Question 1

Why does one assess the severity of potential losses when creating a legal risk management plan?

Accepted Answer

Assessing the severity of potential losses helps to prioritize identified risks and guide them through the risk management process. This allows for resources to be allocated based on the potential impact of the risks, ensuring the most critical risks are addressed first. It also helps to avoid costly and time-consuming efforts on risks that are less significant. The other options (A, B, and D) are possible outcomes of a legal risk management plan, but they do not directly relate to why severity assessment is important.

Question 2

What is the overall primary objective of the legal risk management process?

Accepted Answer

The primary objective of legal risk management is to reduce risk by identifying, assessing, and mitigating potential legal issues that could impact an organization.

Question 3

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?

Accepted Answer

Reviewing contracts and customer payment history would allow Benta to identify any potential legal risks or issues that may exist with the building operators, such as clauses or requirements that may violate local or federal regulations, or a history of disputes related to payment or service agreements. This information can then be used to develop a legal strategy or arrange appropriate insurance coverage. Scheduling introductory meetings with customers or consulting with a law firm may also be beneficial, but will not provide immediate insight into potential legal risks.

Question 4

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

Accepted Answer

The term "in-house lawyer" is used to describe a lawyer who is employed by a company or organization and works within the company's legal department, rather than working at a law firm.

Question 5

A business finds that employees are involved in many road accidents that result in damages to its fleet of motor vehicles,despite having driving training and instruction.Rather than fully insuring its equipment,the business elects to insure its vehicles subject to a deductible of $1,500 per vehicle.Which approach to risk management does this plan reflect?

Accepted Answer

The business is choosing to retain a portion of the risk by opting for a deductible, meaning they will cover the first $1,500 of any damage themselves, rather than transferring the entire risk to the insurance company.

Question 6

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

Accepted Answer

Self-insurance is an option when the organization has determined that risk retention is appropriate, which means the organization will bear the financial consequences of potential loss events. This option can be less expensive than purchasing insurance from a third-party provider, assuming that the organization has financial resources available to cover losses. Options A, C, and D are not related to self-insurance.

Question 7

What position,if any,would a lawyer have on the risk management team?

Accepted Answer

A lawyer would be best suited to be part of the risk management team or act as a consultant to the team, as they can provide legal expertise and guidance on potential risks and liabilities. While they may also be a professional risk management supervisor or part of the executive management team, their primary role would likely still involve providing legal advice and support. Therefore, option D is the most suitable choice.

Question 8

Which two approaches are recommended for businesses to effectively manage their interaction with the law and legal issues?

Accepted Answer

Preventive and reactive approaches are recommended as they involve planning to avoid legal issues and responding effectively when they arise.

Question 9

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?

Accepted Answer

Toyota's actions of recalling 8.8 million cars were aimed at reducing the impact of the unintended acceleration problem by implementing a plan to address the issue. This is an example of risk management aimed at mitigating the consequences of a potential legal problem.

Question 10

In 2014,General Motors (GM)began recalling vehicles because of concerns about possible faulty ignition switches in some of its vehicles.What type of risk management strategies was GM attempting to employ when it initiated the recall?

Accepted Answer

GM was employing risk avoidance by recalling the vehicles to prevent accidents and reduce potential harm, and risk reduction by addressing the faulty ignition switches to minimize the risk of future incidents.

Question 11

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?

Accepted Answer

The company's management expend substantial effort to choose a seasoned lawyer from a well-known commercial law firm to establish a productive, long-term relationship. This shows that the company is looking for a trustworthy and capable legal advisor to guide them in their business operations, and building a long-term relationship with a lawyer can help them achieve that.

Question 12

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

Accepted Answer

The set of methods used when forming a risk management plan to limit exposure to legal risks are avoid, reduce, transfer, and absorb. Avoid means to completely eliminate the risk, reduce means taking actions to decrease the likelihood or impact of the risk, transfer means shifting the risk to another party through contracts or insurance, and absorb means accepting the risk and creating a plan to manage and mitigate it. These methods can help businesses effectively manage legal risks and protect themselves from costly litigation.

Question 13

Which of the following is an example of risk avoidance?

Accepted Answer

Discontinuing products and product lines is an example of risk avoidance because it involves eliminating the source of risk altogether.

Question 14

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?

Accepted Answer

The company is in the process of evaluating potential risks, which is the first step in legal risk management. This involves identifying possible hazards that could impact the company and its stakeholders.

Question 15

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?

Accepted Answer

Managing legal risk with a plan to prevent loss is essential for a firm dealing in derivative investment products, especially when concerned about potential regulation. This involves understanding and complying with current regulations, anticipating changes in the legal environment, and implementing strategies to mitigate risks associated with non-compliance.

Question 16

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?

Accepted Answer

The inclusion of a limitation of liability clause in a commercial contract is considered an effective solution for business legal risk management because it limits financial responsibility for damages if there is a breach of contract. This allows the business to mitigate potential losses and manage its overall risk exposure. However, it does not trigger avoidance of liability in standard form commercial contracts, create equity, or transfer risk from the business owners to the business and its customers.

Question 17

What is the goal of the second step in the legal risk management process?

Accepted Answer

The second step in the legal risk management process is to assess the probability and severity of loss, which involves evaluating the likelihood and potential impact of identified risks.

Question 18

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

Accepted Answer

The functional areas of a business typically include production (operations), human resources (personnel management), and finance (accounting and budgeting). Option B includes finance and accounting, but training is not a functional area. Option C includes finance and marketing, but education systems are not typically considered a functional area of a business. Option D includes accounting and marketing, but training is not a functional area.

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?

Accepted Answer

This activity is part of identifying risk in business decisions, which is typically the first step in the legal risk management process. By reviewing the financing terms against the business's financial statements, Albert Brinkman is identifying potential financial risks associated with the purchase.

Question 20

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

Accepted Answer

Risk management should be carried out by managers and employees at every level of the organization as risks can occur at any level and everyone should be aware and responsible for managing them. It is not a task solely for senior managers or a single person within the organization. Involving stakeholders both within and outside the organization can also be helpful in identifying and managing risks.

Quiz 3: Managing Legal Risks