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How to Insure Your Income: The Legal Theory

When you violate society's law, you have commited a crime. When you violate the rights of another person, you have created a tort. The person committing a tort is known as the tortfeasor.

It is important to note that liability insurance applies only to the financial consequences of torts. You cannot buy liability insurance to protect against the consequences of crimes.

The majority of personal liability cases involve unintentional torts. The basis for unintentional torts is usually negligence, so we had better have a working definition of negligence. In order for negligence to exist, four elements must be present:

  • Duty to act. The duty to act in a reasonably prudent manner toward another (such as driving your car safely down the street in a manner that avoids hitting other cars or pedestrians).
  • Breach of the duty to act. The tortfeasor does not act in the prudent manner described above.
  • Occurrence of injury or damage. Another party actually suffers injury or damage.
  • Negligence is the proximate cause of the injury or damage. The tortfeasor's breach of duty is actually what caused the injury or damage.

If any of these elements is absent from an event, negligence doesn't exist. Usually. But when the elements are present, the injured party usually has a valid claim for damages based on negligence.

Damages is an important term to understand in any discussion of liability. When someone is held liable for injury or property damage to another, that person can be required to pay compensation to the injured parties. For these types of claims, we need to be concerned with two broad types of damages:

  • Compensatory damages -- which simply means compensation for the loss incurred. These may include specific damages (the documentable, actual expenses incurred by the injured party, such as medical bills, wages lost and property replacement), and general damages (monetary awards for more subjective, less quantifiable aspects of the loss, such as pain and suffering, or loss of consortium).
  • Punitive damages -- these are damages that the court can compel the tortfeasor to pay, in addition to the compensatory damages awarded. Punitive damages represent a fine, or punishment for outrageous, severe or intentional conduct by the tortfeasor.
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