Ch. 3: Casualty (Liability) Basics
H's liability policy has the following limits: $25,000 per person, $100,000 per occurrence, and $2,000,000 aggregate. This year, five separate claimants file in the amount $25,000 for injuries suffered in a single accident. How much will the policy pay?
100,000; Because all five injuries arose from a single accident, the per-occurrence limit will cap the compensation at $100,000.
Policy A provides liability coverage to Fred's Grocery up to $500,000. Policy B provides coverage for the same risks up to $1.5 million. Both policies pay on a pro rata basis. If Fred's Grocery is determined to have a legal liability of $400,000 to a claimant who was injured on the property, how much will Policy A pay?
100K; Pro rata liability requires that each policy pays no more than its share of the loss. The total insured amount carried by Fred's Grocery is $2 million ($500,000 + $1.5 million). Policy A's share of that amount is 25% ($500,000 ÷ $2 million). Therefore, its share of any loss would be 25% of the loss amount. 25% of $400,000 is $100,000.
Driver D slid into another car causing an accident in which three people in the other car were injured. Two injured parties claimed $15,000 in medical expenses and the third person claimed $25,000. How much will D's insurance company pay if her policy has 25/50 limits for bodily injury?
50K; The policy pays up to $25,000 for each person injured, but no more than $50,000 per occurrence, regardless of the number of persons injured. Therefore, the limit for this accident is $50,000.
tort
A civil wrong other than breach of contract
certificate of insurance
A document that shows evidence that specific types of insurance were purchased by the insured, at certain limits, and that they were in place on the date the certificate of insurance was issued. A certificate of insurance is not proof of insurance, as a binder is.
proof of loss
A formal statement made by the insured and provided to the insurer that provides necessary details for the insurer to determine its liability under a policy.
Which term describes the maximum amount payable for loss from all occurrences within a policy period?
Aggregate limit
Proximate cause refers to:
An unbroken chain of events leading to a loss, that were initiated in a negligent act of wrongdoing
W plays hockey on the weekends and was injured while defending the goal. Which defense could the owner of the ice rink use to avoid liability for W's injuries?
Assumption of Risk
loss of consortium
Compensation to a husband or wife for the loss of companionship of a spouse.
Which of the following is a common law defense used by the insured when the injured party is partially responsible for his own injuries?
Contributory Negligence
Property damage covered by a liability policy includes which of the following?
Damage to tangible property, including loss of use of that property caused by the insured's negligence
T/F: Bodily injury includes personal injury, physical injury, sickness and disease
False; bodily injury doesn't include personal injury
Driving while under the influence of alcohol is an example of:
Gross Negligence
Notice of loss
Insured must notify the insurer in writing as soon as possible in the event of any Loss or occurrence
Which of the following is the best explanation of liability insurance?
It provides protection in the event the insured's negligence causes bodily injury or property damage to others and the insured becomes legally obligated to pay damages
Policyholder J has a no-fault auto policy. Upon being hit by a driver that ran a stop light, J suffers a broken leg. Whose insurance company will pay for J's injury?
J's insurer
property damage liability
Legal liability arising from damage to tangible property, including loss of use of that property caused by the insured's negligence.
bodily injury
Legal liability arising from physical injury, including sickness, disease, and death caused by the acts or omissions of an insured
personal injury liability
Legal liability arising from the wrongful conduct of the insured resulting in injuries to one's mental or emotional state or reputation
A party injured in an auto accident is not allowed to sue the negligent party who caused the accident under which of the following laws?
No-fault
Which of the following documents report how and when a loss happened?
Notice of Loss
Medical payments coverage includes which of the following?
Payment of necessary medical expenses incurred by an injury on the insured's premises
A primary liability policy is one that:
Pays first with respect to other policies
Bodily injury is best described as:
Physical injury or death arising from the negligent acts of an insured
intervening cause
Prevents or limits recovery from the wrongdoer when a second, distinctly separate negligent act occurs ; The intervening cause must be unexpected and unforeseen.
assumption of risk
Prevents recovery if the claimant knowingly assumed the risk.
Which of the following is designed to prevent the insured from collecting more than the actual extent of a loss?
Pro rata liability
The formal statement that verifies details so the insurer can determine liability is called:
Proof of Loss
Foreseeable Consequence
Requires the injured party to prove the actual injuries or damages were a reasonably foreseeable consequence at the time the negligent action or inaction occurred.
Violation of Duty
Requires the injured party to prove the alleged wrongdoer not only owed a duty but also violated that duty. Basically, the alleged wrongdoer didn't exhibit reasonable care.
Duty is Owed
Requires the injured party to prove the alleged wrongdoer owed a duty to the injured party or to the public.
Violation of Duty is Proximate Cause
Requires the injured party to prove the alleged wrongdoer's negligent actions or inactions were the proximate cause of actual injuries or damages.
pro rata liability
Specifies the process to be followed when more than one policy covers the same loss.
If the amount of liability insurance coverage is divided between bodily injury and property damage claims, the policy limits are which of the following?
Split Limits
A manufacturer is held liable if a product caused an injury whether the product was or was not defective. This describes what type of liability?
Strict
A Certificate of Insurance includes which of the following?
The effective date, name of the insurer, the named insured and limits of liability
No fault liability
The injured party collects insurance benefits from his or her own insurance as if it were first-party coverage, thus eliminating the process of determining negligence or legal liability.
T/F: In regards to negligence, The claimant must demonstrate that the wrongful actions of the insured were the direct or proximate cause of the claimed injury or damages
True
T/F:Medical payments are made regardless of fault or negligence
True
T/F:Medical payments are made without regard to negligence
True
Defenses
When a claimant accuses an insured of negligence, the insured may use one of several defenses:
D's neighbor H keeps a venomous snake as a pet. D's son is bitten after teasing the snake with a stick. After being sued by D's parents, H's insurance company claimed that the boy was acting negligently, and therefore, H was not liable. The boy's lawyer claimed that the pet was so dangerous that it did not relieve the owner of liability, an example of which principle?
absolute liability
Which of the following is a legal liability imposed without demonstrated negligence?
absolute liability
Z is a distributor of natural gas. While connecting gas to B's house, an explosion occurs and the house is destroyed. Z's defense is that B did not turn off the pilot light on her furnace before the hookup as instructed by the company. The court ruled that the activities of connecting gas lines were so dangerous that Z's defense did not relieve its liability. What legal principle is applicable in this case?
absolute liability
The _______ is the most the policy will pay for the sum of all the losses occurring within a policy period.
aggregate
The maximum amount payable for all losses within a policy period is known as the:
aggregate limit
attractive nuisance
artificial condition on land that attracts kids like pools and requires owner to exhibit special duty of care
special damages
award to an injured party for actual and known expenses such as bills, loss of earning and costs of repairing or replacing damaged property
general damages
awarded to an injured party for pain, suffering, mental anguish, etc.
compensatory damages
awarded to the injured party for the actual loss sustained
Personal Injury includes all of the following, except: A Slander B False Arrest C Bodily Injury D Libel
bodily injury
Which coverage is written with a per occurrence limit?
bodily injury or property damage
Bodily injury liability coverage includes all of the following, except: A Lost wages B Mental anguish C Medical bills D Breach of contract
breach of contract
negligence
careless neglect, often resulting in injury
The _______ Limit of liability applies to bodily injury, property damages, or both.
combined single
Which of the following types of liability limits allow the most to be paid for a single occurrence without regard for the number of claimants?
combined single limit
The equal sharing of a loss by two or more insurers until the loss is paid, or until each insurer has exhausted its limits of insurance, whichever comes first, is the description of which of the following?
contribution by equal shares
Which term describes the equal sharing of a loss by two or more insurers until the loss is paid, or until each insurer has exhausted its limits of insurance, whichever comes first?
contribution by equal shares
Which of the following prevents all recovery for injuries if the claimant was also considered partially negligent?
contributory negligence
comparative negligence
damages reduced in proportion to the degree of the claimant's negligence
All of the following are true of negligence, except: A It does not include breach of contract B It is the failure to use ordinary care C It is a type of tort D It does not require a duty to be owed
does not require a duty to be owed
What are the 4 elements of negligence?
duty, breach of duty, causation, damages
Which of the following relationships involves vicarious liability?
employer and employee
What is the name for a type of policy that doesn't pay benefits until the limits of the primary policy has been exhausted?
excess policy
gross negligence
failure to exhibit any care through recklessness (i.e. drunk driving)
Losses that cannot be calculated objectively, such as pain and suffering or mental anguish, are considered:
general damages
strict liability
if claimant can prove a product caused the injury, the manufacturer will be held liable whether or not product was defective
Which of the following indicates a disrupted chain of events that frees the defendant from liability?
intervening cause
Common law
law practiced as the result of judicial or court decisions
statute of limitations
length of time which legal proceedings may be initiated time period established by federal/state law
Insurer G decides to increase the first aid benefits for one of its insureds for no extra premium. What is the name of the provision which automatically applies this broader coverage without additional premium to all policies currently in effect by the same insurer?
liberalization
The maximum amount a policy will pay in the event of a loss, regardless of the number of insureds, claims made, lawsuits filed, or parties making claims is the:
limit of liability
Payment of necessary medical expenses without regard to negligence is covered by which of the following insurance coverages?
medical payments
The person specifically designated in the policy as the person with whom the contract of insurance has been made, is considered to be the:
named insured
Medical payments coverage
pays the costs of minor accidental injuries to visitors on your property
The most the policy will pay for all losses arising out of any one occurrence, regardless of other policy limits
per occurrence limit
The maximum amount that a coverage will pay for loss to any one injured party regardless of overall policy limits, is known as the:
per person limit
The most the policy will pay for a loss to any one person injured in a single loss, regardless of other policy limits
per person limit
primary
policy that makes payment before all other policies in place make payment for a loss
excess
policy that makes payment only after all other insurance in place exhausts its limits or denies coverage
contributory negligence
prevents recovery for damages caused by a negligent party if the claimant was negligent to any extent
The provision that establishes the method by which coverage will be applied if other insurance applies to the loss, is sometimes called:
pro rata liability provision
___________ damages are ordered by the courts to punish a negligent party.
punitive
Most liability policies do not provide coverage for:
punitive damages
Which of the following damages is awarded to the injured party for the actual medical expenses incurred?
special
The most the policy will pay for each type of damage that occurs as a result of a single loss, regardless of other limits
split limits
The time period in which a lawsuit may be filed after the occurrence of a claim is referred to as:
statute of limitations
What is the principle of liability that imposes legal liability for injury and damage by products?
strict liability
All of the following are true of torts, except: A They constitute the basis of a claim by a third party B Negligence is a type of tort C They must be committed intentionally D Liability insurance excludes intentional torts
they must be committed intentionally
All of the following are true of liability policies, except: A They are designed to cover third party injuries or damages B They will cover damage to the insured's own property C They will pay sums that the insured becomes legally liable to pay D They do not cover medical expenses incurred by the insured
they will cover damage to the insured's own property
Liability Insurance is a two-party contract with payments made to which of the following?
third party
Which of the following might be considered a negligent act? A Breach of an employment contract B Assaulting a neighbor over a boundary dispute C Robbery of a sporting goods store D Unintentionally renting a leaky boat to vacationers
unintentionally renting a leaky boat to vacationers
vicarious liability
when one person is liable for the torts of another
statutory law
written law enacted by legislatures
