Practice Exam #2
Joseph Jones purchased a new car stereo from Dailey's Auto Enhancements. Daily's permanently installed the stereo system in Joseph's car in an area of the dashboard not typically used by the automobile manufacturer for such installations. One week after installation, Joseph's car was broken into and the stereo was stolen. Under the 2005 Personal Auto Form--Part D, what would be the limit of coverage?
$1000.
Under a Dwelling broad or special policy, what is the maximum that would be paid for "loss of use" if coverage A was $60,000?
$12,000. Explanation: The forms provides 20% of coverage A for fair rental value and additional living expense under the DP-2 and DP-3. Therefore $60,000 x 20% = $12,000.
What is the limit that is paid for water damage under an equipment breakdown policy?
$25,000.
In a Farmowner's Policy, the maximum amount payable for a loss to a satellite dish is:
$250. Explanation: The policy provides $250 for a satellite dish. This limit is under the pre-2000 forms. Under the newer forms the limit was increased to $1,000.
Which of the following would be excluded under Coverage E -- Personal Liability --- under the HO-3 form? 1. Business use except those that are incidental and eligible; 2. Aircraft; 3. Rental except as a residence; 4. Motor vehicles, except those that pertain to the maintenance of the residence premises. Correct answer is?
1, 2, 3 & 4. All four are exclusions under Coverage E--Personal Liability for bodily injury or property damage. All must be covered under some other form of insurance.
An insurer that cancels a personal auto policy in Texas for non-payment of premium must give _____ days advance notice to the insured.
10 days notice.
All forms and endorsements must be filed ____ before the date of their use in Texas.
60 days.
The crew of a ship is guilty of fraud with the intention of reaping gains at the expense of the owner. In ocean marine coverage, what is this called?
Barratry. Explanation: Barratry means fraud by the master or the crew with the intention of reaping gains at the expense of the owner. Examples include setting the ship on fire, diverting the ship from its course, or embezzlement of the cargo.
"Personal injury" is best described in which following situation?
Calling a client a cheat and a fraud. Explanation: Personal injury includes slander coverage.
Each of the following people would be an insured for Auto Medical Payments coverage under Bob Thomas' BAP except:
Frank Thomas, Bob's 17-yr old son, occupying an auto that is not a covered auto. Frank lives with his mother, who is divorced from Bob. Explanation: The son is not covered. He does NOT live with the named insured and is injured by an auto that is not a covered auto, owned by Bob Thomas.
Money and securities are best covered under:
Inside the Premises Theft of Money and Securities. Explanation: This coverage provides theft, disappearance and destruction and is the best method to insure the theft of money and securities inside the premises.
Products of a surplus lines company can only be sold by:
Licensed surplus lines agents.
Which of the following would NOT be covered under the Personal Auto Policy?
Mr. Jones, in a burst of temper, throws his golf clubs through the windshield of his neighbor's car. Explanation: Intentional acts are always excluded under policies that cover legal liability.
Which of the following is the amount of coverage provided on an attached garage of a home insured under an HO-3 for $100,000?
No additional coverage. Explanation: A garage attached to a dwelling is considered to be one structure, therefore, no additional coverage over and above the $100,000 is provided. If the structure were a separate structure, it would be covered for an additional $10,000.
The insured is covered under a 2000 HO-5 Policy. What coverage does the insured have for their contents coverage?
Open Peril Coverage. Explanation: The HO-5 Form provides Open Peril Coverage on both structures and contents. The older versions required the HO-3 with the attachment of the HO-15 Endorsement to achieve Open Peril Coverage for the contents.
Part three of a workers compensation policy provides "other states coverage" if:
Other states are listed (other than monopolistic states).
The payment of a claim in exchange for a release indicating that the claim was paid as a result of a settlement agreed to by all parties is called a:
Payment and Discharge. Explanation: When all parties agree, the insurer pays the claim and the insured signs the release, it is referred to as Payment and Discharge.
Which of the following is not one of the implied warranties under an Ocean Marine Policy?
Protection and Indemnity.
When canceling a homeowners policy in Texas, an insurer must:
Provide a written notice explaining the reasons for the cancellation.
An insurance broker is a person who represents...
Represents an insured or prospective insured. Explanation: The broker represents an insured or prospective insured.
Which of the following would be a violation of sharing commissions?
Sharing commissions or paying a finders fee to an unlicensed person.
Whose responsibility is it to see that a ship is seaworthy?
The Ship Owner.
Which of the following dwelling forms provide "open peril" coverage for dwellings and other detached structures?
The Special Form only. Explanation: All the other forms are "named peril" coverage, not open peril.
Under the 2005 Personal Auto Form, Uninsured Motorist Coverage is excluded for claims settled without the insurer's consent only if:
The claim settlement prejudiced the insurer's subrogation rights.
An insured has a HO-5 Homeowner Policy, they have insured the wife's diamond ring and the husband's guns on a personal articles floater. All of the items are stolen. What policy and deductibles would apply?
The homeowner policy would NOT pay and the personal articles floater would pay without a deductible.
An insured carrier Aircraft Liability coverage with "Admitted Aircraft Liability Coverage." If a passenger is injured in an accident, who negotiates the payment of the claim?
The insurer. Explanation: The insurer would negotiate the claim with the claimant. However, the named insured must request that the admitted liability endorsement should apply to the claimant passenger.
Godfrey JOnes is an adjuster whose license has been suspended. Which of the following is true regarding the reinstallment of the license?
The license will NOT be reinstated until the cause of the suspension no longer exists.
The equipment breakdown policy (formerly called boiler and machinery) provides for replacement cost coverage in case of a covered claim. Under what conditions would the insurer only pay Actual Cash Value in case of a loss?
The policy pays replacement only if the repairs were made within 24 mos. of the accident. Explanation: The valuation clause provides for replacement cost coverage on all property, except if repair or replacement is not made within 24 mos. of the date of the accident, actual cash value will be paid.
What is the purpose setting up loss reserves?
The set-up is an estimate of the amount of the claim the insurance company expects to pay.
The purpose of a builder's risk policy is:
To cover a building under construction from accidental damage from the perils insured against. Explanation: The purpose of the builder's risk policy is to cover a building during the course of construction from accidental damage from the perils insured against.
If an insured has more than one auto policy with the same insurer that provides Uninsured Motorists Coverage, which of the following statements about the recovery of benefits is correct?
Total recovery is restricted to the highest limits of those coverages. Explanation: Only the highest limit would apply. In some states, however, stacking of limits is permitted wherein if the insured insures more than one vehicle, the limits can be combined.
Coverage F under a Farmowner Policy covers which of the following property?
Unscheduled personal property. Explanation: Coverage F covers unscheduled personal personal property on a blanket basis. One limit for all business personal property is stated. The items are not scheduled as under Coverage E.
When a work-related disability continues for longer than two weeks, disability income benefits are paid:
Weekly from the first day of the disability. Explanation: When a disability continues for more than two weeks, disability income compensation is computed from the date the disability began. This is a recent change. Previously, it was four weeks.
Under the livestock coverage form, within how many days must newly acquired livestock be added to the policy?
Within 30 days of purchase. Explanation: Additional livestock must be reported to the insurance company within 30 days of acquisition, at which time an addtional premium will be charged the insured.
A non-waiver issued by an insurance company is:
A coverage issue. Explanation: Non-waiver agreements and reservation of rights letters both serve the following general purpose: 1) To advise the insured that any action taken by the insurance company in investigating the cause of loss or in ascertaining the amount of loss is not intended to waive or invalidate any policy condition. 2. To clarify that the intent of the agreement is to permit an investigation of the claim and that neither the insured nor the insurer will thereby waive any respective rights or obligations.
A fire in a insured's restaurant burns the kitchen walls and causes smoke damage to the entire interior. Water used to extinguish the fire causes extensive damage to floors and furnishings. The water damage is BEST described as:
A direct loss.
Which of the following statements is not true regarding a released bill of lading? A. The carrier agrees to over-insure the cargo so that the shipper will be compensated for all losses; B. The common carrier may limit its liability by using this type of contract; C. The document serves as a receipt from the carrier to the shipper of the goods; D. All of the responses are true.
A. The carrier agrees to over-insure the cargo so that the shipper will be compensated for all losses. Explanation: The definition of a released bill of lading is as follows: A bill of lading on which no stated value has been indicated, thereby limiting the carrier's ability to statutory amounts or to the specified rate per pound of merchandise shipped.
Mary has a Personal Auto Policy in force, including Other than Collision (Comprehensive) Coverage, when her automobile is stolen. The theft is properly reported to the police and the insurance company. She then rents a car. Which of the following is true?
After a waiting period of 48 hours, her policy will pay rental costs up to $20 per day up to a maximum of $600. Explanation: Since theft is an Other Than Collision loss, the coverage known as Transporation Expenses (also known as Rental Reimbursement) would normally apply. This coverage pays $20 per day up to a total of $600. for transportation expenses, with a 48-hour waiting period in the event of total theft of a covered auto.
The promise by one party that is conditional on a fortuitous event and where the value given by each party are unequal is called:
Aleatory. Explanation: The insured pays a small premium in exchange for something greater if a loss should occur. The values given by both parties are unqual.
What is a tort-feasor?
An individual who commits a wrong via breach of civil duty.
Which of the following would be an "uninsured motor vehicle"?
Auto 2--a hit and run vehicle. Neither the owner nor the driver can be indentified. Explanation: Uninsured motorist coverage does not apply to vehicles owned or operated by a self-insurer under an applicable motor vehicle law, except a self-insurer which becomes insolvent.
Which of the following would be covered under the Builders Risk Coverage Form? A. Buildings under construction; B. All of the responses are correct; C. Foundation of a building under construction; D. Fixtures, machinery and equipment used to service the building if they become a permanent part of the building and are located within 100 feet of the premises.
B. All of the responses are correct.
Which statement is correct under the General Liability Policy? A. The insured generally has the right to settle a claim for damages; B. The company generally has the right to settle for damages; C. Both the insured and the company must agree before a claim for damages can be settled; D. None of the responses are correct.
B. The company generally has the right to settle for damages.
A shipper's obligation and exposure to financial loss ceases when the goods are delivered to the buyer's premises if the terms of the sale are:
Cash and Delivery. Explanation: Cash on delivery indicates that the obligation of the shipper ceases when the goods have been delivered and they have been paid. The contract has been fulfilled.
Employers liability coverage Part II provides which of the following coverages?
Claims that are not subject to workers compensation laws.
Fidelity bonds which apply their "limit" to each employee involved in a covered loss, are called:
Commercial blanket bonds. Explanation: When written on a scheduled or position basis, the bond limit applies per employee or position. When written this way, the definition of "occurrence" is changed to mean all losses caused by each employee.
If the insured conceals a material fact, makes false statements or engages in a fraudulent act, the insured is guilty of:
Concealment. Explanation: This is a definition of concealment. In all of the states, this act will void coverage.
Fidelity bonds are typically written to be effective for a :
Continuous term without an expiration date.
Which of the following prevents someone from collecting payment for negligence under the laws of some states?
Contributory negligence. Explanation: There are a few states that still have the rule of contributory negligence. A person can be 2% negligent and be 98% damaged and receive nothing from the other party that caused the loss because the injured party was 2% negligent.
The broad and special dwelling forms (DP-2 and DP-3) provide two extensions of coverage not found on the basic form. What are they?
Coverage for building collapse, for lawns, trees and shrubs. Explanation: The DP-1 form does not provide collapse coverage nor coverage for lawns, plants, trees and shurbs. Only the broader forms provide these coverages.
Coverage G under a Farmowner Policy covers which of the following property?
Covers barns, silos, and fences. Explanation: Coverage G covers barns, outbuildings such as silos, fences, radio equipment and other farm structures that are not related to the dwelling.
The insured has a building worth $200,000 and insures it for $80,000. The policy contains an 80% coinsurance clause. What will the insured be paid in the case of a $50,000 partial loss? A. $80,000; B. $60,000; C. $40,000; D. $25,000
D. $25,000. Explanation: The insured should carry at least $160,000. $200,000 x 80% = $160,000. He only carries $80,000 or one half of the required amount. Therefore the insured will receive $25,000 or 50% of the loss. In case of a total loss, the insured would receive the $80,000 as the coinsurance clause only affects partial and not total losses.
Under an Equipment Breakdown Policy, all of the following are Supplementary Payments, EXCEPT: A. Defense costs; B. Interest on Judgment; C. Premiums on appeal bonds; D. Expediting expenses.
D. Expediting Expenses. Explanation: Expediting expenses are covered in the limit of coverage. The other items are part of the Supplementary Payments, which are in addtion to the policy limit.
Which of the following is not one of the implied warranties under an Ocean Marine policy? A. Seaworthiness of the Vessel; B. Legality of the voyage? C. No deviation in the voyage; D. Protection and Indemnity.
D. Protection and Indemnity.
What type of contract is binding on only one party? A. Indemity; B. Bilateral; C. Adhesion; D. Unilateral
D. Unilateral. Explanation: Unilateral means "one-sided". An insurance policy is one-sided because only the insurance company is legally bound to perform its part of the agreement.
A print shop is insured under a Business Owners Policy with a separate policy covering the press. If a loss occurs that is covered under both policies, how will the Business Owners Policy respond?
Excess coverage. Explanation: The other insurance clause in the BOP is somewhat different than in other policies. The policy states that other coverage is considered primary (whether collectible or not) and that any coverage for the loss under the BOP will be considered EXCESS.
Which of the following is not a claim settlement option?
Forcing the insured to sue by offering less than the claim is worth. Explanation: An adjuster cannot deliberately offer less than what the claim is actually worth just to force the insured to sue.
A company's promise to "pay for damage caused by or resulting from any covered cause of loss" would be found in which of the following sections of a policy?
Insuring Agreement. Explanation: The perils covered in each of the three "cause of loss" forms constitute the insuring agreement.
An Aleatory Contract is most accurately described by which of the following?
It is a contract in which the performance of one party is contingent upon the occurrence of a fortuitous (accidental) event. Explanation: Examples of aleatory contracts include insurance policies and product warranties. The other choices are false. Note: "contingent" means dependent on the occurrence of something not yet certain, conditional.
Which of the following coverages is NOT provided by the Business Income Coverage Form?
Leasehold Interest Coverage. Explanation: Leasehold Interest Coverage is a separate coverage to cover the value of a favorable house when the premises have been damaged by an insured peril.
Which is "break-bulk" cargo as respects ocean marine cargo coverage?
Loose cargo, such as cartons.
Which of the following is not a duty of the insured in a property loss?
Prepare an appraisal of the loss. Explanation: The insured is obligated to obtain estimates of the loss and present them to the adjuster.
The three parties to a bond are:
Principal, obligee, surety. Explanation: While the bond may cover an employee, it is the insured (the employer) that is the party to the bond. The employer, called the principal, owes a duty to an obligee that is guaranteed by the surety.
An insured throws a banana peel on a heavily used sidewalk. Thirty seconds later a claimant steps on the peel, slips and is injured. This is an example of a case wherein:
Res Ipsa Loquitur. Means "the act speaks for itself." In this instance, any reasonable person knows that throwing a banana peel on the sidewalk poses a very real slip hazard. Therefore, the mere act of throwing the banana peel on the sidewalk was one on which liability "Res Ipsa Loquitur."
The Named Non-owner Coverage endorsement is used to provide personal auto insurance for:
Someone who does not own an automobile, but who drives borrowed or rented autos. Explanation: Some people do not own autos but still have an insurable exposure when they rent a vehicle or drive a vehicle they do not own. Even though they may purchase coverage from a rental car company or the person's vehicle they borrow has coverage, there may be a need to provide excess liability coverage because of a serious accident.
What coverage is provided under the BOP for a steam boiler explosion?
Steam boiler explosions is excluded under the BOP. Explanation: Separate equipment breakdown coverage is required.
A non-waiver agreement differs from a reservation of rights letter:
The Reservation of Rights letter is usually mailed to the insured, whereas the Non-Waiver agreement has to be signed by the insured.
An insured carries a general liability policy and has hired a trucking company to transport the equipment. The trucking company carries a commercial auto policy. The insured loads a piece of machinery onto the truck and fails to secure it properly. The trucking risk is transporting the cargo and it falls off the truck and hits another car. Which policy or policies would cover this claim?
The commercial auto policy would cover the claim. Explanation: The damage to the cargo itself would not be covered. The trucking risk and the insured should both carry cargo coverage.
