Florida Auto Question

[FLagent1991]

Hello, I'm a pre-licensed agent who has finished taking the 220 General Lines Insurance course. I am taking my state exam next week, and I've had some issues with the auto portion of my review.

I'm taking a practice test and I've run into a question that has stumped me. I'm sure it's not very difficult, but I'm still unable to find the answer. Here's the question:

Joe has a Personal Auto Policy with Liability of 25/50/25. He hits a car with four (4) occupants from Minnesota, all of whom are hurt. They all sue. The first sues for $20,000; the second sues for $35,000; the third sues for $22,000; the fourth sues for $18,000. The car Joe hit has $8,000 in damage. The company spends $20,000 on a law firm for defense. Ignoring any PIP or Med Pay, what is the total cost to the company for Joe's claim?

a. $50,000

b. $70,000

c. $78,000

d. $90,000

The correct answer is C. $78,000, but I have no idea how to get to that number. Please help!

 

[BlockO]

that's some tricky wording there..... don't let the language fool you.

the claim amount paid would be $58,000 ($50,000 bodily injury + $8000 property damage), but they aren't asking how much the claim was. they asked the total cost to the company. Legal fees are on the company's dime, but it is not considered part of the claim itself.

 

[FLagent1991]

EDIT:

I finally figured this out. His split limits were what kept confusing me.


The 1st person to sue will get 20k
The 2nd person to sue will get 25k, instead of 30, because per person is capped at 25k (refer to limits: 25/50/25)
The 3rd person to sue will only get 5k; this is all that's left of the 50k for BI per accident (refer to limits: 25/50/25

This brings us to a 50k cost for BI for this accident. The 8k is taken out of his property damage limits (refer to limits: 25/50/25)

This brings us to 58k total. All that remains to get the answer is to add the 20k cost the company incurred for law firm defense.

50k BI + 8k PD + 20k legal fees = 78k.

What a crazy question.

 

[BlockO]

In your question, Joe doesn't have enough liability coverage to cover the bodily injury part of the claim. There are 95K in injuries but the most the policy will pay for injuries is 50K.

Joe has a Personal Auto Policy with Liability of 25/50/25.

You need to go back and review split limits for liability coverage because that's basic stuff that you will get plenty of questions on come test time.

It's too bad you can't write in additional parts to the answer.... you could say...

"had Joe not been so skimpy in selecting his liability coverage and paid an extra $2 per month, this would have been fully covered. But since Joe is a cheapskate, he's on the hook for 45 K of it".

 

[FLagent1991]

You need to go back and review split limits for liability coverage because that's basic stuff that you will get plenty of questions on come test time.

It's too bad you can't write in additional parts to the answer.... you could say...

"had Joe not been so skimpy in selecting his liability coverage and paid an extra $2 per month, this would have been fully covered. But since Joe is a cheapskate, he's on the hook for 45 K of it".

BlockO,

Fortunately, I figured it out before I even saw your response (If you scroll up, I edited my post and explained how I answered it. Feel free to double-check to make sure I did it correctly!), but thanks for breaking it down. That was actually the only question I missed/had trouble with in the whole liability section on my practice exam. I'm taking the practice exam out of my textbook, and it didn't do a great job explaining Split Limits coverage. But I figured it out.

Big thanks for your help!

 

[fearsback]

BlockO,

Fortunately, I figured it out before I even saw your response (If you scroll up, I edited my post and explained how I answered it. Feel free to double-check to make sure I did it correctly!), but thanks for breaking it down. That was actually the only question I missed/had trouble with in the whole liability section on my practice exam. I'm taking the practice exam out of my textbook, and it didn't do a great job explaining Split Limits coverage. But I figured it out.

Big thanks for your help!

good luck on your exam, you will do fine. Are you currently working in the industry?

 

[FLagent1991]

good luck on your exam, you will do fine. Are you currently working in the industry?

Thank you. Hoping to eliminate the "luck-factor" and just go in knowing I'm gonna ace it, haha. And yes, I've been involved since November of last year, but was in the process of training & taking a 220 class. I've finished with my class, and just need to take and pass my test now so that I can start working as an agent.

 

[djs]

EDIT:

I finally figured this out. His split limits were what kept confusing me.


The 1st person to sue will get 20k
The 2nd person to sue will get 25k, instead of 30, because per person is capped at 25k (refer to limits: 25/50/25)
The 3rd person to sue will only get 5k; this is all that's left of the 50k for BI per accident (refer to limits: 25/50/25

This brings us to a 50k cost for BI for this accident. The 8k is taken out of his property damage limits (refer to limits: 25/50/25)

This brings us to 58k total. All that remains to get the answer is to add the 20k cost the company incurred for law firm defense.

50k BI + 8k PD + 20k legal fees = 78k.

What a crazy question.

You have the general concept, but this is not how the claim would be paid. Its not in order of the claim, its prorated across all of them so they would all receive a little less.

Of course, if someone filed a claim late, after everything was paid out, then perhaps there would be no money to pay them from the insurance company, but insurance companies try to make sure this doesn't happen.

Dan

 

[FLagent1991]

You have the general concept, but this is not how the claim would be paid. Its not in order of the claim, its prorated across all of them so they would all receive a little less.

Of course, if someone filed a claim late, after everything was paid out, then perhaps there would be no money to pay them from the insurance company, but insurance companies try to make sure this doesn't happen.

Dan

This is a good thought. Although it doesn't directly apply to the question, it's good to know. I didn't even consider how coverage would be distributed because I didn't see the words "primary, excess, prorata, or equal shares."

Should I assume that in one (1) accident with four (4) people filing four (4) different claims that coverage distribution would be prorated?

 

[djs]

In a short answer, yes.
Have to get those 20 characters, can't be completely short.....

Prorated if claims exceed policy limits. This is as much as you'll need to know for your test. Probably more than you'll need for the test.

Dan