State Farm Insurance License Practice Exam

Which of the following best defines Legal Liability in commercial property insurance?

1. Coverage for theft of the insured's property

2. Liability for negligent damage to others' property

3. Insurance against natural disasters

4. Coverage for direct physical damage

The correct answer is: Liability for negligent damage to others' property

Legal liability in commercial property insurance primarily refers to the responsibility that a business holds for damages it may cause to third-party property or persons due to its operations or activities. This encompasses situations where negligence on the part of the business leads to physical harm or damage to someone else's property. Option B highlights this responsibility by specifically mentioning liability for negligent damage, which is central to many liability policies. If a business's actions or omissions result in harm to another party, the business can be held legally liable, leading to claims that may be covered under liability insurance. The other options describe different aspects of insurance coverage. The first option addresses theft, which pertains to loss of the insured's own property rather than liability to others. The third option covers natural disasters, typically included under a property insurance policy, but does not define liability. The fourth option relates to direct physical damage to property, which again focuses on the insured party's losses rather than their obligations to others. Thus, the definition captured in option B most accurately aligns with the concept of legal liability within the context of commercial property insurance.