Exam (elaborations)
CPCU 552 Test #2 (Ch. 7-8) questions and answers graded A+ 20254/2025
- Course
- Institution
CPCU 552 Test #2 (Ch. 7-8) questions and answers graded A+ 20254/2025
[Show more]
Content preview
CPCU 552 Test #2 (Ch. 7-8)Describe the major functions of a corporation's board of directors. - ANS• establish corporate
policy
• make major business and financial decisions
• appoint executive officers to manage daily operations
Describe the 4 fiduciary duties of the directors and officers of a corporation. - ANS• duty of care
(with care that a person in a similar position would reasonably believe appropriate under similar
circumstances)
• duty of obedience (to the law - perform duties according to applicable statutes and terms of
corporate charter)
• duty of loyalty (best interest of corporation)
• duty of disclosure (must disclose material facts to all persons who have a right to know them
and wouldn't otherwise be able to obtain them)
Compare derivative and non derivative suits. - ANS• derivative - brought by shareholders in
name of the corporation; damages go to corporation
• nonderivative - not made in name of corporation; may be initiated by customers, competitors,
employees, other people outside corporation
Describe a typical basis for class action lawsuits against directors and officers of a corporation
and provide an example of a common allegation. - ANS• wrongful acts related to securities
• corporation's public statements contained material misrepresentations or omission
• alleged misrepresentation artificially inflated corporation's stock price
• insiders profitably sold their personal holding in stock while inflated
Discuss why corporations might settle claims against their directors and officers even if they
believe they have defenses to the claims. - ANSdefense costs and the amount of time required
to prepare an adequate defense can be devastating
Discuss how settlement of claims against a corporation's directors and officers can present
problems for indemnification of the directors and officers. - ANS• indemnification under common
law required successful defense against suit
• when it is settled, it is terminated with no determination of wrongdoing
• not clear whether the directors and officers are entitled to indemnification
Discuss the reasons that risk control should be a central part of the management of directors
and officers (D&O) loss exposures. - ANS• claims against D&Os can create significant defense
settlement costs
• D&O liability insurance cannot restore a corporation's reputation
, • loss of reputation can damage customer relationships, hinder access to capital markets, and
make it difficult to attract highly qualified executives
What is covered by Coverage A of a D&O liability policy? - ANS• insures individual directors and
officers
• indemnifies corporation's D&Os for covered claims only when it is NOT required by law, is
NOT permitted by law, or is financially prohibited b/c lacks of funds or bankruptcy
• limited to losses the corporation does not or cannot provide indemnification to the D&Os
What is covered by Coverage B of a D&O liability policy? - ANS• insures corporation for
amounts it is lawfully permitted or required to pay to defend or settle claims against D&Os
• if a director is held liable for a loss caused by a covered wrongful act and the corporation is
lawfully able to indemnify the director, the loss will be paid under Coverage B
What is covered by entity coverage (Coverage C) of a D&O liability policy? - ANSmakes the
corporation itself (the entity) an insured for claims made against it because of wrongful acts
covered by the policy
Without entity coverage, to what extent is the corporation insured under a D&O liability policy? -
ANSonly covers corporation for indemnification of its directors and officers -- does not cover any
loss attributable to the entity's wrongful acts
Based on their definition of "claim" to what extent do some D&O policies cover criminal
proceedings against D&Os? - ANS• some include criminal proceedings
• coverage is limited to defense costs b/c public policy bars insurers from covering criminal
penalties
D&O liability policies normally define "loss" to include defense costs. How does this definition of
loss affect the application of D&O policy limits? - ANSlimits of liability apply to the sum of
damages and defense costs combined
Give 2 examples of problems posed by D&O liability loss exposures that are better handled
under claims-made rather than occurrence-based policies. - ANS• making errors in corporation's
financial statements
• claims alleging mismanagement
What variations can apply to extended reporting provisions (tail coverage) in D&O policies? -
ANS• 30-60 day automatic tail coverage
• option to add 1-5 years of coverage after automatic tail
• possible separate limit of liability may exist for tail coverage
Explain prior acts coverage and the warranty to which it is subject in D&O policies. - ANS•
covers claims made during the policy period for wrongful acts that occurred either during the
policy period or at any time before the policy period
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Legitexams. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $11.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
81531 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now