Canadian Accredited Insurance Broker (CAIB) Three Practice Exam

If an insured agrees to assume a contractor's liability, what impact does it have during construction work?

1. Increases insurance premiums

2. Reduces the contract price

3. Eliminates all liability

4. Increases coverage limits

The correct answer is: Reduces the contract price

When an insured agrees to assume a contractor's liability, this arrangement typically results in a reduction of the contract price. This is because the contractor may factor in the risk of liability into their pricing. If the insured is taking on that risk, the contractor can reduce their charges, knowing that the liability costs will not fall on them. This arrangement can lead to a more favorable pricing structure for the insured, as they may be providing assurance to the contractor that they will cover certain liabilities, thereby allowing for reduced costs in terms of the contract. It's important to understand that this does not eliminate all liability, nor does it directly lead to increased coverage limits; rather, it creates a shared responsibility that can be reflected in contract negotiations. Additionally, while insurance premiums might be influenced by the level and nature of liability assumed, this option doesn't directly correlate in a straightforward manner with the contractor's agreement, as liability sharing can have various effects on how premiums are calculated based on the overall risk profile.