CAIA Negotiation and Settlement 4 — Questions and Answers
Question 1: An insured has a $1,000 deductible. A third party's vehicle sustained $3,500 in damage. The insured is 100% at fault. How much does the insured's liability insurer pay the third party?
- $2,500 after applying the deductible
- $3,500 — deductibles do not apply to liability payments (Correct answer)
- $1,000 as the maximum liability deductible payment
- $3,500 minus comparative fault percentage
Correct answer: $3,500 — deductibles do not apply to liability payments
Deductibles apply to first-party (collision/comprehensive) claims only; liability coverage pays the full amount of a third-party's covered damages without a deductible offset.
Question 2: What is 'subrogation' and how does it affect the settlement process?
- It allows the claimant to sue the adjuster personally after settlement
- It gives the insurer the right to recover payments made to its insured from a negligent third party (Correct answer)
- It allows the insured to collect twice — once from their insurer and once from the at-fault party
- It is the process of transferring title of a total loss vehicle to the insurer
Correct answer: It gives the insurer the right to recover payments made to its insured from a negligent third party
Subrogation allows the paying insurer to step into the insured's shoes and recover from the negligent party what it paid the insured, preventing the insured from collecting a double recovery.
Question 3: During a multi-party accident negotiation, one claimant settles but another does not. What document protects the insurer when settling with just one claimant?
- A global release covering all claimants simultaneously
- A partial release or individual release with specific language protecting the insurer's rights as to non-settling claimants (Correct answer)
- A reservation of rights letter sent to the settling claimant
- A letter of protection from the claimant's medical provider
Correct answer: A partial release or individual release with specific language protecting the insurer's rights as to non-settling claimants
A partial or individual release allows the insurer to settle with one claimant while preserving rights regarding other claimants from the same accident.
Question 4: A claimant demands payment for 'loss of use' while their vehicle is being repaired. What does this typically cover?
- The cost of replacing the claimant's lost wages during the repair period
- Rental car expenses or the daily value of being without the vehicle during covered repairs (Correct answer)
- The loss of resale value due to the accident history
- Any decrease in the vehicle's ACV during the repair period
Correct answer: Rental car expenses or the daily value of being without the vehicle during covered repairs
Loss of use compensates the claimant for transportation expenses, typically rental costs, incurred while their vehicle is being repaired due to a covered loss.
Question 5: What is the significance of a 'Mary Carter agreement' in the context of multi-defendant litigation?
- An agreement where Mary Carter's law firm negotiates on behalf of all defendants
- A secret settlement agreement between a plaintiff and one defendant that keeps the settling defendant in the suit (Correct answer)
- A mandatory mediation agreement required in some states before trial
- A government settlement formula used in federal auto liability cases
Correct answer: A secret settlement agreement between a plaintiff and one defendant that keeps the settling defendant in the suit
A Mary Carter agreement allows one defendant to secretly settle with the plaintiff while remaining at trial, which can create strategic and ethical issues for remaining defendants.
Question 6: If a claimant signs a release and later discovers additional injuries, can they typically re-open the claim?
- Yes, all injury claims can always be re-opened within 3 years
- Generally no, because a properly executed release extinguishes all claims, known and unknown, unless fraud or mistake is proven (Correct answer)
- Yes, but only if the additional injuries require surgery
- No, but they may file a separate new claim for the same accident
Correct answer: Generally no, because a properly executed release extinguishes all claims, known and unknown, unless fraud or mistake is proven
A signed release is generally a final resolution of all claims from an incident; re-opening a claim is only possible in cases of fraud, mutual mistake, or when specifically excluded injuries are later discovered.
Question 7: An adjuster uses 'anchoring' during negotiations. What does this technique involve?
- Tying settlement value to the insured's premium payment history
- Presenting an initial offer or number first to influence the reference point for the entire negotiation (Correct answer)
- Refusing to move from an initial offer regardless of new information
- Linking settlement of property damage to resolution of bodily injury simultaneously
Correct answer: Presenting an initial offer or number first to influence the reference point for the entire negotiation
Anchoring establishes a reference point early in the negotiation by presenting an initial number, which psychologically influences subsequent counteroffers.
CAIA Negotiation and Settlement 4
An insured has a $1,000 deductible.
A third party's vehicle sustained $3,500 in damage.
The insured is 100% at fault.
How much does the insured's liability insurer pay the third party?