property risk, liability risk, tort system, and workers’ compensation vickie bajtelsmit, j.d.,...
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Property Risk, Liability Risk, Tort System, and Workers’ Compensation
Vickie Bajtelsmit, J.D., Ph.D.Colorado State University
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 Coverage Under Each Policy
All Policies
--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,
HO-3 All-Risk FormAll perils, including those listed above, except flood, earthquake, war, nuclear accident
HO-4 Renter's ContentsLoss to personal belongings caused by perils listed above.
HO-5 Comprehensive FormSimilar as HO-3 but includes endorsements for replacement cost coverage on contents and buildings.
HO-6 CondominiumSimilar to HO-4; covers personal belongings and additions to the living unit.
HO-7 Country Home FormCovers agricultural buildings and equipment for non-farm 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
Auto Insurance Coverages
Liability Medical payments Uninsured/underinsured motorist Personal injury protection (PIP) Physical damage coverage
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 Class Actions Insurer bad faith claims “New risks”
Escalating jury awards 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?
Inefficiency of the System: Less than Half the Tort Dollar Goes to Claimants
Actual Economic
Losses 22%
Pain and Suffering
(Non-Eco-
nomic) Losses
24%
Attorneys Fees 19%
Defense Costs 14%
Adminis-trative
Costs of Settling Claims 21%
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 CompensationBackground 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.