Dick's insurer defends a wrongful death claim with a $300,000 policy limit and a $50,000 defense cost. If the final settlement is $500,000, how much does the insurer pay for damages and defense?

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Multiple Choice

Dick's insurer defends a wrongful death claim with a $300,000 policy limit and a $50,000 defense cost. If the final settlement is $500,000, how much does the insurer pay for damages and defense?

Explanation:
The fundamental idea is that liability policies cap what the insurer pays for damages at the policy limit, while defense costs are covered separately. Here, damages are limited to 300,000, and defense costs amount to 50,000. Add them together and the insurer pays 350,000 for damages and defense. The remaining 150,000 of the 500,000 settlement would be the insured’s responsibility or covered from other sources.

The fundamental idea is that liability policies cap what the insurer pays for damages at the policy limit, while defense costs are covered separately. Here, damages are limited to 300,000, and defense costs amount to 50,000. Add them together and the insurer pays 350,000 for damages and defense. The remaining 150,000 of the 500,000 settlement would be the insured’s responsibility or covered from other sources.

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