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Liability Claims: Practice Questions & Explanations

3 Insurance Adjuster questions on liability claims, each with a worked explanation citing the source handbook.

Source: NAIC adjuster content outlines and standard insurance industry training materials.

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Why this topic matters

Liability claims require the adjuster to establish fault, apply the policy's liability coverage and exclusions, and handle third-party claimants fairly under unfair-claims-practice laws. These questions cover negligence, comparative fault and the duties owed to claimants.

Below are every liability claims question in our Adjuster bank. Read each question, try to answer before reading the explanation, and use the source citations to look up anything you want to verify in your state's adjuster handbook.

1. A claimant alleges a slip and fall on a store's wet floor. What must the adjuster establish to determine if the insured (store) is liable?
  1. A Only that the floor was wet
  2. B Only that the store has insurance
  3. C The four elements of negligence: duty (did the store owe a duty of care to the claimant?), breach (did the store breach that duty by failing to warn or dry the floor?), causation (did the breach cause the fall?), and damages (did the claimant suffer actual harm?)
  4. D Only that the claimant fell

Explanation

LIABILITY CLAIM ANALYSIS requires all four NEGLIGENCE ELEMENTS:

Duty: Stores owe invitees (customers) a duty of reasonable care — to maintain safe premises.

Breach: Was the floor wet for an unreasonable period without warning signs or cleanup? Did the store have constructive notice (should have known)?.

Causation: Did the wet floor directly cause the fall? (not some other factor).

Damages: Did the claimant suffer actual compensable harm (medical bills, lost wages, pain and suffering)?.

Comparative fault: If the claimant was partly responsible (not watching where walking, wet shoes, distracted by phone), damages may be reduced proportionally.

Investigation: Obtain incident report, surveillance video, witness statements, maintenance logs, and medical records before making coverage or liability determination.

Source: Insurance Adjuster — Liability Investigation, Slip and Fall

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2. An adjuster discovers that a policy was issued based on a material misrepresentation on the application — the insured failed to disclose prior DUI convictions when asked. The claim at issue occurred after policy issuance. What option does the insurer have?
  1. A The insurer may rescind (void) the policy from inception if the misrepresentation was material and would have affected the insurer's decision to issue or the premium charged — all premiums returned, all claims denied
  2. B The insurer can only increase the premium retroactively
  3. C None — the policy was issued, so claims must be paid
  4. D The insurer must pay the claim but can cancel future coverage

Explanation

MATERIAL MISREPRESENTATION and RESCISSION: Insurers can void a policy from inception (as if it never existed) when: the insured made a material misrepresentation on the application AND the misrepresentation was relied upon in underwriting AND the misrepresentation was material (would have affected the decision to insure or the premium).

Process: Issue a reservation of rights letter during investigation; obtain legal opinion; if rescission is warranted, issue a notice of rescission; return all premiums paid; deny all claims.

Limitations: Incontestability clauses in life insurance (2 years); some states limit rescission rights; innocent misrepresentation vs fraud has different standards.

Practical caution: Rescission is a major action — consult legal counsel; document everything; consider whether rescission is legally supportable before denying; note that the DUI non-disclosure is exactly the type of driving record misrepresentation that insurers routinely act on.

Source: Insurance Adjuster — Policy Issues, Material Misrepresentation and Rescission

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3. A claimant presents a demand for $500,000 but the at-fault insured has only $100,000 in liability coverage. The adjuster believes the case has a fair value of $85,000. What is the adjuster's primary obligation?
  1. A Evaluate the case fairly and attempt to settle within policy limits — if there is a reasonable probability the jury verdict could exceed the policy limit, the adjuster has a duty to attempt settlement within the policy limit to protect the insured from excess judgment exposure
  2. B Offer the policy limit immediately
  3. C Require the insured to pay the difference out of pocket immediately
  4. D Offer the fair value ($85,000) and ignore the excess demand

Explanation

Excess judgment and insurer duty: When a claim could exceed policy limits, the insurer has a duty to protect the insured from personal excess judgment exposure.

Duty to settle: When a settlement demand is within policy limits and the case has a reasonable value near or above the limit, the insurer has a good faith obligation to attempt settlement at or within the policy limit; Failing to do so exposes the insurer to a BAD FAITH claim — if the insurer refuses a reasonable within-limits demand and the jury returns a verdict above the limit, the insurer may be liable for the ENTIRE judgment, not just the policy limit.

Practical guidance: Evaluate the realistic verdict range; if $85,000 is a fair value but there's variance that could put a verdict near or above $100,000, strong consideration should be given to settling within limits; document all settlement authority requests and decisions; involve coverage counsel on excess exposure cases.

Source: Insurance Adjuster — Liability Claims, Excess Judgment and Duty to Settle

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