Page 42 - Insurance Times December 2015 SAMPLE

2) Origin of legal Liability
Liability arising from the following sources may be covered
by various insurance policies to provide protection to civil
wrong doers either individual or enterprise;
Common Law / Negligence,
Law of torts Nuisance,
Trespass etc
Legal
Liability-Civil
Statutory Law PLI Act, W C Act,
M V Act etc
i. Common Law / Law of tort gives a person the right to
claim damages for injury or loss sustained by him from
negligence, nuisance or trespass from the wrong doer. Tort
also includes libels and slanders, but they are not covered
by all liability policies, but by specific liability policy like CGL. to love your neighbour …who, then in law is my neighbour?
ii. Statutory Law brings liabilities to insure. For example
Public Liability Insurance Act 1991, The Motor Vehicles Act
1988, The W. C. Act 1923, etc are some of the important
enactments that necessitate purchase of Insurance policies
to meet our legal liabilities to third parties and employees.
iii. Breach of contract (not willful) giving rise to violation of
right created by an agreement enforceable at law.
No liability Insurance covers criminal liability. Please note
that Crime is a breach of public rights.Crime is subject to
prosecution by the State and punishable by fine and/or
imprisonment.
Tort is a civil wrong for which the remedy is a common law
of action for un-liquidated damage. The law of tort is a part
of common law implying some breach of duty usually - the
general duty that lies on all sections of society to take care
that no injury or damage is caused to other people. A
breach of contract is normally less frequent cause of claims
than the tort.
The breach of duty under common law is common for all
liability insurance while the liability from the breach of
contract is considered only in professional indemnity
insurance policy or errors and omission insurance policy. The
underwriter must understand the breach of contract and
tort properly before he underwrites liability risks through
any policy. Law of tort is basically a law of negligence being
the foundation of legal liability in most of the cases.
2.1; Negligence
As mentioned above, negligence is the most common form
38 The Insurance Times, December 2015
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of tort, which is found to be covered by all liability insurance
policies.Now question comes-What is negligence for which
action can be initiated against the negligent person?
Negligence is failure to exercise due care in a case where a
duty of care exists. Negligence may arise from any of the
following breaches of duty:
Negligence under common law
Every citizen under any common law has the duty to take
reasonable care or exercise reasonable skill so that his
action does not harm others. In Blyth V. Birmingham
Waterowrks Co. (1856) negligence has been defined as the
omission to do something which a reasonable man guided
by those considerations which ordinarily regulate the
conduct of human affairs would do, so or doing something
which a prudent reasonable man could not do.
Lord Atkin in a leading case namely Donoghue V.
Stevenson (1932) observed that "… the rule that you are
The answer seems to be persons who are so closely and
directly affected by my act that I ought reasonably to have
them in contemplation as being so affected when I am
directing my mind to the acts or omissions, which are called
in question"
Later on he in another case further emphasized "Every
person…is under Common law obligation to some persons
in some circumstances to conduct himself with reasonable
care so as not to injure those persons likely to be affected
by his want of care".
The above legal decisions have precisely described the
nature and extent of our liability arising from negligence
and breach of duty under common law. We all owe to others
for our activities in the society and thus liability insurance
policy to transfer our liability risks to others.
Negligence under contract
A breach of duty arising from the express or implied terms
contract to take reasonable care and skill in the
performance of the contract constitutes a negligence giving
rise to a right to the other party to bring action against
the negligent party.
Negligence under statute
A beach of common duty of care imposed by PLI Act 1991,
Sales of Goods Act, W.C. Act 1923, Companies Act or any
other specific enactments in vogue in India, SEBI
Regulations or any other regulations imposing specific duty
of care for others.