2. Insurance Planning. 2. Evaluation and Analysis of Risk Expos.

Question 1

Module Introduction

On March 28, 2000, at 6:30 PM, a tornado hit several major buildings in downtown Fort Worth, Texas. Among the buildings damaged by the storm was a tall glass tower that a large bank had leased mostly for administrative offices for its 600 employees, but that also had public banking facilities on the lower floors. Because the tornado hit just after the end of the workday, there was no loss of life, but property damage to the building and its contents was extensive. Since the bank did not own the building, the bank had to arrange for access to the property after the loss through the building’s owners. Apart from the loss to the bank there were other emergencies like injured employees. Natural disasters, like the Fort Worth tornado, can cause millions of dollars in damages, not to mention the toll it can take in terms of human life. Fortunately, the bank had prepared to face such a situation by insuring the property and its personnel, and the losses they incurred were covered.

Answer 1

The Evaluation and Analysis of Risk Exposures module will explain how to assess and manage the risks associated with difficult situations and emergencies such as the devastating tornado described above.

The online portion of this module takes the average student approximately three hours to complete.

Upon completion of this module you should be able to:
* Explain the role of risk management
* List the steps in the risk management process
* Identify the elements of a loss control program
* Describe six risk financing alternatives, and
* Apply the risk management process to a case study.

To ensure that you have an understanding of the analysis and evaluation of risk exposures, the following lessons will be covered in this module:
* Personal Risk Management
* Business Risk Management
* Liability Insurance

Question 2

Section 1 – Personal Risk Management

Risk management is essential to protect against personal losses for families and individuals. Whether you are driving to work and you accidentally crash into the car in front of you, or your house is struck by lightning and catches fire, you should have a plan for handling unforeseen events.

Answer 2

To ensure that you have an understanding of the above concepts, the following topic will be covered in this lesson:
* Personal Risk Management

Upon completion of this lesson, you should be able to:
* Describe the personal risk management process, and
* List and explain the three types of losses.

Question 3

Describe Identify and Measure Loss Exposures in the Risk Management Plan

Answer 3

All exposure to loss should be identified and measured. Written decisions, legal documents (such as wills), and other valuable papers should be maintained in a secure place. In most cases, an adequate amount of insurance should be purchased after utilizing all reasonable risk avoidance and reduction alternatives.

Practitioner Advice: Risk retention is the most common approach to risk, as it includes risks that are unconsciously and/or involuntarily retained. For example, putting a trampoline in your backyard and letting the neighbors’ children use it greatly increases the risk of injury and a resulting claim against your homeowners insurance. Unemployment is a risk that you cannot completely transfer; therefore, you have no choice but to retain that risk.

Question 4

Describe Regular Review of Risk Management Plan

Answer 4

Finally, the program should be reviewed on a regular basis. The scientific approach to the loss exposure problem is essential to individuals and families in today’s complex and changing financial environment. As situations change, adjustments to the plan may be necessary.

For example, you should monitor the cost associated with your risk management program, also known as risk administration. Risk administration includes costs such as the premiums you pay, as well as the time you spend analyzing your risk situation. As time goes by, the cost associated with your risk management program may prompt you to reevaluate your implementation strategy.

Practitioner Advice: Whenever you have a significant or “life-changing” event, you should review your Risk Management Plan. Events like marriage, divorce, having a baby, or your last child graduating from college are all reasons to sit down and look at your risk exposures and how you are handling them as they work to uphold the high standards represented by CFP® certification.

Question 5

With which of the following insurance policies do most people insure their real and personal property?
* Liability
* Life Insurance
* Homeowners
* Personal Auto

Answer 5

Homeowners
* Most people insure their real and personal property with a homeowners insurance policy. This policy provides some extra living expense and liability coverage and can be quite flexible when endorsements for special situations are attached to the basic policy.

Question 6

Disability insurance usually replaces a portion of your __ ____??____ __ while you are unable to perform your job.
* earned income
* medical costs
* insurance premiums
* daily living costs

Answer 6

earned income
* Many individuals purchase disability insurance to replace a portion of their earned income should they become disabled.

Question 7

Define Direct and Indirect Property Losses

Answer 7

Direct property losses are frequently caused by perils including fire, theft and windstorm damage.

Indirect property losses include temporary housing expenditures during a period when a home is rebuilt after a fire and car rental expenses after a vehicle has been wrecked or stolen. Most property, real and personal, is insured, with a homeowner’s insurance policy. This type of policy also provides some income reimbursement and liability coverage, and can be quite flexible when endorsements for special situations are attached to the basic policy.

Practitioner Advice: If your client is a tenant, it is important to encourage them to purchase Renter’s Insurance, a very inexpensive form of homeowner’s coverage. In addition to covering clothes and furniture, Renter’s Insurance also provides liability protection.

Question 8

Section 1 – Personal Risk Management Summary

In summary, every individual and family should develop a risk management plan. All exposure to loss should be identified and measured, and adequate amounts of insurance should be purchased.

The current legal and economic environment, with its increased chances of liability and crime losses, makes a personal risk management plan or a personal financial plan a necessity.

In this lesson, we have covered the following:

Answer 8

A personal risk management plan involves the following steps:
* Establish Objectives
* Identify potential loss exposure
* Measure potential loss exposure
* Develop a risk management plan
* Implement a risk management plan
* Regularly review the plan

Three basic categories of losses are:
* Property losses (both direct and indirect),
* Liability losses, and
* Income losses related to human life contingencies.

Question 9

Each of these play an important role in risk management EXCEPT:
* Personal risk.
* Loss prevention.
* Risk avoidance.
* Loss reduction.

Answer 9

Personal risk.
* Personal risk does not play a direct role in the risk management process.
* Loss prevention, risk avoidance, and loss reduction all play important roles in personal risk management as the current legal and economic environment has elevated the chance of liabilities and losses.

Question 10

Match the insurance type to the correct policy for coverage.
Health Insurance
Personal Property
Personal Liability
* Umbrella policies
* Homeowners insurance policy
* Employee benefit plan

Answer 10

• Health Insurance - Employee benefit plan
• Personal Property - Homeowners insurance policy
• Personal Liability - Umbrella policies

Question 11

Section 2 – Business Risk Management

As discussed earlier, risk management is defined as the logical development and execution of a plan to deal with potential losses. The focus of a risk management program is to manage an organization’s exposure to accidental losses and to protect its assets. Risk management benefits all types of organizations facing potential losses, including business firms, nonprofit organizations, individuals, and families.

Answer 11

To ensure that you have an understanding of business risk management, the following topic will be covered in this lesson:
* The business risk management process

Upon completion of this lesson, you will be able to:
* Describe the business risk management process, and
* Explain the factors to be considered when evaluating a risk management plan.

Question 12

Describe Business Direct Property Losses

Answer 12

Risk managers can identify potential direct property losses in different ways. A walking tour of a factory, store, or hospital can reveal many property loss exposures. Risk managers often arrange regular interviews with knowledgeable employees, such as the production manager or accountant, to identify significant changes in property holdings.

The risk management procedures manual should establish a system for notifying the risk management department when property is acquired or sold. An analysis of financial statements, as well as the supporting accounts, can highlight assets exposed to loss, as can an analysis of past losses.

Practitioner Advice: Most insurance companies that offer workers compensation and other business-related policies will do a site visit and make suggestions on how to prevent losses, as well as how to reduce the impact of any losses.

Question 13

What will insurance companies pay for when rebuilding at the same location?
* Replacement cost with a depreciation deduction
* Actual cash value
* Fair market value
* Replacement cost with no deduction for depreciation

Answer 13

Replacement cost with no deduction for depreciation
* When rebuilding at the same location, insurance companies will pay replacement cost with no deduction for depreciation.

Question 14

Each of the following are potential problems firms face with international operations EXCEPT:
* Valuation of property
* Lack of local insurance facilities
* Currency fluctuations
* Potential for profitability

Answer 14

Potential for profitability
* Valuation of property due to currency fluctuations and lack of local insurance facilities are potential problems that firms with international operations may experience.

Question 15

The __ ____??____ __ is the most likely maximum amount of damage a peril might cause under average circumstances.
* maximum probable loss
* policy limit
* maximum possible loss
* hazard threshold

Answer 15

maximum probable loss
* The maximum probable loss is the most likely maximum amount of damage a peril might cause under average circumstances.
* The maximum possible loss refers to the total amount of financial harm a given loss could cause under the worst circumstances.

Question 16

Describe a Business’ Loss of Key Personnel

Answer 16

If a business loses a key person due to unplanned retirement, resignation, death, or disability, the effect may manifest in lost income. If several key employees die, are disabled, or leave simultaneously, the results could devastate a firm. When the success of a business- or, in some instances, its very existence -depends on one or more persons, the risk manager must identify these people and be ready to take steps to solve the problem if a loss occurs.

Part of identifying the key-employee exposure is developing an estimate of where, at what cost, and how quickly a replacement may be hired and trained. The cost of the replacement would give the firm an estimate of the value of its exposure to loss.

Key employees should have well-trained subordinates when this is possible. Key personnel may be identified using an organizational chart or a flow chart.

Estimating the cost of key-employee losses is difficult because finding and training a replacement is a function of the job market.

Practitioner Advice: Once key employees are identified, life insurance should be considered for them. In a Key Person policy, the business pays the premiums and receives the death benefits. These funds can then be used to recruit and train a new person, as well as cover the income lost due to an employee’s untimely death.

Question 17

Section 2 – Business Risk Management Summary

Risk management is defined as the logical development and execution of a plan to deal with potential losses.

In this lesson, we have covered the following:
Risk management follows a six-step process. The steps are:
* Establishing objectives,
* Identifying loss exposure,
* Measuring loss exposure,
* Developing a plan,
* Implementing the plan, and
* Regularly reviewing the plan.

Answer 17

Income losses can be both indirect and direct.
* Indirect losses cannot be easily estimated.
* Direct losses can be easily evaluated.

Liability losses arise from three sources:
* Negligent injuries caused by an organization,
* The cost of a legal defense, and
* The cost of loss prevention arising from potential legal liability.

Loss control activities are designed to reduce loss cost. The risk management tools are:
* Risk avoidance,
* Loss prevention, and
* Loss reduction.

Question 18

Each of the following are characteristics of a flow chart EXCEPT:
* A graphical representation of processes.
* Represents the production and distribution process.
* Helps reveal the consequential impact of losses.
* Listing of assets and liabilities.

Answer 18

Listing of assets and liabilities.
* A flow chart graphically represents the production or distribution process and helps analyze the consequential impact of losses that could affect the firm.

Question 19

What are the property valuation problems faced by firms operating international operations?
I. Valuation of property in foreign countries due to currency fluctuations.
II. Lack of local insurance facilities.
III. Lack of trained staff.
IV. Cultural differences in trained staff.
* I and II
* III and IV
* II and III
* I and IV

Answer 19

I and II
* Firms with international operations have property and employees in several countries. They have to identify all their property, and transportation between locations.

Question 20

Direct losses typically lead to indirect losses.
* False
* True

Answer 20

True
* Direct losses can lead to indirect losses.

Question 21

Section 3 – Liability Insurance

America is a litigation-prone society. When disagreements are not quickly resolved to our satisfaction, we sue. Using the courts to resolve our differences is better than the alternative of personal vengeance, but it has its own drawbacks. If nothing else, it is costly. To be prepared to handle litigations, insurance is important. But where does insurance fit in this picture? Can insurance transform a hostile environment into a friendly one? Or does insurance merely transfer the costs of our hostility, making the costs so apparent we become uncomfortable? Also, examining in some depth the peril of legal liability allows us further insight into the central question presented in this lesson, “What is an insurable event?”

Answer 21

To ensure that you have an understanding of liability insurance, the following topic will be covered in this lesson:
* Legal Liability

Upon completion of this lesson, you should be able to:
* Describe the perils of legal liability,
* Discuss negligence, and
* Explain the different types of negligence.

Question 22

Match the following terms with the correct description.
Criminal Act
Torts
Negligence
* Involve unreasonable conduct toward another person.
* Doing something a reasonable person would not do, resulting in injury to another person.
* State and Federal laws define it as a wrong against society.

Answer 22

• Criminal Act - State and Federal laws define it as a wrong against society.
• Torts - Involve unreasonable conduct toward another person.
• Negligence - Doing something a reasonable person would not do, resulting in injury to another person.

Question 23

Define and describe Vicarious Liability

Answer 23

Courts can also impose liability for the negligent acts of other parties.

Vicarious Liability Example:
Assume Michael Anthony loans his car to Julien Alexander, who causes an accident. Michael might be held liable if it can be shown he was negligent in lending his car to someone he knew or should have known was a poor driver.

Exam Tip: It is important to understand that the negligence of another could create a potential liability. A vicarious liability may occur between employer-employee, or even a parent and child. In other words, vicarious liability can arise for people or organizations, when parties they hire as contractors (or subcontractors) injure others.

Audio:
* Vicarious liability – one party held liable for the negligence of another party
* Understand the definition and recognize examples
* Employer held liable for the actions of an employee
* Construction held liable for the negligence of a sub-contractor
* Parent is held liable for the action of a dependent child

Question 24

Match the category of loss with the correct description.
Bodily Injuries
Personal Injuries
Property Damages
* Wages lost while the plaintiff was recovering from an injury.
* Destruction and loss of use of tangible personal property.
* Suffered when a person is deprived of his or her rights.

Answer 24

• Bodily Injuries - Wages lost while the plaintiff was recovering from an injury.
• Personal Injuries - Suffered when a person is deprived of his or her rights.
• Property Damages - Destruction and loss of use of tangible personal property.

Question 25

Describe Punitive Damages

Answer 25

Punitive damages are awards made to plaintiffs not as compensation for injuries suffered, but as a means of punishing defendants for outrageously offensive acts. What constitutes such an act is a question of fact. The insurer usually agrees to pay for injuries inflicted by negligence on behalf of the insured individual. Punitive damages usually imply gross negligence, something for which the insurer may not have contemplated making payment.

Also, punishing an insurance company may not satisfy the courts’ purpose of punishing wrongdoers. Thus, in a few states, state law prevents insurers from providing compensation for punitive damages. If insurance frustrates public policy, an event becomes uninsurable.

Exam Tip: Differentiating compensatory damages from punitive damages from a tax perspective is essential. Basically, proceeds from compensatory damages will be excluded from gross income, while any awards stemming form punitive damages are always included in gross income.

Audio:
* Compensatory damages (not taxable) – make the plaintiff whole, bring them back where they were
* Punitive damages (taxable to the recipient) – punish the defendant for the wrong doing; usually associated with very gross negligence

Question 26

Contributory Negligence Example:

Assume the plaintiff fails to signal a turn and the plaintiff’s car is hit in the side by an oncoming car that was speeding. Assume the defendant, driver of the speeding car, establishes the plaintiff’s, negligent failure to signal caused, or at least contributed to, the loss. In this circumstance, neither plaintiff nor defendant could recover from each other under the contributory negligence rule.

Question 27

For recovery under the comparative negligence rule, assume the plaintiff, Moe D’Laun, a landscape architect, sustains $100,000 of damage in an automobile accident. Assume a court decides Moe was 30% responsible for the accident. Under the comparative negligence rule, Moe would recover $70,000.
How much would Moe recover under the contributory negligence rule?
* $50,000
* $0
* $100,000
* $30,000

Answer 27

$0
* Under the contributory negligence rule, Moe would recover nothing.
* If it can be shown the plaintiff’s own negligence contributed to or led to the injury sustained, the court will not allow recovery of damages from the defendant under the contributory negligence rule.

Question 28

Section 3 – Liability Insurance Summary

Legal liability insurance provides protection against the financial impact of lawsuits. In this lesson, we have covered the following:

Perils of Legal Liability are classified into three categories:
* Breach of Contract
* Criminal Act
* Torts

Negligence involves doing something a reasonable person would not do, or not doing something a reasonable person would do, which results directly in some injury to another person.

Answer 28

Negligence Lawsuits involve a plaintiff and a defendant. The plaintiff has to establish negligence against the defendant and prove it with facts. Negligence lawsuits occur when:
* There was negligence.
* There was actual damage or loss.
* The negligence was the proximate cause of the damage.

Negligence Suit Defense: A defendant has two main lines of defense against a charge of negligence:
* Contributory negligence
* Assumption of the risk

Tort Law: Provides legal remedy and compensation for private or civil injuries committed against a person or their property. Torts protect a person’s physical and emotional well-being from intentional interference, and strict liability provides legal recourse from unintentional actions.

Question 29

Match the key term with the correct definition.
Breach of Contract
Legal Liability Insurance
Torts
Criminal Acts
* Provides protection against the financial impact of lawsuits.
* General wrongs against society.
* Involves unreasonable conduct toward another person.
* A failure, without a legal excuse, to perform contractual duties.

Answer 29

• Breach of Contract - A failure, without a legal excuse, to perform contractual duties.
• Legal Liability Insurance - Provides protection against the financial impact of lawsuits.
• Torts - Involves unreasonable conduct toward another person.
• Criminal Acts - General wrongs against society.

Question 30

What is the doctrine of comparative negligence?
* It states that a slight negligence on a plaintiff’s part can relieve a grossly negligent defendant of responsibility for an accident.
* It is a modification of the contributory negligence rule.
* It states that if a plaintiff’s negligence contributes to the loss, nothing may be collected if the court applies the contributory negligence rule.
* It involves establishing that the plaintiff knowingly assumed the risk of injury.

Answer 30

It is a modification of the contributory negligence rule.
* The contributory negligence states that even slight negligence on a plaintiff’s part can relieve a grossly negligent defendant of responsibility for an accident.
* The doctrine of comparative negligence is a modification and allows plaintiffs some recovery despite contributing to their own injuries.

Question 31

In some states, state laws prevent insurers from covering punitive damages.
* False
* True

Answer 31

True
* In a few states, state laws prevent insurers from covering punitive damages as punishing an insurance company may not satisfy the courts’ purpose of punishing wrongdoers.

Question 32

George, a prize fighter, stepped into the boxing ring and in the 10th round, broke Mike’s nose. Mike sues George. What the most likely defense that George will provide?
* That Mike assumed a risk when he entered the ring.
* That under the doctrine of comparative negligence, Mike also hurt George so they are both equally at fault.
* That Mike was negligent by not ducking the punch.

Answer 32

That Mike assumed a risk when he entered the ring.
* As a boxer, Mike should assume that there is a risk of having his nose broken.

Question 33

Module Summary

• Risk management is defined as the logical development and execution of a plan to deal with potential losses.

Risk management: Similar to the personal risk management process, business risk management also involves six-steps
* establishing objectives
* identifying loss exposure
* measuring loss exposure
* developing a plan
* implementing the plan, and
* regularly reviewing the plan.

Legal liability insurance provides protection against the financial impact of lawsuits.

Negligence: Doing something a reasonable person would not do, or not doing something a reasonable person would do, which directly results in injury to another person.

Answer 33

Negligence lawsuits: Legal contests where the jury settles the questions of fact and awards compensation to the plaintiff. The lawsuit involves a plaintiff and defendant. The plaintiff has to establish negligence against the defendant and prove it with facts.

Negligence suit defense: A defendant has two main lines of defense against a charge of negligence:
* contributory negligence
* assumption of the risk

Intentional torts: A person may be held liable in tort for intentionally interfering with another’s person, property, or business relations. Examples of these intentional torts include invasion of privacy and trespassing.

Strict liability: Legal responsibility is imposed even though a person has not acted intentionally and has exercised the utmost care to prevent the harm.

Question 34

Exam 2. Evaluation and Analysis of Risk Exposures

Exam 2. Evaluation and Analysis of Risk Exposures

Course 2. Insurance Planning

Question 35

Defamation includes each of the following EXCEPT:
* Disrupting one’s peace of mind or right to be left alone
* Libel
* Slander
* Communication by gestures

Answer 35

Disrupting one’s peace of mind or right to be left alone
* The law recognizes two forms of defamation: libel (publication of statement by written or printed words) and slander (communication of statement by spoken words or gestures).

Question 36

What type of court awarded damages are to punish defendants for outrageously offensive acts?
* Punitive damages
* Personal injury
* Compensatory damages
* Collateral source

Answer 36

Punitive damages
* Punitive damages usually imply gross negligence.

Question 37

What doctrine allows plaintiffs some recovery despite the establishment of contributory negligence as a defense?
* Strict liability
* Assumption of risk
* Risk retention
* Comparative negligence

Answer 37

Comparative negligence
* Most states apply a modification of the contributory negligence rule called the doctrine of comparative negligence.
* The comparative negligence doctrine allows plaintiffs some recovery despite contributing to their own injuries.

Question 38

Which of the following statements regarding the Occupational Safety and Health Act of 1970 (OSHA) is NOT correct?
* OSHA provides a provision for imprisonment in some cases where employees’ injuries are fatal.
* OSHA requires notification of the Consumer Product Safety Commission (CPSC) by manufacturers and retailers of any product hazard of which they become aware.
* OSHA requires removal of all recognized hazards from the work environment.
* OSHA imposes heavy fines for noncompliance.

Answer 38

OSHA requires notification of the Consumer Product Safety Commission (CPSC) by manufacturers and retailers of any product hazard of which they become aware.
* The Consumer Products Safety Act of 1972 (not OSHA) requires notification of the Consumer Product Safety Commission (CPSC) by manufacturers and retailers of any product hazard of which they become aware.

Question 39

If it is established that Bill knowingly assumed the risk of injury, he will not be awarded a judgment under the assumption of risk doctrine.
Which of the following acts is considered tortious?
I. Shooting fireworks toward a building
II. Slander
III. Libel
V. Texting while driving resulting in injury to a pedestrian
* All of these
* None of these
* II and III
* I and IV

Answer 39

All of these
* Each of these acts is tortious.
* A person who commits a tort is known as a tortfeasor, and acts or omissions constituting torts are said to be tortious.

Question 40

What type of insurance provides wider liability insurance coverage than that found in a typical homeowners or automobile insurance policy?
* Liability endorsement
* Liability rider
* Personal protection supplement policy
* Personal liability umbrella policy

Answer 40

Personal liability umbrella policy
* Personal liability umbrella policies provide wider coverage than the base policies they cover.
* These umbrellas provide coverage if underlying (homeowners and automobile) policies are exhausted.

Question 41

What type of negligence defense seeks to establish that the injured party’s own negligence contributed to the injury sustained?
* Risk retention
* Collateral source rule
* Assumption of risk
* Contributory negligence

Answer 41

Contributory negligence
* Establishing contributory negligence as a defense means that because both parties are at fault, neither will be allowed recovery from the other.

Question 42

Joe is at-fault in a serious automobile accident and is sued. His automobile policy has collision coverage with a $500 deductible and liability coverage in the amount of $500,000. Joe has a personal liability umbrella policy with a limit of $1,000,000. If the plaintiff is awarded $400,000, what amount is paid by the automobile policy and what amount is paid by the personal liability umbrella policy?
* $200,000 will be paid by the automobile liability coverage; $200,000 will be paid by the personal liability umbrella policy.
* $0 will be paid by the automobile liability coverage; $400,000 will be paid by the personal liability umbrella policy.
* In this instance, Joe’s collision coverage will pay, and the automobile liability coverage and the personal liability umbrella policy will pay nothing.
* $400,000 will be paid by the automobile liability coverage; $0 will be paid by the personal liability umbrella policy.

Answer 42

$400,000 will be paid by the automobile liability coverage; $0 will be paid by the personal liability umbrella policy.
* $400,000 will be paid by the automobile liability coverage; $0 will be paid by the personal liability umbrella policy.
* A personal liability umbrella policy does not pay until the underlying policy is exhausted.
* The award is $400,000 and Joe has a $500,000 liability limit under his base automobile policy.

Question 43

Which of the following is not considered a personal risk?
* Death
* Liability to others
* Disability
* Health

Answer 43

Liability to others
* Liability to others is considered a property risk.

Question 44

Farmer Octavio raises free-range chickens for egg production. Last night, Octavio failed to adequately secure the latch of the chicken pen. Overnight, two mountain lions escaped from the city zoo and ate several of Octavio’s chickens before Octavio shot and killed them.
Which party is likely liable to the other for losses and under what doctrine?
* The city zoo is liable for damages to Joe’s property under the doctrine of infliction of emotional distress.
* The city zoo is liable for the loss of Octavio’s property under the doctrine of strict liability.
* Neither party is liable for the loss’s sustained by the other party under the doctrine of contributory negligence.
* Octavio is liable for the loss of the zoo’s property under the doctrine of assault and battery.

Answer 44

The city zoo is liable for the loss of Octavio’s property under the doctrine of strict liability.
* The city zoo is liable for the loss of Octavio’s property under the doctrine of strict liability even if not found to be negligent because maintaining dangerous wild animals inherently presents a risk to the community.

Question 45

In risk management, which of the following is a form of risk control?
* Risk transfer
* Risk retention
* Risk avoidance
* Insurance

Answer 45

Risk avoidance
* Risk avoidance is a type of risk control.
* In addition, risk reduction is also considered a form of risk control.

Question 46

What type of insurance policy extends and increases the liability coverage on other policies?
* Endorsement
* Umbrella
* Open-perils
* Broad form

Answer 46

Umbrella
* An umbrella policy provides additional liability coverage if the underlying policies (auto and homeowners) are exhausted.

Question 47

Which of the following statements is not correct regarding criminal conduct?
* Criminal prosecution punishes a guilty defendant’s conduct by imposing a fine, prison term, compensatory damages, or punitive damages.
* The same conduct may be both a crime and a tort.
* A crime is an intentional violation of another’s rights.
* Criminal prosecution is maintained by the state or federal government.

Answer 47

Criminal prosecution punishes a guilty defendant’s conduct by imposing a fine, prison term, compensatory damages, or punitive damages.
* Criminal prosecution punishes a guilty defendant’s conduct by imposing a fine, or prison term, but does not award compensatory or punitive damages. A civil legal proceeding may be filed to seek damages.

Question 48

A hospital being found guilty of negligence for the mistakes made by a physician that resulted in the death of a patient is an example of __ ____??____ __.
* vicarious liability
* errors and omissions
* limited liability
* absolute liability

Answer 48

vicarious liability
* Vicarious liability can arise for people or organizations when parties they hire as employees or contractors injure others.

Question 49

An intentional tort in which a person confines another within fixed boundaries (for example, by being locked in a room) is called __ ____??____ __.
* defamation
* false imprisonment
* intention infliction of emotional distress
* assault and battery

Answer 49

false imprisonment
* False imprisonment is an intentional tort in which a person confines another within fixed boundaries by physical force, threat of physical force, or other forms of duress.

Question 50

The use of deductibles, co-payments, and waiting periods are examples of __ ____??____ __.
* Risk transfer
* Risk avoidance
* Risk reduction
* Risk retention

Answer 50

Risk retention
* Deductibles, co-payments, and waiting periods are examples of risk retention and are paid by the insured.

Question 51

Tom is driving on Main Street and drifts over the center line. Bill is driving from the opposite direction and sees Tom has crossed the center line. Bill does not take evasive action and crashes into Tom.
Under what doctrine may Bill be found liable for damages incurred by Tom?
* Contributory negligence
* Comparative negligence
* Last clear chance
* Assumption of risk

Answer 51

Last clear chance
* Despite Tom’s negligence, Bill had a clear chance to avoid the injury.

Question 52

Under what doctrine may an injured party seek damages from a negligent party even if the injured party is fully compensated by insurance?
* Collateral source rule
* Compensatory damages
* General damages
* Punitive damages

Answer 52

Collateral source rule
* The collateral source rule allows that damages for bodily injury can be assessed against the negligent party even when the injured person recovers the amount of his or her loss from other sources.

Question 53

Which of the following can help identify potential direct property losses for a business?
* An analysis of financial statements, as well as the supporting accounts, can highlight assets exposed to loss.
* An analysis of past losses.
* A walking tour of the business can reveal many property loss exposures.
* Each of these approaches can help a risk manager to identify potential loss exposure.

Answer 53

Each of these approaches can help a risk manager to identify potential loss exposure.
* Additionally, regular interviews with knowledgeable employees can be helpful in risk management.

Question 54

To settle a traffic accident dispute, Tom and Bill agree to a three-round boxing match with all proceeds raised going to a local charity. The charity widely promotes the event and considerable money is raised and provides the boxing ring and gloves for the match. During the boxing match Bill suffers a broken jaw. Bill files a lawsuit against the charity for negligence in not providing proper head gear for the fight.
What doctrine may preclude Bill from collecting damages?
* Assumption of risk
* Comparative negligence
* Last clear chance
* Contributory negligence

Answer 54

Assumption of risk
* A line of defense that involves establishing the plaintiff knowingly assumed the risk of injury.
* If the defendant establishes assumption of the risk, the plaintiff will not be awarded a judgment.

Question 55

Jill has a homeowners insurance policy that provides $25,000 coverage for personal property. She also has a personal liability umbrella policy with a $1,000,000 limit. Jill’s home is nearly destroyed by a fire and it is determined her personal property loss is $50,000.
How much will the umbrella policy pay for the property loss?
* $0
* $25,000
* $50,000
* Up to $100,000

Answer 55

$0
* Personal liability umbrella policies do not coverage loss of personal property.
* Umbrella policies cover liability claims in excess of the underlying policy limits.

Question 56

What type of damages award compensate the injured party for intangible losses, such as pain and suffering, disfigurement, mental anguish, and loss of consortium?
* Personal injury damages
* Compensatory damages
* General damages
* Punitive damages

Answer 56

General damages
* General damages awarded compensate the injured party for intangible losses, such as pain and suffering, disfigurement, mental anguish, and loss of consortium.

Question 57

Each of the following is an indirect cost of legal liability lawsuits EXCEPT:
* Hostile environment where fear of lawsuits inhibits business and personal activity.
* Elimination of products and services.
* Higher costs for goods and services.
* Attorney fees and court costs.

Answer 57

Attorney fees and court costs.
* Attorney fees and court costs are example of direct costs involving legal liability lawsuits.

Question 58

Which of the following statements regarding key person life insurance is NOT correct?
* Once key employees are identified, life insurance should be considered for them.
* In a key person policy, the business pays the premiums and the key employee names a beneficiary to receive the death benefit tax-free.
* Key person insurance benefits can be used to recruit and train a new person.
* Key person life insurance can help cover lost income to the business due to the key person’s death.

Answer 58

In a key person policy, the business pays the premiums and the key employee names a beneficiary to receive the death benefit tax-free.
* The business owns and pays the premiums for a key person policy and the insurance proceeds are payable to the business.

Question 59

Which of the following is a form of risk financing?
* Risk avoidance
* Risk management
* Insurance
* Risk reduction

Answer 59

Insurance
* Risk retention and risk transfer (insurance) are levels of risk financing.

Question 60

Tom is a general contractor in the construction business. He is running behind for the completion date of a major project. He will forfeit a portion of his compensation if he fails to meet the deadline. Tom contracts with a friend to help finish the job. Scaffolding used by the friend accidently collapses into the street, damaging several cars and injuring one pedestrian. Under what type of doctrine may Tom be found responsible for damages?
* Joint and severable liability
* Vicarious liability
* Contributary negligence
* Comparative negligence

Answer 60

Vicarious liability
* Vicarious liability is a form of strict liability which attaches responsibility for damages to another person in a negligence or criminal proceeding.
* An employer can be held liable for damages caused by an employee’s negligence.