cram 20
If general liability "claims-made" coverage is renewed by "occurrence" coverage and the insured purchases a supplemental extended reporting period (ERP), the period for reporting claims under the policy will be extended for how long? ❍ A. Indefinitely ❍ B. 5 years ❍ C. 3 years ❍ D. 60 day
Answer A is correct. A supplemental extending reporting period provides an unlimited extension of the time for reporting covered claims. However, in order for a claim to be covered, it must not have occurred before the retroactive date and not after the policy expiration date.
Which of the following is not true about homeowners personal property coverage? ❍ A. The basic form does not include personal property coverage. ❍ B. Personal property of a guest may be covered. ❍ C. Special sublimits apply to some types of personal property. ❍ D. The full limit applies to personal property anywhere in the world.
Answer A is correct. All homeowner policy forms include personal property coverage. Personal property coverage applies worldwide; at the insured's request, the property of guests can be covered; and special sublimits apply to certain classes of property on all policies.
Under the business auto coverage part, each of the following is true about the classifications of covered autos, which are designated by numerical symbols shown in the declarations, except for which of the following? ❍ A. All classes of newly acquired autos are automatically covered. ❍ B. An insured can select different classifications for various coverages. ❍ C. "Any auto" is the broadest coverage classification. ❍ D. "Hired autos" include autos the insured leases, hires, rents, or borrows
Answer A is correct. An insured can select which vehicles are to be "covered autos" for each individual coverage. Different symbols can be used for various coverages and autos. With the exception of specifically described autos, autos acquired during the policy period are automatically covered.
Various types of domestic shipments may be covered under a number of inland marine forms. Which of the following is not one of the nonfiled marine forms used to insure domestic shipments? ❍ A. Mail coverage form ❍ B. Annual transit policy ❍ C. Trip transit policy ❍ D. Motor truck cargo shipper's form
Answer A is correct. Annual transit policies, trip transit policies, and motor truck cargo policies are all examples of nonfiled inland marine forms used to cover domestic shipments. Although some types of property may be covered in transit by the mail coverage form, it is a filed form that is part of the ISO package policy program.
Which of the following is not excluded under commercial general liability coverage for bodily injury and property damage liability? ❍ A. Injury or damage caused by the operation of mobile equipment ❍ B. Damage to property rented to the named insured ❍ C. An injury that is also covered by a workers compensation law ❍ D. Liability resulting from the accidental escape of pollutants
Answer A is correct. BI and PD coverage for the ownership, operation, or use of mobile equipment is covered by CGL policies. All of the other answer choices are specifically excluded.
Which of the following is not true about insurance binders? ❍ A. Binders are only valid when issued in writing. ❍ B. A binder issued by an agent is valid only if the agent has express authority to issue the binder. ❍ C. Some insurers issue binders directly to let insureds know coverage is in effect until a policy is actually issued. ❍ D. A binder is a temporary contract of insurance.
Answer A is correct. Binders can be issued in writing, but oral binders are valid if the agent is acting within the scope of his or her authority. Binders are temporary contracts of insurance and can be given by agents or insurers.
Under a personal auto policy, which of the following is not a collision loss? ❍ A. Impact between a covered auto and a deer ❍ B. Impact between a covered auto and a stationary object ❍ C. Impact between a covered auto and another vehicle ❍ D. Upset of a covered auto, resulting in damage
Answer A is correct. Collision is defined as the impact of a covered auto with another object or vehicle. The policy specifically lists contact with a bird or animal as an "other than collision" loss.
Which of the following is not true about difference in conditions (DIC) insurance? ❍ A. DIC policies provide property and liability coverages. ❍ B. Traditional perils (such as fire, lightning, and so on) are usually excluded by DIC policies. ❍ C. DIC supplements other coverages and fills insurance gaps. ❍ D. DIC can provide considerable protection at a reasonable cost.
Answer A is correct. DIC policies do provide broad property coverage intended to supplement other coverages and fill insurance gaps. For this reason, DIC policies typically exclude coverage for traditional perils such as fire, lightning, and the extended coverage perils. DIC policies do not provide any liability coverage.
If Coverage C (personal property coverage) is written on a dwelling form, the Other Coverages section of the policy will extend the insurance to provide worldwide personal property coverage for an amount up to which of the following? ❍ A. 10% of the Coverage C limit ❍ B. 25% of the Coverage C limit ❍ C. 40% of the Coverage C limit ❍ D. 50% of the Coverage C limit
Answer A is correct. In addition to the major coverages written, if personal property coverage is included, a dwelling policy will provide up to 10% of the Coverage C limit for personal property located anywhere in the world. This would include such things as clothing, personal effects, cameras, and luggage taken on vacation.
Which of the following coverages may be attached to a homeowners policy only by endorsement? ❍ A. Coverage for a mobile home ❍ B. Coverage damage to the property of others ❍ C. Personal property coverage ❍ D. Medical payments
Answer A is correct. Mobile homes may be covered only when the Mobile Home endorsement is attached. All of the other answer choices are included in every homeowners policy.
Under liability insurance policies, what does the term "personal injury" usually mean? ❍ A. Injury for such things as libel, slander, false arrest, or invasion of privacy ❍ B. Only bodily injuries that are suffered by individuals ❍ C. Any form of injury that affects a person, including bodily injury, property damage, financial injury, and damage to one's reputation ❍ D. Injuries suffered by named insureds or family members who are insured under personal lines policies
Answer A is correct. Some policies cover an insured's exposure for "personal injury," which means liability for such things as slander, libel, false arrest, and invasion of privacy. In the insurance business "bodily injury" and "personal injury" have different meanings and are not used interchangeably. The term "bodily injury" is limited to physical injury.
When the special causes of loss form is attached to a commercial property coverage part, coverage for theft of furs and fur garments is limited to how much? ❍ A. $2,500 ❍ B. $2,000 ❍ C. $1,500 ❍ D. $1,000
Answer A is correct. The special form is the only causes of loss form for commercial property coverage that provides theft coverage. However, for certain classes of property, various limitations apply, and coverage for theft of furs and fur garments is limited to $2,500.
To avoid problems with underinsurance and overinsurance, a business that has fluctuating inventory values during the year should consider coverage written on ❍ A. the value reporting form. ❍ B. a replacement cost basis. ❍ C. the business income form. ❍ D. a blanket basis.
Answer A is correct. The value reporting form is an endorsement specifically designed for businesses with fluctuating inventory values because of seasonal variations in business or shifting inventory between different locations. When this coverage applies, the insured must report values periodically, such as monthly, and the actual amount of insurance in effect will be adjusted accordingly. The final premium will be adjusted at the end of the policy year based on average values.
An insurer has subrogation rights under all personal auto policy coverages except which of the following? ❍ A. Physical damage coverage ❍ B. Uninsured motorists coverage ❍ C. Medical payments ❍ D. Liability coverage
Answer A is correct. Under a personal auto policy, an insurer has subrogation rights against third parties who might be responsible for a loss, such as other drivers or uninsured motorists. However, under physical damage coverage, the insured might be the only one responsible for a loss or nobody might be responsible. It would make little sense to pay an insured for a collision loss and then try to recover from the insured. So the policy specifically states that subrogation rights do not apply to physical damage coverage.
Under the supplementary payments provided by general liability coverage, when a vehicle to which the bodily injury insurance applies is involved in an accident and bail bonds are required, the insurer will pay up to what amount? ❍ A. $250 for the cost of the bail bonds ❍ B. $200 for the cost of the bail bonds ❍ C. $150 for the cost of the bail bonds ❍ D. $100 for the cost of the bail bonds
Answer A is correct. Under the supplementary payments provided by CGL coverage, when a vehicle to which the bodily injury insurance applies is involved in an accident and bail bonds are required, the insurer will pay up to $250 for the cost of the bail bonds.
Something that might increase the likelihood that a loss will occur, is called what? ❍ A. Peril ❍ B. Hazard ❍ C. Risk ❍ D. Catastrophe
Answer B is correct. A hazard is something that increases the chance of loss, such as a loose step or flammable materials. A peril is the cause of loss, such as a fire. Risk is any outcome that involves uncertainty. A catastrophe is an unexpected event, such as an earthquake or flood, which is not considered a hazard.
Claims-made general liability coverage does not apply to bodily injury or property damage that occurs when? ❍ A. On the policy's retroactive date ❍ B. Before the policy's retroactive date ❍ C. After the policy's retroactive date ❍ D. Before the effective date, if there is no retroactive date
Answer B is correct. A retroactive date on a claims-made liability policy marks the date on which coverage for reported claims begins. An occurrence on the retroactive date would be covered, but there would be no coverage for bodily injury or property damage that occurred prior to the retroactive date.
Most liability claims are based on negligence that results in injury or damage. An act of negligence is considered to be a tort. What does the term "tort" mean? ❍ A. A tort is a criminal act committed with the intent to cause injury. ❍ B. A tort is a civil wrong that violates the rights of another. ❍ C. A tort is any act that has the potential to cause financial loss to another person. ❍ D. A tort is an act that can be prosecuted by the state or federal government even if no injury or damage occurred.
Answer B is correct. A tort is a civil wrong that violates the rights of another. Unlike the commission of a crime, in which the government may prosecute the wrongdoer, torts are a part of civil law that is concerned with private relationships between people.
Under liability insurance policies, what does an "aggregate limit" mean? ❍ A. It is the most the insurer will pay for any one accident. ❍ B. It is the most the insurer will pay for all losses during any one policy period. ❍ C. It is the maximum limit for each claim when multiple claimants are arising out of the same occurrence. ❍ D. It is the single largest limit that applies when a loss is covered by two or more policies issued by the same insurer.
Answer B is correct. An aggregate limit is a maximum limit that applies to all losses during a policy period. Each individual loss is subtracted from the aggregate limit and reduces the remaining coverage. At each policy anniversary or renewal, the aggregate limit is reinstated in full.
Claims that are paid by general liability coverage are charged against the aggregate policy limits and reduce the amount of insurance remaining to pay future claims. However, CGL aggregate limits will be reinstated in full ❍ A. if there are more than five claims during a policy period. ❍ B. on the next policy anniversary date. ❍ C. if the insured pays an extra premium for reinstatement. ❍ D. as soon as the aggregate is actually exhausted.
Answer B is correct. Claims paid under general liability coverage are charged against the applicable aggregate policy limits and reduce the amount of insurance remaining to pay future claims during the policy period, but they apply separately to each consecutive policy period and are reinstated on each policy anniversary date.
If coverage for towing and labor costs is included in a personal auto policy, labor costs will be covered only if the labor is performed ❍ A. at a garage by an experienced mechanic. ❍ B. at the place of disablement. ❍ C. within 24 hours of the disablement. ❍ D. within 48 hours of the disablement.If coverage for towing and labor costs is included in a personal auto policy, labor costs will be covered only if the labor is performed ❍ A. at a garage by an experienced mechanic. ❍ B. at the place of disablement. ❍ C. within 24 hours of the disablement. ❍ D. within 48 hours of the disablement.
Answer B is correct. Coverage for towing and labor costs will cover labor only if it is performed at the place of disablement. Although the towing charge may be covered if the vehicle is taken to a garage, any work performed after the vehicle is taken to a garage is not covered.
Under the dwelling property forms, personal property moved to a new principal residence will be automatically covered at the new location (subject to policy expiration) for a period of how long? ❍ A. 60 days ❍ B. 30 days ❍ C. 20 days ❍ D. 10 days
Answer B is correct. Coverage is provided for personal property moved from the described location to a new principal residence. This coverage applies only for 30 days and not beyond the policy expiration date.
Under the NCCI workers compensation and employers liability policy form, the basic, or minimum, limit for employers liability coverage is how much per accident? ❍ A. $50,000 per accident ❍ B. $100,000 per accident ❍ C. $250,000 per accident ❍ D. $500,000 per accident
Answer B is correct. Employers liability insurance provides coverage for sums the insured becomes legally obligated to pay under common law because of work-related injuries or occupational diseases. A minimum limit of $100,000 per accident applies.
The purpose of FAIR Plans (Fair Access to Insurance Requirements) is to do what? ❍ A. Give the federal government a major role in providing insurance ❍ B. Make property insurance available to risks that were otherwise considered uninsurable because of environmental hazards ❍ C. Require complete disclosure of the reasons for policy cancellations ❍ D. Force all insurance companies to participate in an insurance pool
Answer B is correct. Essentially, a FAIR plan makes insurance available to risks that were previously considered uninsurable because of environmental hazards.
Under a personal auto policy, if an insured already has physical damage coverage for at least one vehicle, a new vehicle will be automatically covered from the date it is acquired as long as the insured notifies the insurer and requests the coverage within how many days? ❍ A. 30 days ❍ B. 14 days ❍ C. 10 days ❍ D. 7 days
Answer B is correct. If an insured already has physical damage coverage for at least one vehicle under a personal auto policy, a new vehicle will be automatically covered from the date it is acquired as long as the insured notifies the insurer and requests the coverage within 14 days. It doesn't matter if the new auto is a replacement or additional vehicle.
Under which type of marketing system do agents or agencies operate as independent businesses but agree to represent only one insurance company? ❍ A. Direct writer system ❍ B. Exclusive of captive agency system ❍ C. Direct response system ❍ D. Independent agency system
Answer B is correct. In the exclusive of captive agency system, the insurance company contracts with agencies, which are independent businesses, to represent and sell insurance only for that insurance company.
A device that is used to minimize small nuisance claims and that helps to keep insurance premiums down is called what? ❍ A. Arbitration ❍ B. Deductible ❍ C. Valued policy ❍ D. Coinsurance
Answer B is correct. Many property insurance policies have a deductible, which is the amount of a claim the insured has to absorb before the insurance applies. Deductibles reduce the cost of insurance by eliminating small claims. The amount of the deductible is stated in the declarations. Arbitration is a means of settling claims disputes when the insured and the company disagree on the value of property. A valued policy is one under which a certain value for property is stated in the policy, regardless of its value at the time of any loss. Coinsurance is a means by which insureds share in partial losses if they have not insured their property for full value.
Which type of insurer consists of an unincorporated group of members who share losses and provide insurance to each other? ❍ A. Lloyd's Association ❍ B. Reciprocal exchange ❍ C. Mutual company ❍ D. Multi-line insurer
Answer B is correct. Reciprocal insurers consist of members who are unincorporated and collectively share losses and provide insurance to themselves. Lloyd's Associations are syndicates of insurance underwriters, and mutual and multi-line insurers are examples of traditional insurance companies.
Under most property insurance policies, the policy territory includes which of the following? ❍ A. Only the United States ❍ B. The United States, its territories and possessions, and Canada ❍ C. The United States, Canada, and Mexico ❍ D. All of North America and Europe
Answer B is correct. The policy territory typically includes the United States, its territories and possessions, and Canada. Mexico and Europe are not included.
The name of a liability insurance policy that provides high limits of coverage above underlying coverage and may fill a number of insurance gaps is ❍ A. a general liability policy. ❍ B. an umbrella policy. ❍ C. an errors and omissions policy. ❍ D. a difference in conditions policy
Answer B is correct. Umbrella policies provide high limits of liability coverage above underlying policy limits and might fill a number of insurance gaps. Both Personal and Commercial Umbrella policies are available.
If coverage for personal liability and medical payments is attached to a dwelling policy, what basic limit of coverage applies to medical payments unless a higher amount is purchased? ❍ A. $500 per person ❍ B. $1,000 per person ❍ C. $2,500 per person ❍ D. $5,000 per person
Answer B is correct. Under a dwelling policy, if the endorsement is included, the basic limit of coverage is $1,000 per person for medical payments to others. However, this is a minimum limit, and higher limits can be purchased.
Policies issued under the National Flood Insurance Program provide removal coverage for property removed to protect it from flood. This coverage applies at another location for up to how many days? ❍ A. 60 days ❍ B. 45 days ❍ C. 30 days ❍ D. 15 days
Answer B is correct. Under flood policies, property is also covered at another place, either above ground or outside of the special flood hazard area, for 45 days when removed by the insured to protect it from flood.
Medical payments under a homeowners policy are available for expenses resulting from an injury to which of the following? ❍ A. The named insured ❍ B. A residence employee ❍ C. A person who is on the insured location without permission ❍ D. Any regular resident of the insured's household who pays rent
Answer B is correct. Under homeowners coverage for medical payments to others, injuries to the named insured, family members, and any other regular residents are specifically excluded. However, although residents are not usually covered, an exception is made for "resident employees" and they are covered.
Under a homeowners policy, in addition to any payments for damages awarded against an insured, the insurance company will reimburse the insured for reasonable expenses incurred at the company's request, including loss of earnings of up to how many days? ❍ A. $500 a day ❍ B. $300 a day ❍ C. $250 a day ❍ D. $100 a day
Answer C is correct. As part of the additional liability coverages, a homeowners policy will reimburse an insured for reasonable expenses incurred at the company's request, including loss of earnings of up to $250 a day.
Some property insurance policies provide for payment of the full policy limit in the event of a total loss by a covered peril, regardless of the actual value of the property. These policies are known as which of the following? ❍ A. Indemnity policies ❍ B. ACV policies ❍ C. Valued or agreed amount policies ❍ D. Market value policies
Answer C is correct. For certain hard-to-value items, the insurance company may issue a valued or agreed amount contract for a specified amount agreed to by both parties. If the item is lost or completely destroyed, the insurer will pay this amount as settlement.
In the event of a physical damage loss that makes a covered auto unavailable for a period of time, a personal auto policy will provide coverage for transportation expenses at the rate of $20 per day up to how much? ❍ A. A maximum payment of $300 ❍ B. A maximum payment of $460 ❍ C. A maximum payment of $600 ❍ D. A maximum payment of $740
Answer C is correct. In addition to collision and other than collision coverage, if a covered loss makes an insured auto unavailable, a personal auto policy will provide coverage for transportation expenses up to $20 per day, subject to a maximum payment of $600.
Which type of insurance professional does not actually sell insurance coverages, but sells advice about insurance coverages? ❍ A. Excess and surplus lines agent ❍ B. Solicitor ❍ C. Consultant ❍ D. Producer
Answer C is correct. Insurance consultants do not actually sell insurance; they sell advice. Agents, brokers, and solicitors are all producers who sell insurance.
Which of the following is not true about workers compensation insurance? ❍ A. A few states have monopolistic state funds, and employers are required to purchase coverage from the fund. ❍ B. Most states allow an employer to self-insure for the required benefits. ❍ C. If an employer has coverage in one state, any operations started in other states will be automatically covered. ❍ D. Workers compensation benefits are only available for work-related injuries that arise out of and in the course of employment.
Answer C is correct. States where coverage applies must be listed on the information page. Coverage for other states is not automatically provided. In order to have coverage in other states, the states need to be listed on the policy and the insured must notify the insurer as soon as operations begin.
Which dwelling policy forms are named peril forms? ❍ A. All dwelling forms ❍ B. The basic form only ❍ C. The basic and broad forms ❍ D. The special form only
Answer C is correct. The basic and broad dwelling forms provide coverage on a named peril basis. The special form provides open peril coverage.
A commercial property coverage part with the basic causes of loss form attached covers all of the following perils except which one? ❍ A. Windstorm ❍ B. Explosion ❍ C. Volcanic eruption ❍ D. Sprinkler leakage
Answer C is correct. The commercial property basic causes of loss form specifically lists windstorm, explosion, and sprinkler leakage as covered perils. It provides some coverage for volcanic "action," which might mean cleaning up ash and dust, but there's no coverage for direct damage because of volcanic eruption. The earthquake and volcanic eruption form must be attached in order to have this coverage.
Homeowners coverage for loss of personal property because of "mysterious disappearance" is provided by what? ❍ A. The special form (HO-3) only ❍ B. The broad and special forms (HO-2 and HO-3) only ❍ C. The comprehensive form (HO-5) only ❍ D. All homeowners forms
Answer C is correct. The comprehensive form (HO-5) is the only homeowners policy that insures loss of personal property items by what is known as "mysterious disappearance" because it covers loss by "theft, misplacing, or losing." The other policy forms only cover loss because of damage, destruction, or theft of property. The broad form (HO-2) covers only named perils, and mysterious disappearance is not one of them. The special form (H0-3) offers only broad form coverage for personal property.
Which part of an insurance policy sets the rules of conduct, duties, and obligations of the insured and insurer under the terms of the contract? ❍ A. Declarations ❍ B. Insuring agreement ❍ C. Conditions ❍ D. Exclusions
Answer C is correct. The conditions state the ground rules for the contract and spell out the responsibilities and obligations of both the insurance company and insured.
The only significant difference between the occurrence and claimsmade forms of general liability insurance is found in which of the following? ❍ A. The coverages provided by the policy ❍ B. The policy's exclusions ❍ C. The "trigger," or the way in which coverage is activated under the policy ❍ D. The policy's conditions
Answer C is correct. There are two primary CGL coverage forms: the occurrence form and the claims-made form. Although the two forms contain basically the same coverages, exclusions, and conditions, they only differ in how the coverage under the form is activated, or "triggered" for Coverages A and B.
When an uninterrupted chain of events resulting from a negligent act causes a loss, that act is considered to be which of the following? ❍ A. An assumption of risk ❍ B. An intervening cause ❍ C. The proximate cause of loss ❍ D. A matter of strict liability
Answer C is correct. To establish that one person's actions toward another were negligent and caused injury or damage, the negligent act and the damage must be tied together. If there was no intervening cause and the negligent act led directly to the loss in an unbroken sequence of events, the negligent act was the proximate cause of loss.
Which of the following situations would be covered by liability insurance under a personal auto policy? ❍ A. An insured causes injuries while operating a taxi cab. ❍ B. An auto mechanic has an accident while road testing a customer's vehicle. ❍ C. An insured damages another vehicle while driving a motorcycle. ❍ D. Bodily injuries and property damage occur when an insured is involved in an accident while driving co-workers to their job as part of a sharethe- expense car pool.
Answer D is correct. Although the PAP excludes liability arising out of operation of a public or livery conveyance, such as a taxi business, an exception is made for share-the-expense car pools that are covered. The other answer choices are specifically excluded.
Apparent authority of an insurance agent is the authority ❍ A. given by the agent's contract with the insurer. ❍ B. granted to an agent by state law. ❍ C. the agent tells an insurance applicant that he or she has. ❍ D. that members of the public can reasonably assume that the agent has.
Answer D is correct. Apparent authority is a doctrine that holds an agent may have whatever authority a reasonable person would assume he or she has. An agent acting under apparent authority may bind an insurer as fully as one acting under expressed or implied authority.
In legal terms, the actions by one party might have the effect of giving up a known right. When this occurs, the party has created which of the following? ❍ A. Unilateral contract ❍ B. Representation ❍ C. Warranty ❍ D. Waiver
Answer D is correct. The legal definition of "waiver" is the intentional relinquishment of a known right. Sometimes an insurer or its agent might overlook a provision that might have been grounds for denying coverage or increasing the premium. By doing so, the insurer might have relinquished its right to deny coverage or exercise options at a later date by creating a waiver. A representation is a statement believed, but not guaranteed, to be true, whereas a warranty is a statement guaranteed to be true. A unilateral contract is one in which only one party is obligated to perform its part of the agreement—for example, an insurance contract is unilateral because an insured might choose not to enter the agreement by paying the premium, but if the insured pays the premium, the insurance company is obligated to pay for covered losses.
The name of the coverage that provides legal liability insurance for damage to customers' autos that are left with the insured for service, repair, or storage is which of the following? ❍ A. Garage physical damage ❍ B. Garage errors and omissions ❍ C. Garage liability ❍ D. Garagekeepers coverage
Answer D is correct. The liability section of a garage policy excludes coverage for damage to property of others in the insured's care, custody, or control. For garages, this leaves a significant uninsured exposure, but the specific coverage for this exposure can be purchased under the garagekeepers coverage section of the policy.
An insurer's loss ratio is determined by dividing what? ❍ A. Premiums by combined losses and expenses ❍ B. Premiums by underwriting losses ❍ C. Operating expenses by total premiums ❍ D. Underwriting losses by total premiums
Answer D is correct. The loss ratio is used to compare the company's loss experience from year to year. It is calculated by dividing the amount of incurred underwriting losses by the earned premium. It can be calculated separately for individual lines of insurance or the company's entire operations.
Tom Baxter has an automobile insured by a personal auto policy. He trades in his car and purchases a new private passenger auto as a replacement vehicle. If he does not notify the insurance company, the liability coverage for his replacement vehicle will apply automatically for how long? ❍ A. 10 days ❍ B. 30 days ❍ C. 60 days ❍ D. Until the end of the policy period
Answer D is correct. Under a personal auto policy, if a newly acquired auto replaces another auto, the new vehicle automatically has the broadest coverage for liability, medical payments, and uninsured motorists coverage for any auto shown in the declarations until the end of the policy period.
