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Chapter 5

Chapter 5 – Negligence, Professional Liability, and Insurance

Business Administration
Course Code
BUS 393
Richard Yates

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Chapter 5 – Negligence, Professional Liability, and Insurance
See Table 5.1 on p. 127 (Negligence: The Required Ingredients)
Negligence: It’s A, B, C, and D
Negligence – inadvertent or unintentionally careless conduct causing injury or
damage; failure to live up to a duty to be careful to someone else
A: A Duty to Exercise Care Must Exist
Reasonable foreseeability test – determine whether the defendant
owed a duty of care to the plaintiff; if it were reasonably foreseeable
that the conduct complained of would cause harm, a duty to be careful
We owe a duty to anyone whom we can reasonably anticipate might be
harmed by our conduct
Case: Donoghue v. Stevenson – must take reasonable care to avoid
acts/omissions which you can reasonably foresee would injure
someone that you ought reasonably to have in contemplation as being
so affected by your actions.
Anns case: two stage test to determine duty. 1) If the person thought
about it, would he have realized that his actions posed a risk of
danger?2) Was there any reason this duty should not be imposed or be
Misfeasance – wrongful or unacceptable conduct
Nonfeasance – failure to act (usually no duty to act, unless particular
relationship exists)
B: Breach of the Standard of Care
Conduct falling below the level expected of a reasonable person
Reasonable Person Test – used to establish standards of socially
acceptable behavior
NOT what is expected of an average person – expected to be
particularly careful, better than average
Standard is affected by the risk of injury and the cost of the required
standard of care, also the person’s level of expertise and age (children
have lower standards, professionals have higher standards)
Res ipsa loquitur (“the thing speaks for itself”) - when negligence
can be implied/concluded from the circumstances, plaintiff doesn’t
need to prove it => replaced by “circumstantial evidence” method
C and D: Causation and Damages
But For” Test (Physical Causation) – damage must be a direct result
of careless conduct; ‘but for’ the conduct complained of, no injury
would have resulted
oIf there were multiple causes, conduct must have been a
material cause
Remoteness Test (Legal Causation) - liability is avoided if injury is
too remote or unforeseeable; only if nature of injury/damage could
have been reasonably anticipated

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Thin skull rule – if someone experiences greater injury than expected
because of a special physical condition, still responsible to compensate
all consequences of injury
Crumbling skull rule – if pianist already has deteriorating condition
(arthritis) and would have been lost use of it soon anyway, not
responsible for his lost career
Contributory Negligence - If both parties are at fault, responsibility
and damages are divided proportionately between the two
Voluntary assumption of risk only occurs when the victim has assumed
both the physical risk and legal risk => defendant has complete
defence (very rare)
If a rescuer gets hurt, author of the danger is responsible for both
rescuer and victim => rescuer has not voluntarily assumed risk
Special Situations
People who occupy property have obligation to people injured on their
property (not owners)
Occupier of land has different obligations to those on their property:
Invitee – person coming on property for business purpose; occupier
must take reasonable steps to protect
Licensee – person on property with permission, non-business purpose;
occupier must only warn of hidden dangers
Trespasser – person there without permission; occupier must not
willfully/recklessly cause trespasser harm
Innkeeper has special liability – responsible for damage/loss of goods when
innkeeper/servants are negligent
Establishments that provide alcohol may be liable for accidents people may
have when drunk
Case: Man and friend drunk at a pub and their car rolled into ditch on
way home – court found the man (getting into car with drunk driver),
friend (driving drunk), and drinking establishment (not taking steps to
intervene when they were drunk) all liable
Negligent Misstatement
Negligent words causing economic loss may be actionable
oCase: accounting firm liable for losses caused by incorrect
financial statements
Strict Liability
Liability can be imposed even when there is no fault on the part of the
Even when conduct was reasonable, strict liability can be imposed
when inherently dangerous things escape; only when it is an unusual
use of property
Vicarious liability is also a form of strict liability
Product Liability
Necessary to establish fault of manufacturer; duty to be careful and
failure to live up to that duty
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