Lesson 16 - curriculum.naf.orgcurriculum.naf.org/packaged/assets/downloads... · Web viewStella Liebeck, a 79-year-old woman from Albuquerque, New Mexico, sued McDonald’s for

AOF Insurance

Lesson 10Commercial Liability Insurance

Teacher Resources

Resource Description

Teacher Resource 10.1 Scenarios: Commercial Liability Cases Results

Teacher Resource 10.2 Presentation and Notes: Commercial Liability Insurance (includes separate PowerPoint file)

Teacher Resource 10.3 Answer Key: Commercial Liability Insurance Anticipation Guide

Teacher Resource 10.4 Rubric: Liability Risks Poster

Teacher Resource 10.5 Key Vocabulary: Commercial Liability Insurance

Teacher Resource 10.6 Bibliography: Commercial Liability Insurance

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AOF InsuranceLesson 10 Commercial Liability Insurance

Teacher Resource 10.1

Scenarios: Commercial Liability Cases Results

Stella Liebeck vs. McDonald’s RestaurantsStella Liebeck, a 79-year-old woman from Albuquerque, New Mexico, sued McDonald’s for more than $2 million dollars after she received third-degree burns when a cup of coffee she ordered from the drive-through window of a McDonald’s restaurant spilled on her lap while she was trying to add cream and sugar. Liebeck was wearing cotton sweatpants; they absorbed the coffee and held it against her skin as she sat in the puddle of hot liquid for more than 90 seconds, scalding her thighs, buttocks, and groin.

Result: A jury awarded $2.86 million to Ms. Liebeck. The trial judge reduced the total award to $640,000, and the parties settled for a confidential amount before an appeal was decided.

Austin Aitken vs. NBCIn a lawsuit against NBC, Austin Aitken claimed that he experienced great suffering, injury, and pain when he watched an episode of the NBC show Fear Factor where contestants were eating rats. Aitken claims that watching the disgusting sight made him vomit and caused severe dizziness, which in turn caused him to run into a doorway. Aitken asked for a reward of $2.5 million.

Result: This lawsuit was thrown out by the judge.

Roy Pearson vs. ChungRoy Pearson, a Washington, DC, judge, sued a dry cleaning business for $67 million. According to Mr. Pearson, the dry cleaners lost his pants and refused his demands for a large refund. Pearson believed that a “Satisfaction Guaranteed” sign in the window of the shop legally entitled him to a refund for the cost of the pants, estimated at $1,000. Pearson reduced his demands from $67 million to $54 million. The $54 million total included $2 million in “mental distress” and $15,000, which he estimated to be the cost of renting a car every weekend to go to another dry cleaner.

Result: The judge found the case for the defendant, Mr. Chung, who did not have to pay any damages.

Richard Grimshaw vs. Ford Motor CompanyThirteen-year-old Richard Grimshaw sued Ford Motor Company after he was left badly burned when the Ford Pinto he was in caught fire after being rear-ended. Killed in the crash was the car’s driver, Lily Gray, Richard’s neighbor. Grimshaw’s lawyers argued that Ford executives had made a decision not to install needed safety features because their cost would have been greater than simply paying for damages from lawsuits resulting from injuries and deaths due to the lack of safety features.

Result: Ford Motor Company was found negligent in an ensuing lawsuit, and Grimshaw was awarded $2.5 million in compensatory damages and $125 million in punitive damages (which was later reduced to $3.5 million).




Presentation Notes: Commercial Liability InsuranceBefore you show this presentation, use the text accompanying each slide to develop presentation notes. Writing the notes yourself enables you to approach the subject matter in a way that is comfortable to you and engaging for your students. Make this presentation as interactive as possible by stopping frequently to ask questions and encourage class discussion.

This presentation provides an overview of commercial liability insurance, one of the most important types of insurance an organization can purchase. It answers some of the following questions:

• What is commercial liability insurance? How is it the same as and different from personal liability insurance?

• What sorts of things does commercial liability insurance cover? What does the insurance company do?

• What are the most common commercial liability products?

• What are the key parts of a commercial liability policy?

• How do insurers set rates for commercial liability coverage?

• How can companies keep their insurance premiums low? What happens if a company is underinsured?

Presentation notes



Commercial liability insurance is one of the most important components of a comprehensive risk management plan. It provides protection against lawsuits from third parties and claims for damage due to negligence by the insured. It is important for businesses both large and small, nonprofit organizations, and even government agencies.

Presentation notes



Both commercial liability insurance and personal liability insurance have the same basic purpose and work in similar ways. Both protect the policyholder from third-party lawsuits due to losses or damages.

If a covered peril occurs, the insurance company will pay claims up to the covered limit, minus any deductible. It will also provide legal representation to the insured.

One important difference between personal and commercial insurance is in the variety of liability insurance products for businesses. Because there are so many different types of businesses, and such a wide variety of perils that may occur, insurance companies have developed specialized liability policies to cover them.

Presentation notes



Because many companies come into contact with thousands (if not millions) of people each month, including customers, suppliers, and distributors, the risk of lawsuits is great for many companies, often exceeding the risk of loss due to damages to their own property.

The main purpose of all liability policies is to protect the policyholder from legal fees and awards resulting from lawsuits by third parties, up to the limit of the coverage. In most cases the insurance company will represent the policyholder in court and will often try to settle out of court for an amount that is under the limit of coverage.

A third party can be any person or organization, including customers, shareholders in the company, suppliers, government agencies, members of the general public, and even employees within the company.

Presentation notes



Because there are so many types of businesses, and so many liability perils that companies face, insurance companies have created policies, coverages, and endorsements to cover many of them.

Despite the word “general” in the term general liability coverage, this type of coverage does not cover all perils. It usually excludes damages caused by pollution or by vehicles, and it excludes lawsuits related to financial losses to the company or to others due to negligence on the part of the company’s employees, directors, or officers.

To fill in some of these gaps, insurers have created the following liability coverages:

• Pollution (lawsuits related to accidental releases of pollutants)

• Errors and omissions (lawsuits related to financial loss caused by mistakes made by the insured)

• Vehicle (lawsuits related to loss and damage caused by a company vehicle)

• Umbrella (supplements coverage if limits are exceeded on other policies, or covering other perils)

• Directors and officers (lawsuits related to poor management of company resulting in financial loss to shareholders)

Presentation notes



All liability insurance policies have limits on the amount of damage they cover, and many also have deductibles as well as perils that are excluded. An umbrella policy will usually provide coverage for the same perils as the policyholder’s primary policy.

An umbrella policy can provide added protection because it is designed to provide liability coverage for a wide range of third-party perils and can pay for damages above the limits of the underlying policy.

An umbrella policy will not be triggered by a covered peril until the limits of an underlying policy have been reached, or if the covered peril is not covered by any underlying policies.

Presentation notes



The typical commercial liability policy has many components in common with a personal liability policy:

• Insuring agreement: The clause that outlines the situations the insurance company will respond to

• Exclusions: Perils that are not covered by the policy

• Endorsements: Special additions to the basic policy, often covered perils

• Coverage limits: The maximum amount that the insurance company will pay, either in a year or per claim

• Deductibles: An amount that the policyholder will pay before the insurance company begins coverage

• Premiums: The amount that the policyholder pays regularly for the coverage

Presentation notes



The premiums for liability insurance policies are set by underwriters using the data provided by actuaries and risk-specific information provided by the prospective insured.

The key job of an underwriter is to select risks and set the premiums for any type of coverage at a level high enough to bring the insurance company a profit in the long run. While an insurance company may lose money in any given year, over the course of several years they should show a profit.

In general, the premiums for most liability insurance policies are set using the following information:

• History of losses for that particular type of coverage in a specific industry

• Size of the policyholder’s payroll, sales, or number of employees

• Policyholder’s claims history (the number and size of claims filed against the company in a given time period)

• Type of coverage, including coverage limits, deductibles, and perils covered

While the policyholder has little control over some factors, good management and effective safety procedures can have a positive effect on claims filed.

Presentation notes



While companies don’t want to overpay for liability insurance, they also don’t want to be underinsured.

Generally, less expensive policies have lower coverage limits, have more exclusions, and/or cover a more limited time frame.

Sometimes companies that believe they’re protected realize too late—after an expensive lawsuit has been filed—that the specific peril resulting in the lawsuit is not covered.

Other companies sometimes discover too late that their policies don’t cover the total amount of very large losses.

Insurance companies can employ deductibles and self-insurance as ways to balance the cost and benefits to both firms and insurance companies.

Presentation notes



While a company certainly has to worry about losses and damage to its own buildings, machinery, vehicles, and employees, it cannot ignore the very real risk of financial losses due to claims for damages or lawsuits caused by damages and loss to third parties.

Insurance enables a business to continue operations, without closing, while it defends against real or fraudulent claims of certain types of negligence or wrongdoing.

The savvy risk manager looks at all of the activities undertaken by the company and tries to anticipate the risks of each activity. Purchasing liability insurance to cover these risks is a critical part of protecting the company.

Presentation notes




Answer Key: Commercial Liability Insurance Anticipation Guide

Unethical companies get sued the most.

My guess: I agree I disagree

My reason:

I learned:

While this statement might seem true at first glance, it’s hard to know for sure. It’s difficult to fully protect your company from getting sued. The most ethical of companies could easily get sued just as often as unethical ones—accidents happen and third parties are allowed to sue for claims due to negligence. These are risks that companies take by being in business, whether or not they typically operate in an ethical or unethical fashion.

Most commercial liability insurance policies cover all forms of liability risk and pay for whatever the cost of liability damages might be.


My reason:

I learned:Commercial liabilities policies protect companies against lawsuits from third parties. There is usually also a limit of coverage, meaning policies do not pay whatever costs arise.

Commercial liability rates are set according to how much the company is willing to pay, through an auction in competition with other companies.


My reason:

I learned:

Commercial liability rates are set according to risk. The rates are set using the following company information: history of losses for that type of coverage in that industry; size of company’s payroll, sales, and number of employees; the company’s claims history; and the type of coverage, including limits, deductibles, and perils covered.




Rubric: Liability Risks PosterStudent Names:_____________________________________________ Date:_______________

Exemplary Solid Developing Needs Attention

Visual Design The assignment is highly attractive, well designed, and professionally laid out. Appropriate graphics are used tastefully, effectively support the content, and make it easy to follow.

The assignment is attractive and has a good design and an organized layout. Graphics help support the content.

The assignment contains graphics and multimedia, but it lacks good design and organization. Too many or too few graphics are used and are ineffective in supporting the content.

The assignment is messy and contains no coherent visual design. Graphics are not present at all or, if present, distract from the content.

Comprehension of Subject Matter

All the content is accurate and complete and communicates a complete understanding of the topic.

Most of the content is accurate and shows mastery of the topic.

The content shows some flaws and omissions and illustrates only partial knowledge of the topic.

Much of the content is inaccurate and confusing and communicates very little understanding of the topic.

Content Organization/ Flow

The content is clearly organized, with a logical flow of connected ideas and effective transitions.

The content is organized, and most ideas are well connected with effective transitions.

Ideas are sound, but the content is not well organized and needs more effective transitions.

The content is extremely disorganized. The transitions between ideas are unclear or nonexistent.

Required Format and Elements

The required format and all elements are included in the assignment. Some additional elements are included to enhance the assignment.

The required format and all elements are included in the assignment.

The format does not meet the assignment specifications, and one or two of the required elements are missing.

The format is completely different from the assignment specifications, and more than two elements are missing.

Labels and Titles

The labels and titles are concise and clearly fit the content.

The labels and titles are somewhat concise and fit the content.

The labels and titles are somewhat vague and do not fit the content.

The labels and titles are all confusing and do not fit the content.

Mechanics The assignment has no grammatical, spelling, or punctuation errors. All sentences are well constructed and vary in structure.

The assignment has few grammatical, spelling, or punctuation errors. Most sentences are well constructed, with some variation in sentence structure.

The assignment has some grammatical, spelling, or punctuation errors. Most sentences are well constructed, with little variation in sentence structure.

The assignment has many grammatical, spelling, or punctuation errors. Most sentences are poorly constructed.

Additional Comments:

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Key Vocabulary: Commercial Liability Insurance

Term Definition

compensatory damages/award

The amount of money given to a plaintiff in a lawsuit to cover actual physical damages to self or property, and/or medical expenses, or loss of wages due to injury or death.

comprehensive general liability (CGL)

A type of insurance that protects policyholders against third-party liability claims due to property or bodily loss or damage. It indemnifies both legal costs and awards, up to the agreed-upon limits.

directors and officers liability

A type of insurance that protects the directors and officers of a company or not-for-profit organization from legal claims due to financial losses caused to a company as a result of real or alleged improper management.

employers liability A type of insurance that protects policyholders against legal claims due to the work-related illness, injury, or death of an employee, as well as discrimination and sexual harassment lawsuits. This insurance usually supplements workers compensation insurance.

errors and omissions A type of insurance that protects policyholders from claims due to financial losses caused to a third party as a result of a mistake or poor advice given by the policyholder, its employees, or agents.

excess or umbrella coverage

A type of insurance that provides supplemental liability coverage, over and above liability protection covered by other policies, or covering hazards not covered by other policies.

pollution insurance A type of insurance that protects policyholders from legal claims due to damages caused by accidental discharge of pollutants.

product liability A type of insurance that protects policyholders from legal claims due to damages caused by faulty products, improper warning labels, or instructions.

punitive damages/award The amount of money given to a plaintiff in a lawsuit to cover non-physical damages such as mental anguish and suffering.




Bibliography: Commercial Liability InsuranceThe following sources were used in the preparation of this lesson and may be useful for your reference or as classroom resources. We check and update the URLs annually to ensure that they continue to be useful.

PrintHungelmann, Jack. Insurance for Dummies. Hoboken, NJ: Wiley, 2001.

Rubin, Harvey. Dictionary of Insurance Terms. Hauppauge, NY: Barron’s Educational Series, 2008.

Online“Ford Pinto.” Wikipedia, http://en.wikipedia.org/wiki/Ford_Pinto (accessed June 22, 2014).

“Frivolous Litigation.” Wikipedia, http://en.wikipedia.org/wiki/Frivolous_lawsuits (accessed June 22, 2014).

“Kivalina v. ExxonMobil Corporation.” Wikipedia, http://en.wikipedia.org/wiki/Kivalina_v._ExxonMobil_Corporation (accessed June 22, 2014).

“Liebeck v. McDonald’s Restaurants.” Wikipedia, http://en.wikipedia.org/wiki/Liebeck_v._McDonald%27s_Restaurants (accessed June 22, 2014).

“Product Liability Insurance.” About.com, http://businessinsure.about.com/od/liabilityinsurance/a/prodliains.htm (accessed June 22, 2014).

“10 Most Outrageous Frivolous Lawsuits.” MadConomist, http://madconomist.com/10-most-outragreous-frivolous-lawsuits (accessed June 22, 2014).


http://madconomist.com/10-most-outragreous-frivolous-lawsuits

http://madconomist.com/10-most-outragreous-frivolous-lawsuits

http://businessinsure.about.com/od/liabilityinsurance/a/prodliains.htm

http://en.wikipedia.org/wiki/Liebeck_v._McDonald's_Restaurants

http://en.wikipedia.org/wiki/Liebeck_v._McDonald's_Restaurants

http://en.wikipedia.org/wiki/Kivalina_v._ExxonMobil_Corporation

http://en.wikipedia.org/wiki/Frivolous_lawsuits

http://en.wikipedia.org/wiki/Ford_Pinto

Documents

Lesson 16 - curriculum.naf.orgcurriculum.naf.org/packaged/assets/downloads... · Web viewStella Liebeck, a 79-year-old woman from Albuquerque, New Mexico, sued McDonald’s for