A risk is confronting almost every person or business is that of behaviour that could result in another person’s injury or property damage.

Let’s consider the definition of business and risk;

Business is the activity of making one’s living or making money by producing, manufacturing, selling and providing various services to the perspective buyers.

Business Dictionary Defines; An organisation or economy system where goods or services are exchanged for another or for money.  

Business Risk (Investopedia); is exposure of a company or organisation to external factor(s) that will lower its profit or lead to fail. Anything that threatens ability of a company to meet its target or financial goal is called business risk.

Personal Risk is everything that exposes you towards loosing of something in value.

The basis of risk is the liability imposed by law on one responsible for injury or damage to other people or their property.

There is no formula for estimating the amount of risk in advance, it may be in few rupees or in crores.

Insurance has played important role in mitigating effect of risk in business as well as personal live of organisation and individuals.

The applicable laws impose liability on individuals or organisations, who causes injury or damages to others due to negligence and their behaviour.

The risk generated due to Criminal and Tortious behaviour of person or organisation. 

CRIMINAL AND TORTIOUS BEHAVIOUR;

A person can commit two variety of wrongs;

1. Private Wrong;

2. Public Wrong;

PRIVATE WRONG; is infringement of rights of another individuals. A private wrong is called “tort” and person who commits wrong is called “tort feasor”. Commission of a tort may give the person whose rights were violated a right of action for damages against tortfeasor. Such action is called CIVIL ACTION. 

There are two types of tort;  

1. Intentional Tort;

2. Unintentional tort.

INTENTIONAL TORT; includes such infringement on the rights of others as assault and battery, libel, slender false arrest and imprisonment, trespass or invasion of privacy. The person who suffers injury as a result of these intentional torts has right to sue for damages.

UNINTENTIONAL TORT; results from negligence or carelessness. In these cases, the injured party may be entitled to damages in a civil action even though the tortfeasor has not malicious intention of making damage or injury as in Intentional Torts.

The liability insurance generally not cover legal penalties resulting from criminal behaviour or intentional torts. It is considered against public policy to protect an individual to protect him against consequences of legal liability he incurred due to his intentional act. Although the insurance is available to protect against loss or damage resulting from intentional injury he or she inflicts. Although insurance is available to protect against loss resulting from some intentional torts, most liability policies exclude injury or damage deliberately or at the direction of insured.

LIABILITY INSURANCE IS CONCERNED PRIMARILY WITH UNINTENTIONAL TORTS OR LOSSES ARISING FROM NEGLIGENCE. 

NEGLIGENCE AND LIABILITY;

Negligence is one of many causes to determine Legal Liability and it is the most important and most significant one.

The doctrine of “Law of Negligence” is found in various laws, but it is generally dealt in “Common Law”.

The basic principal of Common Law: is that most people have an obligation to behave a reasonable and prudent individual would.

Any failure of behaviour in this manner constitutes negligence, and if this negligence leads to an injury of another, or to damage of another’s’ property, the negligent party may be held liable or the damage. The Legal Lability may be imposed by the courts if following conditions are fulfilled;

1. There was negligence;

2. There was actual damage or loss;

  • The negligence was proximate cause of the damage or loss. 

Lets’ us discuss conditions;

There was negligence; the basic principal of an Indian law is that unless a party is at fault, meaning he or she has unreasonably and unlawfully invaded the rights of another, he or she is not liable. The basic question in all Legal Lability cases is that is there is “Negligence”. 

“Negligence” defines as a person’s failure to exercise proper degree of care required by the circumstances. 

To be held legally negligent, it must be established the individual has a duty to act and he or she failed to act or acted incorrectly. The duty of act if the first prerequisites. 

SOME PERSON OR ORGANISATION ARE EXEMPTED;

1. INFANTS; to be duty bound to behave as a prudent individual, the person should be capable of determining what is reasonable or not. The person must have reached at the age of reason. The children who have attained the age of reason shall be held liable, but a degree of care demanded for them.

2. MENTALLY INCOMPETENT; a mentally incompetent person is same like an infant and he or she has no wisdom to behave just like prudent person as common law required. They are not competent to behave just like another person according to law.

3. GOVERNMENT BODIES; as we know sovereign powers can be sued only with their permission. Any government unit that shares in sovereignty is immune from liability unless it is engaging in propriety functions. The immunities do not extend to the employees of government bodies, if their behaviour is against public policies, they the government unit will be held liable for acts of its employees.

4. CHARITABLE INSTITUTION; the liability exposure of a charitable institution and other institution is different. But in many cases the court has given decision against charitable institutions.

5. WHAT CONSTITUTES NEGLIGENCE; we have discussed earlier, what constitutes a negligence, a negligence is defined as failure of a person to exercise the proper degree of care required by the circumstances. As a rule, the duty to exercise care is owed to anyone who might suffer injuries as a result of person’s breach of duty even if the negligent party could not have foreseen a risk harm to someone because of behaviour.

The courts generally applied “Prudent Man Rule”, to determine act of negligence. The Prudent Man Rule, seeks to ascertain what would have a been a reasonable course of action under the circumstances. The negligent person is entitled to have his or her actions judged by this “Prudent Man Standard” rather than hindsight. The action must be judged by what a reasonable and prudent person, confronted with the same situation might normally and properly have done.

Generally, the burden to prove negligence is on the injured, but there are certain doctrines, which shifts the burden of proof on the defendant.

1. Negligence per se; – in some cases the Government has predetermined, the care a person should take to act by the statutes. Let’s consider that Government has fixed the speed limit on highways and if a person breaches the limit and inflict an accident, then he or she has violated the law of land and it is referred to as “negligence per se”.

2. Absolute Liability: – under certain circumstances liability may be imposed because “accident happen” and it is imposed whether anyone was at fault. In such cases we have application of the rule of “absolute liability”. The injured party will be awarded for damages even though what other person was doing or the manner in which it was not legally done. One example of absolute liability is the employment related injuries. The second example is handling with hazardous substances. When you are dealing with hazardous substance and you know that any leakage or prefiltration may cause serious damages or injuries to your neighbourhood. Then it is your duty to act with care and as prudent person.

3. Res Ipsa Loquitur; – this means that “the things speak itself” and is concerned with circumstances and accidents that afford reasonable evidence, in the absence of some specific explanation, that negligence existed. The accident is of a type that normally does not occur without someone’s negligence, and the doctrine recognises the persuasive force of a particular kind of circumstantial evidence. When the instrumentality of the loss is under control of the defendant and damage occurred due to negligence on the part of defendant, then burden of proof shits to the defendant.

4. There must be Damage or Loss; the damage or loss must be suffered by the person seeking recovery. There may be two types of injury or damage one damage to property and second injury to body. In case of property damage, we can determine the amount or estimate the amount of damage. But it is very difficult to determine or estimate bodily injury.

Three Classes of damages may be awarded;

1. Special Damages; are designed to compensate for measurable losses, such as medical expenses and lost income caused by the injury;

2. General Damages; compensate the injured party for intangible losses, such as pain and suffering, disfigurement, mental anguish, and loss of consortium. Determination of the amount that should be awarded for these damages is subjective.

3. Punitive Damages; amount assessed against the negligent party as a punishment when injury resulted from gross negligence or wilful intent. they are intended as punishment and to deter others from similar behaviour in the future.

4. Negligence Must Be the Proximate Cause of the Damage; it means that there must be unbroken chain of events beginning with negligence and leading to the injury or damage. The negligence must have been the cause without which the accident would not happen.

The negligent person is usually held to be responsible for the direct consequences of his or he action and for the consequences that follow naturally and directly from the negligent conduct.  If intervening forces arises, the negligent party must be held liable for the damage.

Example: Lets’ consider Mr. A is burning a pile of dry leaves at his garden, without taking necessary precautions and during the act, a strong wind (intervening force) blow and due to this fire spread to the adjacent godown of Mr. B, damaging his stocks kept there. Mr. A shall be held liable for his negligence to compensate Mr. B for his damages. 

Note: We shall consider in our next article, various other aspects of Liability Insurance and some defences available to negligence.

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Company: SBI GENERAL INSURANCE COMPANY LIMITED
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