Study guide
Casualty adjusting centers on legal liability: whether an insured is legally responsible for someone else's injury or property damage, and what the policy will pay. This chapter covers auto liability, commercial general liability, homeowners liability, workers compensation, and the negligence concepts that drive liability investigations.
Personal Auto Liability: Coverage, Limits, and Supplementary Payments
Part A of the personal auto policy (PAP) promises to pay damages for bodily injury or property damage for which an insured becomes legally responsible because of an auto accident, and to defend the insured against covered suits. The duty to defend is broad and ends when the applicable limit is exhausted by judgment or settlement. Insureds under Part A typically include the named insured and resident family members for any auto, plus anyone using a covered auto with permission. Limits appear in two formats. Split limits state three numbers, such as 100/300/50: up to 100,000 dollars of bodily injury per person, 300,000 dollars of bodily injury per accident, and 50,000 dollars of property damage per accident. A combined single limit states one number available for all bodily injury and property damage in a single accident. Practice the arithmetic: if Marisol, insured at 25/50/25, injures two claimants who each have 40,000 dollars in medical damages, her policy pays 25,000 dollars per person, 50,000 dollars total, leaving each claimant undercompensated and Marisol personally exposed. Supplementary payments are paid in addition to the limits and include defense costs, up to specified amounts for bail bonds and appeal bonds, post-judgment interest, loss of earnings for attending trial at the insurer's request, and other reasonable expenses incurred at the insurer's request. Every state has financial responsibility or compulsory insurance laws setting minimum liability limits, but the required amounts vary widely by state, so adjusters verify the minimums where the policy was written.
Uninsured Motorists, Underinsured Motorists, and No-Fault Concepts
Uninsured motorists (UM) coverage protects the insured, resident family members, and occupants of a covered auto when they are injured by a driver who has no liability insurance, by a hit-and-run driver, or by a driver whose insurer is insolvent. It pays what the insured would have been legally entitled to recover from the at-fault driver, up to the UM limit. Underinsured motorists (UIM) coverage responds when the at-fault driver has insurance but the limits are too low to cover the insured's damages; depending on state law and policy form, UIM may pay the difference between the at-fault driver's limit and the insured's UIM limit, or may be offset differently, so adjusters must apply the rules of the governing state. Whether UM/UIM is mandatory, offered with a right of rejection, or optional varies by state, as does whether UM covers property damage in addition to bodily injury. No-fault insurance, adopted in a minority of states, requires each driver's own insurer to pay certain accident costs regardless of fault through personal injury protection (PIP). PIP benefits typically include medical expenses, a portion of lost wages, replacement services such as childcare, and funeral benefits, with amounts and deadlines set by state statute. Many no-fault statutes restrict lawsuits for pain and suffering unless the injury crosses a verbal or monetary threshold. Because these systems differ substantially, exam candidates should learn the general model concepts and remember that specific benefit levels, thresholds, and stacking rules are state-variable. Medical payments coverage in the PAP is a smaller, fault-neutral benefit paying reasonable medical and funeral expenses for occupants of a covered auto.
Commercial Liability: CGL Coverages, Business Auto, and Garage Liability
The commercial general liability (CGL) policy is the backbone of business liability insurance and is organized into three coverages. Coverage A pays damages because of bodily injury or property damage caused by an occurrence, which is defined as an accident, including continuous or repeated exposure to substantially the same harmful conditions. Coverage B pays for personal and advertising injury, a defined list of offenses including libel, slander, wrongful eviction, false arrest, and copyright infringement in an advertisement. Coverage C, medical payments, pays reasonable medical expenses for injuries to members of the public on the insured's premises or arising from its operations, without regard to fault; it is a goodwill coverage that can resolve small injuries before they become lawsuits. CGL policies carry several limits, including a per-occurrence limit and a general aggregate that caps total payments during the policy period, along with separate aggregates for products and completed operations. Policies are written on an occurrence basis, covering injury that happens during the policy period regardless of when the claim is made, or on a claims-made basis, covering claims first made during the policy period, usually subject to a retroactive date. Common conditions require prompt notice of an occurrence, cooperation with the insurer, and no voluntary payments. Businesses insure vehicle exposures under the business auto coverage form, which uses numerical covered-auto symbols to define which vehicles are insured, such as any auto, owned autos only, or hired and non-owned autos. Auto dealers and repair operations use garage or auto dealer forms, which combine premises liability with auto liability tailored to dealership operations.
Homeowners Liability, Negligence, and the Liability Investigation
Section II of the homeowners policy provides personal liability protection. Coverage E pays damages for bodily injury or property damage for which an insured is legally liable, anywhere in the world, and provides a defense; Coverage F, medical payments to others, pays reasonable medical expenses for non-residents injured on the insured premises or by the insured's activities or animals, regardless of fault. Section II excludes business pursuits, motor vehicle liability, intentional injury, and several other exposures. Liability under Coverage E generally rests on negligence, and the exam expects the four elements: the defendant owed a legal duty of care, the defendant breached that duty, the breach was the proximate cause of harm, and the claimant suffered actual damages. Proximate cause means an unbroken chain of events between the negligent act and the injury. A liability investigation gathers evidence on each element: scene photographs, witness statements, incident reports, weather records, maintenance logs, and medical documentation of damages. Suppose a guest named Harold slips on Dana's unlit stairway; the adjuster documents the lighting, how long the hazard existed, Harold's own attentiveness, and his medical bills before evaluating liability. Fault allocation rules are state-variable. A few jurisdictions retain contributory negligence, under which any fault by the claimant bars recovery. Most states use comparative negligence, either pure, where recovery is reduced by the claimant's percentage of fault, or modified, where recovery is barred once the claimant's fault reaches 50 or 51 percent. Personal umbrella and commercial excess policies sit above underlying auto and liability limits, adding catastrophe protection and sometimes broader coverage subject to a self-insured retention.
Workers Compensation, Professional Liability, Crime, and Surety
Workers compensation is a statutory, no-fault system: employees injured by accident arising out of and in the course of employment receive defined benefits without proving employer negligence, and in exchange the system is generally the employee's exclusive remedy against the employer. Benefits typically include all reasonable and necessary medical care, disability income benefits classified as temporary total, temporary partial, permanent partial, or permanent total, rehabilitation services, and death benefits including burial allowances for dependents of a worker killed on the job. Occupational diseases caused by workplace conditions are covered; injuries from intoxication, self-infliction, or willful safety violations are commonly excluded, with specifics varying by state. Benefit amounts, waiting periods, and dispute procedures are set by each state's statute, and contested claims are usually resolved through a state workers compensation board or industrial commission rather than the courts. The employers liability part of the policy covers rarer suits that fall outside the statute. Professional liability, often called errors and omissions insurance, covers financial harm from negligent professional acts, such as an accountant's filing error; medical professional liability (malpractice) covers bodily injury from negligent care; employment practices liability insurance (EPLI) covers claims of wrongful termination, discrimination, and harassment. These forms are commonly written claims-made, making the retroactive date and reporting requirements critical. Commercial crime insurance covers employee theft, forgery, robbery, and similar dishonesty losses, which property forms exclude. A surety bond is not insurance in the usual sense: it is a three-party agreement in which the surety guarantees to the obligee that the principal will perform, and the surety may recover its payments from the principal.
Key terms
- Split limits
- — Liability limits expressed as three amounts: bodily injury per person, bodily injury per accident, and property damage per accident.
- Supplementary payments
- — Amounts an insurer pays in addition to policy limits, such as defense costs, bond premiums, post-judgment interest, and the insured's trial-related expenses.
- Uninsured motorists coverage
- — First-party coverage paying what an insured could have legally recovered from an at-fault driver who has no liability insurance or cannot be identified.
- Personal injury protection (PIP)
- — No-fault auto coverage paying the insured's own medical expenses, lost wages, replacement services, and funeral costs regardless of fault; benefits are set by state law.
- Occurrence
- — An accident, including continuous or repeated exposure to substantially the same general harmful conditions, as defined in liability policies.
- Negligence
- — Failure to exercise the care a reasonable person would use, established by proving duty, breach, proximate cause, and damages.
- Comparative negligence
- — A state-variable fault system that reduces a claimant's recovery by the claimant's own percentage of fault, and in modified versions bars recovery above a threshold.
- Duty to defend
- — The insurer's obligation to provide legal defense for suits alleging covered damages, generally ending when the policy limit is exhausted.
- Exclusive remedy
- — The workers compensation principle that statutory benefits are generally an injured employee's only recourse against the employer.
- Umbrella policy
- — Liability coverage that sits above underlying policies, providing additional limits and sometimes broader coverage subject to a retention.
- Errors and omissions insurance
- — Professional liability coverage for financial harm caused by negligent professional acts or failures to act.
- Surety bond
- — A three-party guarantee in which the surety assures the obligee that the principal will perform an obligation; the surety can seek reimbursement from the principal.
Exam tips
- Practice split-limit math with two or more claimants; the per-person cap applies to each injured individual, and the per-accident cap limits the total for all bodily injury in the accident.
- Distinguish UM from UIM: UM responds when the at-fault driver has no coverage or cannot be identified, while UIM responds when the at-fault driver's limits are simply too low. How the numbers offset is state-variable.
- Map CGL coverages quickly: Coverage A is bodily injury and property damage, Coverage B is personal and advertising injury offenses, and Coverage C is no-fault medical payments to the public.
- Be ready to list the four negligence elements in order (duty, breach, proximate cause, damages) and to apply a comparative fault percentage to a dollar recovery.
- For workers compensation, remember it is no-fault, benefits are statutory, and the trade-off is exclusive remedy; questions often test which injuries fall outside coverage, such as intoxication or self-inflicted harm.