AU62 Course Exam Practice Questions

LMN Company purchased general liability insurance with a $100,000 per-occurrence limit. The general liability coverage excludes liability assumed by contract. LMN also purchased an umbrella liability policy with a $1 million per-occurrence limit and a $50,000 self-insured retention. The umbrella policy covers liability assumed by contract. LMN became legally obligated to pay a $250,000 claim resulting from liability assumed by contract. How much of the $250,000 will be paid by LMN's umbrella insurer?

$200,000

When analyzing an insured's loss history, approximately how many years of data should excess and umbrella liability insurance underwriters use in order to fully understand the insured's loss exposures?

10-plus years

An insured with a Commercial General Liability (CGL) policy with a $1,000,000 limit and an umbrella with a $10,000,000 limit would have coverage for a total of

11,000,000. the umbrella's limits apply above the limits of a primary policy

ABC Insurance Company provided commercial general liability insurance for XYZ Grocery Chain with aggregate annual limits of $2,000,000. XYZ was sued for $5,000,000 by a plaintiff that alleged that she was injured on XYZ's premises when XYZ employees failed to clean up some spilled milk in the dairy aisle. Against the advice of his senior claims manager, the vice president of claims at ABC vowed to continue to contest the claim, even after a reasonable settlement offer of $300,000 was made by the plaintiff's attorney. At the conclusion of the trial, a jury awarded the plaintiff $4,500,000. ABC was found to have acted in bad faith in the course of rejecting the $300,000 settlement offer and was ultimately required to pay the full amount of the $4,500,000 judgment. Of the $4,500,000 that ABC was eventually required to pay, how much of it would be classified as "extracontractual damages"?

2,500,000

JKL Company retains general liability claims up to $100,000 per occurrence. The company purchased excess liability insurance that provides both specific and aggregate excess coverage on an annual basis. After the $100,000 retention, the specific excess limit is $500,000 per occurrence. The aggregate excess limit is $5 million. During the year this excess arrangement was in place, JKL sustained three general liability claims. These three occurrences resulted in settlements of $700,000, $50,000, and $400,000. How much of these three settlements will JKL's excess insurer pay in total?

800,000. $500,000 + 0 + $300,000 = $800,000; JKL's excess insurer will pay $800,000.

Agent Amanda's client had a general liability claim denied because the insurance application misrepresented the true exposure the insurer was being asked to cover. Amanda's client filed suit against her since it was she who delivered the application to the insurer. Amanda's defense was that the information in the application was supplied by the client and she had no reason to doubt it. Amanda's defense is an example of a failure of the plaintiff to prove which one of the following elements in tort liability?

A breach of legal duty

A building's heating and electrical systems would fall into which one of the following categories of physical hazards relating to premises and operations liability loss exposures?

A building's heating and electrical systems would be considered common hazards.

One of the three basic forms of excess liability insurance policies is designed so that it incorporates the provisions of the underlying policy and then modifies those provisions with additional conditions or exclusions in the excess liability policy. That type of excess liability policy form is known as

A combination excess liability policy.

An organization may incur losses from legal liabilities in a number of different ways. Which one of the following actions would best be described as an intentional tort?

A newspaper mistakenly identifies the driver in an alcohol-related hit and run accident as John Doe, a prominent local attorney.

Which one of the following insureds would be legally required to exercise the highest degree of care for individuals on its premises?

A retail toy store. A retail toy store would be required to exercise the highest degree of care because it would attract many children to the premises.

Which one of the following best describes the differences between a following-form excess liability policy and a self-contained excess liability policy?

A self-contained excess liability policy is subject only to its own provisions

All of the following statements are true regarding the underwriting of completed operations liability, EXCEPT:

Accounts that perform a service generally have a greater premises exposure than completed operations exposure.

Which one of the following statements about defense coverage in the typical professional liability insurance policy is most accurate?

Although professional liability policies differ, most policies pay for defense costs as long as they fall within the limits of the policy.

A self-insured retention (SIR) in an umbrella liability policy is which one of the following?

An amount that is deducted from claims that are payable under an umbrella liability policy and that are not covered at all by any primary policy

Which one of the following statements about excess and umbrella liability insurance is the most accurate?

An umbrella liability policy will typically require the insured to pay a self-insured retention when claims arise that are not covered under any other primary insurance policy.

Which one of the following statements is correct with respect to the exclusions of an umbrella liability insurance policy?

An umbrella policy can use exclusions to broaden or narrow exclusions found in the underlying policies.

In a professional liability policy, an insurer may assume the right and duty to defend a claim. This provision allows the insurer to

Appoint defense counsel.

The Insurance Services Office (ISO) Commercial Lines Manual states that various professional services exclusions should be added to the general liability policies for numerous business classifications. Which one of the following is an example of classifications requiring professional services exclusions?

Barber shops

Amy was severely injured in an accident with a tractor trailer. She lived for two weeks following the accident amassing $200,000 of medical bills and other expenses related to the accident. It is likely that a lawsuit, under survival statutes, the $200,000 of damages will

Be awarded in order to recover damages Amy sustained between the time of her injuries and the time of her death. It is likely that in a lawsuit, under survival statutes, the $200,000 of damages will be awarded in order to recover damages Amy sustained between the time of her injuries and the time of her death

One of the primary differences between engineers and architects professional liability insurance and other professional liability coverages such as health professionals or legal professionals is that

Because of subcontractors, vicarious liability is a significant loss exposure for engineering and architectural firms, but professional liability coverage can be extended to subcontractors if they have been named as an additional insured.

East Side Manufacturing (ESM) has a commercial general liability (CGL) policy with an each occurrence limit of $1 million, a general aggregate limit of $2 million, and a products and completed operations aggregate limit of $2 million. ESM also has an umbrella policy with an each occurrence limit of $10 million, an aggregate limit of $10 million and a $50,000 retention. During the policy period, three large products liability claims totaling $2 million were paid under the CGL policy. A new products liability claim for $75,000 has been filed for an injury that occurred during the same policy period. Which one of the following best describes how this claim will be handled?

Because the CGL's products aggregate limit of $2 million has been exhausted, the umbrella policy will drop down to defend ESM and pay the damages.

Services provided by architects and engineers, unlike those of many other professionals, are almost always governed by a contract between the parties. Disputes between the parties to the contract are generally resolved by

Binding arbitration.

Professional liability policies are designed to cover claims arising from rendering or failing to render professional services. Primary loss exposures differ for different professional groups. Which one of the following describes the primary loss exposures of professional architects?

Bodily injury, property damage, and financial loss

A client accuses a professional of not performing the services for which they were hired. The client can bring a professional liability action against the professional based upon

Breach of contract.

Which one of the following statements concerning the legal foundations for the professional liability exposure of architects and engineers is most accurate?

Claims against architects and engineers are more likely to hinge on the interpretation of contracts than on the application of common law principles.

Cluster analysis is

Cluster analysis is an unsupervised learning technique that determines previously unknown groupings of data.

Generally, how do courts determine that a defendant is liable under negligence per se?

Courts determine that a defendant is negligent per se when the defendant has violated a statutory standard.

A following-form excess liability policy is an excess liability policy that

Covers a claim in excess of the underlying limits only if the loss is covered by the underlying insurance.

Which one of the following statements is true regarding auto dealers coverage and the underwriting of garage coverage?

Customer use of owned autos is a normal exposure for dealers and that exposure is difficult to underwrite.

The coverage that an umbrella liability policy provides for claims not covered at all by the underlying policies is called

Drop-down coverage.

Emilia's neighbor, Lucas, planted a garden by Emilia's property. Emilia knew that Lucas's garden was at risk of damage from flowing rainwater because of the hills at the edge of her property. Emilia also knew that the trees on her property were old and could fall in strong winds. During the next storm, the garden was destroyed by a combination of rainwater, falling branches, and rocks rolling from Emilia's hills. Which one of the following is correct concerning whether Lucas has a claim against Emilia for any or all of the natural conditions that destroyed his garden?

Emilia's only duty in this case was to remove the old trees that she knew might fall, and she is not liable for any other natural conditions. When a tree falls and causes damages on an adjacent premises or a highway, the landowner might be liable for negligence if he or she knew that the tree might fall and failed to take reasonable steps to remove it.

Big Corporation leases automobiles for its employees to drive on business. In addition, a few employees use their own cars in performing their job duties. Which one of the following automobile loss exposures exists for Big Corporation?

Employers non ownership liability loss exposure

Claims-made coverage forms were developed in response to which one of the following?

Exposures with potential latent defects

One of the basic forms for an excess liability policy that is subject to the same provisions as the underlying liability policy is the

Following-form

Which one of the following is correct with respect to the classification of contracting risks?

If a worker performs several duties and separate payroll records are not kept, the highest rate applies.

Which one of the following best describes how difficulties with estimating the maximum possible loss (MPL) of liability exposures create the need for excess or umbrella liability insurance?

In most cases, it is not possible to predict the most a liability loss would cost.

Umbrella and excess liability underwriting is focused primarily on the insured's potential for

Large, catastrophic claims

Which one of the following statements is correct regarding products liability risk?

Laws that hold businesses liable for their products have increasingly expanded.

In the auto dealership industry, floor plans are

Lending arrangements used to finance inventory

Which one of the following is a basic characteristic of liability insurance that is not shared by property insurance?

Liability insurance is usually subject to an aggregate limit for the policy period.

A professional liability claimant recovers an amount of money specified by contract as the reasonable estimation of anticipated damages in the event of a contract breach. The claimant has recovered which one of the following types of contract damages?

Liquidated

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

Made toothpaste that was dangerously defective when it left the manufacturer

Which one of the following statements concerning the policy forms used by insurers to provide excess liability and umbrella liability coverage is most accurate?

Many insurers do not use standardized policies for excess and umbrella liability policies, and the policies vary considerably in the coverages they offer.

Matthew Jones, the named insured under a Business Auto Coverage form (BACF), requires his employees to use their own cars for business purposes. One of Matthew's employees, Paul, causes an accident while driving his own truck for the business. Matthew's BACF shows symbol 3 for liability coverage. Which one of the following correctly indicates why Matthew is not an insured under the policy for Paul's use of his own truck in this situation?

Matthew is covered for owned private passenger autos only.

Umbrella liability insurance

May cover some claims that are not covered by other liability insurance.

Patty bought a particular brand of windows because they were warranted free of defect for the lifetime of the purchaser. If anything happened the windows were guaranteed to be replaced at no cost to the original owner. Six years later, two of the windows began to fog between the panes. Patty had them replaced and was billed $600 for labor and materials. Patty sued the window company stating she would not have purchased them except for the future no-cost guarantee. Patty's best basis for the lawsuit is

Misrepresentation

Which one of the following statements relating to the legal liability of healthcare professionals to use an appropriate standard of care when providing health care is most accurate?

Most courts require the testimony of expert witnesses to establish the appropriate standard of care for medical treatment.

A typical nonfranchised dealer stores all vehicles in which one of the following?

Nonstandard open lot

The Park Slope Theater is a local performing arts center with a seating capacity of 1,000. A variety of musical and theatrical groups perform at the theater, which is open six days a week. Which one of the following is the most appropriate premium base for Park Slope Theater's commercial general liability (CGL) insurance?

Number of persons admitted

In a class action lawsuit involving an insurer's claim practices, the court must consider the elements of Select one:

Numerosity, commonality, typicality, and adequacy of representation

A physician is covered under a standard professional liability policy, directors and officers (D&O) coverage, and a commercial general liability (CGL) policy with a professional liability exclusion. A client slips on a rug in the physician's office and fractures his leg. If the client files suit, the injury would be covered

Only under the CGL policy, as the loss is related to premises liability.

Tania received a phone call from one of her workers compensation policyholders. The insured is a contractor, and has decided to use subcontractors on a few jobs during the current policy period. The insured is asking Tania questions about how the subcontractor payroll will affect the workers compensation premium. Which one of the following parts of the Basic Manual for Workers Compensation and Employers Liability Insurance should Tania review in order to respond to the policyholder?

Part One—Rules. Tania should review Part One—Rules in order to respond to the policyholder. Subcontractors are discussed under Rule 2 Premium Basis and Payroll Allocation.

Which one of the following statements is true regarding physical damage coverage under the Auto Dealers Coverage Form (ADCF)?

Physical damage insurance on covered autos of dealers is normally provided on a blanket basis.

An engineer and an architect have a joint firm. While the architect is out of town, the engineer drafts architectural plans for a client's log cabin. The finished building is ultimately deemed structurally unsound due to flaws in the design. Which one of the following allegations will the firm most likely confront?

Practicing beyond the scope of the license

Fancy Dress Shop is a small specialty clothing boutique for women. Liability claims against Fancy Dress Shop would most likely arise from its

Premises and operations exposure

Pedestrian Wilma was injured as a result of a contractor's negligence when the contractor failed to adequately warn the public of a hazard when paving a road. Any resulting liability claim by Wilma against the contractor would be considered to have arisen from the contractor's

Premises and operations liability exposure

When an insured requests the Social Service Agencies—Volunteers as Insureds endorsement, the insurer often requires the named insured to :

Present evidence that each insured volunteer has auto liability insurance in effect with certain minimum limits of insurance. If an insured requests the Social Service Agencies—Volunteers as Insureds, the insurer usually requests the insured to present evidence that each insured volunteer has auto liability insurance in effect with certain minimum limits of insurance.

Which one of the following statements concerning professional liability coverage under the commercial general liability policy is most accurate?

Professional liability losses may end up being excluded from coverage under the commercial general liability policy if they do not fit the definition of bodily injury, property damage or personal and advertising injury.

A web designer programs a client's web site with a feature that allows all females to use the site for free without the client's knowledge. The customer notices a loss of revenue and then finds the special feature. The insurance policy that would be most appropriate to consider claims against the web designer is the

Professional liability policy.

An architect retires after a long career designing hotels. Six months after his retirement and the expiration of his professional liability policy, the architect receives a letter from an attorney advising that his client is suing the architect. The suit indicates the client suffered an injury allegedly caused by the poor design and placement of a glass wall in the lobby of a hotel for which the architect had drawn the plans. The professional liability policy will

Provide coverage for the loss under an automatic provision that extends tail coverage to the architect

Martin, a 15-year-old boy, carelessly tossed a glass bottle over the heads of several people toward a recycling bin 15 feet away. Luckily, Martin did not hit anybody between him and the recycling bin, and the glass fell perfectly into the bin. Unluckily, a private investigator was hiding in the recycling bin at that moment and suffered a concussion from Martin's bottle. Which one of the following is the most significant legal issue that the investigator might face in a negligence claim against Martin?

Proximate Cause. Proximate cause is the most significant legal issue that the investigator might face in a negligence claim against Martin, because Martin cannot be liable for results that could not have been reasonably foreseen.

Which one of the following types of excess liability policies would be least likely to create gaps between the excess and the underlying insurance layers?

Pure following-form excess liability policy

Which one of the following is the measurement of road exposure or maximum distance traveled?

Radius of operation

Baker Company's salesperson negligently injures a pedestrian while driving a Baker Company vehicle on a sales call. Under which one of the following legal doctrines could the pedestrian hold Baker Company responsible for injury caused by the negligence of its employee?

Respondeat superior. The doctrine of respondeat superior states that an employer may be held liable for the acts of an employee as long as those acts are within the scope of his or her employment.

Which one of the following characterizes the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010?

Restructured financial regulation and passed authority for oversight to federal agencies

Which one of the following provides the best example of a risk-control technique for financial and legal professionals?

Retain and consult an attorney regularly concerning client relationships.

Healthcare risk management emphasizes root-cause analysis, which focuses on

Root-cause analysis focuses on systems and processes

Samson Cookies had a contract with ABC Sugar Company to purchase fifty tons of refined sugar at a price of 60 cents a pound. ABC failed to make delivery on schedule, and Samson was forced to purchase the sugar on the open market for 65 cents per pound. Samson successfully sued ABC for breach of contract. Which one of the following is an example of compensatory damages that might be awarded to Samson for this breach?

Samson's compensatory damages would include the difference between the contract price and the market price of sugar that Samson had to actually pay.

Emma runs a painting and wallpapering business. She owns a pickup truck that she uses primarily to transport workers and materials to clients' homes. The most appropriate use class for Emma's pickup truck is :

Service use

Wilson was driving his business auto when it was struck by a hit-and-run driver. He looked to his business auto policy for coverage for his injuries. Which one of the following symbols shown on his policy automatically provides such coverage?

Symbol 6—Owned Autos Subject to a Compulsory Uninsured Motorists Law

Sue is injured at work, and her job responsibilities are limited for 30 days, after which time she fully resumes her duties. Which one of the following workers compensation disability classifications best describes Sue's injury?

Temporary partial disability

Anna is a commercial lines underwriter. One of her large contracting accounts has taken on a project for a high-rise building. The contractor needs to increase the limit on its umbrella policy from $10 million to $20 million. Based on the underwriting guidelines, Anna can only provide an additional $5 million in coverage before reaching the maximum net limits for this type of operation. Which one of the following is the best way for Anna to handle this situation?

The best way for Anna to handle this situation is to use facultative reinsurance to allow her to offer the requested umbrella limit of $20 million.

During surgery, a patient is injured by a hospital employee working at the direction of the operating surgeon. In addition to the hospital and the hospital employee, the surgeon could be held liable under the legal theory known as

The borrowed servant

Lucy is an underwriter of healthcare professional liability coverage for physicians. She usually begins the process by reviewing the applicants personal information, educational background, and the physician's practice history. The applicant's area of specialty, patient load, and loss history are also important in Lucy's analysis. Finally, Lucy likes to perform an informal analysis of the physician's reputation by looking at patient reviews posted on the Internet. Which one of the following patient comments would most likely raise a concern for Lucy?

The doctor always tries to offer an optimistic prognosis and put the patient and family at ease. Doctors should refrain from making overly optimistic diagnoses. Doctors should not regularly diagnose and instruct patients over the phone.

As a general rule, which one of the following correctly describes how excess and umbrella liability policies would respond to a loss not covered by the underlying primary liability insurance?

The excess policy would not cover the loss, but the umbrella policy may, subject to the self-insured retention.

Insurers that write professional liability for financial and legal professionals develop their own forms, and there are similarities and differences from policy to policy. Which one of the following policy features are most likely to exhibit material differences from one policy form to the next?

The exclusions section. Provisions for defense costs tend to be similar from policy to policy, but exclusions can be very different.

Which one of the following is used in the pricing of a workers compensation policy and also to verify information that appears on the application?

The experience rating worksheet is used in the pricing of a workers compensation policy and also to verify information that appears on the application

James Smith owns a fleet of tractor-trailer units. Mr. Smith devotes time and effort into maintaining his auto fleet, the average age of which is 15 years old. Each vehicle is inspected once a month. Mr. Smith has his own garage for preventive maintenance on the vehicles. Mr. Smith believes that regular oil changes and new tires have kept his fleet on the road despite their high mileage. When not in use, the vehicles are kept in a fenced area behind the business. All of the following are business auto physical damage underwriting concerns that would likely have a negative effect on the decision to accept this account, EXCEPT:

The fact that he does monthly inspections

The claims representative for an insurance carrier failed to properly investigate an employee dishonesty claim and denied the claim without merit. The insured can file a professional liability claim against the insurer on the basis of

The insured can file a professional liability claim against the insurer on the basis of bad faith.

Palmer & Sons Electrical has a total of twenty-four employees. In addition to the two executive officers, there are two administrative employees in the office, and twenty electricians. Payroll is the premium base for commercial general liability (CGL) insurance for electrical contractors. The payroll used to calculate the CGL premium for Palmer & Sons should include all of the following, EXCEPT:

The payroll for the two administrative employees in the office

If the premium applicable to a particular workers compensation insured is increased or decreased for a future period based on that insured's loss experience for a period in the recent past, the policy uses which one of the following types of rating plans?

The policy uses an experience rating plan

The primary underwriting consideration for accountants professional liability insurance is

The primary underwriting consideration for accountants professional liability insurance is the scope of services provided by the accountant

Which one of the following controls the coverage provided by a workers compensation policy?

The state compensation laws control the coverage provided by a workers compensation policy.

A surgeon with privileges at a for-profit hospital is not an employee of the hospital. The surgeon fails to exercise the appropriate standard of care when performing a routine operation. The mistake is apparent to the patient the next day, but a medical negligence suit is not filed until 10 years later. The hospital's best liability defense is that

The statute of limitations has likely expired.

Best Builders is a commercial building contractor. The company often hires subcontractors to perform certain activities on a job. According to the Commercial Lines Manual (CLM), the work performed by subcontractors should be separately classified under Contractors - subcontracted work (91583) only if which one of the following is true?

The subcontractor maintains adequate separate insurance coverage. When the subcontractor maintains adequate separate insurance, the work it performs can be classified under Contractors - subcontracted work (91583). Operations performed by subcontractors without adequate insurance should be classified and rated under the specific classification for each operation.

Paul and Jerry were both six years old when they entered a neighbor's home and used baseball bats to smash and break household items. When establishing liability for Paul's and Jerry's actions, the court will most likely primarily consider

The tortfeasors' capacity refers to whether someone has the capacity to form intent for a tortuous act.

Which one of the following statements is correct regarding the maintenance of underlying insurance condition of an umbrella liability insurance policy if the underlying insurance is not kept in force?

The umbrella policy would cover claims that exceed the limits of the underlying policies as if they had been kept in force.

Which one of the following must be examined by underwriters to ensure that umbrella and excess insurers do not face any unexpected loss exposures?

The underlying policy's endorsements

With regard to workers compensation, which one of the following statements about states with monopolistic state funds is true?

They do not allow private insurers to be licensed to write workers compensation coverage in that state. States with monopolistic state funds do not allow private insurers to write workers compensation coverage.

Underwriters evaluate an insured's quality control program in relation to

They evaluate it relative to the loss exposure

Generally, an injunction is most commonly used for which one of the following purposes?

To compel a party not to act

A court would most likely order an injunction for which one of the following purposes?

To stop infringement of a copyright.

Most of the claims covered by liability insurance are based on

Tort Law

Auto dealers are classified based on whether they are franchised or nonfranchised. The classification also depends on which one of the following?

Type of vehicles

Which one of the following statements about excess liability insurance coverage and umbrella liability insurance coverage is most accurate?

Umbrella liability policies typically provide primary coverage for certain types of losses not covered by other insurance, while excess liability policies typically do not.

The self-insured retention applies when the

Underlying policy does not cover the claim.

Which one of the following is a true underwriting consideration relevant to business auto physical damage?

Underwriters can sometimes limit exposure to unexpected high values by providing physical damage on a stated amount basis.

The use of facultative reinsurance benefits umbrella and excess liability insurers in which one of the following ways?

Underwriting guidance for the umbrella or excess underwriter

Workers compensation benefits include which one of the following?

Workers compensation benefits include rehabilitation benefits

XYZ Manufacturing (XYZ) has a Commercial General Liability (CGL) Coverage Form with a $2,000,000 each occurrence limit, a $3,000,000 general aggregate limit, and a $3,000,000 aggregate limit for products and completed operations. If XYZ has products liability losses of $1,500,000, $1,200,000, and $500,000 during the policy period, how much would the CGL policy pay for the losses?

YZ's policy would pay up to the aggregate limit for products and completed operations, ($3,000,000).