Question

A deli owner has a businessowners liability policy. When a customer slipped and hurt herself at the deli, the liability policy paid for medical expenses. The customer, however, is now suing the business owner because she claims there was no caution sign warning her that the floor was wet. What is the insurer obligated to do.A. Deny the claim

- B. Settle the claim with the customer
- C. Defend the business owner in court
- D. Cancel the liability policy

Answer 1

The insurer is obligated to defend the business owner in court when faced with a lawsuit. Insurance policies include a duty to defend, which helps in managing risk and reducing moral hazard through the policyholder's financial involvement.

Step-by-step explanation:

In the situation provided, where a deli owner is being sued by a customer who slipped and fell in their deli, the business owner's liability insurance policy is primarily obligated to defend the business owner in court (option C).

This is because liability insurance policies generally cover not only the payment of medical expenses and settlements but also provide legal defense if a suit is brought against the insured party. The insurer has a duty to defend the policyholder up to the limits of the policy.

It's important to note that issues such as negligence and the lack of a caution sign will likely be significant in the legal proceedings.

Insurance companies, through their duty to defend, aim to reduce moral hazard by managing the risk of their policyholders' behavior and decisions.

One of the methods to reduce moral hazard, as mentioned in the background information, is cost-sharing through deductibles, copayments, or coinsurance. These measures encourage policyholders to act prudently since they have a financial stake in the situation.