2018 On-line Edition115.68.184.113/open/2018sample_552LBonline.pdf · Risk Control Topic 1: The General Scope of Commercial Liability Loss Exposures 1.a. Structure: Bases for Legal

CPCU 552 Lecture BookCommercial Liability Risk Management

and Insurance

2018 On-line Edition

SECTION 1. Commercial Liability Loss Exposures and Risk Control

Topic 1: The General Scope of Commercial Liability Loss Exposures1.a. Structure: Bases for Legal Liability!20

1.b. Torts !20

1.c. Contracts!20

.1.d. Statutes!21

1.e. Structure: Major Categories of Commercial Liability Loss Exposures !21

1.f. Premises and Operations Liability Loss Exposure !21

1.g. Products and Completed Operations Liability Loss Exposure !22

1.h. Automobile Liability Loss Exposure !22

1.i. Workers Compensation and Employers Liability Loss Exposure !23

Question 1.1. Bases for Legal Liability!24



Question 1.4. Commercial Liability Loss Exposures !27

Topic 2: Commercial Liability Risk Control.2.a. Basic Risk Control Techniques!28

.2.b.!28

2.c. Post-Accident Techniques !28

2.d. Controlling Premises Liability Loss Exposures !29

.2.e. Controlling Off-Premises Operations Loss Exposures!29

2.f. Controlling Products-Completed Operations Loss Exposures !29

2.g. Controlling Motor Vehicle Liability Loss Exposures !30

2.h. Controlling Workers Compensation and Employers Liability Loss Exposures !30

.Question 2.1. Commercial Liability Risk Control!31

.Question 2.2. Commercial Liability Risk Control!32

Question 2.3. Controlling Commercial Liability Loss Exposures!33

SECTION 2. Commercial General Liability Insurance, Part I

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Topic 3: CGL Insuring Agreement for Coverage A, Bodily Injury and Property Damage Liability3.a. Structure: Commercial General Liability Insurance !36

.3.b. Structure: ISO CGL Coverages Form!36

.3.c. Structure: The Insuring Agreement for Coverage A!37

3.d. Legally obligated to pay damages !37

3.e. Damages for bodily injury or property damage !37

3.f. Injury or damage to which the insurance applies !38

.3.g.!38

.3.h. Occurrence in the coverage territory!38

.3.i. Injury or damage during the policy period!38

.3.j. Injury or damage not known before the policy period!39

.3.k. Insurer's Duty to Defend!39

3.1. Question: Commercial General Liability Insurance !40

.3.2. Question: The Insuring Agreement for CGL Coverage A!41

.3.3. Question: The Insuring Agreement for CGL Coverage A!42

Topic 4: Exclusions Applicable to CGL Coverage A.4.a. Structure: Exclusions Applicable to CGL Coverage A!44

4.b. Contractual Liability Exclusion!45

.4.c. Liquor Liability Exclusion!45

.4.d. Employers Liability Exclusion!46

.4.e. Pollution Exclusion!46

4.f. Aircraft, Auto, or Watercraft Exclusion!46

.4.g. Damage to Property Exclusion!47

.4.h. Damage to Your Product and Damage to Your Work Exclusion!47

4.i. Damage to Impaired Property or Property Not Physically Injured Exclusion.!47

4.j. Recall of Products, Work, or Impaired Property Exclusion!48

4.k. Fire Legal Liability Coverage !48

4.l. CGL Coverage A Exclusions Case Practice !49

4.1. Question: Exclusions Applicable to CGL Coverage A!51




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.4.5. Question: Case study of CGL Coverage A!55

.4.6. Question: Case study of CGL Coverage A!56

Topic 5: CGL Coverage B, C, Supplementary payments, and Who is the Insured

.5.a. Structure: ISO CGL Coverages Form!58

5.b. Insuring Agreement: Coverage B - Personal and Advertising Injury Liability !58

.5.c. Limits applicable to Coverage B!59

.5.d. Coverage triggers applicable to Coverage B!59

.5.e. Coverage B for e-commerce loss exposures!59

.5.f. Coverage C-Medical Payments!60

.5.g. Supplementary payments of CGL coverage form!60

.5.h. Exclusions applicable to Coverage B!61

.5.i. Exclusions applicable to Coverage C!62

.5.j. Structure: Who is an Insured!62

.5.k. Employees and Volunteer Workers of the Named Insured!63

.5.1. Question: CGL Coverage B and C!64

5.2. Question: CGL Coverages!65

5.3. Question: CGL Coverages!67

.5.4. Question: The insured of CGL!68

.5.5. Question: The insured of CGL!69

Section 3. Commercial General Liability Insurance, Part II

Topic 6: CGL Limits of Insurance and Conditions6.a. Structure: CGL Limits of Insurance !72

.6.b. The Limits and How They Apply!73

.6.c. Products-Completed Operations Classifications!73

6.d. Structure: CGL Conditions!74

6.e. Duties in the Event of Occurrence, Offense, Claim or Suit: CGL Conditions.!75

.6.f. Other Insurance: CGL Conditions!75

6.1. Question: CGL Limits of Insurance !76

6.2. Question: CGL Limits of Insurance !77

6.3. Question: Occurrence Version of the Commercial General Liability !78

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6.4. Question: CGL Conditions !79

Topic 7: ISO Claims-made Provisions and Endorsements7.a. Retroactive Dates !80

7.b. Extended Reporting Periods !80

.7.c. Structure: General Categories of Endorsements for CGL!81

.7.d. Unmanned Aircraft Endorsements for the CGL Coverage Part!82

7.1. Question: ISO Claims-made Provisions !83

7.2. Question: ISO Claims-made Provisions !84

7.3. Question: Unmanned Aircraft Endorsements!85

Topic 8: Other General Liability Coverage Forms8.a. Structure: Other General Liability Coverage Forms !86

.8.b. Owners and Contractors Protective Liability (OCP) Coverage Form!86

.8.c. Exclusions of OCP Coverage Form!87

.8.d. Other provisions of OCP Coverage Form!87

.8.e. Railroad Protective Liability (RPL) Coverage Form!88

8.f. Coverage A, Bodily Injury and Property Damage Liability of RPL Coverage .Form!88

.8.g. Coverage B, Physical Damage to Property of RPL Coverage Form!88

8.h. Electronic Data Liability Coverage Form!89

.8.i. Liquor Liability Coverage Form!89

8.j. Rating CGL Coverage !90

8.1. Question: Other General Liability Coverage Forms !91

8.2. Question: Other General Liability Coverage Forms !92

8.3. Question: Rating CGL Coverage !93

SECTION 4. Commercial Auto Insurance, Part I

Topic 9: The Business Auto Coverage Form and Loss Exposures9.a. Structure: Business Auto Coverage Form (BACF) !96

.9.b. Property Loss Exposures!96

9.c. Liability Loss Exposures !97

.9.d. Personal Loss Exposures!97

.9.e. Structure: Coverage Symbols!98

9.f. Coverage for Newly Acquired Autos !99

9.g. Other Covered Items !99

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9.1. Question: Business Auto Loss Exposures !100

9.2. Question: Business Auto Coverage Symbols !101

Topic 10: Business Auto Liability and Physical Damage Coverage10.a. Structure: Business Auto Liability and Physical Damage Coverage !102

10.b. Coverage agreement: Business Auto Liability Coverage !102

10.c. Who is An Insured : Business Auto Liability Coverage !103

10.d. Coverage Extensions : Business Auto Liability Coverage !103

10.e. Exclusions : Business Auto Liability Coverage !103

10.f. Limit of Insurance : Business Auto Liability Coverage !104

10.g. Available Coverage : Business Auto Physical Damage Coverage !104

10.h. Exclusions : Business Auto Physical Damage Coverage !105

10.i. Loss Payment and Deductible: Business Auto Physical Damage Coverage.!105

10.1. Question: Business Auto Liability and Physical Damage Coverage !106


Topic 11: Conditions and Ratings in the Business Auto Coverage Form

.11.a. Structure: Conditions in the Business Auto Coverage Form!109

11.b. Appraisal for Physical Damage Losses: Loss Conditions !109

11.c. Duties in the Event of an Accident, Claim, Suit or Loss: Loss Conditions.!109

11.d. Legal actions against the insurer: Loss Conditions!110

11.e. Loss Payment-Physical Damage Coverages: Loss Conditions !110

11.f. Bankruptcy: General Conditions!110

.11.g. Liberalization: General Conditions!110

11.h. Other Insurance: General Conditions !110

11.i. Policy Period, Coverage Territory: General Conditions !111

.11.j. Structure: Endorsements in the Business Auto Coverage Form!111

.11.k. Individual Named Insured Endorsement!112

11.l. Structure: Rating Commercial Auto Insurance !112

11.m. Primary Rating Factors for Trucks, Tractors, and Trailers !113

11.n. Case Practice: Business Auto Coverage Form!114


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.11.2. Question: Conditions in the Business Auto Coverage Form!117

.11.3. Question: Endorsements in the Business Auto Coverage Form!118

.11.4. Question: Endorsements in the Business Auto Coverage Form!119

11.5. Question: Rating Commercial Auto Insurance !120

SECTION 5. Commercial Auto Insurance, Part II

Topic 12: Auto Dealers Coverage Form, Section I..12.a. Components of a Commercial Auto Coverage Part!122

.12.b. Structure: Auto Dealers Coverage Form!122

.12.c. Covered Auto Designation Symbols!123

12.d. Covered Autos Liability Coverage !123

12.e. Persons insured for covered autos: Covered Autos Liability Coverage !124

12.f. Exclusions to Covered Autos Liability Coverage !124

12.g. Garagekeepers Coverage !125

12.h. Garagekeepers exclusions !125

12.i. Garagekeepers direct coverage options !126

12.j. Garagekeepers limit of insurance and deductibles !126

12.k. Physical Damage Coverage !127

.12.l. Physical Damage Exclusions!128

.12.m. Case Practice: Auto Dealers Coverage Form!129

.12.1. Question: Eligible Businesses for Auto Dealers Coverage Form!132

.12.2. Question: Auto Coverage Under the Auto Dealers Coverage Form!133



.12.5. Question: Auto Coverage under the Auto Dealers Coverage Form!136

Topic 13: Auto Dealers Coverage Form, Section II, III and Endorsements13.a. Structure: Auto Dealers Coverage Form!137

13.b. Bodily Injury and Property Damage Liability: Section II. General Liability .Coverages!137

.13.c. Exclusions: Bodily Injury and Property Damage Liability!138

13.d. Personal and advertising Injury Liability: Section II. General Liability .Coverages!138

13.e. Locations and operations medical payments: Section II. General Liability .Coverages!139

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.13.f. General Liability Limit: Section II. General Liability Coverages!139

13.g. Section III. Acts, Errors or Omissions Liability Coverages !139

.13.h. Exclusions: Section III. Acts, Errors or Omissions Liability Coverages!140

.13.i. Structure: Endorsements to the Auto Dealers Coverage Form!141

.13.j. Broad Form Products Coverage Endorsement!141

.13.k. Dealers Driveaway Collision Coverage Endorsement! 141

.13.l. False Pretense Coverage Endorsement!142

13.m. Customer Complaint Legal Defense Coverage !142

13.1. The Claims under Section II or III of the ADCF !143

.13.2. Customer Complaint Legal Defense Coverage endorsement!144

.13.3. Endorsements or Options of the Auto Dealers Coverage Form!145



Topic 14: Motor Carrier Coverage Form and Commercial Auto Endorsements

.14.a. Eligibility!148

.14.b. Motor Carriers' Use of Owner-Operators!148

14.c. Coverage for Owner-Operators!149

14.d. Trailer Interchange Coverage !149

.14.e. Trailer Interchange Exclusion!149

.14.f. MCS 90 Endorsement!150

14.g. Structure: Commercial Auto Endorsements!151

14.h. Business Interruption Coverage: Commercial Auto Endorsements !152

.14.1. Question: Motor Carrier Coverage Form!153

.14.2. Question: Commercial Auto Coverage Form!154

.14.3. Question: Commercial Auto Coverage Form!155

SECTION 6. Workers Compensation and Employers Liability Insurance

Topic 15: Workers Compensation Statutes.15.a. Before the Enactment of Workers Compensation Statutes!158

15.b. Workers Compensation Statutes !158

15.c. Qualifying Criteria for a Workers Compensation Injury !159

15.d. Structure: Workers Compensation Benefits !159

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15.e. Disability benefits !160

15.f. Death benefits!160

.15.g. Distinction Between Employee and Independent Contractor!161

.15.h.!161

.15.i. Temporary Employees and Leased Employees!161

.15.j. Extraterritorial Provisions!162

.15.k. Federal Jurisdiction!162

15.l. Methods for Meeting Employers' Obligations!163

.15.1. Question: Development of Workers Compensation Statutes!164

15.2. Question: Persons and Employments Covered by Workers Compensation Statutes !165

15.3. Question: Workers Compensation Criteria and Benefits!166

.15.4. Question: Methods of Demonstrating Financial Security!167

15.5. Question: Remedies for Occupational Injury!168

Topic 16: Workers Compensation and Employers Liability Insurance16.a. Structure: Workers Compensation and Employers Liability Insurance !169

16.b. Information Page !170

16.c. Part One - Workers Compensation Insurance !170

.16.d. Employers Liability Insuring Agreement: Part Two!171

16.e. Employers Liability Exclusions: Part Two!171

.16.f. Limits of Employers Liability Exclusions: Part Two!172

16.g. Other States Insurance: Part Three !172

16.1. Question: Workers Compensation and Employers Liability Insurance !173





Topic 17: Endorsements and Rating WC Insurance17.a. Structure: Endorsements to the WC&EL Policy!178

17.b. Foreign voluntary compensation coverage !179

.17.c. Maritime Coverage Endorsement! 179

17.d. Structure: Rating Workers Compensation Insurance !180

17.e. Classifications: Rating WC Insurance !180

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17.f. Premium Adjustments: Rating WC Insurance !181

17.g. Experience Rating Plans: Rating WC Insurance !182

17.h. Dividend Plans: Rating WC Insurance !182

.17.1. Question: Endorsements to the WC&EL Policy!183

.17.2. Question: Endorsements to the WC&EL Policy!184

17.3. Question: Rating Workers Compensation Insurance !185

SECTION 7. Management Liability Loss Exposures and Insurance

Topic 18: Directors and Officers Liability Loss Exposures.18.a. Major Responsibilities and Duties of Directors and Officers!188

.18.b. Types of Suits Made Against Directors and Officers!189

18.c. Indemnification of Directors and Officers!189

18.d. Controlling D&O Liability Loss Exposures !189

18.1. Question: Directors and Officers Liability Loss Exposures!190

Topic 19: Directors and Officers Liability Insurance19.a. Structure: Directors and Officers Liability Insurance !191

.19.b. Insuring Agreements: Coverage A, B, and C!192

19.c. Insuring Agreements: Definitions!192

19.d. Claims-Made Provisions: D&O Liability Insurance !193

19.e. Exclusions: D&O Liability Insurance !193

19.f. Other D&O Policy Provisions !194

.19.g.!194

19.h. Outside Directors Liability Policies!195

19.i. Separate Coverage for Directors and Officers !195

19.1. Question: Directors and Officers Liability Loss Policies!196



Topic 20: Employment Practices Liability Insurance20.a. Employment Practices Liability Loss Exposures !200

.20.b. Discrimination Claims!200

20.c. Wrongful Termination Claims !200

20.d. Sexual Harassment Claims !200

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20.e. Retaliation Claims !201

20.f. Structure: Employment Practices Liability Insurance !201

20.g. Insuring Agreement: EPL Insurance !201

20.h. Exclusions: EPL Insurance !202

20.i. Persons and Organizations Insured: EPL Insurance !202

20.j. D&O/EPL Combination Policies !202

.20.k. Added Coverages and Services!203

20.1. Question: Employment Practices Liability Loss Exposures!204

20.2. Question: Employment Practices Liability Policies !205



Topic 21: Fiduciary Liability Insurance21.a. Fiduciary Liability Loss Exposures!208

21.b. ERISA (Employee Retirement Income Security Act) !208

21.c.!208

21.d. Fiduciary Liability Policies !209

21.e. Persons and Organizations Insured: Fiduciary Liability Policies!209

21.f. Definition of Wrongful Act: Fiduciary Liability Policies!209

.21.g. Exclusions: Fiduciary Liability Policies!210

21.h. Health Insurance Portability and Accountability Act of 1996 Endorsements!210

21.i. Other Coverage !210

21.1. Question: Fiduciary Liability Loss Exposures !211

21.2. Question: Fiduciary Liability Policies !212

21.3. Question: Fiduciary Liability Policies !213

21.4. Question: Management Liability Loss Exposures and Insurance !214

21.5. Question: Management Liability Loss Exposures and Insurance !215

SECTION 8. Professional Liability Loss Exposures and Insurance

Topic 22: Professional Liability Loss Exposures22.a. Legal Foundations of Professional Liability!218

.22.b. Need for Expert Witness Testimony!218

22.c. Professional Liability Coverage Under CGL Policies!219

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22.d. Covered Acts and Consequences: Common Characteristics of PL Policies.!219

22.e. Person and Organizations Insured: Common Characteristics of PL Policies.!219

22.f. Defense Coverage: Common Characteristics of PL Policies !220

22.g. Claims-Made Provisions: Common Characteristics of PL Policies !220

.22.h. Exclusions!220

.22.1. Question: Legal Foundations of Professional Liability!221

.22.2. Question: Legal Foundations of Professional Liability!222

22.3. Question: Professional Liability Coverage Under CGL Policies!223

22.4. Question: Professional Liability Loss Exposures!224

.22.5. Question: Common Characteristics of Professional liability Policies!225

Topic 23: Healthcare Professionals Liability23.a. Legal Foundations of Healthcare Professionals Liability !226

.23.b. Risk Control of Healthcare Professionals Liability!227

23.c. Insuring agreement: Healthcare Professional Liability Insurance !227

23.d. Persons and organizations insured: Healthcare Professional Liability Insurance !227

23.e. Exclusions: Healthcare Professional Liability Insurance !227

23.f. Other provisions: Healthcare Professional Liability Insurance !227

23.1. Question: Healthcare Professionals Liability!228

23.2. Question: Healthcare Professionals Liability!229

Topic 24: Financial and legal Professionals Liability.24.a. Legal Foundations of Financial and legal Professionals Liability!230

24.b. Risk Control of Financial and legal Professionals Liability!231

24.c. Insuring agreement: Financial and Legal Professional Liability Insurance.!231

24.d. Exclusions: Financial and Legal Professional Liability Insurance !231

24.e. Professional Liability Policies for Financial Institutions!232

.24.1. Question: Financial and legal Professionals Liability!233

Topic 25: Architects and Engineers liability25.a. Legal Foundations of Architects and Engineers liability!234

25.b. Risk Control of Architects and Engineers liability !234

25.c. Insuring agreement: Architects and Engineers PL Insurance!235

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25.d. Persons and organizations insured: Architects and Engineers PL Insurance !235

25.e. Exclusions: Architects and Engineers PL Insurance !235

25.f. Other provisions: Architects and Engineers PL Insurance !236

25.g. Coverage for design-build projects !236

.25.1. Question: Architects and Engineers liability!237

SECTION 9. Environmental Loss Exposures and Insurance

Topic 26: Environmental Liability Risk Exposures.26.a. Legal Foundations for Environmental Liability!240

.26.b. Structure: Federal Environmental Laws!241

26.c. Comprehensive Environmental Response, Compensation, and Liability Act .(CERCLA)!242

.26.d. Identifying Environmental Loss Exposures!242

26.e. Unique Characteristics of Environmental Loss Exposures !242

26.f. Overcoming Difficulties in Managing Environmental Loss Exposures!243

.26.1. Question: Legal Foundations for Environmental Liability!244

.26.2. Question: Legal Foundations for Environmental Liability!245

26.3. Question: Federal Environmental Laws !246

.26.4. Question: Environmental Loss Exposures and Risk Management!247

26.5. Question: Legal Grounds for Environmental Liability!248

Topic 27: Environmental Insurance.27.a. Structure: Environmental Insurance Policies!249

27.b. Site-Specific Environmental Impairment Liability Policies (EIL) !250

27.c. Underground storage tank compliance policies !250

27.d. Property transfer policies!250

.27.e. Remediation stop-loss policies!251

27.f. Secured creditor policies!251

27.g. Contractors Pollution Liability Policies !252

27.h. Environmental professional errors and Omissions (E&O) liability policies.!252

27.1. Question: Environmental Insurance Policies !253



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SECTION 10. Marine and Aviation Loss Exposures and Insurance

Topic 28: Marine Loss Exposures28.a. Structure: Marine Loss Exposures !258

.28.b. Liability for Injury!258

28.c. Liability for Property Damage !259

.28.d. Liability for Pollution!259

28.e. Damage to Vessel Owner's Vessel or Cargo!260

28.f. General Average !260

.28.1. Question: Marine Loss Exposures!261

.28.2. Question: Marine Loss Exposures!262

Topic 29: Protection and Indemnity and Hull Insurance29.a. Structure: Protection and Indemnity Insurance !263

29.b. Bodily Injury-Type Coverages: P&I Insurance !264

29.c. Property Damage-Type Coverages: P&I Insurance !264

29.d. Unique Coverages: P&I Insurance !264

29.e. Structure: Hull Insurance !265

29.f. Property covered: Hull Insurance !266

29.g. Perils covered: Hull Insurance !266

29.h. Exclusion buybacks: Hull Insurance !266

29.i. Amount payable: Hull Insurance !267

29.j. Termination provisions: Hull Insurance !267

29.k. Sue and labor clause: Hull Insurance !267

29.l. General average and salvage clause: Hull Insurance !267

29.m. Collision liability clause (running down clause): Hull Insurance !268

29.n. Towers liability clause !268

29.o. Case Practice for P&I and Hull Insurance !269

29.1. Question: Protection and Indemnity and Hull Insurance !270



Topic 30: Other Marine Insurance Policies30.a. Structure: Other Marine Insurance Policies!273

.30.b. Marine Builders Risk Policies!274

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30.c. Terminal Operators Liability Policies !274

.30.d. Marina Operators Liability Policies!274

30.e. Charterers Liability Policies !274

.30.f. Marine Policies for Offshore Oil and Gas Facilities!275

30.1. Question: Other Marine Insurance Policies !276

30.2. Question: Other Marine Insurance Policies !277

30.3. Question: Marine Insurance Case Study !278

Topic 31: Aviation Loss Exposures.31.a. Aviation Industry Sectors!279

31.b. Characteristics of Aviation Loss Exposures!279

31.c. Legal foundations of aircraft liability !280

31.d. Criteria for Exposure Evaluation!280

31.e. Purpose of Use in Classifying Aircraft loss Exposures !281

.31.f. Aviation Insurance Providers!281

31.1. Question: Aviation Loss Exposures !282

31.2. Question: Aviation Loss Exposures !283

Topic 32: Aircraft Insurance and Drone Risk Management.32.a. Liability Coverage on Owned Aircraft!284

32.b. Excluded Parties in The Definition of insured: Liability Coverage on .Owned Aircraft!285

.32.c. Physical Damage Coverage on Owned Aircraft!285

32.d. "All risks" aircraft coverage: Physical Damage Coverage on Owned .Aircraft!286

32.e. Valuation and loss settlement: Physical Damage Coverage on Owned .Aircraft!286

.32.f. Deductibles: Physical Damage Coverage on Owned Aircraft!286

32.g. Covering lienholders' interests: Physical Damage Coverage on Owned .Aircraft!286

32.h. Aircraft Medical payments coverage !287

32.i. Passenger voluntary settlement (admitted liability) coverage !287

32.j. Common Endorsements !287

.32.k. Structure: Drone Risk Management!288

32.l. Regulation of Commercial Drones !288

.32.m. Challenges Associated With Insuring Commercial Drones!289

32.n. Overview of Commercial Drone Coverages !289

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32.1. Question: Aircraft Insurance Policies !290

32.2. Question: Aircraft Insurance Policies !291

.32.3. Question: Drone Risk Management!292

SECTION 11. Excess and Umbrella Liability Insurance

Topic 33: Excess and Umbrella Liability Insurance33.a. Need for Excess or Umbrella Liability Coverage !294

33.b. Excess Liability Policy!294

.33.c. Types of Excess Liability Policy!295

.33.d. Umbrella Liability Policy!295

33.e. Characteristics of Umbrella Liability Insurance !296

33.f. Conditions of Umbrella Liability Insurance !296

.33.g. Working Layer and Buffer Layer!297

33.h. Problems in Layering Coverage !297

33.i. Adequacy of Excess Liability Limits!297

33.1. Question: Excess and Umbrella Liability Insurance !298

33.2. Question: Excess Liability Insurance !299

33.3. Question: Umbrella Liability Insurance !300

33.4. Question: Excess and Umbrella Liability Insurance !301

SECTION 12. Cyber Risk, Terrorism, and International Insurance

Topic 34: Cyber Risk Loss Exposures and Insurance34.a. Property Loss Exposures !304

34.b. Net Income Loss Exposure !304

34.c. Liability Loss Exposure !305

.34.d. Risk Control Measures for Cyber Risk!306

34.e. Risk Financing Measures for Cyber Risk!306

34.f. Insuring Agreements of Cyber Risk Policies !307

34.g. Exclusions of Cyber Risk Policies !308

34.h. Conditions of Cyber Risk Policies !308

34.1. Question: Cyber Risk Exposures !309

.34.2. Question: Risk Control Measures for Cyber Risk!310

34.3. Question: Cyber Risk Policies !311

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Topic 35: Terrorism Insurance and International Insurance Solutions35.a. Purpose of TRIA (The Terrorism Risk Insurance Act) !312

35.b. Certified Acts of Terrorism Covered by TRIPRA 2015 !312

35.c. Losses and Lines of Insurance Covered by TRIPRA 2015 !313

35.d. Provisions of TRIPRA 2015 !313

35.e. ISO Terrorism Endorsements!314

35.f. NCCI terrorism endorsements !315

35.g. Stand-Alone Terrorism Policies!315

35.h. International Insurance Solutions!316

35.i. Territorial Endorsements to U.S. Market Policies !316

35.j. International Package Policies!317

35.k. Coverage From Nonaffiliated Local Insurers !317

35.l. Controlled Master Program (CMP) !318

35.m. Advantages of Using a CMP !318

35.1. Question: Terrorism Risk Insurance Act and TRIPRA 2015 !319

35.2. Question: Terrorism Endorsements for Commercial Property and Liability Forms !320

35.3. Question: International Insurance Solutions !321

35.4. Question: International Insurance Solutions !322

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SECTION 1. COMMERCIAL LIABILITY LOSS EXPOSURES AND RISK CONTROL

Topic 1: The General Scope of Commercial Liability Loss Exposures

Topic 2: Commercial Liability Risk Control

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Topic 1: The General Scope of Commercial Liability Loss ExposuresCPCU 552 Review Notes / Assignment 1. / EO 1~2

1.a. Structure: Bases for Legal Liability

Legal Liability

TortsNegligence

Legal Liability

Torts Intentional Tort

Legal Liability

Torts

Strict Liability

Legal LiabilityBreach of Contract

Legal LiabilityHold-Harmless or Indemnity Agreements

Legal Liability

StatutesWorkers Compensation

Legal Liability

Statutes Other Statutes that define legal duties and standards of care

1.b. TortsNegligence: The failure to exercise the degree of care that a reasonable person

in a similar situation would exercise to avoid harming others. Negligence is based on the following elements: (1) A duty owed to another person (2) A breach of that duty (3) A close causal connection (4) The occurrence of actual loss or damage.

Intentional tort: A tort committed by a person who foresees (or should be able to foresee) that her or his act will harm another person. The act does not necessarily have to be performed with malicious or hostile intent.

Strict liability (absolute liability): Liability imposed by a court or by a statute even without fault when harm originates from activities or conditions that are extremely dangerous, unnatural, ultrahazardous, extraordinary, abnormal, or inappropriate. Strict liability is liability which is imposed even though the defendant acted neither negligently nor with intent to cause harm.

1.c. Contracts A contract is a legally enforceable agreement between more than one parties in

which each party makes some promise to the other. Breach of contract means the failure, without legal excuse, to fulfill contractual promise. Breach of a seller's warranty (a contract) is insurable, however other breaches of contract usually are not.

Hold-harmless agreement (or indemnity agreement): A contractual provision that obligates one of the parties to assume the legal liability of another party. A hold-harmless agreement is generally covered under liability insurance policies.


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1.d. Statutes Statute: A written law passed by a legislative body, at either the federal or state

level. The duties statutes impose can be used as evidence of a person's duty of care in a tort action. A statute can also impose legal liability irrespective of negligent, tort, or a contract. A statute can offer certain persons or organizations an absolute legal obligation to pay for other persons if certain events occur (one example is, the workers compensation system).

1.e. Structure: Major Categories of Commercial Liability Loss Exposures1. Premises and operations liability

2. Products and completed operations liability

3. Automobile liability

4. Workers compensation and employers liability

5. Management liability

6. Professional liability

7. Environmental liability

8. Marine liability

9. Aircraft liability

1.f. Premises and Operations Liability Loss ExposureThe premises and operations liability loss exposure refers to liability arising

from bodily injury or property damage caused either by an accident that occurs on an organization's owned, leased, or rented premises or by any sort of accident that arises out of the organization's ongoing operations but occurs away from the premises.

In some cases, premises and operations liability can be based upon strict liability. Specific loss exposures: using mobile equipment (for example bulldozers and cranes); watercraft (vessel) liability and aircraft liability; Liability for employee injury or illness.


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1.g. Products and Completed Operations Liability Loss ExposureProducts liability arises out from the manufacture, distribution, or sale of any

unsafe, dangerous, or defective product and also the failure of the manufacturer, distributor, or retailer to fulfill its legal duties to the user or consumer of the product.

In actions for products liability, the plaintiff must prove three elements: (1) The product was defective when it left the manufacturer's or supplier's custody or control. (2) The defective condition made the product unreasonably dangerous. (3) The defective product was the proximate cause of the plaintiff's injury.

Completed operations liability could be the legal responsibility of any contractor, repairer, or other entity for bodily injury or property damage arising out of the entity's completed work. In the common-law accepted work doctrine, a contractor could not be held liable for negligent performance of completed work after the owner had accepted the work. Eventually, many courts abandoned the accepted work doctrine entirely.

1.h. Automobile Liability Loss ExposureAutomobile liability is legal responsibility for bodily injury or property

damage arising out of the ownership, maintenance, or use of automobiles.Liability for operations by others: (1) A person who negligently furnishes a

defective auto to another person; (2) A person who negligently entrusts an auto to a person who is unskilled in its operation or otherwise incompetent to operate it may be held directly liable for resulting injuries.

Auto no-fault laws: The goal is to provide benefits for all persons injured in auto accidents without proving fault. Provisions in the no-fault laws vary widely. (1) Add-on no-fault law: some require all auto registrants to purchase, personal injury protection (PIP) insurance that provides specified first-party benefits. (2) Modified no-fault law: some have "modified" no-fault plans that restrict the right to sue for torts in motor vehicle cases and require all auto registrants to purchase specified PIP benefits. (3) A few give auto owners the choice: retain the right to sue or to accept limitations to sue.


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1.i. Workers Compensation and Employers Liability Loss ExposureAn employer's responsibility to pay claims under workers compensation

statutes is a typical example of liability imposed by statute. As well as payments needed by workers compensation statutes, an employer may also be held liable for occupational illnesses or injuries of its employees as a result of these: (1) Employees' tort suits against employers (2) Hold-harmless agreements.

(1) Employees' tort suits against employers: Exclusive remedy that is the only remedy available to an injured employee under workers compensation is to recover, on a no-fault basis, the benefits required by the applicable statute. In practice, various exceptions, allow an employee to make a tort claim against the employer: (a) Claims for employee injury caused intentionally by the employer (b) Claims by the employee's spouse for loss of consortium as a result of employee injury (c) Claims for injury resulting from, while acting in some capacity other than employer (d) Workers compensation statutes exempt some types of employees. These employees retain the right to make tort claims against their employers.

(2) Hold-harmless agreements: An employer may be agreeing to indemnify the other party for claims made by the employer's own employees against the other party.


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Question 1.1. Bases for Legal LiabilityWhich of the following statements is true with regard to the Bases for Legal

Liability?

I. The majority of the claims covered by liability insurance arise in combination with liability imposed by statutes and ordinances.

II. Liability imposed by certain statutes, such as workers compensation laws, is an example of tort liability.

III. An organization can suffer a liability loss under an insurance policy only when the organization is found legally liable.

IV. Most insurers refuse to settle claims in advance of court proceedings that find an insured legally liable.

V. A newspaper mistakenly identifies the driver in an alcohol-related hit-and-run accident as Wang Ming, a well known local businessman. A newspaper may incur losses from legal liability according to intentional tort.

(A) I only

(B) II and III only

(C) IV only

(D) V only

AnswerI. Most of the claims covered by liability insurance are based on Tort law.II. A statute can also impose legal liability on certain persons or organizations

regardless of whether they acted negligently, committed any tort, or assumed liability under a contract. A statute can give certain persons or organizations an absolute legal obligation to compensate other persons if certain events occur, for example, the workers compensation system.

III. Even if found not legally liable, a business can have a liability loss because it has experienced the costs of investigating and defending against the suit.

IV. Many insurers settle claims prior to court proceedings that find an insured legally liable.

The correct answer is (D) V only.


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Question 1.2. Bases for Legal LiabilityWhich of the following statements is true with regard to the Bases for Legal

Liability?

I. Legal liability that is imposed by civil laws can be based on contracts and statutes.

II. Most of the claims covered by liability insurance are based on Tort law.

III. With respect to legal liability based on contracts, a warranty may be either expressly stated or implied by law.

IV. A farmer is angry that the neighbor's children ride all-terrain vehicles (ATVs) across the farmer's fields. The farmer sets a fire behind the storage shed for the ATVs in order to destroy the ATVs. A child is in the shed when it burns and is injured. A court decides the farmer is liable for the child's injury based on intentional tort.

V. A court rules that a demolition company is legally liable for claimed damages resulting from the demolition company's blasting operations at a construction site, in spite of the fact that the demolition company was in no way negligent and the resulting damages were entirely accidental. This type of liability is known as Strict liability.

(A)! I and II only(B)! III only(C)! IV and V only(D)! None of the above

AnswerThe correct answer is (D) none of the above


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Question 1.3. Bases for Legal LiabilityWhich of the following statements is not true with regard to the Bases for Legal

Liability?

I. A local store sells a bicycle with a defective frame, which breaks 7 days after it is sold. Jack buys this bicycle from the store and is injured while riding the bicycle. The store may be held legally liable for Jack's accidental injuries. The seller has breached an implied warranty that the bicycle is fit for use and possibly also an express warranty that the bicycle is free from defects. This is an illustration showing breach of contract.

II. A lease upon an apartment building obligates Ann, a tenant, to hold the owner harmless against liability claims made against the property owner by any person injured on the leased premises. With this lease, Ann is agreeing by contract to accept liability and pay any claims up against the property owner for persons injured in her apartment. This is an example of a hold harmless agreement.

III. Lisa owns and operates a fascinating pet shop. Her most favored pets include varieties of poisonous spiders, scorpions, and snakes. Lisa is careful about stocking only legal pets and checking the background of buyers before every sale. One day, a scorpion that she sold to a customer runs away from the customer's home and injures a neighbor. Lisa may be liable under strict liability. Strict liability (or absolute liability) is liability that is imposed although the defendant acted neither negligently nor with intent to cause harm.

(A)! I and II only(B)! III only(C)! II and III only(D)! None of the above



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Question 1.4. Commercial Liability Loss ExposuresWhich of the following statements is not true with regard to the Commercial

Liability Loss Exposures?

I. Nancy Wiley wanted new furniture for her home and visited a local woodworker's studio. While she was admiring a bookcase, it suddenly dropped over and hurt her leg. From the commercial liability viewpoint of the woodworker, this is an example of premises and operations liability.

II. An electrical contractor was hired to install a new fuse container in the Brenner's home. During installation, the contractor unintentionally left a small screwdriver in a duct space behind the panel. 21 days later, the screwdriver caused an electrical short which triggered a fire. Completed operations liability loss exposures best categorizes the electrical contractor's legal liability exposure for the fire damages.

III. Some state no-fault laws preserve the tort system but require insurers to provide personal injury protection (PIP) insurance which offers specified first party benefits. This is termed as a modified no-fault law.

IV. While workers compensation laws are meant to protect workers, employers are also protected against lawsuits arising from particular sorts of torts, including damages for injuries caused intentionally by the employer.

(A) I and II only

(B) III and IV only

(C) II only

(D) IV only

AnswerIII. This is referred to as an Add-on no-fault law. Provisions in the no-fault laws

vary widely. (1) Add-on no-fault law: some require all auto registrants to purchase, personal injury protection (PIP) insurance that provides specified first-party benefits. (2) Modified no-fault law: some have "modified" no-fault plans that restrict the right to sue for torts in motor vehicle cases and require all auto registrants to purchase specified PIP benefits.

IV. In practice, various exceptions, allow an employee to make a tort claim against the employer: (1) Claims for employee injury caused intentionally by the employer.

The correct answer is (B) III and IV only.


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Topic 2: Commercial Liability Risk ControlCPCU 552 Review Notes / Assignment 1. / EO 3~4

2.a. Basic Risk Control TechniquesThe liability exposures shown by the products and activities of many

organizations have the possibility to cause serious harm, injury, or death to employees, bystanders, and users.

Studies of both history and human nature reveal the most effective program. Risk control should be a dimension equal to other organizational areas such as marketing, finance, quality control, and human resources.

2.b.Once a foundation has been set, risk control techniques can be used to build a

successful program. Several general considerations need to be evaluated in the development of any risk control technique: (1) The cost-effectiveness of technique (2) Legal requirements; local building ordinances, fire department regulations, and OSHA standards. (3) the requirements and recommendations of the insurers (4) The public perception (5) The degree of risk aversion of senior management.

Loss prevention is the optimum risk control technique. Examples: Back-up alarms; Electrical equipment with the National Electrical Code (NEC). The technique of loss reduction limits the damage or injury resulting from accidents. Examples: Smoke detectors; Sprinkler systems; Seat belts in automobiles; Portable showers. The technique of separation is theoretically possible however very rarely practiced for liability exposures. Another risk control strategy is avoidance, noninsurance risk transfer.

2.c. Post-Accident TechniquesEffective claim management measures at each stage along the post-accident

loss procession can result in significantly improved outcomes.Another important element of claim management in a risk control program is

the information provided by the investigation after accidents which can be used in determining the root causes of accidents. Identifying such root causes based on claim information helps to direct future loss prevention and loss reduction techniques.


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2.d. Controlling Premises Liability Loss ExposuresOwnership or use of property mandates responsibility to others such as guests,

customers, and vendors, and even to some degree to trespassers. Commercial liability risk control can provide safeguards in these ways: (1) Regular inspections: evaluation of the premises to ensure that it is safely maintained. (2) Maintenance programs: preventive program for the building, machinery, heating, and electrical infrastructure. (3) Policies and procedures: response required in the event of snow to maintain clear, ice-free pavements; the staff response to a robbery to protect customers. (4) Protection: meeting statutory requirements, fire protection and security systems.

2.e. Controlling Off-Premises Operations Loss ExposuresOff-premises operations present the inherent challenge of liability risks that are

more challenging to control than those that arise on an organization's own premises.

Construction contractors, unlike businesses that operate predominantly from fixed locations, might be confronted with somewhat different hazards at each and every job site. As construction of a building or another project progresses, the risks at the job site change. Operation of mobile equipment at such job sites should be a focus of risk control efforts.

2.f. Controlling Products-Completed Operations Loss ExposuresProducts loss exposures arise from services or products that are provided by

an organization. Almost any organization that manufactures or sells products or provides services has a products liability loss exposure.

Products loss exposures require a commitment to these risk control practices: (1) Research, testing, and development of the materials (2) Quality control of the raw materials (3) A manufacturing process (4) Strict adherence to procedures in manufacturing processes (5) Clear and explicit instructions for employees and users of the product (6) The design of proper packaging (7) Storage of the product (8) Documentation of product test results (9) Documentation of product lots to tracking in the event of an alleged defective product and/or plan a recall of the product

These risk control strategies entail detailed and sophisticated engineering and design: (1) The unpredictable behavior of the product's consumers (2) strict liability applies, which focuses on the inherent safety of the product itself (3) Evolving statutes and regulatory requirements.

Construction, electrical, plumbing are samples of completed operations liability exposures. During such operations, if someone is injured, the incident would characterize an off-premises exposure. After the completion of the project, however, liability remains. A contractor can have a completed operations exposure for many years following the original installation.


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2.g. Controlling Motor Vehicle Liability Loss ExposuresPerhaps in no other type of activity does risk control play a more significant

role in reducing accidents than in the operation of a motor vehicle.Organizations should be proactive by exercising care in hiring and training

drivers. These are examples of commercial driver risk control techniques: (1) comprehensive, written safe-driver policy (2) Driver selection criteria based on each individual's driving record and the results of the physical examination required by the Federal Motor Carrier Safety Administration (FMCSA) (3) Training of the staff (4) Substance abuse testing required by the FMCSA (5) disciplinary procedures for unsafe driving practices.

2.h. Controlling Workers Compensation and Employers Liability Loss Exposures

The identical risk control concepts that apply to commercial general liability apply to workers compensation and employers liability. The unique components of workers compensation include the injured person involved (employee) and the law that does apply (statutory workers compensation).

A noticeable difference between workers compensation liability and commercial general liability is the fact workers compensation provides no-fault coverage to employees for most types of occupational injury and illness. The doctrine of exclusive remedy is that workers compensation benefits, as described in the applicable state or federal statute, are the exclusive remedy available from the injured worker's employer.

As with general liability exposures, it is important for risk control tenets and techniques to be applied in all decisions and operations that affect employees: (1) develop a safety culture within the organization. (2) A proactive risk control practice is to apply the techniques of loss prevention and loss control to a job analysis of each type of position.

Post-accident claim management is important following workers compensation injuries. Even though workers compensation provides no-fault benefits to employees, litigation can occur with regards to coverage and benefits. Care and attention should be taken in the delivery of medical and disability benefits. A thorough investigation can mitigate certain losses.


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Question 2.1. Commercial Liability Risk ControlWhich of the following statements is not true with regard to the Commercial

Liability Risk Control?

I. Regarding commercial liability risk control practices, employees ought to be given a sense of ownership in the liability risk control program because human behavior is the cause for most accidents.

II. An organization's liability loss control activities can typically be classified as either loss prevention activities or loss reduction activities. Installing smoke detectors in warehouses is an example of loss prevention.

III. Joe’s Supermarket recently installed new floors to minimize the risk that customers will slip and injure themselves. This risk management technique is an example of loss prevention.

IV. The National Beverage Vending recently explored several start up business opportunities. One of these opportunities involved using dangerous chemicals that had the potential to seriously injure employees. Regardless of the potential for profit, the corporation decided not to undertake this opportunity because of the liability exposure. This action is an example of avoidance.

(A) I only

(B) II only

(C) III and IV only

(D) None of the above

AnswerII. Installation of smoke detectors in warehouses is an example of loss

reduction. The correct answer is (B) II only.


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Question 2.2. Commercial Liability Risk ControlWhich of the following statements is not true with regard to the Commercial

Liability Risk Control?

I. Some state no-fault laws preserve the tort system but require insurers to offer personal injury protection (PIP) insurance that provides specified first party benefits. This is referred to as an add-on no-fault law.

II. John purchased a new lawnmower two years ago. After significant use, the lawnmower needed servicing. A repairman sharpened the blade, but he failed to reattach it properly to the lawnmower. When John was using the lawnmower, the blade flew off and seriously injured John's daughter. From the standpoint of a commercial liability loss for the repair shop, this is an example of Completed operations liability.

III. An insured signs a lease for an apartment that contains a hold harmless agreement. This hold harmless agreement states that the Lessor (the insured) will hold the Lessee (the apartment owner) harmless from all loss, damage, liability, or expense claimed by acts or neglect of the Lessee or their visitors. This hold harmless agreement is an example of noninsurance risk transfer.

IV. In exchange for receiving prompt payment of benefits for medical payment and lost wages, an employee in most cases has no right to sue the employer in tort for damages such as pain and suffering. An exception to this doctrine of exclusive remedy is if the employer is operating in a dual capacity, both as the employer of the injured employee and as the manufacturer of the product that injures the employee.

(A)! I and II only(B)! III only(C)! IV only(D)! None of the above



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Question 2.3. Controlling Commercial Liability Loss ExposuresWhich of the following statements is not true with regard to the Controlling

Commercial Liability Loss Exposures?

I. The ownership of property requires responsibility to others, possibly including trespassers.

II. Exceptions to the doctrine of exclusive remedy are frequently covered under Part Two Employers Liability Insurance of the workers compensation policy, which as opposed to Part One Workers Compensation Insurance, has an applicable dollar limit.

III. For many businesses, workers compensation loss exposures represent their highest-cost liability.

IV. Lots of the same risk control concepts apply to both commercial general liability exposures and workers compensation and employers liability exposures, but there are several differences. The personal relationship and shared goals between an employer and employee is much more likely to help reduce loss costs in workers compensation claims than in general liability loss situations.

V. Tiger Trucking has made the decision to become more proactive in managing its motor vehicle liability through aggressive loss control. Pre-screening driver applicants with written tests, physical examinations, and drug screening before they are hired would be beneficial in preventing auto-related liability losses.

(A) I and II only

(B) III and V only

(C) IV only

(D) None of the above

AnswerThe correct answer is (D) none of the above.


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Documents

2018 On-line Edition115.68.184.113/open/2018sample_552LBonline.pdf · Risk Control Topic 1: The General Scope of Commercial Liability Loss Exposures 1.a. Structure: Bases for Legal