Core Principles & Fundamentals Flashcards

In a third-party liability claim, an insurer refuses a reasonable settlement offer within policy limits, and a jury later returns a verdict far above the limits. The insurer may face liability for:

Answer: The excess verdict under a bad-faith failure-to-settle claim

Unreasonably refusing a within-limits settlement can expose the insurer to bad-faith liability for the excess judgment.

When the insured and insurer agree that a loss is covered but disagree on the amount, which policy provision usually resolves the dispute?

Answer: Appraisal

Appraisal resolves disputes over the amount of loss, not coverage, using two appraisers and an umpire.

Which doctrine may allow a claimant to recover even though they cannot show exactly how the defendant was negligent, because the accident would not normally happen without negligence?

Answer: Res ipsa loquitur

Res ipsa loquitur ('the thing speaks for itself') lets negligence be inferred when the instrumentality was under the defendant's exclusive control.

An employer is held liable for an employee's negligent driving while making deliveries during work hours. This is an example of:

Answer: Vicarious liability (respondeat superior)

Under respondeat superior, employers are vicariously liable for employees' torts committed within the scope of employment.

Which best describes the doctrine of waiver in claim handling?

Answer: The insurer's voluntary relinquishment of a known right

Waiver is the intentional, voluntary giving up of a known right, which is why insurers use reservation of rights and nonwaiver agreements.

Two property policies cover the same building, with limits of $300,000 and $200,000. Under a pro rata liability other-insurance clause, how much does the $200,000 policy pay on a $100,000 loss?

Answer: $40,000

The $200,000 policy carries 40% of total limits ($200,000 / $500,000), so it pays 40% of $100,000 = $40,000.

Which situation best illustrates the doctrine of estoppel against an insurer?

Answer: The insured relied to their detriment on the adjuster's assurance that a late notice would not affect coverage

Estoppel stops an insurer from asserting a right when the insured reasonably relied on the insurer's conduct or statements and was harmed as a result.