AIC Negotiation & Settlement Techniques 2 — Questions and Answers
Question 1: In structured settlements, periodic payments are most commonly funded through:
- A lump-sum escrow account managed by the court
- An annuity purchased from a life insurance company (Correct answer)
- U.S. Treasury bonds held in trust
- The insurer's general operating account
Correct answer: An annuity purchased from a life insurance company
Structured settlements are typically funded by an annuity purchased from a highly-rated life insurance company, guaranteeing future periodic payments to the claimant.
Question 2: Which of the following is a primary advantage of a structured settlement over a lump-sum payment for a seriously injured claimant?
- It allows the insurer to avoid paying taxes on the claim
- It provides guaranteed long-term income, protecting the claimant from mismanaging a large sum (Correct answer)
- It eliminates the need for a release of liability
- It reduces the total amount the insurer must pay
Correct answer: It provides guaranteed long-term income, protecting the claimant from mismanaging a large sum
Structured settlements provide tax-free periodic income, protecting claimants—especially those with diminished capacity—from rapidly depleting a large lump sum.
Question 3: During negotiations, an adjuster notices the claimant's attorney is using silence after each offer. The most effective adjuster response is to:
- Immediately improve the offer to fill the silence
- Remain silent as well, avoiding concessions driven by discomfort (Correct answer)
- Request a continuance to consult with management
- Withdraw the offer and start over
Correct answer: Remain silent as well, avoiding concessions driven by discomfort
Silence is a deliberate negotiation tactic; the party who speaks first typically makes the next concession, so remaining silent preserves the adjuster's negotiating position.
Question 4: A 'Mary Carter agreement' in a multi-defendant personal injury settlement refers to:
- A settlement where one defendant secretly agrees to limit its liability in exchange for helping the plaintiff against co-defendants (Correct answer)
- A government-mandated mediation in catastrophic injury cases
- A structured payment plan approved by a federal court
- An agreement between insurers to share defense costs proportionally
Correct answer: A settlement where one defendant secretly agrees to limit its liability in exchange for helping the plaintiff against co-defendants
A Mary Carter agreement is a secret arrangement where a settling defendant reduces its liability exposure by cooperating with the plaintiff against remaining defendants, which many states require to be disclosed.
Question 5: When evaluating a bodily injury settlement demand, which factor most directly affects the 'verdict value' of a claim?
- The adjuster's caseload at the time of loss
- The jurisdiction's history of jury awards for similar injuries (Correct answer)
- The policy deductible amount
- The insurer's internal settlement authority limit
Correct answer: The jurisdiction's history of jury awards for similar injuries
Verdict value is heavily influenced by local jury trends; jurisdictions known for high awards (plaintiff-friendly venues) significantly elevate the potential exposure of a claim.
Question 6: A claimant refuses a reasonable settlement offer and demands to go to trial. The adjuster should first:
- Immediately increase the offer to avoid litigation costs
- Document the rejected offer in the claim file and evaluate trial exposure versus settlement cost (Correct answer)
- Close the claim file as contested
- Refer the matter directly to the insured's personal attorney
Correct answer: Document the rejected offer in the claim file and evaluate trial exposure versus settlement cost
When a reasonable offer is rejected, the adjuster must document the rejection and conduct a cost-benefit analysis comparing litigation costs and potential verdict against the settlement value.
Question 7: Under the 'good faith' claims handling obligation, an insurer that fails to promptly settle a claim within policy limits when liability is reasonably clear may face:
- A small processing fee from the state insurance department
- Extra-contractual damages including bad faith liability exceeding policy limits (Correct answer)
- A mandatory mediation order from the court
- Suspension of the adjuster's license for 30 days
Correct answer: Extra-contractual damages including bad faith liability exceeding policy limits
Bad faith failure to settle a clear-liability claim within policy limits can expose the insurer to extra-contractual damages that may vastly exceed the policy's coverage limits.
AIC Negotiation & Settlement Techniques 2
In structured settlements, periodic payments are most commonly funded through: