Insuring Your Business Against Tort-Related Lawsuits
A tort is a civil wrong, other than a breach of contract, which causes harm to someone. The injured party can seek compensation for the injury by suing the wrongdoer. Businesses may be sued as a result of torts committed by employees, partners, executive officers and other company principles. This article will describe the types of torts that can lead to lawsuits against businesses. It will also explain the types of tort-related lawsuits that are typically covered by liability insurance.
Tort Versus Crime
A tort differs from a crime in a number of ways. First, a tort is a violation of civil law. It is committed against an individual. Responsibility is determined based on liability. A crime is an act against society. While the victim of a crime is often an individual, the act is a violation of a public law. Responsibility for a crime is determined based on guilt.
Secondly, torts and crimes result in different types of punishments. When a tort has been committed, the primary remedy is compensatory damages. In some cases, punitive damages may also be awarded. Punishment for a crime is based on the severity of the act. Depending on the nature of the crime, the perpetrator may be required to pay a fine, perform community service, pay restitution to the victim, or serve a prison sentence.
A third difference between torts and crimes is the burden of proof. To prove a person has committed a crime, the state must establish guilt beyond a reasonable doubt. In a civil case, the bar is considerably lower. The plaintiff need only prove that the defendant is liable based on a preponderance of the evidence. That is, the plaintiff must provide evidence demonstrating that it is more likely than not that the defendant is liable for the plaintiff's injury.
Some acts may constitute a tort and a crime. For example, assault and battery are torts. In many states, these acts also qualify as crimes.
Types of Torts
There are three basic types of torts:
- Intentional Torts
- Strict Liability
Many claims filed against businesses are based on allegations of negligence. Negligence means the failure to exercise care. The degree of care required depends on the situation and the relationship between the parties. Most situations require reasonable care. People are expected to behave as an ordinary person would act in a similar situation. For example, Bill, a sales employee of yours, is driving a company car to visit a client. Under common law, Bill is expected to drive with reasonable care, acting as an ordinary person would act in similar circumstances.
If Bill causes a rear-end collision by speeding and tailgating another car, a court may conclude that he was negligent and thus, liable for the accident.
The "reasonable person" standard doesn't apply to doctors, lawyers, architects, engineers and other professionals. Instead, these individuals are expected to act with the same level of skill as their peers in similar circumstances. Generally, a professional is deemed negligent if he or she has failed to exercise the care and skill ordinarily exercised by members of their profession performing professional services under similar circumstances. Standards of care for professionals can vary from state to state, and from profession to profession.
An intentional tort is an intentional act committed by one party that causes harm to another. The injury may be intentional or accidental. Some intentional torts, such as battery, result in physical injuries. Others cause non-physical injuries. Examples are slander, invasion of privacy, and malicious prosecution. These torts cause reputational or psychological harm rather than bodily injury. Some intentional torts may result in both physical and non-physical injuries. An example is false arrest.
Workplace torts are intentional torts that occur on the job. These torts are committed by employers or supervisors against employees. Here are some of them:
- Employment Discrimination
- Wrongful termination
- Wrongful demotion
- Wrongful failure to promote
- Wrongful deprivation of career opportunity
- Employment-related defamation
Strict liability means liability regardless of fault. Under strict liability, a person or company may be held responsible for an injury or damage even if that person or company was not negligent. Strict liability is often applied to activities that are inherently dangerous, such as blasting and the keeping of wild animals. It also applies to products distributed in the marketplace by manufacturers or vendors.
Requirements to Prove Liability
For a plaintiff to win a lawsuit for a tort (other than strict liability) committed by another, he or she must prove all of the following:
- The plaintiff had a legally protected right that the defendant had a duty to protect
- The defendant violated that duty
- The plaintiff was injured
- The plaintiff's injury was a direct result of the defendant's violation
For example, Jane is shopping at Happy Hardware. She is standing in an aisle looking at hammers when a large box tumbles off a shelf. The box hits Jane in the head, knocking her to the floor. Jane is injured and sues Happy Hardware for bodily injury. Her suit alleges that Happy Hardware had a duty to exercise reasonable care to protect Jane from dangerous conditions in the store. Happy Hardware violated that duty, and as a result of that violation, Jane was injured. Thus, Happy Hardware is liable for Jane's injury.
To win a lawsuit based on an intentional tort, the plaintiff must prove the four elements cited above and show that the defendant's act was intentional. Only the act must have been intentional. The injury that resulted may have been unintentional.
Most lawsuits based on strict liability involve products. To prove a manufacturer is strictly liable, the plaintiff need only show that the product was defective, and that the defective product caused the plaintiff's injury. The plaintiff need not prove that the manufacturer was negligent.
Many of the torts that generate lawsuits against businesses can be covered by liability insurance.
General Liability Insurance
A general liability policy covers claims based on negligence, strict liability and certain intentional torts. It covers claims against your company for bodily injury or property damage caused by an occurrence (an accidental event) that results from your negligence. The injury or damage may arise out of hazards on your premises or at a job site. Alternatively, it may arise from work you have completed, or a product you have made or sold. Claims arising from your products or completed work are covered whether they are based on allegations of negligence or on strict liability.
General liability policies include a coverage called Personal and Advertising Injury Liability. This coverage applies to claims arising from any of seven groups of intentional torts, called offenses in the policy. Examples of covered offenses are libel, malicious prosecution, and copyright infringement via an advertisement.
Umbrella Liability Insurance
Commercial umbrella policies afford similar but broader coverage than general liability policies. Like general liability policies, they cover claims based on negligence, strict liability, and certain intentional torts. Some umbrellas cover intentional torts that are not covered by a typical general liability policy. Examples are abuse of process and discrimination that is unrelated to employment.
Errors and Omissions Liability Insurance
Errors and omissions insurance covers injuries to others that result from a person's negligent acts or his or her failure to provide the level of service the claimant expected. It is also called professional liability insurance. E&O insurance was initially designed for "traditional" professionals like doctors and lawyers. Nowadays, it is important for any business that provides expert advice or services.
Employment Practices Liability Insurance
Workplace torts like discrimination and wrongful termination aren't covered under general liability or umbrella policies. They are also excluded under many E&O policies. Businesses can protect themselves against lawsuits based on workplace torts by purchasing employment practices liability insurance.