AINS 21 - Segment C

Which one of the following potential financial consequences of liability loss exposures is often difficult to quantify? A. Defense costs B. Damage to reputation C. Costs of investigation D. Special damages

B. Damage to reputation

The policy section that usually contains the policyholder's name and mailing address, policy limits, and premium amount is the A. Definitions. B. Conditions. C. Declarations. D. Miscellaneous provisions.

C. Declarations

The cause of loss that occurs more frequently than death, causing personnel losses, is A. Kidnap. B. War/terrorism. C. Disability. D. Retirement.

C. Disability.

Which one of the following is the best measure of the amount of insurance provided for a given period? A. Unearned premium B. Paid premium C. Earned premium D. Written premium

C. Earned premium

Risk management activities under the enterprise-wide risk management approach occur at the A. Regional level. B. Departmental level. C. Enterprise level. D. Business unit level.

C. Enterprise level.

Some liability policies place defense costs within the overall policy limit. If such a policy has a limit of $100,000 and the insured has a covered claim involving damage of $85,000 and defense costs of $25,000, what is the total amount that the insurer would pay for damages and defense costs?

$100,000

John had an unendorsed homeowners policy. John's two-year-old bicycle was stolen. The bicycle's purchase price was $700, its current replacement cost is $800, and depreciation was estimated at $450. What was the bicycle's actual cash value?

$350

Benny lost track of where his property ended and ran over a neighbor's sapling with his lawn mower. The neighbor, John, sued Benny for $700 stating it was an exotic tree that could not easily be replaced. John also claimed that because of the loss, he was undergoing emotional stress for which he claimed $5,000. Additionally, John asserted that the noise of Benny's mower had caused him to lose hearing in his right ear, and he was also suing Benny for $5,000 for loss of hearing. The court awarded no general damages but did award special damages related to John's lawsuit. The amount John will receive as a special damages award is

$700

A portion of a covered loss that is subtracted from the amount the insurer would otherwise be obligated to pay is the A. Deductible. B. Pro-rata premium. C. Amount of the loan still outstanding. D. Reinsurance.

A. Deductible.

Which one of the following is an element of a loss exposure? A. A cause of loss B. The probability of a loss C. The verification of risk D. The occurrence of a loss

A. A cause of loss

Which one of the following statements about policy sections is true? A. A condition clarifies an insurer's promise or an insured's duty. B. An insuring agreement establishes procedures for implementing the policy. C. Declarations state what an insurer will not cover. D. Exclusions define terms to clarify ambiguity.

A. A condition clarifies an insurer's promise or an insured's duty.

Products liability loss exposures arise out of injuries or damage that result from an organization's A. Defective product. B. Operations away from premises. C. Types of bailments. D. Manufacturing operations.

A. Defective product.

Dr. Donna Jenkins is a research chemist for PharmaCon, a large pharmaceutical company. Last year, she was responsible for 12 of the 14 patents awarded to PharmaCon. Clearly, the future prospects of the company would be damaged if Dr. Jenkins died or became severely disabled. In risk management parlance, Dr. Jenkins is considered A. A key employee. B. An officer. C. A director. D. A protected employee.

A. A key employee.

An insurer's loss expense reserve is A. A liability designated to pay the cost of settling the claims included in the loss reserve. B. A liability designated to pay claims for losses that have occurred. C. An asset designated to pay the cost of settling the claims included in the loss reserve. D. An asset designated to pay claims for losses that have occurred.

A. A liability designated to pay the cost of settling the claims included in the loss reserve.

Ling has noticed that her neighbor has recovered money for two homeowners property claims and an auto damage claim he has filed in recent years. Ling has been paying insurance premiums for many years and has never suffered a loss or made a claim. She feels that her insurance contracts over the years have been worthless to her. What Ling does not understand is that she has been paying premiums in exchange for A. A promise of protection. B. A contract of utmost good faith. C. A nontransferable contract. D. A contract of adhesion.

A. A promise of protection

Significant windstorm damage to the Chang family's home leaves the dwelling uninhabitable. It takes four months to remove the debris and rebuild the home. During that period, the Changs rent an apartment as temporary accommodation and they incur the cost of moving undamaged property from the home to the apartment. Which one of the following would cover the Changs' moving costs and apartment rental? A. Additional living expense coverage B. Indirect expense coverage C. Fair rental value coverage D. Extra expense coverage

A. Additional living expense coverage

Self-contained policies A. Address complete coverage needs. B. Require more than one form to address coverage needs. C. Do not address all of an insured's coverage needs. D. Address unique coverage needs.

A. Address complete coverage needs.

Which one of the following is an example of material misrepresentation by Albert, a businessman applying for property insurance on a building he owns? A. Albert tells the insurance agent the building is used to store steel, but it is actually used to store steel drums containing flammable liquids. B. Albert does not tell the insurance agent he is about to file for bankruptcy. C. Albert tells the insurance agent he has owned the building for 17 years, but he has actually owned it for 18 years. D. Albert does not tell the insurance agent his building has a defective heating system that could explode at any time.

A. Albert tells the insurance agent the building is used to store steel, but it is actually used to store steel drums containing flammable liquids

Hold-harmless agreements, common in construction and service businesses, obligate one party to A. Assume the financial consequences of legal liability for another party. B. Provide a legal defense for liability of another party. C. Purchase insurance for the benefit of another party. D. Pay all losses incurred by another party.

A. Assume the financial consequences of legal liability for another party.

In insurance terminology, trucks, trailers, buses, fire engines, and ambulances designed for road use are examples of which one of the following categories of motor vehicles? A. Autos B. Heavy vehicles C. Mobile equipment D. Recreational vehicles

A. Autos

Martha works in the city and drives to work each day. She is concerned about her auto exposures due to driving in the city. If Martha sells her vehicle and begins using public transportation, which one of the following risk management techniques will she be applying to her situation? A. Avoidance B. Noninsurance transfer C. Loss control D. Retention

A. Avoidance

Which one of the following best describes how effective risk management benefits society? A. Causing fewer disruptions in the economic and social environment B. Increasing the types of charitable and governmental agencies available to the general public C. Creating a positive effect on an insurer's underwriting results D. Providing more thoughtful consumers of insurance

A. Causing fewer disruptions in the economic and social environment

Insureds must share enough characteristics with each other to be grouped together when using A. Class rating. B. Experience rating. C. Retrospective rating. D. Judgment rating.

A. Class rating.

In the event of a serious auto accident, what type of law would determine who was at fault? A. Common law B. Statutory law C. Constitutional law D. Criminal law

A. Common law

County Janitorial Service has contracted with local bars and taverns to clean their restrooms on a daily basis. County's greatest liability exposure is probably A. Completed operations. B. Liquor liability. C. Advertising liability. D. Professional liability.

A. Completed operations.

When Joshua purchased his home, he did not tell his insurer that he kept flammable chemicals in his basement for use in a hobby. Joshua is aware that storing the chemicals increases the potential for loss to his home. The fact that the insurer does not have this information is an example of which one of the following? A. Concealment of material fact B. An exchange of unequal amounts C. Consideration D. The principle of indemnity

A. Concealment of material fact

For contract purposes, an offer is valid if it includes the capacity to contract, an agreement, a legal purpose, and A. Consideration from both parties. B. An agreement between the parties. C. A legally enforceable promise from the offeree to the offeror. D. An acceptance from the one party.

A. Consideration from both parties.

Because the insurance company usually determines policy wording and the insured has little choice but to "take it or leave it," an insurance contract is a A. Contract of adhesion. B. Contract of indemnity. C. Nontransferable contract. D. Bilateral contract.

A. Contract of adhesion.

All commercial package policies begin with two components, namely, common policy conditions and common A. Declarations. B. Manuscripts. C. Coverages. D. Modules.

A. Declarations.

The property casualty insurance policy provisions that indicate who or what is covered, and where and when coverage applies, are found in the A. Declarations. B. Insuring agreements. C. Definitions. D. Miscellaneous provisions.

A. Declarations.

In a policy's insuring agreement, the insurer promises to pay to the insured, to pay on behalf of the insured and to A. Defend the insured. B. Educate the insured regarding policy language. C. Pay for all losses. D. Provide full coverage for any exposure.

A. Defend the insured.

Which one of the following statements is true concerning guidelines for insurers combining systems and distribution channels? A. Different marketing systems can be used for different types of insurance based on which is most suitable. B. Internal communication can differ across marketing systems and distribution channels. C. Customers are receptive to receiving different messages across the different distribution channels. D. Customers expect a different experience when interacting with an insurer's different distribution channels.

A. Different marketing systems can be used for different types of insurance based on which is most suitable.

Which one of the following is true regarding enterprise-wide risk management (ERM)? A. ERM is an approach to managing all of an organization's key risks and opportunities. B. Implementation of ERM is fairly consistent among organizations, regardless of their size, nature, or complexity. C. ERM is an approach to risk management that focuses primarily on loss exposures associated with pure risk. D. In practice, implementation of ERM occurs at the departmental or business unit level.

A. ERM is an approach to managing all of an organization's key risks and opportunities.

Most property policies providing coverage on buildings and personal property at fixed locations exclude coverage for A. Earthquake and flood. B. Vandalism. C. Riot and civil commotion. D. Explosion.

A. Earthquake and flood.

Which one of the following is the correct term for documents that are used to modify commercial property coverage to meet the specialized needs of particular insureds? A. Endorsements B. Commercial Property Conditions C. Supplemental declarations D. Optional exclusion forms

A. Endorsements

When a newspaper's printing press is damaged, the company may spend extra money to have the newspaper printed on another company's press. The additional cost of printing the newspaper is an example of which one of the following? A. Extra expense B. Reduction in value C. Altered condition D. Lost income

A. Extra expense

In business income insurance, the expenses that an organization incurs to mitigate the effects of business interruption are called A. Extra expenses.. B. Contingent expenses. C. Excludable expenses. D. Continuing expenses.

A. Extra expenses.

As part of the risk management process, determining how to allocate the costs of the risk management program is important. All of the following are risk management costs that should be allocated, EXCEPT: A. General overhead expenses B. Losses retained C. Insurance premiums D. Costs of loss control

A. General overhead expenses

Which one of the following lists the steps in the risk management process in the correct order? A. Identify loss exposures, analyze loss exposures, examine techniques, select techniques, implement techniques, monitor, and revise the program B. Implement techniques, monitor and revise the program, identify loss exposures, analyze loss exposures, examine techniques, and select techniques C. Identify loss exposures, analyze loss exposures, select techniques, examine techniques, implement techniques, monitor, and revise the program D. Select techniques, examine techniques, identify loss exposures, analyze loss exposures, implement techniques, monitor, and revise the program

A. Identify loss exposures, analyze loss exposures, examine techniques, select techniques, implement techniques, monitor, and revise the program

Sho Ching is risk manager for Market Sales Company. Market Sales owns a large fleet of autos used by the sales employees. The fleet is insured with $1,000 physical damage deductibles. Sho Ching is concerned about an increasing frequency of auto accidents in recent years. Which one of the following is the best risk management option for addressing the increased frequency of accidents from the fleet of autos? A. Implement loss prevention programs B. Increase the deductible to $2,000 C. Implement loss reduction programs D. Decrease the deductible to $500

A. Implement loss prevention programs

Larger organizations often have a written risk management statement outlining procedures and authority for A. Implementing risk management techniques. B. Eliminating risk management techniques. C. Analyzing risk management techniques. D. Identifying risk management techniques.

A. Implementing risk management techniques.

Jeff recently started a consulting business. One of his concerns is that he will be sued for giving erroneous advice to a client. Which one of the following would most likely be the best risk management technique for Jeff's use in this situation? A. Insurance B. Duplication C. Retention D. Avoidance

A. Insurance

In the legal relationship known as agency, which one of the following is the principal? A. Insurer B. Third party C. Agent D. Insured

A. Insurer

Under Section II—Liability Coverage of a homeowners policy all of the following are the insured's duties after an occurrence, EXCEPT: A. Make voluntary payments to the claimant B. Pay specified premiums C. Cooperate with insurer in legal proceedings D. Report losses promptly

A. Make voluntary payments to the claimant

Standard forms A. May result in different insurers issuing identical policies. B. Are commonly used in professional liability insurance. C. Allow insurers to modify terms and conditions to accommodate differences in applicants' needs. D. Prevent insurers from offering significantly different coverage.

A. May result in different insurers issuing identical policies.

When Amy applied for insurance, her agent asked her if she had received more than three traffic tickets in the last five years. Amy had received four, but remembered only three. Thus, she told the agent she had received only three. Amy's statement is an example of A. Misrepresentation. B. Concealment. C. Intent to withhold information. D. Intent to deceive.

A. Misrepresentation.

In insurance terminology, equipment such as tractors, bulldozers, road graders, front-end loaders, and forklifts designed primarily for off-road use are considered to be A. Mobile equipment. B. Heavy vehicles. C. Recreational vehicles. D. Autos.

A. Mobile equipment.

Risk manager Maria Sanchez is evaluating her employer's current fleet of vehicles to ensure they are roadworthy and determine if any replacements are needed. Maria's activities are part of which one of the following steps in the risk management process? A. Monitoring results and revising the risk management program B. Analyzing loss exposures C. Identifying loss exposures D. Implementing the selected risk management techniques

A. Monitoring results and revising the risk management program

Angelina borrows money from the bank to purchase a house. The house serves as security for the loan. In this transaction, Angelina is the A. Mortgagor. B. Secured creditor. C. Mortgagee. D. Bailor.

A. Mortgagor.

Property insurance policies not only protect the property owner but also generally protect a secured lender's interest in the financed property by A. Naming the lender on the owner's policy. B. Sending the lender a letter of intent. C. Issuing a mortgagee interest-only policy. D. Issuing a separate policy.

A. Naming the lender on the owner's policy.

When property is lost or damaged, the value of the property is decreased. In addition to direct damage to the property, there could be indirect losses to the business. This latter type of loss is known as A. Net income losses. B. Historical income. C. Deferred income. D. Residual income losses.

A. Net income losses.

If a line of insurance is class rated, with all insureds possessing similar characteristics and paying the same rate, what determines the difference in premiums insureds pay? A. Number of exposure units B. Credits and debits for changes in exposures C. Data from insurance advisory organizations D. Considerations for profits and expenses

A. Number of exposure units

Exclusions in insurance policies generally serve all of the following basic purposes, EXCEPT: A. Outline steps the insured needs to take to enforce coverage B. Assist in keeping premiums reasonable C. Eliminate coverages requiring special treatment D. Assist in managing moral and morale hazards

A. Outline steps the insured needs to take to enforce coverage

The aggregate limit in a liability policy is the maximum amount an insurer will pay for all covered losses during the A. Policy period. B. Calendar year. C. Retroactive period. D. Fiscal year.

A. Policy period.

Traditionally, the risk management professional's role has been associated with loss exposures related to A. Pure risk. B. Speculative risk. C. Operational risk. D. Business risk.

A. Pure risk.

One example of a person typically covered under a commercial general liability policy because of the person's business relationship with the insured is a A. Real estate manager for the named insured. B. Landlord leasing property to the insured. C. Contractor working on the insured's building. D. Lessee occupying the insured's property.

A. Real estate manager for the named insured.

John Young is a risk manager of a medium-size business with both auto and real property exposures. John is looking for ways to save money on insurance premiums. John should consider A. Retaining some or all of the auto physical damage exposures. B. Canceling the insurance and implementing noninsurance transfer techniques. C. Retaining the property loss exposures. D. Retaining the auto liability loss exposures.

A. Retaining some or all of the auto physical damage exposures.

Outdoor Designs Company (ODC) makes cedar patio furniture. ODC's lumber supplier, L&L Wood Products, is the largest and most competitive supplier of lumber in the area. ODC's risk manager is concerned that a disruption in the supply of lumber from L&L due to a large fire loss would adversely affect its production. Which one of the following would best minimize the adverse effect to ODC of a large loss experienced by L&L? A. Separation B. Duplication C. Avoidance D. Loss prevention

A. Separation

A business buys multiple small warehouses to minimize the effects of a single loss. This is an example of A. Separation. B. Avoidance. C. Loss prevention. D. Duplication.

A. Separation.

The dollar amount of damage that results from a loss is the loss A. Severity. B. Reduction. C. Frequency. D. Prevention.

A. Severity.

In speaking with Bob, Marie said that Peter embezzled $500,000 from their employer. If Marie's statement is false, it is an example of A. Slander. B. Breach of warranty. C. Misdemeanor. D. Libel.

A. Slander.

Property insurance coverage on dwellings and other structures covering all causes of loss not specifically excluded is known as A. Special form coverage. B. Basic form coverage. C. Broad form coverage. D. Named perils coverage.

A. Special form coverage.

Josephine Redmond who is the sole proprietor of Dream Quilts, Inc., operates out of three branch offices with 17 employees. What happens to Josephine's business if she dies or retires? A. The business ceases to exist. B. The business is divided among the remaining partners. C. The disposition of the business must be resolved in a court of law. D. The business is divided among the employees.

A. The business ceases to exist.

Which one of the following statements is true regarding the financial consequences of loss? A. The financial consequences depend on the type of loss exposure, the cause of loss, and the loss frequency and severity. B. The financial consequences of any loss can be established immediately after the loss occurs. C. The financial consequences of future losses cannot be predicted with any degree of certainty. D. The financial consequences of a loss are independent of any hazards that may have contributed to the loss.

A. The financial consequences depend on the type of loss exposure, the cause of loss, and the loss frequency and severity.

Manufacturing Company experienced a loss on its premises when expensive equipment was destroyed by fire. A provision in its insurance contract maintains that the insurer has a right to enter the premises in the event of a reported loss to inspect the damaged property. Manufacturing Company has refused to grant entry to the insurer's claim representative. Consequently, the insurer is considering whether it can deny coverage for the claim. Which one of the following best explains why Manufacturing Company's insurer may be able to deny coverage under the principle that an insurance policy is a conditional contract? A. The insured must fulfill its duty to allow an inspection before a claim is paid. B. The insurer may not be able to satisfy itself that the fire was not caused by arson without an inspection. C. The insured has no power to alter the written requirement to allow inspection. D. The insurer may not be able to validate a covered loss and the actual value of the loss without inspection.

A. The insured must fulfill its duty to allow an inspection before a claim is paid.

Alfred has an unendorsed HO-3 policy. After a severe fire loss to Alfred's house, an investigation proved that Alfred intentionally set the fire. Alfred was jailed for arson, and his property claim was denied. Which one of the following describes the rights granted by Alfred's HO-3 to the mortgagee? A. The mortgagee will collect the full amount of the claim if it joins with the insurer in prosecuting Alfred. B. The mortgagee will not collect any amount of the claim because the loss was a fraudulent act. C. The mortgagee will collect the full amount of the claim. D. The mortgagee will collect the amount of its insurable interest in the property.

A. The mortgagee will collect the full amount of the claim if it joins with the insurer in prosecuting Alfred.

All of the following are included as insureds under the Section II—Liability Coverages of a homeowners policy, EXCEPT: A. The named insured's separated spouse who resides and works in another state B. The named insured's neighbor while caring for the insured's dog if the dog causes injury while in the neighbor's care C. The named insured's grandmother who lives with her D. The named insured's 17-year-old foster child

A. The named insured's separated spouse who resides and works in another state

When property is used to secure a loan, which of the following is exposed to loss? A. The property owner and the secured lender B. The property owner only C. The secured lender only D. Neither the property owner nor the secured lender

A. The property owner and the secured lender

Property insurers are subject to the possibility of many claims occurring from a single event and straining their resources. This type of event is called A. A simulation. B. A catastrophe. C. An occurrence. D. An accident.

B. A catastrophe.

Which one of the following types of insurance policies is least likely to be considered a contract of adhesion? A. An automobile policy B. A manuscript policy C. A personal articles floater D. A commercial crime policy

B. A manuscript policy

One of the benefits to a business of retaining a loss exposure instead of insuring it is A. Access to the insurer's loss control services. B. A reduction in expenses. C. A greater peace of mind. D. Increase in expenses.

B. A reduction in expenses.

Ching is a commercial claim representative who has been assigned a large fire loss. Ching suspects that the insured may not have been completely honest in describing the property before the policy was issued such that coverage for the claim may be denied. In which document might Ching find the representations of the insured regarding the property's description? A. Endorsements B. Application C. Manuscript D. Declarations

B. Application

Many businesses have refrigeration equipment, production equipment, steam boilers, and air conditioning systems. These are all examples of A. Property in transit. B. Boilers and machinery. C. Mobile equipment. D. Personal property.

B. Boilers and machinery.

Someone contracting while under the influence of alcohol or drugs can avoid or ratify the contract upon becoming sober because there is no A. Legal purpose. B. Capacity to contract. C. Consideration. D. Agreement.

B. Capacity to contract.

What type of law is specifically designed to protect personal and property rights, as well as contract rights? A. Local ordinances B. Civil law C. Criminal law D. Constitutional law

B. Civil law

The law that consists of the body of principles and rules established over time by court decisions on a case-by-case basis is called A. Regulatory law. B. Common law. C. Administrative law. D. Constitutional law.

B. Common law

The principal method of determining a prospect's insurance needs is through A. Determining how much the prospect is willing to pay for insurance coverage. B. Completing a risk management review for the prospect. C. Asking the prospect what coverage they would like to purchase. D. Reviewing the prospect's current insurance policies.

B. Completing a risk management review for the prospect.

An insurer will make a loss payment if an insured loss occurs and if the insured performs certain duties. This illustrates that an insurance policy is a A. Personal contract. B. Conditional contract. C. Contract of indemnity. D. Contract of adhesion.

B. Conditional contract.

Insurance policies are written in such a way that the parties have to perform only under certain conditions, because an insurance contract is a A. Contract of indemnity. B. Conditional contract. C. Contract of adhesion. D. Contract of utmost good faith.

B. Conditional contract.

In implementing risk management techniques, the risk manager usually A. Relies on consultants outside the organization to implement the techniques. B. Depends on others to implement the techniques based on the risk manager's advice. C. Has complete authority to make decisions and implement the techniques. D. Is responsible for communicating guidelines but is otherwise not involved in implementing techniques.

B. Depends on others to implement the techniques based on the risk manager's advice.

When implementing selected risk management techniques, a risk manager must A. Base decisions on informal guidelines. B. Determine how to allocate the costs of the program. C. Analyze the benefits of the risk management program. D. Base decisions on financial criteria.

B. Determine how to allocate the costs of the program.

Barton Industries keeps copies of key documents stored at a second location. The risk control technique Barton Industries is using is A. Avoidance. B. Duplication. C. Loss prevention. D. Separation.

B. Duplication.

The homeowners policy excludes coverage for professional services, such as those provided by a physician, primarily in an attempt to A. Avoid covering uninsurable losses. B. Eliminate coverage for exposures that require special handling by the insurer. C. To avoid insuring losses that could be prevented. D. Eliminate duplicate coverage.

B. Eliminate coverage for exposures that require special handling by the insurer.

Watercraft liability and aircraft liability are excluded under commercial general liability (CGL) policies primarily to A. Keep premiums reasonable. B. Eliminate duplicate coverage. C. Avoid insuring losses that could be prevented. D. Avoid covering uninsurable losses.

B. Eliminate duplicate coverage.

If an employee is operating a vehicle negligently while in the course of employment, which one of the following parties may be found jointly liable as well? A. Co-worker B. Employer C. Customer D. Leaseholder

B. Employer

Which one of the following best describes how effective risk management benefits insurers? A. Causing fewer disruption in the social environment B. Encourages insurers to create innovative products and offer competitive prices C. Increased ability to accurately predict future losses D. Stimulating economic growth

B. Encourages insurers to create innovative products and offer competitive prices

In commercial insurance, the person who is responsible for paying premiums and who also has the right to receive any return premiums is the A. Named insured. B. First named insured. C. Other insured. D. Additional insured.

B. First named insured.

The first step in the risk management process is to: A. Analyze loss exposures. B. Identify loss exposures. C. Implement the selected technique. D. Select the appropriate technique.

B. Identify loss exposures.

Which one of the following statements is correct with respect to the condition Duties in the Event of Loss or Damage of the Building and Personal Property Coverage Form (BPP)? A. The insured is required to give the insurer notice of the loss, including a description of the property damaged, within 24 hours. B. If the insured fails to perform any of them, the insurer may not have to pay for the loss. C. To prevent insurance fraud, the insurer is obliged to notify the police of all losses reported. D. The claims adjuster is required to take all reasonable steps to protect the property from further loss, prepare an inventory and set the damaged property aside.

B. If the insured fails to perform any of them, the insurer may not have to pay for the loss.

Almost all property insurance policies exclude coverage for losses from war and nuclear hazard because A. It is against public policy to cover losses from war and nuclear hazard. B. Insurance industry funds might not be adequate to pay all losses caused by war or nuclear hazard. C. There might not be enough claim adjusters available in the event of a loss. D. It is illegal to cover losses from war and nuclear hazard.

B. Insurance industry funds might not be adequate to pay all losses caused by war or nuclear hazard.

An insurance policy is considered a contract of adhesion when it is drafted by the A. Insurance commissioner. B. Insurer. C. Third party. D. Insured.

B. Insurer.

Which one of the following statements is correct with respect to the Causes of Loss-Special Form? A. It covers theft by looting at the time of a riot or civil commotion, but it does not cover theft under any other circumstances. B. It shifts the burden of proof as to whether a loss is covered from the insured to the insurer. C. It includes a much longer list of specified perils than either the basic or the broad form. D. It specifically excludes all loss or damage caused by or resulting from vehicles owned by the named insured or operated in the course of the named insured's business.

B. It shifts the burden of proof as to whether a loss is covered from the insured to the insurer.

Bob and Diane Rothwell's rural home is insured with an HO-3 policy. During spring clean up, the Rothwells hired a college student to help clean up and burn the brush that had accumulated over the prior season. As the brush pile was burning, an unexpected wind carried the fire across the Rothwells' pasture. Bob and Diane, their 15-year-old son Jeff, Diane's father who was visiting, the college student, and a neighbor all worked together to put out the fire before it spread to the neighbor's yard. They all suffered some burns. All of the parties involved in fighting the fire will be able to collect compensation for their medical bills to treat their burns from the Medical Payments to Others coverage from the Rothwells' HO-3, EXCEPT: A. The neighbor B. Jeff C. The college student D. Diane's father

B. Jeff

A risk manager in an industrial plant is trying to determine where she needs to spend most of her time in reducing the number of work-related accidents. Which one of the following should the risk manager measure to determine where she should expend her efforts? A. Flow chart bottlenecks B. Loss frequency C. Number of workers in each area D. Loss severity

B. Loss frequency

Jane's son, Joe, is 15-years-old and he will obtain his driver's license this summer when he becomes 16. Joe has expressed an interest in driving Jane's car once he has his license. Jane owns a compact car and is concerned that Joe might be hurt if he is involved in an accident while driving her car. Jane has read reports indicating that people occupying sport utility vehicles suffer less severe injuries when involved in accidents. If Jane trades her compact car in for a sport utility vehicle, which one of the following risk management techniques will she be applying? A. Avoidance B. Loss reduction C. Noninsurance transfer D. Loss prevention

B. Loss reduction

Loss exposure surveys or checklists are comprehensive and apply to almost any organization. The survey's major weakness is that they A. Have to be custom designed for each business. B. May omit an important exposure. C. Are expensive. D. Take too long to complete

B. May omit an important exposure.

A commercial package policy is an example of a A. Standard self-contained policy. B. Modular policy. C. Nonstandard self-contained policy. D. Manuscript policy.

B. Modular policy.

Loss histories can offer great insight into an organization's loss exposures. The problem with depending too heavily on this one source is that some past events might A. Have been insured. B. Not have been recorded. C. Not have been insured. D. Still be unresolved.

B. Not have been recorded.

Twelve-year-old Beth entered into a contract to purchase an expensive bracelet from Sherry. Before she paid Sherry for the bracelet, Beth accidentally dropped it into a meat grinder, ultimately crushing and destroying it. In a legal action, most courts would A. Require Beth to pay Sherry the full value of the bracelet. B. Permit Beth to reject the contract due to her capacity to contract. C. Permit Beth to pay only the actual cash value of the bracelet. D. Require Beth to replace the bracelet under the doctrine of substantial performance.

B. Permit Beth to reject the contract due to her capacity to contract.

Other than for money, for what primary reasons or types of reasons would an internationally based American organization's employees be kidnapped or held for ransom?: A. Psychological reasons B. Political reasons C. Microeconomic reasons D. Cultural reasons

B. Political reasons

What kind of liability exposure does a manufacturer face if it emits contaminants that cause environmental impairment? A. Completed operations B. Pollution C. Premises D. Business operations

B. Pollution

Which one of the following statements is correct with respect to deductibles? A. Reducing a deductible from $500 to $250 represents too small a reduction in loss payments to generate any reduction in premiums. B. Premiums are reduced in return for the insured's acceptance of a higher deductible. C. Because deductible amounts are generally small, they have no significant impact on loss costs and, therefore, do not affect property rates. D. Commercial property rates are developed with the assumption that the policy will be subject to a $5,000 deductible.

B. Premiums are reduced in return for the insured's acceptance of a higher deductible.

People who handle claims may be staff claim representatives, independent adjusters, employees of third-party administrators, or A. Special claims representatives. B. Producers who sell policies to insureds. C. Self-insurer claim representatives. D. Private claims representatives.

B. Producers who sell policies to insureds.

In property insurance, the term "property in transit" refers to which one of the following? A. Property while being moved from one building to another at the insured location only B. Property while being transported by trucks, cars, buses, trains, airplanes, and ships C. Mobile equipment while moving under its own power from one work location to another D. Owned property while located anywhere other than the insured location

B. Property while being transported by trucks, cars, buses, trains, airplanes, and ships

A physical inspection can help to identify loss exposures that are not identified through other means because it A. Is required in any sound physical fitness program. B. Provides the opportunity to see things firsthand. C. Requires the use of a thorough checklist. D. Is based on direct information from others.

B. Provides the opportunity to see things firsthand.

A fire negligently caused by an Alpha Corp. employee caused extensive damage to Alpha's six-story building. Fearing a possible building collapse, fire officials required nearby businesses to close. Those businesses sued Alpha, seeking payment for lost income that resulted from the loss of use of their properties. How would Alpha's commercial general liability insurer respond to this claim? A. Deny the claim because the businesses' properties did not suffer physical damage. B. Respond to the claim, because Alpha's policy defines property damage to include loss of use of buildings that are not physically damaged. C. Deny the claim because the businesses have no standing under Alpha's policy. D. Deny the claim because the loss of income was caused by the fire department's action.

B. Respond to the claim, because Alpha's policy defines property damage to include loss of use of buildings that are not physically damaged.

Malvern Imports has several retail stores in a three-state area. They receive and store imports in a large central warehouse. The risk manager is considering ways to lower the severity exposure due to a fire loss to the warehouse. Which one of the following would most effectively decrease the severity exposure of fire loss to the warehouse? A. Loss prevention B. Separation C. Duplication D. Avoidance

B. Separation

Personnel loss exposures can be comprised of all of the following categories of key personnel, EXCEPT: A. Individual employees B. Shareholders C. Owners, officers, and managers D. Groups of employees

B. Shareholders

Damages awarded to pay surgeon's fees following an auto accident, are referred to as A. Punitive damages. B. Special damages. C. Surgical damages. D. General damages.

B. Special damages.

The liability that someone could incur because of an inherently dangerous activity, such as building demolition, is called A. Nonretractable liability. B. Strict liability. C. Compulsory liability. D. Nontransferable liability.

B. Strict liability.

While Wanda was mowing her lawn, the lawn mower made a popping noise and suddenly exploded. Engine parts flew through the air and struck Wanda's grandfather in the eye. As a result of losing his vision, Wanda's grandfather, Homer, sued the lawnmower manufacturer. Homer's best approach in the lawsuit is to assert A. Imputed negligence. B. Strict liability. C. Breach of warranty. D. Intentional negligence.

B. Strict liability.

Claim representatives should understand the subjective interpretation of negligence and gross misconduct. The difference between negligence and gross misconduct is determined by A. The claim representative's exercised standard of care. B. The court's or jury's interpretation of the facts. C. The actual intentions of the claim representative. D. Federal law.

B. The court's or jury's interpretation of the facts.

Which one of the following is true regarding loss histories? A. Loss histories are not commonly used to identify loss exposures. B. The quality of loss histories depends on whether they are organized and consistent. C. Changing environments have little effect on the quality of loss histories. D. Changes in an organizations operations have little effect on the quality of loss histories.

B. The quality of loss histories depends on whether they are organized and consistent.

Risk management concepts in one form or another apply A. Only to international companies. B. To all companies and families. C. Only to large companies. D. To all companies but not families.

B. To all companies and families.

All for-profit organizations are exposed to net income losses. Net income is defined as A. Total income minus indirect losses. B. Total revenue minus total expenses. C. Total profit minus total expenses. D. Total assets minus total liabilities.

B. Total revenue minus total expenses.

When an agency relationship is created between a principal and the agent, it requires a high degree of: A. Oversight. B. Trust. C. Creativity. D. Patience.

B. Trust.

Which one of the following is part of written premiums? A. Underwriting expenses B. Unearned premiums C. Policyholders' surplus D. Investment income

B. Unearned premiums

When a business suffers loss of income following a liability suit that causes customers to lose confidence in the business' products, what type of loss has the business suffered? A. Confidence loss B. Punitive damage C. Damage to reputation D. Special damage

C. Damage to reputation

A liability policy has an aggregate limit of $1 million, an each occurrence limit of $500,000, and an each person limit of $100,000. A court ordered the insured under this policy to pay $50,000 in damages to each of three claimants as the result of a single accident. What is the total amount payable under this policy to all three claimants?

C. $150,000

Liability split limits for a Personal Auto Policy (PAP) expressed as $300/$500/$100 mean limits of A. $300 per person for bodily injury, $500 per accident for bodily injury, and $100 per accident for property damage. B. $300,000 per accident for bodily injury, $500,000 for property damage and bodily injury, and a $100,000 deductible. C. $300,000 per person for bodily injury, $500,000 per accident for bodily injury, and $100,000 per accident for property damage. D. $900,000 for all damages combined.

C. $300,000 per person for bodily injury, $500,000 per accident for bodily injury, and $100,000 per accident for property damage

An insurance-to-value provision in property insurance policies that reduces the amount the insurer will pay for a covered loss that occurs to property that is underinsured is A. A policy limit. B. The replacement value. C. A coinsurance clause. D. A deductible.

C. A coinsurance clause.

An insurer has decided to take an extremely narrow interpretation of a property insurance policy provision to limit the number of loss payments it will need to make. It realizes that its interpretation is probably wrong, but it knows that individual insured's loss amounts will be small, such that most insureds will not take the trouble to file lawsuits against it. The insurer may be violating the principle that an insurance policy is A. A conditional contract. B. A contract of indemnity. C. A contract of utmost good faith. D. A contract of adhesion.

C. A contract of utmost good faith.

SEB Holdings has grown into a multi-billion dollar financial services firm. For 38 years, Big Hal has been its CEO and has ruled the company with an iron first. Big Hal is 78 years old, and financial analysts are concerned about his health and longevity and how closely these factors relate to the company's success. Which one of the following might help assuage the analysts' concerns? A. Disability insurance on Big Hal B. A letter attesting to Big Hal's good health C. A corporate succession plan D. Key man retirement plan

C. A corporate succession plan

The validity of a contract depends on all of the following essential elements, EXCEPT: A. Agreement B. Consideration C. Adhesion D. Legal purpose

C. Adhesion

A completed operations liability loss exposure differs from a products liability loss exposure in that the completed operations liability loss exposure A. Arises out of the entity's defective product, whether or not it has been installed as part of the finished work. B. Is based solely on negligence and breach of warranty rather than strict liability. C. Arises out of the entity's completed work, including defective parts or materials furnished with the work. D. Is based solely on strict liability rather than negligence or strict liability.

C. Arises out of the entity's completed work, including defective parts or materials furnished with the work.

Buildings, investments, patents, and human resources are all examples of A. Causes of loss or perils. B. Financial consequences of loss. C. Assets exposed to loss. D. Tangible and intangible hazards.

C. Assets exposed to loss.

The risk management technique that eliminates a loss exposure and reduces the chance of loss to zero is A. Duplication. B. Loss Prevention. C. Avoidance. D. Loss reduction.

C. Avoidance.

As Bob walks down a country road, he sees a barn on fire. There are several animals in the barn. Bob is afraid of fire so he leaves. Later, the owner of the barn sues Bob for negligence because the barn and the animals burned. Which one of the following best describes Bob's legal situation? A. Bob will not be held liable because his failure to act was not a proximate cause of the loss. B. Bob will be held liable because failing to attempt to save the animals was a tort. C. Bob will not be held liable because he had no legal duty to endanger himself. D. Bob will be held liable because his actions were equal to an intentional injury.

C. Bob will not be held liable because he had no legal duty to endanger himself.

Which one of the following statements is true concerning the use of the Internet to market insurance products? A. Consumers' ability to access competitor information is reduced when insurers market products over the Internet. B. Consumers who use the Internet for insurance focus chiefly on service rather than price. C. Consumers assume that insurance purchased over the Internet will be less expensive than the same product purchased from a producer. D. Insurers' costs for underwriting and claim processing services are increased by having an Internet presence.

C. Consumers assume that insurance purchased over the Internet will be less expensive than the same product purchased from a producer.

Because insurance contracts impose an obligation of complete honesty on the parties, an insurance contract is called a A. Contract of adhesion. B. Conditional contract. C. Contract of utmost good faith. D. Contract of indemnity.

C. Contract of utmost good faith.

Which one of the following statements is true regarding the distinguishing characteristics of insurance contracts? A. Standard insurance policies contain no ambiguities. B. Insurance policies are considered conditional because if the insured meets the premium payment condition, the insurer must pay the claims. C. Contracts of adhesion significantly influence the enforcement of insurance policies. D. Insureds are generally allowed to transfer an insurance policy to a third party without the insurer's written consent, because insurance policies are not considered to be personal contracts.

C. Contracts of adhesion significantly influence the enforcement of insurance policies.

Ships and their cargoes represent a special category of property insurance. Which one of the following statements is correct with respect to this category? A. Because of the high risk of loss, ships and their cargoes are generally considered to be uninsurable. B. If a ship cannot reach its intended destination, the cargo cannot be sold in a different port. C. Even more than other property, ocean cargoes fluctuate in value according to their location. D. Ships and their cargoes are exposed only to the perils of windstorm and sinking.

C. Even more than other property, ocean cargoes fluctuate in value according to their location.

What will individuals gain as a benefit of applying sound risk management to automobile loss exposures? A. A loss free future B. No future increases in insurance premiums C. Greater peace of mind D. Economic growth

C. Greater peace of mind

The definitions section of the policy A. Consists of dictionary meanings of words. B. Contains a definitive statement of coverage. C. Helps clarify real or perceived ambiguity. D. Describes the services provided by the insurer.

C. Helps clarify real or perceived ambiguity.

In preparation for installing a new alarm system at a business location, Risk Manager Tony Marcelli has consulted with his insurance agent to make sure that appropriate property and liability coverages are in place during installation. Also, Tony wants to be sure the insurer provides the proper insurance credit for the new alarm system. Tony's actions described above are part of which one of the following steps of the risk management process? A. Examining the feasibility of the risk management technique. B. Selecting the appropriate risk management technique. C. Implementing the selected risk management technique. D. Monitoring results of the risk management technique.

C. Implementing the selected risk management technique.

Which one of the following describes a benefit to businesses of making insurance part of an overall risk management program instead of relying solely on insurance? A. Stimulating economic growth B. Increased use of exposure avoidance C. Improved access to affordable insurance D. Reducing the number of persons dependent on society for support

C. Improved access to affordable insurance

Net income losses can be caused by which one of the following? A. Decreases in expenses B. Increases in revenue C. Increases in expenses D. Decreases in hazard risks

C. Increases in expenses

For property insurance purposes, wall-to-wall carpeting is typically considered to be part of the building because it A. Is easy to value. B. Tends to depreciate in value along with the building. C. Is permanently attached to the building. D. Is readily visible.

C. Is permanently attached to the building.

When an insured borrows money to purchase a car, the insured is usually required to add the lender to the auto policy as a: A. Mortgagee. B. Named insured. C. Loss Payee. D. Lessee.

C. Loss Payee.

Which one of the following is the goal of enterprise-wide risk management (ERM)? A. Reduce risk management costs B. Decentralize control of business decisions C. Maximize the organization's value D. Coordinate loss reduction efforts

C. Maximize the organization's value

The most common violations of the concept of utmost good faith in insurance policies involve buildup in insurance claims filed by insureds and/or A. Overindemnification. B. Adverse selection. C. Misrepresentation of material facts. D. Exchange of unequal amounts.

C. Misrepresentation of material facts.

Basheer sold his car to Carl. For an additional sum, he also transferred his auto policy to Carl, to go with the car. Is Carl now entitled to the benefits promised by Basheer's policy? A. It depends on the intent of the parties. B. Yes, because the assignment was a proper transaction. C. No, because Basheer's policy is not transferable. D. It depends on whether or not Carl suffers a subsequent loss.

C. No, because Basheer's policy is not transferable.

Jay purchased a used car that is painted purple with orange swirls, and its bumpers are green with yellow stripes. In his application for auto insurance, he was embarrassed to disclose the true colors of his car, so he wrote that it was white. Jay was later in an accident with the car. May his insurance insurer disclaim coverage for his losses because of the deliberate falsehood on his application? A. Yes, because Jay is guilty of a misrepresentation. B. No, because there was no intent to deceive; Jay was just trying to avoid embarrassment. C. No, because the falsehood did not involve a material fact. D. Yes, because Jay is guilty of concealment.

C. No, because the falsehood did not involve a material fact.

Interest that may accrue on damages before a judgment has been rendered is A. Postjudgment interest. B. Collateral interest. C. Prejudgment interest. D. Retroactive interest.

C. Prejudgment interest.

Anyone who owns or occupies property has a: A. Professional liability loss exposure. B. Products liability loss exposure. C. Premises liability loss exposure. D. Pollution liability loss exposure.

C. Premises liability loss exposure.

Alan Peachtree owns a hobby shop, which he runs from a detached garage on his property. Alan has set aside funds to pay for possible property losses rather than purchasing insurance. Which one of the following risk management techniques is Alan using?: A. Loss control B. Avoidance C. Retention D. Non-Insurance transfer

C. Retention

Defending liability claims through litigation can be a very long and expensive process. Mediation and arbitration are two common forums for settling claims outside the traditional court system. What is the difference between arbitration and mediation? A. Solutions are proposed in arbitration to help the parties settle. B. The arbitrator's decision is always binding. C. Someone other than the insurer and the claimant decides the case in arbitration. D. Only one insured and one insurer can be involved in arbitration.

C. Someone other than the insurer and the claimant decides the case in arbitration.

In creation of a contract of insurance, what is the consideration that is provided by the insurer? A. The acceptance of the application B. The prompt payment of claims C. The insurer's promise to pay claims for covered losses D. The insurer's delivering the insurance policy to the insured

C. The insurer's promise to pay claims for covered losses

It is easier to gauge the potential severity of property losses than of liability losses because property loss exposures A. Are confined to the building and contents. B. Can be determined as an average according to the type of business. C. Typically have a finite value. D. Have a calculable frequency.

C. Typically have a finite value.

As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. However, her friend Mehmet tells her not to skimp on insurance, because it will help manage her cash flows. Which one of the following examples best illustrates Mehmet's point? A. When her car's transmission goes out a month after the warranty expires, Ciara is faced with a $1,100 repair bill. B. Ciara needs her car to get to her job, and she needs her job to make car payments and pay for her car insurance. C. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it. D. Ciara finds it difficult to come up with a $787 auto insurance premium every six months.

C. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it.

Which one of the following statements is correct with respect to the subrogation provision in Part One of the Workers Compensation and Employers Liability Policy? A. An employer's failure to comply with health and safety laws and regulations results in immediate suspension of coverage. B. Dependents of a deceased employee have no right of action against the insurer. C. When the insurer pays benefits, any right of recovery against a third party becomes the right of the insurer. D. If the employer fails to comply with policy requirements, the insurer is not obliged to pay benefits.

C. When the insurer pays benefits, any right of recovery against a third party becomes the right of the insurer.

Randy and Ida are concerned that a buried heating oil tank in their yard might be leaking, but they have decided that replacing that tank must wait until they have the funds in a year or two. Randy and Ida have discovered that pollution resulting from a leak would not be covered by their homeowners insurance policy. They fear the oil might seep into the water table and contaminate their neighbors' well water. Illness and damage that might result could be very expensive. Randy and Ida can purchase an endorsement that will provide coverage for this pollution exposure. The endorsement would cost $50 per year. Is this an effective risk management selection for Randy and Ida until they can replace the tank? A. No, each neighbor will have insurance to cover any damage to their wells. B. Yes, they should do this indefinitely and not replace the tank. C. Yes, they are exchanging a large exposure for a little premium. D. No, they are spending a lot of money for little protection.

C. Yes, they are exchanging a large exposure for a little premium.

An insured under a personal auto policy with liability limits of $100,000/$300,000/$25,000 is responsible for an auto accident that resulted in $90,000 in damages for bodily injury. The costs incurred by the insurer to defend the insured were $20,000. Which one of the following amounts did the insurer pay as a result of the accident?

D. $110,000

When implementing the selected risk management techniques, the risk management program must include: A. A loss analysis. B. A mission statement. C. An analysis of expected results. D. A communications plan.

D. A communications plan.

Which one of the following statements about policy sections is true? A. Declarations state what an insurer will not cover. B. An insuring agreement establishes procedures for implementing the policy. C. Exclusions define terms to clarify ambiguity. D. A condition clarifies an insurer's promise or an insured's duty.

D. A condition clarifies an insurer's promise or an insured's duty.

One of the benefits to a business of retaining a loss exposure instead of insuring it is A. A greater peace of mind. B. Access to the insurer's loss control services. C. Increase in expenses. D. A reduction in expenses.

D. A reduction in expenses.

Juanita is the senior claim officer for Worthy Insurance Company, which uses the claim audit as a performance measure for its claim operations. Claim audits usually evaluate both quantitative and qualitative factors. Which one of the following factors is qualitative for Juanita and her staff? A. Accuracy and completeness of data entry B. Average claim settlement value by claim type C. Percentage of recovery from subrogation D. Accurate evaluation of insured's liability

D. Accurate evaluation of insured's liability

An auto dealer's showroom is destroyed by fire, and the dealer has to temporarily rent an adjacent building to use as a showroom. This is an example of A. A reduction in value. B. Lost income. C. An altered condition. D. An extra expense.

D. An extra expense.

Angela is having a dispute with her insurance company regarding a claim and the definition of an insured loss. The definition is subject to two reasonable interpretations, one that favors Angela and one that favors the insurer. A court of law is likely to find in favor of A. The insurer, because an insurance contract is a contract of adhesion. B. Both parties, because the definition is subject to two interpretations. C. Neither party, because each side has failed to meet the burden of proof. D. Angela, because an insurance contract is a contract of adhesion.

D. Angela, because an insurance contract is a contract of adhesion.

The Section II Limit of Liability provision of the HO-3—Special Form (HO-3) stipulates that the single limit of Coverage E—Personal Liability appearing on the declarations page is the total limit of coverage for A. Each insured separately. B. Each person injured in a claim. C. Each claim made relative to an occurrence. D. Any one occurrence.

D. Any one occurrence.

Most insurance policies exclude loss caused by war in order to A. Avoid insuring losses that could be prevented. B. Keep premiums reasonable. C. Eliminate duplicate coverage. D. Avoid covering uninsurable losses.

D. Avoid covering uninsurable losses.

Waking up on a cold February morning, Amy discovers the roads are icy and snow covered. Concerned about driving to work and possibly having an accident, she decides to take the day off. Amy's decision is an example of which one of the following risk management techniques? A. Loss reduction B. Separation C. Loss prevention D. Avoidance

D. Avoidance

Which one of the following best describes how effective risk management benefits society? A. Increasing the types of charitable and governmental agencies available to the general public B. Providing more thoughtful consumers of insurance C. Creating a positive effect on an insurer's underwriting results D. Causing fewer disruptions in the economic and social environment

D. Causing fewer disruptions in the economic and social environment

How might the monitoring and revising step in the risk management process be simply described? A. Make sure insurance is not being used as a substitute for loss control. B. Identify noninsurance transfers through hold harmless agreements. C. Create a new workflow and identify new bottlenecks that have occurred. D. Check to make sure the decisions made are still valid and make changes as needed.

D. Check to make sure the decisions made are still valid and make changes as needed.

The branch of law that deals with the rights and responsibilities of citizens with respect to one another is A. Constitutional law. B. Contract law. C. Criminal law. D. Civil law.

D. Civil law.

While driving to work, John loses control of his automobile, which jumps a curb and strikes a tree. Which one of the following coverages must John have purchased in order for the damage to his vehicle to be covered? A. Specified causes of loss B. Vehicle damage C. Comprehensive D. Collision

D. Collision

The body of principles and rules established over time by courts on a case-by-case basis is known as A. Statutory law. B. State law. C. Informal law. D. Common law.

D. Common law.

A licensed electrician completes the job of rewiring a house and returns to his shop. With regard to this job, the electrician has a A. Business operations loss exposure. B. Premises liability loss exposure. C. Professional liability loss exposure. D. Completed operations loss exposure.

D. Completed operations loss exposure.

Individuals and families benefit from effective risk management in which one of the following ways? A. Creating a positive effect on an insurer's underwriting results B. Increasing their personal cash flows by retaining rather than insuring their property exposures C. Stimulating economic growth because fewer losses mean that more funds are available for other uses D. Continuing activities following an accident or other loss, and thus reducing inconvenience.

D. Continuing activities following an accident or other loss, and thus reducing inconvenience.

Which one of the following is a financial consequence of personnel losses to an organization? A. Costs of hiring new management personnel to manage a younger workforce B. Expenses of paying replacement employees more than departing employees C. Cost allocations relating to departing employees' benefit plans D. Losses to an organization's value caused by negative publicity

D. Losses to an organization's value caused by negative publicity

Which one of the following statements is true regarding the distinguishing characteristics of insurance contracts? A. Standard insurance policies contain no ambiguities. B. Insureds are generally allowed to transfer an insurance policy to a third party without the insurer's written consent, because insurance policies are not considered to be personal contracts. C. Insurance policies are considered conditional because if the insured meets the premium payment condition, the insurer must pay the claims. D. Contracts of adhesion significantly influence the enforcement of insurance policies.

D. Contracts of adhesion significantly influence the enforcement of insurance policies.

Brenda drove too rapidly through a work zone and ran over a worker's foot. Because she was afraid she would have to pay for the worker's injury, she did not stop to assist the worker. The liability imposed on Brenda for leaving the scene rather than providing assistance comes from A. Contractual law. B. Public duty. C. Negligence liability. D. Criminal law.

D. Criminal law.

Insurance policy limits, deductibles, and policy premium are found in which one of the following categories of insurance policy provisions? A. Insuring agreements B. Miscellaneous provisions C. Conditions D. Declarations

D. Declarations

Joshua is a claim representative who has been assigned an auto liability claim. To determine whether his company's Personal Auto Policy (PAP) provides coverage for the claim, Joshua should first review the policy's A. Exclusions. B. Conditions. C. Insuring Agreement. D. Declarations.

D. Declarations.

A neighbor has sued Andy for property damage that is potentially covered under Andy's homeowners liability coverage. Even if this lawsuit is found to be groundless, Andy's insurer will still probably be obligated to pay A. Compensatory damages. B. General damages. C. Special damages. D. Defense costs.

D. Defense costs.

Because insurers control how claims are resolved, courts reason that insurers should be responsible for the outcome of their claim handling if they have acted in bad faith. Therefore, courts hold insurers to a higher standard of conduct to A. Discourage insurers from deceiving the public in marketing and advertising practices. B. Encourage insurers to keep rates accurate, fair, and reasonable. C. Encourage insurers to be equitable in all insurance transactions. D. Discourage insurers from abusing their position of power.

D. Discourage insurers from abusing their position of power.

As part of the risk management process, determining how to allocate the costs of the risk management program is important. All of the following are risk management costs that should be allocated, EXCEPT: A. Insurance premiums B. Costs of loss control C. Losses retained D. General overhead expenses

D. General overhead expenses

A physical inspection is a method used to A. Examine the feasibility of techniques. B. Monitor results. C. Analyze loss exposures. D. Identify loss exposures.

D. Identify loss exposures.

In smaller organizations and in households, the person making risk management decisions is often the person A. Causing the losses B. Settling the claims. C. Least qualified. D. Implementing the program.

D. Implementing the program.

Which one of the following describes a benefit to businesses of making insurance part of an overall risk management program instead of relying solely on insurance? A. Reducing the number of persons dependent on society for support B. Stimulating economic growth C. Increased use of exposure avoidance D. Improved access to affordable insurance

D. Improved access to affordable insurance

Sound risk management benefits society in each of the following ways, EXCEPT: A. Reducing the number of people dependent on society for support B. Stimulating economic growth C. Causing fewer disruptions in the economic and social environment D. Increasing opportunity costs

D. Increasing opportunity costs

Frank and Jan recently married and purchased their first home together. What is an effective way for Frank and Jan to begin identifying the liability loss exposures associated with their new home? A. Purchase a homeowners insurance policy B. Determine the value of the home and contents C. Hire a professional risk manager D. Inspect the home for loss exposures

D. Inspect the home for loss exposures

The HO-3—Special Form (HO-3) policy, a nontransferable contract A. Cannot be assigned to another party. B. May be assigned when the insured makes a written request within 60 days of the assignment. C. Is fully assignable without the insurer's consent. D. Is assignable only with the insurer's written consent.

D. Is assignable only with the insurer's written consent.

Which one of the following identifies a benefit that a business can receive by applying sound risk management? A. It will meet state and federal safety regulations. B. It will not have to worry about losses. C. It will be able to attract and retain talented employees and managers. D. It will have a better opportunity to achieve business goals.

D. It will have a better opportunity to achieve business goals.

Chuck and Sally discovered they have flaking lead paint on the walls and trim inside their recently purchased house. They researched lead paint hazards and abatement techniques on the Internet and discovered the best action they can take is to remove loose paint chips and dust, replace the windows, and seal the walls with a paint designed for that purpose. Which one of the following risk management techniques does this activity involve? A. Avoidance B. Retention C. Noninsurance transfer D. Loss control

D. Loss control

There have been several recent burglaries in Sally's neighborhood. Which one of the following best describes a risk management technique and a corresponding example of that technique that Sally should consider due to the recent increase in burglaries? A. Separation, such as installing a new alarm system B. Loss prevention, such as installing a safe in her home C. Loss reduction, such as keeping doors and windows locked D. Loss prevention, such as keeping doors and windows locked

D. Loss prevention, such as keeping doors and windows locked

The use of a seatbelt while driving a car is an example of A. Separation. B. Loss prevention. C. Avoidance. D. Loss reduction.

D. Loss reduction.

Which one of the following characteristics regarding kidnap and ransom are important for an international organization to consider in assessing personnel loss exposures? A. High frequency but low severity B. Low frequency and low severity C. High frequency and high severity D. Low frequency but high severity

D. Low frequency but high severity

In a strict liability case against toothpaste manufacturer Company P, plaintiff Carla claimed that the toothpaste caused enamel erosion which required her to have extensive dental procedures to fix her teeth. In a products liability case based on strict liability, Carla must prove that Company P: A. Was aware of the potential for enamel erosion and intended the harm. B. Did not use the utmost care in making the toothpaste. C. Misrepresented the qualities of the toothpaste. D. Made toothpaste that was dangerously defective when it left the manufacturer.

D. Made toothpaste that was dangerously defective when it left the manufacturer.

Edna, who participates in a homeowners' reciprocal exchange knows that the members of the exchange insure members' loss exposures. A policy issued by the reciprocal insurer specifies the attorney-in-fact's authority to implement its powers on behalf of Edna and the other members of the exchange. Since this information regarding the powers of the attorney-in-fact affects coverage but does not have the force of conditions, it is found under her policy's A. Conditions. B. Declarations. C. Insuring agreement. D. Miscellaneous provisions.

D. Miscellaneous provisions.

The last step in the risk management process is to A. Implement the selected technique. B. Identify loss exposures. C. Select the appropriate technique. D. Monitor results.

D. Monitor results.

A liability policy generally gives the broadest protection to the A. Additional insured. B. Mortgagee. C. Loss payee. D. Named insured.

D. Named insured.

When John was driving his car, he was inattentive and was unable to stop in time to avoid hitting a car stopped at a traffic light. The collision damaged the stopped car. What is the basis for John's liability? A. Absolute liability B. No-fault statutes C. Statutory liability D. Negligence

D. Negligence

The death of a shareholder in a close corporation is often a significant event for the corporation for which one of the following reasons? A. Key shareholders are paid high salaries and are difficult to replace. B. Shareholders in a close corporation also serve on the board of directors resulting in a disparity of shareholder votes. C. The death or disability of one of the shareholders generally results in payment of dividends to the remaining shareholders. D. Ownership in a close corporation is typically concentrated in just the few major shareholders, most of whom are also managers.

D. Ownership in a close corporation is typically concentrated in just the few major shareholders, most of whom are also managers.

Kid Smart manufacturing makes a line of childrens toys. The possibility that a child may be injured because of a defect in a Kid Smart toy is what type of liability loss exposure for this toy manufacturer? A. Completed operations B. Business operations C. Professional activities D. Products

D. Products

The term "net income losses" is usually associated with: A. Loss of goodwill. B. Liability losses. C. Missed opportunities. D. Property losses.

D. Property losses.

The Auto Medical Payments Coverage endorsement to the business auto policy provides coverage for A. Bodily injury, including pain and suffering, suffered by the insured in a covered auto accident. B. Bodily injury, including pain and suffering, suffered by another person injured as a result of a covered auto accident. C. Medical, rehabilitation, income loss, substitute services, and death benefits specified by auto no-fault laws. D. Reasonable and necessary medical expenses incurred by a person, regardless of fault.

D. Reasonable and necessary medical expenses incurred by a person, regardless of fault.

Recruiting, interviewing, and training a new employee who replaces a worker who has just resigned are examples of which one of the following types of financial consequences flowing from personnel losses? A. Loss of value B. Compensation costs C. Depreciation costs D. Replacement costs

D. Replacement costs

Financial management decisions are made during which one of the following steps in the risk management process? A. Analyzing loss exposures B. Examining the feasibility of risk management techniques C. Implementing the selected risk management techniques D. Selecting the appropriate risk management techniques

D. Selecting the appropriate risk management techniques

An excess policy that contains all the agreements between the insured and insurer and that forms a complete insurance policy is a: A. Drop-down policy. B. Combination policy. C. Following-form policy. D. Self-contained policy.

D. Self-contained policy.

Which one of the following best identifies types of organizations that should be concerned with personnel loss exposures from a manager leaving for another organization? A. Sole proprietorships, but not corporations with separation of ownership and control B. Close corporations, but not sole proprietorships C. Sole proprietorships and close corporations, but not corporations with separation of ownership and control D. Sole proprietorships, close corporations, and corporations with separation of ownership and control

D. Sole proprietorships, close corporations, and corporations with separation of ownership and control

Many states have enacted automobile "no-fault" laws. Such laws ensure compensation for injuries without lengthy disputes over who's at fault. These laws are an example of A. Tort law. B. Contract law. C. Common Law. D. Statutory liability.

D. Statutory liability.

Which one of the following statements is true regarding aircraft liability coverage under a Commercial General Liability (CGL) policy? A. Aircraft liability is best handled by a CGL policy. B. Hobby aircraft that do not carry people or cargo are considered to be aircraft in a CGL policy. C. Model airplanes that do not carry people or cargo are considered to be aircraft in a CGL policy. D. The CGL policy specifically excludes aircraft liability coverage.

D. The CGL policy specifically excludes aircraft liability coverage.

If Katie purchases auto insurance from an out-of-state insurer without a license to sell insurance in Katie's state, the policy may be an invalid contract because A. The contract does not have a legal purpose. B. The principle of indemnity has been violated. C. Utmost good faith was not practiced by the parties. D. The insurer was not legally competent to make the agreement.

D. The insurer was not legally competent to make the agreement.

Losses arising from maintenance perils are generally excluded from property insurance policies because A. They are unexpected and therefore difficult to insure. B. Covering them would result in a moral hazard. C. Maintenance agreements generally cover them. D. They are either certain to occur over time or are avoidable.

D. They are either certain to occur over time or are avoidable.

Jose asked his neighbor, Martina, to go to the store in Jose's car and pick up some bread. While on the way to the grocery store, Martina had an accident causing bodily injury and property damage to another party. Martina had acted as Jose's agent. This scenario can best be described as an example of A. The family purpose doctrine. B. Contributory negligence. C. Strict liability. D. Vicarious liability.

D. Vicarious liability.

A promise made by a seller that a product is fit for a specific purpose is called a A. Condition of sale. B. Seller's promise. C. Guarantee. D. Warranty.

D. Warranty.

Extra expenses are a common financial consequence of property losses. Which one of the following is an example of an extra expense? A. A fence worth $7,000 was damaged by a car, and the fence owner has to pay $2,000 to have the damage repaired. B. When a grocery store in a mall burns, other nearby stores have to close and lose revenue until the grocery store is repaired. C. Even though fire has made a building untenantable, the landlord must continue making mortgage and tax payments. D. When a family's house is damaged, the family must pay rent to live in a hotel temporarily.

D. When a family's house is damaged, the family must pay rent to live in a hotel temporarily.