General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A contractor signs a contract requiring a subcontractor to assume liability for injuries to the subcontractor's own employees. The contractor has shifted a financial risk to the subcontractor without buying insurance. This illustrates:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Risk transfer can be accomplished through insurance or through contractual devices such as hold-harmless agreements, indemnity clauses, and waivers. Here the contractor shifts the financial burden of defined losses to the subcontractor by contract rather than by purchasing a policy. Both methods move the financial consequence of loss away from one party to another; the contract is simply a noninsurance transfer mechanism.
Why the other options are wrong
- B) The contractor still performs the project; no avoidance of the underlying activity occurred.
- C) Retention means keeping the risk; the contract moves it away from the contractor.
- D) The contract changes who bears a loss, not how often losses occur.
Memory hook
Transfer without a policy = contracts and indemnity clauses doing the heavy lifting.