Property and Liability Risks

Report
Property Risk, Liability Risk,
Tort System, and Workers’
Compensation
Vickie Bajtelsmit, J.D., Ph.D.
Colorado State University
Outline




Property Risk
Liability Risk
The Tort System
Workers’ Compensation
Property risk



Definition: The risk of theft, loss, or
damage to your real or personal
property.
Direct versus indirect losses
Examples:



Home burns down
Automobile is damaged is accident
Personal property is stolen from your home
Major Property Insurance
Policies









Homeowners’
Auto Comprehensive
Building and personal property
Business income
Boiler and machinery
Inland marine
Ocean marine
Crime (Employee dishonesty)
Difference in conditions
Homeowners’ Insurance


Standardized and simplified policies
Risk classification and underwriting based on






Location
Construction
Fire protection
Building code adequacy and enforcement
Age
Credit score
Homeowner’s Coverages
Form Type
All Policies
HO-3 All-Risk Form
HO-4 Renter's Contents
Coverage Under Each Policy
--Personal liability, medical payments for guests,
additional living expenses during repair
--Losses due to: fire, lightning, windstorm, hail, explosion,
riots, damage from aircraft or vehicles, smoke, vandalism,
theft, glass breakage, volcanic eruption,
All perils, including those listed above, except flood,
earthquake, war, nuclear accident
Loss to personal belongings caused by perils listed above.
Similar as HO-3 but includes endorsements for
HO-5 Comprehensive Form
replacement cost coverage on contents and buildings.
Similar to HO-4; covers personal belongings and additions
HO-6 Condominium
to the living unit.
Covers agricultural buildings and equipment for non-farm
HO-7 Country Home Form
businesses
Valuation of recoverable loss





Actual cash value versus replacement
cost
Coinsurance clause
Deductibles
Limits and exclusions
Subrogation
Current Issues in Property Insurance:
Catastrophes!

Earthquake, hurricane, flood, wildfire



Do these risks fit the requirements for
insurable risks?
Government insurance available (e.g.
National Flood Insurance Program) but
many do not buy.
Losses have increased over time due to
concentration of population in high risk
areas.
Liability Risk


Definition: Risk that you will be
responsible for an injury to another
person or their property.
Legal Basis (1) The Law of Negligence



Breach of duty to another
Causation of Loss
Legal Basis (2) Strict Liability

Causation of Loss
Types of Liability Exposures








Professional liability
Contractors liability
Employer liability
Product liability
Principal-agent liability
Auto liability
Landlord-tenant liability
Contractual liability
Liability Insurance Policies










Homeowners’
Personal Auto
Commercial Auto
Commercial General Liability (CGL)
Umbrella Liability (business or personal)
Directors and Officers (D&O)
Environmental Impairment Liability (EIL)
Employment Practices Liability
Professional Liability (malpractice)
Errors and omissions (E&O)
Important Concepts in Liability
Insurance

Policy Trigger





Accident
Occurrence vs. Claims Made
Policy Limits
Defense Costs
Underwriting Factors


Moral Hazard
Adverse Selection
Types of Damages

Compensatory Damages




Medical costs
Lost wages
Pain and suffering
Punitive Damages
Auto Insurance Coverages





Liability
Medical payments
Uninsured/underinsured motorist
Personal injury protection (PIP)
Physical damage coverage
Minimum Auto Liability Coverage
Differs by State: Low Relative to
Potential Losses
Auto Insurance Rating

Factors in claim costs by jurisdiction


Accident rate, Small cars, Urbanization,
Medical costs, Auto repair costs, Fraud,
Litigiousness
By person

Driving record, Age, Miles driven, Credit
score, Type of vehicle, Marital status,
Gender, Territory
Auto No Fault Laws

Pure versus modified






Verbal thresholds
Dollar thresholds
Add-on laws
Choice systems
Evidence on cost savings
Number of No Fault States Declining
Issues related to the Legal
System

Increased Litigation




Escalating jury awards


Class Actions
Insurer bad faith claims
“New risks”
Non-economic and punitive damages
Insurance fraud
Evaluating the Legal System

Objectives






Compensation of victims
Improved safety
Deterrence
Are these accomplished?
At what cost?
Are the outcomes equitable?
Cost of the U.S. Tort System
Inefficiency of the System: Less than Half
the Tort Dollar Goes to Claimants
Administrative
Costs of Settling
Claims 21%
Actual Economic
Losses 22%
Defense Costs
14%
Attorneys Fees
19%
Pain and Suffering
(Non-Economic)
Losses
24%
Source: Tillinghast-Towers Perrin
Factors Driving Tort Costs







Innovative Plaintiff’s Attorneys
Generous Juries and Punitive Damages
More Class Action Law Suits (Product
Liability, Discrimination, Shareholder)
Medical Cost Inflation
Media Coverage
Weak Economy
First Party Bad Faith Claims
Tort Reform Developments




Medical Malpractice Caps on Noneconomic
Damages
Caps on Punitive Damages—What’s Reasonable?
Class Action Reform
Arbitration
Tort Reform Proposals







Caps on punitive damages
Caps on pain and suffering damages
Attorney fee limits
Arbitration
Limits on class actions
Modifications to Collateral Source Rule
Modifications to Joint & Several Liability
Workers’ Compensation
Workers Compensation
Background


Historically, injured workers had to rely on
the law of negligence
Employers were rarely held responsible



Proof of negligence difficult
Defenses available
Currently: No fault (strict liability) system




Wage replacement
Medical benefits
Employer strictly liable for injuries arising out of
and in the course of employment
Workers give up the right to bring suit
Problems in Workers Comp

Variation across states






Benefits and utilization
Financing of the system
Litigation (above threshold)
Fraud (by workers,employers,doctors,
lawyers, insurers)
Medical Cost Inflation
Cost of dispute resolution
Other Current Issues


Increasing occurrence modern risks
such as repetitive motion, mental
stress, obesity
Reintegration of veterans



ADA (Americans with Disabilities Act): Must
accommodate employees with disabilities
Managed Care
24 hour coverage
Workers’ Comp Summary




Workers’ compensation programs provide a
valuable type of insurance for injured
workers.
The original trade-off of employer strict
liability in return for employees giving up the
right to sue is often eroded.
Costs are rising but are a decreasing % of
total employee compensation.
Smaller firms feel the cost the most.

similar documents