LIABILITY INSURANCE

SOURCES OF LIABILITY AND INSURANCE

General Liability Insurance is a product of the modern times. The general move of the population from rural to urban areas, and the establishment of industrial society have created a new way of life and patterns of co-existence.

Living in this new world, both as private individual and as an entrepreneur makes one exposed to great risk of causing damage to others or suffering damage, be it bodily injury, property damage or purely financial losses.

This trend has been further aggravated by recent developments such as exaggerated demands on the part of aggrieved parties, consumerism, and inflationary increases in wages and prices.

A person who suffers bodily injury, death, loss to his property or reputation and/or financial loss has an automatic right to obtain compensation.

To succeed in a liability suit, one (the plaintiff) must bring his claim under one or more of the well defined areas of tort in civil law.

A tort is a civil wrong for which an action for damages can be sustained. Tort law is the body of law that addresses and provides remedies for civil wrongs not arising out of contractual obligations. It is part of common law that always implies some breach of duty, usually the general duty which lies on all to take care that injury or damage is not caused to other people or to their properties.

A person who suffers legal damages may be able to use tort law to receive compensation from the person who is legally responsible, or liable for those injuries/damages.

Tort law defines what constitutes a legal injury, and establishes the circumstances under which one person may be held liable for another’s injury. Intentional torts are acts that are reasonably foreseeable to cause harm to an individual. There are several subcategories namely:-

1. Torts against the person: - Assault, Battery, false imprisonment, intentional infliction of emotional distress, and fraud.
2. Property Torts: - Involve any intentional interference with the property rights of the other. These include trespass to land and trespass to chattels.

In contrast to criminal law where the offence is against the State and the State is the plaintiff, in tort law, the offence is against a person and that person is the plaintiff.

FORMS OF TORT:

Tort may take the form of negligence, nuisance (private and public), absolute or strict liability, trespass and defamation.

The cornerstone of tort liability is negligence and is the most common form. Negligence is defined as the omission to do something which a reasonable man guided by those principals and consideration which ordinarily regulate the conduct of human affairs would do or something which a prudent and reasonable man would not do.

A duty to take care must exist before there can be negligence. Each has a duty to his fellows to regulate his actions, the conditions of his property, and the activities of his employees so as not to cause injury or damage to other people or the other peoples’ properties.

Failure in the observance of this duty renders one guilty of negligence.

Once the duty of care exists, one can only be considered guilty when he breaches the duty of care and as a result of the breach, the plaintiff sustained damage. If the injured party cannot prove that the person believed to have caused the injury acted with negligence, tort law will not compensate him. The breach of duty must be the proximate cause of the damage.

VICARIOUS LIABILITY:-

The word vicarious is derived from the Latin for “change” or “alteration”. In tort law, it refers to a situation where one person can be held liable for the harm caused by another to a third party, because of some legally recognized relationship e.g. Husband and wife, parent and child, employer and employee in the course of employment etc.

Vicarious liability arises when one party has to assume responsibility for the torts of the other and the dictum Qui facit per alium facit per se (he who does a thing though the other does it himself) is the guiding principle.

A man is liable not only for the consequences of his own negligence, but also in certain circumstances for the consequences of the negligence of the others. These liabilities arise from business and other special relationships existing between the person who commits the acts of negligence and the person held responsible. The relationship gives the latter as a general rule, a degree of control over the former’s actions, and thus carries with it the responsibility for a wrongful act or neglect. Vicarious liability is strict liability and occurs in the following relationships:-

1. Principal and independent contractor
2. Principal and agents
3. Master and servants under the contract of service.

LIABILITY FOR ANIMALS:- 

Liability in the law of tort in respect of damage and or injury caused by animals may arise in two ways:-

1. In common law action for negligence, nuisance, trespass or strict liability.
2. Under the animals act.

LIABILITY FOR AND TO CHILDREN:-

A child can both sue and be sued in tort, but cannot conduct litigation in person. When a plaintiff the child must always be represented by the “next friend” and when a defendant by their guardian or parents. Minority is not a defense in tort.

PARENTS’S LIABILITIES:

Although a child is responsible for his torts, the parent may be held liable in addition if the child acted at the material time with the parent’s knowledge and consent. This may arise when dangerous toys or other materials are given to the child by the parent.

There may also be liability on the parent where the child acted as an agent of the parent.

LIABILITY FOR OTHER PEOPLE’S CHILDREN:-

A person may be held responsible for the torts of other people’s children if things are left about which will attract infant curiosity, and lead them to meddle with such things, causing injury to themselves or others e.g. a person places a loaded gun where the children are playing.

If one of them takes it and shoots someone else with it, then the person who placed the gun within the reach of the child might be held liable for the injury caused, because there is a duty to anticipate and guard against a child’s natural propensity for mischief.

HUSBAND AND WIFE:

Before the passing of the 1935 law reform (married women and tort feasor’s act), a husband could be sued for the torts committed by his wife.

After the law, the husband is no longer liable for her torts, than she is for his.

From the standpoint of responsibility for negligence, they are just the same as single people except that the relationship of principal and agent or even master and servant may under lie acts committed by one for the other.

PARTNERS:

Partners are liable, jointly or severally for torts committed by any co-partner in the ordinary course of the business of the firm or with the authority of the co-partners. Any tort committed in the course of their business, or on specific authority, raises the presumption that the act is done on the firm’s account, and each of the partners is thus equally responsible.

DEFENCES TO LIABILITY UNDER TORT: 

1. Denial of liability
2. Inevitability
3. Act of God (vis major)
4. Contributory negligence e.g. in evaluating a collision between two vehicles, the courts will find the contribution of each driver to the accident.
5. Volenti non fit injuria: This is Latin for “to him who is willing, there can be no injury or no injustice is done”. It operates when the claimant expressly or implicitly consents to the risk of loss or damage e.g. a boxer in a boxing ring or a spectator in a hockey match.
6. Illegality – Exturpi causa non oritur actio: - This is Latin for “no right of action arises from a despicable cause”. If the claimant is involved in a wrong doing at the time of the alleged negligence occurred. This may extinguish or reduce the defendant’s liability. e.g. if a burglar is verbally challenged by the property owner and sustains injury when jumping from a second storey window to escape apprehension, there is no cause against the property owner, even though that injury would not have been sustained but for the property owner’s intervention.
7. Remoteness of damage
8. Emergency, necessity, or private defense
9. Specific for nuisance- statutory authority and prescription
10. Specific for defamation-Justification and privileges.

REMEDIES

1. Damages or money: - the main remedies against tortuous loss is compensation in damages or money.
2. Self-Help: - courts will tolerate use of reasonable force to expel a trespasser, especially against tort of battery.
3. Injunction: - In continuing torts or where harm is merely threatened, then courts will grant an injunction.

All those who may incur liability to others can obtain protection under Liability Insurance policies. Liability insurance is exposed to risks from all areas and walks of life, and is therefore affected very strongly by the risk of change.

Liability insurance is a part of the general insurance system of risk financing to protect the purchaser (the "insured") from the risks of liabilities imposed by law and similar claims. It protects the insured in the event he or she is sued for claims that come within the coverage of the policy. Originally, individuals or companies that faced a common peril formed a group and created a self-help fund out of which to pay compensation should any member incur loss (in other words, a mutual insurance arrangement). The modern system relies on dedicated carriers, usually for-profit; to offer protection against specified perils in consideration of a premium.

Liability insurance is designed to offer specific protection against third party insurance claims. Payment is not usually made to the insured, but rather to the person who suffers a loss and who is not a party to the insurance contract.

In general, damage caused intentionally as well as contractual liability are not covered under liability insurance policies. When a claim is made, the insurance carrier has the duty (and right) to defend the insured. The legal costs of a defense normally do not affect policy limits unless the policy expressly states otherwise. This default rule is useful because defense costs could rise when cases go to trial.

DUTIES OF LIABILITY INSURANCE POLICIES:_

Liability insurers have two (or three, in some jurisdictions) major duties:-

• the duty to defend,
• the duty to indemnify and (in some jurisdictions),
• the duty to settle a reasonably clear claim.

The duty to defend is triggered when the insured is sued and in turn "tenders" defense of the claim to its liability insurer. The duty to indemnify means the duty to pay "all sums" for which the insured is held liable, up to a set policy limit.

The duty to settle reasonable claims against the insured arises in some jurisdictions. The duty is of greatest import during situations in which the settlement demand equals or exceeds the policy limits. In such a case, the insurer has an incentive not to settle, since if it settles, it will certainly pay the policy limit. But this interest is at odds with the interest of its insured.

In the second instance, the company has incentive not to settle since if the case goes to trial, there are only two possibilities:-

1. The insured losses and insurer pays the policy limits (nothing gained nothing lost), or
2. The insured wins, leaving the insurer with no liability.

If however the insurer refuses to settle and the case goes to trial, the insured might be held liable for a sum far exceeding the settlement offer. In turn, the plaintiff might then attempt to recover the difference between the policy limits and the actual judgment by obtaining writs of attachment or execution against the insured's assets.

This is where the duty to settle comes in. To avoid endangering the insured and to gain a remote possibility of avoiding paying on the policy, the duty to defend obligates the insurance company to settle reasonably clear claims. The standard judicial test is that an insurer must settle a claim if a reasonable insurer, notwithstanding any policy limits, would have settled the claim.

An insurer who breaches any of these three duties may be held liable for the tort of insurance bad faith in addition to breach of contract.

THE INSURANCE POLICY:

Liability Insurance policies can be on Occurrence or Claims-made basis. Traditionally, liability insurance was written on an occurrence basis, meaning that the insurer agreed to defend and indemnify against any loss which allegedly "occurred" as a result of an act or omission of the insured during the policy period. This was originally not a problem because it was thought that insured’s' tort liability was predictably limited by doctrines like proximate cause and statutes of limitations. In other words, it was thought that no sane plaintiffs' lawyer would sue in 1978 for a tortious act that allegedly occurred in 1953, because the risk of dismissal was so obvious.

In the 1980s, a large number of major toxic tort scandals (primarily involving asbestos and diethylstilbestrol) resulted in numerous judicial decisions and statutes which radically extended the so-called "long tail" of potential liability chasing occurrence policies. The result was that insurers who had long-ago closed their books on policies written 20, 30, or 40 years earlier now found that their insured’s were being hit with hundreds of thousands of lawsuits which implicated those old policies.

The insurance industry reacted in two ways to these developments. First, premiums on new occurrence policies skyrocketed, since the industry had learned the hard way to assume the worst as to those policies. Second, the industry began issuing claims-made policies, where the policy covers only those claims that are first "made" against the insured during the policy period. A related variation is the claims-made-and-reported policy, under which the policy covers only those claims that are first made against the insured and reported by the insured to the insurer during the policy period. (There is usually a 30-day grace period for reporting after the end of the policy period to protect insured’s who are sued at the very end of the policy period).

LONG TAIL LIABILITY CLAIMS:

By their nature, latent disease claims can present challenges for the defendants and their Insurers. Because of the period of time between the alleged breach of duty and the manifestation of symptoms can be many years, there can be coverage issues such as whether employer’s liability insurance was in place at the time of exposure and apportionment of potential liability between different insurers on risk for period of exposure. This characteristic also gives rise to questions of evidence, procedure and justice.

The limitations act of 1980 and the cases which construe it, govern how the courts deal with the passage of time between breach of duty and the issue of the claim. The Act balances the interests of claimants in having the opportunity to pursue their claims with the interests of defendants in not having to defend stale proceedings. The law of limitation is a prominent feature of latent disease claims.

The limitations Act provides that a personal injury claim must be brought within three years from either the date on which the cause of the action accrued (i.e. when the injury occurred) or the date of knowledge of the person injured, if later. The date of knowledge is the date when the claimant first became aware that the injury was significant, was attributable to the act or omission complained of and the identity of the defendant. A claimant’s knowledge includes not only actual knowledge but also constructive knowledge i.e. knowledge that he/she might reasonably be expected to posses. In addition, the court possesses a discretion (section 33) not to apply the limitation period and allow a late claim if it would be equitable to do so.

A recent court of appeal case in June/July 2014 concerning asbestos –related lung cancer is likely to assist defendants in latent disease claims and in other cases where the alleged breach of duty occurred long before the claim was issued. The case of Collins provides guidance on the two key elements of (i) constructive knowledge and (ii) the passage of time.

In the case of Collins vs. Secretary of State (2014), the claimant who worked at the London Docks between 1947 and 1967 was diagnosed with lung cancer in May, 2002. He issued proceedings in May 2012, alleging that his condition had been caused by exposure to asbestos while unloading bags of asbestos from ships. Lord Justice Jackson at the Court of Appeal found:-

1. In respect of constructive knowledge, a reasonable person in the claimant’s position would have asked about the possible causes of his lung cancer by mid 2003. It is the possible and not the definite cause that matters. The medical records in 2002 contained several references to the claimant’s employment history and his exposure to asbestos. If asked about the matter in 2002/2003, it was inevitable the doctor would have mentioned exposure to asbestos as a possible cause. The claimant did not ask about these matters until 2008. He had constructive knowledge by mid 2003.

2. In respect of Section 33, the Court, when deciding whether or not to apply the limitation period, can take into account the passage of time between the date of the alleged breach and the claimant’s date of knowledge.

In respect of constructive knowledge, the court requires that the claimant be curious about the possible causes of his condition. The claimant will be deemed to posses the knowledge that reasonable enquiry would have elicited.

In respect of discretion (section 33), Lord Justice Jackson stated that the principal question of law was whether and how courts should take into account the delay between the date of alleged exposure and the date of constructive knowledge-1947 to mid 2003 here.

Lord Justice Jackson acknowledged “Counsel on both sides described this question as an issue of seminal importance in relation to long-tail industrial disease claims’.

Lord Justice Jackson made it clear ‘this innocent’ passage of time is relevant and can be taken into account by the court. This period of time is of course not caused by any fault on the claimant’s part. But it is of vital importance when a defendant is faced with having to defend the claim. The court of Appeal’s decision is thus likely to assists defendants because it means the court is unfettered in examining the whole circumstances of the case when deciding whether or not it is equitable to require a defendant to face a late claim. The policies provide indemnity to the insured for his legal liability which may arise at common law, under statute or under contract with/to other persons including employees. The policy seeks to indemnify the Insured employer against his liability under the Workmen’s Compensation Act, of 1923 and subsequent amendments and at common law.

KENNETH OBALLA

TRAINING MANAGER.

ZEP-RE (PTA REINSUNCE COMPANY