PrepL Risk Management and Liability 2 — Questions and Answers
Question 1: A contractor completes work on a commercial building, and three years later a structural defect causes injury. Under which liability theory might the contractor still be held responsible?
- Strict liability for ultrahazardous activities
- Products liability for defective work
- Completed operations liability (Correct answer)
- Vicarious liability
Correct answer: Completed operations liability
Completed operations liability covers injuries or damages that occur after a contractor's work is finished and the project has been accepted.
Question 2: Which document formally transfers the risk of loss for a property from the seller to the buyer?
- Title insurance policy
- Certificate of occupancy
- Closing disclosure
- Bill of sale or deed transfer (Correct answer)
Correct answer: Bill of sale or deed transfer
A bill of sale or deed transfer legally conveys ownership and shifts the risk of loss to the buyer upon execution or delivery.
Question 3: An employer is held liable for a vehicle accident caused by an employee driving between job sites during work hours. This is an example of:
- Contributory negligence
- Respondeat superior (Correct answer)
- Assumption of risk
- Comparative fault
Correct answer: Respondeat superior
Respondeat superior holds employers vicariously liable for torts committed by employees acting within the scope of their employment.
Question 4: A licensed professional's errors and omissions (E&O) insurance primarily covers:
- Property damage caused by tools
- Worker injuries on the job site
- Negligent acts or mistakes in professional services (Correct answer)
- Automobile accidents during client visits
Correct answer: Negligent acts or mistakes in professional services
E&O insurance protects licensed professionals against claims arising from negligent acts, errors, or omissions in the performance of professional services.
Question 5: When assessing risk, the term 'frequency' refers to:
- The financial severity of a potential loss
- How often a loss event is likely to occur (Correct answer)
- The number of policies held by one insured
- The deductible amount on a claim
Correct answer: How often a loss event is likely to occur
Frequency in risk assessment refers to the expected rate or probability of occurrence of a loss event over a given period.
Question 6: Which risk management technique involves purchasing insurance to shift financial exposure to another party?
- Risk retention
- Risk avoidance
- Risk transfer (Correct answer)
- Risk reduction
Correct answer: Risk transfer
Risk transfer moves the financial consequences of a loss to another entity, most commonly through an insurance policy.
Question 7: A licensee fails to disclose a known material defect in a property. The buyer sues after discovery. The licensee's primary exposure is for:
- Negligent misrepresentation or fraudulent concealment (Correct answer)
- Breach of warranty of habitability
- Inverse condemnation
- Tortious interference
Correct answer: Negligent misrepresentation or fraudulent concealment
Failing to disclose a known material defect exposes a licensee to claims of negligent misrepresentation or fraudulent concealment, both of which can result in damages and license sanctions.
PrepL Risk Management and Liability 2
A contractor completes work on a commercial building, and three years later a structural defect causes injury.
Under which liability theory might the contractor still be held responsible?