Property and casualty insurance policies will provide a great deal of liability protection for policyholders and named insureds. If people slip and fall, a tree falls and damages a neighbor’s car, you are at fault in an accident, or other perils, most insurance policies will pay up to coverage limits minus any deductibles that apply. Liability insurance coverage is one of the primary functions of property and casualty insurance. In fact, liability insurance by definition is casualty insurance. But there is one thing no insurance policy will insurance against: A Moral hazard.
When Negligence Becomes a Moral Hazard
A moral hazard essentially is a policyholder’s willful disregard for known problems, such as a crumbling walkway with frequent foot traffic that remains in disrepair even after complaints are lodged. If, for example, the owner of an apartment complex knew of a potentially dangerous condition caused by a crumbling walkway and chose to ignore it until it caused injury, the insurance company could declare the management to be a moral hazard and refuse to pay any insurance claims. A peril must be sudden and unexpected and not the result of policyholder neglect for the contract to be valid. Ignoring a known dangerous condition, especially if tenants complained to local authorities, easily could constitute a moral hazard and negate any coverage for damages.
Preventing Moral Hazards
If the owner of an insured property, whether it be a home, auto, business or some other type of property and casualty coverage, suddenly becomes aware of a potentially dangerous condition and takes reasonable steps to correct it. insurance coverage would apply. In the case of a damages sidewalk, once aware of the disrepair, the landowner could cordon it off or place warning signs while making plans to either fix the problem or hire someone to correct the situation. Even if injury occurred during the repair process, the policyholder initiated reasonable steps to correct the matter, so insurance coverage would apply. Ignoring the same problem for months or years could negate coverage.
Are there any potentially dangerous conditions where you live?