Personal and Advertising Injury Loss Exposures, Premises Medical Payments Loss Exposures, Hold-Harmless Agreements, and Products Liability Loss Exposures: Practice Questions and Solutions

This section of the study guide is intended to provide practice problems and solutions to accompany the pages of Insurance Operations, Regulation, and Statutory Accounting, cited below. Students are encouraged to read these pages before attempting the problems. This study guide is entirely an independent effort by Mr. Stolyarov and is not affiliated with any organization(s) to whose textbooks it refers, nor does it represent such organization(s).

Some of the questions here ask for short written answers based on the reading. This is meant to give the student practice in answering questions of the format that will appear on Exam 5. Students are encouraged to type their own answers first and then to compare these answers with the solutions given here. Please note that the solutions provided here are not necessarily the only possible ones.

Source:

Myhr, A.E.; and Markham, J.J. Insurance Operations, Regulation, and Statutory Accounting (Second Edition). American Institute for Chartered Property Casualty Underwriters. 2004. Chapter 6, pp. 6.11-6.14.

Original Problems and Solutions from The Actuary's Free Study Guide

Problem S5-59-1. Which of the following statements about personal and advertising injury loss exposures are true? More than one answer may be correct.

(a) Coverage for personal and advertising injury is excluded from most commercial general liability insurance policies, unless it is included via an endorsement.
(b) Insurance underwriters typically do not evaluate personal and advertising injury loss exposures closely, except in special cases where such losses are likely to occur frequently.
(c) Infringement of copyright is an example of personal and advertising injury.
(d) Bodily injury inflicted during an automobile accident is an example of personal and advertising injury.
(e) Wrongful arrest is an example of personal and advertising injury.
(f) Libel and slander are examples of personal and advertising injury.
(g) Commercial general liability policies typically exclude personal and advertising injury coverage for businesses that engage in advertising as a primary occupation.

Solution S5-59-1. This question is based on the discussion in Myhr and Markham, p. 6.11. The following answers are correct:
(b) Insurance underwriters typically do not evaluate personal and advertising injury loss exposures closely, except in special cases where such losses are likely to occur frequently.
(c) Infringement of copyright is an example of personal and advertising injury.

(e) Wrongful arrest is an example of personal and advertising injury.
(f) Libel and slander are examples of personal and advertising injury.
(g) Commercial general liability policies typically exclude personal and advertising injury coverage for businesses that engage in advertising as a primary occupation.

Choice (a) is not correct; coverage for personal and advertising injury is included in most commercial general liability insurance policies, unless it is excluded via an endorsement.

Choice (d) is not correct; bodily injury in an automobile accident is not included under personal and advertising injury.

Problem S5-59-2. The following questions pertain to premises medical payments loss exposures.

(a) Do underwriters typically provide premises medical payments coverage on a stand-alone basis? If not, with what category of loss exposures are premises medical payments loss exposures typically identified?

(b) For what does premises medical payments coverage provide payment?

(c) What legal liability must exist on the policyholder's part in order for premises medical payments coverage to apply in a particular situation?

Solution S5-59-2. This question is based on the discussion in Myhr and Markham, pp. 6.11-6.12. The following answers are correct:

(a) Underwriters typically do not provide premises medical payments coverage on a stand-alone basis; rather, premises medical payments loss exposures are typically identified as a subset of premises and operations loss exposures.

(b) Premises medical payments coverage pays for "medical expenses of persons other than the insured who are injured on the policyholder's premises or because of the policyholder's operations" (Myhr and Markham, p. 6.12).

(c) There is no requirement that the policyholder must be liable in order for premises medical payments coverage to apply in a particular situation.

Problem S5-59-3. (a) What is a hold-harmless agreement? What are the two parties to a hold-harmless agreement called?

(b) What are two limitations of hold-harmless agreements?

Solution S5-59-3. This question is based on the discussion in Myhr and Markham, p. 6.12. The following answers are correct:

(a) A hold-harmless agreement is a contractual provision where one party, the indemnitor, assumes the legal liability of the other party, the indemnitee.

(b) The following two limitations of hold-harmless agreements are discussed by Myhr and Markham, p. 6.12:

1. Often, the parties to a hold-harmless agreement assume that the indemnitor takes on the entire liability of the indemnitee and that the indemnitor's liability insurance policy will protect both parties from losses due to liability. However, some aspects of certain hold-harmless agreements fall entirely outside the scope of liability insurance.

2. Some courts have not upheld hold-harmless agreements, on the grounds that they are vague and that extremely broad transfers of liability violate public policy.

Problem S5-59-4. Identify and briefly describe the three sources of products liability.

Solution S5-59-4. This question is based on the discussion in Myhr and Markham, p. 6.13. The following sources of products liability are mentioned there:

1. Breach of warranty: "Source of liability based on laws that protect consumers who purchase products that do not perform as expected" (Myhr and Markham, p. 6.13).

2. Negligence: This often arises out of a failure of the product's manufacturer to give adequate warning about potential dangers of the product.

3. Strict liability: This "is the most common basis for products liability suits; it imposes liability on any person who produces an unreasonably dangerous product" (Myhr and Markham, p. 6.13).

Problem S5-59-5. Give five examples of questions that underwriters ask in examining products liability loss exposures.

Solution S5-59-5. The following questions are identified by Myhr and Markham, p. 6.14:

1. "What are the product's inherent hazards?"
2. "What representations or promises are made to the consumer in the sales material and advertising?"
3. "Do technical manuals for complex products accurately reflect the safety precautions required in the product's assembly and repair?"
4. "Does the product's packaging adequately protect the product so that it will operate properly when used?"
5. "Are the instructions easy to read and understand?"
6. "Does the product's warranty overstate the capability of the product?"
7. "Are loss control efforts introduced into the product's design and production phases?"
8. "Is a complaint-handling system in place to identify flaws and prevent injury and damage?"
9. "Are quality-control checks incorporated into the product's manufacture?"
10. "Are accurate records kept of products and components so that defective products can be identified and recalled?"
11. "Have product lines changed to increase the inherent hazards?"
12. "What is the applicant's position in the channel of distribution?"
13. "Who is the product's ultimate consumer?"

Any five of the above suffice as an answer. Other valid answers may be possible.

See other sections of The Actuary's Free Study Guide for Exam 5.