Chapter 9: Introduction to Liability Insurance

Question 1

Common features of liability policies

Answer 1

1. insure bodily injury and property damage
2. 3rd party coverage
3. payment only when legally liable
4. coverage provided on occurrence basis
5. pay compensatory damages only

Question 2

Define “bodily injury”

Answer 2

physical injury, sickness, death

bodily injury from external source

sickness: manifests internally
death: resulting directly from the above

Question 3

Define “property damage”

Answer 3

physical injury to tangible property including loss of use

Question 4

3rd party coverage is…

Answer 4

payments only to parties other than insured

Question 5

Who determines the matter of “legal liability”?

Answer 5

only the courts have the authority to determine when legally liable

Question 6

Define “occurrence”

Answer 6

an event which occurs suddenly or occurs over a long period of time

Question 7

Liability policies pay for compensatory damages only. Explain the purpose of “compensatory damages”

Answer 7

amounts intended to compensate the 3rd party (plaintiff) for injury caused by the insured (defendant)

Question 8

State the duties owed by the insured to the insurer in the event of an occurrence, claim or action

Answer 8

1. prompt notice to insurer of any occurrence that may result in claim
2. legal papers must be immediately forwarded to insurer
3. authorize insurer to obtain info
4. assist in investigation, settlement or defense
5. can’t make voluntary payment other than first aid

Question 9

The insurer agrees to make “Supplementary Payments.” What is the purpose of these payments and identify 4 such payments.

Answer 9

a separate insuring agreement for additional expense incurred by insurers and insured in settling a claim

1. cost of defense = insured may hire independent adjuster to investigate and negotiate any settlement of claim
2. expense of insured to assist = ie. lost wages from appearing in court
3. court costs assessed against insured = courts may require insured to pay court costs
4. interest payable = plaintiff doesn’t get paid until after Right of Appeal has passed so interest accrues in the meantime

Question 10

Means an accident, including continuous or repeated exposure to substantially the same general harmful conditions

Answer 10

Occurrence

Question 11

Refers to damage to tangible property including all resulting loss of use

Answer 11

Property damage

Question 12

A sudden and unusual event which is fixed in time

Answer 12

Accident

Question 13

Includes sickness, disease and even death

Answer 13

Bodily Injury

Question 14

Provide additional payments over and above the amount of the actual judgment

Answer 14

Supplementary Payments