Casualty Actuarial Society (CAS) Practice Exam

What kind of financial consequence could the Smith family face from a liability claim?

1. Increased property value

2. Costs of a legal investigation

3. Reduction in household expenses

4. Increase in insurance coverage

The correct answer is: Costs of a legal investigation

The Smith family could face costs associated with a legal investigation as a financial consequence of a liability claim. When a liability claim arises, it often necessitates thorough investigations to determine the facts surrounding the incident, assess the validity of the claim, and establish responsibility. Legal investigations can incur significant expenses, including attorney fees, court costs, and potentially expert witness fees if certain expertise is required to support the case. These financial obligations would directly affect the family, as they may need to allocate funds specifically to handle the legal processes involved. In contrast, the other options do not represent plausible financial consequences of a liability claim. Increased property value and reduction in household expenses are not typically associated directly with the situation surrounding a liability claim; rather, they reflect broader financial trends or outcomes unrelated to the specifics of liability issues. Similarly, while an increase in insurance coverage could theoretically occur as a response to risk management considerations, it is not an immediate consequence faced as a direct result of a liability claim. Thus, the option identifying costs of a legal investigation accurately captures the likely financial impact on the Smith family in this context.