Risk and Insurance Chapter 10 and 16

Before implementation of workers' compensation laws in the United States, employees were seldom paid for work-related injuries. The injured employee's ability to recover damages was hindered by the fact that even a negligent employer could use three common law defenses to disavow liability for workers' injuries. Which of the following is a common law defense? A: Fellow-servant rule B: Unforeseeable Misuse C: Attractive nuisance D: Concurrent negligence E: Proximate cause

A

Identify the situation that is most likely to be covered by workers' compensation. A: A firefighter suffers a heart attack off-duty. B: An employee injured while engaged in horseplay during a vacation. C: An employee injured due to willful misconduct. D: A cab driver who was intoxicated meets with an accident while driving. E: Self-inflicted injuries.

A

In workers' compensation, weekly benefits for death, disability, and disfigurement are primarily based on the employee's: A: average weekly wage multiplied by a replacement ratio, expressed as a percentage of the average weekly wage. B: lowest weekly wage multiplied by replacement ratio, expressed as a percentage of the lowest weekly wage. C: average annual wage multiplied by a replacement ratio, expressed as a percentage of the average monthly wage. D: highest weekly wage multiplied by a replacement ratio, expressed as a percentage of the highest weekly wage. E: average annual wage multiplied by a replacement ratio, expressed as percentage of the average annual wage.

A

Perpetual insurance policies remain in force: A: until canceled by the insured or the insurer. B: for the entire life of the insured. C: for a three-month or six-month period, but most are for a year. D: as long as premiums are paid. E: as long as there is no dispute between the insurer and the insured.

A

Several retrospective plans with various minimum and maximum premium stipulations are available. If you are conservative with respect to risk, you will prefer: A: a low minimum and a low maximum limit for premium payment. B: a high minimum and a low maximum limit for premium payment. C: a low minimum and a high maximum limit for premium payment. D: a high minimum and a high maximum limit for premium payment. E: not to opt for a retrospective plan.

A

The 1992 Chicago flood required that Marshall Fields downtown store close its doors for several days while crews worked to clean up damage caused by the flood waters. Identify this loss. A: Business interruption loss B: Preventative loss C: Accidental loss D: Extra expense loss E: Punitive loss

A

This receipt does not bind the coverage of life insurance at the time it is issued, but it does put the coverage into effect retroactive to the time of application if one meets all the requirements for insurability as of the date of the application. A claim for benefits because of death prior to issuance of the policy generally will be honored, but only if you were insurable when you applied. Identify this receipt. A: Conditional receipt B: Binding receipt C: Estoppel D: Facultative receipt E: Waiver receipt

A

Under these programs, each employer is responsible for paying the losses of the group when necessary—such as in the case of a member's insolvency. The employer's risk is not transferred; only the payment of losses is shared through the pooling mechanism. The members of these programs buy stop-loss coverage and are required to obtain regulatory approval for their existence. Identify these programs. A: Group self-insurance programs B: Captive reinsurance programs C: State-operated workers' compensation programs D: Captive insurance programs E: Stock reinsurance programs

A

Which of the following statements is true about the residual market? A: Premium rates for insureds in this market are higher than those of the voluntary market. B: Firms that qualify for insurance based on normal underwriting guidelines and premiums can buy insurance through this market. C: Operating losses in this market is lesser than operating losses in an assigned risk plan. D: Gains in this market can be 15 to 30 or more of premiums for employers insured in the voluntary market. E: Firms self-insure rather than opting for insurance in this market to retain profits obtained through self-insurance.

A

A waiver of premium rider increases the benefits of a life insurance policy by: A: providing for continued coverage without continued payment of premiums after a specific age. B: providing for continued coverage without continued payment of premiums if the insured becomes totally disabled. C: paying the face value to the insured before his or her death, after the premium payment period is over. D: providing for continued coverage without payment of premiums in case of certain conditions. E: insuring a few exposures that are normally not insured in a life insurance policy.

B

It is important to understand the nature of such a policy because the insured has to look for what is not covered rather than what is covered. Identify this perils policy. A: Named-perils policy B: Open-perils policy C: Flexible-perils policy D: No risk perils policy E: Closed-perils policy

B

Most laws specify that the loss of certain body parts constitutes: A: permanent total disability. B: permanent partial disability. C: temporary total disability. D: temporary partial disability. E: derived sole injury.

B

The insuring agreement provides a general description of the circumstances under which the policy becomes applicable. The circumstances include the covered loss-causing events, called: A:exposures. B: perils C: moral hazard. D: adverse selection. E: morale hazard

B

Which part of the workers' compensation policy includes employers' liability that protects against potential liabilities not within the scope of the workers' compensation law, yet arising out of employee injuries? A: Part 1 B: Part 2 C: Part 3 D: Part 4 E: Part 5

B

Identify the correct statement about waiting periods in workers' compensation. A: Every jurisdiction has a waiting period before medical benefits for temporary disability can begin. B: The waiting period has the advantages of giving a financial incentive to work, but it increases administrative costs and the cost of benefits. C: Moral hazard is created among employees who reach maximum medical improvement just before the time of the retroactive trigger. D: Hawaii allows retroactive benefits. E: Waiting periods do not exist for indemnity payments for temporary disabilities.

C

Identify the correct statement about workers' compensation in states with elective laws. A: An employer who opts out of workers' compensation retains the common law defenses. B: If only the employee opts out of workers' compensation, the employer looses the common law defenses for that employee. C: If both the employer and employee opt out of workers' compensation, the employer loses the common law defenses. D: It is common for employees to opt out of workers' compensation. E: Employees who opt out of workers' compensation must prove negligence in order to collect and need not overcome the employer's common law defenses.

C

Income replacement benefits under workers' compensation are commonly referred to by industry personnel as: A: elective benefits. B: exclusive benefits. C: indemnity benefits. D: derived benefits. E: sole benefits.

C

The comprehensive glass policy insures against all glass breakage except those caused by: A: earthquake, war, or terrorist activities. B: fire, flood, or earthquake. C: fire, war, or nuclear peril. D: flood, hurricane, or volcanic eruptions. E: hurricane, earthquake, or nuclear peril.

C

Which of the following are damages assessed against defendants for gross negligence, supposedly for the purpose of punishment and to deter others from acting in a similar fashion? A: Contingent damages B: Bodily damages C: Punitive damages D: Facultative damages E: Personal damages

C

An employee injured while using a product manufactured by another division of the company might seek a products liability claim against the employer. Identify this attempt to circumvent the exclusivity rule. A: Third-party over action B: Indemnification C: Gentrification D: Dual capacity E: Claim for intentional injury

D

Consequential losses are also known as: A: direct losses. B: accidental losses. C: extra expense losses. D: indirect losses. E: punitive losses.

D

Some organizations choose to continue operating following property damage, but they are able to do so only by incurring additional costs known as: A: preventative losses. B: dependent losses. C: contingent business interruption losses. D: extra expense losses. E: facultative losses.

D

Under this common law defense, if an employee was injured through negligence of the employer but was partly at fault, the employer was relieved of responsibility for the injury. Identify this common law defense. A: Concurrent negligence B: Assumption of risk C: Attractive nuisance D: Contributory negligence E: Fellow-servant rule

D

Which of the following sections is generally the first part of the insurance policy? A:Conditions B:Endorsements and riders C: Exclusions D: Declarations E: Insuring agreement

D

Which of the following statements is true about exclusions? Losses caused intentionally by the insured are not excluded. A: Wear and tear is included in insurance coverage. B: Exclusions encourage adverse selection and moral hazard. C: Losses that are not accidental make prediction difficult. D: Naturally occurring losses that are expected are not E:excluded in insurance coverages.

D

Which of the following statements is true about periods of coverage and limitations of liability? A: Life insurance policies promise to pay a specified amount for total expenses during one's lifetime. B: Health policies typically limit payment to the face amount of the policy. C: Term life policies often provide coverage for the entire life of the insured. D: Perpetual policies remain in force until canceled by the insured or the insurer. E: Liability policies provide coverage up until a specified age.

D

_____ loss to property is the value that is physically destroyed or damaged, not the loss caused by inability to use the property. A: Consequential B: Accidental C: Business interruption D: Direct E: Indirect

D

Identify the element of the insurance contract that is a general statement of the promises the insurer makes to the insured. A: Conditions B: Endorsements and riders C: Exclusions D: Declarations E: Insuring clauses

E

One form of the homeowner's policy, HO-2, insures for direct loss to the dwelling, other structures, and personal property caused by eighteen different perils. Only losses caused by these perils are covered. Riot or civil commotion is listed, so a loss caused by either is covered. On the other hand, earthquake is not listed, so a loss caused by earthquake is not covered. Identify the perils policy of HO-2. A: Closed-perils policy B: Flexible-perils policy C: Open-perils policy D: All risk perils policy E: Named-perils policy

E

Various market mechanisms, such as assigned risk pools and reinsurance facilities, allow employers that are considered uninsurable access to workers' compensation insurance. Employers with large losses, as depicted by high experience ratings, are considered high risk. These employers encounter difficulty in finding workers' compensation coverage. The way to obtain coverage is through these involuntary markets. Identify this market. A: Secondary market B: Complimentary market C: Primary market D: Sundry market E: Residual market

E

Which of the following statements is true about unemployment compensation programs? A: It is a quasi-social private insurance. B: Private insurers are willing to provide this type of insurance. C: Unlike workers' compensation, this law does not transfer any financial element of a risk faced by the employee to the employer. D: Like workers' compensation, the firm's risk manager has a choice with regard to how the risk is handled. E: Neither private insurance nor self-insurance is permitted for these programs.

E

Which of the following statements is true about workers' compensation? A: Exclusive laws list all the types of employment that are covered under workers' compensation. B: Workers' compensation for agricultural workers in excluded in all jurisdictions. C: Inclusive laws cover all the types of employment under workers' compensation except those that are excluded. D: Domestic service and casual labor are included in workers' compensation. E: Workers' compensation laws not compulsory in New Jersey and Texas.

E

With cancelable policies, the insurer is responsible under a binder for losses that: A: occur due to pure risk exposures. B: the underwriter thinks are insurable. C: occur due to idiosyncratic risk exposures. D: occur throughout the term of the policy. E: occur prior to cancellation.

E

A binder cannot be oral because it becomes very difficulty to prove its existence in case of a dispute.

False

Apart from the exclusions, work-related injuries due to employee negligence are not covered by workers' compensation.

False

Exclusive laws list all the types of employment that are covered under workers' compensation.

False

Insuring clauses do not vary greatly from policy to policy.

False

Liability policies usually cover damage to or loss of others' property in the care, custody, or control of the insured because these properties are considered as the insured's properties.

False

Losses due to wear and tear are excluded because they are accidental rather than inevitable.

False

Losses that are accidental make prediction difficult, cause coverage to be expensive, and represent circumstances in which coverage would be contrary to public policy.

False

More insurance is bought rather than sold.

False

Occupational illness claims are not covered by workers' compensation.

False

Personal injury is the physical injury to a person, including the pain and suffering that may result.

False

Severity is a better indicator of safety performance than frequency.

False

Suspension of an insurance contract negates coverage as long as some condition exists. Once the condition is eliminated, protection reverts after a new agreement between the parties.

False

Workers' compensation and unemployment compensation are voluntary programs required of employers.

False

Workers' compensation benefits are subject to income taxation.

False

These limitations include any payments in excess of the benefits regularly required by workers' compensation statutes due to (1) serious and willful misconduct by the insured; (2) the knowing employment of a person in violation of the law; (3) failure to comply with health or safety laws or regulations; or (4) the discharge, coercion, or other discrimination against employees in violation of the workers' compensation law.

Part 1

Employers' Liability, protects against potential liabilities not within the scope of the workers' compensation law, yet arising out of employee injuries. The insurer agrees to pay damages for which the employer becomes legally obligated because of "bodily injury by accident or disease, including death at any time resulting there from ... by any employee of the insured arising out of and in the course of his employment by the insured either in operations in a state designated in ... the declarations or in operations necessary or incidental thereto."

Part 2

workers' compensation policy provides Other States Insurance. Previously, this protection was available by endorsement. Part 1 applies only if the state imposing responsibility is listed in the declarations. To account for the case of an employee injured while working out of state who may be covered by that state's compensation law, the Other States Insurance part of the workers' compensation policy allows the insured to list states where the employees may have potential exposure.

Part 3

All medical care costs have, for decades, grown much faster than the overall consumer price index.

True

All types of self-insurance require the use of stop-loss coverage through reinsurance.

True

An open-perils policy provides broader coverage than a named-perils policy.

True

Employers with high experience ratings are considered high risk.

True

Health insurance policies often are written on an open-perils basis.

True

The estate tax repeal rider, which exemplifies the need to modify policies as tax laws change, was created in response to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001).

True

The federal portion of the unemployment compensation insurance program is administered by the Employment and Training Administration in the Department of Labor.

True

Unemployment compensation is a purely social insurance program.

True