Deck 46: Insurance Law

Question 1

The expected loss arising from an event is the probability of the event multiplied times the magnitude of the loss.

Answer 1

True

Question 2

The insured transfers the risk of loss to the insurer for a price known as a co-pay.

Answer 2

False

Question 3

Personal insurance represents policies related to life, health, accident but not disability insurance.

Answer 3

False

Question 4

Property insurance covers things like homeowners, renters, automobile, and boat insurance.

Question 5

Insurance contracts require that the insured demonstrate they have a potential insurable interest.

Question 6

An insurable interest is an interest by the insured in the value of what is being insured that arises from a financial or legal relationship.

Question 7

The goal of the indemnity principle is to reimburse the insured for the losses sustained plus compensatory and punitive damages to third parties.

Question 8

Actuaries are individuals trained in mathematics who use statistical models to calculate the probabilities and loss exposure of particular risks.

Question 9

Insurance is largely governed by state laws and regulations.

Question 10

An important aspect of insurance regulation is the imposition on insurers of a duty of good faith toward the insured.

Question 11

The expected loss arising from an event is the probability of the event __________ the magnitude of the loss.

A) added to
B) multiplied times
C) divided by
D) None of the choices are correct

Question 12

The insured transfers the risk of loss to the insurer for a price known as a/an __________.

A) allocation
B) co-pay
C) premium
D) All of the choices are correct

Question 13

Insurance is a contractual relationship in which the insured transfers a specified risk to a third-party insurer that aggregates similar __________ into a common pool.

A) redactions
B) disclosures
C) materials
D) risks

Question 14

Insurers reduce the chance of a moral hazard by including a __________ on a policy and refusing to insure intentional torts and criminal activity.

A) deductible
B) obligation
C) co-pay
D) None of the choices are correct

Question 15

When an insured party engages in riskier behavior because he relies on insurance to cover his liability or loss, this is known as a __________.

A) moral hazard
B) potential liability
C) management practice
D) All of the choices are correct

Question 16

Personal insurance represents policies related to:

A) life insurance
B) health insurance
C) disability insurance
D) All of the choices are correct

Question 17

What may liability insurance not cover?

A) negligent acts of others
B) total amount of loss
C) bodily injury
D) property damage

Question 18

Businesses often purchase an insurance policy known as a __________ policy.

A) county
B) corporate liability
C) state
D) commercial general liability

Question 19

What may commercial general liability insurance policies not cover?

A) copyright infringement
B) false advertising
C) intangible property
D) wrongful eviction

Question 20

Professional malpractice insurance __________ the insured for up to the specified policy limit for negligent acts performed by professional employees that injure clients.

A) denies
B) disclaims
C) indemnifies
D) repudiates

Question 21

Errors and omissions (E&O) liability insurance indemnifies the directors and executive officers of a corporation if they breach any of their __________ duties.

A) corporate
B) mens rea
C) voir dire
D) fiduciary

Question 22

Insurance contracts require that the insured demonstrate they have an insurable interest.

A) insurer
B) insured
C) corporation
D) None of the choices are correct

Question 23

An insurable interest is an interest by the insured in the value of what is being insured that arises from a/an __________ or legal relationship.

A) administrative
B) financial
C) personal
D) adversarial

Question 24

The requirement that an insured demonstrate an insurable interest has two policy justifications: to prevent parties from engaging in pure speculative gambling with respect to others' assets or liabilities and to reduce __________.

A) expatriate issues
B) bad judgment
C) personal liability
D) moral hazard

Question 25

An insurer has both a __________ and a duty to defend any lawsuit alleging claims against the insured that might trigger liability under the policy.

A) non-contractual right
B) moral right
C) contractual right
D) None of the choices are correct

Question 26

Legal defense is an important aspect of liability insurance because the costs of defending a lawsuit can be __________.

A) pricey
B) expensive
C) substantial
D) All of the choices are correct

Question 27

Once a loss is paid to the insured, __________ gives the insurer the right to pursue a legal claim against the party who caused the loss to the insured.

A) negotiation
B) subrogation
C) abrogation
D) novation

Question 28

Insurance companies will insure liability that arises from many behaviors except:

A) property damages by another
B) criminal acts
C) mental illness
D) None of the choices are correct

Question 29

The hit motion picture, The Big Short, told the remarkable story of how a few savvy investors were able to profit from the __________ collapse.

A) legal industry's
B) stock market's
C) homeowner's insurance
D) housing market's

Question 30

Subrogation may exist as a contract term in the insurance policy and may allow the insurance company the right to collect from the insured if a claim is paid and the insured obtained payment from the __________ who caused the loss.

A) prosecution
B) third party
C) criminal claim
D) None of the choices are correct

Question 31

The court in Administrative Committee of the Wal-Mart Stores, Inc. Associates' Health and Welfare Plan v. James A. Shank et al., 500 F.3d 834 (8th Cir. 2007):

A) reversed the trial court upon its review of the subrogation clause in Wal-Mart's employee health care policy
B) affirmed the trial court upon its review of the subrogation clause in Wal-Mart's employee health care policy
C) remanded the trial court upon its review of the subrogation clause in Wal-Mart's employee health care policy
D) None of the choices are correct

Question 32

The goal of the indemnity principle is to reimburse the insured for the losses sustained _________.

A) and punitive damages
B) plus compensatory damages
C) and no more
D) None of the choices are correct

Question 33

__________ are individuals trained in mathematics who use statistical models to calculate the probabilities and loss exposure of particular risks.

A) Actuaries
B) Lawyers
C) Stewards
D) Head hunters

Question 34

The amount an insured will receive is controlled by the principle of __________.

A) bribery
B) subrogation
C) insurance
D) indemnity

Question 35

Insurers often have access to __________ data that allow them to determine the probability of an event occurring.

A) trade secret
B) historical
C) investment
D) current

Question 36

LAE stands for __________ and represents additional costs associated with the claims, such as legal defense costs.

A) loss adjustment experience
B) loss adjustment expense
C) loss adjourment expense
D) lost adjustment expense

Question 37

The insured may take several steps as part of a __________ program to minimize the probabilities of a loss or the loss amount should the event occur.

A) risk loss
B) Ponzi scheme
C) racketeering
D) risk management

Question 38

The high costs and frequency of litigation will be priced into insurance __________.

A) operations
B) allocations
C) fraud
D) premiums

Question 39

Insurance is largely governed by __________ laws and regulations.

A) state
B) federal
C) county
D) criminal

Question 40

Congress decided to largely relinquish regulatory control to the states when it passed the __________ Act.

A) McCarran-Farley Act
B) McDonald-Farley Act
C) McCarran-Ferguson Act
D) McCarrol-Ferguson Act

Question 41

An important aspect of insurance regulation is the imposition on insurers of a duty of __________ toward the insured.

A) care
B) good faith
C) impartiality
D) financial care

Question 42

An insurer engages in bad faith if it fails to handle a claim in a fair manner, fails to __________ the insured against loss, or cancels insurance policies without just cause.

A) surrender
B) alleviate
C) indemnify
D) None of the choices are correct

Question 43

Insurance __________ assist in state insurance regulation to prevent unfair insurer practices.

A) commissioners
B) delegates
C) issuers
D) gurus

Question 44

In some cases, insurance regulators require that insurers contribute toward a __________, which provides coverage for those who may not be able to obtain insurance through the regular insurance markets.

A) petitionary market plan
B) reparatory market plan
C) restitutionary market plan
D) residual market plan

Question 45

In Cotton States Mutual Insurance Co. v. Brightman, 580 S.E. 2d 519 (2003), the Georgia Supreme Court:

A) reversed the trial court and appellate court and found that Cotton States was liable to the insured for the excess jury award judgment.
B) reprimanded the trial court and appellate court and found that Cotton States was liable to the insured for the excess jury award judgment.
C) affirmed the trial court and appellate court and found that Cotton States was liable to the insured for the excess jury award judgment.
D) None of the choices are correct.

Question 46

Describe what insurance is, the parties involved, and the nature of what insurance covers.

Question 47

List and explain the three main types of risks insurance may protect.

Question 48

Explain the notion of subrogation and how that impacts insurer's and the insured.

Question 49

Explain the formula for insurance pricing and how the premiums are achieved.

Question 50

List and explain what the state insurance commissioners do to assist in state insurance regulation.