Personal Auto Policy exam question...?

Question

Joe has a Personal Auto Policy with Liability of 25/50/25. He hits a car with 4 occupants from Minnesota, all whom are hurt. They all sue. The first sues for $20,000; the second sues for $35,000 the third sues for $22,000; the fourth sues for $18,000. The car Joe hit has $8,000 in damage. The company spends $20,000 on a law firm for defense. Ignoring any PIP or Medical Payments, what is the total cost to the company for Joe's claim?

a. $50,000
b. $70,000
c. $78,000
d.$90,000

I know the correct answer is 'C' I just do not understand why. Please help!

Answer 1

The max bodily injury payout per person is $25,000. The max bodily injury payout per accident is $50,000. Since there were 4 injured people, the $50,000 would have to be split among them, with not one person getting more than $25,000. So that is the $50,000. The property damage is only $8,000 (the max on that is $25,000 so Joe is OK there).
So,
$50,000 bodily injury paid
$ 8,000 property damage paid
$20,000 defense paid
$78,000 total

In this policy, defense is "outside" the policy limits. It would state this in the policy. Sometimes defense is "inside" the policy limits so anything paid to defend the insured reduces the liability limits available to be paid to others. You would have to read the policy to know whether defense is inside or outside the policy limits.

This is also assuming he has no collision coverage for damages to his own car.

Now, if the other people get awarded their bodily injury amounts in court, the out of pocket for Joe is $45,000. This is the difference in his coverage to his amount owed to the injured parties. They will have to either go after Joe directly or collect under their underinsured motorists coverage on their auto policies & let their insurance companies go after Joe for that amount.

I hope this explains it to you.

Answer 2

the first number is per occupant, the second number is total occupants, the third number is property damage. the combined per occupant amount exceeded the total occupant ceiling, so the company was no longer liable.

looks like Joe is gonna have to fork over 45 grand before he gets his license back.

Answer 3

you said it your self The Company spends 20,000 on a law defense ,,,,,,,,,,, and had the amounts lowered ,, just because the people sued for that amount doesn't mean that is what they got