This Document Contains Chapters 36 to 40 Chapter 36—Insurance TRUE/FALSE 1. Insurance is a contract by which one party for a stipulated consideration promises to pay another party a sum of money on the destruction of, loss of, or injury to something in which the other party has an interest, or to indemnify that party for any loss or liability to which that party is subjected. Answer: True 2. An insurance broker generally is an independent contractor who is not employed by any one insurance company. Answer: True 3. Generally, the terms broker and agent are synonymous because both work directly for the insurer. Answer: False 4. A contract of insurance ordinarily is stated in a writing called a policy. Answer: True 5. A person has to be an owner or lienholder to have an insurable interest in a property. Answer: False 6. A person has an insurable interest in property if destruction of that property would cause a monetary or pecuniary loss to that person. Answer: True 7. To collect on property insurance, an insurable interest in the property must exist at the time that the loss is suffered. Answer: True 8. A person who obtains life insurance generally can only name a beneficiary that has an insurable interest in the life of the insured. Answer: False 9. The fact that a partnership is terminated after a life insurance policy is obtained by one partner on another invalidates the policy. Answer: False 10. Any false statement in an application binds the insured. Answer: True 11. The formation of a contract of insurance is governed by the general principles applicable to contracts. Answer: True 12. An insurer may cancel any contract of insurance by the insurer's unilateral act as long as the insurer gives advance written notice. Answer: False 13. When a provision of an endorsement conflicts with a provision of a policy, the endorsement controls. Answer: True 14. A contract of insurance is to be interpreted as it would be understood by a person with technical knowledge of the law or of insurance. Answer: False 15. An ambiguity in an insurance policy is generally interpreted in favor of the insured. Answer: True 16. Exceptions to coverage are generally strictly interpreted against the insurer. Answer: True 17. If an insurer denies liability for a loss, the insured or the beneficiary of the policy has the burden of proving that there was a loss that came within the coverage of the policy. Answer: True 18. An insurer's bad faith refusal to pay a claim generally is considered to be any frivolous or unfounded refusal to comply with the demand of a policyholder to pay according to the policy. Answer: True 19. The insured must comply with a number of time limitations in making a claim. Answer: True 20. Subornation is the right of a party secondarily liable to stand in the place of the creditor after making payment to the creditor and to enforce the creditor’s right against the party primarily liable in order to obtain indemnity from such primary party. Answer: False 21. Commercial General Liability (CGL) policies apply to product liability cases, actions for wrongful termination of employees, sexual harassment cases, damages caused by business advertising or employee dishonesty, and trademark infringement suits. Answer: True 22. Homeowner's insurance is a combination of the standard fire insurance policy and comprehensive personal liability insurance. Answer: True 23. For the purposes of fire insurance, all fires that cause damage are considered hostile fires. Answer: False 24. A coinsurance clause requires the insured to maintain insurance on the covered property up to a certain amount or a certain percent of the value, generally 80 percent. Answer: True 25. Fire insurance is a personal contract, and in the absence of statutory or contractual authorization, it can be assigned without the consent of the insurer. Answer: False 26. A homeowner's policy commonly provides protection from losses caused by theft. Answer: True 27. The coverage of the Personal Auto Policy (PAP) is limited to claims arising from the “use and operation” of an automobile. Answer: True 28. For the purposes of Personal Auto Policy (PAP) coverage, an insured person “uses” an automobile by unloading groceries from the car while it is parked in the garage. Answer: True 29. Under no-fault insurance, an insurer is obligated to pay an injured person without regard to whose fault caused the harm. Answer: True 30. After the expiration of the incontestability period of a life insurance policy, the insurer must pay the face amount of the policy when the insured dies and cannot claim that in obtaining the policy, the insured had been guilty of misrepresentation, fraud, or any other conduct that would entitle it to avoid the contract of insurance. Answer: True MULTIPLE CHOICE 1. The person to whom an insurance promise is made is called: A. the insured. B. the insurer. C. the policyholder. D. both a. and c. Answer: D 2. A person who would suffer a direct pecuniary loss if a particular piece of property were destroyed has a(n): A. contractual risk. B. hazard. C. underwriting. D. insurable interest. Answer: D 3. For property insurance, an insurable interest must exist: A. at the time the policy is purchased. B. at the time of the loss. C. both at the time the policy is purchased and at the time the loss is sustained. D. for at least thirty (30) days before the loss is sustained. Answer: B 4. If a man names his wife as beneficiary of his life insurance and the two are thereafter divorced, the insurance policy: A. is canceled automatically. B. is not affected. C. is divided into two policies on the life of each for one-half the amount of the original policy. D. becomes the property of the former wife. Answer: B 5. Armenia purchased life insurance on her life. Regarding the beneficiary: A. Armenia must name a person with a pecuniary interest in her life. B. Armenia must name a close relative. C. Armenia must name a close relative or business associate. D. Armenia may name whomever she wishes. Answer: D 6. An application for insurance: A. may be oral. B. generally is attached to the policy and becomes a part of the insurance contract. C. must be prepared by an attorney. D. has no binding effect on the applicant. Answer: B 7. An insured person is generally allowed, by policy provision or statute, a grace period of what length of time in which to make the payment of a premium due on a life insurance policy? A. 14 to 15 days B. 30 to 31 days C. 60 to 61 days D. 90 days Answer: B 8. If a provision in an insurance policy is ambiguous: A. it is interpreted in favor of the insurer because the insured could have rejected the policy. B. it is interpreted against the insurer. C. parol evidence is admitted to show what was intended. D. the policy is declared void and the insurer is required to return all premiums to the insured. Answer: B 9. Winona was a person of average intelligence, education, and experience in business. She negotiated for the purchase of insurance and paid the premium. The policy was mailed to her, but before it arrived a loss was suffered. When the policy was read, Winona could not determine whether the loss was covered because the policy was too difficult to understand. The loss is: A. not covered unless expressly stated to be covered. B. covered because the insurer had an obligation to word the policy in an understandable way. C. not covered unless stated to be so in a rider. D. covered if included in an express exception to the policy. Answer: B 10. The effectiveness of an exception to coverage is limited by: A. strictly interpreting the exception to coverage against the insurer. B. placing on the insurer the burden of proving that the exception applies. C. both a. and b. D. neither a. nor b., since exceptions to coverage are not generally permissible. Answer: C 11. What is a correct statement concerning burden of proof? A. The insured has the burden of proving that the loss was a covered loss. B. The insurer has the burden of proving that the loss was not covered. C. Exceptions to coverage are liberally interpreted in favor of the insurer. D. Exceptions to coverage are disregarded in life insurance matters. Answer: A 12. An insurer who wrongfully refuses to defend the insured is liable for: A. breach of contract. B. insurance fraud. C. the tort of wrongful interference with contractual relations. D. the tort of malicious prosecution. Answer: A 13. Mike Reilly suffered the loss of his home as a result of a chimney fire that was caused by the ignition of soot in the chimney. This fire would be described as: A. a friendly fire. B. arson by negligence. C. a strict liability fire. D. a hostile fire. Answer: D 14. Paul purchased a house and also purchased fire insurance coverage on the house. The policy contained an 80 percent coinsurance clause. Paul maintained coverage in the amount of $150,000 and the value of the house was $250,000. A fire caused a loss of $100,000. Paul will collect: A. the full $100,000, because he had coverage for $150,000. B. only part of the $100,000 loss, because he failed to maintain coverage at 80 percent of the value of the house. C. nothing, because he failed to maintain coverage at 80 percent of the value of the house. D. 80 percent of $250,000, or $200,000. Answer: B 15. Insurance designed to protect an insured driver or owner from the claims of others is called: A. collision insurance. B. financial responsibility insurance. C. liability insurance. D. comprehensive insurance. Answer: C 16. What type of insurance is written for a specified number of years and terminates at the end of that period? A. term insurance B. whole life insurance C. endowment insurance D. universal insurance Answer: A 17. Part of every whole life insurance premium covers the cost of insurance. The remainder of the premium is devoted to the investment component of the policy, which builds up over time to its: A. reimbursement point. B. cash surrender value. C. culmination value. D. return point. Answer: B 18. If the insured lives to the end of the policy period of an endowment insurance policy, the policy pays: A. nothing. B. one-half of the face amount of the policy. C. the face amount of the policy. D. double the face amount of the policy. Answer: C 19. If an insured person tells her current husband that she is going to name him as beneficiary of her life insurance in place of her former husband and dies a year later without having taken any further steps with respect to the change of the policy beneficiary, the insurance company must pay the proceeds of the policy to: A. the former husband. B. the current husband. C. the children by the first marriage. D. the children by the second marriage. Answer: A 20. An incontestability clause ordinarily bars contest of the validity of a life insurance policy by the insurer after the lapse of: A. sixty (60) days. B. one (1) year. C. two (2) years. D. ninety (90) days. Answer: C CASE 1. A professor knew a colleague who was quite ill. The professor applied for life insurance on the colleague's life and named himself as beneficiary. Because of a similarity in the names of the professor and the colleague, an error was made and the policy was issued. The professor also sold his car to a student. When the student drove away, it was clear that the student was an extremely reckless driver. The professor decided not to cancel his property insurance policy that he had maintained on the vehicle that he sold to the student. Shortly thereafter, the colleague died and the student demolished the car. The professor applied for insurance benefits under both policies and each of the insurers resisted payment. Decide both cases. Answer: The professor loses both cases because the professor had no insurable interest in either case. In the life insurance matter, there was no expectation of gain if the colleague continued to live and there was no pecuniary loss suffered by the death. As to the car, because the professor had no monetary or pecuniary interest in the vehicle when the loss occurred, there was no insurable interest. 2. Janice Beadles owns a large cargo vessel that is used primarily for international trade transactions. Janice is quite concerned about her possible liability and financial losses, as she has become aware of more and more collisions between ships at sea. What can you tell her about the different types of insurance that she could obtain that could assist her in the event of an accident? Answer: Janice needs to learn more about ocean marine insurance. Ocean marine insurance is a form of insurance that would protect Janice from "perils of the sea." There are four classes of ocean marine insurance: hull, cargo, liability, and freight. Hull insurance would cover damage to Janice's vessel itself. Cargo insurance would cover any damage to the goods being transported. Liability insurance would cover Janice's liability if her ship caused damage to another ship or its cargo. Finally, freight insurance would insure that the ship owner would receive payment for transportation charges. 3. Sylvia Jurgen operates a florist shop. During a particularly busy day, she allowed one of her employees, Terry Lioni, to use her (Jurgen's) personal car to assist with deliveries. Lioni had just obtained his driver's license. Lioni was involved in an accident that was his fault. Would Jurgen's liability insurance pay in this situation? Answer: Yes. Liability policies ordinarily protect the owner of the automobile from liability when the automobile is operated by another person with the permission of the insured. Lioni was operating the vehicle with Jurgen's permission. Chapter 37—Agency TRUE/FALSE 1. By virtue of an agency, one person can make contracts at numerous places with many different parties at the same time. Answer: True 2. An agent is authorized to make contracts for, and is under the control of, the principal. Answer: True 3. Agency is a relationship by which the principal is authorized to act on behalf of an agent in negotiating and making contracts with third persons. Answer: False 4. An agent is distinguished from an ordinary employee in that employees are hired to represent the employer in dealings with third persons. Answer: False 5. The employer of an independent contractor does not have control over the performance of the work by the independent contractor. Answer: True 6. A “right to control” test determines whether an individual is an agent, an employee, or an independent contractor. Answer: True 7. A special agent is authorized by the principal to transact all affairs in connection with a particular type of business or trade or to transact all business at a certain place. Answer: False 8. A special agent is authorized by the principal to handle a definite business transaction or do a specific act. Answer: True 9. A general agent is authorized by the principal to do all acts that can be delegated lawfully to a representative. Answer: False 10. An agency may arise by appointment, conduct, ratification, or operation of law. Answer: True 11. A written authorization of agency is called a power of attorney. Answer: True 12. Placing property in the possession of another gives that person apparent authority to sell the property. Answer: False 13. The term apparent authority is used when an appearance of authority has been created by a principal, but actual authority does not exist. Answer: True 14. Notification may be implied when the principal does not object to a contract and accepts its benefits. Answer: True 15. The intention to ratify an unauthorized act may be expressed by words or conduct. Answer: True 16. For a principal to ratify the actions of an agent, all that is necessary is that the principal express the intention to ratify. Answer: False 17. A principal may ratify an action taken by an agent that the principal would not have been capable of authorizing at the time that the action was taken. Answer: False 18. For ratification to occur, the agent must have purported to act on behalf of, or as agent for, the identified principal. Answer: True 19. When the principal ratifies the act of the unauthorized person, such ratification does not release the unauthorized person from liability, since he or she acted without authority. Answer: False 20. The burden of proving the existence of an agency relationship rests on the person who seeks to benefit by such proof. Answer: True 21. An agent's duties must be expressly stated in the agency agreement and may not be implied from the principal's words or conduct. Answer: False 22. A person has apparent authority as an agent when the principal’s words or conduct leads a third person to reasonably believe that the person has that authority and the third person relies on that appearance. Answer: True 23. The scope of an agent's authority is always known by the third party. Answer: False 24. A third person who deals with a person claiming to be an agent has the right to rely on the statements made by the agent concerning the extent of the agent's authority. Answer: False 25. A person who has knowledge of a limitation on an agent's authority cannot disregard that limitation. Answer: True 26. In performing agency duties, the agent must exercise the care that a reasonably prudent person would exercise under the same circumstances. Answer: True 27. For an agency to be terminated by operation of law because of the principal's death, the agent must be notified of the death. Answer: False 28. The Uniform Durable Power of Attorney Act (UDPAA) changes the general rule that insanity of a principal terminates an agent's authority to act for the principal. Answer: True 29. An agency coupled with an interest is an exception to the general rule regarding termination of the agency and the agent cannot be discharged or fired before the expiration of the interest. Answer: True 30. If a principal terminates an agency without giving notice of the termination to third persons, the agent may retain the power to make contracts that will bind the principal and third persons. Answer: True MULTIPLE CHOICE 1. A party working for and under the control of another and authorized to enter into contracts for that other person or entity is called an: A. employee. B. agent. C. independent contractor. D. attorney. Answer: B 2. Which of the following is true? A. An agent has the power to contract on behalf of a principal. B. An employee generally does not have the power to contract on behalf of the employer. C. An independent contractor controls the work he or she performs. D. All of the above are true. Answer: D 3. A __________ agent is authorized by the principal to handle a definite business transaction or to do a specific act. A. special B. general C. secret D. universal Answer: A 4. A __________ agent is authorized by the principal to do all acts that can be delegated lawfully to a representative. A. special B. general C. secret D. universal Answer: D 5. When a person is authorized by the principal to transact all affairs in connection with a particular type of business or trade or to transact all business at a certain place, that person is a __________ agent. A. general B. perfected C. special D. universal Answer: A 6. The usual method of creating an agency is by: A. express authorization. B. conduct. C. operation of law. D. ratification. Answer: A 7. An agent acting under a power of attorney is referred to as an: A. implied attorney. B. attorney in fact. C. implied agent. D. attorney at law. Answer: B 8. The scope of an agent's authority may be determined from the: A. express words of the principal. B. words or deeds of the principal. C. customs of the trade or business. D. all of the above. Answer: D 9. The term apparent authority is used when there is: A. no interaction between the principal and third persons. B. actual authority. C. only the appearance of authority and that appearance of authority was created by the principal. D. only the appearance of authority and that appearance of authority was created by the agent. Answer: C 10. Initially, ratification is a question of: A. intention. B. consideration. C. form. D. implication. Answer: A 11. John's son was not his agent but contracted to purchase a computer in the name of John. When John learned of this, John sternly rebuked his son but continued to use the computer for several weeks. After losing interest in the computer, John offered to return it, saying that the purchase was unauthorized. John: A. is not liable on the purchase. B. expressly ratified the purchase. C. is liable because all children have the apparent authority to contract for their parents. D. ratified the purchase by John's conduct. Answer: D 12. Which of the following is not a condition necessary for ratification? A. The agent must have purported to act on behalf of or as an agent for the identified principal. B. The third party benefiting from the ratification must give consideration for the ratification. C. The principal must have been capable of authorizing the act both at the time of the act and at the time it was ratified. D. The principal must have full knowledge of all material facts. Answer: B 13. An agent's implied authority to perform any act reasonably necessary to execute express authority is called __________ authority. A. express B. customary C. apparent D. incidental Answer: D 14. An agent has implied __________ authority to do any act that usually accompanies the transaction for which the agent is authorized to act. A. express B. apparent C. customary D. incidental Answer: C 15. A third person who deals with a person claiming to be an agent: A. can rely on the statements made by the agent regarding the extent of the authority. B. cannot ignore any knowledge regarding a limitation of the agent’s authority. C. is not required to take notice of any acts clearly adverse to the interest of the principal. D. all of the above. Answer: B 16. An agent is under a duty to obey: A. all instruction given by the third party. B. all lawful instructions given by the principal. C. all instructions given by the principal. D. none of the above, since “obedience” is not an obligation of the agent. Answer: B 17. It is the duty of an agent to act with the care that: A. the principal would exercise under the circumstances. B. a reasonable principal would exercise under the circumstances. C. a reasonable juror would exercise under the circumstances. D. a reasonable person would exercise under the circumstances. Answer: D 18. The principal must: A. perform the contract according to its terms. B. compensate the agent for services. C. indemnify the agent for loss in some circumstances. D. all of the above. Answer: D 19. A durable power of attorney may be terminated by: A. revocation by a competent principal. B. the death of the principal. C. revocation by a competent principal or by the death of the principal. D. none of the above, since a “durable” power of attorney is designed by law to be irrevocable under all circumstances. Answer: C 20. If the principal revokes the agency: A. the agent’s authority to act for the principal is terminated immediately. B. the right of the agent to bind the principal to third persons generally ends immediately upon the termination of the agent’s authority. C. the termination is not effective until notice is given to third parties. D. all of the above. Answer: B CASE 1. Barnes agrees with Morgan to enter into the management of a new subdivision of residential housing. Morgan appoints Barnes as his manager for the duration of the development program. During the course of the construction, Barnes decides to use funds specified for the subdivision for an office space project that Barnes alone has been interested in completing. Morgan is very angry on learning of Barnes' actions and terminates the agency. Barnes insists that the agency cannot be terminated in this manner. Is Barnes correct? Answer: No. Morgan hired Barnes to manage a new subdivision. Barnes has been authorized to transact all affairs in connection with the subdivision. As such, Barnes is a general agent. In most cases, either party to an agency relationship has the power to terminate that relationship at any time. Therefore, Morgan has the power to terminate the agency. However, there is a possibility of liability for damages if the termination was not accomplished in a lawful manner. Given the fact that Barnes has been engaged in misconduct, the discharge of Barnes will be without liability. Care should be taken to ensure that third parties are given notice of the agency termination. 2. Ames, an agent for Baker Antiques, had the authority to purchase early 20th-century American furniture costing a maximum of $1,500 per piece. Ames bought a 19th-century French desk for $3,000 from Carter. Baker was furious when she saw the desk, and she fired Ames. Nevertheless, she put the desk on display in the shop with a $5,000 price tag. When the best offer she got for the desk was $2,500, Baker returned the desk to Carter. Baker told Carter that Ames had exceeded his authority in purchasing the desk, and she demanded that Carter refund the $3,000 that Ames had paid for the desk. Will Carter have to do so? Answer: No. By displaying the desk and making it available for sale with knowledge of Ames' unauthorized act in purchasing it, Baker ratified Ames' act. 3. Ann was seriously ill and feared that she might lapse into a coma or somehow become unable to speak or act for herself in her medical emergency. She is aware that agents ordinarily lose their authority to act for principals who become mentally disabled. She nevertheless desires to have her husband Alberto make medical decisions and speak on her behalf. She is particularly concerned about existing on life support in a persistent and incurable vegetative state. Is there any action that she might take to enable Alberto to act for her? Answer: If the state in which Ann resides has adopted the Uniform Durable Power of Attorney Act, she can designate Alberto in writing as the agent whose authority shall not be affected by the subsequent disability or incapacity of the principal. Alberto then would be authorized to act on her behalf. Chapter 38—Third Persons in Agency TRUE/FALSE 1. The liability of an agent to a third person depends on the existence of authority and the manner of executing the contract. Answer: True 2. If an agent makes a properly authorized contract with a third person on behalf of a disclosed principal, the agent has no personal liability on the contract. Answer: True 3. Even after there is an effective ratification, the original action of an agent still is treated as unauthorized. Answer: False 4. When a person purports to act as an agent for a principal, an implied warranty arises that such person has authority to do so. Answer: True 5. If an agent's act causes loss to the third person, that third person may generally hold the agent liable for the loss. Answer: True 6. An agent's liability as a party to a contract with a third person is not affected by the degree of disclosure. Answer: False 7. A third person dealing with the agent of a disclosed principal ordinarily intends to make a contract with the principal, not the agent. Answer: True 8. In the partially disclosed principal situation, the agent is considered a party to the contract. Answer: True 9. Agent's may intentionally make themselves liable on contracts with third persons. Answer: True 10. If the principal is not disclosed, the agent is necessarily the other contracting party and is bound by the contract. Answer: True 11. An agent should never sign a contract using "by" or "per" and then his or her name. Answer: False 12. Parol evidence is allowed to show whether an agent has signed in a representative or an individual capacity. Answer: True 13. If an agent commits a crime, the agent's liability will depend on the agency relationship. Answer: False 14. Agents are liable for harm caused third persons by the agents' fraudulent, intentional, or negligent acts. Answer: True 15. A principal may be liable to a third person for an agent's unauthorized contracts. Answer: True 16. In a simple contract made by an authorized agent on behalf of a disclosed principal, the third person may sue either the agent or the principal in the event of a breach. Answer: False 17. Subject to certain limitations, a third person, on learning of the existence of an undisclosed principal, may sue the principal. Answer: True 18. The liability of a buyer for the purchase price of goods is terminated by the fact that the buyer gave the buyer’s agent the purchase price to remit to the seller. Answer: False 19. When a third person makes payment to an authorized agent, such payment is deemed made to the principal at the time the agent remits the payment to the principal. Answer: False 20. A principal is not bound by statements made by an agent during the transaction of business that is within the scope of the agent's authority. Answer: False 21. The principal is bound by knowledge but not by notice of any fact that is acquired by an agent while acting within the scope of actual or apparent authority. Answer: False 22. When a fact is known to the agent of a seller, the sale is deemed made by the seller with knowledge of that fact. Answer: True 23. The rule of law imposing vicarious liability on an innocent employer for the wrong of an employee is known as the doctrine of respondent superior. Answer: True 24. Different rules of law govern the vicarious liability of principals and employers. Answer: False 25. Modern law holds that an employer is liable for an intentional tort committed by an employee for the purpose of furthering the employer’s business. Answer: True 26. The fact that a tort or crime is committed by an employee imposes vicarious liability on an employer. Answer: False 27. Hiring an individual with a criminal record is conclusive proof that the employer is liable for the tort of negligent hiring. Answer: False 28. In general, a principal is liable for crimes of the agent committed while acting within the scope of the agency, even if the principal did not authorize commission of the crimes. Answer: False 29. An owner ordinarily is not liable for harm caused a third person by the negligence of an employee of an independent contractor. Answer: True 30. A customer who has given a purchase order to a salesperson is not bound by any contract until the employer of the salesperson accepts the order. Answer: True MULTIPLE CHOICE 1. An agent making a proper contract with a third person on behalf of a disclosed principal: A. has no personal liability on the contract. B. is liable only to the principal on the contract. C. is liable only to the third party on the contract. D. is personally liable to both the principal and the third person on the contract. Answer: A 2. Which of the following is a defense to an action against an agent for breach of the implied warranty of authority? A. The agent acted in good faith. B. The agent misunderstood the scope of authority. C. The third person knew that the agent was acting beyond the authority given by the principal. D. All of the above are defenses. Answer: C 3. When a person makes a contract as an agent for another but lacks authority to do so, the contract: A. binds the principal but not the agent. B. binds the principal and the agent. C. does not bind the principal. D. none of the above. Answer: C 4. In which of the following scenarios is the agent exposed to the greatest risk of liability? A. disclosed principal and authorized contract B. undisclosed principal and authorized contract C. partially disclosed principal and authorized contract D. authorized receipt of money from third person remitted to disclosed principal Answer: B 5. __________ liable on contracts with third persons. A. Agents may intentionally make themselves B. Agents are never able to make themselves C. Agents are always D. None of the above statements are true. Answer: A 6. John Smyth is an agent for L. T. Adams. To avoid becoming a party to any contract that Smyth signs for Adams, Smyth should sign in which of the following ways? A. John Smyth, agent B. John Smyth, for the principal C. John Smith, as agent for the principal D. L. T. Adams, per John Smyth Answer: D 7. If a contract is ambiguous regarding whether the agent has signed in a representative or an individual capacity: A. there is a presumption that the agent signed in a representative capacity. B. there is a presumption that the agent signed in an individual capacity. C. the agent and the principal will both be liable on the contract. D. parol evidence is admissible to establish the character in which the agent was acting. Answer: D 8. An agent who commits a crime is: A. always liable. B. only liable if acting in self-interest. C. only liable if the act is done to advance the interest of the principal. D. never liable when acting in the role of an agent. Answer: A 9. The agent of a disclosed principal is liable for harm caused to third persons by: A. the fraudulent acts of the agent. B. the malicious acts of the agent. C. both a. and b. D. none of the above. Answer: C 10. A(n) ______________ principal is liable for a simple contract made by an authorized agent. A. partially disclosed B. undisclosed C. both a. and b. D. neither a. nor b. Answer: C 11. Payment to an authorized agent is: A. payment to the principal only if the agent remits the payment. B. payment to the principal if the third person informs the principal. C. payment to the principal, provided the agent does not misappropriate the payment. D. payment to the principal. Answer: D 12. Apparent authority has the same effect as: A. undisclosed authority. B. actual authority. C. partially disclosed authority. D. none of the above. Answer: B 13. Statements or declarations of an agent: A. will not bind the principal. B. will bind the principal if the statements were made by an agent while transacting business within the scope of agency authority. C. will not bind the principal if made after performance of the transaction concerned. D. none of the above. Answer: B 14. The concept of imposing liability for the fault of another is known as __________ liability. A. imperious B. gregarious C. vicarious D. virtual Answer: C 15. Modern decisions hold the principal liable for which actions of the agent? A. Fraudulent acts B. Misrepresentations C. Both a. and b. D. Neither a. nor b. Answer: C 16. An employer may be liable on the theory of negligent hiring: A. when it is shown the employer knew the employee would create an undue risk of harm in carrying out job responsibilities. B. by hiring an individual with a criminal record. C. whether or not prospective employees fill out applications forms and are subject to pre-employment background checks and character qualifications. D. all of the above. Answer: A 17. A principal is liable for crimes of an agent: A. if committed at the principal’s direction. B. if the agent is an employee and sells liquor to a minor without permission. C. if the agent in the course of employment violates environmental protection laws. D. all of the above. Answer: D 18. When a business owner uses an independent contractor to perform nonhazardous work, the owner ordinarily is: A. not liable for harm to third persons or their property. B. not bound to contracts made by the independent contractor. C. not liable for the negligence of employees of the independent contractor. D. all of the above. Answer: D 19. Which of the following parties has the power to bind an organization to a contract? A. A soliciting agent for the organization. B. A contracting agent for the organization. C. A sales agent for the organization. D. None of the above. Answer: B 20. The employer of a salesperson: A. is only bound by a contract if the employee is acting as a soliciting agent. B. is not bound by a contract if the employee is acting as a contracting agent. C. is not bound by a contract until the contract is accepted. D. is always bound by contracts made by all employee salespersons. Answer: B CASE 1. Sid worked as the agent of Rosemary. Rosemary was in the business of buying antique clocks and selling them to the public. She became so successful at this that people began to become reluctant to sell to her, feeling that if she was buying the clock, it probably could be sold for more. Rosemary instructed Sid to purchase several clocks but not to reveal that the purchases were being made on her behalf. Sid contracted to buy several clocks and gave his own check as down payment to keep Rosemary's identity concealed. Although Rosemary had authorized the contracts, she reneged on the contracts. Sid thereupon told the seller what had happened and stopped payment on the down payment check. The seller of the clocks sued Rosemary on the bounced check and for breach of contract. Sid was sued on the same causes of action. Decide all cases. Answer: Sid is liable on both causes of action. Regarding the breach of contract, Sid contracted in his own name and is therefore liable on the contract. Likewise, the check being his own, Sid is liable for the amount of the check as the drawer of the check. As an undisclosed principal, Rosemary is liable for authorized contracts made by her agent Sid. She cannot, however, be sued on the check because her signature does not appear on the check and she is not referred to in any way on the check. 2. Pamela was the agent in charge of distribution and collections for the Coble Dairy Products Cooperative. Thrower operated a grocery store and purchased dairy products from Coble. Pamela made false invoice sheets, showing delivery to Thrower of greater quantities than Thrower actually had ordered or received. Pamela collected from Thrower on the basis of these increased amounts, and then kept for herself the difference between the increased amounts and the amounts that should have been charged. When Thrower learned of this, he sued Coble for the excess payments he had made. Coble denied that Pamela was its agent in making excess collections. Will Thrower win? Answer: Yes. Judgment will be for Thrower. The defendant, as principal, was liable for the fraud of its agent in selling and collecting for sales. 3. Tom Creighton hired Destroy, Inc., a demolition company, to level an old building on a busy downtown lot. Destroy, Inc. was given full rein to decide on the amount of explosives needed and the placement of the charges. Security for the site on the day of the explosion was contracted out to a private security firm. When the appointed day arrived, the building was brought down. However, the building fell in a slightly different direction than that anticipated by Destroy, Inc. Numerous pieces of adjoining property, both real and personal, were severely damaged. Creighton claims that the use of an independent contractor such as Destroy, Inc. has insulated him from liability. How do you respond to Creighton's claim? Answer: It generally is true that a person hiring an independent contractor is not liable for any harm caused by the independent contractor or the independent contractor's employees. Exceptions to this general rule do exist. An exception exists for situations in which the work undertaken by the independent contractor is inherently dangerous. Demolition work accomplished through the use of explosives is just such inherently dangerous work. Creighton cannot hope to shield himself from his duty to protect the public from harm by delegating a dangerous task to another. Chapter 39—Regulation of Employment TRUE/FALSE 1. Employment law is based on a combination of contract law and the law established by courts, lawmakers, and administrative agencies. Answer: True 2. In older cases, the employer-employee relationship was referred to as the master-servant relationship. Answer: True 3. An employee is hired to work under the control of the employer and the employer-employee relationship requires the consent of both parties. Answer: True 4. Subject to statutory restrictions, parties are free to make an employment contract on any terms that they wish. Answer: True 5. Collective bargaining contracts govern the rights of employers and employees only in public sectors of employment. Answer: False 6. Collective bargaining agreements generally are subject to a ratification vote by the employees. Answer: True 7. Grievance procedures established in most collective bargaining agreements provide a means by which persons claiming the contract has been violated may have their cases decided by impartial third parties. Answer: True 8. An employment contract always will state a time or duration for the contract's applicability. Answer: False 9. If an employment contract provides that an employee can be fired only for "good cause" or "just cause," a lesser standard for discharge such as the employment-at-will doctrine will not be allowed by a court. Answer: True 10. Public policy exceptions to the employment-at-will doctrine apply only to "whistleblowing" situations. Answer: False 11. Under the employment-at-will doctrine, the employer has historically been allowed to terminate the employment contract at any time for any reason or for no reason. Answer: True 12. In some states, a "service-letter" statute requires an employer on request to furnish a discharged employee with a letter stating the reason for the discharge. Answer: True 13. The duties of an employee are determined primarily by the contract of employment with the employer. Answer: True 14. Sarbanes-Oxley (SOX) allows whistleblowers who are retaliated against an immediate lawsuit in federal district court. Answer: False 15. An agreement by an employee to refrain from disclosing trade secrets is generally not binding. Answer: False 16. An employer has a "shop right" to use an invention of an employee without payment to the employee if the invention was made during working hours with the employer's material and equipment. Answer: True 17. The rights of an employee with respect to compensation are governed in general by the same principles that apply to the compensation of an agent. Answer: True 18. The sole issue addressed in the Fair Labor Standards Act is child labor. Answer: False 19. Deductions from wages for cash or merchandise shortages are legal even if they reduce an employee’s wages below the minimum wage. Answer: False 20. The NLRA prohibits discrimination against employees for engaging in union activities even if they are warned of the possible consequences of their union activities. Answer: True 21. “Permissive” subjects of bargaining include seniority provisions, promotions, layoff and recall provisions, no-strike no-lockout clauses, and grievance procedures. Answer: False 22. Vesting refers to the ability of an employer to reclaim all of the funds it may have paid into a former employee's retirement fund upon that employee's decision to resign. Answer: False 23. A defined contribution plan is an employer commitment to make specific future payments to participants upon retirement. Answer: False 24. Only the Secretary of Labor can bring court actions to enforce the provisions of ERISA. Answer: False 25. Any adversely affected person may challenge the validity of an Occupational Safety and Health Administration (OSHA) standard in a U.S. Court of Appeals. Answer: True 26. Workers' compensation statutes provide the exclusive remedy for employees who are covered by such statutes and who suffer job-related injuries. Answer: True 27. "Right-to-know" laws in some states guarantee employees the right to know if there are hazardous substances in their workplaces. Answer: True 28. Under the common law, an employer is under a duty to furnish an employee with a sufficient number of competent fellow employees for the work involved. Answer: True 29. The Immigration and Naturalization Act (INA) sets forth criminal and civil penalties against employers who knowingly hire illegal aliens. Answer: False 30. If a prospective employee offers a driver’s license and a Social Security card to verify employment eligibility in the United States the employer is prohibited from requiring other documentation. Answer: True MULTIPLE CHOICE 1. An employee has the same status as: A. an agent. B. an independent contractor. C. an employer. D. none of the above. Answer: D 2. Under collective bargaining: A. groups of employers meet to draw up contracts for all of their employees. B. representatives of the employees bargain with a single employer or a group of employers for an agreement on wages, hours, and working conditions for the employees. C. groups of employees meet to dictate the terms of employment to their employers. D. none of the above. Answer: B 3. An employment contract of indefinite duration is: A. terminable at will by the employer. B. terminable at will by the employee. C. both a. and b. D. invalid. Answer: A 4. An employer may be justified in discharging an employee because of the employee's: A. non-performance of duties. B. incompetency. C. serious misconduct. D. all of the above. Answer: D 5. When an employer has a contract with an employee for the employee to work for a set period of time, which of the following would not justify discharging the employee? A. financial hardship of the employer B. non-performance of duties by the employee C. theft by the employee D. possession of drugs by the employee Answer: A 6. The rights of an employee to be compensated are governed primarily by the same principles that apply to the compensation of a(n): A. partner. B. stockholder. C. agent. D. independent contractor. Answer: C 7. Which of the following categories of individuals are exempt from the minimum wage provisions of Fair Labor Standards Act (FLSA)? A. executives B. factory workers C. full-time babysitters D. housekeepers Answer: A 8. Which of the following groups may legally be paid less than minimum wage? A. Full time college students B. Individuals with impaired productive capacity due to mental disability C. Both a. and b. D. Neither a. nor b. Answer: C 9. What is the primary function of the National Labor Relations Board? A. to mediate labor-management disputes B. to decide unfair labor practice cases brought before it by the general counsel C. to promulgate binding regulations defining unfair labor practices D. to uphold the right of employees to bargain collectively Answer: B 10. Which of the following is a permissive subject of bargaining as opposed to a mandatory subject of bargaining? A. wages B. hours C. benefits for already retired workers D. no-strike no-lockout clauses Answer: C 11. The right of an employee to pension benefits paid into a pension plan in the employee's name by the employer is referred to by the term: A. venue. B. accrual. C. vesting. D. investing. Answer: C 12. ERISA establishes an insurance plan to protect employees when the employer goes out of business. To provide this protection, the statute created a: A. pension surety system. B. Pension Benefit Guaranty Corporation. C. Pension Accrual Compensation System. D. bond system of payment. Answer: B 13. The federal-state system that provides unemployment compensation under the Social Security Act of 1935 does not cover which of the following categories of workers? A. Agricultural employees B. Domestic employees C. State and local government employees D. None of these categories of workers are covered by the federal-state system. Answer: D 14. Unemployment compensation benefits probably will be denied: A. when an employee's theft of property results in termination. B. to full-time students. C. when an employee quits a job without cause. D. all of the above. Answer: D 15. To be eligible for FMLA leave, an employee must have been employed by a covered employer for at least __________ months and have worked at least __________ hours during the 12-month period preceding the leave. A. 6; 1,250 B. 6; 1,500 C. 12; 1,250 D. 12; 1,500 Answer: C 16. Employers are required to maintain records of certain occupational illnesses and injuries by: A. ECHO. B. ESCHA. C. OSHA. D. ECOT. Answer: C 17. Workers’ compensation statutes do not typically provide for: A. immediate medical benefits. B. prompt periodic wage replacement. C. a death benefit. D. punitive damages. Answer: D 18. Under which circumstance will an employee not be entitled to Workers' Compensation benefits for an on-the-job injury? A. an injury that is the result of an employee's own negligence B. an injury that is the result of an employee's own gross negligence C. an injury that is caused by a fellow employee D. an injury that is the result of an employee's intoxication Answer: D 19. The Federal __________ Act makes it unlawful to intercept oral and electronic communications and provides for __________ against the violator. A. Wiretapping; civil damages B. Wiretapping; criminal liability and civil damages C. Homeland Security; civil damages D. Homeland Security; criminal liability and civil damages Answer: B 20. The Immigration Reform and Control Act of 1986 (IRCA) sets forth what types of penalties against employers who knowingly hire aliens who have illegally entered the United States? A. criminal B. civil C. both criminal and civil D. neither criminal nor civil Answer: C CASE 1. Algonquin Industries was a small business that hired mostly recent immigrants to the United States and paid them a minimum wage. The business prospered and people began to come around to organize the workers into a union. Officials of Algonquin spoke against the advisability of joining the union. Finally, a date for a certification vote was set. In the days leading up to the vote, Algonquin officials began to intimate that those workers who voted against the union would receive overtime opportunities "as they became available." A charge has been brought that this is an unfair labor practice. Decide. Answer: The threat of reprisals or promise of benefits to coerce employees in the exercise of their rights, in this case to organize into a union, is an unfair labor practice. 2. Joe Swartz, an employee of Acme Company, worked for months during company time and used Acme's equipment to develop an idea that he had been nurturing. Finally, the idea came to fruition. Swartz's employer laid claim to the invention on the grounds that the firm's equipment had been utilized on company time. Swartz had obtained a patent on the invention and claimed that his employer had no rights to the invention at all. Who is right? How could an employer guard against such arguments in the future? Answer: The inventions of an employee, even when on company time and utilizing company equipment, still belong to the employee. An employer should provide in the employment contract that the employer will own any invention or discovery made by the employee during or after work hours, or for a reasonable period of time after leaving the employment relationship. 3. A dispute arose in a small factory and the workers decided to strike concerning the firing of an employee for union-organizing activity. As the strike wore on without resolution, the employer hired what the employer called permanent replacements for the strikers. Eventually, the strike was settled. Are the fired workers entitled to getting their jobs back? Answer: Where, as in this case, a strike takes place over an issue of unfair labor practices, once the strike is settled, the workers are entitled to getting their jobs back. This would not be the case if the strike was over economic issues and permanent replacements had been hired. Chapter 40—Equal Employment Opportunity Law TRUE/FALSE 1. Equal employment opportunity laws provide protection for minorities and women, but the disabled are not within the protection of the laws. Answer: False 2. Title VII of the Civil Rights Act of 1964, as amended, is the principal law regulating equal employment opportunities. Answer: True 3. Title VII applies to the hiring process and to discipline, discharge, promotion, and benefits. Answer: True 4. The two principal legal theories under which a plaintiff may prove a case of unlawful employment discrimination are disparate treatment and disparate impact. Answer: True 5. Proof of an employer's discriminatory motive is immaterial in a disparate treatment case. Answer: False 6. A disparate impact exists when an employer's facially neutral employment practices have a significantly adverse impact on a protected group and the practice is not shown to be job-related and necessary. Answer: True 7. In a disparate impact case, proof that the employer did not intend to discriminate is a complete defense. Answer: False 8. The Equal Employment Opportunity Commission (EEOC) establishes equal employment opportunity policy under the laws that it administers. Answer: True 9. If a state or local Equal Employment Opportunity agency (EEO) exists, a party charging discrimination must first file a complaint with that agency before filing a charge with the EEOC. Answer: True 10. Generally, the EEOC attempts to remedy an unlawful practice through conciliation. Answer: True 11. To successfully pursue a Title VII lawsuit, the plaintiff generally must belong to a protected class. Answer: True 12. Under Title VII, whites are not protected against discrimination because of race and color. Answer: False 13. Title VII requires that employers make reasonable efforts to accommodate their employees' religious beliefs. Answer: True 14. Religious societies may not grant hiring preferences to members of their religion. Answer: False 15. Criteria used to make employment decisions that have a disparate impact on women, such as height requirements, must be job-related. Answer: True 16. Women who are unable to work as a result of pregnancy, childbirth, or related medical conditions must be provided the same benefits as all other workers. Such benefits include temporary disability insurance, long-term disability insurance, and sick leave. Answer: True 17. An employer cannot be held liable for the sexual harassment of an employee by a supervisor. Answer: False 18. Employers may avoid liability for "hostile work environment" sexual harassment by following a program that includes expressing strong disapproval of such conduct, advising employees how to inform the employer of complaints, and disciplining wrongdoers. Answer: True 19. According to the EEOC, claims for retaliation may only be filed under Title VII. Answer: False 20. Title VII does not protect members of all nationalities from employment discrimination. Answer: False 21. Unless justified by business necessity, physical standards such as height requirements that tend to exclude people of certain national origins violate Title VII. Answer: True 22. It is not unlawful for an employer to hire employees on the basis of religion, sex, or national origin in those instances where religion, sex, or national origin is a bona fide occupational qualification (BFOQ) reasonably necessary to the normal operation of a particular enterprise. Answer: True 23. Employment testing and educational requirements must be “job-related”; that is, employers must prove that employment testing and educational requirements bear a relationship to job performance. Answer: True 24. "Race norming," a process whereby the results of hiring and promotion tests are adjusted to ensure that a minimum number of minorities are included in application pools, is a lawful form of affirmative action. Answer: False 25. It is unlawful for employers to undertake special recruiting efforts to hire and train minorities and women in an effort to have a diverse workforce. Answer: False 26. Pay raises based on seniority generally are considered lawful. Answer: True 27. To be lawful, affirmative action must be time-limited. Answer: True 28. The Equal Pay Act prohibits variation in wage rates paid to men and women based solely on gender. Answer: True 29. The Age Discrimination in Employment Act forbids discrimination by employers against persons over 30 years of age. Answer: False 30. The Americans With Disabilities Act prohibits employers from discriminating against disabled individuals, but does not require that any accommodations be made for such individuals. Answer: False MULTIPLE CHOICE 1. What is the principal law regulating equal employment opportunity in the United States? A. Title VII of the Civil Rights Act of 1964 B. The United States Constitution C. The Fair Labor Standards Act D. The Equal Pay Act Answer: A 2. Title VII of the Civil Rights Act of 1964 applies to: A. the hiring process. B. discipline. C. discharge D. all of the above. Answer: D 3. When an employer intentionally treats some employees less favorably than others, the legal theory that applies is: A. disparate impact. B. affirmative action. C. reverse discrimination. D. disparate treatment. Answer: D 4. Disparate impact exists when facially neutral employment practices: A. adversely impact a protected group. B. intentionally discriminate against a protected group. C. favorably impact a protected group. D. are shown to be job-related. Answer: A 5. What is an employer defense to a disparate impact charge? A. The employer did not intend to discriminate. B. The employment practice is job-related and consistent with business practice. C. The disparate impact was not the result of extreme recklessness or gross negligence on the part of the employer. D. The practice is widespread and accepted in the industry. Answer: B 6. The first action generally attempted by the EEOC is: A. litigation. B. conciliation. C. mediation. D. arbitration. Answer: B 7. Title VII protects members of which racial grouping(s)? A. black only B. black, Native American, and Asian-Pacific C. white only D. all racial groupings Answer: D 8. When an employee alleges religious discrimination because of an employee-observed religious practice: A. the employer must bypass seniority rules to accommodate the employee. B. the employee must honor all bona fide religious practices. C. the employer must make reasonable efforts to accommodate religious beliefs. D. the employer must call in a substitute worker at additional cost. Answer: C 9. The Pregnancy Discrimination Act does not: A. require employers to treat pregnancy as other disabilities are treated. B. require women disabled by pregnancy to be provided with the same benefits as other disabled workers. C. require an employer to provide paid sick leave benefits to pregnant women if it does not provide them to other disabled workers. D. prevent termination because of pregnancy Answer: C 10. When supervisors seek sexual favors in return for job benefits, the practice is called: A. tangible employment action sexual harassment. B. hostile work environment sexual harassment. C. res ipsa loquitur sexual harassment. D. none of the above. Answer: A 11. Hostile work environment sexual harassment: A. cannot be created by unwelcome sexual flirtation and propositions. B. cannot result in an injunction being granted against offensive conduct. C. occurs when a supervisor’s conduct does not affect an employee’s economic benefits, but causes anxiety and “poisons” the work environment for the employee. D. can result in the court ordering the business to be sold, upon proper notice, at a publicly-held auction. Answer: C 12. Which of the following scenarios would not qualify as a bona fide occupational qualification exception to Title VII? A. a religious school hiring only members of that religion to teach religion B. a women's store that sells wedding gowns hiring only women to measure and fit customers C. an airline hiring only female flight attendants D. all of the above scenarios would qualify as a bona fide occupational qualification exception to Title VII. Answer: C 13. Testing of prospective employees: A. cannot have been developed by one employer and applied by another. B. can be adjusted to favor members of a particular race. C. must bear a relationship to job performance. D. all of the above. Answer: C 14. A seniority system is unlawful if: A. workers with longer years of service are laid off last. B. a union did not agree to the policy. C. it results from an intention to discriminate. D. workers with longer years of service are predominantly from one race. Answer: C 15. An affirmative action plan: A. helps ensure a diverse work force. B. is an effective means to avoid litigation costs. C. may provide job preferences for minorities and women. D. all of the above. Answer: D 16. An affirmative action plan that "unnecessarily trammels" the interests of nonminority employees: A. is an example of reverse discrimination. B. is lawful if women are the favored group. C. is lawful to aid in the hiring of blacks and Native Americans. D. is unlawful unless the favored group has been severely disadvantaged. Answer: A 17. The Equal Pay Act: A. does not allow variances in wages pursuant to a seniority system. B. generally requires that members of both sexes be paid equally for equal work. C. prohibits all variations in wage rates paid to men and women. D. all of the above. Answer: B 18. The Age Discrimination in Employment Act forbids discrimination by employers, unions, and employment agencies against persons: A. over 40 years of age. B. over 50 years of age. C. over 60 years of age. D. between the ages of 40 and 65. Answer: A 19. The Americans With Disabilities Act applies to private employers when: A. they have federal contracts. B. they have demonstrated past practices of discrimination. C. they have fifteen (15) or more employees. D. they have state contracts. Answer: C 20. Generally, what would not be considered a "reasonable accommodation" for persons with disabilities? A. making an accommodation that would constitute an "undue hardship" for the employer B. making existing facilities accessible to and usable by individuals with disabilities C. modifying work schedules D. restructuring jobs Answer: A CASE 1. Marble Industries hired virtually all of its employees from Union High School, which was overwhelmingly white in its racial makeup. Accordingly, there were virtually no non-white employees employed by Marble Industries. The work these employees performed was work that any reasonably capable high school graduate could do. When organizations representing non-whites questioned the policy, the personnel director indicated that Union High School graduates were hired because they had worked successfully for the company and because the president of the company had graduated from that school. There was no evidence that there was any plan or intention to discriminate against non-whites. Discuss the possibility that this policy may violate Title VII of the Civil Rights Act. Answer: Although this hiring policy is facially neutral and not intended to discriminate, it may nevertheless violate the law on the theory of disparate impact. In a disparate impact case, where an apparently neutral policy has a significantly adverse or disparate impact on a protected group, the practice may be unlawful unless it is "job related" and consistent with "business necessity." Here, because any reasonably qualified high school graduate could perform the tasks, the employer may be required to hire from places other than the overwhelmingly white Union High School. 2. Tom was a tall man who operated a successful restaurant that he owned. He believed that tall people commanded more respect in a restaurant. Accordingly, he never hired a waiter or waitress who was less than six feet tall. Because of this, he had seventeen waiters and no waitresses working at the restaurant. Lucinda, a woman less than six feet tall, applied for a job as a waitress and was not hired. Later, Lucinda learned that a man who was over six feet in height was hired to fill the position. After a few inquiries, she learned of Tom's height requirements and alleged that she was the victim of illegal discrimination. Decide. Answer: An employer must be able to demonstrate that criteria used to make employment decisions that have a disparate impact on women, such as height requirements, are job-related. Because it is unlikely that Tom will be able to substantiate that only people over six feet tall can command the necessary respect to be hired as waiters or waitresses, the likelihood is that Lucinda has been the victim of illegal gender discrimination. 3. Cameo Industries desired a workplace free from all forms of sexual harassment. Accordingly, Cameo developed guidelines for its workers that specifically forbade sexual harassment. The guidelines gave examples of conduct that would not be tolerated, provided penalties, designated a company official as the proper person to whom complaints should be brought, investigated complaints thoroughly, and maintained an educational policy designed to remind employees of the policy. Maureen, a Cameo Industries employee, made a complaint of sexual harassment, charging that her supervisor had demanded sexual favors. An investigation was performed and the charge was substantiated. The supervisor was warned not to continue this conduct, but it happened again. The supervisor was again issued a warning. Finally, Maureen brought a court action against the supervisor and Cameo. Cameo defended on the ground that it had done all in its power to rectify the situation. Decide. Answer: Although the intentions of Cameo may have been good, it appears that Cameo may be held liable. The company failed to appropriately discipline the supervisor, thus allowing the harassment to continue. Stronger disciplinary action was needed by Cameo, such as firing, transferring, or suspending the supervisor. Test Bank for Business Law: Principles for Today's Commercial Environment David P. Twomey, Marianne M. Jennings 9781133588245, 9781305575158, 9780324786699
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