Insurance Case Studies & Practical Application 2 — Questions and Answers
Question 1: A homeowner's roof is damaged in a hailstorm. The insurance company sends an adjuster who estimates repairs at $8,000. The homeowner gets a contractor estimate of $12,000. What is the most appropriate next step?
- Accept the insurer's estimate and pay the difference out of pocket
- Invoke the appraisal clause to resolve the dispute (Correct answer)
- File a lawsuit immediately against the insurer
- Cancel the policy and find a new insurer
Correct answer: Invoke the appraisal clause to resolve the dispute
Most homeowners policies include an appraisal clause that provides a formal dispute resolution process when the insured and insurer disagree on the loss amount.
Question 2: Maria, a nurse, is sued for $500,000 after a patient claims she administered the wrong medication. Her employer's liability policy has a $250,000 per-occurrence limit. What should Maria have to protect herself fully?
- A personal umbrella policy
- Her own professional liability (malpractice) policy (Correct answer)
- A supplemental health insurance policy
- A workers' compensation policy
Correct answer: Her own professional liability (malpractice) policy
Professional liability (malpractice) insurance covers individual professionals for claims arising from their professional services, filling gaps when an employer's policy is insufficient.
Question 3: A business owner discovers that an employee has been embezzling funds for two years, totaling $80,000. Which policy would cover this loss?
- Commercial general liability
- Commercial property insurance
- Employee dishonesty (crime) coverage (Correct answer)
- Business interruption insurance
Correct answer: Employee dishonesty (crime) coverage
Employee dishonesty coverage, part of a commercial crime policy, specifically covers losses resulting from fraudulent or dishonest acts committed by employees.
Question 4: A driver rear-ends another vehicle, causing $15,000 in property damage and $40,000 in bodily injury. The at-fault driver has 25/50/25 auto liability limits. How much will the insurer pay for bodily injury?
- $25,000 (Correct answer)
- $40,000
- $50,000
- $15,000
Correct answer: $25,000
In a 25/50/25 policy, the first number ($25,000) is the per-person bodily injury limit, so the insurer pays only $25,000 of the $40,000 claim.
Question 5: A commercial building is insured for $600,000, but its actual replacement cost is $1,000,000. The policy has an 80% coinsurance clause. A fire causes $200,000 in damage. How much will the insurer pay?
- $200,000
- $150,000 (Correct answer)
- $160,000
- $120,000
Correct answer: $150,000
Using the coinsurance formula: ($600,000 / $800,000 required) × $200,000 loss = $150,000 paid by the insurer.
Question 6: A claimant is injured in a slip-and-fall at a store and sues for $300,000. Investigation reveals the claimant was 30% at fault. In a pure comparative negligence state, how much can the claimant recover?
- Nothing, because they were partly at fault
- $300,000, full amount
- $210,000 (Correct answer)
- $150,000
Correct answer: $210,000
Under pure comparative negligence, the claimant's recovery is reduced by their percentage of fault: $300,000 × (1 - 0.30) = $210,000.
Question 7: An insured submits a claim for a stolen laptop worth $2,000. The policy has a $500 deductible and the laptop depreciated by $600 since purchase. The policy is ACV. What does the insurer pay?
- $2,000
- $1,500
- $900 (Correct answer)
- $1,400
Correct answer: $900
ACV = replacement cost minus depreciation ($2,000 - $600 = $1,400), then subtract the deductible ($1,400 - $500 = $900).
Insurance Case Studies & Practical Application 2
A homeowner's roof is damaged in a hailstorm.
The insurance company sends an adjuster who estimates repairs at $8,000.
The homeowner gets a contractor estimate of $12,000.
What is the most appropriate next step?