Skip to content

ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional liability

Ferris Audit has a PII policy with an annual aggregate limit of $10 million and an excess of $250,000 per claim. In the year, two unrelated claims are settled: Claim A at $4 million and Claim B at $3 million, each including defence costs. Assuming the excess applies to each claim and the insurer pays the amount above the excess, what is the firm's total net cost for the two claims and the remaining aggregate limit?

The firm bears $500,000 because the $250,000 excess applies to each of the two claims. The insurer pays $6.5 million in total, leaving $3.5 million of the $10 million aggregate limit. Deducting the full $7 million from the limit would ignore that the firm absorbs the excesses.

  1. AFirm bears $250,000; remaining aggregate limit is $3,250,000
  2. BFirm bears $500,000; remaining aggregate limit is $3,500,000Correct
  3. CFirm bears $500,000; remaining aggregate limit is $3,000,000
  4. DFirm bears $7,000,000; remaining aggregate limit is $10,000,000

Explanation

Excess applies per claim: 2 x $250,000 = $500,000 borne by the firm. Insurer pays (4,000,000 - 250,000) + (3,000,000 - 250,000) = 3,750,000 + 2,750,000 = $6,500,000. Remaining limit = 10,000,000 - 6,500,000 = $3,500,000. Option 3 wrongly deducts the full $7 million from the limit.

Did you get it right without looking?

One question tells you little. A timed set on Professional liability shows your real accuracy, how long you take and where you lose marks.

Practise Professional liabilityFree diagnostic mock

More Professional liability questions