Insurance Test (Casualty Liability Basics)

In order for an act or failure to act to be negligent, it must contain 4 elements:

-Duty is Owed -Violation of Duty -Violation of Duty is Proximate Cause -Foreseeable Consequence Note: if any of the 4 elements is absent, an act, or the failure to act, is not considered negligent

Medical Payments to others includes NECESSARY medical expenses:

-Surgical -X-Ray -Dental -Ambulance -hospital -Professional -Nursing -Funeral -PAYMENTS made REGARDLESS of fault -Does not require legal liability of the insured

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.

duty

A moral or legal obligation; a responsibility

Accident

A sudden, unforeseen, unintended, and unplanned event from which loss or damage results.

Tort

A tort is a wrongful act, other than a breach of contract, that violates a duty or the rights of another and for which compensation may be sought from the responsible party. Torts may result from either criminal or civil activity. Torts are either intentional, or unintentional. An intentional tort is a deliberate act that harms another and for which the injured party is permitted by law to sue the wrongdoer. An unintentional tort, also known as negligence, is an act, or failure to act that is committed without the same level of care a reasonable individual would have exhibited given the same knowledge and set of circumstances. Liability insurance provides coverage for most unintentional torts and excludes intentional torts.

The maximum amount payable for all losses within a policy period is known as the: A. Aggregate limit B. Combined single limit C. Per person limit D. Per occurrence limit

A. Aggregate Limit

Which term describes the maximum amount payable for loss from all occurrences within a policy period? A. Aggregate limit B. Per occurrence limit C. Single limit D. Split limit

A. Aggregate limit

Which of the following is a common law defense used by the insured when the injured party is partially responsible for his own injuries? A. Contributory negligence B. Absolute liability C. Comparative negligence D. Proximate cause

A. Contributory Clause If the insured can prove that the claimant was negligent to any degree in causing the accident, contributory negligence will prevent recovery of damages by the claimant.

Which of the following prevents recovery for injuries caused by a negligent party if the claimant was also negligent? A. Contributory negligence B. Absolute liability C. Gross negligence D. Comparative negligence

A. Contributory Negligence

Payment of necessary medical expenses without regard to negligence is covered by which of the following insurance coverages? A. Medical Payments B. Property Damage C. Personal Injury Liability D. Bodily Injury

A. Medical Payments

Which of the following is true of medical payments? A. Payments are made without regard to negligence B. Medical payments replace bodily injury coverage C. Medical payments, when made, are an admission of negligence D. The insured must be legally liable for coverage to apply

A. Payments are made without regard to negligence Medical payments are made without regard to fault

The maximum amount that a coverage will pay for loss to any one injured party regardless of overall policy limits, is known as the: A. Per person limit B. Aggregate limit C. Split limit D. Per occurrence limit

A. Per person limit

Bodily injury is best described as: A. Physical injury or death arising from the negligent acts of an insured B. All financially measurable injuries directly sustained, including libel, slander, false arrest, invasion of privacy, and copyright infringement C. Any injury causing hospitalization, disability, or loss of income D. Any injury resulting in bleeding, bruising, bone fractures, or disfigurement

A. Physical injury or death arising from the negligent acts of an insured

Which of the following is designed to prevent the insured from collecting more than the actual extent of a loss? A. Pro rata liability B. Excess insurance C. Contribution by equal shares D. Primary coverage

A. Pro Rata Liability

Subrogation

After an insurer pays a loss, it is granted the insured's rights to seek recovery from the party responsible for the loss. For example, if Bob is legally responsible for injuring Sue in a car accident, Sue's insurance company may seek reimbursement from Bob for the claim payments it made to Sue.

Attractive Nuisance

An artificial condition on land that attracts children, such as a swimming pool, and requires the owner to exhibit a special duty of care. Legally, children are considered invitees to the premises if it contains an attractive nuisance even when they are not expressly invited. It states that a landowner may be held liable for injuries to children trespassing on the land if the injury is caused by an object on the land that is likely to attract children.

Punutive Damages

An award to an injured party, in addition to compensatory damages, to punish and discourage a wrongdoer from repeating negligent acts or omissions. Most liability policies do not provide coverage for punitive damages. -AWARDED TO PUNISH THE WRONGDOER

Compensatory Damages

Awarded to the injured party for the actual loss sustained. Damages are Special or General. Special damages are an award to an injured party for actual and known expenses such as bills, loss of earnings, and the costs of repairing or replacing damaged property. Special damages are paid for tangible loss or damage. General Damages are an award to an injured party for pain, suffering, mental anguish, disfigurement, and similar types of losses. General damages are paid for losses that cannot be calculated objectively and assigned a specific dollar value. -AWARDED TO INJURY PARTY FOR ACTUAL LOSS

Liability Insurance is a two-party contract with payments made to which of the following? A. The party of the second part B. A third party C. The party of the first part D. The insured

B. A third party The parties to the Liability Insurance Contract are the insured and the insurer. Under the terms of the policy, the insurer will pay those sums owed by the insured to a third party, whom the insured may have negligently damaged by a tort.

All of the following statements regarding liability losses are correct, except: A. Property damage includes physical damage to tangible property, including loss of use of that property B. Bodily injury includes personal injury, physical injury, sickness and disease C. Loss of consortium means the loss of companionship of a husband or wife D. Personal injury includes libel, slander, and false arrest

B. Bodily injury includes personal injury, physical injury, sickness and disease Bodily injury does not include personal injury

Bodily injury liability coverage includes all of the following, except: A. Mental anguish B. Breach of contract C. Medical bills D. Lost wages

B. Breach of contract Bodily Injury coverage covers physical injury, sickness or disease sustained by a person including death resulting from any of these. Breach of contract does not fall under this definition.

Which of the following documents informs an insurer that a loss has occurred? A. Proof of loss B. Notice of loss C. Certificate of insurance D. Occurrence notice

B. Notice of Loss

The formal statement an insured provides to an insurer, including all the details an insurer needs to assess its liability following a loss, is known as a: A. Certificate of Insurance B. Proof of loss C. Notice of loss D. Binder

B. Proof of loss

Each of the following is an element of negligence, except: A. The duty is violated B. There is an intervening cause C. A duty is owed D. There is a foreseeable consequence

B. There is an intervening cause

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? A. Assumption of risk B. Respondeat Superior C. Absolute liability D. Last clear chance

C. Absolute Liability Some activities are so inherently dangerous that they are bound by the principle of Absolute Liability, which states that no degree of care taken by the insured can defend against a charge of negligence. Even though the owner of the snake was no negligent, he/she is still legally liable for the injury

The _______ Limit of liability applies to bodily injury, property damages, or both. A. Excess B. Contribution C. Combined Single D. Limited

C. Combined Single the combined single limit pays for any coverage wherever needed or in any combination

Which description applies to General Damages? A. General Damages include punitive damages B. Those damages that can be documented C. Compensation to an injured party for pain, suffering, mental anguish, disfigurement and similar types of losses D. Damages to the general public rather than to a specific party Good Job!

C. Compensation to an injured party for pain, suffering, mental anguish, disfigurement and similar types of losses General damages are damages that are likely to continue into the future, and where it is difficult to put a final figure on the losses

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? A. Excess insurance B. Assumed liability C. Contribution by equal shares D. Pro-rata liability

C. Contribution by equal shares

Which of the following statements best describes the Other Insurance condition on a standard property insurance policy, when two separate property policies provide coverage for the same loss? A. Neither policy will make payment for the loss B. One policy pays up to its limits and the other policy pays the balance C. Each policy pays its pro rata share of the loss D. Each policy pays an equal share

C. Each policy pays it pro rate share of the loss The Other Insurance condition specifies the process to be followed when more than one policy covers the same loss. For property insurance, losses are settled on a pro rata basis, where each policy pays no more than its pro rata share of the loss.

Driving while under the influence of alcohol is an example of: A. Vicarious Liability B. Contributory negligence C. Gross negligence D. Assumption of risk

C. Gross negligence

Which of the following is the best explanation of liability insurance? A. It provides coverage for bodily injury or property damage to the insured and the insured's property B. It provides coverage to any party for injury that is expected to happen C. 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 D. It provides coverage for bodily injury or property damage arising out of the insured's premises or operations regardless of fault or negligence

C. 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

Most liability policies do not provide coverage for: A. Compensatory damages B. Special damages C. Punitive damages D. General damages

C. Punitive Damages Punitive damages are awarded to punish and discourage a wrongdoer from repeating negligent acts. Most liability policies do not provide coverage for punitive damages.

The type of absolute liability that applies to products is called: A. Vicarious liability B. Assumption of risk C. Strict liability D. Comparative liability

C. Strict Liability

Which statement regarding liability coverage and limits is false? A. An excess coverage policy pays only after a primary policy has been exhausted B. Primary coverage pays first with respect to other policies C. The per occurrence limit is the maximum amount recoverable during the policy period D. Pro-rata liability is proportionate distribution of liability among insurers that have policies on the same risk

C. The per occurrence limit is the maximum amount recoverable during the policy period

Loss of Consortium

Compensation to a husband or wife for the loss of companionship of a spouse.

Medical Payments Coverage

Coverage for the bodily injury of third parties sustained on an insured location or as a result of the insured's activities. Coverage is provided for the payment of necessary medical, surgical, x-ray, dental, ambulance, hospital, professional nursing, and funeral expenses. Payments are made REGARDLESS of the INSURED'S NEGLIGENCE. This coverage is provided to discourage liability claims and lawsuits and, when payments are made, are not an admission of liability.

The _______ is the most the policy will pay for the sum of all the losses occurring within a policy period. A. Excess B. Contribution C. Combined D. Aggregate

D. Aggregate

M has a liability policy insuring her flower shop. After M sells the shop, the buyer asks if she can transfer her liability policy as part of the sale. Which provision prevents M from making this transfer without the insurer's consent? A. Liberalization B. Subrogation C. Assumption of risk D. Assignment

D. Assignment

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? A. Comprehensive Limits B. Split Limits C. Per Person Limit D. Combined Single Limit

D. Combined Single Limit

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? A. The court will determine which insurer is responsible B. The insurer of the at-fault driver C. J's and the negligent driver's insurer will share the loss D. J's insurer

D. J's Insurer Under no-fault insurance, the injured party collects insurance benefits from his/her own insurance as if it were first-party coverage, eliminating the need to determine negligence or legal liability.

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? A. Strict B. Civil C. Tort D. No-fault

D. No-fault

Which of the following statements about medical payments is true? A. They apply to members of amateur athletic teams sponsored by the insured B. They apply to all persons, including the insured on the premises for any reason C. They apply to all expenses incurred within 5 years of the accident D. Payments are made regardless of fault or negligence

D. Payments are made regardless of fault or negligence

If other insurance also applies to a loss covered by a policy, which of the following will establish the method for determining how the insurance companies will pay the loss? A. Claim Settlement B. Limit of Liability C. Subrogation D. Pro rata liability

D. Pro rata liability

Which of the following damages is awarded to the injured party for the actual medical expenses incurred? A. Punitive B. Consortium C. General D. Special

D. Special

Comparative Negligence

Damages are reduced in proportion to the degree of the claimant's negligence. For example, if the claimant is 5% negligent and the wrongdoer is 95% negligent, the claimant may only recover 95% of damages.

Limits of Liability

Each policy includes a provision that specifies the most it will pay in the event of loss. Certain limits of liability apply to any one loss; other limits apply to the total of all losses that occur within the policy period. In addition, the manner in which limits of liability are designated vary by coverage and policy type. The limit of liability, or limits of insurance, are shown on the policy declarations page and are the most paid by the policy regardless of the number of insureds, claims made, lawsuits filed, or parties making claims or filing lawsuits.

Gross Negligence

Failure to exhibit any sort of care through recklessness or deliberate indifference to the well-being of others. For example, driving while under the influence of alcohol.

Negligence

Failure to use ordinary or reasonable care EX: running a red light

Strict Liability Applies to Products

If a claimant can prove that a product caused the injury, the manufacturer will be held liable whether or not the product was defective. Liability may be asserted even in the absence of negligence. For example, the manufacturer of a dangerous product is always legally liable if the product causes injury or damage.

Modified No-Fault

Injured person is only able to sue after a certain amount of damages has been reached

Notice of Loss

Insured must notify the insurer in writing as soon as possible in the event of any loss or occurrence. The written notice should include the named insured, policy number, and details about the time, place, circumstances of the occurrence, and names and addresses of any claimants and witnesses.

Common Law

Law practiced as the result of judicial or court decisions (case law and precedents)

Property damage liability

Legal liability arising from physical damage to tangible property, including loss of use of that property, caused by the acts of an insured. Property damage liability expenses include the actual cost of repair or replacement of the damaged property as well as the inability to use damaged property (loss of use).

Bodily Injury

Legal liability arising from physical injury, including sickness, disease, and death caused by the acts or omissions of an insured. Bodily injury liability expenses include medical bills, lost wages, mental anguish, pain and suffering, etc.

Personal Injury Liability

Legal liability arising from specific offenses committed by an insured that results in injury other than bodily injury or property damage. Examples of personal injury include libel, slander, false arrest, invasion of privacy, and copyright infringement. Personal injury is generally understood to affect one's reputation or emotional well-being and is not bodily harm or property damage.

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? A. Liberalization B. Assumption of risk C. Subrogation D. Assignment

Liberalization

Negligence

Negligence, in a broad sense, is the failure to use ordinary care. Specifically, it is a wrongful act that is neither criminal nor a breach of contract that violates a duty or the rights of another — and for which the injured party may demand compensation. It is the failure to use the same degree of care a reasonable and prudent person would use when given the same knowledge and set of circumstances. -Most are covered by liability policies

Intervening Cause

Prevents or limits recovery from the wrongdoer when a second, distinctly separate negligent act occurs after the original negligent act, but before damage occurs, and interferes with the chain of events that brings about the loss. The intervening cause must be unexpected and unforeseen.

Contributory Negligence

Prevents recovery for damages caused by a negligent party if the claimant was negligent to any extent. For example, if the claimant is 5% negligent and the wrongdoer is 95% negligent, the claimant is not permitted to collect damages.

Assumption of Risk

Prevents recovery if the claimant knowingly assumed the risk

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 wrongdoer 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. Each policy pays no more than its share of the loss and the method of sharing varies by contract. Some policies require sharing of losses by the ratio of applicable limits of insurance each insurer writes with respect to the total of all limits available for the loss (pro rata). Other policies require the insurers to share the loss by contributing equal shares until each insurer has paid its limit of insurance (contribution by equal shares). ex: Policy A insures a dwelling for $250,000 and Policy B insures the same dwelling for $500,000. If both policies covered the same loss, Policy A would pay one-third of the loss because $250,000 represents 1/3 of all the insurance available to cover the loss ($250,000 equals 1/3 of $750,000, which is the sum of $250,000 on Policy A and $500,000 on Policy B).

True or False In property insurance, a loss is limited by the value of the damaged property

TRUE

True or False? In liability insurance, a loss has a potentially unlimited value

TRUE

Vicarious Liability

The liability assigned to one party for the conduct of another, based solely on a relationship between the two. Examples include employer/employee relationships and parent/child relationships.

Per Occurrence Limit

The most the policy will pay for all losses arising out of any one occurrence, regardless of other policy limits Ex: The limit of liability for personal liability on a homeowners policy is a per occurrence limit

Combined Single Limit

The most the policy will pay for all losses of all types resulting from any one occurrence, regardless of other limits. For example, the per occurrence limits on homeowners and general liability policies provide coverage for the sum of all bodily injury liability and property damage liability claims that arise from one occurrence.

Aggregate Limits

The most the policy will pay for all losses submitted during the POLICY PERIOD, regardless of other policy limits. Each loss payment made under a per occurrence limit or per person limit reduces the aggregate limit of liability. For example, if a commercial general liability policy has a medical payments coverage per person limit of $5,000, a liability per occurrence limit of $1 million and a $2 million general aggregate limit, payment of a $3,000 medical payments claim would use up $3,000 of the general aggregate limit, leaving $1,997,000 available for the payment of future claims submitted during the balance of the policy term.-

Split Limit

The most the policy will pay for loss of different types that occur as a result of any one loss, regardless of other limits. For example, the limits of liability on an auto policy for bodily injury might be represented as 100/300/100 ($100,000 is the per person limit for bodily injury liability, $300,000 is the per occurrence limit for bodily injury, and $100,000 is the per occurrence limit for property damage liability).

Per person Limit

The most the policy will pay for loss to any one person injured in any one loss, regardless of other policy limits. Ex: The limit of liability for medical payments coverage on an auto policy is a per person limit

Assignment

The owner of a liability policy cannot transfer policy ownership without the insurer's written consent. For example, a business owner cannot sell his business and then transfer ownership of the business' general liability insurance policy to the new owner without the written consent of the insurance company.

Contribution by Equal Shares

When TWO OR MORE insurers' policies cover at the SAME LEVEL (primary or access), each insurer contributes an EQUAL amount to the loss settlement until the loss i paid, or until each insurer has EXHAUSTED its limits of insurance

Defenses

When a claimant accuses an insured of negligence, the insured may use one of several defenses: Common Law -Contributory Negligence -Assumption of Risk -Intervening Cause Statutory Law -Comparative Negligence -Statue of Limitations

Liberalization

When coverage under a particular form of insurance issued by an insurer is broadened without an additional premium charge, it automatically applies to all policies currently in effect. For example, Carrier A adds coverage enhancements to its Special Form homeowners policy, without an additional charge. Those changes automatically apply to all policies currently in effect.

Statutory Law

Written law enacted by legislatures

Intentional tort

a deliberate act that harms another and for which the injured party is permitted by law to sue the wrongdoer. -A DELIBERATE ACT (done consciously or intentionally)

Unintentional tort

an act, or failure to act that is committed without the same level of care a reasonable individual would have exhibited the same knowledge and set of circumstances -AN ACT COMMITTED WITHOUT REASONABLE CARE

Special damages

an award to an injured party for actual and known expenses such as bills, loss of earnings, and the costs of repairing or replacing damaged property. Are paid for tangible loss or damage -AWARDED FOR TANGIBLE LOSSES

General Damages

an award to an injured party for pain, suffering, mental anguish, disfigurement, and similar types of losses. Are paid for losses that cannot be calculated objectively and assigned a specific dollar value -AWARDED FOR LOSSES THAT CANNOT BE OBJECTIVELY CALCULATED

Absolute Liability is most often associated with:

dangerous animal ownership, abnormally dangerous activities, and employers liability for injuries sustained by their employees. Dangerous animals include lions, bears, and certain dog breeds such as pit bulls and rottweillers. Absolute liability applies to the storage of explosives, highly flammable material and weapons or firearms.

No-Fault Liability

he 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. No-fault laws vary by state and typically apply to auto insurance.

Excess Insurance

if the policy is excess, it makes payment only after all other insurance in place exhausts its limits or denies coverage

Primary Insurance

if the policy is primary, it makes payment before all other policies in place make payment for a loss

Pure-No Fault

injured person is unable to sue the negligent party

Strict and Absolute Liability

is a legal principle that imposes legal liability based on conditions, activities, or products that exhibit very high standards; the degree of care exercised by the insured isn't considered when making a determination of liability

Legal Liability

is the responsibility under law or contract for an act or failure to act

Liability insurance

provides coverage when the insured is legally liable for causing injuries or damage

Statute of Limitations

the length of time during which legal proceedings may be initiated. This time period is established by federal or state law and usually begins on the day an event occurs

Liability insurance

third party insurance -3 parties are involved 1st party: insured 2nd party: insurer 3rd party: claimant