Alabama Insurance adjuster exam study guide
A "binder" is:
A binder is a statement providing immediate insurance coverage for a short period. The binder can be oral or written, and it is meant to give temporary protection until the final contract is drawn up, or until the insurer decides against issuing a written policy.
Which of the following BEST describes the concept of a contract of utmost good faith?
A characteristic of insurance contracts: 'utmost' meaning the 'highest degree' and 'good faith' meaning, "act with honesty, fair dealing and full disclosure." All parties to an insurance contract Utmost Good Faith must act with utmost good faith. It also applies to a fiduciary agent's responsibility towards the principal.
All of the following would be found on the Dec Page, except:
Industry insiders often refer to the declarations page as the "Dec Page." It provides an overview of the entire policy, and it states the named insured, the location of the insured property, the policy period, the policy premium, coverage types, coverage limits, and any applicable endorsements.
Homeowners policies don't provide coverage for:
flood damage
Dwelling policies cover:
property only.
How is actual cash value calculated?
Actual Cash Value is Replacement Cost minus depreciation.
An insurance adjuster's job is complicated, with several functions requiring technical ability, time-management, and thoroughness. What is the ultimate goal of this adjusting process?
An adjuster must make truthful and unbiased reports of the facts after making a complete investigation.
During a storm, heavy winds blow a tree over in Norman's back yard, causing it to fall on his house and damage his roof. The wind blowing over the tree would be considered:
An occurrence is simply an event or circumstance that causes loss.
In the Business Auto Policy, what does the symbol #2 mean?
Any owned vehicle The symbol 2 means Owned Autos Only. This coverage applies to any and all vehicles owned by the insured during the policy period.
Robert's wife, Ellen, was killed in a car accident on April 7, 2015 when the brakes in her SUV failed while she was driving. In Alabama, what is last date that Robert can file a lawsuit against the vehicle manufacturer for Ellen's death?
April 7, 2016 Product liability, which allows 2 years (or one year from the date of death,)
Which of the following statements is FALSE regarding Professional Liability insurance?
Legal defense costs are not included in policy limits. Professional Liability Insurance covers the cost of defending the insured in a lawsuit. If such a suit is decided against the insured, or if a settlement is reached in place of a lawsuit, it pays any monetary damages awarded to a plaintiff for alleged "wrongful acts."
Payment on a mechanical breakdown claim is subject to which of the following conditions?
MBI policies require vehicle owners to provide proof of regular maintenance, usually along the exact guidelines suggested by the auto manufacturer. Each company has its own limits on the age and mileage of vehicles it will cover. The insurer may also require a full inspection of the vehicle before an MBI policy is written.
Natalie's brakes have been squealing for several months. Every time she drives her car, she's reminded that she needs to have them replaced, but she forgets all about it as soon as she gets out of the car. Natalie's brakes can be considered a:
Morale hazard is a reckless, careless, and often unconscious change in behavior, often because of the comfort of insurance protection.
After a fire destroys Gale's kitchen, she files a claim with her insurer and hires a contractor. The contractor estimates it will take $42,250 to repair the damage, but the adjuster estimates it will only take $38,340. Which of the following is the best option for the adjuster's response to Gale's claim?
Negotiate a settlement amount with Gale.
When John moves his family to Alabama from Wyoming, in order to legally drive in the state he must:
Provide proof of automobile insurance
An insurance policy's declarations page contains all of the following, except:
The declarations page is always the first page or section of an insurance policy. It gives a general overview of the policy and will include at least 8 details: the names of both parties, the insurer and the insured; the policy number; the location and description of the insured item; the value and replacement value of the insured item; the dates that policy coverage starts and ends (known as the inception and expiration dates); the amount and limit of insurance coverage; the deductibles on the policy; and the premium that the insured has to pay.
The minimum limit of most Boiler and Machinery policies is:
The minimum limit of most Boiler and Machinery contracts is $500,000.
Which of the following is NOT a feature of a typical Business owners Policy?
Typical coverage for a Business Owners Package can include: twelve months of business income coverage, twelve months of extra expense coverage, built-in inflation guard for buildings and structures, liability protection to cover lawsuits from accidents or products, protection from slander and copyright lawsuits, deductibles on all claims ― excepting fire department, device charges, extra expense, and business income ― an actual cash value endorsement option, and a named- peril endorsement option.
Which of the following best defines premium?
Under an insurance contract, the insured pays a scheduled and affordable fee, called a premium. In return, the insurer promises to pay for specified losses if they occur.
Which of the following situations does NOT contain an insurable risk?
risk is an item, person, or organization that has been insured. But not everything is insurable. First determine insurable risk is whether the insurer can collect enough income from premiums to cover its two major expenses: claims against policies and the operating costs. Second determining whether a risk is insurable is threefold. The insurer must be able to define the exact conditions of coverage, must know the precise dollar value of the risk, and must be able to clearly set out the terms under which a claim would be paid. insurable risk is that a loss must be unpredictable and caused by circumstances no one could reasonably prevent-a roof blown off in a tornado, a car accident, a third condition of insurable risk is that a loss must be unpredictable and caused by circumstances no one could reasonably prevent-a roof blown off in a tornado, a car accident, a theft, or a fire caused by lightning. Fourth condition of insurable risk is that the loss must cause substantial economic hardship., Fifth condition for determining insurable risk is that an insurer must be able to exclude coverage for some disasters considered significantly catastrophic., Sixth and final qualification of an insurable risk is that an insurer must be able to cover a large number of similar risks., Dale just bought 30 shares of a hot new startup company online.
Molly borrows her friend Dom's car so she can run to the grocery store. On the way home she rear-ends a van, injuring the driver and 3 other passengers. Each of the passengers suffers $45,000 in injuries, while the driver suffers $40,000. Assuming Dom has a liability policy with limits of 50/100/50, while Molly has 25/50/25 coverage, how much will the primary policy cover?
$100,000
Smith Shipping Co. owns two cargo ships. The first ship is covered by a hull policy with a $50,000 average deductible. The second ship is covered by a hull policy with a $75,000 franchise deductible. One very unlucky month, both ships lose all of their cargo to fire, thereby sustaining $100,000 in each of the 2 losses. Smith Shipping Co. will be indemnified ______ (total) for their losses.
$125,000
Darren's SUV cost him $28,500 when he bought it new five years ago, but it would cost $29,600 replace it today. The vehicle has an annual depreciation of $1,200. Darren loses control while driving too fast around a bend in the road and flips his vehicle, totaling it. Assuming Darren's auto insurance policy pays ACV, how much can he expect to receive in indemnification for this claim?
$23,600
Mark's house sustained $236,000 of damage in a flood. On top of that, when he was applying for the permits to repair the damage, he found out that the city is requiring him raise his house nine inches to comply with new code requirements. This will add an additional $20,000 to the scope of work. Mark's flood policy has a Coverage A limit of $240,000. Ignoring the deductible, how much will Mark's SFIP pay him for this claim?
$236,000 Standard Flood Insurance Policy (SFIP). This policy is governed by Federal law and is not subject to state departments of insurance or state and local courts." I did not see anything about and ordinance law. Ordinance law is a optional coverage."
When lightning strikes Brittany's home during a storm, the resulting fire completely consumes the structure before firefighters are able to put it out. Brittany is fully insured by a DP-3 policy with a limit of $245,000, every bit of which is needed to rebuild her home. In addition, she receives a bill from the fire department for $650. How much is Brittany likely to receive from her insurer in response to her claim?
$245,500
Diana is insured under a DP-2 policy with the following coverage limits: Coverage A - $150,000, Coverage B - $15,000, and Coverage C - $25,000. She and her fiancé have planned a destination wedding, but their hotel catches fire shortly after their arrival. Smoke from the fire damages all of their belongings, including Diana's $4,000 wedding dress. Diana's loss totals $5,200. When she files a claim with her insurance company, ignoring any deductible, how much can she expect to receive?
$5,200
While Andrea was grocery shopping in BB Mart, the large Dairy sign fell off the wall and landed on her. Because of her extensive injuries, Andrea sued BB Mart and was awarded $375,000 in damages. BB Mart's Commercial General Liability policy has a general aggregate limit of $1,000,000 and a per occurrence limit of $300,000. How much will BB Mart have to pay out-of-pocket in this case?
$75,000 Under each aggregate limit, the declarations page will list a per occurrence limit. The per occurrence limit establishes the maximum amount the insurer will pay to satisfy claims for bodily injury, property damage, and medical payments for any single occurrence. For example, consider a CGL with a General Aggregate limit of $1,000,000, and a per occurrence limit at $250,000. If an individual makes a claim against the insured for $350,000 arising out of a single occurrence, the most the CGL will pay to satisfy that particular claim is $250,000, or the per occurrence limit.
Roxanne's house is struck by lightning during a thunderstorm, which results in $10,000 in covered damage to the structure and and $2,800 in covered damage to her personal property. Roxanne's homeowners policy has a fixed deductible of $1,200. How much can she expect to receive in her settlement from her insurer for this claim?
$8,800
Roxanne bought her 50" TV four years ago for $2,400. During a storm, her house was struck by lightning and the current fried her TV. The TV depreciates at $400 per year and a similar TV costs $1,200 today. Assuming Roxanne's homeowners policy has a replacement cost endorsement for personal property, how much can she expect to receive in indemnification for her damaged TV?
$800
Erica's property sustained damage in a recent flood. The damages to her home and detached garage came to $80,000 and $15,000, respectively. Erica has a dwelling form flood policy with $100,000 limit. Ignoring any deductible, how much can Erica expect to receive in indemnification for this claim?
$90,000 If the insured owns a detached garage, it will automatically be granted 10% of the limit of liability associated with the main dwelling. This 10% is not an additional amount of insurance. This means that, if it were used, it would reduce the amount of insurance available for the dwelling.
Ronald always drives with his windows rolled down because he loves the feeling of the wind in his hair. However, he often forgets to roll his windows up when he gets out of the car. Of course, this behavior makes it easier for thieves to steal his belongings from the car, but Ronald can't help being forgetful. Ronald's behavior would be considered a:
A moral hazard is an intentional act by an insured because he has insurance.
Sara's home was partially destroyed by a fire and she insists it will cost $97,000 to repair the damage. However, after completing his investigation, Jason determined the repairs could be done for $65,000. All attempts at negotiation have failed. Even though it's risky to go to court, why might the insurer decide to pursue that course of action?
A reputation of being a "pushover" will make future negotiations more difficult.
Adam is shopping for a car in a local automobile dealership. While visiting the showroom, Adam trips over a rug that has folded over and breaks his arm in the fall. Which of the following is true?
A third-party claim is a claim filed against an insurance policy by a third-party not named on that policy
After wrecking her car on an icy road, Lilly filed a claim with her insurer, ABM Insurance, who dispatched Richard to investigate her claim. Who is the principal in this scenario?
ABM Insurance Principal- The principal refers to an agent's employer (usually an insurance company, but it could also mean anyone who contracts the agent to work on their behalf and gives her the authority to do so).
After a hail storm passed through his neighborhood, Perry had his roof inspected by a local contractor. The contractor gave Perry an estimate of $9,850 to replace his roof, so he filed a claim with his insurer. The adjuster came up with her own estimate of $9,645 to replace Perry's roof. How will the adjuster likely respond to Perry's claim?
Accept the claim, since the difference is small enough to settle in Perry's favor.
A heavy windstorm damages a few shingles on Arlene's roof. Arlene has been wanting to get a new roof for a while, but she thinks the damage caused by the storm is too minor for her insurance company to decide to replace the entire roof. So, she gets up on her roof and tears up several more shingles in the hopes of making the adjuster believe the storm caused more damage than it actually did. Which of the following statements is true?
Arlene has just committed hard fraud. Hard Fraud involves deliberately planning or faking a loss, such as an accident, theft, or fire, that is covered by the insurance policy. One of the most frequently seen examples of Hard Fraud is the staging of car accidents.
Even after Ed finished his investigation and told Adeline that her damages were covered, she was still concerned that her insurer would deny her claim. Ed assured her that there was no need to worry and that her insurer would back up his decision. Why might Ed be so sure of this fact?
As an adjuster, Ed has the power to bind the insurer to the decision he makes on their behalf. As an adjuster, you represent the insurer when you investigate, report, and evaluate a claim. After determining a settlement figure, you must seek approval from the insurer to offer a release of further claims to the claimant. Remember, you have the power to bind the insurer legally by your actions.
Jared is fishing from his 22 foot cabin cruiser on Lake Conroe when he is caught in a sudden hail storm. His boat suffers extensive hail damage. When he files a hail claim against his homeowners policy, he is upset to learn that his claim is denied because:
Boats cannot be covered by a homeowners policy.
Damage caused by a tree branch falling onto a company car would be indemnified under which coverage of a BAP?
Comprehensive coverage Business Auto Policy is for Physical Damage. This section specifies which types of physical damage to the vehicles are covered. It includes both collision and comprehensive coverage, just as we saw with the personal auto policy. Collision coverage pays for damages to an insured auto when it overturns, strikes another car, or hits an inanimate object. Comprehensive coverage pays for damage to vehicles caused by other events, such as hail, lightning, fire, contact with an animal, etc.
Which of the following would be covered under Coverage A of the Business owners Policy?
Coverage A applies to the buildings and structures described on the declarations page, any additions to those buildings or additions under construction, and also includes any construction equipment and building materials within 100 feet of the insured premises. Coverage A protects against damages to: buildings and structures; permanently installed fixtures in those structures, such as lighting and security systems; permanently installed equipment and machinery; property used to maintain the business (ladders, fire extinguishers); flooring and floor coverings; heating, ventilating, refrigerating, cooking, and dish washing equipment; outdoor fixtures.
Which of the following would be covered under Coverage B of the Business owners Policy?
Coverage B applies to business personal property. Business personal property, or BPP, is property of the business that is not affixed to the building and is used daily to service the business. Business personal property can include: furniture; loose fixtures, machinery, office equipment, stock (inventory), and other items used in the course of business; all other business-owned personal property used for business; improvements made by tenants at their own expense;
Andrew's house is struck by a bolt of lightning, which fries all four of his family's laptop computers and two cell phones that were charging. The total amount of damage comes to $3,600. Which homeowners coverage of his HO-3 policy will indemnify Andrew, and how much can he expect to receive? (Ignore the deductible.)
Coverage C - Personal Property
DEC Construction was hired to renovate Randy's home completely. As the general contractor of the job, DEC Construction subcontracts the electrical portion of the job to Mac Electric and requires Mac to have Owners & Contractors Protective Liability for the job. Who retains ultimate control over this policy?
DEC Construction
Which of the following is an example of an indirect loss?
Due to a flood, a landlord loses a month of rental income when her tenant must move out while repairs are made to the home. Indirect Loss is an economic loss that results from the direct, or physical, loss.
After Jerry pulled the fire alarm, the indoor sprinkler system came on and flooded the offices at Elliot Designs, which caused thousands of dollars in damage. Elliot Designs filed a claim with KLM Insurance, who dispatched Chrystal to investigate and process the claim. Who is the claimant in this scenario?
Elliot Designs Claimant - One who files a claim with an insurer for a loss.
Susan owns a convenience store and wants to protect her business from employee dishonesty or theft. She trusts all of her employees equally, and doesn't want to single any one of them out. She also would rather not insure them by job description. Which type of ensuring agreement would best suit Susan's business needs?
Employee theft: all employees The first insuring agreement is for Employee Theft. This covers losses or damage to money, securities, and other property resulting from theft committed by an employee. It can be written on scheduled persons, scheduled positions, or on a blanket coverage basis. In other words, an employer can buy coverage that applies to particular people, to specific positions, or to everyone in the company.
Janelle is happy with most of the coverage in her Homeowners policy, but she wants to change her coverage for personal property from ACV to Replacement Cost. She visits her local insurance agent and asks him to make this change to her policy while keeping all the other details the same. Which section of her policy would the agent use to make this change?
Endorsements. often the last section of an insurance contract. Like the definitions, this section is optional but very common. An endorsement is a provision that modifies the coverage of the original contract. It can add or subtract coverage for people, property, or causes of loss.
Jason's auto policy states that if a premium is more than 30 days late, the insurer may cancel the policy. However, Jason is currently more than 30 days late, and has been so five times in the last year, and his insurer has done nothing about it. When Jason gets into an accident and files a claim, which of the following is most likely to happen?
Estoppel is a legal principle which prevents a party from contradicting what had been established as the truth. This principle would support a claim for damages for an insured who has a good-faith reliance on a misleading statement or practice of an insurer.
Stephanie is in the process of adjusting George's auto claim. Currently, she is tallying the totals of the car repair and medical bills that George has given to her. She is comparing these amounts to the coverages in George's insurance policy and applying the deductible listed there. What stage of the adjusting process is Stephanie currently in?
Evaluation The evaluation will take into account all provisions of the policy, including coverage limits, deductibles, valuation, coinsurance, and lender interest, among others. We will cover these terms in more depth a little later.
Sue owns a nursery that grows and sells flowers and trees. When a hurricane destroys her greenhouse and her grow lights with it, Sue leases some grow lights to use in an extra building until her greenhouse can be replaced. What commercial insurance coverage might pay for this rental?
Extra expense This coverage is designed to help the insured business reduce their loss of income in the event of a covered loss. When severe damages cause a disruption in normal business operations, the policyholder will often try to keep the business going by "making do" at a damaged factory, contracting work to other businesses, or leasing space elsewhere to continue operations. By covering the costs associated with these efforts, Extra Expense coverage helps the insured business get up and running again and reduce the amount of income lost due to the damages.
Aces International has a contract with XYZ Insurance, whereby XYZ Insurance will pay for any financial damages that Aces International may incur if an Aces employee commits fraud. What type of contract is this?
Fidelity bond The obligee of a fidelity bond is the employer, who pays for the bond, often without the employee even knowing about it. The surety for this type of bond is the insurer. They promise to pay the obligee if the principal, that is, the employee, commits certain acts. Essentially, a fidelity bond is a way for an employer to make sure they don't suffer large losses as the result of an employee's dishonest actions.
Mark belongs to a non-profit organization that engages in charitable activities and provides Mark with death and disability insurance coverage. To what kind of organization does Mark likely belong?
Fraternal Benefit Societies, or Fraternal Associations, are non-profit, mutual aid organizations that engage primarily in charitable or benevolent activities. They offer their members insuranceagainst death, disease, and disability. Members of Fraternal Benefit Societies usually share common interests, such as religion, occupation, or ethnic background. The Elks, the Masons, The Catholic Aid Association, and Sons of Norway are all examples of fraternal benefit societies.
Michelle just purchased a homeowners policy for her new single-family home. Although she would have liked the best coverage money can buy, she could not afford the most expensive policy. She compromised with a policy that provides open-peril coverage for her house and detached garage, and named-peril coverage for her personal property. Which homeowners policy did Michelle purchase?
HO-3 The HO-3 is the most popular coverage form used today. It provides open-peril coverage for the dwelling and other structures, but named-peril coverage for personal property. In other words, there's broader coverage for the insured buildings than there is for personal property. Under the HO-3 Special Form, personal property is covered against all of the Broad Form perils.
Brent's Professional Liability policy can cover him for all of the following situations, except:
He breaches a contract he made with his client. Professional Liability Insurance covers the cost of defending the insured in a lawsuit. If such a suit is decided against the insured, or if a settlement is reached in place of a lawsuit, it pays any monetary damages awarded to a plaintiff for alleged "wrongful acts."
During a heavy rainstorm, the water accumulation rose high enough to flow under Angie's front door and ruined her hardwood floors. In response to Angie's claim, an adjuster came out to her home and inspected the damage to her floors. The adjuster determined that the loss was covered, wrote Angie a check, and closed the claim. Later, the insurance company reviewed Angie's claim and discovered that the adjuster should have denied it because Angie's policy doesn't cover flood. However, Angie refuses to return the settlement because of the adjuster's:
Implied authority is a form of indirect authority. It is what the public reasonably believes to be the agent's authority, even though it is not directly written in the contract. Because an agent portrays himself as a representative of the insurer, anything the agent says or does is implied to be the action of the insurer.
In which section of a Standard Fire Policy would one find information on specific situations that would either ensure coverage or cause the insurer to deny coverage altogether?
Insuring Agreement The Insuring Agreement specifies exactly what is covered under the policy and what the insurer has agreed to pay or provide in exchange for collecting premiums from the insured. This section will state the covered perils, the covered property, the amount of the premium and how it should be paid, as well as what the policyholder has to do when a loss occurs. It also explains subrogation, mediation, lawsuits, waivers, and anything that may be addressed in the event of a loss.
Other than collision would indemnify which of the following policyholders?
Jane's windshield is cracked when she hits a bird Collision coverage essentially pays for any damages to the insured's vehicle that result from a rollover or a collision with an object or another car. Even if you cause an accident that damages your own vehicle, your collision coverage will step in to pay for the damages, minus the deductible. This is an optional insurance coverage, and often is quite expensive. Collision coverage applies to "your covered auto," as well as any "non-owned" auto the insured is driving.
On July 14, 2014, Mark suffered injuries when a kitchen appliance he was using broke apart during operation. In Alabama, what is the last date Mark can file a lawsuit for his injuries?
July 14, 2016 Statutes of Limitations in Alabama include: Property damage, which allows 4 years; Product liability, which allows 2 years (or one year from the date of death, if the product causes a fatality); and Defamation of Character, which allows 1 year.
Rick and his wife were evacuating due to rising flood waters in their neighborhood. They were towing a small trailer filled with their belongings, in an effort to save them from the flood, but they failed to secure the load properly and several items fell off the trailer, resulting in $1,500 in damage when striking the ground. Assuming the couple is covered by an SFIP, which of the following statements is true?
Loss Avoidance Measures (Mitigation) pays up to $1,000 per measure that the insured takes to avoid loss. It is not subject to a deductible. Covered Loss Avoidance Measures include sandbags (including the sand), fill for temporary levees, pumps, plastic sheeting and lumber, and finally, labor (if the insured, or family members of the insured, perform the labor themselves, they are paid at the federal minimum wage).
Matthew works for Barry John Coal Company. One day, all the work trucks were gone, so Matthew used his own truck to deliver a load of coal to a customer, at his boss' request. Distracted while looking at directions, Matt swerved into oncoming traffic and caused a serious accident. Why might Matt's PAP liability insurer deny coverage for the damage Matt caused?
Matt didn't have the commercial license necessary to use his truck for work purposes.
Chris and Matt are playing a friendly game of one-on-one basketball in Matt's driveway. When Chris goes up for a slam dunk, Matt accidentally trips him while attempting to block the shot. Chris lands hard and tears the ACL in his left knee. Matt's homeowners liability insurance will cover Chris' medical bills because:
Matt's actions were unintentional, but negligent. Note that negligence is always an unintentional act.
Nick's home suffered major damage during a tornado. His contractor says it will cost $85,000 to complete repairs, but the adjuster's estimate gives a total of $63,000. Nick and his insurer have tried to reach an agreement, but have failed to do so. Neither party wants to go to court, but they do want to enlist the help of a neutral third party to make a legally binding decision and resolve this matter. Which of the following is the best option in this case?
Mediation
For Keith's 50th birthday his wife surprises him with a new boat. In order to drive legally with his boat in tow what amount of liability insurance does Keith need to purchase for his boat trailer?
None; boat trailers are exempt from mandatory liability insurance
Dewayne is helping Pat restore his 1967 Mustang. While working in Pat's detached garage, Dewayne accidentally backs into a rickety storage unit, knocking it over and causing several tools and cans of paint to come crashing down on himself. Which homeowners policy coverage will pay for Dewayne's injuries?
Pat's Liability coverage
Which of the following statements about a Personal Articles Floater (PAF) policy is FALSE?
Personal Property Floaters are written on a single policy form called a Personal Articles Floater, or PAF. All PAFs typically have several characteristics in common: they provide open-perils protection with no deductible, and coverage is worldwide. When settling a PAF claim, valuation should be determined by taking the lesser of three amounts: the actual cash value of the property, the cost to repair or replace it, or the coverage limits.
Hank has a Commercial Property Policy on his electronics store. Since has has invested in a sophisticated video surveillance system, he chooses to add a Protective Safeguards Endorsement to his policy to save money on his premiums. One day, he notices that several of his cameras are not functioning properly. How long does Hank have to report this problem to his insurer?
Policies generally dictate that if the insured fails to notify an insurer when he knows about a problem with a system after 48 hours, coverage will be suspended and possibly denied.
Eve's Organic Applesauce makes a family sick in Oregon, and Eve has to recall thousands of boxes of product. Since her base policy does not cover product liability, which coverage could help pay for Eve's losses associated with the recall?
Product liability insurance is designed to protect businesses from this type of liability by covering damages to third parties caused by the manufacturing, merchandising, distributing, or operation of a product.
As an adjuster for KLM Insurance, Chrystal has the important role of fiduciary agent. While acting in this capacity, Chrystal's primary responsibility is to:
Protect the financial and property interests of KLM Insurance. An insurance adjuster acts as a fiduciary agent on behalf of the principal. The principal, which is usually the insurer, gives the adjuster the authority to act on its behalf. This means that, when handling claims, the adjuster is responsible for making decisions in place of the insurer and for the insurer's benefit. A fiduciary agent must employ the highest standard of ethics and personal responsibility when exercising this authority, and must always protect the principal's financial and property interests.
Rachel is filling out an application for a homeowners policy. She is truthfully answering the questions regarding her home's location, size, age, etc. Which of the following is a true statement?
Rachel is providing representations: Applicants are required to be truthful and provide complete information to the full extent of their knowledge.
Acme Paper Co. is wanting to purchase commercial property insurance for its new warehouse. The insurance company is willing to sell them a policy, but only if Acme Paper Co installs an automatic sprinkler system inside the warehouse. What type of risk management technique is the insurer employing in this case?
Risk Reduction in three main ways: it can insure a risk but charge higher than usual premiums, or it can require the policyholder to perform some action to reduce risk, or it can provide less coverage than the applicant wants.
Darla works for XYZ Insurance and has Eddie in her office, who is applying for an auto insurance policy. During the application process, Darla discovers that Eddie has been reported for fraudulent insurance activity. What risk management technique would Darla most likely use in this situation?
Risk Reduction in three main ways: it can insure a risk but charge highert han usual premiums, or it can require the policyholder to perform some action to reduce risk, or it can provide less coverage than the applicant wants.
A non-profit group of people or organizations that insure each other is called a:
Risk Retention Groups: Groups where the members insure each other, using their own capital to write insurance policies.
Which of the following is true about risk management in the insurance industry?
Risk management begins before a policy is purchased.
Francine recently started her own insurance company. She has already sold several homeowners policies, but realizes that if a major storm were to hit her area, she would not have enough reserve to pay out for all of the potential claims. What risk management technique would be the best option in Francine's current situation?
Risk transference: The risk-sharer is called a re-insurer, essentially a provider of insurance for an insurer.
Sally's car skids through a stop sign, hitting a car in the intersection. She has $25,000 in property damage coverage, but the damage to the other car comes to $40,000. Who will pay the difference?
Sally is personally responsible for the difference
Stephanie lets Chad borrow her truck so he can pick up materials for his home remodeling project. While backing out of the parking space at the hardware store, Chad backs into Mary's vehicle and damages her driver's side door. Which insurance policy would cover the damages caused to Mary's car?
Stephanie's auto liability insurance An insured party's auto liability coverage is considered Primary on a car that the insured owns, and secondary on cars the insured does not own. So, when a car is involved in an accident, no matter who was driving it, the owner's insurance coverage will be primary and pay first.
In a PAP, the Insurer's Right to Recover Payment basically reinforces the principle of:
Subrogation An insurer's Right to Recover Payment enforces the principle of subrogation. Recall that subrogation keeps policyholders from collecting twice for the same loss: once an insurer indemnifies you for injuries, you automatically transfer the right to collect payment from the liable party to your insurer. This only applies up to the amount the insurer paid. Simply put,you cannot take payments from the person liable and the insurer for the same damages.
One night, Sally sets fire to her boyfriend Jimmy's restaurant in a fit of jealousy. Thankfully, Jimmy has Commercial Property insurance, and it covers the damages to the restaurant. Which condition makes it possible for the insurance company now to go after Sally to get back what they paid out to Jimmy?
Subrogation Subrogation is the transfer of rights that allows an insurer to recover its losses. The insured also retains the right to sue for the difference, if any, between the amount of damages and the amount paid by the insurer.
Which of the following statements is true about the Standard Fire Policy?
The Standard Fire Policy was typically a named peril policy, but it only protected against losses from fire and lightning. The Insuring Agreement specifies exactly what is covered under the policy and what the insurer has agreed to pay or provide in exchange for collecting premiums from the insured. This section will state the covered perils, the covered property, the amount of the premium and how it should be paid, as well as what the policyholder has to do when a loss occurs. It also explains subrogation, mediation, lawsuits, waivers, and anything that may be addressed in the event of a loss.
All of the following are true about the Law of Large Numbers in the insurance industry, except:
The larger the number of units insured, the more an insurer will have to pay out. Simply put, the Law of Large Numbers says that statistics are more accurate and predictable when there is a larger group of units involved.
PAP holders have several duties after a loss. Which of the following is NOT one of them?
The policyholder must complete a driving safety course.
Melinda's home sustained $6,500 in damage when Jared ran into it with is truck. Melinda received $6,500 from her insurance company, and Jared also paid her $5,000. Melinda has now profited from this loss and is in violation of:
The principle of indemnity.
Sam is in the process of expanding his furniture warehouse when he inherits some property about 100 miles away and decides to move his business there. Why would that cause his insurance company to cancel his Builder's Risk policy?
The property is abandoned The Abandonment condition states that the insurer holds no financial responsibility for properties abandoned by the insured. In other words, if the policyholder leaves an insured property abandoned, this automatically negates coverage for the property, since an abandoned property presents a huge risk to the insurer - a risk that the insurer did not account for when calculating adequate premiums for the policy
Sharon's SUV has a mechanical breakdown while she was driving to work, so she had it towed to an auto repair shop. The inspection showed that the transmission failed. Sharon files a claim on her MBI policy, but her insurer denied the claim. Which of the following would be a valid reason for this denial?
The transmission is covered under her regular auto insurance policy. Mechanical Breakdown policies will cover the major components of a motor vehicle, including: engine, transmission, drive train and steering mechanisms, electrical and electronic systems, air conditioning, and front suspension.
In which situation would Utility Service - Time Element coverage apply?
Utility Services-Direct Damage covers losses caused by the interruption of water, communications, or power services when a utility provider is damaged. For example, if a bolt of lightning causes a fire at the power station that supplies power to the insured, and power is cut off for two days, a utility services endorsement would indemnify them insured for any losses incurred when power was interrupted. An additional, similar endorsement called Utility Time Element offers business income and extra expense coverage for the loss of utility services. Both coverages are offered for named-perils only.
Tim has a small auto repair business that serves his local neighborhood. When his son becomes seriously ill, Tim spends about three months taking care of him. Fearing burglary, he puts most of his valuable machinery and tools into storage while the shop is closed. When his son is better, Tim returns to work and finds that the shop has been broken into and some of his tools are missing. Under what conditions might the insurer deny coverage?
Vacancy The Vacancy condition establishes when a building is considered "vacant." A building is deemed vacant if its doors have been closed - that is, not open for business - for sixty consecutive days. A building may also be deemed vacant if less than 31% of the available square footage is occupied for a period of sixty days. For buildings deemed vacant, some types of damage are automatically suspended from coverage. These include: vandalism, sprinkler leakage, broken glass, water damage, and theft. Other damage types may be severely reduced in coverage.
What requirements must Wholesalers and Distributors meet in order to be eligible for a Business owners Policy?
Wholesalers and distributors are eligible for the BOP program if they meet two requirements: No more than 25% of gross annual sales may come from retail operations, and no more than 25% of the floor area may be open to the general public.
Sally works for XYZ Cable and is on a service call at Theo's house. While running new cable in the attic, Sally accidentally steps off the joist and falls right through Theo's ceiling, causing $1,500 in damage. Which insurance policy would pay for the damage that Sally caused?
XYZ Cable's employer liability insurance Employer liability insurance protects employers from damages or bodily injury caused to their employees or by their employees while performing their duties.
ABC Roofing has two non-claims-made CGL policies that cover the same losses. The first policy is through KLM Insurance and has a limit of $300,000. The second is through XYZ Mutual, with a limit of $600,000. One day, ABC Roofing suffers an occurrence resulting in a $150,000 covered loss. How will this loss be indemnified?
XYZ Mutual will pay $50,000; KLM Insurance will pay $100,000
When Mary moves to the small town of N-ville and opens a jewelry shop, she realizes that she needs a form of insurance that will protect her from damages that might occur to her customers' jewelry when they leave it with her for cleaning. What type of Commercial Property Floater is Mary looking for?
a Bailee's Customer Floater When goods are in someone's care, custody, and control this is called "bailment" and insurance on these goods is called "bailee coverage."
An insurance claim is essentially:
a formal request to repair the damage. Claim - The "offer of settlement" that the policyholder files with an insurer after she experiences a loss.
Daily Constructions has been contracted by the City to renovate the historic courthouse building in the town square. Daily Constructions has also contracted with KLM Insurance, which has agreed to act as the surety, but requires that Daily Constructions deposit $90,000 into a bank account under KLM's control until the job is finished. If Daily Constructions fails to complete the job for the City, it will forfeit the $90,000. The $90,000 would be called:
a guarantee. Collateral- cash or property held by the surety until the principal fulfills contract Sometimes, a surety will require collateral from the principal, or require a fourth party, called the indemnitor, to guarantee the agreement. In some cases, the surety is given Joint Control over the project being completed.
Monica's home is located in a flood zone. In insurance terms, the location of Monica' home is considered:
a hazard: Anything that increases the chance of loss.
An insurance company may consider each of the following a risk, except:
a school bus. Risk: In the insurance industry, risk can have two meanings: 1) the potential for financial loss; being exposed or open to damage, 2) an insured item.
What are the four requirements of a legally binding contract?
agreement, consideration, competent parties, and legal purpose.
All of the following pieces of information can be found in the Conditions section of an insurance policy, except:
conditions section. This is where the policy establishes a set of conditions that the insured must meet in order for the policy to be valid. If the policyholder does not meet the conditions listed here, the insurer has a right to deny coverage. For example, if a jewelry store owner wants to purchase an insurance policy, the conditions section may require that a security guard be present whenever the store is open. Other conditions require a claimant to protect damaged property from further losses, and that the claimant must submit a proof of loss if the insurer requests it. The insured must also cooperate with the insurer during any investigations or lawsuits. These and other conditions are found in the conditions section of the policy.
When damages or losses fall under the terms of an insurance contract:
he policyholder has an immediate right to claim payment according to the terms of the policy. The claim is the first step in indemnification. An insurance claim is defined as the insured's official demand for payment from the insurer in accordance with the terms of a policy. Once a policyholder has filed a claim, he is considered a claimant. If the claimant's damages or losses fall under the terms of his insurance contract, he has an immediate right to demand payment from his insurer according to the terms of the contract.
Bill holds a hull policy for his cargo ship which sails between China and the United States, transporting wooden toys. On voyage i. his cargo is stolen by pirates. On voyage ii. the cargo is destroyed by striking employees. On voyage iii. the cargo is destroyed when Bill's ship strays into a war zone and is struck by a missile. On voyage iv. the cargo is destroyed when poorly fastened crates fall into the sea. Bill's losses will be covered by his hull policy for which of these voyages?
iii. only pirates Example of Coverage: Fire, Lightning, Earthquake, Piracy- intentional theft of a vessel or its cargo, intentional sinking or desertion of a vessel, fighting and piracy Examples of EXCLUTION: acts of war, rioting and civil commotion, Employee strikes, confiscation, damage due to dampness or breakage.
An Umbrella liability policy:
may cover risks not covered in an underlying policy An umbrella policy provides liability coverage over and above the normal or base limits of liability in a policy. An umbrella policy is a type of Excess Liability
Who is NOT eligible for a Homeowners policy?
tenants who rent homes or apartments
