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Difficulty: EasyPerils and Hazards

A commuter is driving on the highway and decides to read a text message instead of watching the road. Because they are distracted, they rear-end the vehicle in front of them, causing significant body damage to both cars. Based on insurance principles, how should the driver's decision to read a text message be classified?

  1. A morale hazard, because it demonstrates carelessness that increases the chance of a loss.Answer
  2. B
    A moral hazard, because it involves a deliberate, dishonest act to defraud the insurer.
  3. C
    A peril, because it is the active, direct cause of the property damage.
  4. D
    A physical hazard, because the phone is a physical object inside the vehicle.

Answer

The driver's decision to read a text message is classified as a morale hazard, because it demonstrates carelessness that increases the chance of a loss.
In insurance terminology, a morale hazard refers to an increase in the hazard presented by a risk due to the insured's indifference or carelessness. Texting while driving is a classic example of a careless attitude that increases the probability of a loss (a collision) occurring.

Step-by-Step Solution

1
Identify the primary event that caused the direct physical loss.
The active cause of the property damage was the collision between the two vehicles, making the collision the peril.
In insurance terminology, a peril is defined exclusively as the active, direct cause of a loss.
2
Analyze the driver's underlying behavior prior to the loss.
The driver chose to read a text message, exhibiting an attitude of carelessness.
Texting while driving creates a dangerous environmental condition that increases the likelihood of the peril (the collision) actually occurring.
3
Match the careless behavior to the correct category of hazard.
The behavior matches the definition of a morale hazard.
Carelessness or indifference to risk is classified as a morale hazard, which is distinct from a tangible physical condition (physical hazard) or dishonest intent to defraud (moral hazard).

Key Concept

Distinguishing between perils (causes of loss) and the three types of hazards (physical, moral, and morale).
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Topics

Perils and Hazards

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