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241 Cards in this Set

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Bailee
A person or entity who receives property from another (the bailor) under a bailment contract
3.32
Bailment Contract
Requires the bailee to keep the property in safekeeping for a specific purpose and then return the property to the bailor when the purpose has been fulfilled.
3.32
Improvements & Betterments
Alterations to premises made by a tenant that make it more useful for the tenant's purposes, increase the value of the property, and become part of the leased structure.
3.34
Trade Fixtures
Fixtures and equipment that may be attached to a building during a tenant's occupancy, with the intention that they be removed when the tenant leaves.
3.34
Secured Creditor
A creditor who has a right to reclaim property for which a loan was extended.
3.32
Actual cash value
The replacement cost of a property minus its physical depreciation.
3.30
Economic Value
The amount that property is worth based on the ability of the property to produce income.
3.30
Legal interests in property (6)
1. Ownership interest 2. Secured creditor's interest 3. Seller's & buyer's interest 4. Bailee's interest 5. Landlord's interest 6. Tenant's interest
3.31
Functional replacement cost
The cost of acquiring a replacement that, while not identical to the property being replaced, performs the same function with equal efficiency.
3.29
Market Value
The price that would have to be paid to purchase property today.
3.29
Reproduction cost
The cost of duplicating property exactly by using materials, artistry, and other expertise comparable to those used for the original property.
3.28
Tax-appraised value
The value assigned to a property for the purpose of tax assessment.
3.24
Book value
An asset's historical cost minus accumulated depreciation.
3.24
Replacement cost
The amount required to replace lost, damaged, or destroyed property with comparable property.
3.24
Historical cost
The original cost of a property.
3.23
Methods of valuing property (9)
1. Historical cost 2. Tax-appraised value 3. Book value 4. Replacement cost 5. Reproduction cost 6. Functional replacement cost 7. Market value 8. Actual cash value 9. Economic value
3.23
Collapse
An abrupt falling down or caving in of a building with the result that the building or any part of the building cannot be occupied for its intended use.
3.21
Flood Zone A
Once every 100 years
3.17
Flood Zone B
Every 100-500 Years
3.17
Flood Zone C
No known flood hazard
3.17
Earthquakes strike what state more than any other state?
A. Washington
B. Alaska
C. California
B. Alaska
3.12
Flood
A rising or overflowing of water onto what is normally dry land
3.12
Windstorm
A storm consisting of violent wind capable of causing damage.
3.12
The leading cause of catastrophic losses is caused by:
A. Fires
B. Hurricanes
C. Earthquakes
B. Hurricanes which are usually accompanied by heavy rain and winds moving at 75mph or more.
3.10
Tornado winds can reach up to how many miles per hour?
A. 120
B. 175
C. 300
C. 300 but move forward at an average speed of 40 mph, although some have reached 70 miles per hour.
3.10
Copyright
The legal right granted by the US government to a person or organization for a period of years to exclusively own & control an original written document, piece of music, software, or other form of expression.
3.8
List 5 examples of intangible property.
1. Copyright
2. Trademarks
3. Patents
4. Trade Secrets
5. Goodwill
3.8
Trademark
A distinctive design or set of words that legally identifies a product or service as belonging to a certain organization.
3.9
Patent
The right granted by the US government to an inventor or applicant for a limited time period to exclusively own and control a new, useful, & nonobvious invention.
3.9
Trade secret
A practice, method, process, design, or other information used confidentially by an organization to maintain a competitive advantage.
3.9
Goodwill
The value an organization has attained beyond the value of its tangible assets because of its favorable reputation.
3.9
List the 8 categories of Tangible property
1. Money & securities
2. Accounts receivable records
3. Inventory
4. Furniture, equipment, or supplies
5. Computer equipment and media
6. Machinery
7. Valuable papers and records
8. Mobile property
3.6
Computer virus
A software program that is capable of reproducing itself and causing harm to other programs and files.
3.7
ISO
Insurance Services Office, Inc
3.5
ISO divides building construction into 6 types which are listed in order from most to least susceptible to loss by fire.
1. Frame
2. Joisted masonry
3. Noncombustible
4. Masonry noncombustible
5. Modified fire resistant
6. Fire resistant
3.5
Property loss exposures have been assessed on four interdependent attributes also known as COPE.
Construction
Occupancy
Protection
External exposure
3.5
Improved land
Land with man-made alterations. Buildings and structures, crops, planted forests. Makes it easier to determine the value of the land.
3.4
Unimproved land
Land in its natural state without any man-made alterations. Hard to determine the proper value for the land because each tract has its own unique attributes. Most important factor of unimproved land is location.
3.3
Two types of real property
1. Land
2. Buildings and other structures
3.3
Legal liability
The responsiblity imposed by law for an act or the failure to act.
4.3
Name the 3 main bases of legal liability
Torts, Contracts, & Statutes
4.3
Tort
A wrongful act or omission, other than a crime or a breach of contract, for which the remedy is usually monetary damages.
4.4
Negligence
The failure to exercise the degree of care that a reasonably pruden person would have exercised under similar circumstances to avoid harming another person or legal entity.
4.4
Common law
A body of principles and rules derived from court decisions over time.
4.5
Statute
A written law passed by a legislative body.
4.5
Proximate cause
A cause that, in a natural and continuous sequence unbroken by any new and independent cause, produces an event and without which the event would not have happened.
4.6
Compensatory damages
Payment for the losses actually sustained by the plaintiff.
4.7
Special damages
Compensatory damages for actual losses that the plaintiff claims are the result of the defendant's wrongful act or omission
4.7
General damages
Compensatory damages that do not have an economic value and that are presumed to follow from the type of wrong claimed by the plaintiff
4.7
Punitive damages
Damages that are imposed if the defendant acted recklessly or maliciously to punish the defendant, to teach the defendant a lesson, or to deter others from engaging in the same kind of conduct.
4.7
Injunction
A court order that requires the defendant to stop doing something or to do something. 4.8
List the five defenses to negligence
Contributory negligence
Comparative negligence
Assumption of risk
Statute of limitations
Immunities
4.8
4.8
Contributory negligence
The plaintiff's own negligence that in part caused the plaintiff's harm and that prevents the plaintiff from recovering damages. 4.8
4.8
Comparative negligence
The plaintiff's negligence that in part caused the plaintiff's harm and that proportionally reduces the damages that the plaintiff recovers
4.9
Assumption of risk
The plaintiff's act of knowingly and voluntarily accepting the possibility of harm.
4.10
Statute of limitations
A statute that sets forth the periods of time within which various types of legal actions must be brought.
4.10
Negligence per se (latin for "by itself")
An act that is considered inherently negligent because of a violation of a law or ordinance.
4.11
Joint & serveral liability
The liability of multiple defendants either collectively or individually for the entire amount of damages sought by the plaintiff regardless of their relative degree of responsibility.
4.11
Res ipsa loquitur
A legal doctrine that provides that, in some circumstances, negligence is inferred simply by an accident occurring.
4.12
Vicarious liability
A legal responsibility that occurs when one party is held liable for the actions of a subordinate or associate because of the relationship between the two parties.
4.12
Intentional torts
A tort committed w/ general or specific intent to perform the act that is held to be a tort.
4.13
Assault
The threat of force against another person that creates a well-founded fear of imminent harmful or offensive contact.
4.14
Battery
Harmful or offensive contact w/ another person.
4.14
False imprisonment
The restraint or confinement of a person w/out consent or legal authority.
4.14
False arrest
The seizure or forcible restraint of a person w/out legal authority.
4.14
Defamation
A false written or oral statement that damages another's reputation.
4.14
Libel
A defamatory statement expressed in a written or fixed form.
4.14
Slander
A defamatory statement expressed by speech.
4.14
Malicious prosecution
The improper institution of legal proceedings against another.
4.15
Malicious abuse of process
The use of civil or criminal procedures for a purpose for which they were not designed.
4.15
Trespass
Unauthorized entry to another person's real property or forcible interference w/ another person's personal property.
4.15
Conversion
The unlawful exercise of control over another person's personal property to the detriment of the owner.
4.15
List the torts that involve property. (4)
Trepass,
Conversion,
Nuisance,
Interference w/ a copyright, patent, or trademark
4.15
Nuisance
Anything interfering w/another person's use or enjoyment of property.
4.16
Fraud
A deliberate misrepresentation or concealment of fact in order to make a person act to his or her detriment.
4.16
Trade disparagement
A false or misleading statement about another's business, products, or services.
4.17
Strict liability, or absolute liability
Liability that is not based on negligence or intent to cause harm.
4.17
Offer
A promise that requires some action by the intended recipient to make an arrangement.
4.18
Acceptance
The assent to an offer that occurs when the party to whom an offer has been made either agrees to the proposal or does what has been proposed.
4.19
List the 3 requirements of an offer.
1. Intent to contract
2. Definite terms
3. Communication to offeree
4.19
Unilateral contract
A contract in which only on party makes a promise or undertakes the requested performance.
4.20
Bilateral contract
A contract in which each party promises a performance.
4.20
Consideration
Something of value from the promise that the promisor requested or bargained for in a contract.
4.20
Competence
The basic or minimal ability to do something and the mental ability to understand problems and make decisions.
4.21
Capacity to contract
A legal qualification that determines one's ability to enter into an enforceable contract.
4.21
Statute of frauds
A law to prevent fraud and perjury by requiring that certain contracts be in writing and contain the signature of the party responsible for performing that contract.
4.21
Breach of contract
The failure to perform as promised under a contract.
4.22
Business invitee
An individual who has express or implied permission to be on the property of another for the purpose of doing business. (Customers, vendors, and guests staying at a hotel) 5.5
Actual notice
Information that has been directly given to someone. 5.5
Constructive notice
Knowledge that a person is assumed by law to have because that knowledge could be gained by reasonable observation or inspection.
Licensee
An individual who has permission to go onto the property of another for his or her own purposes. Deliveries & meter readers 5.6
Trespasser
An individual who intentionally goes onto the property of another without permission or any legal right to do so. 5.6
Attractive nuisance
A dangerous object or condition so captivating to young children that it entices them onto another's property. 5.6
Breach of warranty
The failure to adhere to an express or implied warranty regarding the title, quality, content, or condition of the goods sold. 5.18
Implied warranty
An obligation that the courts impose on a seller to warrant certain facts about a product even though not expressly stated by the seller. 5.18
Implied warranty of merchantability
An implied warranty that a product is fit for the ordinary purpose for which it is used. 5.19
Implied warranty of fitness for purpose
An implied warranty that a product is fit for a particular purpose; applies if the seller knows about the buyer's purpose for the product. 5.19
Express warranty
A statement or representation about a products quality or suitability for its intended use. 5.19
Privity of contract
The relationship that exists between the parties to a contract. 5.21
Statutory employee
An independent contractor's employee who, because the independent contractor has not maintained workers' compensation insurance, is considered to be an employee of the principal employing the independent contractor. 6.7
Positional risk doctrine
A legal doctrine stating that an injury arises out of the claimant's employment if it would not have occurred but for the fact that the conditions and obligations of the employment placed the claimant in the position where he or she was injured. 6.8
Derivative lawsuit
A lawsuit brought by one or more shareholders in the name of the corporation. 7.5
Class action, or class action lawsuit
(nonderivative lawsuit)
A lawsuit in which one person or a small group of people represent the interests of an entire class of people in litigation.
Fiduciary duty
The duty to act in the best interests of another. 7.8
Business judgement rule
A legal rule that provides that a director will not be personally liable for a decision involving business judgement, provided the director made an informed decision and acted in good faith. 7.8
Swing trading
A short-term trading strategy that involved the sale and purchase, or purchase and sale, of securities within a short period. 7.14
Overt discrimination
A specific, observable action to discriminate against a person or class of persons. 7.22
Disparate treatment
Unfavorable or unfair treatment of someone in comparison to other similar individuals. 7.22
Disparate impact
Indirect discrimination against a group. 7.23
Wrongful termination lawsuits
Lawsuits that arise out of employee claims that an employer has wrongfully discharged the employee.
At-will employment
Employment for an indefinite duration that can be terminated by either party for whatever reason or no reason at all.
Hostile
An environment that exists when an employee is subjected to harassment that is so severe or pervasive that it alters the conditions of his or her employment and creates an abusive working environment. 7.25
Corporate governance
The mechanisms and procedures that determine how corporations are run. 8.3
Agency costs
The costs associated with managing the relationship between agent and principal. 8.5
Audit committee
A board committee that, in conjunction with the corporation's external auditors, oversees preparation and dissemination of the corporation's financial statements. 8.11
Compensation committee
A board committee that determines compensation arrangements for the CEO and other senior managers. 8.11
Nominations/corporate governance committee
A board committee that recommends nominees for election to the board by the shareholders and, in many corporations, establishes corporate governance guidelines. 8.11
Mortality rate
The death rate per 1,000 population. 9.7
Temporary total disability
A condition in which, for a limited time, the disabled person cannot engage in any productive activity. 9.8
Permanent total disability
A condition in which the disabled person is unable to engage in any productive work for the rest of his or her life. 9.8
Temporary partial disability
A condition in which, for a limited time, the disabled person cannot engage in all daily activities, but is only partially prevented from working.
Permanent partial disability
A condition in which the disabled person's range of activities is permanently limited, but the person can still perform many types of work. 9.8
Contingent net income loss exposure
A loss exposure for which the interruption of the organization's operations is conditional on another organization's ability to fulfill its duties. 10.8
Sales value of production
The value of what would have been produced if a manufacturing plant had continued its normal operations. 10.17
Extra expenses
Expenses that an organization incurs in addition to ordinary expenses to mitigate the effects of a net income loss. 10.23
Expediting expenses
Extra expenses incurred to hasten the return to normal operations after a net income loss. 10.23
Forcast
An estimate of some future value, amount, or quantity calculated by mathematical techniques or determined by intuition. 11.3
Price index
The price of a particular basket of goods and services relative to some base year, when the price index for the base year is set to be 100. 11.7
Probability analysis
A technique for forecasting events, such as accidental and business losses, on the assumption that they are governed by an unchanging probability distribution. 11.10
Probability distribution
A presentation (table, chart, or graph) of probability estimates of a particular set of circumstances and of the probability of each possible outcome. 11.10
Skewness
A measure of whether a probability distribution is symmetrical. 11.18
Symmetrical distribution
A distribution that, when bisected by a vertical line, is identical on both sides. 11.18
Skewed
A distribution that is not symmetrical. 11.19
Central tendency
The single outcome that is representative of all possible outcomes included within a probability distribution. 11.20
Expected value
The weighted average of all of the possible outcomes of a probability distribution. 11.20
Mean
The numeric average; calculated by summing all observed values and dividing by the number of observations. 11.20
Median
The midpoint of a sequential set of values. For an even number of values, the median is the average of the two middle values. 11.21
Mode
The most frequently occurring value in a distribution. 11.24
Dispersion
The variability, or scatter, among the values of a data set. 11.24
Standard deviation
The average of the differences (deviations)between the possible outcomes and the expected values of those outcomes. 11.25
Post Loss Goals
1. Survival
2. Continuity of operations
3. Profitability
4. Earning stability
5. Social responsibility
6. Growth
Risk Management goals that should be in place in the event of a significant loss. CH 1
Risk Management Program
System for planning, organizing, leading, and controlling the resources and activities that an organization needs to protect itself from the adverse effects of accidental losses. CH 1
Business risk
Risk that is inherent in the operation of a particular organization including the possibility of loss, no loss, or gain. CH 1
Results Standards
Standards that focus on achievements regardless of the efforts they require. CH 1
Loss Exposure
Any condition that prevents a possibility of loss, whether or not an actual loss occurs.
* A PURE risk is one that presents the opportunity for loss or status quo, not gain.
* Only a speculative risk includes the potential for gain. CH 1
Risk Management involves what four management functions?
1. Planning
2. Organizing
3. Leading
4. Controlling organizations resources and activities to minimize adverse effects CH 1
Pre-Loss Goals
1. Economy of operations
2. Tolerable uncertainty
3. Legality
4. Social responsibility
Risk Managment goals that should be in place even if no significant loss occurs. CH 1
Enterprise Risk Management
-Strategic risk
-Operational risk
-Financial Risk
-Hazard Risk
An approach to managing all of an organizations key business risks and opportunities with the intent of maximizing shareholder value. CH 1
Cost of risk
Total cost incurred by an organization because of the possibility of accidental loss. CH1
Hazard Risk
Risk from accidental loss, including the possibility of loss and no loss.
Activity Standards
Standards that focus on activity undertaken to achieve a particular result regardless of the success of that activity. CH 1
Risk Management policy statement
A tool for communicating the goal of the risk management program and the roles that people throughout the organization have in achieving the organizations risk management goals. CH 1
Pouty Approach
A risk exposure analysis method that suggests how to treat loss exposures by classifying loss frequency and loss severity into broad categories. 2.14
Pouty Approach
-Loss frequency
--Almost Nil
--Slight
--Moderate
--Definite
-Loss Severity
--Slight
--Significant
--Severe
2.4
Data credibility
The level of confidence that available data are accurate indicators of future losses. 2.16
Maximum Possible Loss (MPL)
An estimate of the largest possible loss that might occur. Example-$10 Mil in one location is likely MPL would be $10 Mil for most causes of loss 2.13
Probable Maximum Loss (PML)
The value of the largest loss that is likely to occur. Less because of fire reduction effects of sprinkler systems and fire fighting capabilities. 2.13
Loss Severity
The amount of loss typically measured in dollars for a loss that has occured. 2.13
Loss frequency
Number of losses that occur within a specific period. (Fires, thefts, and floods) 2.12
Organizational chart
A graphical depiction of an organizations management structure. 2.11
Post-loss funding
A funded retention arrangement under which the organization pays for its retained losses sometime after losses occur using borrowing (or some other method of raising capital)in the meantime. 1 way to pay for (fund) retained losses. 2.23
Current-loss funding
A funded retention arrangement under which money to fund retained losses is provided at the time of the loss or immediately after it. 1 of the general methods to pay for (fund) retained losses. 2.23
Risk Control Techniques (4)
1. Avoidance
2. Loss Prevention
3. Loss Reduction
4. Separation, duplication, and diversification.
2.18
Avoidance
A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occuring from that activity is elminated. 2.18
Abandonment
When an organization decides to eliminate a loss exposure that already exists. 2.18
Loss Prevention
A risk control technique taht reduces the frequency of a particular loss. 2.19
Loss Reduction
Risk control technique that reduces the severity of a particular loss. 2.19
Separation
Risk control techniques that disperse a particular asset or activity over several locations and regularly relies on that asset or activity as a part of the organizations working resources. 2.20
Duplication
A risk control technique that uses backups, spares, or copies of critical property, information, or capabilities and keeps them secure. 2.20
Diversification
Risk control technique that spreads loss exposures over numerous projects, products, markets, or regions. 2.20
Risk Financing
1. Transfer
2. Retention
A conscious act or decision not to act that generates the funds to pay for losses or offset the variability in cash flows that may occur. 2.21
Insurance
A risk financing technique that transfers the potential financial consequences of certain specified loss exposures from the insured to the insurer. 2.21
Noninsurance risk transfer
A risk financing technique that transfers all or part of the financial consequences of loss to another party other than an insurer. 2.22
Hold-Harmless Agreement
A contract under which one party (the indemnitor) agrees to assume the liability of a second party (the indemnitee)2.22
Hedging
A financial transaction in which one asset is held to offset the risk associated with another asset. 2.22
Future contract
An agreement to buy or sell a commodity or security at a future date at a price that is fixed at the time of the agreement. 2.22
Retention
A risk financing technique that involves assumption of risk in which losses are retained by generating funds within the organization to pay for the losses. 2.22
THREE general methods that can be used to pay for (fund) retained losses.
1. Pre-loss-M oney set aside
2. Current loss (most popular)
3. Post-loss funding-Use borrowed or raise additional capital.
2.23
Pre-Loss Funding
A funded retention arrangement under which money to fund losses is set aside in advance. 2.23
Statement of cash flows
A financial statement that shows an organizations cash receipts and cash payments during a specified period. 2.8
Flowchart
A diagram that graphically and sequentially depicts the activities of a particular organization or process. 2.10
Income Statement (profit and loss statement)
A financial report that shows the profit or loss for a specific period. 2.8
Balance Sheet
A statement of an organizations financial condition as of a particular date. 2.8
Methods of identifying loss exposures (7)
1. Risk Assessment questionaires
2. Loss histories
3. Financial statement and underlying accounting records
4. Other records & documents
5. Flowcharts and organizational charts
6. Personal inspections
7. Expertise within and beyond the organization. 2.6
Net income loss exposure
A condition that presents the possibility of loss caused by a reduction in net income.
Net income=Revenues-Expenses
Net income is a reduction in revenue, an increase in expenses, or both. 2.6
Personnel Loss Exposure
A condition that presents the possibility of loss caused by a persons death, disability, retirement, or resignation that deprives an organization of the persons special skill or knowledge that the organization cannot readily replace. 2.5
Liability Loss Exposure
A condition that presents the possibility that a person or an organization will sustain a loss resulting from a claim alleging a persons or an organizations legal responsibility for injury or damage suffered by another party. 2.5
Four types of loss exposures
1. Property
2. Liability
3. Personnel
4. Net-income
2.4
Property loss exposure
A condition that presents the possibility that a person or organization will sustain a loss resulting from the damage including the destruction, taking, or loss of use-of property in which that person or organization has a financial interest.
2.4
Tangible Property
Property that has a physical form that can be seen or touched. "Real or personal property" 2.4
Intangible Property
Personal property that has no physical form. 2.4
Personal Property
Tangible or intangible property other than real property. 2.4
Real property
Tangible property consisting of land, all structures permanently attached to the land and whatever is growing on the land. 2.4
Risk Management as a DECISION making process. (6 steps)
1. Identify Loss exposure
2. Analyzing loss exposure
3. Examinging feasibility of risk management techniques
4. Selecting appropriate risk management techniques
5. Implementing
6. Monitoring and revising the risk management program. CH 1
Risk
Uncertainty about outcomes that can be either negative or positive. Ch1
Proxies/Proxy
1. Authorized to cast votes for absent shareholders.
2. ALSO the statement authorizing a proxy to vote.
7.4
Corporations
-Stockholders or shareholders
-Same rights as others plus has right to enter into contract, own property, and borrow money.
-Easy access to capital markets
-Limited liability of the shareholders makes corps more attractive to investors.
-Can be either public or privately traded.
-Owned by shareholders but controlled by board of directors (trustees) 7.4
Derivative Lawsuits:
1. Brought by 1 or more shareholders in the name of the corporation.
2. Any damages recovered go directly to corp.
3. Must establish that the defendants' conduct was outside boundaries of sound management practice.
7.5
Nonderivative Lawsuits:
-Name specific directors or officers and corporation as codefendant.
-Must show that the injury or injustice resulted from wrongful acts or omissions.
-Initiated by customers, competitors, employees, creditors, governmental entities and other persons outside corp.
7.5
Examples of Allegations Made Against Directors and Officers:
-False or inadequate disclosure in connection with stock issuance.
-Making or permitting the making of false entries in the corp books & records.
-Preparing & signing false documents filed w/ regulatory authorities.
-Over-
-Failing to correct inaccurate statements w/in a prospectus issued by the corp.
-Failing to review annual financial statements & monitor corp affairs.
-Missing an opportunity for expansion, acquisition, or sale of the company.
Proxies/Proxy
1. Authorized to cast votes for absent shareholders.
2. ALSO the statement authorizing a proxy to vote.
7.4
Corporations
-Stockholders or shareholders
-Same rights as others plus has right to enter into contract, own property, and borrow money.
-Easy access to capital markets
-Limited liability of the shareholders makes corps more attractive to investors.
-Can be either public or privately traded.
-Owned by shareholders but controlled by board of directors (trustees) 7.4
Derivative Lawsuits:
1. Brought by 1 or more shareholders in the name of the corporation.
2. Any damages recovered go directly to corp.
3. Must establish that the defendants' conduct was outside boundaries of sound management practice.
7.5
Nonderivative Lawsuits:
-Name specific directors or officers and corporation as codefendant.
-Must show that the injury or injustice resulted from wrongful acts or omissions.
-Initiated by customers, competitors, employees, creditors, governmental entities and other persons outside corp.
7.5
Examples of Allegations Made Against Directors and Officers:
-False or inadequate disclosure in connection with stock issuance.
-Making or permitting the making of false entries in the corp books & records.
-Preparing & signing false documents filed w/ regulatory authorities.
-Over-
-Failing to correct inaccurate statements w/in a prospectus issued by the corp.
-Failing to review annual financial statements & monitor corp affairs.
-Missing an opportunity for expansion, acquisition, or sale of the company.
A typical class action complaint commonly contains:
*Company's public statements contained material misrepresentations or omissions.
*The alleged misrepensentations or omissions artificially inflated the company's share price. -Over-
* While the share price was "inflated", insiders profitably sold their personal holdings in the company's shared.
* After the insider sales were complete, the company's share priced dropped sharply, when company admitted the information was inaccurate. 7.7
Directors and Officers major responsibilities:
- To establish basic objectives & policies of the corp
- Elect or appoint the officers, advise them, approve their actions, & audit their performance
- To safeguard & approve changes in the corps assets -OVER-
- To approve important financial matters & see that proper reports are given to shareholders
- To delegate to others to sign contracts, open bank accounts, sign checks, issue shares, make loans, and conduct other activities that would require board approval.
- Maintain, revise, and enforce corp charter and bylaws
-Hiring qualified persons & act as fiduciary in in their relationship to corp and its shareholders. 7.7
The directors and officers fiduciary duties include what 4 duties: (COLD)
1. Duty of care
2. Duty of Obedience
3. Duty of loyalty
4. Duty of Disclosure

7.8
Duty of care
(aka duty of diligence)

Directors must discharge their duties w/ care that a person in a like position would reasonably believe appropriate under similar circumstances.
They are considered to have met their duty if they:
* Act in good faith in the best interest of the co.
* Discharge their responsibilities w/ informed judgement & a measure of care believed appropriate.
*Keep themselves informed of the facts.
*Attend board meetings of committees they serve on. 7.8
RE: Environment Liability

3 defenses include:
1. Acts of God
2. Acts of War
3. Acts of Unrelated 3rd party. 6.21
Physicians are required to disclose information relative to:
1. Patients condition or problem.
2. Nature and purpose of the proposed procedure/treatment.
3. Any & all risk associated w/ the proposed procedure/treatment.
4. Anticipated benefits (results) of the procedure/treatment.
5. Any and all alternative procedures/treatments including risks. 6.25
Coefficient of variation
A measure of dispersion calculated by dividing a distribution's standard deviation by its mean. 11.28
Normal distribution
A probability distribution that is symmetrical about the mean and that has proven useful in accurately forecasting the variability of many physical phenomena. 11.28
Trend Analysis
An analysis that identifies patterns in past losses and then projects these patterns into the future. 11.31
Trend line
A line on a graph indicating a pattern. 11.31
Regression analysis
A statistical technique that is used to estimate relationships between variables. 11.33
Dependent variable
The variable being forecast. 11.33
Independent variable
The variable that determines the value of the variable being forecast. 11.33
Linear regression analysis
A form of regression analysis that assumes that the change in the dependent variable is constant for each unit of change in the independent variable. 11.33
Joint probability
The probability that two or more events will happen together. 12.5
Conditional probability
The likelihood that an event will occur if it is certain that another event has occurred or will occur in a given period. 12.7
Alternative probability
The probability that any one of two or more events will occur within a given period. 12.9
Net cash flow (NCF)
Cash receipts minus cash disbursements over a given period. 13.3
Capital budgeting
The process of evaluating alternative capital investment proposal in terms of the cash outlays that the proposals require and the present values of the cash inflows that the proposals are likely to generate. 13.4
Operating expenditures
Disbursements for assets that will be consumed in a relatively short period, usually within one year or a single accounting period. 13.4
Capital expenditures
Disbursements for assets that will be consumed over a relatively long period, usually multiple accounting periods. * It is important to recognize that money has a time value.
NPV method requires MARR
NPV=PV (sum of future net cash flows-PV (initial investment) 13.4
Time value of money
The ability to invest and generate income over time on a dollar available today. 13.4
Rate of return
An asset's or activity's annual profit or surplus, expressed as a percentage of its original cost. 13.5
Present Value
The value today of money that will be received in the future. 13.5
Opportunity cost
The rate of return that money could have earned had it been put to the best alternative use that entails comparable risk. Selecting one use of the money prevents that money from being used for some other purpose. 13.5
Cost of capital
The opportunity cost of funds provided by investors. (Shareholders/investors bear the opportunity costs of committing funds to various assets or activities.) 13.6
Salvage value
The residual value of an original investment at the end of its useful life. 13.14
Net present value (NPV)
The present value of all future net cash flows (including salvage value) discounted at the cost of capital, minus the cost of the initial investment, also discounted at the cost of capital.
NPB-PV (sum of future net cash flows) - PV (initial investment). 13.15
Differential annual after-tax net cash flow
The change in an organization's aggregate annual net cash flows resulting from implementing a proposal. 13.15
Internal rate of return (IRR)
The discount rate at which the net present value of all net cash flows equal zero. 13.17
Profitability index
The present value of future net cash flows divided by the present value of the initial investment. 13.26
Depreciation
A noncash expense used to allocate the cost of long-term assets over multiple accounting periods. 13.27
Straight-line depreciation method
An accounting method of calculating depreciation by taking an equal amount of an asset's cost as an expense for each year of the asset's expected useful life. 13.27
Loss adjustment expenses
Expenses the insurer incurs to investigate, defend, or settle claims. 14.22
What two factors determine present value?
1. Appropriate discount rate
2. Length of time before each cash flow occurs. 13.5
Who would the Risk Manager report to in a company?
Hospital-Hospital Administrator
Bank-Vice President
Medium or Large Corp-Treasurer or Comptroller or VP of Finance
Public entity-to Finance Director or maybe Mayor.