Casualty and Liability Insurance
Casualty insurance is the half of property and casualty that pays when an insured is held legally responsible for injuring another person or damaging another party's property. Where property insurance answers 'what did I lose?', casualty insurance answers 'what do I owe?'. This chapter develops the legal foundation of negligence and the principal commercial liability products built on top of it: the Commercial General Liability (CGL) policy, professional liability, directors and officers coverage, employment practices liability, cyber, umbrella, and California-specific liability statutes. About one in ten exam questions comes from this material, and the concepts here also flow into Auto, Homeowners, and Workers' Compensation chapters.
The Four Elements of Negligence
Liability insurance exists because the common law makes people pay for the foreseeable harm they cause through carelessness. To win a negligence case the plaintiff must prove four elements by a preponderance of the evidence. The first element is DUTY: the defendant owed the plaintiff a legal obligation to use the care a reasonable person would have used under the same circumstances. The second is BREACH: the defendant failed to meet that standard of care. The third is PROXIMATE CAUSE (also called legal cause): the breach was a substantial factor in bringing about an injury that was a reasonably foreseeable result. The fourth is DAMAGES: the plaintiff suffered actual harm that money can measure (medical bills, lost wages, property repair, pain and suffering). Missing any one of these four elements defeats the claim, which is why insurers train adjusters to investigate each element separately before reserving a file.
Defenses to Negligence: California's Pure Comparative Rule
Once the plaintiff makes a prima facie case, the defendant can argue defenses that reduce or eliminate the recovery. Historically, CONTRIBUTORY NEGLIGENCE was a complete bar: any fault by the plaintiff defeated the case entirely. Only a few jurisdictions still follow that harsh rule. California abandoned contributory negligence in 1975 in Li v. Yellow Cab Co. and adopted PURE COMPARATIVE NEGLIGENCE: the plaintiff's recovery is reduced by his or her own percentage of fault, but recovery is allowed even when the plaintiff is 99% at fault. Many other states use MODIFIED comparative negligence, which bars recovery once the plaintiff reaches 50% or 51% fault, but California is more generous to plaintiffs. ASSUMPTION OF RISK is a separate defense; under Knight v. Jewett, primary assumption of risk completely bars suits over risks inherent in a voluntary activity (the spectator hit by a foul ball, the skier injured by an uneven slope).
Vicarious Liability, Joint and Several, and Proposition 51
Liability law often makes one party answer for the wrongs of another. VICARIOUS LIABILITY under the doctrine of RESPONDEAT SUPERIOR makes employers liable for the negligent acts of employees committed within the course and scope of employment, even though the employer did nothing wrong personally. The classic example is the delivery driver who rear-ends another car while making the route; the employer is jointly liable. JOINT AND SEVERAL LIABILITY allowed an injured plaintiff to recover the entire judgment from any one of several defendants, who would then have to sort out contributions among themselves. In 1986 California voters passed Proposition 51, codified at Civil Code §1431.2, which MODIFIED that rule: defendants remain jointly liable for ECONOMIC damages (medical bills, lost wages, property loss) but are only SEVERALLY liable for NON-ECONOMIC damages (pain and suffering) in proportion to their share of fault. A 10%-at-fault defendant therefore pays 100% of economic damages but only 10% of pain-and-suffering damages, no matter how insolvent the other defendants may be.
Tort vs. Contract Liability and Intentional Torts
Civil liability comes from two main sources. TORT LIABILITY arises from the breach of a duty IMPOSED BY LAW for the protection of others, such as the duty to drive with reasonable care or to keep your store reasonably free of slip hazards. CONTRACT LIABILITY arises from a duty the parties VOLUNTARILY UNDERTOOK by agreement, such as a contractor's promise to build a deck to specifications. The same facts may sometimes give rise to both: a doctor who botches a surgery may have breached both a tort duty of reasonable care and a contract duty to perform the agreed procedure. Within tort law, lawyers distinguish NEGLIGENT acts (carelessness) from INTENTIONAL TORTS such as battery, assault, false imprisonment, defamation, and trespass, where the defendant meant to do the act that caused harm. Liability policies treat these categories very differently; the standard CGL excludes intentional bodily injury, while a separate Coverage B sublimits certain intentional but non-bodily wrongs.
The Commercial General Liability (CGL) Policy: Coverages A, B, and C
The CGL is the workhorse of commercial liability. The standard ISO form CG 00 01 contains THREE separate insuring agreements. COVERAGE A pays sums the insured becomes legally obligated to pay as damages because of BODILY INJURY OR PROPERTY DAMAGE caused by an OCCURRENCE during the policy period within the coverage territory; this is what most people think of as 'liability' coverage. COVERAGE B pays for PERSONAL AND ADVERTISING INJURY, which is a defined list of intentional but non-bodily wrongs: false arrest, malicious prosecution, wrongful eviction, libel and slander, violation of right of privacy, and infringement of copyright, slogan, or title in the named insured's advertisement. COVERAGE C is MEDICAL PAYMENTS, a small no-fault coverage that pays reasonable medical expenses for accidental bodily injury on the insured's premises, regardless of legal liability. Coverage A is the largest and most heavily litigated portion of the policy and has its own list of exclusions, including expected or intended injury, contractual liability assumed beyond an 'insured contract,' liquor liability for those in the alcohol business, workers' compensation injuries, pollution, and auto/aircraft/watercraft.
Occurrence vs. Claims-Made Triggers, and the Tail
Liability policies use one of two triggers to decide which year's policy responds. An OCCURRENCE policy is triggered by the date the bodily injury or property damage actually OCCURS during the policy period, no matter how many years later the claim is reported. This is the standard trigger for CGL Coverage A. A CLAIMS-MADE policy is triggered when the claim is first MADE against the insured AND reported to the insurer during the policy period, provided the injury occurred on or after the policy's RETROACTIVE DATE. Claims-made is common for professional liability (lawyers, doctors, accountants, real estate agents) and for D&O policies because the long lag between act and lawsuit makes occurrence pricing unworkable. When a claims-made policy ends, the insured loses the right to report future claims unless the insured buys an EXTENDED REPORTING PERIOD (ERP), often called a 'tail'. A short basic ERP is included automatically, but a longer supplemental ERP (typically 1–6 years or unlimited) must be purchased for an extra premium.
Limits: Per Occurrence, Per Person, and Aggregates
CGL limits are stacked in layers. The EACH OCCURRENCE LIMIT caps what the insurer will pay for any single occurrence under Coverages A and C combined. The PERSONAL AND ADVERTISING INJURY LIMIT caps what the insurer will pay for any one person or organization under Coverage B. The MEDICAL EXPENSE LIMIT under Coverage C is a separate small per-person sublimit (commonly $5,000 or $10,000). On top of these per-occurrence limits sit two AGGREGATE LIMITS that cap the TOTAL paid during the policy period: the PRODUCTS-COMPLETED OPERATIONS AGGREGATE applies only to losses arising from products or completed work, while the GENERAL AGGREGATE applies to everything else (premises and operations Coverage A losses, plus Coverages B and C). The DAMAGE TO PREMISES RENTED TO YOU sublimit (formerly fire legal liability) provides limited coverage for premises the insured rents. When an aggregate is exhausted by paid claims, no further coverage is available for the rest of the policy period.
Premises, Operations, Products, and Completed Operations Hazards
Within Coverage A the policy divides exposures by where and when the loss arises. PREMISES AND OPERATIONS LIABILITY covers injuries that happen at the insured's place of business (a customer slipping in the aisle) or during the insured's ongoing work at a job site (a painter knocking a ladder onto a passerby). PRODUCTS LIABILITY covers injuries caused by products the insured manufactured or sold after they leave the insured's premises and are in the customer's hands. COMPLETED OPERATIONS LIABILITY covers injuries caused by the insured's work AFTER the work is finished and the insured has left the site, such as a deck that collapses two months after completion. Premises/operations falls under the general aggregate, while products and completed operations share their own separate aggregate, recognizing that those exposures continue long after a policy year ends. Many insureds buy both because products and completed operations claims tend to be severe and slow to surface.
Professional Liability (E&O), D&O, EPLI, and Cyber
Standard CGL Coverage A excludes liability for the rendering of professional services, so professionals need a separate PROFESSIONAL LIABILITY policy, often called ERRORS AND OMISSIONS (E&O). Real estate agents, insurance producers, lawyers, accountants, architects, IT consultants, and doctors (medical malpractice is a form of professional liability) all carry E&O. These policies are usually CLAIMS-MADE and exclude intentional wrongdoing. DIRECTORS AND OFFICERS (D&O) LIABILITY protects corporate directors and officers personally from claims of mismanagement, breach of fiduciary duty, and misleading disclosures brought by shareholders, creditors, regulators, or competitors. EMPLOYMENT PRACTICES LIABILITY INSURANCE (EPLI) covers wrongful employment acts: sexual or other harassment, discrimination based on protected class, wrongful termination, retaliation, and failure to promote. CYBER LIABILITY (sometimes 'cyber and privacy') covers data breach response costs (forensic investigation, customer notification under Cal. Civ. Code §1798.82, credit monitoring), ransomware payments, business interruption from a cyber event, and third-party suits over leaked personal information; modern CGL forms exclude data-breach liability so a stand-alone cyber policy is essential for any business that holds personal data.
Umbrella, Excess, Dram Shop, and California-Specific Liability Statutes
Most insureds want limits well above what a single primary policy provides. A COMMERCIAL UMBRELLA policy sits over the CGL, business auto, and employer's liability policies and provides two benefits: extra LIMITS in excess of the underlying, and BROADER COVERAGE that can 'drop down' to act as primary for some perils the underlying excludes (subject to a self-insured retention). A true EXCESS LIABILITY policy is narrower: it 'follows form,' meaning it covers only what the underlying covers and simply adds higher limits on top. LIQUOR LIABILITY (sometimes called DRAM SHOP) is separately needed by bars, restaurants, and other alcohol licensees because the standard CGL excludes liability for those 'in the business' of selling alcohol; California Business and Professions Code §25602.1 allows civil suits against licensees who serve obviously intoxicated minors. Two California liability statutes worth memorizing are INSURANCE CODE §11580, which requires every California liability policy to allow a third-party judgment creditor to bring a DIRECT ACTION against the insurer once the insured-debtor's liability is fixed and the insured is insolvent, and the STATUTES OF LIMITATIONS in the Code of Civil Procedure: 2 years for personal injury and wrongful death (§335.1), 4 years for written contracts (§337), and 2 years for oral contracts (§339). Missing these deadlines means even the best claim is forever barred.
Last updated: May 2026