6. Liability

Which of the following events is NOT considered an occurrence for insurance purposes? A) Wearing out clothing. B) Being struck by a falling object. C) Slipping and falling on icy pavement. D) Long-term exposure to chemicals.

Answer: A An occurrence is an accident as well as continuous or repeated exposure to the conditions that results in injury to persons or damage to property. The insured neither expects it nor intends it. Under the situations listed, only the wearing out of clothing is not an occurrence. By wearing the clothes, a person gradually damages or destroys them, resulting in a decline in their value. However, for insurance purposes, this is not a loss because it is the expected or intended consequence of wearing the clothes.

A repairperson knowingly uses faulty parts when he repairs a boiler. The court awards special, general, and punitive damages amounting to several million dollars. How will the repairman's comprehensive general liability policy respond? A) Special, general, and punitive damages are covered unless excluded. B) Special damages are covered. C) General damages are covered. D) Special and general damages are covered.

Answer: A Liability policies cover punitive damages with two exceptions: (1) some policies specifically exclude punitive damages; or (2) some states limit or preclude insurance from covering punitive damages as being against public welfare. In other words, when insurance pays for punitive damages, the person responsible for the damage is not being punished.

A person becomes seriously ill after eating unrefrigerated raw oysters from a street vendor. When the vendor is sued for negligence, what defense might best be used? A) Assumption of risk. B) Comparative negligence. C) Immunity. D) Last clear chance.

Answer: A Most reasonable and prudent people would know the potential danger of eating raw seafood. Therefore, it is likely that the vendor would use an assumption of risk defense. Other defenses against negligence are (1) assumption of risk-the injured person knew the dangers involved in the act that resulted in the injury; (2) contributory negligence-the injured party is shown to be negligent in some way in not avoiding harm; (3) comparative negligence-each party is shown to have been negligent to some degree; and (4) last clear chance-a plaintiff is not barred from recovery if the defendant had an opportunity to avoid an accident but failed to do so.

Bob has a liability policy in the amount of 300/500/100. How much coverage does he have per occurrence for property damage liability? A) $100,000.00 B) $50,000.00 C) $300,000.00 D) $500,000.00

Answer: A The limits of liability in an insurance policy may be expressed as a split limit. In the example, 300/500/100 indicates that Bob has $300,000 per person and $500,000 per occurrence for bodily injury liability, and $100,000 per occurrence for property damage liability. Limits of liability may also be expressed as a combined single limit, for example $300,000 per occurrence for bodily injury, property damage, or both combined.

All of the following coverages are typically included in the supplementary payments of a liability policy EXCEPT: A) loss of earnings. B) property damages the insured is found legally liable for. C) defense costs. D) first aid to others at the time of the accident.

Answer: B Property damages the insured is found to be legally liable for are covered under the applicable liability section of the liability policy. Supplementary payments are paid in addition to the policy's limit of liability and include items such as the expenses the insurance company incurs (defense costs, claim investigation expenses, interest on judgments, and other court related costs), premiums for certain types of bonds (bail, appeal, and release of attachment bonds), first aid to others at the time of the accident, and reasonable expenses the insured incurs (including loss of earnings).

Common exclusions with a liability policy would typically include all of the following EXCEPT: A) damage to property in the insured's care, custody, or control. B) injuries or damages caused unintentionally by the insured. C) damage to property owned by the insured. D) injuries or damages caused intentionally by the insured.

Answer: B Since the purpose of liability insurance is to protect the insured against financial loss in the event that they become legally obligated to pay the actual damages the insured caused to others, liability policies typically exclude items such as damage to the insured's property, bodily injury to the insured, damage to property in the insured's care, custody, and control, and injuries or damages caused intentionally by the insured.

An insured speeds through a residential neighborhood, almost striking several children. Under the insurance definition of negligence, such an insured would be held: A) negligent. B) strictly liable. C) not legally liable. D) legally liable.

Answer: C A person may be held liable for negligent acts if each of the following four elements is present: (1) legal duty to act (or refrain from acting); (2) failure to perform that duty (breach of duty); (3) injury or damage occurs; and (4) the breach of duty caused the injury or accident. Although the driver was reckless, no injury or damage occurred, and a person usually is not held legally liable unless all four of these elements are present.

An insured owns a small neighborhood grocery store. During a storm, a piece of the roof falls on the sidewalk. Several people are in the store at the time, but no one is injured. Under the insurance definition of negligence, such an insured would be held: A) negligent. B) strictly liable. C) not legally liable. D) legally liable.

Answer: C A person may be held liable for negligent acts if each of the following four elements is present: (1) legal duty to act (or refrain from acting); (2) failure to perform that duty (breach of duty); (3) injury or damage occurs; and (4) the breach of duty caused the injury or accident. No injury or damage occurred, and a person usually is not held legally liable unless all four of these elements are present.

What is meant by aggregate limit of liability? A) The most the insurance company will pay for defense costs. B) The maximum amount payable in any one occurrence. C) The maximum amount the policy will pay per policy period regardless of the number of claims. D) The most the insurance company will pay to one person.

Answer: C An aggregate limit is a type of policy limit found in liability insurance policies that limits coverage to a specified total amount for all losses occurring within the policy period.

Payments for losses that cannot be precisely measured, such as the loss of companionship of spouse from another, are called: A) special damages. B) spousal damages. C) general damages. D) punitive damages.

Answer: C General damages, which are payable in additional to special damages, are payments for noneconomic losses or losses that are not normally directly measurable. General damages include pain and suffering, mental anguish, and loss of companionship. Special damages are awarded for out-of-pocket or economic losses such as medical costs, loss or income, or damage to property. When the courts wish to send a message or punish a defendant for prohibited conduct, punitive damages may be ordered. They are usually awarded only when the harm has been caused by gross negligence or malicious intent.

Several unsupervised young children wander about your neighborhood. Although you have fenced your yard and pool, they climb both fences and swim in your pool. You've called their parents to complain and tell them that you will not be responsible if one of the children is injured or killed. When a child drowns in the pool, what type of liability would apply to you? A) Vicarious liability. B) Premises liability. C) Strict liability. D) None, because you have shifted liability to the parents.

Answer: C In general, the only duty (or degree of care) a property owner owes a trespasser (someone who enters the premises without permission) is to refrain from taking steps to harm the trespasser. However, a property owner has a special duty toward young children who may not be responsible for their actions. Young children may be drawn to the swimming pool which is considered an attractive nuisance or something that is man-made and potentially harmful to young children. Most courts would hold the owner strictly liable for any injuries or deaths. Strict liability is liability without fault.

The insured is in a hurry to get to work, fails to stop at a stop sign, speeds through an intersection, and strikes another vehicle. That vehicle hits another car that then jumps a curb and injures a pedestrian. What is the proximate cause of the accident? A) Failing to avoid an accident. B) Leaving late for work. C) Failing to stop at a stop sign. D) Speeding.

Answer: C In property and casualty insurance, proximate cause is the effective reason for loss or damage. It involves an unbroken chain of cause and effect between the occurrence of an insured peril or a negligent act and resulting injury or damage. The proximate cause of this loss (failure to stop) sets in motion an unbroken chain of events that leads to several losses (property and physical damage).

Liability policies provide certain supplementary payments that are: A) included in the policy's aggregate limits. B) paid only if the insured is found to be legally liable. C) paid in addition to the policy's regular limit of liability. D) included in the policy's occurrence limits.

Answer: C Liability policies include supplementary payments which provide coverage over and above the insured's limit of liability. The insured does not need to be found legally liable for these coverages to apply.

An insured owns a pet lion that is caged on the homeowner's property. The owner takes great care to warn neighbors of the possible danger by posting signs, fencing the yard, and locking the cage at all times. When a neighbor's child manages to open the cage and is bitten, what type of liability would apply to the lion owner? A) Contractual liability. B) Premises liability. C) Absolute liability. D) Vicarious liability.

Answer: C The law imposes strict or absolute liability for specific situations or activities that pose threats to the safety of others. People who own dangerous animals are held to a higher standard of care. Absolute liability applies when a person is liable for a dangerous condition regardless of the amount of care taken.

An employee is delivering packages for her employer but is using her own vehicle. The employee hits a pedestrian. The employer may be held liable because of the doctrine of: A) employer liability. B) workers' compensation. C) vicarious liability. D) gross negligence.

Answer: C Vicarious liability means that one person is liable for the negligent behavior of another, such as an employer being liable for the actions of its employee.

An occurrence is best described as something that: A) is expected. B) is intentional. C) happens when no one is present. D) may take place over time.

Answer: D An occurrence can refer to an accident or to continuous or repeated exposure to the same conditions, resulting in injury to persons or damage to property that is neither expected nor intended.

Which one of the following would be classified as a general damage? A) Medical bills. B) Damaged property. C) Lost wages. D) Pain and suffering.

Answer: D Compensatory damages compensate an injured party for injuries sustained, nothing more. Their purpose is to make a person whole again in the position that existed before the loss or harm. Compensatory damages are further categorized by: general damages, which necessarily result from the act or omission, such as emotional distress, inconvenience and pain and suffering; and special damages, losses measured in exact sums of money including medical bills, travel expenses for medical care, prescription costs, damaged property, and lost wages.