Legal Concepts of Liability

There are four concepts that often affect liability that are used by courts to determine which party in a malpractice suit should prevail.  These concepts also developed out of English common law.  They are:

Course of Conduct and Custom Doctrine
Waiver
Estoppel, and
Election

The legal concept known as the Course of Conduct and Custom Doctrine considers the way that people have previously done business.  It simply takes into account the manner in which the parties to the transaction had handled their dealings together over a period of time to determine what is reasonable.

Let's consider an example to clarify the concept.  Suppose that an agent has handled a client's insurance needs for years.  As each policy expired, the client would initiate a meeting with the agent to add new coverage, increase limits, etc.  At no time had the agent ever notified the client when a policy expired.  

The inevitable happens, and the client's building burns to the ground right after the fire insurance policy expires.  Stating that the agent had a duty to inform the client of the policy's expiration, the client sues the agent. Although it could be modified by statute or regulation, the court would apply the doctrine of "Course of Conduct and Custom" to the facts.  Since it was customary for the agent not to inform the client of the expiration of coverage, the court could hold that the agent had no duty to inform the client.  Although the prudent client would probably avoid this kind of agent, it illustrates the concept of Course of Conduct and Custom Doctrine.

Waiver is a defense that involves the voluntary and intentional giving up of a right the individual knows he or she has.  If we go back to the unhappy client with the uninsured, destroyed building and change the facts slightly, we can illustrate the concept.  In these changed facts, the client informs the agent that a notification from the agency every time the coverage approaches its expiration date is unnecessary and unwanted.  Perhaps the client has risk managers that he employs to handle the details of the coverage.

Because of the client's wishes, the agent informs his staff that policy status notices are not to be sent to the client.  The client voluntarily and intentionally gave up the right to receive policy status notices, even though the client had a right to receive them.  In legal terms, he waived his right to receive a notice of cancellation.

Estoppel is somewhat similar to waiver.  Both concepts involve the giving up of a right.  However, in the case of estoppel, the client gives up a right without intending to give it up.  It is that lack of intent that is the principal difference.  Estoppel limits an individual's right to change his or her mind.  The test of whether the individual ought to be permitted to change his mind is whether another person has acted reasonably in reliance on another person's promises.  In simple terms, estoppel involves the legal inability to abandon a decision or action.  

Suppose that an insurer issues a policy, the terms of which lead the policyholder to believe coverage for a specific risk is in force, when in fact that risk is not covered by the policy.  The insurance company might be unable to deny that coverage was in force for that risk if the client's position would be jeopardized by it.  If the client had forgone the opportunity to secure other coverage because the insurer's actions indicated the risk was already covered, the insurer could not subsequently deny coverage when the claim was submitted.  This would be the case even though the in-force policy did not provide the coverage.

The last defense we noted is called "election".  The concept works in the following fashion.  When a party to an insurance contract has a choice of actions and chooses one, he cannot subsequently change his choice if the change would be detrimental to the other party.  If a client agrees to repairs of damaged property but later attempts to change the choice to a cash settlement after repairs are started, the court might say that the client had elected the repair option, and he would be held to that position.  To do otherwise would injure the other party -- the insurance company.