Deck 3: Managing Legal Risks

Question 1

Which of the following describes the overall primary objective of the legal risk management process?

A) prevention of loss
B) reduction of risk
C) transfer of risk
D) eliminating loss

Answer 1

B

Question 2

After several interviews and calls to follow up on references,Fashion By Design Inc.has chosen a seasoned lawyer from a well-known commercial law firm to provide legal services to the company.What was the object of having the company's management expend substantial effort into the lawyer selection?

A) to reduce stress level put on in-house counsel
B) to establish a productive, long-term relationship
C) to allow the risk to remain outside the business
D) to delegate risk management to outside source

Answer 2

B

Question 3

With respect to business liability,which of the following would a law professor describe as being a distinguishing characteristic of a standard form contract?

A) It is able to completely eliminate liability for losses.
B) It imposes the same set of terms on every customer.
C) Its use is prohibited in most common law provinces
D) It includes standard clauses prescribed in legislation.

Answer 3

B

Question 4

Which of the following correctly describes the broad application of the term "legal risk" in the business environment?

A) risk of being held liable under the civil law
B) the risk of breaking the law
C) the risk of conviction of a white collar crime
D) any business risk with legal implications

Question 5

The term "in-house lawyer" is used to describe which of the following?

A) a lawyer working from home
B) a lawyer specializing in home sales.
C) a lawyer working inside the business
D) a lawyer working in a law firm

Question 6

Which of the following best describes the set of methods used when forming a risk management plan to limit exposure to legal risks?

A) sidestep, keep, lessen, or shift risk
B) divert, decrease, and align risk
C) avert, tolerate, and lessen risk
D) reduce, shift, diversify risk

Question 7

Benta recently purchased an office cleaning business with established long-term contracts to provide cleaning services to a number of large office building operators.Which of the following would immediately allow Benta to be aware of potential legal risks with the building operators?

A) consult with a law firm to devise a legal strategy
B) consult and arrange insurance to cover legal risks
C) schedule introductory meetings with customers
D) review contracts and customer payment history

Question 8

Which of the following correctly identifies the goal of the third step in the legal risk management process?

A) to hire a legal professional or insurance consultant
B) to carry out the plan, assessing probability of loss, and revising the plan
C) to determine priority concerns for risk management
D) to be aware of risks and make conscious decisions about handling them

Question 9

Why is the inclusion of a limitation of liability clause in a commercial contract considered to be an effective solution for business legal risk management?

A) It triggers avoidance of liability in standard form commercial contracts.
B) It creates equity because it imposes the same terms on every customer.
C) It limits financial responsibility for damages if there is a breach of contract.
D) It transfers risk from the business owners to the business and its customers.

Question 10

A senior manager conducted five seminars to review the legal risk management policy revisions with employees.Concerns raised during this process were sent in a memorandum to the department head.What activity and its corresponding step in the legal risk management process are exemplified in this instance?

A) evaluating potential risk; third step
B) reducing risk; second step
C) implementing and monitoring; final step
D) carrying out the plan; third step

Question 11

Which of the following would a risk manager consider to be circumstances where risk avoidance is appropriate?

A) where it is possible to minimize risk by diversion to another
B) where self-insurance or risk transfer is a considered option
C) where the disadvantages would outweigh the advantages
D) where the undesirable result of an activity is less than its advantages

Question 12

Which of the following correctly describes what position,if any,a lawyer would have with respect to the risk management team?

A) professional risk management supervisor
B) part of the executive management team
C) excluded from team; acts as legal consultant
D) part of the team or a consultant to the team

Question 13

Professional liability insurers require law societies to appoint independent auditors,who conduct annual audits of law firm trust accounts to ensure that clients' trust funds are being utilized properly by the lawyers and the firm.What activity and its corresponding step in the legal risk management process would a legal risk manager most likely indicate are represented in these circumstances?

A) assess possibility of loss; second step
B) monitoring business activities; third step
C) identifying legal risks; initial step
D) carrying out the plan; third step

Question 14

A private investment firm,dealing exclusively in derivative investment products,is concerned its market activities may become regulated.Which of the following would the manager of the risk department identify as the recommended measures the institution should undertake to begin to address its concerns?

A) take action to establish an adequately funded cash reserve
B) undertake to manage legal risk with a plan to prevent loss
C) appoint a junior trader to monitor and assess possibility of loss
D) undertake and prepare a risk aversion policy manual

Question 15

Which of the following is an example of risk transference?

A) insurance policy deductibles
B) self-insurance
C) noninsurance
D) insurance

Question 16

Which of the following identifies the approaches recommended to business for effective management of areas of interaction with the law and legal issues?

A) precautionary and reactionary
B) risk aversive and risk detractive
C) preventative and reactive
D) managerial and risk detention

Question 17

Which of the following would business school curricula customarily classify as functional areas of a business?

A) production, human resources, finance
B) finance, accounting, training
C) marketing, education systems, finance
D) accounting, marketing, training

Question 18

The immobilization technology being employed in some automobiles best matches which of the following goals of a legal risk management plan?

A) to eliminate risk
B) to facilitate self-insurance
C) to reduce competition
D) to prevent loss

Question 19

Which of the following best describes the reason for assessing the severity of potential losses when creating a legal risk management plan?

A) to establish insurance policies for employees exposed to greater risk
B) to delegate responsibility for devising the risk management plan
C) to prioritize identified risks and guide a given risk through the process
D) to identify mechanisms to adopt, avoid, or eliminate existing risks

Question 20

Prior to completing the financing arrangements needed to fund the purchase of an IT consulting firm,Albert Brinkman met several times with his bank and his accountant to review the terms of the bank's financing offer against the business's financial statements.Which of the following correctly identifies and matches this activity with its corresponding step in the risk management process?

A) avoiding the possibility of loss; first step
B) transferring legal risk; fourth step
C) evaluating severity of potential loss; third step
D) assessing risk in business decisions; first step

Question 21

Duble Mining Ltd.began gold mining operations in Brazil a year ago.Recent change in government policy caused the risk management department to transfer some uninsured risk to satisfy their commercial lenders.Which of the following actions would immediately confirm to the commercial lenders that their requirements have been met?

A) hiring private security to guard the mine
B) selling shares to the public to raise capital
C) arranging a political risk insurance policy
D) engaging in political lobbying efforts

Question 22

A staff member employed in the purchasing department has been experiencing a number of sexually harassing telephone calls from a sales representative of a new supplier.The matter has been referred to the legal risk management department for analysis.Which function of the business must be analyzed as a result of the referral?

A) business relations
B) human resources
C) employee relations
D) supplier relations

Question 23

When measuring legal risk,which of the following would immediately indicate that there are circumstances in need of priority consideration?

A) implementation of a standard form contract
B) matters where the potential loss is high
C) a review of long-term supplier contracts
D) topics for inclusion in risk policy manuals

Question 24

A legal risk management team met with their manager to discuss their inability to complete their assignment without the outstanding legal opinion.What element in the criteria for selecting a lawyer is obviously missing from this arrangement?

A) willingness to communicate
B) scope of legal services required
C) understanding of the business
D) knowledge of the industry

Question 25

A cost-benefit analysis was conducted to assess the benefits of substituting a key compound in a herbal health specialty product formula.The substitution would involve the use of an untested inexpensive compound.Which of the following would a legal risk manager indicate as the business function requiring analysis for legal risk?

A) costing
B) production
C) marketing
D) analyzing

Question 26

Which of the following correctly identifies the risk management process where consumer protection regulations regarding advertising would be noted?

A) evaluation of potential losses
B) identification of legal risks
C) implementation of the plan
D) devising the management plan

Question 27

Which of the following would strongly support a business strategy for managing risks uniquely associated with commitments made by employees to suppliers or customers?

A) Identify a knowledgeable individual to be risk department manager.
B) Retain legal counsel to act as in-house counsel to the business.
C) Establish policies and financial limits for commitments to customers.
D) Deal with each risk and assign responsibility for each action.

Question 28

Which of the following risk management objectives would be strongly supported by the use of a limitation of liability clause in a contract?

A) It reduces liability for the risk and is enforceable under law.
B) It transfers the risk, is legally enforceable, and is acceptable to the other party.
C) It eliminates the risk, limits the liability, and is acceptable the other party.
D) It retains a standard form of contractual of limited liability.

Question 29

During the risk evaluation process,a high probability that a particular loss-causing event will occur must be weighed against which of the following possibilities?

A) that the event will definitely occur and the loss is unavoidable
B) whether likely occurrence may be offset by a low level of associated loss
C) whether low probability will be offset by a high level of associated loss
D) that the event will likely never occur and should be ignored

Question 30

Escalating insurance premiums forced Econo Courier Ltd.to re-evaluate its fleet's windshield coverage.The company negotiated a special rate with a local windshield chain and routinely set money aside to pay for those costs when they occurred.Which of the following correctly identifies the form of risk retention Econo is using?

A) insurance deductibles
B) uninsured
C) noninsurance
D) self-insurance

Question 31

Why will a legal risk management plan be an effective tool for a business experiencing a breach of customer security data?

A) A plan to address the risk is already in place.
B) Senior management must manage the risk.
C) Security breaches are considered commonplace, low-level risks.
D) Computer security breaches generally pose less serious risk.

Question 32

Dontally Imports Inc.has an expiring contract that the overseas supplier is anxious to renew.However,supplier shortages caused difficulties for Dontally.Recently it was able to secure a reliable,alternate source,to meet its obligations to its large merchant customers.With respect to expiring contracts,which of the following actions should the legal risk department recommend?

A) Reduce the risk.
B) Eliminate the risk
C) Transfer the risk.
D) Retain the risk.

Question 33

Rollie's Electric Ltd.noted its lawyer's account for annual corporate fees had been paid twice.No refund was received; instead,a second account had been sent,marked paid in full.Why are Rollie and his business associates now discussing lawyers?

A) to devise a plan to recover the overpayment
B) to determine what action would be best
C) lawyers' billing practices may vary
D) circumstances warrant a change of lawyer

Question 34

A food producer inadvertently labelled a batch of a food product incorrectly,indicating it was sulphate free when sulphate was a standard ingredient.A number of incidents involving severe allergic reactions resulted in the products' removal from shelves and fines levied.Which of the following correctly identifies the business function this legal risk rose from?

A) labelling
B) production
C) marketing
D) advertising

Question 35

Among its inventory of business decisions to be assessed for possible legal implications,Bellamy Solar Panels Inc.must review its ownership of land and the wording of its warehouse leases.Which of the following has the ability to contribute the most to this assessment?

A) senior managers
B) a lawyer
C) in-house counsel
D) leasing agent

Question 36

Which of the following correctly identifies elements that would be contained in a legal risk management plan and the proper strategy to deal with the risk of inventory loss due to fire?

A) Note need to transfer risk and recommend inventory fire insurance.
B) Note the inventory fire risk and the insurance professionals placing policies.
C) Identify hazards and note details of inspections and of fire insurance coverage.
D) Track current inventory on a weekly basis for insurance purposes.

Question 37

During a recent takeover of a competitor,Jordden Jeans Corp.was able to realize significant cost savings due to advice from its lawyer throughout the negotiation process.How does this result support the primary function the organization's risk manager required the lawyer to fulfill?

A) provide current industry knowledge
B) provide advice at a reasonable cost
C) provide business evaluation skills
D) provide practical bottom-line advice

Question 38

A salesperson contacted the risk manager to report substantial damage to a customer's production line due to malfunction of equipment purchased 12 months earlier.Why was a lawyer was not contacted and advised of the event directly by the salesperson?

A) The limitation of liability in the contract was not known.
B) Sales departments are not part of risk management.
C) The customer has not commenced legal action yet.
D) Authority to contact legal counsel is restricted.

Question 39

Compliance with legal requirements and anticipation of changes in the legal environment are distinguishing characteristics of which one of the following approaches to managing interaction with the law and legal issues?

A) preventative
B) anticipatory
C) precautionary
D) reactionary

Question 40

Which of the following methods should be used to manage the risk of non-delivery by suppliers?

A) Impose arbitrary performance standards.
B) Check with the supplier's competitors.
C) Charge most supplier losses as expenses.
D) Perform a credit check on the supplier.

Question 41

Legal risk management is an optional practice businesses undertake only if there are adequate resources to allocate in-house legal staff to carry out the task.

Question 42

The fact that an organization's human resource department is typically exposed to potentially serious risks supports the need for a legal risk management plan.

Question 43

Having a legal risk management plan is unnecessary for a small business entity.

Question 44

Rahim's decision to increase the amount of the deductible on his business liability insurance policy will result in the business having to absorb the loss resulting from a future materialization of a legal risk.

Question 45

The point in evaluating risks is to recognize that not all risks are alike,nor should they be treated alike.

Question 46

Risk managers should have ample knowledge of the business,its activities,and the industry it operates in.

Question 47

Insurance policies covering business risks will provide coverage for all losses as part of their standard terms,so there is no need for the legal risk management team to review the policies.

Question 48

Most lawyers can be expected to have the expertise necessary to head up a risk management department.

Question 49

In-house legal counsel are highly trained commercial law specialists,capable of handling all of the business's litigation matters.

Question 50

A legal risk management plan must be continually reviewed,reassessed,and revised.

Question 51

The best mix of approaches to risk management is rooted in cost-benefit analysis.

Question 52

Identification of loss is the primary goal of a risk management plan.

Question 53

Law firms typically comprise a group of lawyers practising as sole practitioners.

Question 54

A business can transfer specific types of risk by choosing professionals based on their reputation and proven performance.

Question 55

The most common way to transfer risk is by buying insurance.

Question 56

Employees are generally considered to be an unreliable source for identifying risks in an organization's functional areas.

Question 57

Anders will be able to support his recommendation that the business undertake development of a legal risk management plan by performing a subjective evaluation involving an assessment of both the probability and the severity of loss.

Question 58

Law societies govern the activities of their lawyer members and certify the legal competence of each particular lawyer in their areas of specialization.

Question 59

Risk avoidance is always the best policy.

Question 60

Identification of potential exposure to legal risks involves assessing the organization's functional areas and reviewing its business decisions and business relationships.

Question 61

What is enterprise risk assessment and how is it related to a legal risk management plan?

Question 62

Should circumstances require a business to retain outside legal advice,what three things are important to communicate to a potential lawyer?

Question 63

Identify and briefly describe the legal risks associated with the human resources function of a business organization.Discuss the implications of not having a risk management plan in place with regard to its human resources.

Question 64

What are risk avoidance,risk reduction,risk retention,and risk transference? When is each appropriate?

Question 65

Identify and describe the four steps in creating a legal risk management plan.

Question 66

What is the value of having a legal risk management plan?

Question 67

What initial step would you suggest that a business should go through in selecting a lawyer?