Florida Certified Insurance Representative (CIR) 2025 – 400 Free Practice Questions to Pass the Exam

To determine the amount XYZ Furniture will have to pay out-of-pocket after being sued for the defective recliner, it's crucial to understand the concept of coverage limits in liability insurance. Coverage limits indicate the maximum amount an insurer will pay for a claim.

If the total damages awarded in the lawsuit exceed XYZ Furniture’s coverage limit, the company would be responsible for the difference. For instance, if the damages amounted to a total of $340,000 and their insurance coverage only extended to $245,000, XYZ Furniture would then need to cover the remaining balance out of pocket.

Given that the selected answer is $95,000, this suggests that the total judgment in the lawsuit was likely $340,000, considering the company's coverage limit is $245,000. The calculation would be as follows: $340,000 (total damages) minus $245,000 (coverage limit) results in an out-of-pocket expense of $95,000.

Understanding coverage limits helps businesses like XYZ Furniture prepare for potential legal costs and manage their risk effectively, ensuring they have adequate financial resources in place should a claim arise.