INS 21

Chapter 8: Loss Exposures

Objective of this Chapter

 Understand the types of Loss Exposures

• Property Loss Exposures
• Liability Loss Exposures
• Personnel Loss Exposures
• Net Income Loss Exposures

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Categorization of Loss Exposures

Loss Exposures

Property Liability Personnel Net Income

Assets Exposed to
Causes of
Financial Consequences of
Parties Affected by

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 Property Loss Exposures

Assets Exposed to Property Loss

 Buildings
 Personal property contained in buildings
 Money and securities
 Vehicles and watercraft
 Property in transit

Causes of Property Loss

What is the difference between Peril and Hazard?

 A cause of loss (or peril) is the actual means by which property is damaged or destroyed.
Examples include fire, collision, flood and theft are examples of peril that cause property loss.

 Hazard is anything that increases the likelihood of a loss or the possible severity of a loss.
Examples include careless smoking practices are fire hazard, keeping large amounts of
money in a cash register overnight is a theft hazard

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Property Loss Exposures

Financial Consequences of Property Loss

 
When property loss occurs, the property is reduced in value.
 If property can be repaired and restored, reduction in value can be measured by cost
of repair or restore
 If property is lost, stolen or disappears, its value is reduced as though it had been
destroyed

Parties Affected by Property Losses  

 Property owners
 Secured lenders of money to the property owner
 Property Holders

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Apply Your Knowledge

Sam rents retail space in a strip mall, in which he operates a florist shop.
His employees make deliveries with two vans owned by the shop. How
you analyze each of the three elements of the florist shop’s property loss
exposures?

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Basis For Legal Liability

Legal liability can arise based on torts, contracts and statutes, Before going to understand these
we need to know about legal foundations : general sources of law , the distinction between civil
and criminal law and the concept of damages.

Sources of Law

Civil Law
No
Constitution
Common
statutory
Contract
Criminal
Fault Auto
Law
Law
Law
Law

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Basis For Legal Liability(Contd.)

Criminal Law versus Civil Law

Criminal Law - is the category of law that applies to wrongful acts that society deems so
harmful to the public welfare that government takes the responsibility for prosecuting and
punishing the wrongdoers.
  Crimes are punishable by fines, imprisonment, or, in some states, even death.
Civil Law - is the category of law that deals with the rights and responsibilities of citizens with
respect to one another. Civil law applies to legal matters not governed by criminal law.

  Civil law protects personal and property rights .

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Basis For Legal Liability(Contd.)

An act can have both criminal and civil law consequences.

For Example:
Carole was returning from a business trip when her car was broadsided
by another vehicle. Beyond the damages to her car, her injuries required
medical care costing thousands of dollars, and she missed two weeks of
work. Following the accident investigation, the other driver was
criminally charged and convicted of driving while intoxicated. Carole’s
auto insurer paid most of her medical and auto physical damage bills.
However, she also brought a civil suit against the other driver for her lost
wages. Based on the merits of the case, the jury decided in her favor,
and the court ordered the other driver to pay an amount to the income
she had lost

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Basis For Legal Liability(Contd.)

Damages :
Compensatory Damages - Compensatory damages are intended to compensate the victim
for the harm actually suffered. These include special and general damages

Punitive Damages – are damages awarded by a court to punish wrong doers who, through
malicious or outrageous actions, cause injury damage to others.

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Basis For Legal Liability(Contd.)

A legal right of recovery can be based on

Torts Contracts Statutes

Liability
Workers
Intentional Strict Assumed Breach of No- Fault
Negligence Compensat
Torts Liability Under Warranty Auto Laws
ion Laws
Contract

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Basis For Legal Liability(Contd.)
Torts :
Negligence
A liability judgment based on negligence requires proof of four elements:
• The defendant owed a legal duty of care to the plaintiff
• The defendant breached the duty of care owed to plaintiff
• The defendant’s negligent act was the proximate cause of the plaintiff’s injury or damage
• The plaintiff suffered actual injury or damage
Intentional Torts
• Assault – the intentional threat of bodily harm
• Battery – the unlawful physical contact with another person
• Libel – a written or printed untrue statement that damages a person’s reputation
• Slander – an oral untrue statement that damages a person’s reputation
• Defamation – includes both slander and libel
• False arrest – an unlawful physical restraint of another’s freedom
• Invasion of privacy – an encroachment on another person’s right to be left alone

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Basis For Legal Liability(Contd.)

Strict Liability
This is a legal liability arising from inherently dangerous activities or dangerously defective
products that result in injury or harm to another, regardless of how much care was used in
the activity
Contracts :
A contract is a legally enforceable agreement between two or more parties. Two areas of
contract law are liability assumed under contract and breach of warranty
Statutes :
Examples of this kind of statutory liability involve no-fault auto laws and workers
compensation laws

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Liability Loss Exposures

Assets Exposed to Liability Loss

The assets can be anything of value an individual or organization owns.

Example buildings, automobiles and furniture.

Causes of Liability Loss

• Autos, watercraft and other vehicles
• Premises
• Personal activities
• Business operations
• Completed operations
• Products
• Advertising
• Pollution
• Liquor
• Professional activities

Financial Consequences of Liability Loss

For a person or an organization that has been held liable for injury or damage, the financial
consequences can be the payment of damages, payment of defense costs and damage to the
person’s or organization’s reputation.

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Apply Your Knowledge

Robert and Lilly are married and own a home with a pool in the
backyard. Robert frequently goes hunting for sport. James, their son,
plays little league base ball. Their daughter, Sally, plays soccer on a
team in an organized league. Lilly frequently drives sally and several of
her teammates to and from games. Lilly also serves on the local YMCA
board. Describe the family’s liability loss exposure in terms of these
three elements?

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Personnel Loss Exposures

Assets Exposed to Personnel Loss

Personnel loss exposures can include several categories of key personnel :

• Individual employees
• Owners, officers and managers
• Groups of employees

Causes of Personnel Loss

• Death
• Disability
• Resignation , layoffs and firing
• Retirement
• Kidnapping

Financial Consequences of Personnel Losses

• Loss of the value the employee contributed to the organization
• Replacement costs
• Losses to the organization’s value caused by negative publicity
• Losses caused by low morale , such as reduced productivity and increased illness.

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Apply Your Knowledge

Robert and Susan are employees of the same real estate agency.
Robert has been with the agency for thirty years and plans to retire next
month. He has an excellent reputation and almost more referral
business than he can service. Susan has been with the agency for a
year and is considering a job offer from another agency. She is a hard
worker but is still learning how to best serve her clients and has few
referrals. Robert and Susan were travelling to a sales convention in
Susan's car when they were broadsided by a driver who failed to stop at
a red signal. Both Robert and Susan were injured and taken to a
hospital. The doctors estimate both Robert and Susan will be totally
disabled for four months. Describe the agency’s personnel loss
exposures in terms of the 3 elements of personnel loss exposures?

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Net Income Loss Exposures
Assets Exposed to Net Income Loss

The asset exposed to loss in a net income loss exposure is the future stream of net income of
the individual or organization.

The future stream of net income=revenues – (expenses and income taxes in a given time
period)

Causes of Net Income Loss

• Property Loss
• Liability Loss
• Personnel Loss
• Business Risks

Financial Consequences of Net Income Losses

The financial consequences of a net income loss are a reduction in revenues, an increase in
expenses or a combination of the two.

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Apply Your Knowledge

Sally is a single parent of two boys. She owns the house they live in and
rents an apartment above their garage to a young married couple. The
rent pays half of the sally’s monthly mortgage payment. The rest of
sally’s income comes from her job as a reporter for a newspaper whose
advertising income has been declining for years. Describe a significant
net income loss exposure, based on the facts presented, that could
result from each of the following: a property loss, a liability loss and a
personnel loss.

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Thank You !!

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