A contractor carries the minimum required general liability insurance of $300,000. A job site accident results in $450,000 in damages. What is the contractor's personal liability exposure?
Correct Answer
D) $150,000
Personal liability = Total damages - Insurance coverage = $450,000 - $300,000 = $150,000.
Why This Is the Correct Answer
Option D ($150,000) is correct because the contractor's personal liability exposure equals the gap between total damages and insurance coverage: $450,000 − $300,000 = $150,000. Insurance covers the first $300,000; the contractor is personally on the hook for the remainder.
Why the Other Options Are Wrong
Option A: $300,000
$300,000 is the insurance coverage limit, not the personal exposure. Confusing coverage limit with personal liability is a common error — the insurance pays $300,000, not the contractor.
Option B: $0
$0 would be correct only if the insurance fully covered all damages. Because total damages ($450,000) exceed the policy limit ($300,000), the contractor has uncovered exposure.
Option C: $450,000
$450,000 is the total damages figure. The contractor's personal exposure is only the uncovered portion, not the entire claim amount — the insurer still pays up to its $300,000 limit.
Memory Technique
Think of insurance as a bucket that catches the first $300,000 of water (damages). Once the bucket is full, the overflow ($150,000) lands on the contractor personally. Personal exposure = Total damages − Coverage limit.
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