A homeowner stops hosting large parties to eliminate the risk of guest injury lawsuits. This is an example of risk:
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Avoidance is the risk management technique of eliminating the exposure by not engaging in the activity that creates it. By stopping the parties, the homeowner removes the guest injury exposure entirely, so the risk no longer exists. Transfer shifts the financial burden of the loss to another party, typically an insurer, through a contract. Retention means bearing the risk personally and absorbing any losses that occur. Sharing pools the risk among a group of participants. Avoidance is the most complete response because it removes the exposure altogether, though it is not always practical.
Why the other options are wrong
- B) Transfer would shift the financial consequences of the loss to another party, such as an insurer. Stopping the activity eliminates the exposure rather than shifting it. The controlling legal standard set out above demonstrates precisely why this option is incorrect.
- C) Retention means keeping the risk and absorbing the losses personally. The homeowner here is eliminating the exposure, which is the opposite of retention. This choice misstates what the statute actually requires, so it must be eliminated from consideration.
- A) Sharing spreads losses among a group of participants who pool their risks. No pooling or sharing occurs when the homeowner simply stops hosting parties. This option reflects a different rule and does not match the law that governs the transaction.
Memory hook
Avoidance cancels the activity, not just the coverage. No parties, no party-injury lawsuits.