Bảo hiểm - Chapter 19: The liability risk

Chapter 19The Liability RiskAgendaBasis of Legal LiabilityLaw of NegligenceImputed NegligenceRes Ipsa LoquiturSpecific Applications of the Law of NegligenceCurrent Tort Liability ProblemsBasis of Legal LiabilityA legal wrong is a violation of a person’s legal rights, or a failure to perform a legal duty owed to a certain person or to society as a wholeLegal wrongs include:CrimeBreach of contractTort Basis of Legal LiabilityA tort is a legal wrong for which the court allows a remedy in the form of money damagesThe person who is injured (plaintiff) by the action of another (tortfeasor) can sue for damagesTorts fall into three categories:Intentional, e.g., fraud, assaultStrict liability: liability is imposed regardless of negligence or faultNegligenceLaw of NegligenceNegligence is the failure to exercise the standard of care required by law to protect others from an unreasonable risk of harmThe standard of care is not the same for each wrongful act. It is based on the care required of a reasonably prudent personLaw of NegligenceElements Negligence Existence of a legal duty to use reasonable careFailure to perform that dutyDamage or injury to the claimantProximate cause relationship between the negligent act and the infliction of damagesA proximate cause relationship requires an unbroken chain of eventsLaw of NegligenceThe law allows for the following types of damages:Compensatory damages compensate the victim for losses actually incurred. They include:Special damages, e.g., medical expensesGeneral damages, e.g., pain and sufferingPunitive damages are designed to punish people and organizations so that others are deterred from committing the same wrongful actLaw of NegligenceThe ability to collect damages for negligence depends on state lawUnder a contributory negligence law, the injured person cannot collect damages if his or her care falls below the standard of care required for his or her protectionUnder strict application of common law, the injured cannot collect damages if his or her conduct contributed in any way to the injuryLaw of NegligenceUnder a comparative negligence law, the financial burden of the injury is shared by both parties according to their respective degrees of faultUnder the pure rule, you can collect damages even if you are negligent, but your reward is reduced in proportion to your faultUnder the 50 percent rule, you cannot recover if you are 50 percent or more at faultUnder the 51 percent rule, you cannot recover if you are 51 percent or more at faultLaw of NegligenceSome legal defenses can defeat a claim for damages: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 soUnder the assumption of risk doctrine, a person who understands and recognizes the danger inherent in a particular activity cannot recover damages in the event of an injuryImputed NegligenceUnder certain conditions, the negligence of one person can be attributed to anothere.g., the negligent act of an employee can be imputed to the employerUnder a vicarious liability law, a motorist’s negligence is imputed to the vehicle’s ownerUnder the family purpose doctrine, the owner of an auto can be held liable for negligent acts committed by family membersUnder a dram shop law, a business that sells liquor can be held liable for damages that may result from the sale of liquorRes Ipsa LoquiturUnder this doctrine, the very fact that the injury or damage occurs establishes a presumption of negligence on behalf of the defendantMeans, “the thing speaks for itself”e.g., a dentist extracts the wrong toothThree requirements must be met for res ipsa loquitur to apply:The event is one that normally does not occur in the absence of negligenceThe defendant has exclusive control over the instrumentality causing the accidentThe injured party has not contributed to the accident in any wayApplications of Negligence LawThe standard of care owed to others depends upon the situationA trespasser is a person who enters or remains on the owner’s property without the owner’s consentThe duty to refrain from injuring a trespasser is sometimes referred to as the duty of slight careA licensee is a person who enters the premises with the occupant’s expressed or implied permissionE.g., a door-to-door salespersonThe property owner must warn the licensee of unsafe conditions or activities which are apparentAn invitee is a person who is invited onto the premises for the benefit of the occupantThe occupant has an obligation to inspect the premises and eliminate any dangerous conditions Applications of Negligence LawAn attractive nuisance is a hazardous condition that can attract and injure childrenThe occupants of land are liable for the injuries of children who may be attracted by some dangerous condition, feature or articlee.g., a building contractor leaves the keys in a tractor, and a child is injured while driving itApplications of Negligence LawOwners and operators of automobiles who drive in a careless manner can be held liable for property damage or bodily injury sustained by another personAn owner who is not the operator can be held liable for the acts of operators if an agency relationship existsToday, governmental entities can be sued in almost every aspect of governmental activityThe doctrine of sovereign immunity has been modified over timeA governmental unit can be held liable if it is negligent in the performance of a proprietary function, e.g., the operation of water plantsImmunity from lawsuits for governmental functions, such as the planning of a sewer system, has been erodedCharitable institutions are no longer immune from lawsuits, especially with respect to commercial activitiesApplications of Negligence LawUnder the doctrine of respondeat superior, an employer can be held liable for the negligent acts of employees while they are acting on the employer’s behalfThe worker must be an employeeThe employee must be acting within the scope of employment when the negligent act occurredA parent can be held liable if a child uses a dangerous weapon to injure someoneMost states have laws that hold parents liable for willful and malicious acts of children that result in property damage to othersOwners of wild animals are held strictly liable for injuries to othersCurrent Tort Liability ProblemsRecently, risk managers, business firms, physicians and liability insurers have been troubled by:A defective tort liability systemMedical malpracticeCorporate fraud and lax corporate governanceCurrent Tort Liability ProblemsDefects in the present tort liability system include:Rising tort liability costsInefficiency in compensating injured victimsUncertainty of legal outcomesHigher jury awardsLong delays in settling lawsuitsExhibit 19.1 Types of DamagesRising Tort Liability CostsSeveral factors help explain the substantial increase in tort costs over time, including:Juries and judges desensitized to the value of the dollar when damages are awardedAggressive and creative litigation strategiesRising medical costsAbuses in class action lawsuitsDeep pocket syndromeRising Tort Liability CostsFuture lawsuits may increase due to:Collapse of the subprime mortgage and housing marketsMortgage fraud and predatory lendingRecent credit crunch and freezing of credit marketsLosses resulting from sale of complex derivativesStock market crash and severe recession of 2008-2009The Bernie Madoff Ponzi scheme and other security fraudsMortgage brokers, investment banks, appraisers, auditing firms, and attorneys will be especially vulnerable to lawsuitsExhibit 19.2 Tort Costs Relative to GDP ($billions)Exhibit 19.3 Where the Tort Dollar Goes, 2002aExhibit 19.4 Median1 and Average Personal Injury Jury Awards, 2000 and 2006Federal Tort ReformReform measures that have passed or have been proposed at the federal level include:The Class Action Fairness Act, 2005Moves class action suits of more than $5 million from the state to federal courtsProtection of Lawful Commerce in Arms ActProtects gun manufacturers and sellers of guns from lawsuits based on the criminal use of their productsPersonal Responsibility in Food Consumption Act (a.k.a. the cheeseburger bill)Protects food companies and fast food restaurants from lawsuits by overweight customersLawsuit Abuse Reduction ActImposes sanctions on attorneys who file frivolous lawsuitsTort Reform in the StatesState tort reforms include:Capping noneconomic damages, such as pain and sufferingReinstating the state-of-the-art defense for product liability casesRestricting punitive damages awardsModifying the collateral source ruleUnder the collateral source rule, the defendant cannot introduce any evidence that shows the injured party has received compensation from other collateral sourcesTort Reform in the StatesModifying the joint and several liability ruleUnder this rule, several people may be responsible for the injury, but a defendant who is only slightly responsible may be required to pay the full amount of damagesAlternative dispute resolution (ADR), a technique for resolving a legal dispute without litigationIn arbitration, the parties to a dispute agree to be bound by the decision of an independent third partyIn mediation, a neutral third party tries to arrange a settlement without resorting to litigationMedical MalpracticeMedical malpractice occurs when a negligent act or omission by a physician or other health care professional results in injury or harm to the patientMalpractice insurance premiums have decreased since 2004, but claims remain an important component of total tort costsMany malpractice suits are due to medical errors by health care providers, especially errors in hospitals that result in the death of patientsOther reasons patients sue include:They are more litigious than in the pastThere is a growing resentment against large for-profit health care firms and managed care plansReducing Medical Malpractice CostsMethods to reduce medical malpractice costs include:Forsaking charges for “never events”“Never events” are medical errors that are clearly identifiable and preventable and should never occur“I’m sorry” laws that allow physicians to apologize without admitting faultPrompt disclosure of medical errorsRemedial action against problem physiciansEmphasis on risk management principlesCorporate Fraud and Lax Corporate GovernanceRecently, many large corporations have used dishonest or aggressive accounting practices to inflate stated earnings and profits, or to conceal or misstate certain transactionsThe Securities and Exchange Commission has indicted numerous company officials for securities fraud, illegal accounting practices, destruction of company records, and obstruction of justiceThe Sarbanes-Oxley Act (2002) is designed to expose and punish acts of corruptionThe company’s CEO and CFO must swear to the accuracy of the financial reports, among other thingsThese activities have had an impact on directors and officers liability insurance (D&O)