Question 1

Executives of a Fortune 500 firm blocked an acquisition attempt by a larger company.When the stockholders learned they could have made large profits had the acquisition not been blocked,they filed a lawsuit against the executives of the firm.What type of liability insurance protects the executives of the organization against such suits?

Accepted Answer

Directors and officers (D&O) liability insurance provides coverage for executives and directors against lawsuits brought against them related to their role in the company, such as blocking an acquisition. This type of insurance protects the personal assets of the executives and directors, and can also cover legal fees and settlements. Option A, dram shop liability insurance, is a type of insurance that covers businesses that sell alcohol for damages caused by intoxicated patrons. Option C, employers liability insurance, covers claims brought by employees for workplace injuries or illnesses that are not covered by workers' compensation insurance. Option D, employment-related practices liability insurance, covers claims brought by employees related to discrimination, harassment, or wrongful termination.

Question 2

HRC Company purchased an unendorsed ISO Commercial General Liability (CGL)policy.Which of the following claims would be covered under the CGL?

Accepted Answer

Personal and advertising injury liability would be covered under the CGL policy. Workers compensation liability would not be covered as it requires a separate policy. Liability arising from intentional acts and professional liability may also require separate policies as they may not be covered under the CGL.

Question 3

Which of the following statements concerning directors and officers liability insurance (D&O)is (are)true?
I.D&O policies usually cover the personal liability of directors and officers.
II.D&O policies exclude coverage for claims brought by employees and by stockholders.

Accepted Answer

Statement I is true. D&O insurance policies are designed to provide coverage for directors and officers against claims made against them for alleged wrongful acts committed in their capacity as directors and officers.

Statement II is false. D&O policies may provide coverage for claims brought by employees and stockholders, depending on the policy's terms and conditions.

Question 4

The general liability policy covers bodily injury or property damage caused by "an accident,including continuous repeated exposure to substantially the same general harmful conditions." This cause is loss is called a(n)

Accepted Answer

The definition of occurrence in a general liability policy includes both sudden accidents and continuous, repeated exposure to harm. Therefore, an occurrence is the appropriate term for any cause of loss covered by the policy. Accident (B) may be a component of an occurrence, but it does not encompass all covered losses. Event (C) and incident (D) may not accurately describe the type of loss covered by the general liability policy.

Question 5

All of the following statements about liability coverage under the businessowners policy are true EXCEPT

Accepted Answer

Liability coverage under the businessowners policy includes coverage for personal and advertising injury, medical payments, and the legal costs of defending the insured. However, employees acting within the scope of their employment are generally excluded from coverage, as they may be covered under workers' compensation or other employer-provided insurance.

Question 6

Ted is risk manager of XYZ Company.He is concerned his company might be sued by current or former employees alleging wrongful termination,failure to promote,racial or gender discrimination,or sexual harassment.What type of liability insurance can Ted purchase to cover these types of claims?

Accepted Answer

Employment-related practices liability insurance (EPLI) is designed to cover claims made by employees against their employer for wrongful termination, failure to promote, discrimination, sexual harassment, and other related issues. EPLI provides coverage for legal fees, settlements, and judgments. While workers compensation insurance (A) only covers injuries and illnesses sustained on the job, employer liability insurance (B) typically covers claims related to workplace accidents. Directors and officers liability insurance (D) specifically covers claims made against the company's directors and officers, not necessarily claims related to employment practices.

Question 7

Jenkins Company purchased a commercial umbrella policy with a $10 million limit and a $100,000 self-insured retention.The insurer required Jenkins Company to carry a $1 million per-occurrence limit on its general liability policy and a $1 million per-occurrence limit on its business auto policy.Jenkins purchased these required limits.A Jenkins driver was negligent while operating a company vehicle and killed another motorist.The court ruled that Jenkins must pay $5 million.How much of this amount will be paid by the umbrella policy?

Accepted Answer

The total limit of coverage available for this claim is $1 million from the auto policy and $1 million from the general liability policy. Since the damages awarded by the court exceed the total available coverage under these policies, the umbrella policy will be triggered.

First, the self-insured retention of $100,000 will be applied. Then, the remaining balance of the claim ($5 million - $100,000 = $4.9 million) will be split between the primary policies and the umbrella policy.

Since both primary policies have $1 million per-occurrence limits and have already paid out their limits, the umbrella policy will have to cover the remaining balance of $3.9 million ($10 million umbrella limit - $100,000 retention - $1 million auto limit - $1 million general liability limit = $7.9 million umbrella coverage remaining, which is enough to cover the $3.9 million balance of the claim).

Therefore, the answer is C) $4.0 million, which is the amount to be paid by the umbrella policy after the application of the self-insured retention and the primary policy limits.

Question 8

Which of the following statements is true concerning the ISO employment-related practices liability form?

Accepted Answer

The ISO employment-related practices liability form includes legal defense costs as part of the policy limit. A co-payment provision is not specifically mentioned. Wrongful termination is not explicitly excluded, but certain circumstances may limit coverage. Liability to employees is not excluded, as this is the main focus of the policy.

Question 9

Which of the following losses is generally covered under a commercial umbrella policy?

Accepted Answer

Commercial umbrella policies typically provide additional liability coverage beyond the limits of the insured's other policies. Coverage for liability arising out of the use of a business auto is generally included, assuming the underlying business auto policy provides coverage. Umbrella policies do not typically cover workers compensation, pollution liability (unless specifically added), or the cost of recalling defective products, as these are excluded or covered under other specific types of policies.

Question 10

Which of the following is covered under the liability coverage of a businessowners policy?

Accepted Answer

The liability coverage of a businessowners policy covers bodily injury liability, which means it protects the insured from claims made by third parties for bodily injury resulting from the insured's business activities. Damage to the insured's property is covered under property coverage, automobile liability is covered by a commercial auto insurance policy, and professional liability is covered under a separate professional liability insurance policy.

Question 11

David started a public accounting firm.David is concerned that accountants on his staff may give incorrect accounting advice,and the accounting firm may be sued.What type of liability insurance should David purchase to protect against such claims?

Accepted Answer

Errors and omissions insurance (also known as professional liability insurance) provides coverage for claims arising from allegations of professional negligence, errors, or omissions in the performance of professional services. This type of insurance is designed to protect businesses and individuals that provide professional services, like accountants, from the costs of defending against claims of wrongdoing, as well as from judgments and settlements.

Question 12

A-1 Electrical Service is an electrical contractor that employs 14 electricians.A-1 faces many loss exposures.One general liability exposure arises out of faulty work that A-1 electricians may perform for customers at their homes or businesses.This liability exposure is known as

Accepted Answer

Completed operations liability arises from work that has been completed by the contractor but may result in injury or damage after the job is done. This exposure is relevant for A-1 Electrical Service as they may perform faulty work that leads to injury or damage to the customer's property after they have completed the job. Premises and operations liability generally involves injury or damage that occurs on the contractor's premises or during their operations, while products liability is relevant for manufacturers or sellers of products that cause injury or damage. Contingent liability is a liability that may arise if certain conditions are met, such as a contractor subcontracting work to another party who is then injured.

Question 13

One general liability loss exposure develops as a result of a written or oral agreement to assume the legal liability of another party.A lease that specifies that the building owner is held harmless for liability arising out of use of the building is an example.This liability loss exposure is

Accepted Answer

The described loss exposure is an example of contractual liability, which arises from a written or oral agreement to assume legal liability for another party. The lease agreement in this case specifies that the building owner is held harmless for any liability that arises from the use of the building, which is a clear example of contractual liability.

Question 14

ABC Company purchased an ISO Commercial General Liability Policy.The agent who sold ABC the coverage noted that the coverage trigger in this policy was different from the trigger in the previous policy.The new policy covers only those claims which are first reported during the policy period,provided the event occurred after a retroactive date.This type of policy is known as

Accepted Answer

The policy described in the question is a claims-made coverage policy. This type of policy covers only those claims that are first reported during the policy period, regardless of when the event occurred, as long as the event occurred after a retroactive date specified in the policy. This is in contrast to occurrence coverage policies, which cover claims for events that occurred during the policy period regardless of when they are reported, and extended reporting coverage which provides coverage for claims reported after the policy period but arising from events that occurred during the policy period. Accident only coverage is not a type of liability insurance policy.

Question 15

Medical malpractice insurance written on a claims-made basis can leave a surgeon vulnerable to malpractice claims if the surgeon retires,changes insurers,or drops coverage.A provision can be added to the claims-made form that protects the surgeon for future claims arising from incidents that occurred while the claims-made policy was in force.This provision is called a(n)

Accepted Answer

The provision that protects the surgeon for future claims arising from incidents that occurred while the claims-made policy was in force is called an extended reporting period endorsement.

Question 16

Which of the following statements about physicians,surgeons,and dentists liability insurance is true?

Accepted Answer

Physicians, surgeons, and dentists liability insurance typically includes coverage for the negligent acts of employees under the supervision of the insured medical practitioner. This is part of the professional liability coverage, which protects against claims of malpractice or negligence in the provision of professional services.

Question 17

Which of the following statements about errors and omissions insurance is (are)true?
I.It is purchased by professionals to protect against claims arising for negligent acts,errors,and omissions.
II.It is designed to meet the needs of stock brokers,attorneys,engineers,architects and other professionals who give advice to clients.

Accepted Answer

Both statements are true. Errors and omissions insurance is purchased by professionals who give advice to clients and need protection against claims arising from negligent acts, errors, and omissions. It is designed to meet the needs of various professionals, including stock brokers, attorneys, engineers, architects, and others.

Question 18

Holiday DeCor Company is insured by a commercial general liability policy (CGL).Holiday DeCor rented a storage facility for one month to store some excess inventory.While visiting the storage facility,a Holiday DeCor employee discarded a cigarette.The resulting fire severely damaged the storage facility.Which statement is true regarding coverage of this damage under the CGL?

Accepted Answer

The damage caused by the fire would be covered under the fire legal liability coverage of the CGL policy. This coverage applies to fire damage that the insured may be held liable for and occurred on leased or rented premises. Since the damage was caused by the negligence of a Holiday DeCor employee, it would be covered under the policy.

Question 19

Which of the following statements is (are)true with respect to the treatment of legal defense costs under the ISO Commercial General Liability policy?
I.Legal defense costs usually are counted against the policy limit.
II.Once the insurer has paid out the applicable limit of liability,the insurer's duty to defend ends.

Accepted Answer

II is correct because under the ISO Commercial General Liability policy, the insurer's duty to defend the insured against lawsuits ends when the insurer has paid out the limit of liability specified in the policy. Legal defense costs are typically paid in addition to the policy limit, not counted against it, making statement I incorrect.

Question 20

Jennifer was just asked to serve on the Board of an insurance company.Jennifer is concerned that if the company is mismanaged,the policyowners,stockholders,and employees might sue the management team.What type of liability insurance will protect Jennifer from such claims if she accepts a position on the insurance company's Board?

Accepted Answer

Directors and officers liability insurance is designed to protect individuals who serve on the board of an organization from lawsuits that might arise from mismanagement. This type of insurance covers the costs of defending against legal claims as well as any damages that might be awarded in a lawsuit.

Quiz 26: Commercial Liability Insurance

HRC Company purchased an unendorsed ISO Commercial General Liability (CGL) policy.Which of the following claims would be covered under the CGL?

Which of the following statements concerning directors and officers liability insurance (D&O) is (are) true? I.D&O policies usually cover the personal liability of directors and officers. II.D&O policies exclude coverage for claims brought by employees and by stockholders.