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129 Cards in this Set

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RISK
UNCERTAINTY CONCERNING THE OCCURRENCE OF A LOSS.
PURE RISK
SITUATION IN WHICH THERE ARE ONLY THE POSSIBILITIES OF LOSS OR NO LOSS.
SPECULATIVE RISK
SITUATION IN WHICH EITHER PROFIT OR LOSS ARE CLEAR POSSIBILITIES.
FUNDAMENTAL RISK
A RISK THAT AFFECTS THE ENTIRE ECONOMY OR LARGE NUMBERS OF PERSONS OR GROUPS WITHIN THE ECONOMY.
PARTICULAR RISK
A RISK THAT AFFECTS ONLY INDIVIDUALS AND NOT THE ENTIRE COMMUNITY.
OBJECTIVE RISK
RELATIVE VARIATION OF ACTUAL LOSS FROM EXPECTED LOSS, WHICH VARIES INVERSELY WITH THE SQUARE ROOT OF THE NUMBER OF CASES UNDER OBSERVATION.
SUBJECTIVE RISK
UNCERTAINTY BASED ON ONE'S MENTAL CONDITION OR STATE OF MIND.
ENTERPRISE RISK
A TERM THAT ENCOMPASSES ALL MAJOR RISKS FACED BY A BUSINESS, INCLUDING PURE RISK, SPECULATIVE RISK, STRATEGIC RISK, OPERATIONAL RISK, AND FINANCIAL RISK.
STATIC RISK
"UNCHANGING."
DYNAMIC RISK
"CREATED."
PERIL
-CAUSE OR COURSE OF LOSS.
-COMMON PERILS: FIRE, LIGHTNING, WINDSTORM, HAIL, TORNADOES, EARTHQUAKES, THEFT, AND BURGLARY.
HAZARD
-CONDITION THAT CREATES OR INCREASES THE CHANCE OF LOSS.
-LIKELIHOOD/SEVERITY OF A LOSS.
4 TYPES OF HAZARDS:
PHYSICAL
MORAL
MORALE
LEGAL
PHYSICAL HAZARD
PHYSICAL CONDITION THAT INCREASES THE CHANCE OF LOSS.
MORAL HAZARD
-DISHONESTY OR CHARACTER DEFECTS IN AN INDIVIDUAL THAT INCREASE THE CHANCE OF LOSS. (ILLEGAL)
-EX.) FAKING AN ACCIDENT TO COLLECT FROM AN INSURER/INFLATING THE AMOUNT OF A CLAIM.
MORALE HAZARD
-CARELESSNESS OR INDIFFERENCE TO A LOSS BECAUSE OF THE EXISTENCE OF INSURANCE. (NOT ILLEGAL)
-EX.) LEAVING CAR KEYS IN AN UNLOCKED CAR WHICH INCREASES THE CHANCES OF THEFT, CHANGING LANES SUDDENLY ON A CONGESTED INTERSTATE HIGHWAY WITHOUT SIGNALING.
LEGAL HAZARD
-CHARACTERISTICS OF THE LEGAL SYSTEM OR REGULATORY ENVIRONMENT THAT INCREASE THE FREQUENCY OR SEVERITY OF LOSSES.
-EX.) ADVERSE JURY VERDICTS OR LARGE DAMAGE AWARDS IN LIABILITY LAWSUITS, STATUTES THAT REQUIRE INSURERS TO INCLUDE COVERAGE FOR CERTAIN BENEFITS IN HEALTH INSURANCE PLANS, SUCH AS COVERAGE FOR ALCOHOLISM.
3 TYPES OF PURE RISK:
PERSONAL RISKS
PROPERTY RISKS
LIABILITY RISKS
PERSONAL RISKS
RISKS THAT DIRECTLY AFFECT AN INDIVIDUAL.
4 MAJOR PERSONAL RISKS:
RISK OF PREMATURE DEATH
RISK OF INSUFFICIENT INCOME DURING RETIREMENT
RISK OF POOR HEALTH
RISK OF UNEMPLOYMENT
PROPERTY RISKS
-THE RISK OF HAVING PROPERTY DAMAGED OR LOST FROM NUMEROUS CAUSES.
-REAL ESTATE AND PERSONAL PROPERTY CAN BE DAMAGED OR DESTROYED BECAUSE OF FIRE, LIGHTNING, TORNADOES, WINDSTORMS, AND NUMEROUS OTHER CAUSES.
2 TYPES OF LOSS ASSOCIATED WITH PROPERTY:
DIRECT LOSS
INDIRECT OR CONSEQUENTIAL LOSS
DIRECT LOSS
A FINANCIAL LOSS THAT RESULTS FROM THE PHYSICAL DAMAGE, DESTRUCTION, OR THEFT OF THE PROPERTY.
EX.) IF YOU OWN A RESTAURANT THAT IS DAMAGED BY A FIRE, THE PHYSICAL DAMAGE TO THE RESTAURANT IS KNOWN AS A DIRECT LOSS.
INDIRECT LOSS
A FINANCIAL LOSS THAT RESULTS INDIRECTLY FROM THE OCCURRENCE OF A DIRECT PHYSICAL DAMAGE OR THEFT LOSS.
EX.) IF RESTAURANT IS DAMAGED BY A FIRE, IN ADDITION TO THE PHYSICAL DAMAGE LOSS THE RESTAURANT WOULD ALSO LOSE PROFITS FOR SEVERAL MONTHS WHILE THE RESTAURANT WAS BEING REBUILT.
LIABILITY RISKS
-UNDER OUR LEGAL SYSTEM, YOU CAN BE HELD LEGALLY LIABLE IF YOU DO SOMETHING THAT RESULTS IN BODILY INJURY OR PROPERTY DAMAGE TO SOMEONE ELSE.
-A COURT OF LAW MAY ORDER YOU TO PAY SUBSTANTIAL DAMAGES TO THE PERSON YOU HAVE INJURED.
3 MAJOR RISK BURDENS ON SOCIETY:
-THE SIZE OF AN EMERGENCY FUND MUST BE INCREASED.
-SOCIETY IS DEPRIVED OF CERTAIN GOODS AND SERVICES.
-WORRY AND FEAR ARE PRESENT.
RISK MANAGEMENT PROCESS
SYSTEMATIC PROCESS FOR THE IDENTIFICATION AND EVALUATION OF LOSS EXPOSURES FACED BY AN ORGANIZATION OR INDIVIDUAL, AND FOR THE SELECTION AND IMPLEMENTATION OF THE MOST APPROPRIATE TECHNIQUES FOR TREATING SUCH EXPOSURES.
ENTERPRISE RISK MANAGEMENT
COMPREHENSIVE RISK MANAGEMENT PROGRAM THAT CONSIDERS AN ORGANIZATION'S PURE RISKS, SPECULATIVE RISKS, STRATEGIC RISKS, AND OPERATIONAL RISKS.
LOSS EXPOSURE
ANY SITUATION OR CIRCUMSTANCE IN WHICH A LOSS IS POSSIBLE, REGARDLESS OF WHETHER A LOSS OCCURS.
2 OBJECTIVES OF RISK MANAGEMENT:
PRE-LOSS OBJECTIVES
POST-LOSS OBJECTIVES
PRE-LOSS OBJECTIVES
THE GOALS OF ECONOMY
REDUCTION OF ANXIETY
MEETING LEGAL OBLIGATIONS
POST-LOSS OBJECTIVES
SURVIVAL OF THE FIRM
CONTINUED OPERATION
STABILITY OF EARNINGS
CONTINUED GROWTH
SOCIAL RESPONSIBILITY
4 STEPS IN THE RISK MANAGEMENT PROCESS:
1.) IDENTIFY EXPOSURES
2.) EVALUATE EXPOSURES
3.) SELECT APPROPRIATE TECHNIQUE
4.) IMPLEMENT/PERIODICALLY REVIEW AND REVISE
IDENTIFY ALL MAJOR AND MINOR LOSS EXPOSURES:
1.) PROPERTY LOSS EXPOSURES
2.) LIABILITY LOSS EXPOSURES
3.) BUSINESS INCOME LOSS EXPOSURES
4.) HUMAN RESOURCES LOSS EXPOSURES
5.) CRIME LOSS EXPOSURES
6.) EMPLOYEE BENEFIT LOSS EXPOSURES
7.) FOREIGN LOSS EXPOSURES
8.) MARKET REPUTATION AND PUBLIC IMAGE OF THE COMPANY
9.) FAILURE TO COMPLY WITH GOVERNMENT LAWS AND REGULATIONS
PROPERTY LOSS EXPOSURES:
-BUILDINGS, PLANTS, OTHER STRUCTURES
-FURNITURE, EQUIPMENT, SUPPLIES
-COMPUTERS, COMPUTER SOFTWARE, AND DATA
-INVENTORY
-ACCOUNTS RECEIVABLE, VALUABLE PAPERS AND RECORDS
-COMPANY VEHICLES, PLANES, BOATS, MOBILE EQUIPMENT
LIABILITY LOSS EXPOSURES:
-DEFECTIVE PRODUCTS
-ENVIRONMENTAL POLLUTION (LAND, WATER, AIR, NOISE)
-SEXUAL HARASSMENT OF EMPLOYEES, DISCRIMINATION AGAINST EMPLOYEES, WRONGFUL TERMINATION
-PREMISES AND GENERAL LIABILITY LOSS EXPOSURES
-LIABILITY ARISING FROM COMPANY VEHICLES
-MISUSE OF THE INTERNET AND E-MAIL TRANSMISSIONS
-DIRECTORS' AND OFFICERS' LIABILITY SUITS
BUSINESS INCOME LOSS EXPOSURES:
-LOSS OF INCOME FROM A COVERED LOSS
-CONTINUING EXPENSES AFTER A LOSS
-EXTRA EXPENSES
-CONTINGENT BUSINESS INCOME LOSSES
HUMAN RESOURCE LOSS EXPOSURE:
-DEATH OR DISABILITY OF KEY EMPLOYEES
-RETIREMENT OR UNEMPLOYMENT
-JOB-RELATED INJURIES OR DISEASE EXPERIENCED BY WORKERS
CRIME LOSS EXPOSURES:
-HOLDUPS, ROBBERIES, BURGLARIES
-EMPLOYEE THEFT AND DISHONESTY
-FRAUD AND EMBEZZLEMENT
-INTERNET AND COMPUTER CRIME EXPOSURES
-THEFT OF INTELLECTUAL PROPERTY
EMPLOYEE BENEFIT LOSS EXPOSURES:
-FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS
-VIOLATION OF FIDUCIARY RESPONSIBILITIES
-GROUP LIFE AND HEALTH AND RETIREMENT PLAN EXPOSURES
-FAILURE TO PAY PROMISED BENEFITS
FOREIGN LOSS EXPOSURES:
-ACTS OF TERRORISM
-PLANTS, BUSINESS PROPERTY, INVENTORY
-FOREIGN CURRENCY RISKS
-KIDNAPPING OF KEY PERSONNEL
-POLITICAL RISKS
WAYS A RISK MANAGER CAN IDENTIFY LOSS EXPOSURES:
-RISK ANALYSIS QUESTIONNAIRES
-PHYSICAL INSPECTION
-FLOWCHARTS
-FINANCIAL STATEMENTS
-HISTORICAL LOSS DATA
(PAGE 44)
THE 2ND STEP IN THE RISK MANAGEMENT PROCESS IS TO ANALYZE THE LOSS EXPOSURES. THIS STEP INVOLVES:
-FREQUENCY AND SEVERITY
-PROBABILITY
-CENTRAL TENDENCY
-VARIATION
-LAW OF LARGE NUMBERS
FREQUENCY
REFERS TO THE PROBABLE NUMBER OF LOSSES THAT MAY OCCUR DURING SOME GIVEN TIME PERIOD.
SEVERITY
REFERS TO THE PROBABLE SIZE OF THE LOSSES THAT MAY OCCUR.
CENTRAL TENDENCY
MEAN, MEDIAN, MODE
LAW OF LARGE NUMBERS
CONCEPT THAT THE GREATER THE NUMBER OF EXPOSURES, THE MORE CLOSELY WILL ACTUAL RESULTS APPROACH THE PROBABLE RESULTS EXPECTED FROM AN INFINITE NUMBER OF EXPOSURES.
THE 3RD STEP IN THE RISK MANAGEMENT PROCESS IS TO SELECT AN APPROPRIATE TECHNIQUE. THESE TECHNIQUES CAN BE BROADLY CLASSIFIED AS:
RISK CONTROL & RISK FINANCING
RISK CONTROL TECHNIQUES INCLUDE:
AVOIDANCE
LOSS PREVENTION
LOSS REDUCTION
RISK FINANCING TECHNIQUES INCLUDE:
RETENTION
NON-INSURANCE TRANSFERS
CAPTIVE INSURER
SELF-INSURANCE
RISK RETENTION GROUPS
AVOIDANCE
-MEANS A CERTAIN LOSS EXPOSURE IS NEVER ACQUIRED, OR AN EXISTING LOSS EXPOSURE IS ABANDONED.
-EX.) FLOOD LOSSES CAN BE AVOIDED BY NOT BUILDING A NEW PLANT IN A FLOODPLAIN.
-EX.) A PHARMACEUTICAL FIRM THAT MARKETS A DRUG WITH DANGEROUS SIDE EFFECTS CAN WITHDRAW THE DRUG FROM THE MARKET TO AVOID POSSIBLE LEGAL LIABILITY.
LOSS PREVENTION
-REFERS TO MEASURES THAT REDUCE THE FREQUENCY OF A PARTICULAR LOSS.
-EX.) MEASURES THAT REDUCE TRUCK ACCIDENTS INCLUDE TRUCK DRIVER EXAMINATIONS, ZERO TOLERANCE FOR ALCOHOL OR DRUG ABUSE, AND STRICT ENFORCEMENT OF SAFETY RULES.
LOSS REDUCTION
-REFERS TO MEASURES THAT REDUCE THE SEVERITY OF A LOSS AFTER IT OCCURS.
-EX.) INSTALLATION OF AN AUTOMATIC SPRINKLER SYSTEM THAT PROMPTLY EXTINGUISHES A FIRE.
RETENTION
-MEANS THAT THE FIRM RETAINS PART OR ALL OF THE LOSSES THAT CAN RESULT FROM A GIVEN LOSS.
-RETENTION CAN BE EITHER ACTIVE OR PASSIVE.
ACTIVE RISK RETENTION
MEANS THAT THE FIRM IS AWARE OF THE LOSS EXPOSURE AND PLANS TO RETAIN PART OR ALL OF IT, SUCH AS COLLISION LOSSES TO A FLEET OF COMPANY CARS.
PASSIVE RISK RETENTION
-THE FAILURE TO IDENTIFY A LOSS EXPOSURE, FAILURE TO ACT, OR FORGETTING TO ACT.
-EX.) A RISK MANAGER MAY FAIL TO IDENTIFY ALL COMPANY ASSETS THAT COULD BE DAMAGED IN AN EARTHQUAKE.
NON-INSURANCE TRANSFERS
-METHODS OTHER THAN INSURANCE BY WHICH A PURE RISK AND ITS POTENTIAL FINANCIAL CONSEQUENCES ARE TRANSFERRED TO ANOTHER PARTY.
-EX.) A COMPANY'S CONTRACT WITH A CONSTRUCTION FIRM TO BUILD A NEW PLANT CAN SPECIFY THAT THE CONSTRUCTION FIRM IS RESPONSIBLE FOR ANY DAMAGE TO THE PLANT WHILE IT IS BEING BUILT.
CAPTIVE INSURER
AN INSURER OWNED BY A PARENT FIRM FOR THE PURPOSE OF INSURING THE PARENT FIRM'S LOSS EXPOSURES.
SELF-INSURANCE
-A SPECIAL FORM OF PLANNED RETENTION BY WHICH PART OR ALL OF A GIVEN LOSS EXPOSURE IS RETAINED BY THE FIRM.
-A BETTER NAME FOR SELF-INSURANCE IS SELF-FUNDING, WHICH EXPRESSES MORE CLEARLY THE IDEA THAT LOSSES ARE FUNDED AND PAID FOR BY THE FIRM.
RISK RETENTION GROUPS
-A GROUP CAPTIVE THAT CAN WRITE ANY TYPE OF LIABILITY COVERAGE EXCEPT EMPLOYER LIABILITY, WORKERS COMPENSATION, AND PERSONAL LINES.
-EX.) A GROUP OF PHYSICIANS MAY FIND MEDICAL MALPRACTICE LIABILITY INSURANCE DIFFICULT TO OBTAIN OR TOO EXPENSIVE TO PURCHASE. THE PHYSICIANS CAN FORM A RISK RETENTION GROUP TO INSURE THEIR MEDICAL MALPRACTICE LOSS EXPOSURES.
WHICH RISK MANAGEMENT LOSS EXPOSURE IS CHARACTERIZED BY LOW LOSS FREQUENCY AND LOW LOSS SEVERITY?
RETENTION
WHICH RISK MANAGEMENT LOSS EXPOSURE IS CHARACTERIZED BY HIGH LOSS FREQUENCY AND LOW LOSS SEVERITY?
LOSS CONTROL
(PREVENTION & RETENTION)
WHICH RISK MANAGEMENT LOSS EXPOSURE IS CHARACTERIZED BY LOW LOSS FREQUENCY AND HIGH LOSS SEVERITY?
INSURANCE / TRANSFER
WHICH RISK MANAGEMENT LOSS EXPOSURE IS CHARACTERIZED BY HIGH LOSS FREQUENCY AND HIGH LOSS SEVERITY?
AVOIDANCE
INSURANCE
THE POOLING OF FORTUITOUS LOSSES BY TRANSFER OF SUCH RISKS TO INSURERS, WHO AGREE TO INDEMNIFY INSUREDS FOR SUCH LOSSES, TO PROVIDE OTHER PECUNIARY BENEFITS ON THEIR OCCURRENCE, OR TO RENDER SERVICES CONNECTED WITH THE RISK.
POOLING
THE SPREADING OF LOSSES INCURRED BY THE FEW OVER THE ENTIRE GROUP, SO THAT IN THE PROCESS, AVERAGE LOSS IS SUBSTITUTED FOR ACTUAL LOSS.
FORTUITOUS LOSS
ONE THAT IS UNFORESEEN AND UNEXPECTED AND OCCURS AS A RESULT OF CHANCE. (ACCIDENTAL)
RISK TRANSFER
MEANS THAT A PURE RISK IS TRANSFERRED FROM THE INSURED TO THE INSURER, WHO TYPICALLY IS IN A STRONGER FINANCIAL POSITION TO PAY THE LOSS THAN THE INSURED.
INDEMNIFICATION
-MEANS THAT THE INSURED IS RESTORED TO HIS OR HER APPROXIMATE FINANCIAL POSITION PRIOR TO THE OCCURRENCE OF THE LOSS.
-EX.) IF YOUR HOUSE BURNS IN A FIRE, A HOMEOWNERS POLICY WILL INDEMNIFY YOU OR RESTORE YOU TO YOUR PREVIOUS POSITION.
PROBLEM OF ADVERSE SELECTION:
IF THE APPLICANTS FOR INSURANCE WITH A HIGHER-THAN-AVERAGE CHANCE OF LOSS SUCCEED IN OBTAINING THE COVERAGE AT STANDARD RATES, WE SAY THAT THE INSURER IS "ADVERSELY SELECTED AGAINST." IF NOT CONTROLLED BY UNDERWRITING, ADVERSE SELECTION CAN RESULT IN HIGHER-THAN-EXPECTED LOSS LEVELS.
PRINCIPLE OF INDEMNITY
STATES THAT THE INSURER AGREES TO PAY NO MORE THAN THE ACTUAL AMOUNT OF THE LOSS; STATED DIFFERENTLY, THE INSURED SHOULD NOT PROFIT FROM A LOSS.
PRINCIPLE OF INSURABLE INTEREST
-STATES THAT THE INSURED MUST BE IN A POSITION TO LOSE FINANCIALLY IF A COVERED LOSS OCCURS.
-EX.) YOU HAVE AN INSURABLE INTEREST IN YOUR CAR BECAUSE YOU MAY LOSE FINANCIALLY IF THE CAR IS DAMAGED OR STOLEN.
PRINCIPLE OF SUBROGATION
-THE INSURER IS ENTITLED TO RECOVER FROM A NEGLIGENT THIRD PARTY ANY LOSS PAYMENTS MADE TO THE INSURED.
-EX.) ASSUME THAT A NEGLIGENT MOTORIST FAILS TO STOP AT A RED LIGHT AND SMASHES INTO MEGAN'S CAR, CAUSING DAMAGE IN THE AMOUNT OF $5000. IF SHE HAS COLLISION INSURANCE ON HER CAR, HER COMPANY WILL PAY THE PHYSICAL DAMAGE LOSS TO THE CAR AND THEN ATTEMPT TO COLLECT FROM THE NEGLIGENT MOTORIST WHO CAUSED THE ACCIDENT.
PRINCIPLE OF UTMOST GOOD FAITH
A HIGHER DEGREE OF HONESTY IS IMPOSED ON BOTH PARTIES TO AN INSURANCE CONTRACT THAN IS IMPOSED ON PARTIES TO OTHER CONTRACTS.
INSURABLE RISK REQUIREMENTS:
-LARGE NUMBER OF SIMILAR EXPOSURES
-LOSS MUST BE ACCIDENTAL AND UNINTENTIONAL
-LOSS MUST BE DETERMINABLE AND MEASURABLE
-LOSS SHOULD NOT BE CATASTROPHIC
-CHANCE OF LOSS MUST BE CALCULABLE
-PREMIUM MUST BE ECONOMICALLY FEASIBLE
BENEFITS OF INSURANCE TO SOCIETY:
-INDEMNIFICATION FOR LOSS
-REDUCTION OF WORRY AND FEAR
-SOURCE OF INVESTMENT FUNDS
-LOSS PREVENTION
-ENHANCEMENT OF CREDIT
COSTS OF INSURANCE TO SOCIETY:
-COST OF DOING BUSINESS
-FRAUDULENT CLAIMS
-INFLATED CLAIMS
4 REQUIREMENTS FOR ALL VALID CONTRACTS:
1.) AGREEMENT HAS TO BE FOR LEGAL PURPOSE.
2.) PARTIES TO CONTRACT ALL HAVE TO HAVE LEGAL CAPACITY.
3.) VALID OFFER & ACCEPTANCE.
4.) AN EXCHANGE OF CONSIDERATION.
DISTINCT LEGAL CHARACTERISTICS OF INSURANCE CONTRACTS:
-ALEATORY CONTRACT
-UNILATERAL CONTRACT
-CONDITIONAL CONTRACT
-PERSONAL CONTRACT
-CONTRACT OF ADHESION
ALEATORY CONTRACT
-A CONTRACT WHERE THE VALUES EXCHANGED MAY NOT BE EQUAL BUT DEPEND ON AN UNCERTAIN EVENT.
-EX.) ASSUME THAT JESSICA PAYS A PREMIUM OF $600 FOR $200,000 OF HOMEOWNERS INSURANCE. IF THE HOME WERE TOTALLY DESTROYED BY FIRE SHORTLY THEREAFTER, SHE WOULD COLLECT AN AMOUNT THAT GREATLY EXCEEDS THE PREMIUM PAID. ON THE OTHER HAND, A HOMEOWNER MAY FAITHFULLY PAY PREMIUMS FOR MANY YEARS AND NEVER HAVE A LOSS.
UNILATERAL CONTRACT
-MEANS THAT ONLY ONE PARTY MAKES A LEGALLY ENFORCEABLE PROMISE.
-IN THIS CASE, ONLY THE INSURER MAKES A LEGALLY ENFORCEABLE PROMISE TO PAY A CLAIM OR PROVIDE OTHER SERVICES TO THE INSURED. AFTER THE FIRST PREMIUM IS PAID, AND THE INSURANCE IS IN FORCE, THE INSURED CANNOT BE LEGALLY FORCED TO PAY THE PREMIUMS OR TO COMPLY WITH THE POLICY PROVISIONS.
CONDITIONAL CONTRACT
-THE INSURER'S OBLIGATION TO PAY A CLAIM DEPENDS ON WHETHER THE INSURED OR THE BENEFICIARY HAS COMPLIED WILL ALL POLICY CONDITIONS.
-EX.) UNDER A HOMEOWNERS POLICY, THE INSURED MUST GIVE IMMEDIATE NOTICE OF A LOSS. IF THE INSURED DELAYS FOR AN UNREASONABLE PERIOD IN REPORTING THE LOSS, THE INSURER CAN REFUSE TO PAY THE CLAIM ON THE GROUNDS THAT A POLICY CONDITION HAS BEEN VIOLATED.
PERSONAL CONTRACT
MEANS THE CONTRACT IS BETWEEN THE INSURED AND THE INSURER.
CONTRACT OF ADHESION
MEANS THE INSURED MUST ACCEPT THE ENTIRE CONTRACT, WITH ALL OF ITS TERMS AND CONDITIONS.
3 GENERAL RULES OF AGENCY THAT GOVERN THE ACTIONS OF AGENTS AND THEIR RELATIONSHIP TO INSUREDS:
-THERE IS NO PRESUMPTION OF AN AGENCY RELATIONSHIP.
-AN AGENT MUST HAVE THE AUTHORITY TO REPRESENT THE PRINCIPAL.
-A PRINCIPAL IS RESPONSIBLE FOR THE ACTIONS OF AGENTS ACTING WITHIN THE SCOPE OF THEIR AUTHORITY.
PRIVATE INSURANCE INCLUDES:
-LIFE & DEATH INSURANCE
-PROPERTY & LIABILITY INSURANCE
PUBLIC/GOVERNMENT INSURANCE INCLUDES:
-SOCIAL INSURANCE
-OTHER GOVERNMENT INSURANCE
RISK MANAGEMENT POLICY STATEMENT
-NECESSARY TO HAVE AN EFFECTIVE RISK MANAGEMENT PROGRAM.
-THIS STATEMENT OUTLINES THE RISK MANAGEMENT OBJECTIVES OF THE FIRM, AS WELL AS COMPANY POLICY WITH RESPECT TO TREATMENT OF LOSS EXPOSURES. IT ALSO EDUCATES TOP-LEVEL EXECUTIVES IN REGARD TO THE RISK MANAGEMENT PROCESS, GIVES THE RISK MANAGER GREATER AUTHORITY IN THE FIRM, AND PROVIDES STANDARDS FOR JUDGING THE RISK MANAGER'S PERFORMANCE.
RISK MANAGEMENT MANUAL
-DESCRIBES IN SOME DETAIL THE RISK MANAGEMENT PROGRAM OF THE FIRM AND CAN BE A VERY USEFUL TOOL FOR TRAINING NEW EMPLOYEES WHO WILL BE PARTICIPATING IN THE PROGRAM.
-WRITING THE MANUAL ALSO FORCES THE RISK MANAGER TO STATE PRECISELY HIS OR HER RESPONSIBILITIES, OBJECTIVES, AND AVAILABLE TECHNIQUES.
5 DEPARTMENTS THAT NEED TO COOPERATE IN THE RISK MANAGEMENT PROCESS:
-ACCOUNTING
-FINANCE
-MARKETING
-PRODUCTION
-HUMAN RESOURCES
PERIODIC REVIEW AND EVALUATION
-TO BE EFFECTIVE, THE RISK MANAGEMENT PROGRAM MUST BE PERIODICALLY REVIEWED AND EVALUATED TO DETERMINE WHETHER THE OBJECTIVES ARE BEING ATTAINED.
-IN PARTICULAR, RISK MANAGEMENT COSTS, SAFETY PROGRAMS, AND LOSS-PREVENTION PROGRAMS MUST BE CAREFULLY MONITORED.
-LOSS RECORDS MUST ALSO BE EXAMINED TO DETECT ANY CHANGES IN FREQUENCY AND SEVERITY.
-FINALLY, THE RISK MANAGER MUST DETERMINE WHETHER THE FIRM'S OVERALL RISK MANAGEMENT POLICIES ARE BEING CARRIED OUT, AND WHETHER THE RISK MANAGER IS RECEIVING THE COOPERATION OF THE OTHER DEPARTMENTS.
LEGAL WRONG
A VIOLATION OF A PERSON'S LEGAL RIGHTS, OR A FAILURE TO PERFORM A LEGAL DUTY OWED TO A CERTAIN PERSON OR TO SOCIETY AS A WHOLE.
3 CLASSES OF LEGAL WRONGS:
-CRIME
-BREACH OF CONTRACT
-TORT
CRIME
A LEGAL WRONG AGAINST SOCIETY THAT IS PUNISHABLE BY FINES, IMPRISONMENT, OR DEATH.
TORT
A LEGAL WRONG FOR WHICH THE LAW ALLOWS A REMEDY IN THE FORM OF MONEY DAMAGES.
3 CATEGORIES OR TORTS:
-INTENTIONAL TORTS
-STRICT LIABILITY
-NEGLIGENCE
INTENTIONAL TORTS
-LEGAL LIABILITY CAN ARISE FROM AN INTENTIONAL ACT OR OMISSION THAT RESULTS IN HARM OR INJURY TO ANOTHER PERSON OR DAMAGE TO THE PERSON'S PROPERTY.
-EXAMPLES OF INTENTIONAL TORTS INCLUDE ASSAULT, BATTERY, TRESPASS, FALSE IMPRISONMENT, FRAUD, LIBEL, SLANDER, AND PATENT OR COPYRIGHT INFRINGEMENT.
STRICT LIABILITY
-A.K.A. ABSOLUTE LIABILITY
-MEANS THAT LIABILITY IS IMPOSED REGARDLESS OF NEGLIGENCE OR FAULT.
-EX.) BLASTING OPERATIONS THAT INJURE ANOTHER PERSON, MANUFACTURING OF EXPLOSIVES, OWNING WILD OR DANGEROUS ANIMALS, CROP SPRAYING BY AIRPLANES, OCCUPATIONAL INJURY AND DISEASE OF EMPLOYEES UNDER A WORKERS COMPENSATION LAW.
NEGLIGENCE
THE FAILURE TO EXERCISE THE STANDARD OF CARE REQUIRED BY LAW TO PROTECT OTHERS FROM AN UNREASONABLE RISK OF HARM.
4 ESSENTIAL ELEMENTS OF NEGLIGENCE:
1.) EXISTENCE OF A LEGAL DUTY
2.) FAILURE TO PERFORM THAT DUTY
3.) DAMAGE OR INJURY TO THE CLAIMANT
4.) PROXIMATE CAUSE RELATIONSHIP BETWEEN THE NEGLIGENT ACT AND THE INFLICTION OF DAMAGES
3 TYPES OF DAMAGES:
-SPECIAL DAMAGES
-GENERAL DAMAGES
-PUNITIVE DAMAGES
SPECIAL DAMAGES
AWARDS FOR LOSSES THAT CAN BE DETERMINED AND DOCUMENTED, SUCH AS MEDICAL EXPENSES, LOST EARNINGS, OR PROPERTY DAMAGE.
GENERAL DAMAGES
AWARDS FOR LOSSES THAT CANNOT BE SPECIFICALLY MEASURED OR ITEMIZED, SUCH AS COMPENSATION FOR PAIN AND SUFFERING, DISFIGUREMENT, OR LOSS OF COMPANIONSHIP OF A SPOUSE.
PUNITIVE DAMAGES
-AWARDS DESIGNED TO PUNISH PEOPLE AND ORGANIZATIONS SO THAT OTHERS ARE DETERRED FROM COMMITTING THE SAME WRONGFUL ACT.
-AWARDS FOR PUNITIVE DAMAGES ARE OFTEN SEVERAL TIMES THE AMOUNT AWARDED FOR COMPENSATORY DAMAGES.
CONTRIBUTORY NEGLIGENCE
-MEANS THAT IF THE INJURED PERSON'S CONDUCT FALLS BELOW THE STANDARD OF CARE REQUIRED FOR HIS OR HER PROTECTION, AND SUCH CONDUCT CONTRIBUTED TO THE INJURY, THE INJURED PERSON CANNOT COLLECT DAMAGES.
-EX.) IF A MOTORIST ON AN EXPRESSWAY SUDDENLY SLOWS DOWN WITHOUT SIGNALING AND IS REAR-ENDED BY ANOTHER DRIVER, THE FAILURE TO SIGNAL COULD CONSTITUTE CONTRIBUTORY NEGLIGENCE.
COMPARATIVE NEGLIGENCE
LAWS ENACTED BY MANY JURISDICTIONS PERMITTING AN INJURED PERSON TO RECOVER DAMAGES EVEN THOUGH HE OR SHE MAY HAVE CONTRIBUTED TO THE ACCIDENT. THE FINANCIAL BURDEN IS SHARED BY BOTH PARTIES ACCORDING TO THEIR RESPECTIVE DEGREES OF FAULT.
3 MAJOR TYPES OF COMPARATIVE NEGLIGENCE LAWS:
-PURE RULE
-49% RULE
-50% RULE
PURE RULE
-YOU CAN COLLECT DAMAGES FOR YOUR INJURY EVEN IF YOU ARE NEGLIGENT, BUT YOUR AWARD IS REDUCED PROPORTIONATELY.
-EX.) IF YOU ARE 60% RESPONSIBLE FOR AN AUTO ACCIDENT AND YOUR ACTUAL DAMAGES ARE $10,000, YOUR AWARD IS REDUCED BY 60% TO $4,000.
49% RULE
-YOU CAN RECOVER REDUCED DAMAGES ONLY IF YOUR NEGLIGENCE IS LESS THAN THE NEGLIGENCE OF THE OTHER PARTY.
-THIS RULE MEANS YOU CAN RECOVER FROM THE OTHER PARTY ONLY IF YOU ARE 49% OR LESS AT FAULT.
50% RULE
-YOU CAN RECOVER REDUCED DAMAGES ONLY IF YOUR NEGLIGENCE IS NOT GREATER THAN THE NEGLIGENCE OF THE OTHER PARTY.
-THIS RULE MEANS YOU CAN RECOVER ONLY IF YOU ARE NOT MORE THAN 50% AT FAULT.
-UNLIKE THE 49% RULE, THE 50% RULE ALLOWS BOTH PARTIES TO RECOVER DAMAGES WHEN BOTH PARTIES ARE EQUALLY AT FAULT. HOWEVER, EACH PARTY'S RECOVERY WOULD BE LIMITED TO 50% OF HIS OR HER ACTUAL DAMAGES.
LAST CLEAR CHANCE RULE
-STATES THAT A PLAINTIFF WHO IS ENDANGERED BY HIS OR HER OWN NEGLIGENCE CAN STILL RECOVER DAMAGES FROM THE DEFENDANT IF THE DEFENDANT HAS A LAST CLEAR CHANCE TO AVOID THE ACCIDENT BUT FAILS TO DO SO.
-EX.) A JAYWALKER WHO WALKS AGAINST A RED LIGHT IS BREAKING THE LAW. BUT IF A MOTORIST HAS A LAST CLEAR CHANCE TO AVOID HITTING THE JAYWALKER AND FAILS TO DO SO, THE INJURED JAYWALKER CAN RECOVER DAMAGES FOR THE INJURY.
ASSUMPTION OF RISK
-ANOTHER DEFENSE THAT CAN BE USED TO DEFEAT A CLAIM FOR DAMAGES.
-UNDER THIS DOCTRINE, A PERSON WHO UNDERSTANDS AND RECOGNIZES THE DANGER INHERENT IN A PARTICULAR ACTIVITY CANNOT RECOVER DAMAGES IN THE EVENT OF AN INJURY.
-EX.) ASSUME YOU ARE TEACHING A FRIEND WITH A SEVERE VISION IMPAIRMENT TO DRIVE A CAR, AND HE NEGLIGENTLY CRASHES INTO A TELEPHONE POST AND INJURES YOU. HE COULD USE THE ASSUMPTION OF RISK DOCTRINE AS A LEGAL DEFENSE IF YOU SUE FOR DAMAGES.
IMPUTED NEGLIGENCE
-MEANS THAT UNDER CERTAIN CONDITIONS, THE NEGLIGENCE OF ONE PERSON CAN BE ATTRIBUTED TO ANOTHER.
-EX.) EMPLOYER RESPONSIBLE FOR EMPLOYEE.
EXAMPLES OF IMPUTED NEGLIGENCE:
-EMPLOYER-EMPLOYEE RELATIONSHIP
-VICARIOUS LIABILITY LAW
-FAMILY PURPOSE DOCTRINE
-DRAM SHOP LAW
EMPLOYER-EMPLOYEE RELATIONSHIP
-MAY EXIST WHERE THE EMPLOYEE IS ACTING ON BEHALF OF THE EMPLOYER.
-THE NEGLIGENT ACT OF AN EMPLOYEE CAN BE IMPUTED TO THE EMPLOYER.
-EX.) IF YOU ARE DRIVING A CAR TO DELIVER A PACKAGE FOR YOUR EMPLOYER AND NEGLIGENTLY INJURE ANOTHER MOTORIST, YOUR EMPLOYER COULD BE HELD LIABLE FOR YOUR ACTIONS.
VICARIOUS LIABILITY LAW
-A MOTORIST'S NEGLIGENCE IS IMPUTED TO THE VEHICLE'S OWNER.
-EX.) IF THE DRIVER IS ACTING AS AN AGENT FOR THE OWNER OF THE VEHICLE, THE OWNER CAN BE HELD LEGALLY LIABLE.
-THUS, IF JEFF DRIVES LISA'S CAR TO A DRY CLEANER TO PICK UP A GARMENT, LISA COULD BE HELD LEGALLY LIABLE IF JEFF SHOULD INJURE SOMEONE WHILE DRIVING THE CAR.
FAMILY PURPOSE DOCTRINE
-THE OWNER OF AN AUTOMOBILE CAN BE HELD LIABLE FOR THE NEGLIGENT ACTS COMMITTED BY IMMEDIATE FAMILY MEMBERS WHILE THEY ARE OPERATING THE FAMILY CAR.
-THUS, IF SHANNON, AGE 16, NEGLIGENTLY INJURES ANOTHER MOTORIST WHILE DRIVING HER FATHER'S CAR AND IS SUED FOR $100,000, HER FATHER COULD BE HELD LIABLE.
DRAM SHOP LAW
-UNDER SUCH A LAW, A BUSINESS THAT SELLS LIQUOR CAN BE HELD LIABLE FOR DAMAGES THAT MAY RESULT FROM THE SALE OF LIQUOR.
-EX.) ASSUME THAT A BAR OWNER CONTINUES TO SERVE A CUSTOMER WHO IS DRUNK, AND THAT AFTER THE BAR CLOSES, THE CUSTOMER INJURES THREE PEOPLE WHILE DRIVING HOME. THE BAR OWNER COULD BE HELD LEGALLY LIABLE FOR THE INJURIES.
RES IPSA LOQUITUR
-MEANING "THE THING SPEAKS FOR ITSELF."
-UNDER THIS DOCTRINE, THE VERY FACT THAT THE INJURY OR DAMAGE OCCURS ESTABLISHES A PRESUMPTION OF NEGLIGENCE ON BEHALF OF THE DEFENDANT. IT IS THEN UP TO THE DEFENDANT TO REFUTE THE PRESUMPTION OF NEGLIGENCE.
-THAT IS, THE ACCIDENT OR INJURY NORMALLY WOULD NOT HAVE OCCURRED IF THE DEFENDANT HAD NOT BEEN CARELESS.
-EX.) A DENTIST EXTRACTS THE WRONG TOOTH.
-EX.) A SURGEON LEAVES A SURGICAL SPONGE IN THE PATIENT'S ABDOMEN.
TRESPASSER
-A PERSON WHO ENTERS OR REMAINS ON THE OWNER'S PROPERTY WITHOUT THE OWNER'S CONSENT.
LICENSEE
-A PERSON WHO ENTERS OR REMAINS ON THE PREMISES WITH THE OCCUPANT'S EXPRESSED OR IMPLIED PERMISSION.
INVITEE
-A PERSON WHO IS INVITED ONTO THE PREMISES FOR THE BENEFIT OF THE OCCUPANT.
ATTRACTIVE NUISANCE DOCTRINE
-A CONDITION THAT CAN ATTRACT AND INJURE CHILDREN.
-UNDER THE ATTRACTIVE NUISANCE DOCTRINE, THE OCCUPANTS OF LAND ARE LIABLE FOR THE INJURIES OF CHILDREN WHO MAY BE ATTRACTED BY SOME DANGEROUS CONDITION, FEATURE, OR ARTICLE.
-THIS DOCTRINE IS BASED ON THE PRINCIPLES THAT CHILDREN MAY NOT BE ABLE TO RECOGNIZE THE DANGER INVOLVED AND MAY BE INJURED, AND THAT IT IS IN THE BEST INTEREST OF SOCIETY TO PROTECT THEM RATHER THAN PROTECT THE OWNER'S RIGHT TO THE LAND.
-EX.) A HOMEOWNER CARELESSLY LEAVES A LADDER STANDING ON THE SIDE OF THE HOUSE. A SMALL CHILD CLIMBS THE LADDER AND FALLS OFF THE ROOF BREAKING BOTH LEGS.
OWNERSHIP/OPERATION OF AUTOMOBILES
-THE OWNER OF AN AUTOMOBILE WHO DRIVES IN A CARELESS AND IRRESPONSIBLE MANNER CAN BE HELD LIABLE FOR PROPERTY DAMAGE OR BODILY INJURY SUSTAINED BY ANOTHER PERSON.
-WITH RESPECT TO THE LIABILITY OF THE OWNER WHO IS NOT THE OPERATOR, THE GENERAL RULE IS THAT THE OWNER IS NOT LIABLE FOR THE NEGLIGENT ACTS OF OPERATORS.
GOVERNMENT LIABILITY
-BASED ON THE COMMON LAW, FEDERAL, STATE, AND LOCAL GOVERNMENTS COULD NOT BE SUED UNLESS THE GOVERNMENT GAVE ITS CONSENT.
-THE IMMUNITY FROM LAWSUITS WAS BASED ON THE DOCTRINE OF SOVEREIGN IMMUNITY, MEANING THAT THE KING OR QUEEN CAN DO NO WRONG.
-THIS DOCTRINE, HOWEVER, HAS BEEN SIGNIFICANTLY MODIFIED OVER TIME BY BOTH STATUTORY LAW AND COURT DECISIONS.
-EX.) IF SOME SEATS COLLAPSE AT A ROCK CONCERT IN A CITY AUDITORIUM, THE CITY CAN BE SUED AND HELD LIABLE.
CHARITABLE INSTITUTIONS
-AT ONE TIME, CHARITABLE INSTITUTIONS WERE GENERALLY IMMUNE FROM LAWSUITS. THIS IMMUNITY HAS GRADUALLY BEEN ELIMINATED BY STATE LAW AND COURT DECISIONS.
-THE TREND TODAY IS TO HOLD CHARITIES RESPONSIBLE FOR ACTS OF NEGLIGENCE. THIS IS PARTICULARLY TRUE WITH RESPECT TO COMMERCIAL ACTIVITIES.
-EX.) A HOSPITAL OPERATED BY A RELIGIOUS ORDER CAN BE SUED FOR MALPRACTICE, AND A CHURCH SPONSORING A DANCE, CARNIVAL, OR BINGO GAME CAN BE HELD LIABLE FOR INJURIES TO PARTICIPANTS.
EMPLOYER/EMPLOYEE RELATIONSHIPS
-UNDER THE DOCTRINE OF RESPONDEAT SUPERIOR, AN EMPLOYER CAN BE HELD LIABLE FOR THE NEGLIGENT ACTS OF EMPLOYEES WHILE THEY ARE ACTING ON THE EMPLOYER'S BEHALF.
-THUS, IF A SALES CLERK IS A SPORTING GOODS STORE CARELESSLY DROPS A BARBELL SET ON A CUSTOMER'S TOE, THE OWNER OF THE STORE CAN BE HELD LIABLE.
PARENTS AND CHILDREN
-UNDER THE EARLIER COMMON LAW, PARENTS USUALLY WERE NOT RESPONSIBLE FOR THEIR CHILDREN'S TORTS. CHILDREN WHO REACHED THE AGE OF REASON WERE RESPONSIBLE FOR THEIR OWN WRONGFUL ACTS.
-EXCEPTION.) A PARENT CAN BE HELD LIABLE IF A CHILD USES A DANGEROUS WEAPON, SUCH AS A GUN OR KNIFE, TO INJURE SOMEONE.
-EXCEPTION.) THE PARENT CAN BE LEGALLY LIABLE IF THE CHILD IS ACTING AS AN AGENT FOR THE PARENT.
-EXCEPTION.) IF A FAMILY CAR IS OPERATED BY A MINOR CHILD, THE PARENTS CAN BE HELD LIABLE UNDER THE FAMILY PURPOSE DOCTRINE DISCUSSED EARLIER.
-MOST STATES HAVE PASSED LAWS THAT HOLD THE PARENTS LIABLE FOR THE WILLFUL AND MALICIOUS ACTS OF CHILDREN THAT RESULT IN PROPERTY DAMAGE TO OTHERS.
ANIMALS
-OWNERS OF WILD ANIMALS ARE HELD STRICTLY LIABLE FOR THE INJURIES OF OTHERS EVEN IF THE ANIMALS ARE DOMESTICATED.
-EX.) AN OWNER OF AN EXOTIC PET SUCH AS A TIGER IS STRICTLY LIABLE IF THE PET ESCAPES AND INJURES SOMEONE EVEN IF THE OWNER USES DUE CARE IN KEEPING THE ANIMAL RESTRAINED.