Farraneh is a student on a co-op term with Modus Biosystems, Inc. Modus is conducting research on COVID vaccines that involves drawing blood from human volunteers. Drawing blood is very, very safe. But, in theory, there's a small chance that the needle can damage a nerve while trying to find a vein. The result can be significant long-term pain throughout the arm. This is very rare about 1 injury per 25,000 patients. Given that Modus draws blood from 250 patients per year, the net risk of someone being injured in a given year is about 1 in 100.

Modus's CEO, Rajay, has asked Farraneh to research a number of insurance policies for the coming year. The insurance they need is liability insurance, which will cover Modus if a volunteer gets injured. Legal liability if a volunteer sued in such a case could be very high so Rajay has asked Farraneh to assume a $1,500,000 payout in her calculations, just to be cautious). Being forced to pay even half that much would ruin Modus, driving the company into bankruptcy. That would not be acceptable.

Farraneh finds insurance companies offering the following 3 insurance policies. Policy A costs $6,750 per year, and will cover 100% of any lawsuit, up to $1,500,000. Policy B costs $4,600, with a deductible of $175,000. Policy C costs $1,600 per year, and provides a maximum coverage of $1,300,000.