Commercial Property Insurance Practice Questions

_________is having more than one property on a single policy with each property covered for a specific amount. a. Scheduled Coverage b. Blanket Coverage c. Named Coverage d. Specific Coverage

A. Scheduled Coverage

Which of the following is not considered a covered peril under the Basic Cause of Loss Form? a. Sprinkler leakage b. Aircraft c. Flood d. Sinkhole collapse

C. Flood Explanation Flood excluded from the unendorsed policy

Which of the following is true regarding the Earthquake Causes of Loss Form? a. It provides coverage for mudslides b. It includes coverage for earthquakes that start within 268 hours after the initial shock c. It can be used only with another Causes of Loss Form d. It can be used by itself to provide a stand alone Earthquake policy

C. It can be used only with another Causes of Loss Form Explanation The Earthquake Causes of Loss Form cannot be used alone to provide an Earthquake policy. It is intended only to add the Earthquake peril to the other Causes of Loss Forms.

Which of the following statements about the CPP is incorrect? a. The insurer may examine the insured's books and records at any time during the policy period b. The first named insured is responsible for the payment of all premiums c. The insured's rights and duties may be transferred to another party without insurer approval d. The first named insured may cancel the policy by mailing advance written notice of the cancellation

C. The insured's rights and duties may be transferred to another party without insurer approval Explanation The insured's right and duties cannot be transferred without the written consent of the insurer.

Business personal property temporarily away from the premises is covered up to what limit? a. $10,000 b. $100,000 c. $500 d. $1,000

A. $10,000 Explanation A limit of $10,000 of coverage is provided for business personal property while it is temporarily away from the premises at a location the insured does not own, lease, or operate.

Under the Common Policy Conditions, the Insurer may examine the insured's books and records under which of the following circumstances? a. At any time during the policy period and up to 3 years afterward b. At any time during the policy period and during the insured's fiscal year immediately following policy expiration c. Only upon permission by the insured d. Any time during the policy period

A. At any time during the policy period and up to 3 years afterward Explanation Many times the policy premium is based upon information contained in the insured's records, such as payroll, sales, admissions, etc. Often it is necessary to obtain this information after the policy expiration to be sure that the estimates upon which the premium was based were correct.

All of the following are true, except: a. Earthquake Cause of Loss Form does not necessarily have to have another cause of loss form accompany it b. Rain damage to the interior after windows are broken by large hail is covered by either the Basic, Broad or Special Cause of Loss Form c. Under the Broad Form Cause of Loss Form, after 60 days of vacancy, coverage is suspended d. The Broad Form Cause of Loss Form includes damage from ice, snow or sleet

A. Earthquake Cause of Loss Form does not necessarily have to have another cause of loss form accompany it Explanation Another Cause of Loss Form must accompany the Earthquake Cause of Loss Form.

All of the following are true of the Extra Expense Coverage Form, except: a. It is considered to be Non-Time Element Coverage b. It is considered to be a Time Element Coverage c. This coverage may also be included in the Business Income Coverage Form d. It covers necessary additional expenses incurred during the period of restoration that would not have occurred if there had been no direct physical loss

A. It is considered to be Non-Time Element Coverage Explanation For some businesses (such as Newspapers), it is imperative that they resume operations immediately. Extra Expense Coverage covers the expenses of expediting repairs and arranging emergency alternate facilities for operations.

Which of the following is not true, regarding the Value Reporting Form? a. The insured is only required to report up to 80% of value of the property b. The insured pays an advance premium at the beginning of the policy period c. The insured is required to report 100% of values with each report d. Late reporting or under-reporting will result in a penalty in the event of a loss

A. The insured is only required to report up to 80% of value of the property Explanation Reporting of 100% of values is required to guarantee that adequate insurance is being provided and charged.

Which of the following statements about the CPP is incorrect? a. The insurer has the obligation to perform safety inspections b. The first named insured is the payee of any return premiums c. Changes in the terms of the policy can be made only by an endorsement issued by the insurer d. The insurer may examine or audit the insured's books any time during the policy period, or within 3 years after the policy ends

A. The insurer has the obligation to perform safety inspections Explanation The insurer has the right, but not the obligation, to inspect the property. These surveys are for underwriting and rating purposes, not safety inspections.

Which of the following is correct concerning the Special Causes of Loss Form? a. The coverage is identical to that of Broad Form b. Coverage is provided on an open perils basis, except as specifically limited or excluded c. Coverage is included for loss of Business Income d. Coverage is included for the peril of Earthquake

B. Coverage is provided on an open perils basis, except as specifically limited or excluded Explanation The coverage contained in the Special Cause of Loss is referred to as Open Perils coverage. It provides coverage for perils beyond the Broad Form Causes of Loss and, in addition, provides some additional coverage extensions.

Under the Builders Risk Coverage Form, which of the following is correct? a. Coverage includes signs on the premises being constructed or erected b. It may be written on the Completed Values Form or on a reporting form by endorsement c. Coverage terminates 30 days after completion, or when the structure is occupied d. Coverage includes Business Personal property located in completed parts of the structure

B. It may be written on the Completed Values Form or on a reporting form by endorsement Explanation The Completed Values Form is often used on smaller structures that are completed relatively quickly. The Reporting Form Endorsement is generally used on larger projects that take many months, or even more than a year to complete.

All of the following are true of the Commercial Builders Risk coverage Form, EXCEPT: a. The insurer determines the value of the covered building at actual cash value at the time of the loss b. Liability coverage is included in the form c. The form is written equivalent to 100% coinsurance d. Th perils insured against depend upon which Causes of Loss Form is attached to the policy

B. Liability coverage is included in the form Explanation The Commercial Builders Risk form does not include liability coverage.

All of the following are true of the Building and Personal Property Coverage Form, except: a. Building Coverage includes the building structure, completed additions, permanently installed fixtures, machinery and equipment b. Tenant's improvements that are not legally removable are included in the Personal Property of Others Coverage c. Personal property owned and used to service the building is included in the building coverage d. Personal property of others that is in the insured's care, custody, and control is automatically included up to $2,500

B. Tenant's improvements that are not legally removable are included in the Personal Property of Others Coverage Explanation Tenants Improvements & Betterments are covered under Business Personal Property, not Personal Property of Others Coverage.

Which of the following is found in the Common Policy Declarations of the CPP? a. The provision granting the insurer the right to make inspections of insured property b. The deductible c. The provision that the first named insured is responsible for all premiums d. The insurer's cancellation right

B. The deductible Explanation The deductible amount is shown on the Common Policy Declarations page. The other statements appear in the Common Policy Conditions.

Which of the following is not an additional coverage of the Commercial Property policy? a. Preservation of Property b. Vacancy c. Fire Department Service Charge d. Debris Removal

B. Vacancy Explanation Vacancy is a loss condition, not coverage

The Fire Department Service Charge is covered up to what limit for commercial property insurance? a. $500 b. $10,000 c. $1,000 d. $100,000

C. $1,000 Explanation This additional coverage provides, as an additional amount of insurance, up to $1,000 for payment of a fire department service charge when the department is called to protect insured property. No deductible applies to this Additional Coverage.

A building valued at $200,000 is insured for $150,000 with an 80% coinsurance requirement and a $1,000 deductible. After the building is totally destroyed, incurring debris removal expenses of $10,000, how much will the Building and Personal Property Coverage Form pay? a. $155,000 b. $160,000 c. $159,000 d. $154,000

C. $159,000 Explanation After a total loss, the policy will pay the face amount less the deductible, plus up to $10,000 for debris removal. The coinsurance requirement only penalizes the insured for not carrying insurance to value in the case of a partial loss.

Which of the following is not a common policy condition on a commercial property policy? a. Transfer of Rights and Duties b. Premiums c. Abandonment d. Inspection and Surveys

C. Abandonment Explanation Abandonment is a condition of the Property section, but not a common policy condition.

Which of the following includes debris removal, costs extracting pollutants from land or water, and fire department service charges under the Commercial Property Coverage Part of the CPP. a. Causes of Loss Special Form b. Causes of Loss Broad Form c. Additional Coverages d. Optional Coverages

C. Additional Coverages Explanation These Additional Coverages are a part of the Building and Personal Property Coverage Form of the Commercial Property Coverage Part.

Which of the following forms cannot be added to a Commercial Package Policy? a. Farm Property and Liability b. Commercial General Liability c. Businessowners Policy d. Commercial Auto

C. Businessowners Policy Explanation The Businessowners Policy is a standalone policy designed for smaller businesses, and cannot be attached as a coverage part to the CPP.

Under the Business Income Coverage Form, when proper entry is made in the Declarations, the following are all Optional Coverages, except: a. Maximum Period of Indemnity b. Business Income Agreed Value c. Non-Time Element Coverage d. Monthly Limit of Indemnity

C. Non-Time Element Coverage Explanation The insured and the insurer may agree to any, or all, of these Optional Coverages. Their purpose is to specify, to a degree, the recovery of loss, and thereby reduce the premium.

Under the Building and Personal Property Coverage Form, a limit of how much is provided for business personal property temporarily away from the premises? a. $15,000 b. $2,500 c. $5,000 d. $10,000

D. $10,000 Explanation The limit applies to property at a location not owned, leased, or operated by the insured, such as at a fair, trade show, or exhibition.

A building is insured for $80,000 and its replacement value is $150,000. If the commercial property policy insuring the building has an 80% coinsurance clause, how much will the pay for a $12,000 covered loss? Disregard any deductible. a. $12,000 b. $10,000 c. $9,600 d. $8,000

D. $8,000 Explanation The coinsurance clause requires insurance at 80% of the replacement value, or $120,000. Because the policy limit of insurance is only $80,000, or 2/3 of $120,000, the claim payment would be 2/3 of $12,000, or $8,000.

All of the following are included under the Policy Structure of the Commercial Package Policy, except: a. The Common Policy Conditions page b. Interline Endorsements c. The Common Policy Declarations page d. Catastrophic Hazard Coverage Form

D. Catastrophic Hazard Coverage Form Explanation There is no Catastrophic Hazard Coverage Form

The Outdoor Property Extension under the Building and Personal Coverage Form insures against which perils? a. Fire, lightning, windstorm, hail, explosion, aircraft, and vehicles b. Fire, lightning, windstorm, hail, riot, civil commotion and aircraft c. Fire, lightning, riot, civil commotion, aircraft, and vandalism d. Fire, lightning, explosion, riot, civil commotion and aircraft

D. Fire, lightning, explosion, riot, civil commotion and aircraft Explanation The most that is paid under the Outdoor Property Extension is $1,000 per Occurrence, but not more than $250 on any one tree, shrub, or plant. The perils covered by this extension are fire, lightning, explosion, riot or civil commotion, and aircraft.

Which of the following is not a coverage extension under the Building and Personal Property Coverage Form? a. Personal effects and property of others b. Newly acquired or constructed property c. Outdoor property d. Inflation guard

D. Inflation guard Explanation Inflation Guard is an optional coverage, not a coverage extension.

All of the following are true of the Commercial Builders Risk Coverage Form, except: a. Covered perils are specified by attaching a separate causes of loss form b. Coinsurance applies to Builders Risk at the percentage listed on the declarations c. Coverage is excluded for lawns, trees and plants d. Liability coverage is included in the form

D. Liability coverage is included in the form Explanation There is no liability coverage in a Builders Risk policy.

The Personal Effects and Property of Others Extension under the Building and Personal Property Coverage Form does not include: a. Personal property of others in the insured's care b. Personal effects owned by any partner or member of the insured c. Personal effects owned by the insured d. Loss by theft of personal effects

D. Loss by theft of personal effects Explanation Personal effects of the insured, and of others that is in the insured's care, custody, or control, are covered up to $2,500.

Which of the following is covered under the Basic Cause of Loss Form under the Commercial Property Coverage Part? a. Water Damage Caused by Accidental Discharge of Water b. Falling Objects c. Weight of Ice, Snow, or Sleet d. Sprinkler Leakage

D. Sprinkler Leakage Explanation Sprinkler Leakage is a peril included in the Basic Causes of Loss Form because it is a hazard frequently encountered in commercial property.

The Basic Cause of Loss Form covers all of the following losses, except: a. Sinkhole collapse b. Volcanic action c. Sprinkler leakage d. Steam boiler explosion

D. Steam boiler explosion Explanation The Basic Causes of Loss Form generally covers the same limited perils as the Basic Dwelling Form, with the addition of Sprinkler Leakage, Vandalism, and Sinkhole Collapse.

Under Personal Property of Others of the Building and Personal Property Coverage Form, which is correct? a. The policy covers the property of others that is within the same structures as the insured's personal property b. The policy covers the interest of others in the property that the insured is purchasing on an installment plan c. The policy covers the property of others that is within the same structures as the insured's personal property, or in the open on the premises d. The policy covers property of others that is in the care, custody, and control of the insured, and is in or on the building described in the Declarations, or in the open within 100 feet of the premises

D. The policy covers property of others that is in the care, custody, and control of the insured, and is in or on the building described in the Declarations, or in the open within 100 feet of the premises Explanation The function of this coverage wording is to provide coverage for such property of others as customer's goods, on the premises, business personal property leased by the insured, etc.

Under the Commercial Package Policy, who is responsible for premium payments? a. The additional insured b. The mortgagee c. The first named insured d. The named insured

C. The first named insured Explanation Once again, the insurer is allowed to deal with one party, rather than being burdened with the difficulties of collecting the premium from multiple named insureds.

Which of the following is stated by the Common Policy Condition Examinations of Your Books and Records? a. The insurer may examine the books at any time during the policy period and up to 3 years afterward b. The insurer may examine the insured's books only upon permission by the insured c. Insurer may examine the insured's books and records at any time during the policy period and for up to one year immediately following policy expiration d. The insurer may examine the insured's books and records any time during the policy period, only

A. The insurer may examine the books at any time during the policy period and up to 3 years afterward Explanation The insurer may examine books and records for up to 3 years after the policy expires.

Under the Commercial Building and Personal Property Coverage Form, the building is considered vacant, unless: a. At least 51% or more of the square footage is rented or is used to conduct operations b. At least 61% or more of the square footage is rented or is used to conduct operations c. At least 31% or more of the square footage is rented or is used to conduct operations d. At least 41% or more of the square footage is rented or is used to conduct operations

C. At least 31% or more of the square footage is rented or is used to conduct operations Explanation Buildings under construction are not considered vacant. A building is considered vacant unless at least 31% or more of the total square footage is rented or is used to conduct operations.

The Common Policy Conditions page contains legal obligations of both the insurer and the insured. Which of the following is allowed to make changes with insurer consent? a. The additional insured b. The named insured c. The first named insured d. The mortgagee

C. The first named insured Explanation In the newer forms, the insurer may satisfy contractual duties by notice to the first named insured, rather than requiring notice to all named insureds.

Optional Coverages under the Building and Personal Property Coverage Form includes an inflation guard. What is another name for inflation guard? a. Agreed value b. Newly acquired property c. Value reporting form d. Automatic increase in insurance

D. Automatic Increase in Insurance Explanation Inflation Guard automatically increases the amount of insurance by a pre-determined percentage annually. The annual increase is made by pro-rating and applying it daily.

Which statement is false regarding the Building and Personal Property Coverage Form? a. The Peak Season Endorsement can be provided for a specified increase for a certain period b. Coverage does not apply to money or securities c. If either the insurer or the insured submits a written demand for appraisal, each will choose and pay for his or her own appraiser d. The standard deductible is $100

D. The standard deductible is $100 Explanation The standard deductible is $250

The Extra Expenses Coverage Form covers: a. The necessary additional expenses that are insured during the period of restoration that would not have incurred if there had not been a direct loss b. Loss of business income during the period of restoration c. Expenses of removing the debris of a covered direct loss d. Expenses of disposing of spoiled merchandise caused by a power outage

A. The necessary additional expenses that are insured during the period of restoration that would not have incurred if there had not been a direct loss Explanation The principal function of the Extra Expense Coverage Form is to reimburse the insured for expenses incurred in getting back into business as soon as possible after a loss.

Under the Building and Personal Property Coverage Form, when is abandonment allowed? a. Abandonment is allowed only in the cases of total loss b. Abandonment is never allowed c. Abandonment is allowed whenever the insured and insurer fail to reach agreement on the amount of a loss d. Abandonment is allowed only after written notice to the company

B. Abandonment is never allowed Explanation The Loss Conditions of the Building and Personal Coverage Form stipulate that there can be no abandonment of any property to the insurer.

Debris removal, costs extracting pollutants from land or water, and fire department service charges under the Commercial Property Coverage Part of the CPP, are automatically included under: a. Causes of Loss-Broad Form b. Additional Conditions c. Causes of Loss-Special Form d. Additional Coverages

D. Additional Coverages Explanation These Additional Coverages are a part of the Building and Personal Property Coverage Form of the Commercial Property Coverage Part.

The premium amount or method of determination if premium can only be calculated at the end of the policy period for a CPP is located in the: a. Consideration part b. Statements of coverage part c. Supplementary part d. Cover Page

D. Cover Page Explanation The statement of premiums or their method of determination is contained in the Declarations.

Which of the following is not found in the Common Policy Declarations page of a Commercial Package Policy? a. The inception and expiration date b. The insured c. The policy premium d. Exclusions

D. Exclusions Explanation The Declarations page of an insurance policy contains the information that adapts the policy to a specific insured and property. The exclusions are provisions that apply to all policies and policyholders.

All of the following are correct in regards to the Extra Expense Coverage Form, except: a. It covers necessary additional expenses incurred during the period of restoration that would not have occurred if there had been no direct physical loss b. It includes costs to equip a temporary location c. It is considered to be a Time Element Coverage d. Extra Expense coverage cannot be included in the Business Income Coverage Form

D. Extra Expense coverage cannot be included in the Business Income Coverage Form Explanation Extra Expense coverage can also be written in the Business Income Coverage Form.

Business Personal property is covered if it is within how many feet of the premises? a. 100 b. 10 c. 250 d. 50

A. 100 Explanation Business Personal Property includes furniture and fixtures, machinery and equipment, merchandise, raw materials; and other personal property owned by the insured that is used in the business either in or on the building or within 100 feet of the premises.

Which of the following is true of the Broad Form Causes of Loss? a. Burglar damage to the insured building is covered b. Water damage coverage includes repair of broken or ruptured plumbing c. The water damage coverage includes sewer backup d. Limited coverage for fungus, wet or dry rot, and bacteria up to $25,000 in a 12-month period is provided

A. Burglar damage to the insured building is covered Explanation Burglar damage to a building is covered as long as the building has not been vacant for 60 or more consecutive days immediately before the loss.

Under the Limits of Insurance of the Building and Personal Property Coverage Form, which of the following is true? a. The most the policy will pay for any one occurrence is the limit shown in the Declarations b. The most the policy will pay for all claims during the policy year is the limit shown in the Declarations c. The most the policy will pay for any one occurrence is the limit shown in the Declarations, less the deductible d. The most the policy will pay for all claims during the policy year is the limit shown in the Declarations, less the deductible

A. The most the policy will pay for any one occurrence is the limit shown in the Declarations Explanation The Limit of Insurance shown in the Declarations is the most the policy will pay for any one occurrence. The deductible does not affect this amount.

Which of the following is not considered a covered peril under the Basic Cause of Loss Form? a. Volcanic action b. Sprinkler leakage c. Earthquake, flood, power failure off insured's premises, government action, steam boiler explosion, ordinance, or law d. Sinkhole collapse

C. Earthquake, flood, power failure off insured's premises, government action, steam boiler explosion, ordinance, or law Explanation The Basic Causes of Loss Form generally covers the same limited perils as the Basic Dwelling Form, with the addition of Sprinkler Leakage, Vandalism, and Sinkhole Collapse.

Under the Broad Cause of Loss Form, how long is vacancy allowed before the peril of vandalism coverage is suspended? a. 30 days b. 120 days c. 90 days d. 60 days

D. 60 days Explanation The hazard of loss by vandalism increases greatly in vacant property. Therefore, insurance policies end coverage for vandalism losses after 60 days of vacancy, unless special arrangements are made with the company.

All of the following are true in regard to commercial property coverage, except: a. The Special Form insures against open perils except those specifically excluded b. The Broad Form does not cover settling, cracking, bulging or expansion c. Vandalism coverage is limited to 60 days if the property is vacant d. The Basic Form insures against water damage

D. The Basic Form insures against water damage Explanation The Basic Cause of Loss Form does not cover water damage.

Under the Commercial Builders Risk Coverage Form, all of the following are true, except: a. Coverage includes land, lawns, trees, plants, outside antennas and signs that are not attached to the building b. There is no Vacancy Provision in the Commercial Builders Risk Coverage Form c. Coverage on the structures under construction includes materials, supplies, and equipment intended to become a permanent part of the building d. Coverage terminates 90 days after completion, or when the building is occupied

A. Coverage includes land, lawns, trees, plants, outside antennas and signs that are not attached to the building Explanation The coverage of the Builders Risk Coverage Form is intended to apply only to the structures under construction, and the materials intended to become a part of the structure, and temporary structures used in the construction.

Under Covered Property of the Building and Personal Property Coverage Form, the building or structure that is described in the Declarations includes: a. Tenant's interest in Improvements and Betterments b. Property that is located in or on the building described in the Declarations or in the open (or in a vehicle) within 100 feet of the premises c. Furniture, fixtures, machinery and equipment d. Completed additions, fixtures, including outdoor fixtures, permanently installed machinery and equipment

D. Completed additions, fixtures, including outdoor fixtures, permanently installed machinery and equipment Explanation All responses constitute business personal property of the insured or others, except completed additions, fixtures, including outdoor fixtures, and permanently installed machinery and equipment, which constitute buildings or structures.

The Transfer of Your Rights and Duties Condition under the Common Policy Conditions is best described as: a. The insured's rights may be transferred by written request of the First Named Insured b. The insured's rights may be transferred by written request of any insured c. The insured's rights may not be transferred to others d. The insured's rights may not be transferred without written consent of the insurer, unless the insured dies, then rights are automatically transferred to the insured's legal representative

D. The insured's rights may not be transferred without written consent of the insurer, unless the insured dies, then rights are automatically transferred to the insured's legal representative Explanation Any transfer of the insured's rights and duties must be with the written consent of the insurer. The policy specifically states that if the insured dies, the insured's right and duties will be transferred to the insured's legal representative.

Which of the following is incorrect? a. The insurer may examine the insured's books and records at any time during the policy period b. The first named insured is responsible for the payment of all premiums c. The insured's rights and duties may not be transferred to another party without insurer approval d. The insurer may cancel the policy at any time if it discovers the insured is not a U.S. Citizen

D. The insurer may cancel the policy at any time if it discovers the insured is not a U.S. Citizen Explanation The California Amendatory Endorsement specifies the conditions under which the insurer may terminate or rescind coverage. An insured's citizenship is not material to the risk being insured.

Which of the following is false regarding the Building and Personal Property Coverage Form? a. Business personal property includes property that is either in the building or within 100 feet of the building b. Newly acquired or constructed property is automatically included for 30 days, not exceeding $250,000 for each building c. Trees, shrubs and plants are covered up to $1,000 with a sublimit of $250 for any one tree, shrub or plant d. The policy covers vehicles licensed for road use

D. The policy covers vehicles licensed for road use Explanation Autos for sale and those licensed for road use are excluded.