South Carolina Casualty Insurance Practice Test

Practice test questions — Casualty Insurance

1. What is the fundamental purpose of casualty (liability) insurance?

   • To pay the insured directly for damages
   • To protect the insured from financial loss when they are legally liable for bodily injury or property damage to a third party ✓
   • To replace the insured's property
   • To pay for the insured's medical bills

   Casualty (liability) insurance protects the insured from financial responsibility when they are legally liable for harm to a third party. The insurer pays on behalf of the insured for: damages owed to the third party (settlement or judgment for bodily injury or property damage), defense costs (attor…

2. What is 'negligence' in tort law, and what are its elements?

   • Intentional harm
   • Failure to exercise reasonable care, with four elements: duty owed, breach of duty, causation, and damages ✓
   • Strict liability without fault
   • A criminal act

   Negligence is the legal basis for most liability claims. To establish negligence, the plaintiff must prove four elements (DBCD): (1) Duty — the defendant owed the plaintiff a legal duty of care (e.g., drivers owe other road users a duty to drive carefully); (2) Breach — the defendant breached that d…

3. What does Part A (Liability Coverage) of a Personal Auto Policy (PAP) cover?

   • Damage to the insured's own car
   • Bodily injury and property damage the insured is legally liable for from operating an auto, plus defense costs — typically with separate per-person and per-accident limits ✓
   • Medical bills only for the insured
   • Theft of the vehicle

   Part A — Liability Coverage — of the Personal Auto Policy pays for bodily injury and property damage the insured is legally liable for resulting from operating an auto. Two parts: Bodily Injury Liability (covers injury to others) and Property Damage Liability (covers damage to others' property). Lim…

4. What is 'uninsured motorist' (UM) coverage on a Personal Auto Policy?

   • Insurance for uninsured drivers
   • Coverage that pays the insured for injuries caused by a driver who has no liability insurance, often required by state law ✓
   • Coverage for driving an uninsured vehicle
   • A discount for low mileage drivers

   Uninsured Motorist (UM) coverage pays the insured (and family members and passengers) for bodily injury caused by a driver who has no liability insurance. UM essentially provides the missing liability coverage from the at-fault driver. Required in many states, optional in others; some states require…

5. What is the difference between 'collision' and 'comprehensive' coverage?

   • They are the same
   • Collision covers damage to the insured's vehicle from collision with another object or overturn; comprehensive (other-than-collision) covers damage from other causes like theft, fire, vandalism, flood, hail, falling objects, and animal strikes ✓
   • Comprehensive is cheaper
   • Only one is offered

   Collision and Comprehensive are two separate physical damage coverages on a PAP, each with its own deductible. Collision pays for damage to the insured's auto when it collides with another vehicle or object, or when it overturns. Comprehensive (technically called Other-Than-Collision or OTC) pays fo…

6. What does Commercial General Liability (CGL) coverage typically include?

   • Only worker injuries
   • Coverage A (Bodily Injury and Property Damage Liability), Coverage B (Personal and Advertising Injury Liability), and Coverage C (Medical Payments) — protecting businesses against third-party liability claims ✓
   • Only product damage
   • Only contractual liability

   Commercial General Liability (CGL) is the foundation of most business liability insurance programs. Three coverage parts: (1) Coverage A — Bodily Injury and Property Damage Liability — pays for damages the insured is legally liable for from accidents on premises, operations, products, or completed o…

7. What is the difference between an 'occurrence' and a 'claims-made' CGL policy?

   • They are identical
   • Occurrence triggers coverage based on when the bodily injury or property damage happened, regardless of when the claim is filed; claims-made triggers coverage based on when the claim is first made against the insured (subject to retroactive date and tail provisions) ✓
   • Occurrence is illegal
   • Claims-made is cheaper

   These are two fundamentally different ways of triggering CGL coverage. Occurrence: coverage is triggered by when the bodily injury or property damage actually occurred. A 2024 policy covers a 2024 injury even if the claim is filed in 2028. Provides 'long tail' coverage automatically. Claims-Made: co…

8. What is workers compensation insurance and what does it cover?

   • Coverage for executive bonuses
   • Mandatory insurance (in most states) that pays employee medical expenses and lost wages for work-related injuries and illnesses, in exchange for the employee giving up the right to sue the employer for negligence ✓
   • Performance bonuses
   • Unemployment benefits

   Workers compensation is a system of no-fault insurance for workplace injuries and occupational illnesses. Coverage includes: medical expenses for the work-related injury/illness; temporary disability benefits (partial wage replacement during recovery); permanent disability benefits (compensation for…

9. What is an 'experience modification factor' (mod) in workers compensation?

   • A discount for new businesses
   • A multiplier that adjusts the employer's premium based on their actual claim experience compared to other businesses in the same classification — above 1.0 means worse than average, below 1.0 means better ✓
   • A penalty for late payment
   • A general tax

   The experience modification factor (commonly called 'experience mod' or just 'mod') is a numerical multiplier applied to the standard premium for a workers comp policy. It compares the employer's actual claims experience to expected claims for businesses in the same classification. A mod of 1.0 is a…

10. What is a personal umbrella policy?

    • A weather coverage policy
    • A liability policy that provides additional liability limits (typically $1 million+) above the underlying auto and homeowners policies, plus broader coverage in some areas ✓
    • Coverage for outdoor property
    • A type of life insurance

    A personal umbrella policy provides liability coverage above and beyond the underlying liability limits on the insured's auto, homeowners, and (sometimes) recreational vehicle policies. Typical features: minimum $1 million limit, with $2-5 million common; requires underlying policies meet minimum li…

11. What is 'no-fault' auto insurance?

    • Insurance that pays without proving fault — common in PIP states ✓
    • Free insurance
    • Insurance only for non-fault drivers
    • A premium discount

    No-fault auto insurance systems vary by state but generally require drivers to first claim their own injuries against their own insurance, regardless of who caused the accident, through Personal Injury Protection (PIP) coverage. PIP covers medical expenses, lost wages, and other economic losses up t…

12. What does the CGL 'products-completed operations' coverage protect against?

    • Damage to the insured's own products
    • Liability for bodily injury or property damage caused by the insured's products after they are sold or by completed operations after the work is finished and the insured has left the site ✓
    • Damage during transit
    • Manufacturing defects only

    Products-Completed Operations coverage under CGL Coverage A protects against liability claims arising after the insured's products are sold and out of their possession, or after the insured's work is completed. Two distinct exposures: (1) Products — manufactured or distributed items that cause injur…

13. What is professional liability insurance (errors and omissions, E&O)?

    • Coverage for office equipment
    • Coverage protecting professionals against claims of negligent performance of professional services — covers errors, omissions, mistakes, and failure to meet the standard of care of their profession ✓
    • Coverage for criminal acts
    • Workers compensation for professionals

    Professional Liability — also called Errors and Omissions (E&O) or Malpractice depending on the profession — protects professionals against claims that negligent performance of their services caused financial loss to a client. Common professions covered: medical professionals (medical malpractice), …

14. What is 'comparative negligence' versus 'contributory negligence'?

    • The same concept
    • Comparative negligence reduces the plaintiff's recovery by their percentage of fault; pure contributory negligence completely bars recovery if the plaintiff has any fault — only a few states still use pure contributory negligence ✓
    • Both bar all recovery
    • Comparative is for criminal cases

    These doctrines address situations where the plaintiff was partly at fault for their own injuries. Pure Contributory Negligence: any fault by the plaintiff bars recovery entirely — even if plaintiff is 1% at fault and defendant 99%, plaintiff recovers nothing. Still used in Alabama, Maryland, North …

15. What does 'medical payments' (MedPay) coverage on a PAP cover?

    • Only the insured's medical bills outside the home
    • Reasonable medical expenses for the insured and passengers injured in any auto accident, regardless of fault, up to a specified limit ✓
    • Only collision-related injuries
    • Only injuries to other drivers

    Medical Payments coverage (MedPay) on a PAP pays reasonable medical and funeral expenses for the named insured, family members, and passengers in the insured's vehicle, injured in an auto accident regardless of fault. Limits are typically modest ($1,000-$25,000 per person). MedPay is no-fault — it p…

16. What are the typical limits and aggregates in a CGL policy?

    • Only a single overall limit
    • Per-occurrence limit (max per claim), general aggregate (max for all claims in a policy period for premises/operations), products-completed operations aggregate (separate aggregate), personal/advertising injury limit, fire damage limit, medical payments limit ✓
    • Unlimited coverage
    • Per-day limits

    A standard CGL policy has multiple limits structured to provide layered protection. Each Occurrence Limit: the maximum for any single occurrence (e.g., $1 million). General Aggregate Limit: the maximum total payable in a policy period for premises and operations claims (e.g., $2 million). Products-C…

17. What is a 'self-insured retention' (SIR) in an umbrella or excess policy?

    • A discount for self-insurance
    • An amount the insured must pay before the umbrella coverage applies for claims not covered by the underlying policy — functioning like a deductible ✓
    • Insurance for the insured's retention
    • A fee for the umbrella

    The Self-Insured Retention (SIR) in an umbrella policy applies to claims that are covered by the umbrella but not by underlying primary policies (a 'gap' the umbrella alone covers). The SIR is the amount the insured must pay out of pocket before the umbrella responds for these claims — typically $25…

18. What is an 'additional insured' on a liability policy?

    • An extra person added at no cost
    • A person or entity added to the policy as an insured (via endorsement) — gaining the policy's protection for liability arising out of the named insured's operations or work for that additional insured ✓
    • An employee benefit
    • A property owner

    An additional insured is a person or entity (other than the named insured) given coverage under the policy, typically via endorsement, for liability arising out of the named insured's operations or relationship with the additional insured. Common situations: (1) Landlords as additional insureds on t…

19. Are 'permissive users' covered under a Personal Auto Policy when they drive the insured's vehicle?

    • Never
    • Generally yes — drivers using the insured's vehicle with permission are covered under Part A (liability), though some restrictions apply (e.g., business use, racing) ✓
    • Only family members
    • Only at lower limits

    The standard PAP defines 'insured' to include the named insured, family members, and 'any person using your covered auto' (with permission). So a friend who borrows the insured's car with permission and causes an accident is covered under the insured's liability coverage. Common restrictions: not co…

20. What is the 'duty to defend' in liability insurance?

    • The insured must defend themselves
    • The insurer's contractual obligation to provide and pay for legal defense of the insured against covered claims — broader than the duty to indemnify and applies even to groundless claims if any potential for coverage exists ✓
    • Only applies to criminal cases
    • Only for large claims

    The duty to defend is one of the most valuable parts of liability insurance. The insurer must provide and pay for legal defense — attorney fees, court costs, expert witnesses, investigation — for the insured against claims that potentially fall within coverage. Defense costs are typically outside th…

21. What does 'gap insurance' cover for auto loans or leases?

    • Coverage for time between policies
    • Coverage for the difference (gap) between what is owed on the auto loan/lease and the vehicle's actual cash value if the vehicle is totaled or stolen ✓
    • Coverage for gaps in collision coverage
    • A general liability gap

    Gap insurance addresses a common problem with auto loans and leases: a new vehicle depreciates faster than the loan balance reduces, especially in the first few years. If the vehicle is totaled or stolen, the insurance pays actual cash value (ACV), but the loan balance may be higher. The difference …

22. What is 'employers liability' coverage (Part Two) of a workers compensation policy?

    • The same as workers comp
    • Coverage for employer liability arising from work-related injuries that are not covered by the workers comp exclusive remedy — including third-party-over actions, dual capacity, consortium claims ✓
    • Coverage for employee benefits
    • Coverage only for executives

    Part Two of a standard workers comp policy provides Employers Liability coverage — protecting the employer against work-related injury claims that are not subject to the workers comp exclusive remedy. Examples: (1) Third-party-over actions: an injured employee sues a third party (a product manufactu…

23. What is 'completed operations' coverage in CGL?

    • Coverage for closing a business
    • Coverage for liability arising from the insured's work after the work is completed and the insured has left the work site — for example, a contractor's faulty wiring that causes a fire months later ✓
    • Coverage for completed payments
    • Coverage for office tasks

    Completed Operations coverage protects against liability claims arising from the insured's work after the work is completed and the insured has left the work site. Critical for contractors, repair services, installers, and similar businesses. The 'completed operations hazard' is defined to include w…

24. What is 'bad faith' in insurance claims handling?

    • An insured lying on application
    • Insurer conduct in handling a claim that breaches the duty of good faith and fair dealing — examples include unreasonable denial, delay, inadequate investigation, or refusal to settle within limits when liability is clear ✓
    • A type of fraud by the claimant
    • Slow payment

    Bad faith is conduct by an insurer that breaches the implied covenant of good faith and fair dealing in every insurance contract. Examples: (1) Denying a clearly covered claim without reasonable basis; (2) Unreasonable delay in investigation or payment; (3) Failure to thoroughly investigate before d…

25. What is 'subrogation' in casualty insurance, and how does it apply to auto claims?

    • Switching insurance companies
    • The insurer's right to step into the insured's shoes after paying a claim and pursue the responsible third party for recovery — common in auto claims where the insurer pays the insured's collision damage and then seeks reimbursement from the at-fault driver's insurance ✓
    • Substituting beneficiaries
    • A claim discount

    Subrogation in casualty insurance follows the same principle as in property insurance: the insurer steps into the insured's legal rights against the responsible third party after paying the claim. In auto claims, the most common subrogation scenario: the insured's collision coverage pays for damage …

26. An insured rear-ends another vehicle. The insured has 100/300/100 auto liability limits. The other driver's medical bills are $75,000 and property damage is $12,000. What does the insurer pay?

    • $75,000 medical + $12,000 PD = $87,000
    • $100,000 medical + $12,000 PD = $112,000
    • $75,000 medical + $12,000 PD = $87,000 (all within limits) ✓
    • $100,000 medical only; PD separate policy

    100/300/100 means: $100,000 per person BI / $300,000 per occurrence BI / $100,000 PD. Medical $75,000 < $100,000 per-person limit — paid in full. Property damage $12,000 < $100,000 PD limit — paid in full. Total paid: $87,000. Note: if medical bills were $150,000, the per-person limit would cap paym…

27. What does the liability portion of a homeowners policy (Coverage E) cover?

    • Only property damage to the insured's home
    • Personal liability for bodily injury or property damage caused by the insured or household members, worldwide except auto ✓
    • Auto accidents involving the insured's vehicle
    • Only incidents occurring on the insured's property

    Coverage E (Personal Liability) in HO policies covers the insured and household members for BI or PD caused to others — and coverage is worldwide (not limited to the property). Key exclusions: auto accidents (covered by auto policy); intentional acts; business activities (need separate business poli…

28. What is the primary purpose of a personal umbrella policy?

    • To cover losses excluded by all other policies
    • To provide excess liability coverage above the limits of underlying policies (auto, homeowners) — kicking in after underlying limits are exhausted ✓
    • To replace homeowners insurance
    • To cover business liability

    A personal umbrella policy provides excess liability coverage above the primary policies' limits. It activates when an underlying policy limit is exhausted by a covered claim. It also broadens coverage in some areas not covered by underlying policies. Example: if auto liability pays $300,000 (its li…

29. What does 'exclusive remedy' mean in workers' compensation?

    • Workers can only use one doctor
    • Workers' comp is the employee's only remedy against the employer for work injuries — they cannot also sue the employer in tort for the same injury ✓
    • The employer can choose which benefits to provide
    • Employees must take cash settlements only

    Exclusive remedy is the fundamental trade-off of the workers' compensation system: employees get guaranteed benefits (medical care, wage replacement) without needing to prove employer negligence; in exchange, they give up the right to sue the employer in civil court for the same injury. Limited exce…

30. A deer runs into the road and a driver swerves to avoid it, hitting a guardrail. Which coverage applies?

    • Liability
    • Collision — the vehicle struck an object (guardrail) ✓
    • Comprehensive — hitting an animal or swerving to avoid one is a comprehensive claim
    • Uninsured motorist

    This is a collision claim. COLLISION covers damage from impact with another vehicle or object — hitting the guardrail is a collision. COMPREHENSIVE covers damage from a deer STRIKE (the vehicle hits the deer). Swerving to AVOID the deer and hitting something else = collision. This is a classic and f…

31. What is 'negligence per se'?

    • Extreme negligence bordering on intentional
    • When violation of a statute (law) constitutes automatic negligence — the injured party does not need to separately prove the defendant failed to act as a reasonable person ✓
    • A Latin term for comparative fault
    • Negligence in commercial settings only

    Negligence per se applies when a defendant violated a statute designed to protect the public from the type of harm that occurred. In these cases, the violation itself establishes the negligence element — the plaintiff doesn't need to separately argue what a 'reasonable person' would have done. Examp…

32. Which auto coverage pays your medical bills after an accident regardless of who was at fault?

    • Bodily injury liability
    • Collision
    • Medical payments (MedPay) or Personal Injury Protection (PIP) ✓
    • Comprehensive

    Medical Payments (MedPay) and Personal Injury Protection (PIP) cover the insured's own medical expenses regardless of fault. MedPay is supplemental and doesn't replace health insurance. PIP (required in no-fault states) is more comprehensive — it also covers lost wages and other expenses in addition…

33. An employee is injured at work and has $50,000 in medical bills. Under workers' comp, how are these bills handled?

    • Employee pays; employer reimburses later
    • Workers' comp pays all reasonable and necessary medical treatment related to the work injury — without a deductible or copay from the employee ✓
    • Employee's health insurance pays first
    • Employee receives a lump sum to pay bills themselves

    Workers' compensation medical benefits cover ALL reasonable and necessary medical treatment for the work-related injury — with no deductible, copay, or out-of-pocket from the employee. This includes: emergency care, hospitalisation, surgery, physical therapy, prescription medications, and ongoing ca…

34. What is 'comparative negligence' and how does it affect a settlement?

    • Comparing two defendants' negligence against each other
    • A system where the plaintiff's recovery is reduced by their percentage of fault for the accident ✓
    • A system where any plaintiff fault bars all recovery
    • A system only used in commercial cases

    Comparative negligence allows plaintiffs who are partially at fault to still recover — but their recovery is reduced by their percentage of fault. PURE comparative negligence: plaintiff can recover even if 99% at fault (recovery = damages × [1 - plaintiff's %]). MODIFIED comparative negligence: plai…

35. What triggers an umbrella policy to pay a claim?

    • Any loss exceeding $1,000
    • Two conditions: the underlying policy limit must be exhausted AND the claim must be within the umbrella's coverage territory ✓
    • The insured must specifically request umbrella coverage for each claim
    • Only after a lawsuit has been filed

    Umbrella coverage activates when: (1) the underlying policy's limit has been fully paid out (the underlying limit is 'exhausted'); AND (2) the claim is within the scope of the umbrella policy's coverage. The umbrella then pays excess amounts up to its own limit. If the underlying policy doesn't cove…

36. What does liability insurance generally cover?

    • Damage to the insured's own property only
    • The insured's legal responsibility for bodily injury or property damage they cause to a third party — including defense costs and damages the insured is legally obligated to pay ✓
    • The insured's medical bills only
    • Lost wages of the insured

    LIABILITY INSURANCE covers the insured's LEGAL RESPONSIBILITY for harm they cause to OTHERS (third parties). It covers: BODILY INJURY and PROPERTY DAMAGE to third parties; the cost of legal DEFENSE (the insurer's duty to defend); and DAMAGES the insured is legally obligated to pay (up to policy limi…

37. In a personal auto policy, what does 'uninsured/underinsured motorist (UM/UIM)' coverage protect against?

    • Damage the insured causes to others
    • Injuries (and sometimes damage) the insured suffers when the at-fault driver has no insurance (uninsured) or insufficient insurance (underinsured) to cover the loss ✓
    • Mechanical breakdown
    • Routine maintenance

    UNINSURED/UNDERINSURED MOTORIST (UM/UIM) COVERAGE: Protects the INSURED when injured by an at-fault driver who: has NO insurance (UNINSURED motorist — UM); or has INSUFFICIENT insurance to cover the full loss (UNDERINSURED motorist — UIM). COVERS: The insured's (and passengers') bodily injury, and i…

38. What is the difference between an 'occurrence' policy and a 'claims-made' policy in liability insurance?

    • They are the same
    • An occurrence policy covers claims for incidents that happened during the policy period regardless of when the claim is filed; a claims-made policy covers claims first made during the policy period (often requiring the incident to occur after a retroactive date) ✓
    • Occurrence policies cost nothing
    • Claims-made policies never expire

    OCCURRENCE vs CLAIMS-MADE liability policies: OCCURRENCE POLICY: Covers claims arising from incidents that OCCURRED during the policy period — REGARDLESS of when the claim is filed (even years later, after the policy ended); the trigger is when the incident happened; CLAIMS-MADE POLICY: Covers claim…

39. Under workers' compensation, what is the 'exclusive remedy' doctrine?

    • Employees can sue employers freely
    • Workers' compensation is generally the employee's EXCLUSIVE remedy for work-related injuries — in exchange for guaranteed no-fault benefits, the employee generally cannot sue the employer in tort ✓
    • Employers have no obligations
    • Only employers benefit

    EXCLUSIVE REMEDY DOCTRINE: The foundational trade-off of workers' compensation. EMPLOYEES receive: GUARANTEED, NO-FAULT benefits (medical care, wage replacement, disability) for work-related injuries — without proving employer negligence; EMPLOYERS receive: PROTECTION from most lawsuits — workers' c…

40. In a commercial general liability (CGL) policy, what does 'products-completed operations' coverage address?

    • The insured's office furniture
    • Liability for bodily injury or property damage caused by the insured's PRODUCTS after they leave the insured's possession, or by COMPLETED WORK after the insured finishes the job ✓
    • Employee health benefits
    • The insured's vehicles

    PRODUCTS-COMPLETED OPERATIONS coverage (part of CGL): Covers liability for bodily injury or property damage arising from: PRODUCTS the insured made/sold AFTER they leave the insured's possession (e.g., a manufactured product later injures a user); and COMPLETED OPERATIONS — the insured's work after …

41. What is the difference between collision and comprehensive (other-than-collision) coverage in an auto policy?

    • They are identical
    • Collision covers damage to the insured's vehicle from colliding with another vehicle or object; comprehensive covers damage from non-collision causes (theft, fire, vandalism, weather, hitting an animal) ✓
    • Collision covers theft only
    • Comprehensive covers only crashes

    COLLISION vs COMPREHENSIVE (auto physical damage coverages, both first-party): COLLISION: Covers damage to the INSURED'S OWN vehicle from COLLIDING with another vehicle or object (or overturning) — regardless of fault; COMPREHENSIVE (Other Than Collision — OTC): Covers damage to the insured's vehicl…

42. What is 'vicarious liability'?

    • Liability for one's own direct actions only
    • Legal responsibility one party bears for the actions of another — for example, an employer being liable for the negligent acts of an employee committed within the scope of employment ✓
    • A type of property coverage
    • Liability that cannot be insured

    VICARIOUS LIABILITY: Legal responsibility that one party bears for the wrongful actions of ANOTHER, based on their relationship. CLASSIC EXAMPLE: RESPONDEAT SUPERIOR — an EMPLOYER is liable for the negligent acts of an EMPLOYEE committed within the SCOPE OF EMPLOYMENT (e.g., a delivery driver who ca…

43. What is a 'deductible' in a casualty insurance policy?

    • The maximum the insurer will pay
    • The amount the insured must pay out of pocket before the insurer begins to pay a covered claim — it reduces small claims and lowers premiums ✓
    • The insurer's profit
    • A government tax

    DEDUCTIBLE: The amount the INSURED must pay OUT OF POCKET on a covered loss BEFORE the insurer pays. EXAMPLE: With a $500 deductible on a $3,000 covered loss, the insured pays $500 and the insurer pays $2,500; PURPOSE: Reduces the number of small claims (the insured handles minor losses); lowers the…

44. What is the purpose of an 'umbrella' or 'excess liability' policy?

    • To replace all other insurance
    • To provide additional liability coverage ABOVE the limits of underlying policies (like auto and homeowners/CGL), and sometimes broader coverage — protecting against large claims that exceed primary limits ✓
    • To cover property damage to the insured's home
    • To pay medical bills

    UMBRELLA / EXCESS LIABILITY POLICY: Provides ADDITIONAL liability coverage ABOVE the limits of UNDERLYING policies. HOW IT WORKS: Sits on top of primary policies (personal: auto and homeowners; commercial: CGL, auto, employers' liability); when a liability claim exceeds the underlying policy's limit…

45. What types of benefits does workers' compensation typically provide to an injured worker?

    • Only a lump-sum payment
    • Medical benefits, temporary/permanent disability (wage replacement), rehabilitation, and death benefits to survivors — covering the costs and lost income from work-related injuries ✓
    • Only legal fees
    • Only retirement benefits

    WORKERS' COMPENSATION BENEFITS typically include: MEDICAL BENEFITS — covers medical treatment for the work-related injury/illness (often with no deductible and unlimited for the covered condition); DISABILITY (wage replacement): TEMPORARY (total or partial — while recovering) and PERMANENT (total or…

46. What does professional liability insurance (errors and omissions, or E&O) cover?

    • Physical injuries on the premises
    • Claims arising from the insured's professional services — alleged errors, omissions, negligence, or failure to perform professional duties properly (e.g., for accountants, agents, consultants) ✓
    • Damage to the insured's building
    • Employee injuries

    PROFESSIONAL LIABILITY (Errors & Omissions / E&O): Covers claims arising from the insured's PROFESSIONAL SERVICES — alleged ERRORS, OMISSIONS, NEGLIGENCE, or FAILURE TO PERFORM professional duties to the expected standard. EXAMPLES: An accountant makes an error causing a client financial loss; an in…

47. What is the difference between 'compensatory damages' and 'punitive damages' in a liability claim?

    • They are the same
    • Compensatory damages reimburse the injured party for actual losses (medical bills, lost wages, pain and suffering); punitive damages are awarded to punish especially egregious conduct and deter others — and are often not insurable ✓
    • Compensatory damages punish the defendant
    • Punitive damages reimburse losses

    COMPENSATORY vs PUNITIVE DAMAGES: COMPENSATORY DAMAGES: REIMBURSE the injured party for actual losses; SPECIAL damages (economic): medical bills, lost wages, property repair — measurable; GENERAL damages (non-economic): pain and suffering, emotional distress — harder to quantify; goal is to make the…

48. What is 'no-fault' auto insurance (Personal Injury Protection / PIP)?

    • Insurance that never pays
    • A system where each driver's own insurer pays for their injuries regardless of who caused the accident (PIP), intended to speed payment and reduce litigation — used in no-fault states ✓
    • Insurance only for the at-fault driver
    • Coverage for vehicle theft

    NO-FAULT / PERSONAL INJURY PROTECTION (PIP): In no-fault states, each driver's OWN insurer pays for THEIR injuries (medical expenses, lost wages, etc.) REGARDLESS of who caused the accident. PURPOSE: Speeds payment of medical/injury costs; reduces litigation over fault for injury claims; PIP COVERS:…

49. In liability insurance, what is the difference between the 'per occurrence' limit and the 'aggregate' limit?

    • They are the same
    • The per-occurrence limit is the maximum the insurer pays for any single claim/occurrence; the aggregate limit is the maximum the insurer pays for ALL claims during the policy period combined ✓
    • Per occurrence is for property only
    • Aggregate applies to a single claim

    PER OCCURRENCE vs AGGREGATE LIMITS in liability policies: PER OCCURRENCE LIMIT: The maximum the insurer will pay for any SINGLE claim or occurrence (e.g., $1,000,000 per occurrence); AGGREGATE LIMIT: The maximum the insurer will pay for ALL covered claims COMBINED during the entire policy period (e.…

50. What is 'negligence' and what are its basic elements in a liability claim?

    • An intentional crime
    • Failure to exercise reasonable care, resulting in harm — its elements are duty, breach of duty, causation, and damages; all four must be present for a negligence claim ✓
    • A type of insurance policy
    • A government regulation

    NEGLIGENCE: The failure to exercise the REASONABLE CARE that a prudent person would under similar circumstances, resulting in harm to another. FOUR ELEMENTS (all required): (1) DUTY — the defendant owed a legal duty of care to the plaintiff; (2) BREACH — the defendant breached that duty (failed to a…

51. What is the difference between liability insurance and property insurance?

    • They are the same
    • Liability (casualty) insurance covers the insured's legal responsibility for injury or damage to others, while property insurance covers damage to the insured's own property ✓
    • Liability covers only the insured's own car
    • Property insurance covers lawsuits

    Liability insurance, a core part of casualty coverage, protects the insured against claims that they are legally responsible for causing bodily injury or property damage to a third party — paying both the damages owed (up to policy limits) and the cost of legal defense. Property insurance, by contra…

52. What is 'negligence,' which underlies most liability claims?

    • An intentional crime
    • The failure to exercise the degree of care that a reasonably prudent person would exercise under similar circumstances, resulting in harm to another ✓
    • A type of insurance policy
    • A guarantee of safety

    Negligence is the failure to exercise the degree of care that a reasonably prudent person would use under similar circumstances, which causes harm to another person or their property. It is the legal basis for most liability claims. To establish negligence, four elements are generally required: a du…

53. What does the liability portion of an auto insurance policy cover?

    • Damage to the insured's own vehicle
    • Bodily injury and property damage the insured causes to others in an accident for which the insured is legally responsible ✓
    • Only the insured's medical bills
    • Theft of the vehicle

    The liability portion of an auto policy covers bodily injury and property damage that the insured causes to others (third parties) in an accident for which the insured is at fault — for example, injuries to people in another car or damage to their vehicle or property. It pays damages up to the polic…

54. What is the purpose of 'uninsured/underinsured motorist' (UM/UIM) coverage?

    • To insure people with no car
    • To protect the insured if they are injured by an at-fault driver who has no insurance (uninsured) or not enough insurance (underinsured) to cover the damages ✓
    • To pay for the insured's own at-fault accidents
    • To cover only property, never injury

    Uninsured/underinsured motorist coverage protects the insured (and often passengers) when they are injured by an at-fault driver who either has no liability insurance (uninsured) or whose limits are too low to cover the full damages (underinsured). In those cases, the insured's own UM/UIM coverage s…

55. What is the difference between collision coverage and comprehensive (other-than-collision) coverage on an auto policy?

    • They cover the same losses
    • Collision covers damage to the insured's vehicle from a collision or rollover, while comprehensive covers other causes such as theft, fire, vandalism, hail, and hitting an animal ✓
    • Collision covers theft only
    • Comprehensive covers liability

    Collision coverage pays for damage to the insured's own vehicle resulting from a collision with another vehicle or object, or from a rollover, regardless of fault. Comprehensive coverage (also called 'other than collision') pays for damage to the insured's vehicle from most other causes — such as th…

56. What does Commercial General Liability (CGL) insurance protect a business against?

    • Damage to the business's own building only
    • Third-party claims for bodily injury, property damage, and personal/advertising injury arising from the business's operations, premises, or products ✓
    • Employee injuries on the job
    • The business's lost income

    Commercial General Liability (CGL) insurance protects a business against third-party claims for bodily injury and property damage arising from its premises, operations, products, and completed work, as well as 'personal and advertising injury' (such as libel, slander, or certain advertising-related …

57. What is the difference between an 'occurrence' policy and a 'claims-made' policy in liability insurance?

    • They are identical
    • An occurrence policy covers incidents that happen during the policy period regardless of when the claim is filed, while a claims-made policy covers claims first made during the policy period (often requiring the incident to occur after a retroactive date) ✓
    • Occurrence covers only future claims
    • Claims-made never expires

    An occurrence policy covers losses from incidents (occurrences) that happen during the policy period, no matter when the claim is actually reported — even years later. A claims-made policy covers claims that are first made (reported) during the policy period, typically only if the incident occurred …

58. What is the basic purpose of workers compensation insurance?

    • To insure the company's property
    • To provide benefits to employees who suffer work-related injuries or illnesses — covering medical care and lost wages — generally on a no-fault basis, in exchange for limiting the employer's liability ✓
    • To pay customers who are injured
    • To cover employee auto accidents off the job

    Workers compensation insurance provides benefits to employees who are injured or become ill in the course of their employment, typically covering medical expenses, a portion of lost wages, rehabilitation, and death benefits. It operates on a no-fault basis — the employee generally receives benefits …

59. What does the 'exclusive remedy' doctrine mean in workers compensation?

    • Employees can always sue their employer
    • In general, workers compensation benefits are the employee's sole remedy against the employer for a work-related injury, meaning the employee usually cannot also sue the employer in court for negligence ✓
    • It excludes all benefits
    • It applies only to managers

    The exclusive remedy doctrine is the trade-off at the heart of workers compensation: in exchange for receiving guaranteed, no-fault benefits, an injured employee generally gives up the right to sue their employer in civil court for the work-related injury. Workers compensation becomes the employee's…

60. What does a personal umbrella liability policy provide?

    • Coverage for floods only
    • Additional liability coverage above the limits of underlying policies (such as auto and homeowners), and sometimes coverage for certain claims not covered by the underlying policies ✓
    • Property coverage for the home
    • Health insurance

    A personal umbrella liability policy provides an extra layer of liability protection above the limits of the insured's underlying policies, such as auto and homeowners. If a large liability claim exhausts the underlying policy's limit, the umbrella pays the excess up to its own (often substantial, e…

61. What does professional liability insurance (errors and omissions, or E&O) cover?

    • Physical injury to customers on the premises
    • Claims arising from a professional's errors, omissions, or negligent acts in providing professional services or advice — for example, mistakes by an accountant, agent, or consultant ✓
    • Damage to the professional's office building
    • Employee injuries

    Professional liability insurance, often called errors and omissions (E&O) coverage, protects professionals against claims that their mistakes, oversights, or negligent acts in rendering professional services or advice caused a client financial harm. Examples include an insurance agent who fails to o…

62. What is the difference between 'comparative negligence' and 'contributory negligence' systems?

    • They produce the same result
    • Under comparative negligence, a damaged party's recovery is reduced in proportion to their share of fault; under strict contributory negligence, a party even slightly at fault may be barred from recovering at all ✓
    • Both bar all recovery
    • Both ignore fault entirely

    These are two legal approaches to handling situations where the injured party shares some fault. Under comparative negligence (used in most states, in pure or modified forms), the injured party can still recover damages, but the award is reduced in proportion to their own percentage of fault. Under …

63. What are 'financial responsibility laws' in the context of auto insurance?

    • Laws requiring savings accounts
    • State laws requiring drivers to demonstrate the ability to pay for damages they may cause, typically by carrying minimum liability insurance or otherwise proving financial responsibility ✓
    • Laws banning insurance
    • Laws about home mortgages

    Financial responsibility laws are state laws requiring drivers to be able to pay for bodily injury and property damage they may cause in an auto accident. Most commonly, drivers satisfy these laws by carrying at least the state-mandated minimum liability insurance, though some states allow alternati…

64. What is the difference between a 'no-fault' auto insurance system and a traditional 'tort' (at-fault) system?

    • They are the same
    • In a no-fault system, each driver's own insurer pays for their injuries regardless of who caused the accident (with limits on suing), while in a tort system the at-fault driver's insurer is responsible for the other party's injuries ✓
    • No-fault means no insurance is required
    • Tort systems pay no claims

    Under a traditional tort (at-fault) system, the driver who caused the accident — and their liability insurer — is responsible for the other party's injuries and damages, and injured parties can sue the at-fault driver. Under a no-fault system (used in some states), each driver's own insurer pays for…

65. What is the principle of 'utmost good faith' (uberrimae fidei) in insurance contracts?

    • Only the insurer must be honest
    • Both parties to an insurance contract are expected to act in good faith, fully and honestly disclosing material facts, because insurance relies on accurate information ✓
    • Neither party must disclose anything
    • It applies only to the insured's payments

    Utmost good faith (uberrimae fidei) is the principle that an insurance contract requires a higher standard of honesty than ordinary commercial contracts, with both parties — especially the applicant — obligated to disclose all material facts truthfully. The insured must honestly disclose information…