Professional Liability
Practice questions on professional liability for the casualty exam, each with an answer and explanation.
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Study questions and answers
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1. Professional liability insurance for a doctor is commonly called:
- Errors and omissions insurance
- Malpractice insurance
- Fiduciary liability insurance
- Products liability insurance
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Professional liability for physicians and other medical providers is called malpractice insurance. For non-medical professions it is often called errors and omissions.
2. An insurance agent fails to add a requested coverage, and the client suffers an uninsured loss. Which policy is designed to protect the agent?
- Commercial general liability
- Errors and omissions
- Fidelity bond
- Businessowners policy
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Errors and omissions insurance covers financial loss to clients caused by mistakes or failures in providing professional services.
3. Most professional liability policies are written on which basis?
- Occurrence
- Claims-made
- Discovery bond
- Reporting form
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Professional liability claims often surface long after the work is done, so these policies are usually written on a claims-made basis.
4. A professional liability policy provides that the insurer will not settle a claim without the insured's agreement. This is called a:
- Consent to settle provision
- Subrogation clause
- Pro rata clause
- Cancellation provision
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Professionals care about their reputation, so many policies require the insured's consent before a claim is settled.
5. Under a hammer clause in a professional liability policy, if the insured refuses a settlement the insurer recommends:
- The policy is cancelled immediately
- The insurer's payment may be limited to the amount it could have settled for, plus defense costs to that point
- The insured must pay the premium for the remaining policy term
- The claim is automatically denied
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The hammer clause limits the insurer's obligation when the insured refuses a reasonable settlement the claimant would accept.
6. Directors and officers (D&O) liability insurance protects directors and officers against claims alleging:
- Bodily injury to customers
- Wrongful acts in managing the organization
- Damage to company property
- Employee theft
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D&O coverage responds to claims that directors and officers made wrongful decisions, such as mismanagement or breach of duty.
7. The part of a D&O policy that reimburses the corporation when it indemnifies its directors and officers is often called:
- Side A
- Side B
- Side C
- The employers liability section
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Side A pays directors and officers directly when the company cannot indemnify them, Side B reimburses the company, and Side C covers the entity itself for certain claims.
8. A former employee sues a company for wrongful termination and sexual harassment. Which policy is designed for this claim?
- Commercial general liability
- Workers compensation
- Employment practices liability insurance
- Fiduciary liability insurance
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Employment practices liability (EPLI) covers claims such as discrimination, harassment, and wrongful termination, which the CGL does not cover.
9. Fiduciary liability insurance protects those who manage an employee benefit plan against claims of:
- Bodily injury on the premises
- Breach of their duties under ERISA in administering the plan
- Theft of plan money by employees
- Auto accidents during plan business
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Fiduciary liability covers claims that plan fiduciaries breached their duties, such as making imprudent investments. Theft is covered by an ERISA fidelity bond instead.