Maine Property & Casualty Insurance License Exam — All Questions

The failure to exercise the degree of care that a reasonably prudent person would exercise under similar circumstances is the legal definition of:

• a.Indemnity
• b.Subrogation
• c.Absolute liability
• d.Negligence✓

Negligence is the failure to act with the level of care a reasonably prudent person would use in similar circumstances, and it is the basis of most liability claims. Proving negligence generally requires four elements: a duty owed, a breach of that duty, that the breach was the proximate cause of harm, and actual damages. Absolute (strict) liability applies without proof of negligence in inherently dangerous situations.

To win a negligence claim, an injured party generally must prove all of the following EXCEPT:

• a.A legal duty was owed
• b.The duty was breached
• c.The defendant intended to cause harm✓
• d.Actual damages resulted from the breach

Negligence requires proving duty, breach of that duty, proximate cause, and actual damages, but it does not require intent to cause harm; negligence is about carelessness, not intent. An intentional act that causes harm is a separate category (an intentional tort) and is generally excluded from liability insurance. This makes intent the element that does not belong in a negligence claim.

Liability that is imposed on a party regardless of fault or negligence, such as for abnormally dangerous activities, is called:

• a.Absolute (strict) liability✓
• b.Vicarious liability
• c.Contributory negligence
• d.Comparative liability

Absolute or strict liability is imposed without regard to fault when a party engages in inherently dangerous activities (such as blasting) or under certain statutes; the injured party need not prove negligence. Vicarious liability holds one party responsible for another's acts (such as an employer for an employee). Contributory and comparative concepts address how an injured party's own fault affects recovery.

In a liability policy, the coverage that responds to bodily injury or property damage the insured becomes legally obligated to pay is triggered by:

• a.Any loss the insured reports, whether or not legally liable
• b.Legal liability of the insured to a third party✓
• c.Damage to the insured's own property
• d.The insured's medical expenses

Liability (third-party) coverage responds when the insured is legally obligated to pay damages to another party for bodily injury or property damage, and it typically includes the cost of the insured's legal defense. It does not pay for the insured's own property or injuries, which are first-party coverages. The legal obligation, usually arising from negligence, is what triggers the coverage.

An umbrella liability policy primarily provides:

• a.First-dollar coverage with no underlying insurance
• b.Coverage only for property owned by the insured
• c.Additional liability limits above underlying policies and broader coverage for some claims✓
• d.A replacement for the insured's auto physical damage coverage

A personal umbrella policy provides an extra layer of liability limits that sits above the insured's underlying home and auto liability coverage, and it may cover some claims the underlying policies exclude (subject to a self-insured retention). It generally requires the insured to maintain specified underlying limits. It is excess liability protection, not a first-dollar or property coverage.