RMIN 4000 Risk Management and Insurance Pottier Exam 1 Study Guide UGA
RMIN 4000 Risk Management and Insurance Pottier Exam 1 Study Guide UGA RMIN 4000
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This 16 page Study Guide was uploaded by Samantha Snyder on Monday October 3, 2016. The Study Guide belongs to RMIN 4000 at University of Georgia taught by Pottier in Fall 2016. Since its upload, it has received 2 views. For similar materials see Introduction to Risk Management in Risk Management at University of Georgia.
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RMIN 4000 Study Guide Exam 1 Chapter 1 – Risk and Its Treatment Key Terms Avoidance—avoiding a certain risk all together zeros out the risk exposure Direct Loss—financial loss that arises from the physical damage, destruction, or theft of property Diversifiable Risk— (aka nonsystematic risk or particular risk) that effects only individuals or small groups and not the entire economy o Ex. Pipe bursting in your home—hurts your home but not your neighbor’s home Enterprise Risk—all major risks faced by a business firm (pure, speculative, strategic, operational, and financial) o Ex. Waterline bursting at a car wash Enterprise Risk Management—a single unified treatment plan for all risks that a business is exposed to Financial Risk—uncertainty of loss because of adverse changes in commodity prices, exchange rates, interest rates and the value of money o Ex. changes in interest rates—if you make a 10 yr loan at 3% today, but tomorrow interest rates go up to 10%, that 3% loan is now worth less and you are losing $$ on it Hazard—a condition that creates or increases the frequency or severity of loss (4 major types of hazards) Hedging—a technique for transferring risk of unfavorable price fluctuations to a speculator by purchasing and selling futures contracts on an organized exchange Hold-harmless Clause—a statement in a legal contract stating that an individual or organization is not liable for any injuries or damages caused to the individual signing the contract Human Life Value—present value of the family’s share of the deceased breadwinner’s future earnings Indirect/Consequential Loss—loss that results indirectly from direct physical damage to or loss of property Law of Large Numbers—as the number of exposure units increases, the more closely the loss experience will approach the expected loss experience Liability Risks—any risk exposure in which you can be held legally liable for damages Loss Exposure—any situation in which a loss is possible, regardless of whether a loss happens Loss Prevention—aims at reducing the probability of loss Loss Reduction—aims at reducing the severity of loss Nondiversifiable Risk— (systematic risk or fundamental risa risk that effects the entire economy or large number of persons or groups within the economy o River flooding—hurts your home AND your neighbors home Noninsurance Transfers—the transfer of risk from one party to another that is not an insurance company Objective Probability—long-run relative frequency of an event based on the assumptions of an infinite number of observations and of no change in underlying conditions Priori probabilities—can be determined using deductive reasoning 1 Other objective probabilities can be determined by inductive reasoning Objective Risk—the relative variation of actual loss from expected loss Peril—the cause of a loss Personal Risks—risk that directly affects a person or family Premature Death—death of a family head with unfulfilled financial obligations Property Risk—the risk of having property damages or loss from numerous causes Pure Risks—a situation where there is only the possibility of loss OR no loss (neutral) o Ex. Medical, auto, theft insurance Retention—a business retains part of all the losses that can result from a given risk Risk— uncertainty concerning the occurrence of loss Risk Control—techniques that reduce the frequency or severity of losses Risk Financing—techniques that provide for the funding of losses Self-Insurance—special form of insurance in which part or all of a given loss exposure is retained by the firm Speculative Risk—a situation in which there is a chance of profit AND no profit AND loss Strategic Risk— uncertainty regarding the firm’s financial goals and objectives Subjective Probability—an individuals personal estimate of the chance of loss Subjective Risk— uncertainty based on a person’s mental condition or state of mind Reading Notes + Lecture Notes • Objective loss decreases as the number of risk exposures increases • Two people in the exact same situation can have a different perception of risk aka different levels of subjective risk • 4 Major Hazard Types o Physical—physical condition that increases the frequency or severity of loss § Ex. Icy roads—increase frequency/severity of car accidents o Moral—dishonesty or character defects in an individual that increase the frequency or severity of loss § Fraud / overstatement of claims § Ex. keying your own car, claiming it happened “while at a Braves game” just to get a new paint job § Ex. house getting struck by lightning, including a TV that hasn’t worked for years in the claim of damage by lightning strike to get a new one for free o Attitudinal/Morale—carelessness or indifference to loss, which increases the frequency and severity of loss § “people tend to be more careless when they have insurance—not as alert to being safe” § Ex. Texting and driving § Ex. Leaving keys in an unlocked car o Legal—characteristics of the legal system or regulatory environment that increase the frequency or severity of loss 2 § Ex. you always drive at 60mph through a 45mph zone, but cops randomly decide to start enforcing the speed limit more strictly § Ex. Statues that require insurers to include certain benefits for health insurance plans, like coverage for alcoholism • Why is it important to distinguish between pure and speculative risk? o Insurers usually do not insure speculative risk o Law of large numbers is easier to apply to pure risks making loss more predictable o Society may benefit from a speculative risk even if a loss occurs but it is harmed if a pure risk is present and a loss occurs § Ex. Flood/earthquake (pure risk) produces no benefit Inexpensive computer production (speculative risk) may force some businesses into bankruptcy, but society benefits bc cheap computers • Strategic risk (“add this to the list”) (long term): a threat to the business model, ongoing threat to the existence of a business § Ex. blockbuster’s business model was threatened by online streaming. Blockbuster didn’t adapt fast enough and failed § Ex. #1 source of male jobs in the US is driving some sort of vehicle…what will “driverless cars” do to this business model? o Property risks—NOT personal/liability § Business interruption: direct loss CAUSES indirect loss • Ex. Chili’s has to close because of a fire Direct loss: cost of fixing walls in Chili’s Indirect loss: loss of revenue because Chili’s had to close • Ex. Car accident Direct loss: cost of fixing car Indirect loss: cost of rental car § Contingent business interruption: direct loss happens to one business, causing an indirect loss at another business • Ex. Farm that supplies a restaurant burns down Direct loss to farm: cost of fire damage Indirect loss to restaurant: loss of revenue because they have no ingredients so they can’t open • Also consider two businesses geographically close together— movie theater & restaurant • 4 main personal risks 1. premature death 2. poor health 3. unemployment 4. insufficient income during retirement 3 • There is no maximum upper limit with respect to the amount of losses in a liability case, especially in the instance of bodily damage o Exception: You cannot sue for $100,000 for damage to your car if your car is only worth $20,000 • Burden of risk on society o Size of emergency funds must be increased, lowering the standard of living o Society is deprived of certain goods and services o Worry and fear are present • 3 Main Risk Controls § Ex. Seat belts 1. avoidance 2. loss prevention 3. loss reduction § Ex. Sprinkler system in a house • 3 Main Risk Financing Methods 1. retention § active retention: an individual is consciously aware of risk and deliberately plans to retain all or some of it • Ex. Car insurance with a deductible § passive retention: unknowingly retained risk due to ignorance, indifference, laziness or failure to identify a risk • Ex. Workers not being insured against disability 2. noninsurance transfers § Transfer of risk by contract § Hedging price risks § Incorporation of a business firm 3. Insurance • Hedging is for speculative risks, insurance is for pure risks aka risks that have the characteristics of insurable risks • Hedging typically only involved risk transfer, no risk reduction 4 Chapter 2 – Insurance and Risk Key Terms Adverse Selection—tendency of persons with a higher-than-average chance of loss to seek insurance at standard rates, which if not controlled by underwriting, results in higher-than- expected loss levels o Ex. High risk drivers who seek auto insurance at standard rates, people with serious health problems who seek life insurance at standard rates Fortuitous Loss—loss that is unforeseen and unexpected by the insured and occurs as a result of chance aka loss must be accidental Indemnification—the insured is restored to his/her approximate financial position prior to the occurrence of the loss 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 Life Insurance—an insurance policy that pays death benefits to designated beneficiaries of the insured Pooling—spreading of losses incurred by the few over the entire group, so that in the process, the average loss is substituted for actual loss, and to reduce the variability of risk Reinsurance—arrangement by which the primary insurer that initially writes the insurance transfers to another insurer (called the reinsurer) part or all of the potential losses associated with such insurance Risk Transfer—a pure risk that is transferred from the insured to the insurer, who is in a typically stronger financial position to pay the loss than the insured Social Insurance—gov’t insurance programs with certain characteristics that distinguish them from other gov’t insurance plans, financed entirely/largely by mandatory employee contributions, not by gov’t revenues o Ex. Medicare, Unemployment, etc. Underwriting—the process of selecting and classifying applicants for insurance Reading Notes + Lecture Notes • 4 main characteristics of insurance 1. pooling losses 2. payment of fortuitous losses 3. risk transfer 4. indemnification • Characteristics of an Ideally Insurable Risk 1. Must be a large number of (reasonably similar but not identical) exposure units 2. Loss must be accidental/unintentional 3. Loss should not be catastrophic 4. Must be determinable and calculable 5. Premium must be economically feasible • Insurance companies can reduce the concentration of risk by spreading coverage over a large geographical area 5 • Insurance companies often involved in loss prevention programs that are funded by expense loading • Good thing about pooling: as long as losses are not perfectly correlated, the average loss is going to be less variable the larger the # of policies you have • Pooling is the “foundation of insurance” • insurance vs. gambling o insurance: you recognize that you already face a risk, decide how you want to handle it. Buy insurance and implement risk controls o gambling: you don’t face a risk until you arrive at the situation aka you CHOOSE to expose yourself to a new, self-created risk • Many types of loans require insurance o Typically, businesses can get a tax deduction for the insurance premiums that they pay (individuals can’t) • Adverse selection o Low risk group vs high risk group—insurance company cant tell the difference just by looking at you. Low risk people feel like their premiums are too high bc insurance company is charging the average, so they won’t buy it or will go elsewhere for a cheaper policy o Insurance companies combat this by trying to collect info on you—driving or medical records, if you take drivers ed., how old you are, your gender etc. • Review slide 7—mathematically explains what makes up an insurance premium 6 Chapter 3 – Introduction to Risk Management Key Terms • None of the ch 3 key terms were defined in the ppt from class Reading Notes + Lecture Notes • Think first—why to individuals manage risk? Why do they care? o Gets rid of some variability o In general, people are risk averse • If you’re risk averse and given two situations with the same expected cost, you pick the one with less variability • Why Do Large Businesses Manage Risk? o Small businesses tend to approach risk like an individual does o Diversifying investments ALMOST eliminates risk o Who do I care, as a stockholder in GE, how they manage risk if I’m diversified? § It affects expected rate of return!!! o More profit variability (aka less risk management) = more likely to go bankrupt o Forbes 500 ex. o GOAL: TO MAX VALUE OF FIRM!....to do this you MUST minimize cost of risk o RM can look like it is decreasing the value of the firm, but it isn’t bc a cost includes a profit margin o Risk aversion is not a good explanation……law of large numbers o RM ADDS VALUE TO A FIRM! § Lower tax liability, lower wages, higher prices • Meaning of Risk Management o Loss exposure: any situation where a loss CAN occur, regardless of if it does or not • Objectives of Risk Management o Risk controls + risk financing = preparation for loss o Anxiety reduction—driving without insurance would be nerve wracking o Legal obligations—often required by law to have car insurance, home insurance • Objectives of Risk Management o Ensure survival of the firm--#1 objective 7 • Risk Management Process o Slide 6---KNOW THIS PROCESS § Risk controlàprofitability/size § Risk financing àhow would you pay for a loss if you experienced one? § Implement and monitor a risk management system—usually a combo of controls & financing o Whole process o Analyze aka quantify frequency and severity (probability/amount) • Step 1: Identifying Loss Exposures o Use of risk questionnaires help you identify risk • Identifying Risk Exposures o Understanding how a business works is KEY! o Contract analysis § Some contracts risk is assumed/transferred o Historical loss data—look at last 5-10 yrs o Industry trends….risk changes with time § Ex. Polio is not a real risk anymore • Analyzing Loss Exposures o Loss frequency—probable # of losses. Usually expressed as a probability ie # plates broken/# plates handled o Loss severity—can be measures in $ or other units o Prioritize risk: which has the most potential harm to the business? o Maximum possible loss—worst loss possible that could occur—“losing it all”— unlikely due to risk controls o Maximum probable loss—worst loss that is LIKELY to happen o Insurance is typically used for risks with low probability & high severity • Select the Appropriate Risk Management Technique—Risk Control o Avoidanceà risk =0 à not always possible…so avoid risks that are not essential to your goals o Loss prevention § Ex. Child proof tops on prescription drugs, fireproof doors, warning labels, background checks o Loss reduction § Ex. Sprinkler systems for fires, physical therapy 8 o Loss prevention & reduction § Airbags/seatbelts reduce frequency and severity o Investing in information § Ex. Where is less risky? What exchange rates are best? What vaccines will I need before leaving the country? o Duplication: backup § Ex. Power generator o Separation: divide existing exposure § Ex. warehouses • Risk Control Methods o Know the difference between loss reduction and loss prevention • Risk Financing Methods: Retention o Credit line: putting something on your credit card, a pre-approved loan from a bank o Some people can pay deductibles right out of their current income o Reserve fund: aka “rainy day fund” o Retention may be unplanned: overlooked risk exposure or underestimated risk exposure o Ex. Underinsured home burning down—difference between what insurance pays & what else you have to pay is the unplanned retention • Risk Financing Methods: Non-insurance Transfers o Transfer of financial responsibility for risk from person/business facing the risk to another person/business o Contractual transfers: construction contractors—general contractors use sub contractors for things like electrical work, framing, plumbing etc. not just one person that does all the work. Each subcontractor is responsibility for any damage/loss related to improper installation etc. o “hold harmless” provisions: ”I (electrical subcontractor) will be responsible for losses that result from improper installation of the electrical system, I will not hold you, the general contractor, responsible. I will indemnify any losses you pay….I will pay you the $$ for losses” aka “I’m not going to hold you responsible o Most medium-large business incorporate which limits loss • Risk Management Matrix—general guide o What technique is most appropriate based on frequency (aka probability) and severity of risk? o On the test, characteristics will be given, not jobs/situations….unless it’s clear cut (house fire, auto theft, cancer, etc…insurance) o These are rules of thumb o Low frequency-–if the probability of loss from an activity is less than 10% in the next year o High frequency—if the probability of loss from an activity is more than 10% in the next year o Types of Loss Examples 9 § 1— low frequency, low $ amount—losing an umbrella, minor medical problems that insurance doesn’t cover (sore throat/throat spray, upset stomach/peptobismol etc.) § 2— broken plates at a restaurant, food spoilage at the grocery store, shoplifting at walmart—because it happens frequently, it’s predictable and they can plan for it/budget for it. No grocery stores buy insurance for something that they know will happen every day. Loss prevention: better refrigeration on cold foods, marking down close- to-expired foods, cameras in walmart § 3— auto liability loss insurance, home owners insurance, major medical expenses § 4— FedEx not hiring a driver with a history of DUIs, not being a lumberjack (most dangerous job in the US), door to door salesman in a war zone • Benefits of Risk Management o Financial guarantees—contractual risk transfer • Personal Risk Management o Very similar to risk process for businesses • Changing Scope of Risk Management o Enterprise Risk Management (ERM)—manages all the risks a business faces, a holistic approach to risk management • Risk Management Matrix 10 Chapter 9 – Fundamental Legal Principles Key Terms Actual Cash Value—replacement cost less depreciation Agency Agreement—document that gives insurance agents the power to solicit, create and terminate and insurance contract on behalf of the company Aleatory Contract—a contract where the values exchanged may not be equal but depend on an uncertain event Broad Evidence Rule—determination of actual cash value should include all relevant factors an expert would use to determine the value of the property o Example factors: replacement cost minus depreciation, fair market value, present value of expected income from property, comparison sales, appraisers etc. Commutative Contract—contract in which the values exchanged by both parties are theoretically equal Concealment—intentional failure of an applicant for insurance to reveal a material fact to the insurer Conditional Contract—a contract in which the insurer’s obligation to pay a claim depends on whether the insured has complied with all policy conditions Consideration—the value that each party gives each other o Ex. Insured’s consideration: payment of premium, Insurer’s consideration: promise to do things outlined in contract Contract of Adhesion—insured must accept the entire contract, with all terms and conditions Express Authority—authority given to an insurance agent explicitly in the agency agreement Fair Market Value—the price a willing buyer would pay a willing seller in a free market Implied Authority—authority of agent to perform all incidental acts necessary to fulfil the purposes of the agency agreement Innocent Misrepresentation—an unintentional misrepresentation of a material fact that is relied on by the insurer, often ruled in courts to still make a contract voidable Legal Purpose—requirement that insurance contracts must not promote illegal or immoral acts Legally Competent—both parties must have the legal capacity to enter into a binding contract Material Fact—facts that, if the insurer knew about them, would result in no policy being issued OR a policy issued on different terms Offer and Acceptance—crucial part of the creation of an enforceable, legal contract—process in which the applicant makes the offer (applies and pays/promises to pay the first premium) and the insurance company either accepts or rejects the offer Pecuniary (Financial) Interest—a relationship between who people that does not require a blood relation but instead the potential to experience financial loss as a result of harm to another person Personal Contract—contract is between the insured and insurer—basically the insurance doesn’t actually insure the property, but insures the owner of the property against loss Principle of Indemnity—states that the insurer agrees to pay no more than the actual amount of 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 11 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 Replacement Cost Insurance—insurance policy in which there is no deduction for physical depreciation in determining the amount paid for a loss o Ex. Roof of a house that is 5 yrs old gets damaged in a hail storm. Insurance pays face insurance value bc the insured would be subject to a significant loss if only paid actual cash value Subrogation—substitution of the insurer in place of then insured for the purpose of claiming indemnity from a third party for a loss covered by insurance aka the insurer is entitled to recover from a negligent third party any loss payments made to the insured o A negligent driver, Julie, runs a red light and smashes into Megan’s car. Megan’s insurance company can seek to collect $ from Julie of the amount they paid to fid Megan’s car under her insurance policy Unilateral Contract—contract in which only one party makes a legally enforceable promise Valued Policy—a policy that pays the face value of insurance if a total loss occurs o Ex. Insurance on antiques, fine arts, paintings, etc. Valued Policy Law—a law that exists in some states that requires the payment of the face amount of insurance to the insured if a total loss occurs from a peril specified in the law, which generally apply to real property and require a total loss Waiver—voluntary relinquishment of a known legal right Warranty—a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects o Ex. For a liquor store owner to receive a reduced premium, he may have to warrant that an approved alarm system will be operational at all times Reading Notes + Lecture Notes • Actual cash value “you should know” o ACV=RC (replacement cost)—depreciation o If you have lightning damage to your home and insurance is going to replace a TV, they take the actual cost of what a brand new one would cost today, minus the value of depreciation from the amount of use over the amount of time you’ve had it o Car example: if you have a 2005 car that was totaled, the insurance gave you enough to 2005 new car brand new with 100 miles on it, you’d be better off than you were before in a 2005 car with 100,000 miles on it. So that’s why the value you’d receive from the wreck has to be depreciated • Exceptions to the principle of indemnity o Valued policies o Valued poly law o Replacement cost insurance o Life insurance • Insurable interest o Insurable interest conditions are met for some things (like cargo being shipped) if you will have an insurable interest in the future 12 o Life insurance policies must have an insurable interest at the time of inceptrion, but insurable interest is not a requirement for collecting • Slide 9/10 — who has insurable interest? • 3 purposes for subrogation 1. prevents insured from collecting twice for same loss 2. used to hold the negligent party responsible 3. helps hold down insurance rates o Insurer is entitled to only as much as they paid o After a loss, the insured cannot impair the insurer’s subrogation rights, or else the insured’s rights to collect from the insurer are waived o Subrogation doesn’t apply to life insurance o Insurer cannot subrogate against own insureds • Principle of Subrogation (ONLY APPLIES TO CONTRACTS OF ENDEMNITY) • Principle of Utmost Good Faith o Insurance is held to a higher standard of honesty than other types of contracts § Info disclosure, honest representations, accurate representations § If info you provide info that isn’t true, it is possible that the insurance company would deny your claim or drop you bc of misrepresentation § “important” aka “material” – height and weight—say 150, really weigh 160….not material. Say 150, really weigh 350….material. § Cause of loss does not have to be related to the info you misrepresented • history of heart attacks, doesn’t disclose that….if you die in a car accident you can still be denied the death benefit § Concealment—purposely not sharing information that you know would be relevant for the insurance company to know but they didn’t specifically ask you for • Material misrepresentation/concealment: insurer usually has to prove that the applicant intentionally lied or intentionally attempted to defraud the company • Requirements for a valid insurance contract: offer and acceptance, consideration, competent parties and legal purpose 13 Chapter 19 – The Liability Risk Key Terms Assumption of Risk—a person who recognizes and understands the danger inherent in a particular activity cannot recover damages in the event of an injury Attractive Nuisance—a condition that can attract and injure children, as children are not as equipped to recognize inherent dangers o Ex. Contractor leaves keys in a tractor, while playing on tractor, little kid is injured Comparative Negligence Law—if both the plaintiff and defendant contribute to the plaintiff’s injury, the financial burden of the injury is shared by both parties according to their respective degrees of fault Compensatory Damages—awards that compensate injured victims for the losses actually incurred Contributory Negligence—if the injured person’s conduct falls below the standard of care required for his/her protection, and the conduct contributed to the injury, the injured person cannot collect damages Dram Shop Law—an owner of a shop that sells liquor can be held liable for things that result from the sale of that liquor o Ex. A bartender overserving someone who drives home and hits another person…the owner of that bar can be held liable Elements of Negligence—existence of a legal duty, failure to perform that duty, damage or injury to the claimant, and proximate cause relationship between the negligent act and the infliction of damage General Damages—awards that cannot be measured or itemized o Ex. Pain and suffering, disfigurement, loss of companionship from a spouse Governmental Function—things like planning a sewer system Imputed Negligence—(aka vicarious liability) under certain conditions, the negligence of one person can be attributed to another person o Ex. If you’re driving a company car to deliver a package and negligently injure another driver, your employer can be held responsible Invitee—person who is invited onto the owner’s property for the benefit of the occupant o Ex. Mail carriers, garbage guys, customers in a shop Legal Wrong—a violation of a person’s legal rights, or a failure to perform a legal duty owed to a person or society as a whole Licensee—a person who enters or remains on the owner’s property expressed or implied permission o Ex. Salespersons, police officers, social guests Negligence—failure to exercise the standard of care required by law to protect others from an unreasonable risk of harm Plaintiff— (or claimant)the injured or harmed party Proprietary Function—operation by government of things like water plants, electrical, transportation, and telephone systems, etc. Proximate Cause—a causal chain that is unbroken by any new/independent cause that produces an event that otherwise would not have occurred 14 Punitive Damages—awards designed to punish the negligent party for egregious acts so that others are deterred from committing the same wrongful act Res ipsa loquitur—“the thing speaks for itself.” – the idea that the very fact that an injury occurred establishes a presumption of negligence on behalf of the defendant, leaving it up to the defendant to refute negligence aka if the defendant hadn’t been careless, the injury wouldn’t have happened o Ex. Dentist pulling wrong tooth, surgeon leaves behind a surgical sponge, etc. Respondeat superior—idea that an employer can be held responsible for the acts of an employee while they are acting on the employer’s behalf Sovereign Immunity—idea that local, state and federal governments cannot be sued unless that government gives its permission to be sued Special Damages—damages that can be determined and documented o Ex. Medical expenses, lost earnings or property damage Strict/Absolute Liability—liability is imposed regardless of negligence or fault o Ex. Owning wild/dangerous animals, explosives manufacturing, occupational injury under workers comp laws Tort—legal wrong for which courts allow a remedy in the form of monetary damaged Tortfeasor (alleged wrongdoer)— (or defendant) person who allegedly brought harm upon another person Trespasser—a person who enters or remains on the owner’s property without the owners consent • Duty of slight care—responsibility to not purposely injure a trespasser Vicarious Liability Law—a motorists’ negligence is imputed to the vehicle’s owner Reading Notes + Lecture Notes • Intentional torts—intentional act or omission that results in harm to a person or property o Ex. Assault, battery, false imprisonment, fraud, slander, libel etc. • Criminal Law vs Civil Law (KNOW THE DIFFERENCE) o Civil Law: wrongs against individuals or organizations o Criminal Law: wrongs against society • Defenses to negligence claims o Contributory negligence (complete defense—plaintiff gets nothing) o Comparative negligence—contributory negligence is too extreme, this is the fix § Try to figure out to what percent each party is negligent, award damages based on fault o Assumption of risk § Waiver of liability—“I won’t sue you” o Statues of limitations o Sovereign (governmental) immunity § some entities aka gov’t entities, are not as liable as individuals or small businesses are, in particular when it comes to gov’t functions (roads, police, bridges etc.) 15 § sometimes you cant hold the state responsible, but you CAN hold an employee of the state liable. Sometimes immunity extends to employees • Strict liability torts o Two requirements for employer to be liable § Worker’s legal status must be that of an employee § Employees must be acting within the scope of employment when negligent act occurred • Products Liability o Negligence § Lack of privity is NOT a defense • Privity: party to a contract/transactions o Strict Liability § Dangerously defective products • Contractual Liability o Liability assumed ina contract o Ex. Lease • Completed Operations Liability: liability related to finished work, completed construction • Professional Liability o Higher standards based on profession o Ex. Lawyers, doctors, financial planners etc. 16
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