Deck 3: Managing Legal Risks

Question 1

Why does one assess the severity of potential losses when creating a legal risk management plan?

A) to establish insurance policies for employees exposed to greater risk
B) to delegate responsibility for devising the risk management plan
C) to prioritize identified risks and guide a given risk through the process
D) to identify mechanisms to adopt,avoid,or eliminate existing risks

Answer 1

C

Question 2

What is the overall primary objective of the legal risk management process?

A) prevention of loss
B) reduction of risk
C) transfer of risk
D) eliminating loss

Answer 2

B

Question 3

Benta recently purchased an office cleaning business with established long-term contracts to provide cleaning services to a number of large office building operators.Which of the following actions would immediately allow Benta to be aware of the potential legal risks with the building operators?

A) consult with a law firm to devise a legal strategy
B) consult and arrange insurance to cover legal risks
C) schedule introductory meetings with customers
D) review contracts and customer payment history

Answer 3

D

Question 4

Which of the following is the term "in-house lawyer" used to describe?

A) a lawyer working from home
B) a lawyer specializing in home sales
C) a lawyer working inside the business
D) a lawyer working in a law firm

Question 5

A business finds that employees are involved in many road accidents that result in damages to its fleet of motor vehicles,despite having driving training and instruction.Rather than fully insuring its equipment,the business elects to insure its vehicles subject to a deductible of $1,500 per vehicle.Which approach to risk management does this plan reflect?

A) risk avoidance
B) risk reduction
C) risk transference
D) risk retention

Question 6

In which of the following circumstances would an organization consider self-insurance to be an option?

A) where it is possible to minimize risk by diversion to another
B) where the organization has determined that risk retention is appropriate
C) where it is possible to create contract terms that achieve its objectives
D) where the undesirable result of an activity is less than its advantages

Question 7

What position,if any,would a lawyer have on the risk management team?

A) professional risk management supervisor
B) part of the executive management team
C) excluded from team; acts as legal consultant
D) part of the team or a consultant to the team

Question 8

Which two approaches are recommended for businesses to effectively manage their interaction with the law and legal issues?

A) precautionary and reactionary
B) risk aversive and risk detractive
C) preventive and reactive
D) managerial and risk detention

Question 9

Toyota Motor Corp.recalled 8.8 million cars after some of its vehicles were found to have unintended acceleration problems.Which goal of a legal risk management plan were Toyota's actions meant to achieve?

A) elimination of risk
B) facilitating self-insurance
C) evaluating risk
D) reduction of impact by implementation of plan

Question 10

In 2014,General Motors (GM)began recalling vehicles because of concerns about possible faulty ignition switches in some of its vehicles.What type of risk management strategies was GM attempting to employ when it initiated the recall?

A) risk avoidance and reduction
B) risk transference and retention
C) risk insurance and avoidance
D) risk evaluation and acceptance

Question 11

After several interviews and calls to follow up on references,Fashion By Design Inc.chooses a seasoned lawyer from a well-known commercial law firm to provide legal services to the company.Why does the company's management expend substantial effort during the lawyer selection?

A) to reduce stress level put on in-house counsel
B) to establish a productive,long-term relationship
C) to allow the risk to remain outside the business
D) to delegate risk management to outside source

Question 12

What set of methods is used when forming a risk management plan to limit exposure to legal risks?

A) avoid,reduce,transfer,and absorb
B) divert,decrease,and align risk
C) avert,tolerate,and lessen risk
D) reduce,shift,diversify risk

Question 13

Which of the following is an example of risk avoidance?

A) discontinuing products and product lines
B) self-insurance
C) insurance policy deductibles
D) hiring in-house legal counsel

Question 14

A company operating a dating website for married individuals has identified that technology-related risks,including the possibility of infiltration of its customer database by hackers,could pose a hazard to the company and its customers.What legal risk management step is the company engaged in?

A) evaluating potential risk; first step
B) reducing risk; second step
C) implementing,monitoring and revising; final step
D) devising a risk management plan; third step

Question 15

A private investment firm that deals exclusively in derivative investment products is concerned its market activities may become regulated.What measures should the institution take to begin to address its concerns?

A) establish an adequately funded cash reserve
B) manage legal risk with a plan to prevent loss
C) appoint a junior trader to monitor and assess possibility of loss
D) prepare a risk aversion policy manual

Question 16

Why is the inclusion of a limitation of liability clause in a commercial contract considered to be an effective solution for business legal risk management?

A) It triggers avoidance of liability in standard form commercial contracts.
B) It creates equity because it imposes the same terms on every customer.
C) It limits financial responsibility for damages if there is a breach of contract.
D) It transfers risk from the business owners to the business and its customers.

Question 17

What is the goal of the second step in the legal risk management process?

A) to identify the organization's functional areas and related risks
B) to carry out the plan,assess the probability of loss,and revise the plan
C) to determine priority concerns for risk management
D) to assess the probability and severity of loss

Question 18

Which of the following are usually classified as functional areas of a business?

A) production,human resources,finance
B) finance,accounting,training
C) marketing,education systems,finance
D) accounting,marketing,training

Question 19

Prior to completing the financing arrangements needed to fund the purchase of an IT consulting firm,Albert Brinkman met several times with his bank and his accountant to review the terms of the bank's financing offer against the business's financial statements.What activity and corresponding step in the legal risk management process is this?

A) avoiding the possibility of loss; first step
B) transferring legal risk; fourth step
C) evaluating severity of potential loss; third step
D) identifying risk in business decisions; first step

Question 20

Risk management is best viewed as a task that should be carried out by whom?

A) stakeholders within and outside the organization
B) senior managers
C) a single person within the organization
D) managers and employees at every level of the organization

Question 21

Duble Mining Ltd.began gold mining operations in Brazil a year ago.Recent changes in government policy cause the risk management department to transfer some uninsured risk to satisfy their commercial lenders.Which of the following actions by Duble Mining would immediately confirm to the commercial lenders that their requirements have been met?

A) hiring private security to guard the mine
B) selling shares to the public to raise capital
C) arranging a political risk insurance policy
D) engaging in political lobbying efforts

Question 22

Which of the following statements best describes the role of lawyers in a successful risk management plan?

A) Lawyers should always be retained to develop the risk management plan.
B) Lawyers may be part of the risk management team or may be consulted at various states of the process.
C) Lawyers should only be consulted after legal problems develop.
D) Organizations should maintain internal legal departments to handle all aspects of legal risk management.

Question 23

What approach to managing interaction with the law and legal issues has the following distinguishing characteristics: compliance with legal requirements and anticipation of changes in the legal environment?

A) preventative
B) anticipatory
C) precautionary
D) reactionary

Question 24

A food producer inadvertently labelled a batch of a food product incorrectly,indicating it was sulphate-free when sulphate was a standard ingredient.A number of incidents involving severe allergic reactions resulted in the product's removal from shelves and fines levied.What business function did this legal risk rise from?

A) labelling
B) production
C) marketing
D) advertising

Question 25

A trucking company owns a fleet of gravel trucks,and rather than fully insure the fleet,the company chooses an insurance policy that provides for a $5000 deductible in the event of a loss involving one of its vehicles.In choosing the $5000 deductible,what form of risk management is the company using?

A) risk evaluation
B) risk avoidance
C) risk retention
D) risk acquisition

Question 26

In which risk management process would consumer protection regulations regarding advertising be noted?

A) evaluation of potential losses
B) identification of legal risks
C) implementation of the plan
D) devising the management plan

Question 27

Escalating insurance premiums force Econo Courier Ltd.to re-evaluate its fleet's windshield coverage.The company negotiates a special rate with a local windshield chain and routinely sets money aside to pay for those costs when they occur.What form of risk retention is Econo using?

A) insurance deductibles
B) uninsured
C) noninsurance
D) self-insurance

Question 28

Which of the following risk management objectives would be strongly supported by the use of a limitation of liability clause in a contract?

A) It reduces the liability for the risk and is legally enforceable.
B) It transfers the risk,is legally enforceable,and is acceptable to the other party.
C) It eliminates the risk,limits the liability,and is acceptable the other party.
D) It retains a standard form of contractual of limited liability.

Question 29

Which of the following methods should be used to manage the risk of non-delivery by suppliers?

A) Impose arbitrary performance standards.
B) Check with the supplier's competitors.
C) Charge most supplier losses as expenses.
D) Perform a credit check on the supplier.

Question 30

Rollie's Electric Ltd.notes its lawyer's account for annual corporate fees has been paid twice.No refund was received; instead,a second account has been sent,marked "paid in full." Why are Rollie and his business associates now contacting other lawyers?

A) to devise a plan to recover the overpayment
B) to determine what action would be best
C) because lawyers' billing practices may vary
D) because circumstances warrant a change of lawyer

Question 31

Which of the following would strongly support a business strategy for managing risks uniquely associated with commitments made by employees to suppliers or customers?

A) Identify a knowledgeable individual to be risk department manager.
B) Retain legal counsel to act as in-house counsel to the business.
C) Establish policies and financial limits for commitments to customers.
D) Deal with each risk and assign responsibility for each action.

Question 32

Against which of the following possibilities should a high probability that a particular loss-causing event will occur be weighed during the risk evaluation process?

A) that the event will definitely occur and the loss is unavoidable
B) whether the likely occurrence may be offset by a low level of associated loss
C) whether a low probability will be offset by a high level of associated loss
D) that the event will likely never occur and should be ignored

Question 33

A cost-benefit analysis is conducted to assess the benefits of substituting a key compound in a herbal health specialty product formula.The substitution would involve the use of an untested inexpensive compound.What business function should be analyzed for legal risk?

A) costing
B) production
C) marketing
D) analyzing

Question 34

A staff member employed in the purchasing department has been experiencing a number of sexually harassing telephone calls from a sales representative of a new supplier.The matter is referred to the legal risk management department for analysis.Which function of the business must be analyzed?

A) business relations
B) human resources
C) employee relations
D) supplier relations

Question 35

Among its inventory of business decisions to be assessed for possible legal implications,Bellamy Solar Panels Inc.must review its ownership of land and the wording of its warehouse leases.Who has the ability to contribute the most to this assessment?

A) senior managers
B) a lawyer
C) in-house counsel
D) a leasing agent

Question 36

A food manufacturing company has determined that one of its most significant risks is potential customer illness or death from listeriosis or other contamination of its products.Which of the following is likely to be an important aspect of this company's risk management plan?

A) a limitation of liability clause in its contracts
B) self-insurance
C) risk reduction
D) Authority to contact legal counsel is restricted.

Question 37

How does the management of a legal crisis differ from managing legal risks?

A) Crisis management should focus on transferring risk.
B) Crisis management requires a quick and positive reaction.
C) Crisis management requires an organization to assess its functional areas.
D) Crisis management should be handled by public relations experts.

Question 38

Dontally Imports Inc.has an expiring contract that the overseas supplier is anxious to renew.However,supplier shortages caused difficulties for Dontally.Recently,it was able to secure a reliable,alternate source to meet its obligations to its large merchant customers.Which of the following actions should the legal risk department recommend regarding expiring contracts?

A) reduce the risk
B) eliminate the risk
C) transfer the risk
D) retain the risk

Question 39

Which of the following correctly identifies elements that would be contained in a legal risk management plan?

A) Transfer the risk and recommend contracts to address changes.
B) Identify the risk and hire insurance professionals to develop policies.
C) Identify the risk and monitor changes in legislation.
D) Track new manufacturing processes and implement new technology.

Question 40

Which of the following would immediately indicate that there are circumstances in need of priority consideration when measuring legal risk?

A) implementation of a standard form contract
B) matters where the potential loss is high
C) a review of long-term supplier contracts
D) topics for inclusion in risk policy manuals

Question 41

Law firms typically comprise a group of lawyers practising as sole practitioners.

Question 42

A limitation of liability clause in a customer contract is an example of risk transference.

Question 43

Risk avoidance is always the best policy.

Question 44

In-house legal counsel are highly trained commercial law specialists,capable of handling all of the business's litigation matters.

Question 45

Rahim's decision to increase the amount of the deductible on his business liability insurance policy will result in the business having to absorb the loss resulting from a future materialization of a legal risk.

Question 46

Identification of loss is the primary goal of a risk management plan.

Question 47

Evaluating risks involves assessing both the probability and severity of loss.

Question 48

Forecasting risk in international business transactions is often difficult.

Question 49

Most lawyers can be expected to have the expertise necessary to head up a risk management department.

Question 50

Insurance policies covering business risks will provide coverage for all losses as part of their standard terms,so there is no need for the legal risk management team to review the policies.

Question 51

Prevention of loss is the primary goal of a risk management plan.

Question 52

Lawyers are increasingly willing to offer a variety of fee structures such as billing at an hourly rate,standard fees for routine work,and annual retainers.

Question 53

Having a legal risk management plan is unnecessary for a small business entity.

Question 54

Employees are generally considered to be an unreliable source for identifying risks in an organization's functional areas.

Question 55

Risk avoidance is appropriate when the undesirable result of the activity is greater than the advantages.

Question 56

Requiring employees to wear protective equipment is an example of a risk avoidance strategy.

Question 57

Identifying legal risks may require an organization to analyze its operations and transactions.

Question 58

Anders will be able to support his recommendation that the business undertake development of a legal risk management plan by performing a subjective evaluation involving an assessment of both the probability and the severity of loss.

Question 59

Risk managers should have ample knowledge of the business,its activities,and the industry it operates in.

Question 60

Identification of potential exposure to legal risks involves assessing the organization's functional areas and reviewing its business decisions and business relationships.

Question 61

Identify and describe the four steps in creating a legal risk management plan.

Question 62

What initial step would you suggest that a business should go through in selecting a lawyer?

Question 63

What are risk avoidance,risk reduction,risk retention,and risk transference? When is each appropriate?

Question 64

What is enterprise risk assessment,and how is it related to a legal risk management plan?

Question 65

Risk avoidance involves the termination of an activity,and it is considered appropriate in circumstances where the legal risks associated with it are deemed to be too great.
2.Risk reduction is appropriate in circumstances where the implementation of practices is possible to lower the likelihood and severity of loss.
3.Risk retention is appropriate where circumstances justify absorbing the legal risks that arise.
4.Risk transference is appropriate in circumstances where it is possible to shift the risk to someone else (e.g.,through an insurance contract).

Question 66

Why is it important to evaluate both the probability and likely severity of loss when evaluating risk? Provide an example to illustrate your answer.

Question 67

Identify and briefly describe the legal risks associated with the human resources function of a business organization.Discuss the implications of not having a risk management plan in place with regard to its human resources.

Question 68

A crisis can arise when a minor event or expected event spirals out of control or an unexpected event occurs that an organization is not prepared to handle.What are some general principles a car manufacturer might consider when addressing a serious manufacturing defect affecting thousands of vehicles that will now have to be recalled?