarket and purchase some steaks for dinner. While driving Tom’s car to the supermarket, Megan failed to stop at a red light and seriously injured a pedestrian. Does Tom have any legal liability for the injury? Explain your answer. i. Tom could be held liable for Megan’s accident, as the owner of an automobile could be held liable for the driver’s negligence if an agency relationship exists. Court may understand Megan acting on behalf of Tom. Under vicarious liability law, the negligence of the driver is imputed on the owner of the vehicle. Under the permissive use statute, the owner of the automobile could be held liable for the negligence of a driver who is operating the automobile with the owner’s permission. 6. Sarah is a college student who was late for class. She tried to cross the street in the middle of the block instead of at the intersection corner where a traffic light was in operation. A motorist hit her. Although Sarah placed herself in danger, she may be able to collect for her injuries if she can show that the motorist had an opportunity to avoid hitting her but failed to do so. Identify the legal rule that might apply in Sarah’s case. The last clear chance rule states that a plaintiff who is endangered by his or her own negligence can still recover damages from the defendant if the defendant has a last clear chance to avoid the accident but fails to do so. If Sarah can prove that the motorist has a last clear chance, the motorist would be guilty of negligence. 8. Daniel believes that a chemical company is responsible for contaminating some land that he owns. He files suit against the chemical company. Rather than have the case go to court, the chemical company’s attorney suggests arbitration to resolve the legal dispute. Explain how arbitration would work in this case. Arbitration is a better alternative to a costly and lengthy trial. Arbitration is when parties in a dispute agree to be bound by the decision of an independent 3rd party. If Daniel and the chemical company agree to resolve the dispute by arbitration, both parties would be bound by the arbitrator’s decision. Chapter 20 REVIEW QUESTIONS 2. Identify the persons who are insured under a homeowners policy. a. The persons insured under a homeowners policy includes the named insured and resident of the household who are your relatives, other persons under the age of 21, fulltime students away from home, and any person legally responsible for covered animals or watercraft. With respect to a motor vehicle by the policy, coverage applies to persons employed by the named insured or by other insureds as defined above while working for the insured. 7. Briefly describe the duties imposed on the insured under a homeowners policy after a property loss occurs. a. Duties includes give prompt notice, protect the property, prepare an inventory of damaged personal property, exhibit the damaged property, and file a proof of loss within 60 days after the insurer’s request. APPLICATION QUESTIONS 3. Tom and Cindy Jones insured their home and personal property under an unendorsed Homeowners 3 policy. The home has a current replacement cost of $300,000. The policy contains the following limits: Coverage A $240,000 Coverage B $24,000 Coverage C $120,000 Coverage D $72,000 The home was badly damaged in a fire, and the family was forced to live in a motel for 60 days while their home was being rebuilt. Undamaged personal property was stored in a rental unit during the period of reconstruction. What dollar amount, if any, is payable under their Homeowner 3 policy for the following (ignore any deductible)? a. Three bedrooms were totally destroyed in the fire. The replacement cost of restoring the bedrooms is $80,000. The actual cash value of the loss is $50,000. i. Under the Homeowner 3 policy only the actual cash value loss is reimbursed, therefore only $50,000 will be covered. A replacement cost endorsement can be purchased, which covers the cost of replacing the item without any deduction for depreciation. b. Monthly mortgage payment of $1500 on their home. i. The mortgage clause protects the lender for the property. In the event of a loss, the mortgage will be compensated to the extent of its insurable interest, even if the policy is violated by the mortgagor (borrower). So they will be reimbursed for the interest part of the mortgage payment and not the whole amount. c. Rental of motel room at $100 daily for 60 days i. They will be reimbursed under Category D for their rental of motel room (=$100*60=$6,000) d. Meals eaten in the motel restaurant for 60 days at an average cost of $60 daily (food costs at home average $20 daily) i. The meals will be reimbursed under Category D= $60 * 60 = $3,600. e. Rent for storing undamaged furniture in a rental unit while the home is being rebuilt, $200 monthly. i. The home took 2 months to be rebuild which is not a regular expense the homeowner would usually have, so the full $400 cost would be covered. 4. Megan has her home and personal property insured under an unendorsed Homeowners 3 (special form) policy. Indicate whether each of the following losses is covered. If the loss is not covered, explain why it is not covered. a. Megan carelessly spills a can of paint while painting a bedroom. A wall-to-wall carpet that is part of the bedroom is badly damaged and must be replaced. i. Covered, since wall-to-wall carpeting is part of the dwelling. And, since it is not specifically excluded, it is covered. b. Water backs up from a clogged drainpipe, floods the basement, and damages some books stored in a box. i. Not covered, because damage from water that backs up through sewers or drains is excluded. c. Megan’s house is totally destroyed by a tornado. Her valuable Doberman pinscher dog is killed by the tornado. i. The damage to the dwelling is covered from the tornado, however animals are excluded under personal property. d. During a frost warning, smudge pots from a nearby orange grove emit dense smoke that settles on Megan’s freshly painted house. i. e. f. g. h. i. j. k. l. m. Not covered, since smoke damage from agricultural smudging or industrial operations is excluded. Megan is on vacation, and a thief breaks into her hotel room and steals a suitcase containing jewelry, money, clothes, and an airline ticket. i. Covered up to $1,500 on the theft of the jewelry, $200 on the money, and $1500 on tickets. Megan’s son is playing baseball in the yard. A line drive shatters the living room window. i. Covered, since it is not specifically excluded. A garbage truck accidentally backs into the garage door and damages it. i. Vehicle damage to the dwelling is covered. Defective wiring causes a fire in the attic. Damage to the house is extensive. Megan is forced to move into a furnished apartment for three months while the house is being rebuilt. i. Covered. Fire loss is covered under Coverage A and additional living expenses is covered under Coverage D. Megan’s son, age 20, is attending college but is home for Christmas. A stereo set is stolen from his dormitory room during his absence. i. Covered, as long as the son has been in the room any time during the 60-day period before the loss, the theft is covered. During the winter, heavy snow damages part of the front lawn, and the sod must be replaced. i. Not covered. Trees, plants, shrubs, and lawns are covered only for specified named perils. Snow damage is not a covered peril. During a windstorm, an elm tree in Megan’s yard is blown over. i. Not covered, because windstorm is not listed peril with respect to trees, plants, and shrubs. The home is badly damaged in a severe earthquake. As a result of the earthquake, the front lawn has a 3-foot crack and is now uneven. i. Not covered, because earthquake damage is specifically excluded. An icemaker in the refrigerator breaks and water seeps into the flooring and carpets, causing considerable damage to the dwelling. i. Covered, since water seepage from an appliance is covered. 5. James has his home and personal property insured under a Homeowners 3 (special form) policy. The dwelling is insured for $120,000. The replacement cost of the home is $200,000. Indicate the extent to which each of the following losses would be covered under James’s Homeowners 3 policy. (Ignore the deductible.) a. Lightning strikes the roof of the house and severely damages it. The actual cash value of the damaged roof is $10,000, and it will cost $16,000 to replace the damaged portion. i. Covered under the actual cash value. b. A living room window is broken in a hailstorm. The drapes are water stained and must be replaced. The actual cash value of the damaged drapes is $400. Replacement cost is $600. i. Covered under the actual cash value. c. The water heater explodes and damages some household contents. The actual cash value of the damaged property is $2000, and the cost of replacing the property is $3200. i. Not covered in the insurance policy. 8. Craig owns a home with a replacement cost of $200,000 that is subject to a $100,000 mortgage held by First Federal as the mortgage. Craig has the home insured for $160,000 under the HO3 policy, and First Federal is named as mortgagee under the Mortgage Clause. Assume there is a covered fire loss to the dwelling in the amount of $50,000. To whom would the loss be paid? Explain your answer. a. The loss will be paid to the mortgagee as per the mortgage clause but not to Mr. Craig.