AD Banker Casualty (Liability) Basics

Question 1

Z is a distributor of natural gas. While connecting gas to B’s house, an explosion occurs and the house is destroyed. Z’s defense is that B did not turn off the pilot light on her furnace before the hookup as instructed by the company. The court ruled that the activities of connecting gas lines were so dangerous that Z’s defense did not relieve its liability. What legal principle is applicable in this case?

A
Contributory negligence

B
Assumption of risk

C
Comparative negligence

D
Absolute liability

Answer 1

D (Some activities are so inherently dangerous that they are bound by the principle of Absolute Liability, which states that no degree of care taken by the insured can defend against a charge of negligence.)

Question 2

Medical expenses and loss of earnings awarded to an injured party are considered:

A
Punitive damages

B
Physical damages

C
General damages

D
Special damages

Answer 2

D (Special damages are awarded to an injured party for actual and known expenses such as medical bills, loss of earnings, and the cost of repairing or replacing damaged property.)

Question 3

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

A
Absolute liability

B
Contingent liability

C
Strict liability

D
Professional liability

Answer 3

C (Strict liability applies to products causing an injury, whether or not the product was defective.)

Question 4

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, is the description of which of the following?

A
Pro rata liability

B
Contribution by equal shares

C
Excess insurance

D
Assumed liability

Answer 4

B (Under a contribution by equal shares provision, each insurer pays an equal amount to the loss settlement until the loss is paid, or until each insurer has exhausted its limits of insurance, whichever comes first.)

Question 5

The maximum amount a policy will pay in the event of a loss, regardless of the number of insureds, claims made, lawsuits filed, or parties making claims is the:

A
Deductible

B
Premium

C
Split limit

D
Limit of liability

Answer 5

D (The limit of liability, or limits of insurance, are shown on the policy declarations page and are the most paid by the policy regardless of the number of insureds, claims made, lawsuits filed, or parties making claims or filing lawsuits.)

Question 6

Which of the following types of liability limits allow the most to be paid for a single occurrence without regard for the number of claimants?

A
Per Person Limit

B
Comprehensive Limits

C
Split Limits

D
Combined Single Limit

Answer 6

D (Under a Combined Single Limit policy, the policy will pay both bodily injury and property damage claims without regard to the number of claimants.)

Question 7

The formal statement an insured provides to an insurer, including all the details an insurer needs to assess its liability following a loss, is known as a:

A
Notice of loss

B
Binder

C
Certificate of Insurance

D
Proof of loss

Answer 7

D (A proof of loss is a formal statement made by the insured and provided to the insurer that provides necessary details for the insurer to determine its liability under a policy.)

Question 8

Which of the following is true about an aggregate limit?

A
It applies to losses from all occurrences within a specified policy period

B
It replaces the per occurrence limit for each loss

C
It is a lifetime limit

D
It applies per occurrence

Answer 8

A (Aggregate limits apply to loss from all occurrences during the policy period.)

Question 9

Which is the best description of punitive damages?

A
Punitive damages are so limited as to be punitive toward the plaintiff

B
Punitive damages are assessed as a punishment for extremely objectionable conduct by a negligent party

C
Punitive damages are limited to disfigurement and mental anguish

D
Punitive damages are assessed in addition to specific damages for the benefit of low-income plaintiffs

Answer 9

B (Punitive Damages are an award to an injured party, in addition to compensatory damages, intended to discourage a wrongdoer from repeating negligent acts or omissions.)

Question 10

Which description applies to General Damages?

A
Those damages that can be documented

B
General Damages include punitive damages

C
Damages to the general public rather than to a specific party

D
Compensation to an injured party for pain, suffering, mental anguish, disfigurement and similar types of losses

Answer 10

D (General Damages are damages that are likely to continue into the future, and where it is difficult to put a final figure on the losses.)

Question 11

All of the following statements regarding liability losses are correct, except:

A
Personal injury includes libel, slander, and false arrest

B
Bodily injury includes personal injury, physical injury, sickness and disease

C
Property damage includes physical damage to tangible property, including loss of use of that property

D
Loss of consortium means the loss of companionship of a husband or wife

Answer 11

B (Bodily Injury does not include personal injury.)

Question 12

Which of the following is true regarding a negligence claim?

A
An uninjured party to an accident is presumed to be negligent

B
Every accident resulting in bodily injury or property damage is due to a negligent act

C
In every accident there is one or more negligent parties

D
The claimant must demonstrate that the wrongful actions of the insured were the direct or proximate cause of the claimed injury or damages

Answer 12

D (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.)

Question 13

The person specifically designated in the policy as the person with whom the contract of insurance has been made, is considered to be the:

A
Contract Insured

B
Additional Insured

C
Named Insured

D
Contingent Insured

Answer 13

C (The Named Insured is the entity with whom the insurance contract is made. When there is more than one entity designated as named insured in the policy, then contractual obligations are transacted with the first one designated, known as the first named insured.)

Question 14

Liability coverage is designed to:

A
Protect the insured from bodily injury and property damage they are legally obligated to pay

B
Permit the insured to countersue the insurer for losses not covered

C
Cover injuries and damages caused by the insured’s intentional and unintentional actions

D
Protect an insured from being sued by an injured party

Answer 14

A (Liability insurance only provides coverage for legal liability arising from unintentional torts for bodily injury or property damage to others caused by an insured.)

Question 15

Which description applies to General Damages?

A
Those damages that can be documented

B
Damages to the general public rather than to a specific party

C
Compensation to an injured party for pain, suffering, mental anguish, disfigurement and similar types of losses

D
General Damages include punitive damages

Answer 15

C (General Damages are damages that are likely to continue into the future, and where it is difficult to put a final figure on the losses.)

Question 16

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

Answer 16

A (Medical payments pays for bodily injury without regard as to fault by the insured. Personal injury expenses are not covered.)

Question 17

Which of the following is true about an aggregate limit?

A
It replaces the per occurrence limit for each loss

B
It is a lifetime limit

C
It applies per occurrence

D
It applies to losses from all occurrences within a specified policy period

Answer 17

D (Aggregate limits apply to loss from all occurrences during the policy period.)

Question 18

Which of the following is an example of general damages?

A
Repair costs

B
Loss of income

C
Pain

D
Medical expenses

Answer 18

C (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.)

Question 19

The most a policy will pay for a loss arising out of any one accident regardless of overall policy limits, is known as the:

A
Per occurrence limit

B
Split limit

C
Aggregate limit

D
Per person limit

Answer 19

A (The per occurrence limit represents the most the policy will pay for all losses arising out of any one occurrence, regardless of other policy limits.)

Question 20

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

A
Punitive damages

B
Physical damages

C
General damages

D
Special damages

Answer 20

C (General damages are awarded to an injured party for pain, suffering, mental anguish, disfigurement, and similar losses. These losses cannot be calculated objectively and are assigned a specific dollar value.)

Question 21

Which of the following might be considered a negligent act?

A
Breach of an employment contract

B
Assaulting a neighbor over a boundary dispute

C
Unintentionally renting a leaky boat to vacationers

D
Robbery of a sporting goods store

Answer 21

C (A negligent act is a type of tort, which rules out breach of contract. It must be an unintentional, civil tort, which rules out both robbery and assault.)

Question 22

Which of the following is true regarding liability insurance?

A
The liability policy provides coverage for all acts of wrongdoing

B
A liability policy provides coverage for unintentional torts

C
A liability policy provides coverage for criminal acts

D
A liability policy provides coverage for all torts

Answer 22

B (A liability policy is intended to provide protection in the event the insured’s negligence causes bodily injury or property damage to others for which the insured becomes legally obligated to pay damages. Liability is an unintentional tort. Neither intentional torts nor criminal acts are covered by a liability policy.)

Question 23

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?

A
$250,000

B
$50,000

C
$150,000

D
$400,000

Answer 23

C (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.)

Question 24

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?

A
The court will determine which insurer is responsible

B
The insurer of the at-fault driver

C
J’s and the negligent driver’s insurer will share the loss

D
J’s insurer

Answer 24

D (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.)

Question 25

Personal injury liability includes which of the following? A Medical payments B Sickness and disease C Libel and slander D Theft

Answer 25

C (Personal injury liability is the legal liability for injury other than bodily injury or property damage. Examples of personal injury include libel, slander, false arrest, invasion of privacy, and copyright infringement.)

Question 26

Which of the following is the best explanation of liability insurance? A It provides coverage for bodily injury or property damage to the insured and the insured's property B It provides protection in the event the insured's negligence causes bodily injury or property damage to others and the insured becomes legally obligated to pay damages C It provides coverage for bodily injury or property damage arising out of the insured's premises or operations regardless of fault or negligence D It provides coverage to any party for injury that is expected to happen

Answer 26

B (The purpose of liability insurance is to provide coverage for bodily injury or property damage caused by the insured's negligence, arising from a condition in the insured's premises or from the insured's operations at or away from the premises.)

Question 27

Which of the following is an example of Special Damages? A The damages of pain, suffering, and disfigurement B Compensation to a husband or wife for the loss of companionship of a spouse C The damages assessed by the court as a penalty for gross negligence D Compensation to an injured party for actual medical expenses and loss of earnings

Answer 27

D (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. Special damages are paid for tangible loss or damage.)

Question 28

Bodily Injury may include which of the following? A False Arrest B Invasion of Privacy C Slander D Loss of Earnings

Answer 28

D (Bodily injury includes such items as medical expenses, lost wages, mental anguish, death and disfigurement.)

Question 29

Most liability policies do not provide coverage for: A Punitive damages B General damages C Special damages D Compensatory damages

Answer 29

A (Punitive damages are awarded to punish and discourage a wrongdoer from repeating negligent acts. Most liability policies do not provide coverage for punitive damages.)

Question 30

The formal statement an insured provides to an insurer, including all the details an insurer needs to assess its liability following a loss, is known as a: A Certificate of Insurance B Proof of loss C Notice of loss D Binder

Answer 30

B (A proof of loss is a formal statement made by the insured and provided to the insurer that provides necessary details for the insurer to determine its liability under a policy.)

Question 31

Which of the following prevents all recovery for injuries if the claimant was also considered partially negligent? A Vicarious negligence B Comparative negligence C Contributory negligence D Proximate negligence

Answer 31

C (The doctrine of Contributory Negligence prevents the claimant from recovering damages if the claimant was in any way also at fault.)

Question 32

When damages are reduced in proportion to the degree of negligence, this is an example of: A Contributory Negligence B Proportional Negligence C Comparative Negligence D Absolute Negligence

Answer 32

C (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.)

Question 33

Negligence is what kind of tort? A An unintentional tort B An intentional tort C A gross tort D A criminal tort

Answer 33

A (Negligence is an unintentional tort arising out of failure to use reasonable care.)

Question 34

Which of the following defines a tort? A An unforeseen event from which damage results B An award to an injured party C Liability assigned to one party for the conduct of another D A wrongful act

Answer 34

D (A tort is a wrongful act (excluding breach of contract). Liability assigned to one party for the conduct of another is vicarious liability. An award to an injured party is called damages. An unforeseen event from which damage results is called an accident.)

Question 35

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

Answer 35

A (Bodily Injury coverage covers physical injury, sickness or disease sustained by a person including death resulting from any of these. Breach of contract does not fall under this definition.)

Question 36

Which of the following is a legal liability imposed without demonstrated negligence? A Contingent Liability B Vicarious Liability C Direct Liability D Absolute Liability

Answer 36

D (Because of the high degree of hazard associated with some risks, no degree of care is sufficient to fulfill the responsible party's duty to the public. In such cases, the responsible party is legally liable even when no negligent act is committed. The principle conferring this liability is known as absolute or strict liability.)

Question 37

Which of the following defines a tort? A An award to an injured party B An unforeseen event from which damage results C A wrongful act D Liability assigned to one party for the conduct of another

Answer 37

C (A tort is a wrongful act (excluding breach of contract). Liability assigned to one party for the conduct of another is vicarious liability. An award to an injured party is called damages. An unforeseen event from which damage results is called an accident.)

Question 38

Which of the following prevents all recovery for injuries if the claimant was also considered partially negligent? A Proximate negligence B Comparative negligence C Contributory negligence D Vicarious negligence

Answer 38

C (The doctrine of Contributory Negligence prevents the claimant from recovering damages if the claimant was in any way also at fault.)

Question 39

Which of the following is not an element of negligence? A Proximate cause B Assumption of risk C Duty owed D Forseeable consequence

Answer 39

B (The elements of negligence are: Duty of care, violation of the duty of care, proximate cause, and damages that are foreseeable. Assumption of risk is a defense against negligence, rather than an element of it.)

Question 40

All of the following are true of torts, except: A They must be committed intentionally B Negligence is a type of tort C Liability insurance excludes intentional torts D They constitute the basis of a claim by a third party

Answer 40

A (Torts can be intentional or unintentional.)

Question 41

All of the following are true of liability policies, except: A They do not cover medical expenses incurred by the insured B They are designed to cover third party injuries or damages C They will cover damage to the insured's own property D They will pay sums that the insured becomes legally liable to p

Answer 41

C (A liability policy does not cover damage to the insured's property, it covers damage to property of a third party.)

Question 42

Property damage covered by a liability policy includes which of the following? A Damage to property of others in the insured's care, custody, or control B Damage to property owned by, or leased to, the insured C Damage to tangible property, including loss of use of that property caused by the insured's negligence D Damage to the insured's products arising out of the products

Answer 42

C (Liability policies cover legal liability arising from physical damage to tangible property of others, including loss of use of that property, caused by the acts of an insured.)

Question 43

Negligence is what kind of tort? A An unintentional tort B A criminal tort C A gross tort D An intentional tort

Answer 43

A (Negligence is an unintentional tort arising out of failure to use reasonable care.)

Question 44

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? A No fault B Excess C Absolute liability D Pro rata

Answer 44

A (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.)

Question 45

A Certificate of Insurance includes which of the following? A The expiration date, name of the insurer, the premium and limits of liability B The effective date, the named insured, the premium, and the limits of liability C The name of the insurer, the amount and type of insurance, and the perils insured against D The effective date, name of the insurer, the named insured and limits of liability

Answer 45

D (A Certificate of Insurance is a document stating that an insurance policy is in force. It is used to provide proof of insurance to property owners, contractors, and others who may require liability insurance. Perils would be included in a binder, not a certificate of insurance. The premium amount appears only in the policy, not on the certificate of insurance or binder.)

Question 46

Policy A provides liability coverage to Fred's Grocery up to $500,000. Policy B provides coverage for the same risks up to $1.5 million. Both policies pay on a pro rata basis. If Fred's Grocery is determined to have a legal liability of $400,000 to a claimant who was injured on the property, how much will Policy A pay? A $100,000 B $400,000 C $500,000 D $50,000

Answer 46

A (Pro rata liability requires that each policy pays no more than its share of the loss. The total insured amount carried by Fred's Grocery is $2 million ($500,000 + $1.5 million). Policy A's share of that amount is 25% ($500,000 ÷ $2 million). Therefore, its share of any loss would be 25% of the loss amount. 25% of $400,000 is $100,000.)

Question 47

Which of the following prevents all recovery for injuries if the claimant was also considered partially negligent? A Proximate negligence B Vicarious negligence C Contributory negligence D Comparative negligence

Answer 47

C (The doctrine of Contributory Negligence prevents the claimant from recovering damages if the claimant was in any way also at fault.)

Question 48

Which of the following is true regarding liability insurance? A The liability policy provides coverage for all acts of wrongdoing B A liability policy provides coverage for criminal acts C A liability policy provides coverage for all torts D A liability policy provides coverage for unintentional torts

Answer 48

D (A liability policy is intended to provide protection in the event the insured's negligence causes bodily injury or property damage to others for which the insured becomes legally obligated to pay damages. Liability is an unintentional tort. Neither intentional torts nor criminal acts are covered by a liability policy.)

Question 49

Which of the following is not an element of negligence? A Duty owed B Assumption of risk C Proximate cause D Forseeable consequence

Answer 49

B (The elements of negligence are: Duty of care, violation of the duty of care, proximate cause, and damages that are foreseeable. Assumption of risk is a defense against negligence, rather than an element of it.)

Question 50

The formal statement an insured provides to an insurer, including all the details an insurer needs to assess its liability following a loss, is known as a: A Binder B Certificate of Insurance C Notice of loss D Proof of loss

Answer 50

D (A proof of loss is a formal statement made by the insured and provided to the insurer that provides necessary details for the insurer to determine its liability under a policy.)

Question 51

When damages are reduced in proportion to the degree of negligence, this is an example of: A Absolute Negligence B Comparative Negligence C Proportional Negligence D Contributory Negligence

Answer 51

B (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.)

Question 52

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, is the description of which of the following? A Pro rata liability B Assumed liability C Contribution by equal shares D Excess insurance

Answer 52

C (Under a contribution by equal shares provision, each insurer pays an equal amount to the loss settlement until the loss is paid, or until each insurer has exhausted its limits of insurance, whichever comes first.)

Question 53

Pro rata liability B Claim Settlement C Limit of Liability D Subrogation

Answer 53

A (This provision is found in the policy in the Other Insurance condition, and provides for claim settlement to be proportioned to the amount of other insurance.)

Question 54

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? A Each policy pays an equal share B Neither policy will make payment for the loss C Each policy pays its pro rata share of the loss D One policy pays up to its limits and the other policy pays the balance

Answer 54

C (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.)

Question 55

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

Answer 55

D (Negligence is the commission of a civil or private wrong, not a criminal wrong.)

Question 56

An unintended and unforeseen event from which a loss results is called which of the following? A Peril B Risk C Proximate cause D Accident

Answer 56

D (An accident is the unforeseen and unplanned event from which a loss derives.)

Question 57

K gets a horrible rash after using wrinkle-prevention cream for 2 months. This is considered: A Negligence B An occurrence C An accident D Punitive damages

Answer 57

B (An occurrence is continuous or repeated exposure to the same general harmful conditions.)

Question 58

W plays hockey on the weekends and was injured while defending the goal. Which of the following defenses could the owner of the ice rink use to avoid liability for W's injuries? A Assumption of risk B Comparative negligence C Contributory negligence D Statute of limitations

Answer 58

A (When a person participates in an activity where a certain type of injury may occur, the person assumes that risk.)

Question 59

All of the following are true of negligence, except: A It is a type of tort B It does not include breach of contract C It does not require a duty to be owed D It is the failure to use ordinary care

Answer 59

C (For an act to be negligent, the injured party must prove the alleged wrongdoer owed a duty to the injured party or to the public.)

Question 60

Which of the following is the best explanation of liability insurance? A It provides coverage for bodily injury or property damage arising out of the insured's premises or operations regardless of fault or negligence B It provides protection in the event the insured's negligence causes bodily injury or property damage to others and the insured becomes legally obligated to pay damages C It provides coverage to any party for injury that is expected to happen D It provides coverage for bodily injury or property damage to the insured and the insured's property

Answer 60

B (The purpose of liability insurance is to provide coverage for bodily injury or property damage caused by the insured's negligence, arising from a condition in the insured's premises or from the insured's operations at or away from the premises.)

Question 61

An unintended and unforeseen event from which a loss results is called which of the following? A Proximate cause B Risk C Peril D Accident

Answer 61

D (An accident is the unforeseen and unplanned event from which a loss derives.)

Question 62

Bodily injury is best described as: A Any injury resulting in bleeding, bruising, bone fractures, or disfigurement B Physical injury or death arising from the negligent acts of an insured C Any injury causing hospitalization, disability, or loss of income D All financially measurable injuries directly sustained, including libel, slander, false arrest, invasion of privacy, and copyright infringement

Answer 62

B (Bodily injury is any physical injury, including sickness, disease, and death caused by the acts or omissions of an insured. Bodily injury liability expenses can include medical bills, lost wages, mental anguish, and pain and suffering.)

Question 63

The formal statement that verifies details so the insurer can determine liability is called: A A certificate of insurance B A certificate of authority C A proof of loss D A binder

Answer 63

C (A proof of loss setting forth the date and circumstances of the loss (including the amount of the loss) is generally required by the insurer before the insurer will settle the claim.)

Question 64

Which of the following terms includes pain and suffering, disfigurement, and mental anguish? A Loss of consortium B Specific damages C Strict liability D General damages

Answer 64

D (All of these items are classified as general damages.)