Deck 23: Commercial Liability Insurance

Question 1

A claims-made liability insurance contract pays for:

A) injuries suffered by the insured during the policy period
B) defense costs if the insured is sued, but not for actual damages awarded to a plaintiff
C) claims only when an insured is sued, but does not pay for defense costs
D) claims filed against the insured during the policy period

Answer 1

D

Question 2

Plumbers who serve as subcontractors are often held liable for:

A) professional liability
B) completed operations liability
C) toilet clog liability
D) This is a trick question; subcontracted plumbers cannot be held liable for anything once they complete a job.

Answer 2

B

Question 3

Keith hosts a New Year's Eve party, and Margaret attends the party. She drinks several beers at the party, and Keith provided the beers. She leaves the party in her car, has an accident and is injured. Which of the following is true?

A) All judges are required to find that Keith is liable for Margaret's injuries.
B) No judge will find that Keith is liable for Margaret's injuries, since he was not serving alcohol for a profit.
C) Margaret cannot sue Keith for any injuries sustained, since she voluntarily consumed the alcohol.
D) None of the above

Answer 3

D

Question 4

All of the following have contributed to the increasing costs corporate liability risks, except:

A) higher tax rates
B) the passage of acts protecting the environment
C) more litigious consumers
D) decreased use of contributory negligence

Question 5

Which of the following theories provides that the "injury" occurs when the disease is first diagnosed?

A) Exposure theory
B) Double trigger theory
C) Manifestation theory
D) Retroactive theory

Question 6

Under a claims-made liability insurance policy, the insurer will pay if the injury sustained by the claimant:

A) occurs during the policy period
B) occurs after the policy period
C) is first reported during the policy period, regardless of when the actual accident may have happened
D) is first reported during the policy period, and if the accident causing the injury occurred after the policy's retroactive date

Question 7

Which of these is not a criticism of the current tort system?

A) Fraud is reduced by using our current tort system.
B) Recovery under the tort system is often slow.
C) Much of the money that changes hands does not go to the injured party.
D) Negligence is difficult to determine in many cases.

Question 8

From the plaintiff's standpoint, a successful products liability suit can arise from all of the following except:

A) a poorly designed product injures a consumer
B) a faulty manufacturing job results in injury
C) a person uses a product that was accompanied by inadequate instructions, and is injured
D) improper pricing of the product

Question 9

Which of the following is false concerning Environmental Impairment Liability (EIL) coverage?

A) It is expensive and difficult to place.
B) Most small firms do not need it since they are immune from liability.
C) The content of the insurance contract is subject to negotiation between insureds and insurers.
D) Federal laws impose legal responsibility on polluters.

Question 10

Vicarious liability will be covered under a:

A) professional liability policy
B) directional liability policy
C) illegal activities liability policy
D) direct liability policy

Question 11

Which of the following types of legal liability coverage is most likely to have a "long tail" problem, and thus be insured under a claims-made contract?

A) Water craft liability
B) Auto liability
C) Contractual liability
D) Products liability

Question 12

Which of the following occupations would generally not need professional liability insurance for damage done at work?

A) Insurance agent
B) Accountant
C) Barbers and hairdressers
D) Professional football players

Question 13

Long-tail claims are those filed:

A) as a result of animal injuries
B) by shareholders against the board of directors of a corporation
C) several years after the actual injury takes place
D) in a no-fault state

Question 14

The ADA holds a business responsible for providing:

A) guaranteed jobs for disabled workers
B) opportunities for disabled workers
C) opportunities for drunk workers
D) retirement benefits for disabled workers

Question 15

Which of the following is not a defense of the tort liability-system?

A) Encourages good driving
B) Reduces fraud
C) Places the blame for negligence on those responsible
D) Maximizes the dollars going to the injured due to legal involvement of attorneys

Question 16

Libel committed by a business can result in a lawsuit that asks the business to pay:

A) personal injury damages
B) bodily injury damages
C) loss of consortium damages
D) dram shop benefits

Question 17

Indhar is seriously injured by Monica's negligence when she crashes her car into his. Both have automobile liability policies in force. Under the tort liability system:

A) Indhar will be compensated by Monica's automobile liability insurer
B) Indhar will be compensated by his liability insurer, which will also compensate Monica
C) Indhar and Monica will each collect from the Federal Emergency Management Agency.
D) none of the above

Question 18

Indhar suffers minor injuries when Monica negligently crashes her car into his. Monica is also slightly injured in the accident. Both of them have automobile liability policies in force. Under the no-fault liability system:

A) Indhar will be compensated by Monica's automobile liability insurer
B) Indhar will be compensated by his liability insurer, which will also compensate Monica
C) Indhar and Monica will each collect from the Federal Emergency Management Agency
D) each will collect from their own auto insurance policy

Question 19

Proponents of no-fault automobile legislation argue that the tort-liability insurance system:

A) pays too much for big claims and too little for small claims
B) pays claims too quickly and passes the increased cost on to motorists
C) encourages bad driving and accidents
D) is not efficient in returning dollars to automobile accident victims

Question 20

Businesses typically insure their primary liability exposures using:

A) the commercial general liability policy
B) the business owners liability package policy
C) hold-harmless agreements
D) the comprehensive business policy

Question 21

The Americans with Disabilities Act (ADA) requires employers to do which of the following?

A) Hire a minimum number of disabled persons
B) Discriminate in favor of disabled persons
C) Actively seek out disabled persons as potential employees
D) Make reasonable accommodations for disabled employees or qualified job applicants

Question 22

Which of the following is not a possible solution for alleviating the medical liability problem?

A) Forcing healthcare workers to provide evidence of competence on a yearly basis
B) Redefining "negligence" to eliminate "minor" mistakes
C) Limiting contingent fees for lawyers
D) Limiting the size of jury awards

Question 23

All the following are suggestions for reducing the cost of commercial liability coverage except:

A) statute of limitations on filing suits
B) reduce non-economic injuries
C) end contingency fees for lawyers
D) eliminate state of the art evidence rules

Question 24

The long tail problem is present in several types of legal liability coverage because:

A) sudden and accidental events causing injury must be paid for by existing contracts
B) the time between the injury and payment of the claim is long
C) the time between the discovery of the injury and the time the lawsuit is filed is usually long
D) insurance companies generally do not cover events discovered after the policy has expired

Question 25

Which of the following products would be most likely to create a long-tailed liability exposure?

A) Prescription drug
B) Hypodermic needle
C) Hairbrush
D) Beach ball

Question 26

A "state of the art" defense would mean a product manufactured using current technology could not be judged against the performance of a product using improved technology unavailable at the time the product was made.

Question 27

Which of the following factors is primarily responsible for the increase in medical malpractice insurance premiums?

A) Losses on medical malpractice claims
B) The number of attorneys per capita
C) The number of doctors working in managed care systems
D) A decline in physician intelligence

Question 28

All of the following would be covered by an Environmental Impairment Liability (EIL) policy except:

A) chicken processor dumps pollution into a stream and ruins nearby drinking water
B) chemical plant releases toxic gases and makes nearby residents sick
C) gas station leaks gasoline from underground storage tanks
D) chemical firm mislabels a chemical which causes injury to the user

Question 29

All the following are possible remedies for the products liability problem except:

A) a federal uninsured consumer fund for making claims payments
B) a limit on "pain and suffering" damage claims
C) an end to contingency fees for lawyers
D) reduce the cost of product liability awards

Question 30

"Social inflation" means a person can collect additional damages after the original judgment because costs increase (as reflected by the Consumer Price Index).

Question 31

Professional liability insurance policies usually:

A) are not available in today's marketplace
B) do not provide a defense for the insured
C) do not give the insurer the right to settle suits without the insured's consent
D) are not available for insurance agents

Question 32

The Americans with Disabilities Act (ADA) resulted in which of the following?

A) Better employment opportunities for disabled Americans
B) An increase in costs for employers
C) An increase in litigation
D) All of the above

Question 33

Which of the following theories says an "injury" occurred when the injured person first experienced the disease-causing substance?

A) Exposure theory
B) Double trigger theory
C) Manifestation theory
D) Retroactive theory

Question 34

Why are insurance pools used to insure nuclear energy liability, rather than private insurance mechanisms?

A) There is unlimited liability when a nuclear event occurs.
B) It is impossible to measure the loss.
C) Individual insurers cannot replace lost electricity when a nuclear plant shuts down.
D) The loss could be greater than even the largest insurance company could handle.

Question 35

All the following are true of business liability umbrella policies except:

A) always requires the insured to maintain certain minimum amounts of underlying liability insurance coverage
B) it provides coverage after the underlying liability policies have been exhausted
C) is often called excess liability coverage
D) pays only for losses in excess of the underlying limits

Question 36

The controversy over class action liability suits:

A) is silly
B) centers on the fact that there is too much publicity surrounding them
C) offer potential advantages to all parties involved
D) centers on the fact that there are too many defendants and plaintiffs in one court room

Question 37

All the following are legal duties of a product manufacturer except:

A) police vendor's activities when the product is in the vendor's hands
B) manufacture safe products
C) provide safe packaging
D) provide adequate instructions

Question 38

Which of the following statements about medical liability is false?

A) In the 1970s, medical liability insurance premiums rose rapidly, and some types of insurance were simply not available.
B) The most frequent type of claims brought against physicians today allege failure to diagnose, failed surgery, or improper treatment.
C) Defensive medical costs are not incurred under today's tort liability system.
D) Several solutions for dealing with the medical liability problem have been proposed, but none address the problem of professional incompetence.

Question 39

Which of the following is not a type of professional liability policy available in today's insurance marketplace?

A) Physicians', surgeons', and dentists' policy
B) Hospital liability policy
C) Directors' and officers' liability insurance
D) Business auto liability insurance

Question 40

If a policy is written on a claims-made basis, the insurer is liable only if the:

A) loss occurred before the policy period
B) claim is made after the policy period
C) insured notifies the insurer of an occurrence before the policy period expires
D) claim occurs during the policy period and arises from an occurrence after the retroactive date

Question 41

When a governmental body creates legal rights for a particular group of people, employers may find that they have new exposures to employment practices liability.

Question 42

Explain the idea behind business liability umbrella policies.

Question 43

One of the suggested solutions for the product liability problem is a statute of limitations to bar defendants from having any allowed defense after seven years.

Question 44

No-fault auto insurance is designed to cover only those accidents for which no driver is clearly at fault.

Question 45

Explain the need for a claims-made form. Explain how a liability insurance contract written on a claims-made form works.

Question 46

An "occurrence" based policy is also known as a "claims made" policy in professional liability insurance.

Question 47

A claims-made contract pays for claims made in the policy period that stem from occurrences that took place after the retroactive date.

Question 48

Legal rules dictate how an employer must act from the time a job position is created until the time that position is eliminated.

Question 49

One of the suggested solutions to the professional liability problem is a redefinition of the term "negligence."

Question 50

The liability insurance policy currently used by many business firms is known as the Commercial General Liability Policy.

Question 51

Today more states operate some form of no-fault automobile insurance law than tort liability law.

Question 52

No-fault insurance assumes that the defendant is always at fault, and is thus a form of strict liability insurance.

Question 53

If the EEOC does not find an employer guilty of discrimination, the employee must accept its decision without further action against the employer.

Question 54

The term "professional liability insurance" is also known as "errors and omissions" insurance.