Chapter 3 Exam

*P's liability policy has the following limits: $50,000 per person, $250,000 per occurrence, and $400,000 aggregate. During the policy period, the policy paid out $250,000 in liability claims. If P suffers another loss of $250,000 during the same policy period, how much will the policy pay?

$150,000 400,000-250,000 = 150,000 left *Because the policy has an aggregate limit of $400,000 during the policy period, and has already paid out $250,000, the most it will pay for the remainder of the period is $150,000, regardless of the amount of loss.

*H's liability policy has the following limits: $35,000 per person, $350,000 per occurrence, and $2,000,000 aggregate. This year, three claimants file in the amount $15,000, $30,000, and $45,000. How much will the policy pay?

$80,000 The per person limit prevents the policy from paying any more than $35,000 per person. Therefore, the $15,000 and $30,000 claims will be paid in full, but the $45,000 claim will only be paid up to the per person limit of $35,000.

Which of the following statements about medical payments is false? A: Medical payments cover personal injury B: General damages compensate the injured party for pain and suffering C: Medical payments coverage is provided to discourage lawsuits D: Specific damages compensate the injured party for actual damages

A: Medical payments cover personal injury

An unintended and unforeseen event from which a loss results is called which of the following?

Accident

Negligence is what kind of tort?

An unintentional tort

All of the following are common law defenses against negligence, except: A: Contributory negligence B: Statute of Limitations C: Intervening cause D: Assumption of risk

B: Statute of Limitations The Statute of Limitations is a statutory defense, not a common law defense.

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

C: Breach of contract

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

C: The injured party must prove the wrongdoer committed a criminal act

*When damages are reduced in proportion to the degree of negligence, this is an example of:

Comparative Negligence Note: Comparative negligence is a defense wherein 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.

*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 defenses against negligence prevents recovery for injuries caused by a negligent party if the claimant was also negligent?

Contributory Negligence

*Which of the following statements about liability insurance is false? A: Property damage includes physical injury to tangible property and loss of use B: Loss of consortium means the loss of companionship of a spouse C: Personal injury includes libel, slander, and false arrest D: Bodily injury includes personal injury, sickness and disease

D: Bodily injury includes personal injury, sickness and disease *Bodily injury does not include personal injury.

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

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?

Each policy pays its pro rata 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.

Losses that cannot be calculated objectively, such as pain and suffering or mental anguish, are considered:

General Damages

Which of the following terms includes pain and suffering, disfigurement, and mental anguish?

General damages

A second negligent act that interferes with the chain of events leading to a loss is known as a(n):

Intervening cause Note: An 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.

A chain of events may be broken by which of the following, thus freeing the defendant from liability?

Intervening cause Note: An intervening cause breaks a natural and continuous sequence of events that are necessary to establish negligence.

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 Note: 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.

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

Q runs a stop sign causing an oncoming vehicle to swerve and hit a tree. Q is guilty of:

Negligence

What type of liability policy requires the injured party to collect benefits from his/her own insurance as if it were first-party coverage, eliminating the process of determining negligence?

No fault Note: Under a no-fault liability policy, 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.

Which of the following is an example of GENERAL damages?

Pain. 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. General damages are paid to compensate losses that cannot be calculated objectively.

Medical payments coverage includes which of the following?

Payment of necessary medical expenses incurred by an injury on the insured's premises Note: Medical payments coverage pays for bodily injury caused by an accident on the insured's property or arising form the insured's activities, whether or not the insured is legally liable. Coverage does not extend to insureds, employees, or residents of the premises.

*Liability coverage is designed to:

Protect the insured from bodily injury and property damage they are legally obligated to pay Note: Liability insurance only provides coverage for legal liability arising from unintentional torts for bodily injury or property damage to others caused by an insured.

Most liability policies do not provide coverage for:

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.

What is the principle of liability that imposes legal liability for injury and damage by products?

Strict liability Note: Strict liability applies to PRODUCTS causing an injury, whether or not the product was defective.

Which of the following is true regarding a negligence claim?

The claimant must demonstrate that the wrongful actions of the insured were the direct or proximate cause of the claimed injury or damages. Note: Liability is not the same as negligence. Liability may be assessed without regard to fault, but a negligence claim has a higher burden of proof.