Risk Management and Legal Liability Lecture Flashcards

Vocabulary practice flashcards covering legal liability doctrines, property/net income/personnel loss exposures, traditional risk management, and enterprise risk management (ERM) concepts.

Traditional Risk Management (TRM)

A departmentalized risk management framework that focuses primarily on pure insurable risks where a firm can only lose or stay the same, categorized into property, net income, personnel, and liability exposures.

Property Loss Exposure

A situation existing when an entity has a financial or legal interest in physical or financial assets that could be damaged, destroyed, or stolen, leading to monetary loss.

Ownership Interest

The most common type of property interest where owning an asset (either present or future, such as through a car loan or mortgage) creates a financial stake in that property.

Secured Creditor

A lender or bank that holds a title or legal claim on a property securing a loan, giving them a financial interest in the asset if it suffers damage or destruction.

Bailee

A person or business that temporarily holds another party's property and assumes a legal liability to replace or pay for damages if the property is harmed while in their care.

Bailor

The owner of property that is temporarily entrusted to or held by a bailee.

Leasehold Interest

A financial interest that exists for a tenant when the Fair Market Value (FMV) of rental property exceeds the contract rent specified in their lease agreement.

Net Income Loss Exposure

An indirect financial loss caused by a primary loss that disrupts normal productive operations, resulting in decreased revenue or increased expenses ($\text{Net Income} = \text{Revenue} - \text{Expenses}$).

Personnel Loss Exposure

The risk that a business suffers financial loss, such as lost revenue or replacement expenses, due to the death, disability, illness, retirement, or resignation of a key employee.

Negligence

The failure of a person or entity to exercise the proper degree of care that a reasonable person would have exercised under similar circumstances.

Strict Liability

A legal standard (also known as absolute liability) where legal liability is imposed regardless of whether the defendant was negligent or at fault.

Special Damages

Measurable bodily injury losses that have specific, quantifiable dollar amounts, such as medical bills and lost wages.

General Damages

Monetary compensation awarded for intangible bodily injury losses that are difficult to estimate, including pain and suffering, mental anguish, and inconvenience charges.

Punitive Damages

Monetary assessments imposed by a jury specifically to punish gross negligence, which cannot be covered by liability insurance.

Res Ipsa Loquitur

A legal doctrine meaning 'the thing speaks for itself' that presumes defendant negligence if the accident normally wouldn't occur without negligence, the defendant had exclusive control, and the plaintiff did not contribute.

Assumption of Risk Defense

A legal defense to liability showing that the injured party voluntarily and individually chose to encounter known inherent dangers in an activity.

Comparative / Contributory Negligence

A legal rule assessing whether and to what degree the injured plaintiff's own negligence contributed to the accident or loss.

Vicarious Liability

A legal doctrine holding one party legally responsible for the actions of another, such as an employer being held liable for actions of employees acting in their official capacity.

Joint and Several Liability

A legal rule applying when multiple parties contribute to an injury, allowing the injured party to collect the full compensation amount from any responsible party with sufficient resources.

Product Liability

The legal liability of manufacturers for monetary losses resulting from defective product design, faulty manufacturing, or failure to provide adequate safety warnings.

Premises Liability

The legal liability of an owner or tenant for injuries or property damage caused by conditions existing on or arising out of their premises.

Trespasser

An individual who enters a property without legal right or owner consent, to whom the owner owes only the duty to refrain from inflicting intentional harm.

Licensee

An individual who enters property with the owner's knowledge but without financial purpose or benefit to the owner, requiring the owner to warn them of hidden hazards.

Social Guest / Invitee

An individual invited onto a property for a specific purpose (such as a retail customer), to whom the owner/tenant owes a legal duty to maintain safe premises.

Dram Shop Laws

Statutes present in $30$ states holding commercial establishments liable for injuries caused by over-serving alcohol to patrons who subsequently injure others.

Enterprise Risk Management (ERM)

An integrated, enterprise-wide strategy that evaluates how pure and speculative risks across all departments interact and affect the firm as a whole.

Chief Risk Officer (CRO)

The executive leader in charge of overseeing Enterprise Risk Management (ERM) strategy across an entire organization.

Hazard Risks

An ERM quadrant comprising pure risks traditional to risk management, including fires, floods, personnel issues, lawsuits, and net income interruptions.

Financial Risks

An ERM quadrant consisting mostly of speculative market risks, such as inflation, interest rate changes, foreign exchange rates, liquidity, credit, and debt ratings.

Operational Risks

An ERM quadrant covering risks that arise directly out of business operations, including supply chain failures, manufacturing errors, product recalls, regulatory issues, and workplace discrimination.

Strategic Risks

An ERM quadrant evaluating risks related to the organization's overarching business direction and SWOT elements, such as competition, reputation, public relations, ethics, and market trends.