Texas Property and Casualty License Practice Exam

What type of liability involves assuming another's liability through a written agreement?

1. Contractual liability

2. Negligent liability

3. Direct liability

4. Vicarious liability

The correct answer is: Contractual liability

The correct answer is contractual liability, which arises when an individual or entity agrees in writing to assume responsibility for another's liability. This often occurs in situations such as leases, construction contracts, or other agreements where one party agrees to take on the financial responsibilities or legal obligations associated with an event or action caused by another party. In the context of insurance and liability, contractual liability can be significant because it specifies the conditions under which one party will be held accountable for the actions or omissions of another. Understanding this type of liability is crucial for insurance professionals, as it helps determine the extent of coverage needed to protect against claims that might arise from such agreements. Other types of liability, like negligent liability, involve harm caused by a party’s failure to act with reasonable care, and direct liability refers to an individual being responsible for their actions without passing that responsibility to another. Vicarious liability deals with a situation where one party is held liable for the actions of another, typically in an employer-employee relationship, without a written agreement being implicated. Thus, contractual liability distinctly relates to those specific scenarios where liability is assumed via a formal written agreement, marking it as the correct choice in this context.