Casualty insurance mostly means liability insurance: it pays when the insured is legally obligated to pay damages for injuring someone or damaging their property, and it pays for the insured's defense. Before the policy forms make sense you need the law underneath them (torts, negligence, damages and defenses) and the policy mechanics shared by every liability form (limits, triggers, defense costs and conditions). Form references are to the ISO Commercial General Liability form (CG 00 01 04 13), the ISO Common Policy Conditions (IL 00 17) and the ISO Personal Auto Policy (PP 00 01 09 18).

Where legal liability comes from

• Torts: civil wrongs, other than breach of contract, that the law remedies with money damages. A tort is a private wrong; a crime is a public wrong prosecuted by the state, and one act can be both.
• Contracts: liability you agree to take on, such as a hold harmless (indemnity) agreement in a lease. The CGL covers liability assumed in an "insured contract" as the policy defines it.
• Statutes: liability imposed by law, such as workers compensation acts or dram shop laws that make sellers of alcohol liable for injuries caused by intoxicated or underage customers they served.

Three kinds of torts

Intentional torts are deliberate acts: assault (putting someone in fear of imminent harmful contact), battery (the harmful or offensive contact itself), libel (written defamation), slander (spoken defamation), false arrest, invasion of privacy, trespass (entering land without permission), conversion (taking someone's personal property) and nuisance (unreasonable interference with a neighbor's use of property). Liability policies exclude injury the insured expected or intended, but CGL Coverage B covers a defined list of offenses such as false arrest, malicious prosecution and defamation.

Negligence is failure to use the care a reasonable and prudent person would use in similar circumstances. Most liability claims are negligence claims.

Strict (absolute) liability applies without proof of fault: abnormally dangerous activities such as blasting or keeping wild animals, and defective products. Products claims can rest on negligence, strict liability or breach of warranty.

Proving negligence

The plaintiff must prove all four elements, by a preponderance of the evidence (the civil standard, lower than "beyond a reasonable doubt"):

1. Duty of care owed to the plaintiff.
2. Breach of that duty.
3. Proximate cause: the breach produced the injury in a natural, unbroken sequence. An unforeseeable intervening cause can break the chain.
4. Damages: actual harm. No harm, no negligence claim.

Doctrines that help the plaintiff:

• Negligence per se: violating a safety statute and causing the kind of harm the statute was meant to prevent.
• Res ipsa loquitur ("the thing speaks for itself"): negligence is inferred when the accident normally would not happen without negligence and the cause was in the defendant's control.
• Attractive nuisance: an owner must protect children drawn to a dangerous condition such as a pool.

Duty owed to people on your property traditionally depends on their status: invitees (customers) get the highest duty, licensees (social guests) less, trespassers the least. Some states have changed these categories.

Vicarious liability makes one party answer for another's acts, most often an employer for an employee acting within the scope of employment (respondeat superior). Joint and several liability lets a plaintiff collect the whole judgment from any one of several liable defendants. A bailment (leaving your car with a valet) puts a duty of care on the bailee.

Defenses

• Contributory negligence: a plaintiff who is at fault to any degree recovers nothing.
• Comparative negligence: the award is reduced by the plaintiff's share of fault. Pure comparative lets an 80%-at-fault plaintiff with $100,000 of damages recover $20,000. Modified comparative bars recovery at a set threshold: under a 50% bar a plaintiff 50% at fault gets nothing; under a 51% bar the same plaintiff collects half.
• Which rule applies is a matter of state law, so expect the exam to test the definitions and the math rather than one national rule.
• Last clear chance: a negligent plaintiff can still recover if the defendant had the final opportunity to avoid the harm.
• Assumption of risk: the plaintiff knowingly and voluntarily accepted a known danger.
• Statute of limitations: suit must be filed within the period set by law.
• The injured party has a duty to mitigate damages.

Damages

Key definitions in liability forms

• Bodily injury (CG 00 01): bodily injury, sickness or disease sustained by a person, including resulting death.
• Property damage: physical injury to tangible property including resulting loss of use, and loss of use of tangible property that is not physically injured.
• Occurrence: an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Broader than "accident."
• Suit: a civil proceeding, including arbitration or other alternative dispute resolution the insured submits to with the insurer's consent.

Limits

• Split limits such as 100/300/50 mean $100,000 bodily injury per person, $300,000 bodily injury per accident, $50,000 property damage. Three people with awards of $80,000, $120,000 and $90,000 receive $80,000 + $100,000 + $90,000 = $270,000.
• A combined single limit applies one amount to BI and PD together per accident.
• An aggregate limit caps everything paid in the policy period, and payments erode it. A CGL with a $1,000,000 occurrence limit and a $2,000,000 general aggregate that has already paid $1,500,000 can pay only $500,000 on the next claim.
• A sublimit caps one type of loss below the main limit.
• Excess and umbrella policies pay after underlying limits are exhausted. With $1,000,000 primary auto and a $5,000,000 umbrella, a $3,200,000 judgment is paid $1,000,000 by the auto policy and $2,200,000 by the umbrella.
• A deductible on liability coverage (e.g. CG 03 00) is usually paid by the insurer and reimbursed by the insured; under a self-insured retention the insured pays, and usually handles, losses up to the retention first.

Defense and supplementary payments

• The insurer has the right and duty to defend any suit seeking covered damages, and the right to investigate and settle at its discretion. The duty to defend is broader than the duty to pay: it is triggered by allegations that could be covered, even groundless ones.
• In the CGL, defense costs are supplementary payments in addition to the limits, but the duty to defend ends when the limit is used up paying judgments or settlements. Some policies (often professional liability) are defense within limits: defense costs reduce the limit.
• CGL supplementary payments include up to $250 for bail bonds, up to $250 a day for the insured's lost earnings at the insurer's request, court costs, and prejudgment and post-judgment interest.
• An insurer that defends while warning that some allegations may not be covered sends a reservation of rights.
• Medical payments coverage pays regardless of fault.

Occurrence vs. claims-made

• An occurrence policy pays for injury or damage that happens during the policy period, no matter when the claim is made. An injury in 2023 claimed in 2026 goes to the 2023 policy.
• A claims-made policy pays claims first made during the policy period for injury after the retroactive date.
• An extended reporting period (tail) gives extra time to report claims after a claims-made policy ends. It does not extend the policy period. Under ISO CG 04 73 the insured may buy it when the coverage is canceled, nonrenewed or replaced by a policy with a later retroactive date or one not written on a claims-made basis. The five-year supplemental tail must be requested in writing within 60 days after the policy ends and costs no more than 100% of the annual premium for the endorsement. Switching from claims-made to occurrence without a tail is the classic coverage gap.

Common policy conditions

• Duties after an occurrence: prompt notice, cooperation, and no voluntary payments or assumed obligations except at the insured's own cost.
• Legal action against us: a claimant cannot drag the insurer into the suit against the insured, but may recover from the insurer on an agreed settlement or final judgment.
• Bankruptcy of the insured does not relieve the insurer of its obligations.
• Separation of insureds: the policy applies to each insured as if each had its own policy, without increasing limits.
• Other insurance: primary, excess, contribution by equal shares (two insurers on a $300,000 loss pay $150,000 each) or contribution by limits ($200,000 and $100,000 policies split a $90,000 loss $60,000 / $30,000).
• Subrogation: the insured must do nothing after a loss to impair the insurer's recovery rights.
• IL 00 17: the first named insured cancels by advance written notice and receives notices; the insurer gives at least 10 days' notice for nonpayment and 30 days for other reasons (state endorsements often change these); insurer cancellation refunds pro rata, insured cancellation may be less (short rate); changes only by insurer endorsement; books and records may be examined during the policy and 3 years after; inspections relate to insurability and premium and do not warrant safety; transfer of the policy needs the insurer's written consent, except to a legal representative if the named insured dies.
• Premium audit: many casualty policies are written on estimated payroll or sales and audited after expiration.

Rating and claims terms

• Rate × exposure units = premium. Earned premium is for time already covered; unearned is for time remaining. A $3,650 policy canceled by the insurer after 146 days returns 219/365 × $3,650 = $2,190.
• Schedule rating applies credits and debits for features of the individual risk. Retrospective rating sets the final premium from the insured's actual losses during the period, between a minimum and maximum.
• Loss reserves are set aside for claims incurred but not yet paid; IBNR reserves cover claims that have happened but are not yet reported. Loss adjustment expenses are the costs of investigating and settling claims.
• A certificate of insurance is evidence of coverage; it does not amend the policy. An additional insured is added by endorsement for coverage tied to the named insured's operations.
• Under the federal Terrorism Risk Insurance Program, extended through December 31, 2027, the federal share is 80% of an insurer's certified terrorism losses above its deductible (20% of prior-year direct earned premium) once industry losses pass $200 million (31 CFR Part 50).

Common traps

• Negligence needs all four elements; an accident with no damages is not a claim.
• Contributory bars recovery for any fault; comparative reduces it. The rule is set by each state.
• "Occurrence" includes continuous or repeated exposure; "accident" alone does not.
• CGL defense costs are outside the limits; aggregate limits shrink as claims are paid.
• Occurrence policies follow the date of injury; claims-made policies follow the date of the claim, back to the retroactive date.