Also known as: liability insurances · liability coverage
Written by attorneys — see sources below.
A contract under which an insurer agrees to indemnify the insured against liability to third parties for losses arising from the insured's negligence or other covered conduct. The policy creates a third-party relationship in which the insurer pays damages owed by the insured to an injured claimant rather than compensating the insured directly for the insured's own losses.
Luna Lang, a citizen of State A, sues driver Leo Lynch after a collision. She brings a direct action against Loyal Insurance without joining Lynch as a defendant. Loyal Insurance is incorporated in State B with its principal place of business in State C. Under the governing rule the insurer is deemed a citizen of State A, the state of the insured, for purposes of determining complete diversity.
Lena Lawson suffers catastrophic injuries in a crash with Landon Long, whose policy with Loyal Insurance has a $50,000 limit. Loyal Insurance refuses a reasonable settlement demand within limits despite clear liability and risk of excess judgment. The insurer's failure to give equal consideration to the insured's interests exposes it to liability beyond policy limits for the resulting judgment.
Mr. and Mrs. Comunale were struck in a marked pedestrian crosswalk by a truck driven by Percy Sloan. Mr. Comunale was seriously injured, and his wife suffered minor injuries. Sloan was insured by defendant Traders and General Insurance Company under a policy that contained limits of liability in the sum of $10,000 for each person injured and $20,000 for each accident. Sloan notified Traders of the accident and was told that the policy did not provide coverage because he was driving a truck that did not belong to him. When the Comunales filed suit against Sloan, Traders refused to defend the action, and Sloan employed competent counsel to represent him. On the second day of the trial Sloan informed Traders that the Comunales would compromise the case for $4,000, that he did not have enough money to effect the settlement, and that it was highly probable the jury would return a verdict in excess of the policy limits. Traders refused, and the trial proceeded to judgment in favor of Mr. Comunale for $25,000 and Mrs. Comunale for $1,250. Sloan did not pay the judgment, and the Comunales sued Traders under a provision in the policy that permitted an injured party to maintain an action after obtaining judgment against the insured. In that suit judgment was rendered in favor of Mr. Comunale for $10,000 and in favor of Mrs. Comunale for $1,250. This judgment was satisfied by Traders after it was affirmed in Comunale v. Traders & General Ins. Co., 116 Cal.App.2d 198 [253 P.2d 495]. Comunale obtained an assignment of all of Sloan's rights against Traders and then commenced the present action to recover from Traders the portion of his judgment against Sloan which was in excess of the policy limits. The jury returned a verdict in Comunale's favor, but the trial court entered a judgment for Traders notwithstanding the verdict.
View caseLunar Dynamics manufactures a prescription drug later linked to unforeseen side effects. The company faces strict liability claims from injured users. The additional expense of maintaining liability insurance to cover potential judgments is weighed against the public benefit of continued drug availability when determining whether to impose liability.
Plaintiffs in these consolidated actions were exposed to the drug diethylstilbestrol, known as DES, while in utero after their mothers ingested the drug during pregnancy to prevent miscarriage. Because multiple manufacturers produced DES according to the same formula, the plaintiffs could not identify the specific manufacturer responsible for the particular DES taken by their mothers. The plaintiffs filed suit in the San Francisco Superior Court against numerous drug manufacturers, with typical complaints naming 170 or more defendants. These cases were designated as complex litigation, with pretrial rulings issued in a lead case numbered 830-109 that would apply to at least 69 related actions. The complaints alleged that the defendants manufactured DES from the same formula, that the drug was unsafe for use in preventing miscarriage, and that the manufacturers knew it contained a cancer-causing substance yet failed to provide warnings to users or their physicians. In addition to claims for negligence, the plaintiffs asserted causes of action for strict liability based on design defects in DES, as well as breach of express and implied warranty and fraud. Where they could not identify the specific manufacturer, the plaintiffs sought to hold liable those defendants who had manufactured a substantial share of the DES market. The trial court sustained demurrers to the strict liability design defect claims. It ruled that breach of warranty and fraud claims could not be pursued under the market share theory, while also determining that any liability would be several rather than joint. The Court of Appeal reviewed the trial court's pretrial rulings through writ proceedings and affirmed those determinations. The Supreme Court of California granted review to consider the questions presented by the litigation.
View caseSeveral states sue major liability insurers alleging a conspiracy to restrict coverage terms in commercial policies. The insurers move to dismiss on the ground that the challenged conduct occurred outside the United States. The court applies the effects test to determine whether the alleged restraint on the liability insurance market produces substantial effects within the United States.
In the late 1970s, ISO, an association of approximately 1,400 domestic property and casualty insurers that serves as the almost exclusive source of support services for CGL insurance in the United States, began revising its 1973 standard CGL policy form. The 1973 form provided occurrence-based coverage for sudden and accidental pollution and did not cap defense costs. Primary insurers including Hartford Fire Insurance Company, Allstate Insurance Company, Aetna Casualty and Surety Company, and CIGNA Corporation sought four changes: a shift to claims-made coverage with a retroactive date, elimination of pollution coverage, and a legal defense cost cap. After ISO proposed 1984 forms that omitted some of these changes, Hartford persuaded General Reinsurance Corporation, the largest American reinsurer, to procure the modifications or derail the program. The Reinsurance Association of America agreed to boycott the 1984 forms unless the changes were added, and domestic and London reinsurers informed ISO they would withhold reinsurance until the forms were altered. ISO then withdrew the 1984 forms and adopted 1986 forms containing a retroactive date and pollution exclusion; it later withdrew support services for the 1973 form. Separate agreements among London reinsurers required primary insurers to switch to claims-made policies and excluded pollution coverage from reinsurance contracts covering North American risks. Nineteen states and many private plaintiffs filed 36 complaints alleging that these actions violated section 1 of the Sherman Act. The cases were consolidated in the Northern District of California. The District Court granted motions to dismiss in 1989, holding the conduct fell within McCarran-Ferguson immunity and applying international comity to the foreign defendants. The Ninth Circuit reversed in 1991. The Supreme Court granted certiorari in 1992.
View caseEvidence that a person was or was not insured against liability is inadmissible to prove negligence or other wrongful conduct. The same evidence may be admitted when offered for another purpose such as proving agency, ownership, control, or witness bias.
In a direct action against a liability insurer to which the insured is not joined, the insurer is deemed a citizen of every state of which the insured is a citizen, every state in which the insurer is incorporated, and the state of the insurer's principal place of business.
The insurer must give the insured's interests at least as much consideration as its own when evaluating a settlement offer. Breach of this duty of good faith and fair dealing can expose the insurer to liability for any excess judgment.
…as follows: “The argument that industries producing potentially dangerous products should make good the harm, distribute it by liability insurance, and add the cost to the price of the product, encounters reason for pause, when we consider that two of the greatest medical boons to the human race, penicillin and cortisone, both have…