Liability and Law PDF

Liability and Law 1. Liability Lawsuits 1.1 Introduction By the end of this module, you should be able to: Define the types of law used in civil court: statutory, common, contract, and tort law Explain the duties of the insurer and the insured when a third party files a...

Liability and Law 1. Liability Lawsuits 1.1 Introduction By the end of this module, you should be able to: Define the types of law used in civil court: statutory, common, contract, and tort law Explain the duties of the insurer and the insured when a third party files a lawsuit against the insured Distinguish the types of damages awarded in civil court Identify various liability laws While most liability cases are settled outside the courtroom, sometimes the claimant and insurer cannot reach a settlement, and the case is taken to civil court. This chapter discusses how liability damages are settled in a court of law. First, we will introduce the different types of law used in civil court: statutory law, common law, contract law, and tort law. Then we will discuss how liability cases enter the courtroom, the legal duties of the insurer and the insured, and the two types of damages awarded by a jury. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 1 We will conclude this chapter with an overview of unique liability laws that influence liability cases you may assess as an adjuster. 1.2 Statutory and Common Law Statutory Law: based on written laws (e.g. state legislature) Common Law: based on court decisions and customs when statutory law does not provide an answer. Note: Statutory Law governs the authority of Common Law. To determine legal liability, adjusters must be familiar with the local laws and customs. Adjusters will consider both statutory law and common law principles when working on liability claims. Statutory Law is based on written laws set forth by a governing authority, including federal laws, state laws, and city laws. Common Law is based on court decisions and customs. When there is no authoritative statement of the law, judges have the power to create law by setting precedent. In other words, a judge’s decision in one case will influence the decisions of future cases. Common law, therefore, can vary according to jurisdiction. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 2 While statutory and common law are used in both criminal and civil court, liability cases are only addressed in civil court. 1.3 Contract Law Contract Law is governed by both statutory and common laws Makes agreements between people legally binding and enforceable Says what to do if one party violates the terms of a contract Another term you may come across is “contract law,” an area of law regulating how to make and enforce agreements between people. Both statutory and common laws contribute to the law of contracts, governing the legal requirements of a contract and how to remedy a “breach of contract.” As we discussed earlier, a contract is legally enforceable when it meets the following four conditions: agreement, consideration, competent parties, and legal purpose. These conditions, as well as rules about what to do if one party violates the agreement, are all aspects of “contract law.” 1.4 Tort Law Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 3  Tort Any civil wrongdoing, whether intentional or unintentional Tort Law: The body of law that addresses and provides remedies for any civil wrongdoing performed on another party Criminal vs. Civil Case Criminal Case The state charges an individual 100% of the jury must agree the charge has been proven Civil Case One individual charges another 51% of the evidence must favor the plaintiff’s case Tort law uses both statutory law and common law when addressing issues of legal liability. A tort is any wrongful act, whether intentional or unintentional. Tort law is the body of law that addresses civil wrongdoings between two parties. Tort law is different from criminal law. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 4 In a criminal case, the crime is defined by statute. “The state” charges an individual, and before the person can be convicted, 100% of the jury must believe that the charge has been proved “beyond a reasonable doubt.” Tort law applies only to civil court. In a civil case, one individual (the plaintiff) charges another, and the standards are much lower than in a criminal case. The plaintiff only has to prove his case by a “preponderance of evidence,” which means that, more likely than not, his claims are true and at least 51% of the evidence favors his case. 1.5 Applicable Jurisdiction With tort law, geographic location helps determine which jurisdiction is applicable. A case is often held where the involved parties live and do business. Jurisdiction The authority of a court or judge to hear a case and to make a judgment Judicial District A designated area over which a particular court has jurisdiction 1.6 Plaintiff, Tortfeasor Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 5  Plaintiff The party who suffered injury or damage; also known as the claimant. This could also be an heir, an assignee or an estate. Tortfeasor The party accused of committing a tort, otherwise known as the defendant Joint Tortfeasor A group of two or more parties accused of committing a tort In a civil court case, the party who suffers personal injury or property damage is known as the plaintiff. The plaintiff could also be an heir, an assignee, or an estate. This is the party that is bringing the suit against the other party. The party accused of committing a tort is known as the defendant, or tortfeasor. If more than one party is accused of committing the same tort, they are called a joint tortfeasor. 1.7 Two Types of Tort Intentional Tort An intentional act that causes injury to a third party Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 6  For example... Otis was sued in a civil court for the intentional torts of battery and wrongful deaths of Leslie and Donald. Negligent Tort A negligent act that causes unintentional injury to a third party For example... Beth was severely injured by a faulty tool that she borrowed from Lisa. She could sue Lisa in a civil court for a negligent tort. There are two types of tort: intentional and negligent. An intentional tort is a premeditated act of wrongdoing that may result in intended or unintended damages. A negligent tort is an unintentional act of wrongdoing that results in unintended damages. Although tort law includes both intentional and unintentional acts of wrongdoing, remember: liability insurance only covers unintentional acts, or negligent torts. Next, we will describe how liability issues enter the courtroom. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 7 1.8 Review: Law Statutory Law Based on written, legislated laws Common Law Based on court cases and customs Contract Law Regulates how to make and enforce legally binding agreements Tort Law Body of law that applies to civil court cases and addresses any civil wrongdoing Intentional Tort Deliberate wrongful act Negligent Tort Unintentional wrongful act Tortfeasor The defendant in the court case An adjuster must be familiar with statutory, common, contract, and tort law. Statutory law is based on written laws that have been established by legislatures. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 8 Common Law is based on court cases and customs. Contract law and tort law both use statutory and common law. Contract law uses them to govern the creation and application of contracts. Tort law uses them to remedy a plaintiff's damages in a civil court case. Tort law addresses both intentional and negligent acts of wrongdoing. Liability insurance only covers negligent acts of wrongdoing. In a civil court case, the defendant is known as the “tortfeasor” because he has been accused of committing a tort. 1.9 Complaint vs. Answer Complaint: When a claimant files a lawsuit against a policyholder for damages the policyholder caused. Answer: The tortfeasor, or defendant’s, response to the complaint can be one of the following: I accept the complaint and will pay for damages I deny the complaint I accept the complaint with a right to insert evidence into the case Default Judgment: If the defendant fails to answer the plaintiff’s complaint, and does not appear in court, the result will be a default judgment in favor of the plaintiff. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 9  For example… Let’s say Jim-Bob lost control of his riding lawn-mower and crashed into the side of his neighbor’s shed. His neighbor, Alma, files a claim with Jim-Bob’s insurer. The insurer offers Alma much less than she was hoping to receive, and she is unable to negotiate for what she considers a fair settlement. In a situation like this, when the insurer and the claimant cannot reach a settlement, the claimant may decide to recoup her losses by filing a lawsuit against the policyholder instead. She will start by issuing a complaint to the court. A complaint is simply an appeal for financial relief from damages caused by a policyholder. Once she files and properly serves the complaint, the defendant must submit an answer. His answer will be one of the following: to accept the complaint and pay for damages, to deny the complaint, or to accept the complaint with a right to insert evidence into the case. The defendant must answer the complaint--either written or in person--to avoid a default judgment on the case. A default judgment is essentially a judgment that is based solely on the fact that the defendant did not answer the complaint and did not appear in court. Regardless of the merits of the case, a default judgment will favor the plaintiff, because the defendant has not presented a case. The court will usually still require the plaintiff to prove Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 10 his case, and there is a period of time after the default judgment has been entered during which the defendant can make a motion to overturn the judgment. 1.10 Duties of the Insured When taken to court, the policyholder must: Alert the insurer Forward all information regarding the matter to the insurer Cooperate with insurer and adjuster in all matters related to the court case If a policyholder has a lawsuit brought against him, he must alert his insurer right away and forward any information he has received from the court. This includes (but is not limited to): every process, demand, notice or summons to appear. The policyholder (now also called the defendant) must cooperate fully with the insurer and the adjuster in all matters pertaining to the case. This includes releasing all relevant information and allowing time to deal with court matters. The policyholder should only play an active role in the lawsuit when the insurer instructs him to do so. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 11 1.11 Insurer’s Obligations When a policyholder is taken to court, the insurer must: Defend the policyholder Pay any legal expenses that are incurred at its own request When a claim for damages goes to court, the insurer is obligated to defend its policyholder. Even if the lawsuit is completely unfounded, the insurer must defend the insured until it has been proven that there is no coverage under the policy in question, or until the suit is settled. The insurer is also responsible for any courtroom expenses that are incurred because of a request that the insurer itself made. 1.12 Reservation of Rights When the circumstances of a lawsuit or a claim may not be covered under the policy, the insurer will issue a Reservation of Rights. Gives the insurer time to investigate its obligations Allows the insurer to stop defending the policyholder or deny a claim if it finds that the case is not covered Gives the policyholder fair warning if she has to prepare her own defense Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 12 If there is a chance that a lawsuit or a claim may not be covered under the policy, the insurer may issue a Reservation of Rights. Essentially, the insurer sends a letter “reserving” its “rights” to deny a policyholder’s claim in certain situations. This is important because of the doctrine of estoppel. If an insurer begins to investigate a loss, the claimant may try to use estoppel to prevent the insurer from denying the claim later, even if the investigation proves that the loss is not covered. A reservation of rights letter gives the insurer the freedom to investigate the claim, without being later forced to pay it if it turns out not to be covered. In liability claims, the reservation of rights also informs the policyholder that she may need to prepare her own defense. A Reservation of Rights enables the insurer to begin defending its policyholder in a court of law and then, later, withdraw from the suit if insurance coverage does not apply to the case. 1.13 Necessary Elements Necessary Elements of a Reservation of Rights The letter must: Include the insurer’s name, the policy number, and the event or loss Clearly and concisely explain the situation, especially that the policyholder may Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 13  not receive compensation or may have to defend himself in court Inform the policyholder about potential consequences (e.g. he might have to reimburse the insurer for expenses it has already paid) 1.14 Non-Waiver Agreement Non-Waiver Agreement Also used when the insurer thinks coverage may not apply to a claim Allows the insurer to keep its right to deny coverage Must be signed by the policyholder (but the insurer may not force a policyholder to sign) Sometimes, an insurer will ask a claimant to sign a non-waiver agreement if it thinks that some or all coverage may not apply to a claim due to certain circumstances. The non-waiver agreement is similar to a reservation of rights letter: it states that the insurer may continue to investigate a claim or defend the policyholder in court, but that it still keeps its right to deny coverage. Unlike a reservation of rights letter, a non-waiver agreement is bilateral, and the policyholder must sign it in order for it to be valid. However, the insurer cannot force the policyholder to sign. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 14 By signing a non-waiver agreement, the policyholder recognizes the insurer’s right to stop defending the policyholder or to decline coverage, if it discovers that the policy does not actually cover the loss in question. 1.15 Review: Civil Lawsuits Complaint Filed by a claimant against a policyholder Answer Policyholders response to complaint Default Judgment Issued if policyholder fails to answer complaint Duties of the Insured Alert insurer if taken to court; send insurer all information pertaining to the case Obligations of the Insurer Defend the insured in a court case Reservation of Rights or Non-Waiver Agreement Issued when the case may not fall under the terms of the insurance policy When the claimant and the insurer cannot reach a settlement, the claimant files a complaint against the policyholder. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 15 The policyholder then “answers” the “complaint” by accepting it, denying it, or accepting it with the right to insert evidence. The policyholder must answer the complaint in a timely manner so as to avoid a default judgment. When a policyholder is taken to court, he has a duty to report all evidence, forms, and costs to his insurer. Insurers are obligated to defend their policyholders in lawsuits for losses that are covered by the policy. Both a reservation of rights and a non-waiver agreement allow the insurer to investigate a case if it seems like it may not fall under the policy’s coverage. 2. Damages and Liability Laws 2.1 What Are Damages? Claimant = Plaintiff Policyholder = Tortfeasor = Defendant Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 16  Damages Monetary compensation for financial loss or injury awarded to a plaintiff by civil court Categories of harm: Physical Financial Physical & financial Emotional or reputational Two main types of damages: Compensatory Punitive Now we will define damages and show how they apply in a liability insurance claim. The goal of civil court is to restore the plaintiff to the position he enjoyed before suffering a loss. One way the court does this is by awarding the plaintiff “damages,” which is a term for monetary compensation for financial losses. In order to be awarded damages, a plaintiff must prove that he suffered financial loss. A plaintiff’s losses can fall into four categories: purely physical, purely financial, both physical and financial, and emotional or reputational. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 17 To address these different varieties of loss, courts typically award two main types of damages: compensatory and punitive. 2.2 Compensatory Compensatory Damages Money awarded for tangible and intangible economic loss Two types of Compensatory Damages Special General Diminution of Value: Total amount of all damages resulting from an occurrence Legal term used in calculating compensatory damages Compensatory damages award money for tangible and intangible economic loss suffered by the plaintiff. Tangible losses are physical damages that can be quantified at an objective value; in other words, you can put an objective dollar amount on a tangible loss. Intangible losses are emotional damages and are determined by the court at a subjective value. To distinguish between tangible and intangible losses, compensatory damages are divided in two parts: special damages and general damages. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 18 “Diminution of Value” is a legal term used when calculating compensatory damages in a legal dispute. It refers to the total amount of all damages, or lost value, resulting from an occurrence. 2.3 Special Special Damages Compensatory damages awarded for tangible losses with a quantifiable value Proven by providing medical bills, repair bills, etc. For example... Medical bill for an accident that caused a broken leg: $5,000 Repair bill for damages caused by fire: $3,000 The term “special damages” refers to money that the court awards for tangible losses. Special damages can apply to either bodily injury or property damage. They must be quantifiable, that is, they must have a set monetary value. The plaintiff can prove the losses by presenting medical bills, repair or replacement bills, or documentation of lost wages. Special damages only award money for the specific cost of these losses. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 19 2.4 General General Damages Compensatory damages are determined by the court and awarded for intangible, emotional losses that are not quantifiable Losses with subjective value include: Expected future losses Mental anguish Permanent injury Loss of reputation Pain and suffering Future losses due to unemployment While special damages award money for losses that can be measured objectively, general damages award money for losses that are not objectively quantifiable. General damages would include pain and suffering, mental anguish, permanent injury, loss of reputation, and future damages due to loss of employment. Because general damages are not quantifiable, they are determined by the court. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 20 2.5 Punitive Punitive Damages Money awarded to punish egregious misconduct For intentional acts, such as slander, fraud, violence, oppression, or recklessness Not typically covered in liability insurance Punitive damages are intangible damages awarded to the plaintiff when the defendant’s actions show intentional heinous, antisocial behavior or extreme indifference to harm. Terms that characterize such behavior include: slander, fraud, violence, oppression, and recklessness. Punitive damages are awarded to punish the defendant and to prevent similar behavior among the general public. Liability insurance does not typically cover punitive damages because punitive damages are awarded against intentional acts, not negligence. 2.6 Review: Damages Types of Damages: Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 21  Compensatory Damages Awards money for tangible and intangible damages Special Damages: money awarded for exact value of tangible damages General Damages: money awarded for intangible, emotional damages decided by court Punitive Damages Awards money for malicious, willful misconduct on the part of the tortfeasor In review, the two types of damages that could be awarded to the plaintiff in a civil court case are compensatory damages and punitive damages. There are two types of compensatory damages: special damages and general damages. Special damages indemnify the plaintiff for quantifiable losses. General damages indemnify the plaintiff for intangible damages. Punitive damages are added to compensatory damages when the damage is so extreme that the money awarded to the plaintiff is meant to punish the tortfeasor. 2.7 Liability Laws The Statute of Limitations The Wrongful Death Act Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 22  Workers’ Compensation Automobile No-Fault Laws Breach of Product Warranty Waiver of Sovereign Immunity Now we will look at several laws that can influence liability cases. These include: the Statute of Limitations, the Wrongful Death Act, Workers’ Compensation, Automobile No-fault Laws, Breach of Product Warranty, and the Waiver of Sovereign Immunity. 2.8 Statute of Limitations Statute of Limitations A law limiting the amount of time an injured party has to file a complaint after an occurrence The Statute of Limitations restricts the right to a lawsuit after a certain amount of time. It is a statute based on the common law legal system that specifies the maximum period of time, after damages occur, that legal proceedings based on those damages may be initiated. Once the Statute of Limitations expires, the claimant loses the legal right to seek indemnity and file a lawsuit. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 23 2.9 Discovery Rule Discovery Rule Statutes of limitations usually run from when an injury is, or should have been, discovered Many Statutes of Limitations are based on when an injury is discovered, or when it reasonably should have been discovered. This is called the Discovery Rule. For example… Let’s say that George has surgery in 2021 and the surgeon accidentally leaves a surgical sponge inside of his body. George doesn’t realize what has happened until two years later, when he is hospitalized for agonizing pain. At this point, doctors identify the forgotten sponge and determine that it has caused an infection. According to the Discovery Rule, the statute of limitations would start in 2023 instead of 2021, because George did not discover the surgeon’s mistake until then. 2.10 Wrongful Death Act Wrongful Death Act Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 24  Law that defines the rights of family members, dependents, or other beneficiaries of someone who was killed because of a negligent act Plaintiffs may sue for damages such as: Loss of companionship Loss of income Pain and suffering The Wrongful Death Act comes into play when someone dies as a result of a negligent act. It allows people who are associated with the deceased person to sue the responsible party. This case would involve general damages such as loss of companionship, loss of income, and pain and suffering. 2.11 Waiver of Sovereign Immunity Sovereign Immunity Law that restricts people from suing governmental entities Waiver of Sovereign Immunity Law that allows individuals to sue governmental entities for damages in certain cases Sovereign immunity prohibits people from filing a lawsuit against governmental entities. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 25 The Waiver of Sovereign Immunity allows individuals to sue governmental entities for damages in certain cases. 2.12 Workers’ Comp and No-Fault Laws Workers’ Compensation Laws Restrict an employee’s right to sue his or her employer for injuries that occurred on the job Automobile No-fault Laws Restrict an individual’s right to sue the driver of a motorized vehicle Workers’ compensation laws restrict the right of an employee to sue his employer for injuries sustained in the course of employment-related activities. Automobile no-fault laws restrict a person’s right to sue vehicle owners and drivers for injuries caused in a wreck. Although these provisions restrict a person’s right to file a lawsuit, they don’t entirely eliminate it. Each state has exceptions that allow people to file lawsuits under certain circumstances. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 26 2.13 Breach of Product Warranty Product Warranty A manufacturers’ guarantee ensuring the quality of its products Breach of Product Warranty If a product is not suitable for its intended purpose and causes injury or damage, the manufacturer is considered strictly liable and may be sued by the consumer A product warranty is a guarantee that a manufacturer provides to ensure the quality of its products. Most liability claims involving a breach of product warranty fall under contract claims, but occasionally product liability claims are brought up as tort cases. This usually happens when a manufacturer is considered strictly liable for damages caused by its product. For example... A toy manufacturer who fails to meet standard safety regulations regarding age- appropriateness may be sued for “breach of product warranty” because the quality is not suitable for young children. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 27 2.14 Review: Liability Laws Statute of Limitations: a plaintiff has a limited time to file a complaint after an occurrence Wrongful Death Act: protects parties associated with a death caused by negligence Waiver of Sovereign Immunity: individuals may sue government entities in certain cases Workers’ Compensation Laws: keep employees from suing their employer for injuries Auto No-fault Laws: keep people from suing drivers for damages due to motorized vehicles Breach of Product Warranty: manufacturers are strictly liable for producing faulty or dangerous products Let’s review. There are unique liability laws that either restrict or allow lawsuits in special circumstances. The statute of limitations restricts the amount of time a claimant has to file a lawsuit. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 28 The Wrongful Death Act allows persons associated with a deceased person, whose death was the result of a negligent act, to recover general damages. Sovereign immunity restricts an individual from suing governmental entities. A waiver of sovereign immunity allows an individual to sue a governmental entity under certain circumstances. Workers’ compensation laws prevent an employee from suing her employer for injuries sustained on the job. Automobile No-fault laws restrict an individual’s right to sue the at-fault driver after an accident. A breach of product warranty allows an individual to sue a manufacturer for strict liability when an inherently dangerous product is poorly made. This concludes section one of our course. The next section explains the specific duties of an adjuster. Copyright © 2012-2024 COR Enterprises LLC dba AdjusterPro and All-Lines Training 29