Casualty (Liability) Basics

Question 1

What is a liability policy?

Answer 1

A liability policy provides protection for legal liability arising from unintentional torts for bodily injury or property damage to others.

Also referred to as 3rd party insurance

Question 2

another name for liability insurance

Answer 2

Third-party Insurance

Question 3

Name the 1st, 2nd, and 3rd parties to insurance

Answer 3

1st-insured
2nd-insurer
3rd-claimant

Question 4

the responsibility under law or contract for an act or failure to act

Answer 4

legal liability

Question 5

a wrongful act, other than a breach of contract, that violates a duty or the rights of another and for which compensation may be sought from the responsible party

Answer 5

Tort

Question 6

a deliberate act that harms another and for which the injured party is permitted by law to sue the wrongdoer

Answer 6

intentional tort

Question 7

also known as negligence, is an act, or failure to act that is committed without the same level of care a reasonable individual would have exhibited given the same knowledge and set of circumstances

Answer 7

unintentional tort

Question 8

assigned to one party for the conduct of another, based solely on a relationship between the two. Examples include employer/employee relationships and parent/child relationships.

Answer 8

Vicarious Liability

Question 9

Failure to use ordinary care. For example, running a red light.

Answer 9

Negligence

Question 10

Failure to exhibit any sort of care through recklessness or deliberate indifference to the well-being of others. For example, driving while under the influence of alcohol

Answer 10

Gross Negligence

Question 11

artificial condition on land that attracts children, such as a swimming pool, and requires the owner to exhibit a special duty of care. Legally, children are considered invitees to the premises if it contains an _________even when they are not expressly invited.

Answer 11

Attractive Nuisance

Question 12

Compensation to a husband or wife for the loss of companionship of a spouse

Answer 12

Loss of Consortium

Question 13

Awarded to the injured party for the actual loss sustained

Answer 13

Compensatory Damages

Question 14

what are the two types of compensatory damages?

Answer 14

Special or General.

Question 15

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. Paid for tangible loss or damage

Answer 15

Special damages

Question 16

an award to an injured party for pain, suffering, mental anguish, disfigurement, and similar types of losses. paid for losses that cannot be calculated objectively and assigned a specific dollar value.

Answer 16

General Damages

Question 17

An award to an injured party, in addition to compensatory damages, to punish and discourage a wrongdoer from repeating negligent acts or omissions. Most liability policies do not provide coverage for this.

Answer 17

Punitive Damages

Question 18

Legal liability arising from physical injury, including sickness, disease, and death caused by the acts or omissions of an insured. Expenses include medical bills, lost wages, mental anguish, pain and suffering, etc.

Answer 18

Bodily Injury

Question 19

arising from physical damage to tangible property, including loss of use of that property, caused by the acts of an insured. Expenses include: actual cost of repair or replacement of the damaged property as well as the inability to use damaged property (loss of use).

Answer 19

Property Damage Liability

Question 20

Coverage for the bodily injury of third parties sustained on an insured location or as a result of the insured’s activities. This coverage is provided to discourage liability claims and lawsuits and, when payments are made, are not an admission of liability.

Answer 20

medical payments coverage

Question 21

arising from specific offenses committed by an insured that results in injury other than bodily injury or property damage. Includes: libel, slander, false arrest, invasion of privacy, and copyright infringement. anything considered to affect one’s reputation or emotional well-being

Answer 21

Personal Injury Liability

Question 22

sudden, unforeseen, unintended, and unplanned event from which loss or damage results.

Answer 22

accident

Question 23

An accident includes continuous or repeated exposure to the same general harmful conditions.

Answer 23

occurance

Question 24

Insured must notify the insurer in writing as soon as possible in the event of any loss or occurrence.

Answer 24

Notice of Loss

Question 25

The written notice should include:

Answer 25

named insured, policy number, and details about the time, place, circumstances of the occurrence, and names and addresses of any claimants and witnesses.

Question 26

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

Answer 26

proof of loss

Question 27

A document that shows evidence that specific types of insurance were purchased by the insured, at certain limits, and that they were in place on the date the certificate of insurance was issued

Answer 27

Certificate of Insurance

Question 28

Element of Negligence:
In order for an act or failure to act to be negligent, it must contain these 4 elements:

( If any of the four elements is absent, an act, or the failure to act, is not considered negligent.)

Answer 28

Duty is owed, violation of duty, violation of duty is proximate cause, foreseeable consequence

Question 29

element of negligence:

Requires the injured party to prove the alleged wrongdoer owed a duty to the injured party or to the public.

Answer 29

Duty is owed

Question 30

Elements of Negligence:
Requires the injured party to prove the alleged wrongdoer not only owed a duty but also violated that duty. Basically, the alleged wrongdoer didn’t exhibit reasonable care.

Answer 30

Violation of Duty

Question 31

elements of negligence:

Requires the injured party to prove the alleged wrongdoer’s negligent actions or inactions were the proximate cause of actual injuries or damages.

Answer 31

Violation of Duty is Proximate Cause

Question 32

Elements of Negligence:

Requires the injured party to prove the actual injuries or damages were a reasonably foreseeable consequence at the time the negligent action or inaction occurred.

Answer 32

Foreseeable Consequence

Question 33

Law practiced as the result of judicial or court decisions (i.e., case law and precedents).

Answer 33

Common Law

Question 34

Prevents recovery for damages caused by a negligent party if the claimant was negligent to any extent. For example, if the claimant is 5% negligent and the wrongdoer is 95% negligent, the claimant is not permitted to collect damages

Answer 34

Contributory Negligence

Question 35

Prevents recovery if the claimant knowingly assumed the risk.

Answer 35

Assumption of Risk

Question 36

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

Answer 36

Intervening Cause

Question 37

Written law enacted by legislatures.

Answer 37

Statutory Law

Question 38

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.

Answer 38

Comparative Negligence

Question 39

The length of time during which legal proceedings may be initiated. This time period is established by federal or state law and usually begins on the day an event occurs.

Answer 39

Statute of Limitations

Question 40

Which of the following is a common law defense used by the insured when the injured party is partially responsible for his own injuries?

a. proximate cause
b. comparative negligence
c. absolute liability
d. contributory negligence

Answer 40

D. Contributory negligence

Question 41

a legal principle that imposes legal liability based on conditions, activities, or products that exhibit very high hazards; the degree of care exercised by the insured isn’t considered when making a determination of liability.

Answer 41

Strict and Absolute Liability

Question 42

often associated with dangerous animal ownership, abnormally dangerous activities, and employers liability for injuries sustained by their employees. Dangerous animals include lions, bears, and certain dog breeds such as pit bulls and rottweillers. ________applies to the storage of explosives, highly flammable material and weapons or firearms.

Answer 42

Absolute liability

Question 43

If a claimant can prove that a product caused the injury, the manufacturer will be held liable whether or not the product was defective.

Answer 43

Strict Liability (applies to products)

Question 44

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. _______ laws vary by state and typically apply to auto insurance.

Answer 44

No-Fault Liability

Question 45

These conditions are called a threshold and can either be a monetary limit (e.g., $5,000) or described verbally (e.g., death, facial injuries, or broken bones).

Answer 45

no-fault laws restrict the rights of the injured party to sue unless the injuries are severe (e.g., paralysis or death) and meet certain conditions

Question 46

Some no-fault laws allow the insured to choose whether their policy operates under a no-fault or:

Answer 46

tort basis

Question 47

Some states refer to their no-fault laws and coverage as

Answer 47

personal injury protection (PIP)

Question 48

Under_____ the tort system is abolished and a party who is negligent and causes injury to another does not have to pay for those injuries.

Answer 48

no-fault

Question 49

Common Policy Provisions:

The person or organization designated on the Declarations page of the policy as being protected by an insurance contract.

Answer 49

Named Insured

Question 50

A person or organization protected by an insurance contract

Answer 50

Insured

Question 51

The name of the person or organization that appears first on the Declarations page of a policy as “named insured.”

Answer 51

First Named Insured

Question 52

A person or organization not ordinarily protected by a policy but which, through the addition of an endorsement to the policy, is granted status as an insured. Under a liability policy, an _____ is often a party to an indemnification or hold harmless agreement.

Answer 52

Additional Insured(s)

Question 53

a provision that specifies the process to be followed when more than one policy covers the same loss.

Answer 53

Other insurance

Question 54

it makes payment before all other policies in place make payment for a loss.

Answer 54

Primary Policy

Question 55

it makes payment only after all other insurance in place exhausts its limits or denies coverage.

Answer 55

Excess Policy

Question 56

Specifies the process to be followed when more than one policy covers the same loss. Each policy pays no more than its share of the loss and the method of sharing varies by contract.

Answer 56

Pro Rata Liability

Question 57

Some policies require the insurers to share the loss by contributing equal shares until each insurer has paid its limit of insurance

Answer 57

contribution by equal shares

Question 58

Policy A insures a dwelling for $250,000 and Policy B insures the same dwelling for $500,000. If both policies covered the same loss, Policy A would pay how much?

Answer 58

one-third of the loss because $250,000 represents 1/3 of all the insurance available to cover the loss ($250,000 equals 1/3 of $750,000, which is the sum of $250,000 on Policy A and $500,000 on Policy B).

Question 59

Each policy includes a provision that specifies the most it will pay in the event of loss.

Answer 59

Limits of Liability

Question 60

The limit of liability, or limits of insurance, are shown on the:

Answer 60

policy declarations page

Question 61

The most the policy will pay for all losses arising out of any one occurrence, regardless of other policy limits.

Example: The limit of liability for personal liability on a homeowners policy is a _____

Answer 61

Per Occurrence Limit

Question 62

The most the policy will pay for loss to any one person injured in any one loss, regardless of other policy limits.
Example: The limit of liability for medical payments coverage on an auto policy is a ________

Answer 62

per person limit.

Question 63

The most the policy will pay for all losses submitted during the policy period, regardless of other policy limits.

Answer 63

Aggregate Limits

Question 64

reduces the aggregate limit of liability.

Answer 64

Each loss payment made under a per occurrence limit or per person limit

Question 65

The most the policy will pay for loss of different types that occur as a result of any one loss, regardless of other limits.

Answer 65

Split Limit

Question 66

the limits of liability on an auto policy for bodily injury might be represented as 100/300/100 ($100,000 is the _____ limit for_____, $300,000 is the _____ limit for _____, and $100,000 is the ____ limit for ______).

Answer 66

$100,000 is the per person limit for bodily injury liability,

$300,000 is the per occurrence limit for bodily injury

$100,000 is the per occurrence limit for property damage liability

Question 67

The most the policy will pay for all losses of all types resulting from any one occurrence, regardless of other limits.

Answer 67

Combined Single Limit

Question 68

The _____ limit pays for any coverage wherever needed or in any combination.

Answer 68

Combined single

Question 69

The owner of a liability policy cannot transfer policy ownership without the insurer’s written consent.

Answer 69

Assignment

Question 70

After an insurer pays a loss, it is granted the insured’s rights to seek recovery from the party responsible for the loss. For example, if Bob is legally responsible for injuring Sue in a car accident, Sue’s insurance company may seek reimbursement from Bob for the claim payments it made to Sue.

Answer 70

Subrogation

Question 71

When coverage under a particular form of insurance issued by an insurer is broadened without an additional premium charge, it automatically applies to all policies currently in effect. For example, Carrier A adds coverage enhancements to its Special Form homeowners policy, without an additional charge. Those changes automatically apply to all policies currently in effect.

Answer 71

Liberalization

Question 72

A————— 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 ———-. The premium amount appears only in the policy, not on the ——– or binder.

Answer 72

certificate of insurance

Question 73

When a person participates in an activity where a certain type of injury is known to be probable, that person’s rights of recovery are barred or diminished under the doctrine of __________

Answer 73

assumption of risk