CIC Commercial Casualty Institute Study Notes May18

CIC Commercial Casualty Institute Study Notes
Notes by Cliff J. Ravenscraft
May18-20, 2005
Questions: Call Butch Harris
What is the definition of Casualty? Casualty is a type of insurance that protects your
legal responsibility for damage to other people's property or injury to another
Essentials of Legal Liability (Section 1)
2 questions from this section
Learning Objective #1 To explain the types of torts and be able to
describe under what situation each type of liability might apply. (Section 1,
Pages 2-5)
What is a tort? A private wrong or harm (other than a breach of contract) committed against
another, resulting in legal liability. A tort is either intentional or accidental (unintentional
carelessness) (negligent).
Torts: You are responsible for your actions, for the actions of others associated with
you, and for your things.
Torts are largely based on Common Law: Decided by court decisions. A lot of
interpretation is involved.
Examples of Torts:
Negligence (Non-Intentional)
Intentional Tort
Strict Liability
Absolute Liability
Let’s look at these torts…
Negligence is the basis of most torts and liability insurance claims
There are FOUR elements of Negligence. All four elements must be present
for a tort to be considered “Negligence.”
1. Duty Owed (Legal Obligation)
2. Breach of Duty
3. Proximate Cause
4. Damages
Intentional Torts:
There are Five types of Intentional Torts
1. Defamation of Character
a. Libel – written form
b. Slander – spoken form
2. Wrongful Entry
3. Wrongful Conviction
4. False arrest or unlawful detention
5. Assault & Battery
Assault is the intentional making of a threatening gesture which
causes another person to become reasonably apprehensive of
an anticipated immediate bodily contact. Battery is the
intentional and unpermitted touching of the person of another.
A manufacturer is strictly liable in tort when an article he places on the
market, knowing it is to be used without inspection for defects, proves to
have a defect that causes injury to a human being. (1963 Supreme Court of
Three Elements of Strict Liability
1. Defective when it left custody of manufacturer or supplier
2. Defective condition made the product unreasonably dangerous.
3. Defective product was the proximate cause of injury.
Type of defect:
1. Defective due to faulty manufacture or assembly
2. Defective in design
3. Failure to give warning.
Unlike most torts, there is no need to prove specific negligence.
Negligence is Assumed! Example: Ford Explorer & Firestone Tires
Absolute Liability: (No Question of Negligence) (Inherently dangerous)
A person who commits certain torts will be liable for ensuing injury to another
regardless of willful wrongdoing or negligence on the part of the individual.
Dangerous Instrumentality Doctrine: Anyone who possesses, stores,
maintains, or transports a dangerous instrument is absolutely liable for injury
or damage caused by the instrument, regardless of the presence of due care.
Application of Absolute Liability
a. Explosive or highly flammable material
b. Firearms
c. Animals (Mostly Wild Animals)
Learning Objective #4 To be able to explain the concept of vicarious
liability and describe important relationships that create this liability.
(Section 1, Pages 9-11)
Vicarious Liability: Liability of one person based upon the conduct of another. This
liability is imputed (transferred) from one person to another. This type of liability is
based upon the relationship of the two parties involved in the transfer of liability.
FOUR Important Relationships Applicable to Vicarious Liability:
1. Agency: Agency is fiduciary relationship in which one person (principal)
authorizes another (agent) to act on his or her behalf in business dealings
with third parties. The agent owes a duty to act primarily for the benefit of
the principal and to deal fairly with the principal in every way.
Two Important Characteristics:
1. There must be AUTHORITY to act for the principal
2. There must be CONTROL by the principal
2. Employee/Employer Relationship: The employer (master) is held
vicariously liable to the third parties for physical harm or other wrongdoing by
the employee (servant), committed while the employee was acting
within the scope of employment.
An EMPLOYEE is a person who is employed with or without pay to perform
personal services for another, and who, in respect to the physical movements
in the performance of such service, is subject to the employer’s right or power
of control.
Rules of Negligence:
1. The employee must commit a wrong for which the employer
can be held liable.
2. The employer must retain the right to control the physical
conduct of the employee.
3. The wrong must be committed within the scope of
4. Deviation from scope of employment or instructions can be
a defense against vicarious liability.
3. Independent Contractor: The independent contractor is one with whom
the employer has contracted for an end result that is to be brought about by
the independent contractor. The employer usually has no control over the
details of the physical performance by the contractor.
Rules of Negligence: The “General Rule” is that the employer is not
liable for physical harm caused to a third person by the negligent act
of the contractor in the performance of the contract, because the
employer has no legal right to control the details of the physical
performance of the contract.
4. Partnerships and Joint Ventures:
Partnership: An association of two or more persons to carry on, as co-owners,
a business for profit.
Joint Venture: An association established to conduct a single transaction or a
series of related transactions, as contrasted to an ongoing business that
involves many transactions.
Rules of Negligence: If a partner, by some act or omission, causes
loss or injury to a third person while in the ordinary course of business
of the partnership, Then the partnership, that partner, and each of the
other partners is held liable and the private property of a partner
can be used to satisfy the judgment.
Note: Due to the fact that individuals, that are in a Sole Proprietorship,
Partnership, or Joint Venture, can be held liable even after their business
ceases to exist and that their private property can be used to satisfy any
judgment against them, it is important to sell them a “Discontinued
Operations Policy.”
Note: Members of Corporations and Limited Liability Companies (LLC) are not
in the same danger of their private property being used to satisfy judgments.
Commercial General Liability Policy (Section 2)
6 questions from this section
General Study Notes for General Liability
Know Who is Insured? What is Insured? What is Not Insured?
Study Exclusions Closely / Remember exceptions to exclusions.
Study “In coverage Territory” & Must be in Policy Period
General Liability policy makes two promises. First, it promises to Pay… Second it
promises to defend an insured.
Know about Care Custody & Control… Remember example about where car stereo
being installed and employee hits another car that is in the care custody and control
of the store and also injuries someone in the parking lot. Why are the two veh’s not
covered and why is the person covered? (Example of how to watch exclusions)
Remember that Aircraft/Auto/Watercraft are not covered EXCEPT FOR certain
circumstances they are. Example, if not owned and less than 26’ and if owned but
stored on owned premises.
Learning Objective #1 To demonstrate an understanding of “Who is an
Insured” by identifying whether a party is afforded coverage in a particular
loss situation. (Section 2, Pages 7-18)
1. Named Insureds: Incl. Spouse for Individuals, Partners, & Joint Ventures
2. Automatic Insureds:
Employees & Volunteers: TEMPS ARE NOT COVERED!
Not Covered When:
-Injury to co-worker or volunteer (Work Comp)
-Medical Profession Acts or Omissions (Prof. Liability)
-PD to named insured or any employee or volunteer
If a CURRENT or PAST Partnership, Joint Venture or LLC is not
listed as NAMED INSURED, they are not covered by this policy!
The problem is loss of completed operations and products
liability coverage. If they bought DISCONTINUED OPERATIONS
Coverage for that prior entity, it provides the coverage.
3. Additional Insureds
Learning Objective #2 Identify the three major coverages of the CGL
form and describe the General Liability exposure areas included within each
coverage. (Section 2, Pages 19-25)
There are 3 major coverages on the CGL form.
1. Coverage “A” Bodily Injury & Property Damage
Premises: Happens on Insured’s Property
Operations: As a result of installation
Products: Coverage OFF PREMISES caused by defect
Completed Operations: Done Deal, Turned over for intended purpose.
2. Coverage “B” Personal & Advertising Injury
3. Coverage “C” Medical Payments
Policy Period and Coverage Territory: Occurs during the policy period and in
coverage territory!
Policy Period- Stated in the dec page
Coverage Territory:
It’s territories & possessions
Puerto Rico
Canada (only foreign country)
International area but only when in the course of travel
between the above places
i. Goods must be made or sold in territory,
ii. Insured out of territory for short time, or
iii. Personal and advertising injury offenses that take
place through the internet.
However, damages awarded by foreign court not
Learning Objective #3 To apply the various exclusions of the CGL by
properly identifying coverage in a loss situation and in some cases
identifying endorsements that modify the exclusions to add or restrict
coverage. (Section 2, Pages 25-41)
Pollution Exclusion:
(Except for HVAC & water heater equipment fumes)
(Except for work site with additional insured
(Except for Smoke from hostile Fire)
** The above would be covered on premises!
Operations if you or others working for you brought the pollutant to
the site (Excluded)
Except for Mobile Equipment fluids
Except for Fumes from operations inside of building
Except for Smoke from a hostile fire.
Operations on pollutants
1. Operations if you or others working for you did not bring the
pollutant to the site.
2. Products
3. Completed Operations
*** Cleanup is not covered, except for Property Damage
Aircraft, Auto, or Watercraft Exclusion
These three are excluded except for:
1. Boat stored ashore at your premises
2. Non-owned, less than 26ft., boat no being used to carry
people or property for a charge.
3. Parking customer’s cars on or next to your premises.
4. Insured Contract – Aircraft and Watercraft
5. Operated certain mobile equipment.
Mobile Equipment is not covered for transportation and Prearranged Stunting
There is no coverage for Damage to the following Property:
1. Owned or occupied property (There is coverage for fire)
2. Any property loaned to you (Put on Inland Marine)
3. Personal Property of others in your care (Need Garage Keepers)
Business Automobile Coverages (Section 3)
4 questions from this section
Learning Objective #2: To Identify a covered auto when given the
appropriate symbol information and other descriptions, and explain
how the policy provides coverage for newly acquired autos.
Note: Study page 19 in the Business Auto Section for Symbol Descriptions
Symbols 1-6… If newly acquired, coverage is AUTOMATICALLY provided up through
the end of the policy period.
If Symbol 7, there is coverage only IF:
All owned autos have that coverage OR
Replaces an auto with that coverage.
Must notify company within 30 days
Note on Mobile Equipment: If injury or damage is caused to others by “mobile
While operated… it is covered by the GL Policy
While being Transported by auto, it is covered under the CA Policy.
Learning Objective #3: To explain the coverage afforded in the
Liability Section of the business auto policy by applying the
information to specific loss a situation. Including exclusions
and endorsements that add or restrict coverage.
There are
three important aspects of the coverage:
“Insured” must be legally responsible to pay damages of “BI” or “PD”
Damages must be the result of an “accident.”
The accident must result from the ownership, maintenance or use of a
“Covered Auto.”
Note: Accident is defined much broader than “collision.” Remember the story of the
quarry trucks that caused cracking in the walls of the home it drove by on a regular
ongoing basis. Truck never hit the home, but did caused damage by shaking the
ground repeatedly.
Business Auto Liability Section will also pay all sums an “Insured” legally must pay as
a covered pollution cost or expense, caused by an accident involving a covered auto.
However, it will only pay for this if there is either BI or PD to which the insurance
applies that is caused by the same accident.
Learning Objective #4: To identify those persons and/or
organizations found in the “Who is an insured” section of the
business auto coverage form and identify endorsements that
add or restrict coverage.
Who Is An Insured? Three Types of People
1. Named Insured
2. Permissive User
3. Anyone Liable Vicariously
There are a few exceptions on Permissive Users. The following are not
covered if the policy is left unendorsed...
1. The owner of hired “auto” would not apply in the case of a trailer.
- Can Add Lessor-Additional Insured Loss Payee Endorsement
2. Your “employee” if the covered “autos” is own by the employee.
-Can Add Employee As Insured’s Endorsement
3. Garage Exposure.
4. Other than your “employees”, partners, Members etc. while moving
property to and from a covered auto. (Loading/Unloading for NON
5. A partner, or member for a covered “auto” owned by him or her or
a member of his or her household.
Endorsements that Can Broaden Coverage in regards to “Who is Insured.”
What If a car is titled in an individual’s name?
Individual Named Insured endorsement: When an owner or partner, add the
individual as named insured and attach this endorsement.
Employee As Lessor Endorsement: This is used when the vehicle is leased to the
company by an owner, partner, or employee.
What if you have any owners, partners, or employees who do not personally
DOC Drive Other Car Coverage Endorsement: This will extend coverage for Named
1. Spouse Automatically Covered.
2. Endorsement has a premium charge.
3. If Applicable, must name children on endorsement.
Employee Hired Auto Endorsement: This provides coverage for renting a vehicle in
personal name but allows for the business auto to cover it ONLY WHILE USING IT
Exclusions on the Business Auto Policy:
1. Expected or Intended Injury
2. Contractual: except liability assumed under contract or agreement.
3. Workers Compensation
4. Employee Indemnification and Employer’s Liability
Covered under Part Two of Work Comp
5. Fellow Employee
6. Care Custody or Control
-Property owned or transported by the “insured”
However, this exclusion does not apply to a hand truck or device
attached to the covered “auto”.
Coming to rest- Auto policy will cover until the object comes to rest.
Completed Operations- All operations required to effect a complete
Examples: Food broker delivery guy didn’t put food in cooler
Beer distributor uses hand truck to unload building display.
Fuel Hauler gas station and lady trips over hose.
8. Movement of property by Mechanical Device, other than hand truck, unless
the device is attached to the covered auto.
9. Operations- BI or PD arising out of the operation of any equipment listed in
the definition of mobile equipment.
10. Completed Operations- BI or PD arising out of your work after that work as
been completed or abandoned.
11. Pollution-except for those that escape or are discharged from an “Auto” part
designed to hold such pollutant. Example transmission or radiator
-except the insured damages property that contain pollutants away
from the insured’s premise.
12. War
13. Racing
Learning Objective #5: To explain the coverage afforded in the
coverage section II physical damage by applying information to
specific loss situations, including exclusions and endorsements
that add or restrict coverage.
Coverage for Physical Damage:
1. Comprehensive
2. Specified Causes of Loss: Like comp only without GLASS and ANIMAL
3. Collision
4. Towing & Labor
5. Glass Breakage & Hitting Bird or Animal
6. Rental Reimbursement
Physical Damage Exclusions!
1. Direct / Indirect / concurrent
2. Racing, including stunting activity.
3. Warranty Work
4. Wear & Tear Maintenance such as road damage to tires, etc.
5. Electronic equipment and media
6. Diminution in Value
Limit of Insurance is paid in the lesser of the following.
1. ACV of damaged property at the time of the loss
2. Cost of repairing or replacing the damaged or stolen property with other
property of Like Kind and Quality.
You can get Loan/Lease Gap which will pay for difference minus things like late
payment fees, excessive use lease fees, cost of extended warranties, and carry-over
Workers Compensation (Section 4)
4 questions from this section
Maritime Exposures associated with Work Comp
Longshoremen’s and Harbor Workers Compensation Act Coverage: This federal act
enacted in 1927 provides uniform and scheduled benefits to any employee who is not
a seaman, for injuries sustained on navigable waters or adjoining piers, wharves, dry
docks, terminal buildings, marine railways, or other adjoining areas.
Does not apply to Master or member of crew
Nobody loading or unloading or repairing a small vessel smaller than 18 tons.
Employed exclusively to form duties on board.
Some other stuff.
Know Third Party Action Over… Employee sues third party and third party throws suit
back on to employer…
1. Medical
2. Disability
3. Death
4. Rehabilitation.
Excess Liability/Commercial Umbrella (Section 5)
2 questions from this section
Three PURPOSES of the Excess Liability / Commercial Umbrella Coverage
1. Increases Liability Limits over the limits provided by other policies.
2. May afford broader coverage for claims made not covered by underlying
3. Provides Drop-Down Coverage (Becomes Primary) coverage over
exhausted aggregate or when loss is covered by Excess and not
Three Types of coverage for increased liability limits/excess liability
1. Stand Alone Excess: (Worst)
This coverage form does not rely on the Underlying Policy. It has its
own Named Insured, Insuring Agreement, Exclusions, etc. Gives
coverage without regard to other policies.
2. Following Form Excess: (Next Best)
This form relies on the Underlying policy for Insuring Agreement,
Exclusions, etc. Provides coverage only in excess of Underlying Policy.
Usually NOT broader than primary policy
Provides Additional Limits of Liability.
May be broader or narrower at the same time.
3. Umbrella: (Best)
A “True” Umbrella Policy provides the following:
 Increased liability limits in excess of primary following
 BROADER COVERAGE than Underlying Policies
 Subject to a Self-Insured Retention (Deductible)
 Stand alone for certain coverages. (Where SIR comes in)
 Drops Down coverage with SIR if no coverage exists on
underlying but is provided in the Umbrella.
 Replaces Underlying coverage when underlying limits are
Professional Liability (Section 6)
2 questions from this section
Know the difference between Malpractice Vs. Errors and
Malpractice Insurance: Protection for a service provided by a person or
organization in the healing arts against exposure that arise usually from bodily
injury. (They put hands on your body to perform their service)
Errors & Omissions: Protection for a claim arising from a service on a non-medical
nature provided and typically causing damage to property of others. (Service of a
non-medical nature usually resulting in damage to property.)
*Know that they are both normally Claims Made Policies but are not standard forms
so you must read each and every policy.
Know the exclusions to the professional liability policy as they
are different from other commercial liability policies.
1. Dishonest, criminal or fraudulent acts
2. Contractual Liability
3. Insured v/s Insured
pay a “Monetary” judgment.
Instead, they
5. Punitive Damages
6. Activities outside of usual profession.
7. Intentional acts
8. Employment Related Practices – most common: Discrimination
9. Intentional Acts
10. Illegal personal profit
11. Securities Acts and Antitrust Acts Violations.
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