risk management test

risk

uncertainty of an outcome

pure risk

chance of loss or no loss

speculative risk

chance of loss, no loss, or potential gain

pure risk

insurance companies only deal with

speculative risk

putting money in 401k, casino

subjective risk

our attitudes towards risk, a measure of how much risk you can stand

subjective risk

synonymous with level of risk tolerance

subjective risk

most difficult risk type to deal with on day to day basis

Peril

cause of loss

Insurance

protects against peril

types of peril

fire, lightning, wind, hail, flood, earthquake, volcano

Exclusions

perils not included in insurance coverage, ex: pollution liability, intentional acts of assured or act on the assured

Policy provider will not pay or defend

Reservation of rights letter sent to policy holder saying they won't help

Floods

never included in insurance coverage because they are not frequent enough to predict future occurances

Liability Insurance

poling mechanism, people pay premiums that go into a pool. company is responsible for managing insurance pool

Premium with policy when purchased includes defense costs so policy provider can take control and defend you

Issue is not who caused the problem it is who pays to clean it up

Supplemental Liability Policy

to defend policy providers will pay for all the expenses on top of covered amount needed to defend you

liability

anybody can sue you

for virtually anything

at anytime

for any amount

Hazard

anything that increases the frequency and/or severity of a loss

Physical Hazard

burned out light bulb over darkened stairwell, not replacing worn out tires on automobile

moral hazard

intent to defraud, intentional damage, intention destruction (arson, disgruntled employees)

Morale Hazard

I don't care attitude (employees are only there to get paid and will do just enough and nothing else)

Cash flow underwriting

process where you knowingly sell your product/service below anticipated cost of loss (TIMING IS EVERYTHING)

cash flow underwriting

used to create rapid infusion of capital into the company to create a larger footprint/greater market share

Contracts of indemnity

contract that will put you back where you were before the loss occurs (insurance contracts)

Insurance

a pooling mechanism and a transfer mechanism

named peril policy

the only perils covered are listed on the contract

Doctrine of proximate cause

states that first insured peril in an unbroken chain of events that leads to a loss will often cause insurance companies to have to pay for losses caused by perils not specifically insured against

Open Peril Policy (all risk)

you are covered and protected against losses caused by any peril unless specifically excluded

Prudent Person Principle

we are required to act like any reasonable prudent person would act under the same or similar circumstances. Failure to do so leads to the finding of negligence by the judge or jury

Res Ipsa Loquitor

latin term meaning "the thing speaks for itself"

Only used by plaintiff...never by defense

Res Ipsa Loquitor

when plaintiff uses this statement they are saying that there harm is without a doubt caused only by the defendant

plaintiff must establish these three things in a negligence case

We owed them a duty or responsibility

We breached duty or responsibility

Measurable financial damage

Strict Liability

liable regardless of fault

Workers comp

example of strict liability

vicarious liability

you can become responsible for actions of another person (mainly employees)

Commercial general liability

excludes virtually all forms of pollution

Premise/operations liability

comes standard with $1 million coverage per occurrence

EPA Regulations/ Problem with obtaining pollution insurance policies

change on a daily basis - makes it difficult to get a handle on it

Economics - supply and demand (small number of companies writing pollution liability and a heavy demand) \= very expensive

occurrence based liability contract

insurance company that has policy in force when injury occurs is responsible for loss

Claims made Policy

insurance company that has contract in force when claim is made AND injury occurs after policies retroactive date will be company that has to pay claim

State of the art evidence rule

A product that was manufactures using current tech cannot be judged against the performance of a product that was not provided at the time of the original product

Tort reform is trying to get rid of state of the art and trying to hold you accountable for tech difference

Professional Liability

Claims arise anytime someone professes to have or has a level of experience greater than the average person

If they do not have to carry a PL policy they do not have more experience/knowledge than a regular person

Medical malpractice

arises anytime medical practitioner or provider renders service that causes physical and/or financial injury to patient

Anesthesiologist, Child delivery

top 2 medical malpractice doctors

Completed operations

liability for contractors

Directors and Officers Liability

director and/or officer of organization renders decision independently or directly that has negative of effect on stake holder

Errors and omissions claim

role and responsibility of professionals in financial service industry

what happens if a defendant doesn't defend a lawsuit against them?

It will be a default judgement against the defendant

Tort

Civil Wrong

Tort Liability System: Pros

compensate plaintiffs who are injured

prevent people from acting in ways that may cause injury to others

punish people who wrongfully injure others

Tort Liability System: Cons

courts have the ability to strike out any claims of which they think "no good course of action exists" which mandates the obstruction of an individual's right to a fair trial

Contributory Negligence Defense

Proving plaintiff contributed to own injury or damages

Comparitive Negligence Defense

Prove that plaintiff is responsible for damages by a percentage

Last-Clear Defense

Plaintiff could have avoided damages

Assumption of Risk Defense

Knew risk of injury and/or damages

Types of injury

Property damage

Bodily injury (actual injury to body)

Personal injury (invasion of privacy, slander, etc.)

Long-Tail Claim

A claim can be filed years after the policy period and the contract may have to pay if it is determined that the injury occurred during the policy period

special forms of liability?

occurrence based policy \-- It is designed to protect you against long-tail events - incidents that could cause injury or damage years after they occur

Compensatory Damages

Bodily injury

Property damage

Pain and suffering

Loss of income

Loss of future income

Diminished capacity

ADA

Cannot discriminate against those with disabilities