A layman’s definition: A dictionary offers “answerable” and “responsible” as synonyms for the word liable. So being liable means being responsible for one’s actions – particularly when those actions cause harm to the another person.
Accidental or deliberate? Tom is angry at Dick and punches Dick in the nose; Tom is “answerable” to Dick for that deliberate act. While driving to the hospital to get his nose fixed, the car in front of Dick slows abruptly and Dick avoids a collision by changing lanes. Dick failed to see Harry’s car in the lane he changed into. Dick is “responsible” for the dent he unintentionally put in Harry’s new car. In the pure sense of liability, it makes no difference whether an act is deliberate or accidental. However in the sense of liability insurance, we may find that it does. Read on.
The events we’ve just read also illustrate two forms of liability; i.e., two kinds of damage that might be suffered by another person – property damage and bodily injury.
Property Damage Fortunately, Harry was not injured in the automobile accident; nevertheless his property (i.e., his car) was damaged – and also Harry’s suit, which was badly stained by the coffee that spilled on it when Dick’s car met Harry’s car. All of Harry’s damages were to “property,” which meant they could be quantified (in “dollars and cents”), and by fixing those things that were damaged, Harry could be made whole again. Fix the dent, paint the car, rent Harry a car to drive in the meantime, and pay Harry for cleaning or replacing the suit.
Bodily Injury Tom’s act of deliberately and forcefully extending his arm with his hand in the shape of a fist caused physical damage to Dick’s “body;” i.e., Dick was physically harmed. A judge would tell Tom that he would have to pay for Dick’s trip to the hospital and his medical bills. He might also tell Tom that he was responsible for Dick’s time off work as well as the pain and suffering Dick subsequently endured as a result of the altercation.
Physical damage can also go beyond pure bodily injury to include emotional and psychological damage, such as trauma and fear. For example, a child might be left with an irrational fear of animals after being attacked by a dog. Or a customer might be emotionally traumatized as a result of being present during a jewelry store robbery.
Insuring Liability Where does one find liability insurance? Almost every person has some form of it. Three common sources are 1) a homeowner insurance policy – or similar form such as a renter’s or condo-owner’s policy; 2) an automobile insurance policy; and 3) business insurance policies (for exposures related specifically to a business).
Liability insurance is insurance that covers the negligent acts of a person (or business, which we’ll get to later). A negligent act is generally understood to be one which is unintentional, or leads to unintended results.
Tom punched Dick in the nose. When Dick sued Tom for compensation for the “bodily injury” he suffered (called “battery”), Tom turned to his home insurance company for protection under the Liability section of the policy.
Was property damage or bodily injury caused to a person (other than the “insured” of the policy)? Yes; Dick suffered a broken nose – bodily injury.
Was the damage the result of the negligent act of the insured? Uh oh; problem here. Tom was angry at Dick; the punch was a deliberate act. He clearly intended to hit Dick – hardly an act of negligence. The insurance company told Tom that he was on his own with regard to the lawsuit filed by Dick.
Tom to Dick: “Sorry Dick, my liability insurance policy doesn’t cover this; so that means I’m not liable for your physical damages.”
Judge to Tom: “Wrong, Tom! The fact that your insurance policy doesn’t cover the loss does not change the fact that you are liable for the damages. Pay Dick!”
Was the insurance company declaring that their insured, Tom, was not responsible to Dick for the act? Not at all. The insurer was simply stating that the insurance policy covers the results of negligent acts and this was not a negligent act; therefore not covered by the policy.
So what about Dick and Harry? “Harry, I didn’t intend to hit your car – it was an accident! So let’s just forget about it, OK?”
Anyone who drives knows how far that sort of logic will carry. But the very fact of the crash being unintended means that Dick’s automobile insurance policy (the liability part) will cover the damages – even to Harry’s suit.
But let’s change the scenario a bit. Dick was so upset by what happened to him that he jumped into his car and drove to the hospital in a rage. Dick thought that Harry had cut him off in traffic and thought, “I’ll show him!” and deliberately rammed Harry’s car. Would Dick be liable for the damages? No doubt about it. Would Dick’s auto insurance policy cover the incident? No way; open your wallet, Dick! It was an intentional act.
So, taking the liability issue into the business world – how can a jewelry business incur liability? As Shakespeare’s love-infected Romeo said, “Let me count the ways . . .” – but there isn’t enough time or ink here. Any time that a business deals with the public there is liability exposure – from the proverbial “trip and fall” incident to issues related to products or services. There are also exposures from other businesses – such as unfair advertising and copyright infringement; between landlords and tenants; and between employers and employees.
The first question that an insurance company looks at: are there damages that fall under the heading of either “bodily injury” or “property damage?” If yes, then the next question is, are the damages the result of negligence on the part of the insured?
If the person fell in the store because she wasn’t looking where she was going, or the heel of her shoe collapsed; where would the store owner have been negligent? However if “not looking where she was going” really meant that the customer tripped over a vacuum cleaner that was left out, or walked over a vase that was inappropriately placed, then there would probably be jeweler negligence.
A customer backed his car into a brightly colored and clearly visible pole in the jeweler’s parking lot – and demanded the jeweler (or his insurance carrier) pay for the damage to his vehicle. He erroneously claimed that “because it happened on the jeweler’s property, the jeweler was ‘automatically’ at fault” [real case]. Wrong assumption.
First question: was there bodily injury or property damage? Yes. Was it the result of negligence? Well, yes – but it wasn’t the jeweler’s negligence – it was the customer’s. The jeweler wasn’t liable for the damage.
A bit of an extension on the negligence issue: A strong wind causes a jeweler’s sign to fly off the building and land on a person’s car. Negligence? or act of God?
[As an insurance agent, I’ve often heard people make references of coverage based on “act of God;” and surprisingly I’ve heard it both ways. “That wouldn’t be covered because it’s an ‘act of God;’” and also, “sure, that’s covered – it’s an ‘act of God’ and insurance always covers ‘acts of God.’” The fact is that neither is correct. Not that insurance policies are atheistic, but “act of God” is not an insurance term – neither a coverage, nor an exclusion.]
So that leaves us with whether the sign blowing off was the result of negligence on the part of the store owner. Chances are that the answer would be yes, and also that the jeweler’s liability insurance would cover the loss (the good news). It could be argued that no matter how securely the sign was fastened, it wasn’t fastened securely enough to withstand the wind – it could have been mounted better.
Other kinds of liability coverage
Breakage on the bench (“workmanship” issues) – a perilous area for a jeweler. Damage might be caused by the slip of a tool, or simply by the nature of the item being worked on (an internal and invisible flaw, for example). It is a basic tenet of liability insurance that it does not cover damage to something that is in the direct care, custody, and control of the insured. A diamond ring on the bench or between a jeweler’s fingers is in the jeweler’s “care, custody, and control” and thus liability insurance would not cover a loss that occurs, whether by negligence or otherwise.
But because this is a special need of the insurance industry, some insurance carriers that specialize in insuring jewelers do offer a limited waiver of the care, custody, and control exclusion in the case of jeweler’s bench damage. Thus a limited amount of coverage may be available for an additional premium. Because of the “natural” characteristics of jewelry and gemstones, and the fact that an “oops!” can happen to anyone, it is generally advisable to purchase whatever coverage might be available.
For more in-depth information pertaining to liability insurance, always refer to the Liability section of your own insurance policies – you might be surprised at what is and is not covered. For insurance questions specifically related to a jewelry business – seek out an insurance professional who specializes in insurance for the jewelry industry (i.e., ten or more jewelers as customers).
In a future issue: Commercial Umbrella Liability – the extra layer of coverage.
Bob Carroll is a Certified Insurance Counselor with Robert G. Carroll and Associates, and has specialized in insurance for the jewelry industry for thirty years – representing Jewelers Mutual and other carriers in Arkansas, Oklahoma, Mississippi, and Tennessee. “Insurance isn’t just what we do, it’s all we do.” E-mail Bob at firstname.lastname@example.org.