Deck 3: Managing Legal Risks

Question 1

Which of the following are usually classified as functional areas of a business?

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

Answer 1

A

Question 2

In which of the following circumstances would an organization consider self-insurance to be an option?

A) where it is possible to minimize risk by diversion to another
B) where the organization has determined that risk retention is appropriate
C) where it is possible to create contract terms that achieve its objectives
D) where the undesirable result of an activity is less than its advantages

Answer 2

B

Question 3

A newly opened hotel has purchased a liability insurance policy in order to address occupier's liability due to slips and falls on the hotel premises.What legal risk management step is the hotel engaged in?

A) risk avoidance
B) risk reduction
C) risk transference
D) risk retention

Answer 3

C

Question 4

What is the most critical step in the development of a legal risk management program?

A) risk avoidance
B) preventing and reacting
C) identifying risk
D) assessing the organization's functional areas

Question 5

Why does one assess 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 6

A company operating a dating website for married individuals has identified that technology-related risks,including the possibility of infiltration of its customer database by hackers,could pose a hazard to the company and its customers.What legal risk management step is the company engaged in?

A) evaluating potential risk; first step
B) reducing risk; second step
C) implementing,monitoring and revising; final step
D) devising a risk management plan; third step

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 actions would immediately allow Benta to be aware of the 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

What is the defining feature of an 'all-risks' insurance policy?

A) no deductible
B) co-insurance
C) any risk not specifically excluded is covered
D) only risks related to property loss are covered

Question 9

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 is referred to the legal risk management department for analysis.Which function of the business must be analyzed?

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

Question 10

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 product's removal from shelves and fines levied.What business function did this legal risk rise from?

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

Question 11

Big City Taxi plans purchased an insurance policy for its fleet of vehicle that includes a $1000 deductible for each claim made against the policy.Which legal risk management strategies is Big City Taxi engaging?

A) transference and retention
B) self-insurance
C) retention and avoidance
D) reacting and preventing

Question 12

A private investment firm that deals exclusively in derivative investment products is concerned its market activities may become regulated.What measures should the institution take to begin to address its concerns?

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

Question 13

A cost-benefit analysis is 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.What business function should be analyzed for legal risk?

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

Question 14

What set of methods is used when forming a risk management plan to limit exposure to legal risks?

A) avoid,reduce,transfer,and absorb
B) divert,decrease,and align risk
C) avert,tolerate,and lessen risk
D) reduce,shift,diversify risk

Question 15

Risk management is best viewed as a task that should be carried out by whom?

A) stakeholders within and outside the organization
B) senior managers
C) a single person within the organization
D) managers and employees at every level of the organization

Question 16

Barrick Homecare Ltd.plans to introduce a health and safety system that will require reporting of workplace accidents and which will promote a culture of safety in their workplace.What type of risk management plan is Barrick using?

A) risk avoidance
B) risk reduction
C) risk transference
D) risk retention

Question 17

What approach to managing interaction with the law and legal issues has the following distinguishing characteristics: compliance with legal requirements and anticipation of changes in the legal environment?

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

Question 18

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 19

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.What activity and corresponding step in the legal risk management process is this?

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

Question 20

Which legal risk management process is most appropriate when the risk is simply too great or when the undesirable result of the activity,product or service is greater than the advantages?

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

Question 21

A food manufacturing company has determined that one of its most significant risks is potential customer illness or death from listeriosis or other contamination of its products.Which of the following is likely to be an important aspect of this company's risk management plan?

A) a limitation of liability clause in its contracts
B) self-insurance
C) risk reduction
D) Authority to contact legal counsel is restricted.

Question 22

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.Who has the ability to contribute the most to this assessment?

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

Question 23

Amicus Investing Services requires clients to sign a contract that states that the client understands that investing in the stock market is inherently risky and that Amicus is not responsible in any way for any financial losses incurred by the client as a result of following advice provided by Amicus.What legal risk management strategy is Amicus utilizing?

A) risk elimination
B) risk reduction
C) risk transference
D) risk retention

Question 24

Which statement best describes the role of lawyers in a successful risk management plan?

A) Lawyers should always be retained to develop the risk management plan.
B) Lawyers may be part of the risk management team or may be consulted at various states of the process.
C) Lawyers should only be consulted after legal problems develop.
D) Organizations should maintain internal legal departments to handle all aspects of legal risk management.

Question 25

Pharmaco Ltd.plans to lobby the federal government to delay introducing new guidelines for drug testing that will increase Pharmaco's costs to develop new products.Which risk management strategy is Pharmaco using?

A) risk retention
B) risk transference
C) risk avoidance
D) risk reduction

Question 26

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

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

Question 27

Which of the following correctly identifies elements that would be contained in a legal risk management plan?

A) Transfer the risk and recommend contracts to address changes.
B) Identify the risk and hire insurance professionals to develop policies.
C) Identify the risk and monitor changes in legislation.
D) Track new manufacturing processes and implement new technology.

Question 28

Toyota Motor Corp.recalled 8.8 million cars after some of its vehicles were found to have unintended acceleration problems.Which goal of a legal risk management plan were Toyota's actions meant to achieve?

A) elimination of risk
B) facilitating self-insurance
C) evaluating risk
D) reduction of impact by implementation of plan

Question 29

Which of the following methods should be used to manage the risk of non-payment by customers?

A) Perform credit checks on customers seeking credit.
B) Monitor the financial environment.
C) Charge outstanding accounts as expenses.
D) Reduce legal costs by finding more affordable legal counsel.

Question 30

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 the liability for the risk and is legally enforceable.
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 31

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.Which of the following actions should the legal risk department recommend regarding expiring contracts?

A) reduce the risk
B) eliminate the risk
C) transfer the risk
D) retain the risk

Question 32

Against which of the following possibilities should a high probability that a particular loss-causing event will occur be weighed during the risk evaluation process?

A) that the event will definitely occur and the loss is unavoidable
B) whether the likely occurrence may be offset by a low level of associated loss
C) whether a 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 33

What position,if any,would a lawyer have on 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 34

Duble Mining Ltd.began gold mining operations in Brazil a year ago.Recent changes in government policy cause the risk management department to transfer some uninsured risk to satisfy their commercial lenders.Which of the following actions by Duble Mining 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 35

After several interviews and calls to follow up on references,Fashion By Design Inc.chooses a seasoned lawyer from a well-known commercial law firm to provide legal services to the company.Why does the company's management expend substantial effort during 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

Question 36

How does the management of a legal crisis differ from managing legal risks?

A) Crisis management should focus on transferring risk.
B) Crisis management requires a quick and positive reaction.
C) Crisis management requires an organization to assess its functional areas.
D) Crisis management should be handled by public relations experts.

Question 37

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

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 38

Flow Pump Manufacturing wants to reduce costs and legal risk associated with its product warranty program which provides purchasers of its pumps with a two-year comprehensive warranty against pump failure.Which action should the company take to begin development of its legal risk management plan?

A) review the loss history data for its pumps
B) review its marketing practices
C) ensure that its pumps are manufactured in accordance with current engineering practices
D) schedule an inspection of its facilities

Question 39

A trucking company owns a fleet of gravel trucks,and rather than fully insure the fleet,the company chooses an insurance policy that provides for a $5000 deductible in the event of a loss involving one of its vehicles.In choosing the $5000 deductible,what form of risk management is the company using?

A) risk evaluation
B) risk avoidance
C) risk retention
D) risk acquisition

Question 40

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 41

Risk reduction involves introducing policies,practices,and procedures to reduce the probability of an event happening.

Question 42

Identifying legal risks may require an organization to analyze its operations and transactions.

Question 43

Requiring employees to wear protective equipment is an example of a risk avoidance strategy.

Question 44

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 45

A limitation of liability clause in a customer contract is an example of risk transference.

Question 46

Risk avoidance is always the best policy.

Question 47

There are two basic ways a business can manage its interaction with the law and legal issues: identify issues and avoid.

Question 48

Negotiating terms in a contract that limit the liability of the business is an example of risk avoidance.

Question 49

Lawyers are increasingly willing to offer a variety of fee structures such as billing at an hourly rate,standard fees for routine work,and annual retainers.

Question 50

A high probability that a particular event will occur can be offset by a relatively low level of loss should the event actually occur.

Question 51

Risk avoidance is appropriate when the undesirable result of the activity is greater than the advantages.

Question 52

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 53

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

Question 54

Forecasting risk in international business transactions is often difficult.

Question 55

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

Question 56

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

Question 57

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 58

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

Question 59

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

Question 60

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

Question 61

The #MeToo movement has exposed a widespread prevalence of sexual assault and harassment,especially in the workplace.What are some examples of risk management strategies that a business might utilize to manage the risk of sexual harassment in the workplace?

Question 62

Briefly describe how an organization's legal risk management plan could manage environmental risks associated with the business enterprise.

Question 63

A crisis can arise when a minor event or expected event spirals out of control or an unexpected event occurs that an organization is not prepared to handle.What are some general principles a car manufacturer might consider when addressing a serious manufacturing defect affecting thousands of vehicles that will now have to be recalled?