Arkansas Insurance Adjuster Practice Exam

In a malpractice lawsuit, assuming the holder has a Professional Liability Policy, which is TRUE regarding settling the claim?

1. An umpire must be employed to settle the claim through arbitration.

2. The insured must pay all their own legal expenses.

3. The insurer has the right to settle the claim anyway it finds advantageous.

4. The insurer must seek the insured's consent before settling the claim.

The correct answer is: The insurer must seek the insured's consent before settling the claim.

Professional Liability Policies are designed to protect the holder in case of a malpractice lawsuit. This type of policy typically includes coverage for legal expenses incurred while defending against a claim. Therefore, option B, stating that the insured must pay their own legal expenses, is incorrect. Similarly, option C, stating that the insurer has the sole right to settle the claim, is also incorrect. This is because the insured has the right to be involved in the decision-making process and give their consent. Option A, stating that an umpire must be employed, is also incorrect. While arbitration may be an option, it is not necessary in settling every malpractice claim. The correct answer, option D, states that the insurer must seek the insured's consent before settling the claim. This is because the insured may have important knowledge or evidence that could affect the outcome of the claim and their consent is required before any settlement can be made.