Question

Jane is involved in an auto accident and the other party, Harry, is judged to be at fault. She suffers roughly $8,000 in damage to her car and $22,000 in personal injury. She contacts Harry's insurer and, 6 days later, she is told that they won't be able to indemnify her for her car until she agrees to accept $14,000 for her personal injury portion of the claim. In what way is Harry's insurer acting unfairly?

A. Harry's insurer waited longer than 5 days to respond to Jane's claim.
B. Harry's insurer is trying to influence settlement under one portion of the policy by withholding coverage under another portion of the policy.
C. Harry's insurer should have contacted Jane's insurer before discussing the claim with Jane.
D. Harry's insurer is not enforcing subrogation

Answer 1

Harry's insurer is acting unfairly by trying to influence the settlement under one portion of the policy by withholding coverage under another. This unfairly pressures the insured to settle for less than they may deserve and can contribute to adverse selection in the insurance market. option b is answer

Step-by-step explanation:

In the scenario where Jane is involved in an auto accident and Harry is judged to be at fault, Harry's insurer is acting unfairly by trying to influence the settlement under the personal injury portion of the claim by withholding coverage for the car damage. This practice is often referred to as 'settling under one portion of the policy by withholding coverage under another portion of the policy.'

An understanding of insurance principles such as asymmetric information, moral hazard, and adverse selection can reveal why this tactic by the insurer is not only unfair but also potentially damaging to the insurance market. In the simplified

insurance example with 100 drivers, those with the lowest risk may choose not to buy insurance at all if premiums are too high, which can lead to adverse selection where only high-risk drivers remain insured, resulting in losses for the company. option b is answer