Chapter 4 - Casualty (Liability) Insurance Basics

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 D's policy has 25/50 limits for bodily injury? $45,000 $55,000 $75,000 $50,000

$50,000

Which of the following defines a tort? An breach of contract An unforeseen event from which damage results A civil wrong Liability assigned to one party for the conduct of another

A civil wrong

Which of the following is true regarding liability insurance? The liability policy provides coverage for all acts of wrongdoing A liability policy provides coverage for all torts A liability policy provides coverage for unintentional torts A liability policy provides coverage for criminal acts

A liability policy provides coverage for unintentional torts

Liability insurance is a two-party contract with payments made to which of the following? The party of the first part A third party The insured The party of the second part

A third party

D's neighbor, H, keeps a venomous snake as a pet. D's child is bitten after teasing the snake with a stick. After being sued by D, H's insurance company claimed that the child was acting negligently, and therefore, H was not liable. D's lawyer claimed that the pet was so dangerous that it did not relieve the owner of liability, an example of which principle? Assumption of risk Last clear chance Respondeat superior Absolute liability

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 the 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? Comparative negligence Absolute liability Contributory negligence Assumption of risk

Absolute liability

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

Aggregate limit

Which of the following is an example of vicarious liability? The liability of any group of people, acting together The liability of a negligent party whose identity cannot be determined An employer's liability for the acts of an employee Liability assigned to a chatroom host for the acts of its users

An employer's liability for the acts of an employee

Plaintiff K was injured after losing control of their skis on a slope with well-marked signs indicating the degree of difficulty. What legal defense is available to the ski resort to avoid liability for the injury? Assumption of risk Contributory negligence Comparative negligence Statute of limitations

Assumption of risk

W plays hockey on the weekends and was injured while defending the goal. Which of the following defenses could the owner of the ice rink use to avoid liability for W's injuries? Comparative negligence Assumption of risk Statute of limitations Contributory negligence

Assumption of risk

Which of the following is not an element of negligence? Proximate cause Duty owed Assumption of risk Foreseeable consequence

Assumption of risk

Personal injury includes all of the following, except: Bodily injury False arrest Libel Slander

Bodily injury

All of the following statements regarding liability losses are correct, except: Advertising injury includes defamation and copyright infringement Loss of consortium means the loss of companionship of a spouse Bodily injury includes personal injury, sickness, and disease Property damage includes physical damage to tangible property, including loss of use of that property

Bodily injury includes personal injury, sickness, and disease

Which of the following types of liability limits represents the maximum amount payable for a single occurrence, without regard for the number of claimants? Per person limit Comprehensive limits Combined single limit Split limits

Combined single limit

When damages are reduced in proportion to the degree of negligence, this is an example of: Comparative negligence Contributory negligence Pro rata negligence Absolute negligence

Comparative negligence

Which of the following is an example of special damages? Compensation to an injured party for actual medical expenses and loss of earnings Damages assessed by the court as a penalty for gross negligence Compensation for pain, suffering, and disfigurement Compensation to a party for the loss of companionship of a spouse

Compensation to an injured party for actual medical expenses and loss of earnings

L is M's neighbor. During icy weather conditions, L loses control of their car and drives into the side of M's house, causing major damage to the structure and injuring M's young child. After legal action, L is made to pay M for the amount of the property damage, as well as the medical bills related to the child's injuries. These amounts L is ordered to pay are known as: Nominal damages Compensatory damages Supplementary damages Punitive damages

Compensatory damages

A claimant brings suit against the insured for negligence. The insured's defense argues that the claimant participated in causing the loss and was partially negligent, meaning the claimant is not owed any damages for the loss. This is an example of: Proximate negligence Comparative negligence Vicarious negligence Contributory negligence

Contributory negligence

Property damage covered by a liability policy includes which of the following? Damage to tangible property belonging to a third party, including loss of use of that property, caused by the insured's negligence Damage to property of others in the insured's care, custody, or control that results from a criminal wrong Damage to property owned by, or leased to, the insured Damage to the insured's products arising out of the products

Damage to tangible property belonging to a third party, including loss of use of that property, caused by the insured's negligence

Which of the following relationships involves vicarious liability? Teacher and student Husband and wife Employer and employee Wholesaler and retailer

Employer and employee

Losses that cannot be calculated objectively, such as pain and suffering or mental anguish, are considered: General damages Special damages Punitive damages Physical damages

General damages

Driving while under the influence of alcohol is an example of: Assumption of risk Vicarious Liability Gross negligence Contributory negligence

Gross negligence

Which of the following indicates a disrupted chain of events that frees the defendant from liability? Proximate cause Lost cause Intervening cause Concurrent causation

Intervening cause

Which of the following exposures poses the greatest risk of financial loss for the average homeowner? Incidental business exposures Liability exposures Fire or lightning exposures Property exposures

Liability exposures

All of the following statements about liability are true, except: Liability policies pay costs incurred by an insured to sue negligent third parties The burden of proof is on the injured party to prove that the other party was negligent An insured may be liable for damages to an injured party, even if they are not deemed negligent Breach of contract is not considered an act of negligence

Liability policies pay costs incurred by an insured to sue negligent third parties

A casualty policy offering medical payments coverage would pay for all of the following expenses, except: Funeral expenses after a guest on the insured premises dies after sustaining bodily injuries Necessary ambulance and hospital expenses following an injury in an accident on the insured premises Expenses for X-rays and prosthetic devices after an injury accidentally caused by an insured Necessary medical expenses and lost wages incurred because of a physical injury sustained because of the insured's inaction

Necessary medical expenses and lost wages incurred because of a physical injury sustained because of the insured's inaction

Q runs a stop sign, causing an oncoming vehicle to swerve and hit a tree. Q is guilty of: A criminal violation Gross negligence Strict liability Negligence

Negligence

Special damages would be awarded for all of the following types of loss, except: Pain Repair costs Loss of income Medical expenses

Pain

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

Payments are made regardless of fault or negligence

A guest on the insured's premises is injured and incurs medical expenses, which the insured's policy covers up to a certain limit. Which of the following statements about these medical payments is true? Medical payments replace bodily injury coverage The insured must be legally liable for coverage to apply Medical payments, when made, are an admission of negligence Payments are made without regard to negligence

Payments are made without regard to negligence

Supplementary payments are best described as: Payments for necessary medical, surgical, and hospital expenses Payments for mental anguish and pain and suffering associated with physical injury Payments for specific offenses for which the insured is liable, such as slander or invasion of privacy Payments for costs associated with investigating and resolving claims, such as premiums on appeal bonds

Payments for costs associated with investigating and resolving claims, such as premiums on appeal bonds

As used in casualty insurance, bodily injury is best described as: All financially measurable injuries directly sustained, including libel and false arrest Any injury resulting in bleeding, bruising, bone fractures, or disfigurement Physical injury, sickness, or death arising from the negligent acts of an insured Any injury causing hospitalization, disability, or loss of income

Physical injury, sickness, or death arising from the negligent acts of an insured

Liability coverage is designed to: Permit the insured to countersue the insurer for losses not covered Protect the insured from the cost of damages for bodily injury and property damage that the insured is legally obligated to pay Protect an insured from being sued by an injured party Cover injuries and damages caused by the insured's intentional and unintentional actions

Protect the insured from the cost of damages for bodily injury and property damage that the insured is legally obligated to pay

In the event of a liability claim made against the insured, the insured must perform all of the following duties for their liability coverage to apply, except: Submit to an examination under oath, when required by the insurer Provide their own legal defense Cooperate with the insurer during its investigation Forward all legal documents in connection with the suit to the insurer

Provide their own legal defense

Which is the best description of punitive damages? Punitive damages are assessed as a punishment for extremely objectionable conduct by a negligent party Punitive damages are assessed in addition to specific damages and are typically covered by insurance policies Punitive damages are limited to disfigurement and mental anguish Punitive damages are so limited as to be punitive toward the plaintiff

Punitive damages are assessed as a punishment for extremely objectionable conduct by a negligent party

Which is the best description of punitive damages? Punitive damages are so limited as to be punitive toward the plaintiff Punitive damages are assessed in addition to specific damages and are typically covered by insurance policies Punitive damages are limited to disfigurement and mental anguish Punitive damages are assessed as a punishment for extremely objectionable conduct by a negligent party

Punitive damages are assessed as a punishment for extremely objectionable conduct by a negligent party

If the amount of liability insurance coverage is divided between bodily injury and property damage claims, the policy limits are which of the following? Per occurrence limits Per person limits Combined Split limits

Split limits

All of the following are common law defenses against negligence, except: Intervening cause Assumption of risk Statute of limitations Contributory negligence

Statute of limitations

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? Operations liablity Vicarious liability Strict liability Contingent liability

Strict liability

The Severability condition of a casualty insurance policy states: That policy coverage considers each insured separately, except for the limit of liability That the insured transfers its rights of recovery to the insurer The procedures for transferring policy ownership rights to another person or organization Policy termination procedures

That policy coverage considers each insured separately, except for the limit of liability

Which of the following is true regarding a negligence claim? Every accident resulting in bodily injury or property damage is due to a negligent act The claimant must demonstrate that the wrongful actions of the insured were the direct cause of the claimed injury or damages An uninjured party to an accident is presumed to be negligent In every accident there is at least one negligent party

The claimant must demonstrate that the wrongful actions of the insured were the direct cause of the claimed injury or damages

Which of the following is not essential in determining if an action is due to negligence? The injured party must prove the actual injuries or damages were foreseeable The injured party must prove the alleged wrongdoer owed a duty to the injured party or to the public The injured party must prove the wrongdoer failed to act in a reasonable and prudent manner The injured party must prove the wrongdoer committed a criminal act

The injured party must prove the wrongdoer committed a criminal act

When an insured obtains a liability insurance policy, which of the following statements about their policy will be correct? The insurer has a duty to defend the insured, with defense costs being subject to the policy limits The insured's absolute liability for owning fireworks cannot be covered by the policy The insured's medical payments coverage has a per person limit The insured's failure to maintain solvency will result in penalties applied to claim payments

The insured's medical payments coverage has a per person limit

An insured has a casualty insurance policy. If the insured becomes insolvent during the policy period, how does the insurer respond to a claim? The insurer may terminate the policy with proper notice to the insured and deny coverage for the claim The insurer responds normally, as it is not relieved of its policy obligations Claims brought after an official declaration of insolvency are no longer covered by the policy The insurer may immediately transfer the insured's coverage to a residual market

The insurer responds normally, as it is not relieved of its policy obligations

The Insuring Agreement on a liability policy includes information regarding: The insurer's duty to defend the insured when a claimant brings legal action against the insured The limits of liability to which coverage is subject The perils not covered by the policy The transfer of the insured's rights of recovery to the insurer

The insurer's duty to defend the insured when a claimant brings legal action against the insured

Which statement regarding liability insurance coverage is incorrect? The per occurrence limit is the maximum amount recoverable during the policy period Pro rata liability is the proportionate distribution of liability among insurers that have policies on the same risk If the policy is written as primary coverage, it pays first with respect to other policies Casualty policies must defend the insured against liability claims made against them, but only if the claim is relevant to the policy's coverage

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

All of the following are true of liability policies, except: They will pay sums that the insured becomes legally liable to pay They are designed to cover third party injuries or damages They do not cover medical expenses incurred by the insured They will cover damage to the insured's own property

They will cover damage to the insured's own property

The insurance provided by a liability policies applies: To each insured separately, including policy limits To all insureds as a collective, including policy limits To all insureds as a collective, except for policy limits To each insured separately, except for policy limits

To each insured separately, except for policy limits

Which of the following might be considered a negligent act? Assaulting a neighbor over a boundary dispute Breach of an employment contract Unintentionally renting a leaky boat to vacationers Robbery of a sporting goods store

Unintentionally renting a leaky boat to vacationers