A logistics firm operates a regional distribution center. To avoid the cost of renting additional space, the facility manager intentionally loads the storage racks well beyond their structural weight limits. When an employee raises a safety concern, the manager replies, "Don't worry about it; if anything falls, our commercial property insurance will just pay to replace the inventory." Two months later, a minor earthquake strikes the region. The tremors cause the severely overloaded racks to buckle and collapse, crushing the inventory below.
Based on foundational risk management principles, which of the following correctly classifies the elements of this loss?
- AThe peril is the overloaded condition of the racks; the manager's attitude toward the risk represents a moral hazard.
- BThe peril is the earthquake; the manager's attitude toward the risk represents a moral hazard.
- The peril is the earthquake; the manager's attitude toward the risk represents a morale hazard.Answer
- DThe peril is the crushed inventory; the earthquake represents a physical hazard.
Answer
The peril is the earthquake; the manager's attitude toward the risk represents a morale hazard.
The correct answer accurately identifies that a peril is the active, direct cause of the loss, which in this scenario is the earthquake. It also correctly classifies the manager's statement as a morale hazard, because it demonstrates a careless or indifferent attitude toward preventing a loss due to the security of having insurance coverage.
Step-by-Step Solution
Key Concept
Distinguishing between the cause of a loss (peril) and the conditions that increase the likelihood or severity of that loss (hazards).