Am Pro Chapter 4 P&C

A policy covers leaky roofs. The insured's roof leaked after a satellite dish installer improperly mounted a new satellite dish on the roof. The leak damaged the wall, the floor, and a couch. The policy will pay for each of the following EXCEPT: Select one: a.the floor b.the damage to the wall c.repair of the leaky roof d.the couch

Although the damage from the leaky roof is covered, the Insurer is not expected to repair the leaky roof. Likewise, if a water pipe breaks, the Insurer will cover the damage caused but the Insured is expected to repair the broken pipe. The correct answer is: repair of the leaky roof

Insurable interest and actual cash value are both related to: Select one: a.Speculative risk b.Indemnity c.Peril d.Law of Large Numbers

Both serve to make the Insured whole but to not allow the Insured to come out ahead. By requiring an insurable interest, we prevent the Insured from insuring property owned by others. By only paying ACV, we keep the Insured from coming out ahead by getting "new for old." The correct answer is: Indemnity

The cost of hiring the umpire is: Select one: a.split between the insurer and insurance commissioner. b.split between the insurer and insured. c.paid by the appraisers. d.paid by the insurer alone.

Everyone pays for their own appraiser but the cost of the umpire is split. The correct answer is: split between the insurer and insured.

Special covers each of the following EXCEPT: Select one: a.Acts of God b.Mysterious disappearance c.Floods and earthquakes d.Theft

Floods and earthquakes aren't covered by Special. But, Special will cover mysterious disappearance, theft, and all the other things that are commonly referred to as "Acts of God" because we mortals can't figure out where else to place the blame. The correct answer is: Floods and earthquakes

Each of the following provides coverage over and above the policy limit EXCEPT: Select one: a.Fire Department Service Charge b.Debris removal c.Preservation of Property

Key words "over and above." The correct answer is: Preservation of Property

"Acts of God" are best covered by: Select one: a.Broad form b.Special form c.Liability policies d.Basic form

New point - If we are concerned about unusual forces of nature, nothing can provide better coverage than the good old Special form policy! Liability insurance covers acts of the Insured, not acts of God. The correct answer is: Special form

Salvage: Select one: a.is a right of the insured. b.reduces the overall cost of claims.

Only the Insurer has the right of salvage. The right of salvage permits the Insurer to sell the damaged item to reduce its claims costs. It also prevents the Insured from coming out ahead by getting "new stuff" and keeping the "damaged stuff." Thus, the right of salvage upholds the principle of indemnification. The correct answer is: reduces the overall cost of claims.

Which is an example of an indirect loss? Select one: a.a frozen pipe bursts b.fireplace smoke damages the home c.a business loses profits after a fire d.a twister damages a home

Other names for Indirect Loss are Consequential, Loss of Income, and Loss of Use. Indirect loss refers to the financial loss that is a consequence of the direct loss. All of these refer to direct loss (damage to property) except for the loss of profits after a fire which is an indirect loss. The correct answer is: a business loses profits after a fire

After a loss, an insured must: Select one: a.protect the property from further loss b.pay the next premium payment c.notify the Insurance Commissioner d.request an appraisal

Remember that insurance policies are unilateral - only the Insurer makes a promise. The Insured never promises to pay any future premiums. The correct answer is: protect the property from further loss

Each of the following is true about the mortgagee EXCEPT: Select one: a.The mortgagee must be notified of cancellation or nonrenewal. b.The mortgagee is entitled to coverage which exceeds the policy limits. c.The mortgagee has an insurable interest. d.The mortgagee may file a claim if the insured fails to do so.

Remember, we are looking for the false answer with EXCEPT questions. The mortgagee may only collect up to the balance owing on the mortgage debt but certainly cannot recover more than the policy limit. The correct answer is: The mortgagee is entitled to coverage which exceeds the policy limits.

Which of the following statements regarding the "Recovered Property" condition is FALSE? Select one: a.If the property is returned to the Insured, the loss payment will be adjusted b.The recovered property may only be returned to the Insured if it is recovered within 30 days of the loss c.The recovering party must promptly notify the other party d.The Insured gets to decide whether to have the property returned or allow the Insurer to keep it Feedback

See Addendum Page PC 4-1, Lines 5 to 10. The correct answer is: The recovered property may only be returned to the Insured if it is recovered within 30 days of the loss

Alice had her fishing gear stored in a storage facility. The owner of the storage facility was carelessly setting off fireworks and caused a fire that burned Alice's fishing gear to ashes. What is the provision that excludes the storage facility owner from coverage under Alice's policy? Select one: a.Duties After a Loss b.No Benefit to Bailee c.Loss Payable d.Assignment

See Addendum Page PC 4-2, Lines 18 to 23. A bailee is someone who has temporary possession of the property of another. The No Benefit to Bailee provision excludes the bailee from coverage under the Insured's policy. After paying the Insured, the Insurance Company will subrogate against the bailee who is the storage facility owner. The correct answer is: No Benefit to Bailee

A Special Form policy covers: Select one: a.fungus. b.decay that causes a wall to collapse. c.rats eat wiring insulation. d.termite damage.

Special (as well as Broad Form) will cover collapse. However, mold (fungus), insects and vermin are excluded perils. The correct answer is: decay that causes a wall to collapse.

After a boat accident, the Insured should do each of these EXCEPT: Select one: a.Notify the Insurance Commissioner. b.Protect the property from further damage. c.File a Proof of Loss. d.Notify the insurer as soon as possible.

The Insurance Commissioner simply doesn't want to hear about our problems unless the Insurer improperly fails to pay the claim. The correct answer is: Notify the Insurance Commissioner.

L insures his garage for $15,000 with Co. A. He insures his building for $20,000 with Co. B. The fire coverage is equal to the replacement cost of the structures. Each policy has a $250 deductible. If both structures are destroyed by a covered peril, the maximum L will receive is: Select one: a.$5,000 b.$34,500 c.$34,750 d.$35,000

The correct answer is: $34,500

A mortgagee must be given how much notice of cancellation? Select one: a.10 days b.20 days c.40 days d.80 days

The correct answer is: 10 days

A landlord owns several properties. All of the properties could be covered with a single policy limit by using which of the following? Select one: a.Specific Limit b.Blanket Limit

The correct answer is: Blanket Limit

Which is true regarding the appraisal provision? Select one: a.Either party may initiate the appraisal. b.The Insured may invoke the appraisal provision at the time of submitting the claim.

The correct answer is: Either party may initiate the appraisal.

Subrogation involves transfer of whose rights? Select one: a.Insured b.Insurer

The correct answer is: Insured

Which section of the Basic or Broad form policy determines whether a peril is covered? Select one: a.Insuring agreements b.Declarations c.Conditions d.Exclusions

The correct answer is: Insuring agreements

"New for old" refers to: Select one: a.Replacement cost b.Actual cash value

The correct answer is: Replacement cost

After a fire, an Insured is reimbursed in full for the loss. This is: Select one: a.Actual cash value b.Replacement cost

The correct answer is: Replacement cost

Payment of the actual cost to replace an item is: Select one: a.Actual cash value b.Replacement cost

The correct answer is: Replacement cost

To guarantee that depreciation will not be a factor in calculating the amount to be paid at the time of a loss, an Insured should purchase: Select one: a.Replacement cost b.Actual cash value

The correct answer is: Replacement cost

The Actual Cash Value formula is: Select one: a.Replacement cost minus physical depreciation b.Original cost minus physical depreciation

The correct answer is: Replacement cost minus physical depreciation

Which is true regarding salvaged property? Select one: a.The Insurer determines what happens to the property. b.The Insurer must sell it to a salvage firm. c.The adjuster is entitled to the property. d.The Insured is entitled to the property.

The correct answer is: The Insurer determines what happens to the property.

Replacement cost coverage provides: Select one: a.The total cost to repair or replace an item. b.Deductions for depreciation.

The correct answer is: The total cost to repair or replace an item.

If a covered peril causes a loss, the Insurer must: Select one: a.pay the loss b.complete a proof of loss form

The correct answer is: pay the loss

If your building is destroyed by fire, you must notify the Insurer: Select one: a.within 60 days b.promptly

The correct answer is: promptly

The Insurer's recovery from the sale of damaged property is: Select one: a.salvage b.assignment

The correct answer is: salvage

A third party causes damage to the Insured's property. After paying the claim, the property Insurer brought suit against the third party under the concept of: Select one: a.indemnity b.subrogation

The correct answer is: subrogation

After paying an Insured, the Insurer brings suit against the individual causing the loss. This is an example of the exercise of the right of: Select one: a.salvage b.subrogation

The correct answer is: subrogation

An Insurer's required assignment of rights of recovery after paying a claim is: Select one: a.coinsurance b.salvage c.risk d.subrogation

The correct answer is: subrogation

The Insurer may require the responsible party to pay for the loss under the concept of: Select one: a.indemnity b.subrogation

The correct answer is: subrogation

The Insurer's right to recover from a negligent third party for a claim paid by the Insurer to the Insured is known as: Select one: a.insurable interest b.subrogation

The correct answer is: subrogation

Transfer of rights of recovery against others to the Insurer is: Select one: a.assignment b.subrogation

The correct answer is: subrogation

Actual cash value: Select one: a.pays Fair Market Value b.takes physical depreciation into account

The correct answer is: takes physical depreciation into account

The policy's appraisal provision determines: Select one: a.whether the loss is caused by a covered peril. b.the amount of the loss.

The correct answer is: the amount of the loss.

A mortgage clause: Select one: a.Grants the mortgagee specific rights not granted to the Insured. b.Obligates the Insurer to pay the mortgage payments if the Insured is disabled.

The mortgagee can get paid by the Insurer even if the Insured intentionally torches the property. The correct answer is: Grants the mortgagee specific rights not granted to the Insured.

Which section of a Special form policy determines whether a peril is covered? Select one: a.Exclusions b.Conditions c.Insuring agreements d.Declarations

Under a Special Form, the only way we can determine whether a peril is covered is to read the exclusions. If the peril isn't in the list of exclusions, it will be covered. The correct answer is: Exclusions

The "Examination of Your Books and Records" condition gives the Insurer right to examine the Insured's books and records: Select one: a.during the policy period only b.during the Policy Period and for up to 3 years after the policy has terminated c.during the policy period and for only up to 1 year after the policy has terminated d.during the policy period and for only up to 60 days after the policy has terminated

during the Policy Period and for up to 3 years after the policy has terminated

Which is NOT an extended coverage peril? Select one: a.earthquake b.lightning c.volcano d.smoke and fire

earthquake

Under the Business Income Policy's Arbitration Provision: Select one: a.the insured may request arbitration when submitting a claim. b.either party may request arbitration.

I apologize for blindsiding you on this question, but this is what the exam will do. We have covered the Arbitration Provision and you know from the text and video that either party may initiate the arbitration process in any property policy. The old exam questions would have simply asked if either party can initiate arbitration. However, the newer and tougher questions like to put the arbitration provision within a particular property policy (such as Business Income which we haven't yet studied) and then ask the same old questions about the arbitration provision. So, we have covered the arbitration provision. Just don't panic when they ask about an Arbitration Provision contained in any of the policies we will later study - the answer is the same in all of the policies, Business Income, Commercial Package Policy, Commercial Crime, Business Owner Policy, etc., etc. The correct answer is: either party may request arbitration.

M's boat is damaged but it is not totally destroyed. The Insurer determines that it will cost more to repair the property than to pay M the ACV of the boat and then collect the salvage value. The loss will be treated as a: Select one: a.Affective Total Loss b.Partial Total Loss c.Practical Total Loss d.Constructive Total Loss

See Addendum Page PC 4-3, Lines 14 to 17. The correct answer is: Constructive Total Loss

Broad form covers: Select one: a.Water damage to the floor due to water backing up through a clogged floor drain. b.glass breakage

Sewer backup is an exclusion in all of our policies - that drain is connected to the sewer system. The correct answer is: glass breakage

A sworn proof of loss statement must be submitted within: Select one: a.10 days b.30 days c.45 days d.60 days

The correct answer is: 60 days

Depreciated value is: Select one: a.Actual cash value b.Replacement cost

The correct answer is: Actual cash value

Most property policies provide: Select one: a.Actual cash value b.Replacement cost

The correct answer is: Actual cash value

Each is true regarding subrogation EXCEPT: Select one: a.It upholds the concept of indemnification by preventing double recovery by the insured. b.It exists in many types of insurance policies. c.It allows larger recovery by the Insured. d.It places the burden of the loss on the responsible third party.

The correct answer is: It allows larger recovery by the Insured.

Which is correct regarding subrogation? Select one: a.It is a method for insurers to recover from responsible third parties. b.It lists the losses covered by the policy.

The correct answer is: It is a method for insurers to recover from responsible third parties.

Which represents replacement cost? Select one: a.Reducing payment by depreciation. b.Denying a claim. c.Paying market value for a loss. d.Paying for new materials to replace old materials.

The correct answer is: Paying for new materials to replace old materials.

The Loss Payee on a policy with a Loss Payable Clause is? Select one: a.First Named Insured b.Insurer c.Third party with an Insurable Interest d.ReInsurer

The correct answer is: Third party with an Insurable Interest

Which is an indirect loss? Select one: a.a business loses money due to a fire b.a water pipe breaks on the top floor and floods a basement

The correct answer is: a business loses money due to a fire

During a fire, one wall of a building collapses and damages an adjacent building. This is: Select one: a.an indirect loss b.a direct loss

The correct answer is: a direct loss

Water damage to a building resulting from fire fighting efforts is: Select one: a.an indirect loss b.a direct loss

The correct answer is: a direct loss

Which is an indirect loss? Select one: a.water damage from firefighters b.smoke from an oven damages living room drapes c.a fire causes a business to close d.heavy snows cause a roof to collapse

The correct answer is: a fire causes a business to close

After a loss by a covered peril, the Insured demands full payment for damaged property given to the Insurer. This is an illegal attempt at: Select one: a.indemnity b.abandonment

The correct answer is: abandonment

If the Insured tries to turn partially or totally destroyed property over to the Insurer while demanding full payment is, this could be construed as the Insured's illegal attempt at: Select one: a.salvage b.abandonment

The correct answer is: abandonment

New zoning laws prevent an Insured from replacing a destroyed property. If the Insured transfers ownership of the property to the Insurer, this is an example of: Select one: a.assignment b.subrogation c.arbitration d.abandonment

The correct answer is: abandonment

The best example of indemnification is: Select one: a.actual cash value b.replacement cost

The correct answer is: actual cash value

A special coverage policy covers: Select one: a.all losses except those specifically excluded b.all losses Feedback

The correct answer is: all losses except those specifically excluded

Special covers: Select one: a.all perils b.all perils except those excluded

The correct answer is: all perils except those excluded

The Standard Mortgage Clause: Select one: a.is another name for the appraisal provision. b.allows the mortgagee to pay the premium if the insured doesn't. c.pays the insurance premium if the insured dies. d.gives the mortgagee the right to modify the policy.

The correct answer is: allows the mortgagee to pay the premium if the insured doesn't.

A consequential loss is: Select one: a.an indirect loss b.a direct loss

The correct answer is: an indirect loss

A process used to negotiate settlement of a claim is: Select one: a.appraisal b.subrogation

The correct answer is: appraisal

If the parties disagree on the amount of the claim, their first step should be: Select one: a.a lawsuit b. arbitration

The correct answer is: arbitration

Using a disinterested third party to resolve a claim dispute is: Select one: a.arbitration b.assignment

The correct answer is: arbitration

Using an impartial third party to resolve a claim dispute is: Select one: a.subrogation b.arbitration

The correct answer is: arbitration

The policy requires the mortgagee to be notified of: Select one: a.cancellation of the policy. b.losses.

The correct answer is: cancellation of the policy.

A Broad Form policy covers: Select one: a.water which backs up through a basement drain b.sonic boom c.off-premises power failure d.damage from a broken water pipe

The correct answer is: damage from a broken water pipe

If the Insurer and Insured disagree about the amount to be paid under a policy, the parties should: Select one: a.demand an appraisal b.cancel the policy

The correct answer is: demand an appraisal

Firefighter damage to an insured property is an example of: Select one: a.indirect loss b.an exclusion c.consequential loss d.direct loss

The correct answer is: direct loss

Under the appraisal provision: Select one: a.each party selects an appraiser. b.each party selects an umpire. c.the court selects the umpire. d.the court selects the appraisers.

The correct answer is: each party selects an appraiser.

Extended Coverage does NOT cover: Select one: a.fire b.hail c.explosions d.earthquake

The correct answer is: earthquake

If the Insured fails to submit a proof of loss, the mortgagee should: Select one: a.file a proof of loss form. b.sue the insurer.

The correct answer is: file a proof of loss form.

The insurer must be notified of the loss: Select one: a.within 60 days b.immediately

The correct answer is: immediately

The "other insurance clause" reinforces which insurance concept? Select one: a.indemnity b.subrogation

The correct answer is: indemnity

The burden of proving a loss rests on the: Select one: a.insurer b.insured

The correct answer is: insured

When the insured property is a total loss, who is entitled to the salvage? Select one: a.insured b.insurer

The correct answer is: insurer

Subrogation involves the: Select one: a.insured's suit against the insurer. b.third party's suit against the insurer. c.insurer's suit against the insured. d.insurer's suit against the third party.

The correct answer is: insurer's suit against the third party.

Which is a consequential loss? Select one: a.lost rental income due to a fire b.a house collapses due to termite damage

The correct answer is: lost rental income due to a fire

The mortgagee: Select one: a.must be given notice by the insurer if the insurer cancels or nonrenews. b.may cancel the owner's policy. c.is required to be the umpire in any appraisal disputes. d.must pay the premium.

The correct answer is: must be given notice by the insurer if the insurer cancels or nonrenews.

The mortgagee must be notified of: Select one: a.rate changes b.nonrenewal

The correct answer is: nonrenewal

A covered loss occurs after a policy is cancelled. The mortgagee was not notified of cancellation. The mortgagee may recover: Select one: a.$0 b.the balance owing on the mortgage c.the fair market value of the property d.up to the policy limits

The correct answer is: the balance owing on the mortgage

A mortgagee who is not notified that the policy has been canceled may recover: Select one: a.the policy limit b.the balance owing on the mortgage

The correct answer is: the balance owing on the mortgage

Replacement cost coverage will pay: Select one: a.the depreciated value of the property. b.the cost to replace the property. c.the original price paid when the property was purchased. d.the fair market value of the property.

The correct answer is: the cost to replace the property.

The appraisal provision settles disputes about: Select one: a.coverage b.the extent of loss

The correct answer is: the extent of loss

Salvage is a right of: Select one: a.neither the insurer or insured. b.both the insurer and insured. c.the insured only. d.the insurer only.

The correct answer is: the insurer only.

In arbitration, the selected third party is the: Select one: a.arbitrator b.umpire

The correct answer is: umpire

An Insurer may recover part of the losses paid for an Insured's damaged auto by: Select one: a.waiving its right to assignment b.using its right of salvage to sell the auto

The correct answer is: using its right of salvage to sell the auto

Which is a direct loss? Select one: a.water damage caused by firefighters b.loss of rental income following a fire

The correct answer is: water damage caused by firefighters

Basic covers: Select one: a.rain which blows in an open window and damages goods b.water damage when a fire sprinkler system activates due to a fire

The correct answer is: water damage when a fire sprinkler system activates due to a fire