Property & Casualty Insurance Exam (National Portion)Casualty InsuranceMedium
A client's boat, insured under a Watercraft Policy, collides with another boat. The client is found at fault, and the other boat sustains $75,000 in damages. The client's policy has a property damage liability limit of $50,000. Which of the following statements is true regarding the payment of the damages?
- AThe client's policy will pay $50,000, and the other boat's owner will have to claim the remaining $25,000 under their own policy.
- BThe client's policy will pay $75,000, and the client will not be responsible for any additional amount.
- CThe client's policy will pay nothing, as the damages exceed the policy limit, making it a total loss for the other boat owner.
- DThe client's policy will pay $50,000, and the client will be personally responsible for the remaining $25,000.
Show answer & explanationAnswer & explanation
Correct answer: D. The client's policy will pay $50,000, and the client will be personally responsible for the remaining $25,000.
Liability insurance policies, including watercraft liability, pay up to their stated limits. If the damages exceed the policy limit, the insured (the client in this case) is personally responsible for the difference. The policy will pay its maximum of $50,000, and the client owes the remaining $25,000.
Why the other options are wrong
- A. While the other boat owner might claim on their own policy, the at-fault client remains legally liable for the full amount, and their insurance covers only up to its limit.
- B. Incorrect; the policy will not pay more than its stated limit.
- C. Incorrect; the policy will pay up to its limit, even if damages exceed it.
Liability Limit Exceeded
When covered damages exceed a liability policy's stated limit, the policy pays its maximum limit, and the insured is personally responsible for the remaining amount.
- Policy limits are maximum payouts.
- Insured remains legally liable for full damages.
- Insured is responsible for amounts exceeding policy limits.
Memory trick: Limit is a ceiling; you pay the rest.