Chapter 5

Question 1

The maximum amount payable for all losses during a single policy period is known as the:

Answer 1

Select one:
a. aggregate limit
b. occurrence limit
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The correct answer is: aggregate limit

Question 2

A carpenter working on a house has a hammer slip from his hands, but no damage occurs. This is not an accident because:

Answer 2

Select one:
a. no damage occurred.
b. it was unexpected.
c. it was not intentional.
d. it happened very suddenly.
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The correct answer is: no damage occurred.

Question 3

Which of the following is an example of vicarious liability?

Answer 3

Select one:
a. A store owner is held liable when a store employee carelessly drops a box on a customer’s foot.
b. A store owner is held liable for carelessly dropping a box on a customer’s foot.
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Vicarious liability refers to liability for the acts of another. An employer has vicarious liability for the acts of its employees. This point is covered in the Update on the last page of Chapter 5.

The store owner dropping the box is ordinary negligence by the store owner. It does not involve liability for the acts of another.
The correct answer is: A store owner is held liable when a store employee carelessly drops a box on a customer’s foot

Question 4

A tenant is wrongfully evicted. This is an example of:

Answer 4

Select one:
a. personal injury
b. bodily injury
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"Wrongful entry or eviction" is a Personal Injury covered under Part B of the CGL.

The correct answer is: personal injury

Question 5

An electrical interruption causes a business to temporarily close. The electrical interruption is known as the?

Answer 5

Select one:
a. catastrophe
b. proximate cause
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The correct answer is: proximate cause

Question 6

Which adds an unspecified amount (rather than a specific amount) to the policy’s limit of liability?

Answer 6

Select one:
a. Supplementary Payments
b. Med Pay
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The correct answer is: Supplementary Payments

Question 7

A person’s duty to society and the degree of care required by the law may be insured by providing coverage for:

Answer 7

Select one:
a. property insurance
b. liability insurance
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The correct answer is: liability insurance

Question 8

Liability results from:

Answer 8

Select one:
a. Invasion of the rights of others
b. Acts of nature
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The correct answer is: Invasion of the rights of others

Question 9

“Bodily injury” includes each of the following except:

Answer 9

Select one:
a. disease
b. pain and suffering
c. personal injury
d. death
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The correct answer is: personal injury

Question 10

The maximum amount payable for all losses resulting from one event is known as the:

Answer 10

Select one:
a. aggregate limit
b. occurrence limit
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The correct answer is: occurrence limit

Question 11

Liability for the destruction of property is covered by:

Answer 11

Select one:
a. Physical Damage Coverage
b. Property Damage Coverage
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The correct answer is: Property Damage Coverage

Question 12

Personal Injury Liability covers each of these EXCEPT:

Answer 12

Select one:
a. discrimination
b. slander
c. wrongful eviction
d. malicious prosecution
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Personal Injury will cover things like wrongful arrest, false imprisonment, malicious prosecution, libel, slander, and wrongful entry or eviction. However, discrimination is an exclusion from the Personal Injury coverage.

The correct answer is: discrimination

Question 13

Supplementary payments cover:

Answer 13

Select one:
a. medical expenses
b. defense costs
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The correct answer is: defense costs

Question 14

Liability insurance is a:

Answer 14

Select one:
a. two party contract with payment to a third party.
b. three party contract with payment to the insured.
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We can say it both ways. It is a two-party contract with payment to a third party or it is a three-party contract with payment to a third party. But it doesn’t pay the Insured! Property policies pay the Insured. Liability policies pay the third party - the victim.

The correct answer is: two party contract with payment to a third party.

Question 15

A person with an alleged injury notifies a Producer that the Producer’s client negligently caused the injury. The producer should first notify the:

Answer 15

Select one:
a. Police
b. Insurance Commissioner
c. Insurer
d. Client
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New point not in the book! The Producer's fiduciary responsibility is to the Insurer. So, the Producer should first notify the Insurer. 

The correct answer is: Insurer

Question 16

The liability policy may cover each of the following except:

Answer 16

Select one:
a. Bodily injury coverage (BI)
b. Personal Injury Liability (PI)
c. Intentional Acts
d. Supplementary Coverage
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The correct answer is: Intentional Acts

Question 17

Which of these involves negligence?

Answer 17

Select one:
a. A driver goes too fast and hits another vehicle.
b. A driver runs a stop light.
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Without injury or damage, there is no negligence.

The correct answer is: A driver goes too fast and hits another vehicle.

Question 18

Negligence is determined by:

Answer 18

Select one:
a. how the accused has acted in the past.
b. how a reasonable person would have acted under the circumstances.
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The correct answer is: how a reasonable person would have acted under the circumstances.

Question 19

The aggregate limit is the limit per:

Answer 19

Select one:
a. calendar year
b. policy year
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The correct answer is: policy year

Question 20

The limit payable for all losses in a policy year is the:

Answer 20

Select one:
a. aggregate limit.
b. occurrence limit.
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The correct answer is: aggregate limit.

Question 21

A car dealer sold a new car. Unfortunately, a shock absorber fell off the car, resulting in an accident. Both the car dealer and the manufacturer will most likely be held liable under the concept of:

Answer 21

Select one:
a. absolute liability
b. negligence
c. strict liability
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Absolute liability involves ultra hazardous activities, such as keeping wild animals or storing nuclear waste. Those situations don't apply here.

Sellers and manufacturers have “strict liability” for injuries caused by a defective and dangerous product regardless of whether negligence was involved.

Products liability cases are invariably decided on the basis of strict liability because it is so easy to show that the product was defective. Negligence is rarely used to bring such cases because of the difficulty of proving carelessness.

The correct answer is: strict liability

Question 22

The Insurer won’t cover:

Answer 22

Select one:
a. Compensatory Damages
b. Punitive Damages
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The Insurer will cover Compensatory Damages, but Punitive damages are usually excluded from coverage.

The correct answer is: Punitive Damages

Question 23

A liability policy covers:

Answer 23

Select one:
a. crimes
b. property damage
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Crimes are not covered because liability policies always exclude coverage for intentional acts.

The correct answer is: property damage

Question 24

Negligence is:

Answer 24

Select one:
a. any act which injures another.
b. failure to act as a reasonable person.
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The correct answer is: failure to act as a reasonable person.

Question 25

Which of the following involves the concept of “strict liability?”

Answer 25

Select one:
a. An automobile crash is caused by a defectively manufactured tire.
b. An intentional injury inflicted on another.
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Strict liability is also known as products liability. Manufacturers and distributors of dangerous and defective products have “strict liability” even though they may not have been negligent in the manufacture or distribution of the product.

The correct answer is: An automobile crash is caused by a defectively manufactured tire.