PrepL Risk Management and Liability 3 — Questions and Answers
Question 1: An indemnification clause in a contract requires one party to:
- Share profits from the project equally
- Hold the other party harmless from specified losses or claims (Correct answer)
- Arbitrate all disputes before filing suit
- Provide proof of financial solvency
Correct answer: Hold the other party harmless from specified losses or claims
An indemnification clause obligates one party to compensate or defend the other against designated losses, damages, or legal claims.
Question 2: A client signs a contract waiving the right to sue a licensee for ordinary negligence. This type of clause is called a:
- Liquidated damages clause
- Exculpatory clause (Correct answer)
- Force majeure clause
- Escalation clause
Correct answer: Exculpatory clause
An exculpatory clause attempts to release one party from liability for their own negligence, though courts may void such clauses when they are against public policy.
Question 3: Which of the following best describes 'assumption of risk' as a defense?
- The defendant acted reasonably under the circumstances
- The plaintiff voluntarily exposed themselves to a known danger (Correct answer)
- A third party caused the plaintiff's injury
- The statute of limitations has expired
Correct answer: The plaintiff voluntarily exposed themselves to a known danger
Assumption of risk is a defense asserting that the plaintiff knowingly and voluntarily accepted the risks inherent in an activity and therefore cannot recover damages.
Question 4: A property manager fails to repair a broken stair railing after being notified by a tenant. A visitor is subsequently injured. The property manager's liability is most likely based on:
- Strict liability
- Negligence per se
- Negligence — failure to act with reasonable care after notice (Correct answer)
- Breach of contract
Correct answer: Negligence — failure to act with reasonable care after notice
Once a property manager receives notice of a dangerous condition and fails to remedy it, they breach their duty of reasonable care, establishing negligence liability.
Question 5: The 'but-for' test is used in tort law to establish:
- The foreseeability of the defendant's conduct
- Actual causation between the defendant's act and the plaintiff's injury (Correct answer)
- Whether a duty of care existed
- The extent of compensatory damages
Correct answer: Actual causation between the defendant's act and the plaintiff's injury
The but-for test determines actual cause: but for the defendant's negligent act, the plaintiff's injury would not have occurred.
Question 6: A licensee's general liability insurance typically covers all of the following EXCEPT:
- Third-party bodily injury
- Third-party property damage
- Personal and advertising injury
- Professional errors and omissions (Correct answer)
Correct answer: Professional errors and omissions
General liability insurance covers third-party bodily injury, property damage, and personal/advertising injury, but professional errors and omissions require a separate E&O policy.
Question 7: Under comparative negligence principles, a plaintiff who is found 30% at fault in a $100,000 claim would recover:
- $100,000
- $70,000 (Correct answer)
- $30,000
- $0
Correct answer: $70,000
Under comparative negligence, a plaintiff's recovery is reduced by their percentage of fault; 30% fault reduces a $100,000 award to $70,000.
PrepL Risk Management and Liability 3
An indemnification clause in a contract requires one party to: