AU 62

The National Council on Compensation Insurance's Basic Manual includes all of the following sections, EXCEPT:

Benefits

All of the following are either complete or partial defenses in a products liability lawsuit, EXCEPT:

Breach of warranty

In order to preserve customer loyalty and goodwill, many auto dealers wish to be covered even if they are not legally liable for damage to customers' autos. Which one of the following coverages under the Auto Dealers Coverage Form would provide this coverage?

Garagekeepers direct coverage

Which one of the following is an algorithm often used in cluster analysis?

K-means is an algorithm often used in cluster analysis, in which "k" indicates the number of clusters, and "means" represents the clusters' centroids.

In the auto dealership industry, floor plans are

Lending arrangements used to finance inventory.

An insuring agreement for architects and engineers insurance policies responds for damages because of liability arising out of rendering or failing to render professional services. The term "professional services" is usually

Limited to services the insured is legally qualified to perform.

Types of damages recoverable under professional liability coverage for breach of contract include Select one:

Liquidated damages.

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

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

A named insured's employee rents an auto while on a business trip and is involved in an accident. Which one of the following symbols on the business auto policy would provide coverage for the named insured?

Symbol 9—Nonowned Autos Only

All of the following represent auto dealers liability underwriting considerations, EXCEPT:

The Auto Dealers Coverage Form covers damage to the insured's work as well as any resulting damage to customers' vehicles.

Which one of the following statements is true regarding the Basic Manual for Workers Compensation and Employers Liability Insurance (Basic Manual)?

The Basic Manual is as much a part of the workers compensation and employers liability insurance contract as the policy itself.

Which one of the following statements is true regarding the Basic Manual for Workers Compensation and Employers Liability Insurance (Basic Manual)?

The Basic Manual is part of the workers compensation and employers liability contract.

Which one of the following statements is true regarding the Auto Dealers Coverage Form (ADCF) developed by Insurance Services Office, Inc. (ISO)?

The Liability Coverage section provides both general liability coverage and auto liability coverage.

Which one of the following correctly describes a section of the National Council on Compensation Insurance's Basic Manual?

The Rules section includes specifics on pricing and processing a workers compensation policy.

When analyzing an applicant's completed operations liability exposure, underwriters evaluate all of the following, EXCEPT:

The appropriateness of the claims-made coverage form

Underwriting guidance for the umbrella or excess underwriter

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

FridgeCo, an appliance retailer, owned a storefront. The public sidewalk was damaged. A customer intent on purchasing a mini-frig got into an argument with the owner. The owner asked the customer to leave. The customer angrily stormed out and tripped on the broken sidewalk sustaining a fractured ankle. Which one of the following most accurately assesses FridgeCo's duties and liabilities concerning the customer, in most jurisdictions?

The customer was a business invitee, but FridgeCo was not liable for defects in sidewalks.

When analyzing an applicant's completed operations liability exposure, underwriters evaluate which one of the following?

The extent to which employees are supervised

Jennifer was injured in an auto accident and claimed that her medical expenses were $10,000, the physical therapy costs were $5,000, and her lost wages were $3,000. Additionally, she claimed $10,000 for pain and suffering. If a court awards Jennifer only special damages and denies any general damages, she will receive

$18,000.

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

$2,500,000

The Hometown Hotel (HH) owns three vans which it insures under a Business Auto Coverage Form (BACF) with the rental reimbursement coverage endorsement (CA 99 23). The endorsement has a limit of $20 per day and a maximum limit of 30 days or $600. On March 1, 20X7, one of the hotel's employees hits the side of the building while trying to park one of the vans. The body shop advises HH that it will take three weeks to repair the van. It is peak vacation season and HH needs to rent a replacement van at $30 per day. When the van is finished and HH returns the rental van, the rental bill is $630 or $30 a day for 21 days. How much, if any, will HH's auto insurer pay under the rental reimbursement coverage endorsement?

$400

Which one of the following traditional commercial auto underwriting attributes may be enhanced by using telematics sensors to monitor the condition of a vehicle?

Vehicle use

Companies A, B, C, and D are the sole manufacturers of a specific type of liquid tankers. Company A manufactures 40 percent of the tankers and companies B, C, and D each manufacture 20 percent of the tankers. A tanker made by one of these companies was defective causing it to leak toxic chemicals onto a public parkway, but the fault could not be traced back to a particular manufacturer. Under the enterprise liability concept, Company C is likely to be held

20 percent liable. If the manufacturer cannot be proven then all four of the companies can be held liable under the enterprise liability or industry-wide liability concept.

Courtland Incorporated owns a four-story plus basement office building. The dimensions of each floor are 120 feet long by 60 feet wide. The basement contains the heating and air-conditioning units, and other building maintenance equipment. It is only used by the building maintenance employees. Which one of the following is the appropriate exposure to use when calculating Courtland Incorporated's commercial general liability premium?

28,800

Johnny's Contracting Service has a Business Auto Coverage Form (BAC) covering his vehicles. He also has a Commercial Package Policy (CPP) covering his equipment. Which one of the following would be covered under Johnny's BAC?

A truck used for hauling dirt from jobsites

Benny lost track of where his property ended and ran over a neighbor's sapling with his lawn mower. The neighbor, John, sued Benny for $700 stating it was an exotic tree that could not easily be replaced. John also claimed that because of the loss, he was undergoing emotional stress for which he claimed $5,000. Additionally, John asserted that the noise of Benny's mower had caused him to lose hearing in his right ear, and he was also suing Benny for $5,000 for loss of hearing. The court awarded no general damages but did award special damages related to John's lawsuit. The amount John will receive as a special damages award is

700

A contractor was hired by a railroad to work on a bridge adjacent to railroad tracks. Which one of the following types of insurance coverage would best respond to claims against the railroad arising out of the contractor's work?

A Railroad Protective Liability Coverage Form purchased by the contractor

Samuel is reviewing East Coast Manufacturing's application for workers compensation coverage. The risk's financial condition has declined a little over the last few years and Samuel wants to make sure that the payrolls and classifications on the application are accurate. He does not want to have any issues during the premium audit. Which one of the following is the best source for Samuel to use to verify the payrolls and classifications?

A copy of East Coast's experience modification worksheets

In terms of landowners' duties to people on their property, which one of the following is the best definition of a licensee?

A person with express or implied permission to enter onto the land for his or her own purpose, generally owed no duty of safety

Which one of the following is an action causing harm that would most likely result in the application of the res ipsa loquitur doctrine?

A roll of tar paper falls off a building at night and hits someone.

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

A. Part One—Rules

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

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

Cathy left a bracelet at a jeweler for repair and was given a receipt with the statement, "This establishment is not responsible for loss or damage to any item left in its possession." Which one of the following does the statement on the receipt represent?

An exculpatory clause

Which one of the following statements is true about the basic differences between excess and umbrella liability policies?

An umbrella offers not only high limits of liability, but also may provide coverage not provided by the underlying insurance.

Cluster analysis is

An unsupervised learning technique.

Which one of the following statements is correct with respect to underwriting workers compensation insurance?

From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency.

The rendered judgment of Daubert v. Merrell Dow Pharmaceuticals has enabled lawyers to

Challenge the testimony of experts and have their testimony excluded from the case.

A cardiac nurse is concerned that as a result of the nature of the job that this branch of nursing might become the target of lawsuits. The nurse would employ which one of the following risk management techniques to avoid risk?

Choose not to engage in high risk fields of practice.

Although professional liability policies for financial and legal professionals contain many of the same provisions of those for other professionals, there are important differences. Which one of the following would be covered under the professional liability policies for financial and legal professionals that contain the broadest definition of professional services?

Claims arising from any professional service performed for others for a fee

Damages recoverable for breach of contract can be grouped into categories. Which one of the following is a type of damages recoverable in a professional liability suit for breach of contract?

Consequential damages

Which one of the following is one of the five classifications the Commercial Lines Manual (CLM) uses to refine the general liability classification process?

Contracting or servicing

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

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

Which one of the following is an underwriting consideration when evaluating the extent of an insured's liability exposure to the public?

Differences in exposure between two premises may be the result of location, type of business, and time in business.

Alexis was shot in the eye with a BB gun fired by Henri. Her face was substantially disfigured and scarred from the injuries. Alexis is suing Henri for medical expenses, pain and suffering, emotional distress, and lost wages. If the court denies special damages but awards general damages, Alexis will be paid for her

Emotional distress as well as pain and suffering.

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

Experience rating worksheet

Keith created a tennis ball return machine favored by tennis professionals because of the high velocity of the machine. The speeds of return are random which is clearly posted on the machine. A 13-year-old tennis player loses his eye in an accident due to a ball returned at a very high speed. In this situation, the type of product defect that would most likely lead to a liability suit against Keith is which one of the following?

Failure to warn

Which one of the following statements is true with regard to workers compensation statutes?

Federal government workers are excluded from workers compensation because they are covered under alternate plans.

When classifying and pricing manufacturing or processing operations, underwriters should follow which one of the following guidelines?

For pricing purposes, exclude the value of any transfers of component parts or interim processes within the operations of the same named insured.

Linda is an ambulance driver who is trained to administer first aid. While on vacation, she came upon an accident scene. In an attempt to assist, Linda had to move the victim to avoid the flames of an explosion. Her abrupt choices saved the victim's life but now Linda is being sued for injuries to the victim's neck. Which one of the following statements is true regarding Linda's situation?

Generally state laws apply to gratuitous emergency services at the accident scene and they protect a person who provides such services from liability for ordinary negligence.

Which one of the following statements is true regarding evaluating the professional liability exposure of a hospital?

Geriatric care and physical rehabilitation are less prone to losses than are pediatric, neonatal, and obstetric care.

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

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

ABC Company manufactures hot beverage containers and distributes them to various retail outlets. A customer who purchased one of these containers at a retail store is burned by hot coffee after the lid on a container falls off. Which one of the following principles of law would be the basis for a suit brought by the injured party?

Implied warranty

A farmer is angry that the neighbor's children ride all-terrain vehicles (ATVs) across the farmer's fields. The farmer sets a fire behind the storage shed for the ATVs in order to destroy the ATVs. A child is in the shed when it burns and is injured. A court decides the farmer is liable for the child's injury based on which one of the following?

Intentional tort

Which one of the following statements about owners and contractors protective liability coverage is true?

It covers the property owner for damage arising from the contractor's operations.

Martin, a commercial lines underwriter, is reviewing the general liability application for Shelton Manufacturing. The company processes recyclable plastic into a variety of products. Which one of the following guidelines should Martin follow when classifying Shelton Manufacturing's operations?

Martin should base the classification on the intended use of the final product.

The ISO Commercial Lines Manual's definition of the premium base "gross sales" is the gross amount of money charged by the named insured, by the concessionaires of the named insured, or by others trading the insured's name for various specifically named sources of funds collected. Which one of the following is one of those sources of funds?

Money charged for rentals is part of gross sales

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

Nonstandard open lot

Workers compensation statutes require employers to demonstrate financial ability to pay any claims that might arise. Possible methods for meeting this obligation include which one of the following?

Obtain coverage from an assigned risk plan

While Wanda was mowing her lawn, the lawn mower made a popping noise and suddenly exploded. Engine parts flew through the air and struck Wanda's grandfather in the eye. As a result of losing his vision, Wanda's grandfather, Homer, sued the lawnmower manufacturer. Homer's best approach in the lawsuit is to assert

Strict liability as a nonuser.

The Mayor organized and funded an arts and crafts fair at the city park. Students from a local school wanted to take part in the next fair, but the Mayor refused to give them permission to participate as he had a long standing personal feud with the school principal. Which one of the following statements correctly assesses whether or not the Mayor's actions are immune from liability in this case?

Official acts by government officials are not immune from suit when they are performed with malice and bad faith.

A group of high school seniors released a greased pig into their school as a prank. The terrified pig ran frantically through the halls, knocking students over and causing minor property damage. Eventually the pig was caught by the principal, who locked it in a cage in the teacher's lounge. Several hours later, a janitor who enjoyed the chase decided to open the cage and let the pig run around in the lounge area. During the pig's second run, a teacher was knocked down and injured. Which one of the following statements is true?

Only the janitor is responsible for the teacher's injuries.

The premium for physical damage coverage is based the age group of the vehicle and the

Original cost new.

Neil owns a 50-acre farm with a creek running through it. Neil decided to dam the creek to irrigate from it which resulted in downstream wells drying up. When a neighbor sued Neil the court found that Neil had committed a wrongful reckless act with a motive to harm showing a disregard for social obligation. Neil's actions are best described as

Outrageous conduct.

For general liability insurance purposes, in addition to salaries and wages, the ISO Commercial Lines Manual's definition of "payroll" includes which one of the following?

Overtime, holiday, and vacation pay.

Which one of the following statements about physical inspections is most accurate?

Physical inspection results may depend on the time of day at which the inspection is conducted.

Which one of the following requirements must be met before an employer may operate a "qualified" self-insurance workers compensation plan?

Posting a surety bond

When evaluating hospitals for professional liability coverage, underwriters generally favor

Private, non-profit hospitals, which exist to serve the community and offer a full range of services.

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

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

Certain doctrines in tort law allow a court to infer negligence without direct evidence. This doctrine is based on the conclusion that the accident would not have happened if the action or event causing the injury was under the defendant's exclusive control, and the accident ordinarily would not have happened if the defendant exercised appropriate care. Courts will often apply the doctrine of

Res ipsa loquitur.

The ISO Commercial Lines Manual's definition of the premium base "gross sales" is the gross amount of money charged by the named insured, by the concessionaires of the named insured, or by others trading the insured's name for all of the following, EXCEPT:

Sales Tax

The commercial general liability premium for Springer's Pools and Spas (Springer's) is based on gross sales. A customer purchases a $2,000 spa from Springer's. Because the customer is willing to pay cash, Springer's gives the customer a 10 percent discount and waives the $150 freight charge. The customer pays $1,800 plus $108 in sales tax for a total of $1,908 in cash. Which one of the following represents the amount for this sale that should be included in Springer's gross sales calculation?

Springer's gross sales calculation should include $2,150 for this spa sale. The premium base includes the full sales price ($2,000 plus $150 in freight) without any reductions for the discounts given. The sales tax should not be included in the gross sales calculation.

Liability imposed by certain statutes, such as workers compensation laws, is an example of

Strict Liability

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

Underwriting guidance for the umbrella or excess underwriter

Emily is a relatively new workers compensation underwriter. During her preliminary review of a workers compensation application, she likes to review the hazard group assigned to any classification code that is unfamiliar to her. Which one of the following statements is true regarding the hazard groups that the National Council on Compensation Insurance (NCCI) assigns to workers compensation classifications?

The hazard group gives an indication of the relative occupational injury severity normally associated with the classification.

It is important to ascertain who is covered under the policy because coverage provisions may differ from insurer to insurer. Although the breadth of coverage may differ from one professional liability policy to the next, they all provide coverage for

The individual professional named in the policy.

Umbrella and excess liability underwriters typically determine an insured's eligibility for coverage based on which one of the following?

The insured's operations

Which one of the following statements is true regarding the limit of liability for garagekeepers comprehensive or specified causes of loss coverage?

The limit of liability should be equivalent to the maximum actual total value of the vehicles normally stored at the location.

A truck's gross vehicle weight (GVW) is

The maximum loaded weight for which the manufacturer designed a single vehicle.

When an independent contractor is performing operations on a property owner's premises, the property owner sometimes requires the contractor to provide a policy that protects the owner against which one of the following?

The operations being performed by the contractor

All of the following correctly describe underwriting considerations when evaluating the extent of an insured's liability exposure to the public, EXCEPT:

The presence of heavy traffic automatically means that the premises has an excessive exposure.

Lawyers professional liability underwriting considerations include which one of the following?

The size of the lawyer's professional liability insurance deductible is a function of the number of lawyers in the firm and the type of practice.

Healthcare professional liability policies for physicians generally split coverage into two insuring agreements. The first insuring agreement covers the individual healthcare professional(s) named and the second agreement covers the professional entity. Which one of the following is true regarding the reason for the two insuring agreements?

The split is necessary if the insurer does not provide coverage for all the individuals who are part of the entity.

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

The state compensation laws

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

The subcontractor maintains adequate separate insurance coverage

All of the following correctly describe underwriting considerations relevant to the professional liability of physicians and surgeons, EXCEPT:

The underwriter is not legally permitted to request that a physician's practice history be part of the application.

A court would most likely order specific performance for which one of the following purposes?

To require the release of information

Most of the claims covered by liability insurance are based on

Tort Law

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

Type of vehicles

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

Umbrella policies usually have an occurrence coverage trigger.

Tania is a producer with Stevens Insurance Agency (SIA). Believing that she had binding authority up to $500,000 on residential properties, she issued a binder for Westfolk Mutual on a house with an insured value of $450,000. After the house suffered a total loss due to a fire, it was discovered that Tania's binding authority was limited to $250,000 on properties in the remote area where the house was located. Which one of the following best describes how the claim will most likely be handled by Westfolk Mutual?

Westfolk Mutual will pay the full loss per the binder, and likely seek recovery from SIA for the $200,000 that exceeded binding authority.

Which one of the following factors is among the most important that a court considers when deciding whether to grant an injunction?

Whether either party exhibited intentional misconduct

Benjamin owned a house which was rented by Katie. Benjamin rerouted the gutters and downspouts to trickle water into the road rather than on the porch. In the winter the water froze and created a nearly invisible sheet of ice on the road. Can Benjamin and/or Katie be held responsible if someone is injured on the ice?

Yes. Benjamin created a nuisance, and he can be liable for discharging water on the road, but Katie is not.

A mining company has a partial ceiling collapse in one of its mines. Investigators discover that the company neglected maintenance of their safety systems which resulted in serious injury to several of their employees during the mine's ceiling collapse. The legal liability imposed on the company for the injury to its employees is based on

statute