Assistance Needed

Assistance Needed

by Stephen Charles Schofield -
Number of replies: 5

Hello,

I am having an issue working out this problem. I need someone to talk me through it in order to get the correct answer. The question is written as follows:

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!

In reply to Stephen Charles Schofield

Re: Assistance Needed

by Stephen Charles Schofield -

Another easy mistake I made by not carefully considering the wording of the question. I've finally figured this out. Here's a walk-through for anyone else who may be curious:

Breakdown of Split Limits: Max 25k per person per accident for BI / Max 50k per accident total BI / Max 25k for Property Damage per accident. Therefore,

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.


In reply to Stephen Charles Schofield

Re: Assistance Needed

by Stephen Charles Schofield -

Actually, I just had another thought. Although it's a arbitrary to this particular question, would fund for each person be prorated across all of those who filed a suit? So, 50k divided evenly between the four of them? (assuming they all filed their claims on time, before the funds for BI wre exhausted.)

In reply to Stephen Charles Schofield

Re: Assistance Needed

by Jan Bradburn- -
Stephen, How the insurance pays out losses may differ between companies. In most cases, in depends on when the claim is received. A good question, but you do not need to know for testing purposes. Jan
In reply to Stephen Charles Schofield

Re: Assistance Needed

by Yolanda Mercado -

More simpler, you just need to know that the total losses from the accident reached and surpass the 50,000 PIP limit, so that is the maximum amount to pay for that accident in particular. Then the 20,000 legal fees and the 8,000 property damage are covered separate from the PIP, so you add all three and that is the 78,000.