Insurance P&C License Property
Earl's ISO businessowners policy (BOP) has a liability and medical expenses limit of $300,000 and a general aggregate limit of $600,000. Five people visiting Earl's business are seriously injured in an explosion, and each is awarded $150,000 in damages. How much will Earl's insurer pay in response to this claim?
$300,000
What is the maximum amount that the North Carolina Insurance Guaranty Association will pay on a covered claim?
$300,000
Attached to Gregorio's dwelling policy is an automatic increase in insurance endorsement. His agent explains that this "inflation guard" endorsement will give him 4 percent more coverage at the end of the 1-year policy term. Gregorio's policy shows a $300,000 limit on the dwelling. How much coverage will he have when the policy has been in force exactly three months?
$303,000
Ruby was the victim of identity theft. Subject to a $15,000 limit, the identity fraud expense coverage endorsement to her homeowners insurance policy will reimburse or cover Ruby for all the following EXCEPT:
$5,000 the identity thief took from Ruby's bank account
Which one of the following legally qualifies as an attractive nuisance?
An unfenced swimming pool in Kris's backyard is used by neighborhood children while she is at work.
For an insurer to pay a property or casualty claim, when must the policyholder have an insurable interest in the insured risk?
At the time of the loss
Kristopher's cattle are covered under a farm property form for the broad causes of loss. Which one of the following losses to his livestock would not be covered?
Bovine flu kills Kristopher's most productive milk cow.
If an agent unknowingly sells insurance on behalf of an unauthorized insurer, the agent has committed a
Class 1 misdemeanor
If an agent licensed in North Carolina knowingly sells insurance on behalf of an unauthorized insurer, the agent has committed a
Class H felony
Colby mows lawns and shovels snow after high school to save money for college. He is insured under his parents' homeowners insurance policy. The liability coverage of this policy contains a business exclusion. How will this exclusion affect any bodily injury or property damage claims against Colby as a result of his business activities?
Colby is covered for this part-time self-employed business with no employees.
Under the Terrorism Risk Insurance Act, all of the following lines of insurance are covered EXCEPT
Homeowners and dwelling insurance
Why is a homeowners insurance policy considered a package policy?
It combines two or more separate coverages in a single policy.
For the farm liability coverage form to cover personal injury, an offense must meet all of the following conditions EXCEPT:
It must be committed intentionally.
Leroy promises to pay Heather $500 if she kills his former girlfriend. They prepare a written contract which both sign. Heather kills the former girlfriend and demands payment from Leroy, who refuses to pay her. Heather threatens to sue him for payment. What will become of her lawsuit?
It will be dismissed because the contract had an illegal purpose.
Because Ivan's Dwelling Property 1—Basic Form (DP 00 01) or DP 1 policy provides coverage against the peril of internal explosion, Ivan will have coverage if
Ivan's house is damaged by an explosion caused by a leaky gas pipe.
Which one of the following incidents that resulted in liability claims against Jacquelyn did not involve "property damage" as defined in her homeowners insurance policy?
Jacquelyn copied an article from the Internet and submitted it as her own homework.
Linda is an administrative assistant at ABC Insurance Company and is also studying to become a producer. She routinely accepts premiums and makes cold calls soliciting insurance on behalf of her boss, a licensed producer. Which statement is correct?
Linda must be licensed in order to accept premiums and solicit insurance.
Stephanie is hired by ABC Insurance Company's home office. She does not have an insurance producer's license. Which of the following duties may she perform for ABC?
Mail company correspondence for the president
Emil, an agent licensed in North Carolina, moves to a new home on April 30. He is required to notify the North Carolina Department of Insurance by what date?
May 10 (Within 10 days)
Statewide Insurers wants to obtain an investigative consumer report about an insurance applicant because of questions it has regarding his credit history. What must Statewide do before it can obtain the report?
Notify the applicant that he has the right to be interviewed in connection with the report
Which of the following persons would not qualify for a temporary producer's license in North Carolina?
Part-time producer of a licensed agency
After his computer crashed, Arnulfo took his computer to Patti's computer store. Patti got the computer working again, but all the data on Arnulfo's hard drive was erased, and he sued Patti for damages. According to Patti's Insurance Services Office, Inc. (ISO), businessowners policy (BOP),
Patti has no coverage for damages arising out of the loss of Arnulfo's electronic data.
Who is ultimately responsible for ensuring that applicants receive the appropriate notices about their rights under the Fair Credit Reporting Act?
Producer
Which of the following is not a power granted to the North Carolina Insurance Commissioner?
Prosecuting individuals for violating insurance laws
When collecting personal financial or health information, an insurance company is required to do all of the following EXCEPT:
Provide individuals with copies of documents disclosed to other parties.
Water-based paint in Vincent's paint store would be destroyed if his power is off when the outside temperature is below freezing. His insurance agent suggested that the utility services—direct damage endorsement, scheduling overhead transmission lines, be added to his businessowners policy (BOP). With this endorsement, if Vincent's shop loses power because a windstorm downs power lines, then
Vincent's direct damage will be covered but his loss of business income will not be covered.
Ramiro's homeowners insurance policy makes several references to an "insured location." Which one of the following locations qualifies as an "insured location"?
a hotel room that Ramiro occupies while on a vacation
Because Celina had three auto accidents during the past nine months, ABC Insurance Company does not want to provide coverage after the current policy expires. What will ABC send Celina to notify her of its decision?
a nonrenewal notice
According to the Insurance Services Office, Inc. (ISO), businessowners policy (BOP) eligibility rules, what type of business is ineligible for a BOP regardless of its size?
a parking garage
Twenty percent of Aubrey's cargo was damaged when the ship transporting it encountered a violent storm in the Bermuda triangle. In terms of ocean marine insurance, what is this partial loss to Aubrey's cargo called?
a particular average
Because it is hard to speed up or slow down the process involved, Darnell manufactures building components at a steady rate. When sales are slow, his finished-goods inventory increases, and vice versa. Sales depend on the current construction market. What should the policy covering Darnell's fluctuating inventory probably include?
a value reporting form
Hazel's store has an automatic sprinkler system that will be activated by a fire. In exchange for a reduced fire insurance premium, she signs a document stating that the automatic sprinkler system will always be in operating condition. What is this statement?
a warranty
Although Todd and his insurer agree that his property claim is covered, they cannot agree on the damaged property's value. What condition in Todd's property insurance policy provides a method of resolving this dispute?
appraisal
Laurie's businessowners insurance application is a little short on details. It merely indicates that Laurie wants coverage on her storefront business. Laurie's storefront business is probably eligible for coverage unless it is a(n):
arcade with pinball machines and video games
In an Insurance Services Office, Inc. (ISO), businessowners policy, where do the definitions appear?
at the end of the property section and at the end of the liability section
Evangeline bought her home with a 20 percent down payment and a mortgage from Trevor Bank. She had not yet paid off the mortgage when the home was badly damaged in an explosion. Who had an insurable interest in the home at the time of the loss?
both Evangeline and Trevor Bank
Vito's farm does not produce enough income to support his family, so he works as a self-employed carpenter during the winter months. Which exclusion in Vito's farm liability coverage form precludes coverage for any loss resulting from his side business as a carpenter?
business pursuits
A wide variety of products owned by various shippers are transported aboard the Alejandra, an oceangoing vessel. In the language of ocean marine insurance, what are these goods aboard the Alejandra collectively referred to as?
cargo
Madge's property insurance policy lists and describes eight perils that are covered. What's another name for these perils?
causes of loss
Jonah's Farm Livestock Coverage Form (FP 00 40) covers his livestock. As defined, this means Jonah has coverage for all of the following creatures on his farm EXCEPT:
chickens
Because the wording of a typical insurance policy is drafted by an insurance company and offered to insurance buyers on a take-it-or-leave-it basis, what are insurance policies considered?
contracts of adhesion (Most insurance contracts are contracts of adhesion because the policy is drafted by the insurer and little if any negotiation is normally available with respect to the policy's wording.)
Max buys an expensive commercial lawn mower for his landscaping business. The contractors' equipment floater he purchased to cover this mower will most likely have all the following features EXCEPT:
coverage for physical depreciation
Oscar rents a car for a business trip and runs into a pedestrian who was crossing the street in a marked crosswalk. Oscar's businessowners policy (BOP) includes a hired auto and nonowned auto liability endorsement. The endorsement's schedule indicates coverage for hired autos but not nonowned autos. The pedestrian wants Oscar to pay her medical bills. Oscar's BOP
covers this loss because the endorsement applies to a hired auto.
Merrill's insurance agency office is insured under an Insurance Services Office, Inc. (ISO), businessowners policy (BOP). One of Merrill's customers claims that she suffered a loss because Merrill failed to provide the property insurance she asked for that would have covered the recent damage to her building. What can the insurer that wrote Merrill's BOP be expected to do?
deny coverage because of the BOP's professional liability exclusion
QBS Insurance Company uses class rating to determine the premiums for its auto insurance policies. This means that the rate for every insured driver is
determined by placing the driver and vehicle into a class with other similar drivers and vehicles.
The building and personal property used in Greg's business are covered by an open perils property insurance policy, but he is concerned that the policy excludes coverage for flood and earthquake losses. What might Greg be able to purchase to obtain flood and earthquake coverage?
difference-in-conditions policy
While driving, Tessa ran a red light and broadsided Victor's pickup. Victor was hospitalized for a week and spent another month recovering from injuries he suffered from the accident. In addition to paying his medical bills and reimbursing his lost wages, Tessa's insurer was required to pay additional damages for Victor's pain and suffering. What is the money paid for Victor's pain and suffering?
general damages
A provision in Lynnette's auto insurance policy states: "We will pay damages for bodily injury or property damage for which any insured becomes legally responsible because of an auto accident." What is this broad statement?
insuring agreement
The average terms of the ocean marine insurance policy covering Cary's cargo provide "total loss only" coverage. This means that an insurance recovery is
limited to situations in which cargo is a total loss because of a covered peril.
What two things does an insurance company's loss ratio for a given period compare?
losses and premiums
One spring day, Margaret opened the windows to air out the Grand Hotel guestrooms where she worked as a housekeeper. She forgot about the open windows when a thunderstorm struck. Rain damaged beds, drapes, and carpeting in the rooms Margaret serviced. Does the causes of loss—broad form coverage of Grand Hotel's building and personal property coverage form cover this damage and, if so, under which peril?
no coverage
When taking its monthly physical inventory, Agricultural Equipment Dealer (AED) discovered that a new tractor was missing from the lot where it should have been parked. Its insurer promptly paid AED's theft claim. AED later found the missing tractor on the sales lot at its other location. What does the "recovered property" condition in AED's inland marine policies require AED to do?
notify the insurer
While meeting with Weston, an agent representing ABC Insurance Company, Maryann completes and signs an insurance application in which she offers to buy an insurance policy from ABC. In this transaction, what is ABC insurance company?
offeree
Alex's Diner is covered under an Insurance Services Office, Inc. (ISO), businessowners policy (BOP) with no endorsements. The policy's declarations page includes limits for the building coverage and for the business personal property coverage. What kind of perils coverage does Alex's policy provide?
open perils coverage on the building and personal property
Felix owns an 80-year-old apartment building with narrow stairways. If his building is seriously damaged, Felix will not be permitted to rebuild it unless he makes the stairways wide enough to meet the current building code. His property insurance will not cover the extra cost of such an alteration if the policy contains a typical:
ordinance or law exclusion
In what specific communities does the National Flood Insurance Program make flood insurance available?
participating communities
Following a heated argument with her drunken boyfriend, Mona sets his bed on fire. The boyfriend escapes unharmed, but the house is damaged. Mona's homeowners insurance policy has a standard mortgage clause that names First Credit Union as mortgage holder. As regards this fire loss, what will the insurer do?
pay First Credit Union to the extent of its insurable interest, but not pay anything to Mona because she intentionally started the fire
Elaine's property insurance policy lists and describes eight covered causes of loss. These causes of loss may also be referred to as:
perils
Jodi's real estate office leases an expensive photocopy machine from an office equipment supplier. Which coverage in Jodi's building and personal property coverage form would apply if this machine is damaged by a covered peril?
personal property of others
The Farm Liability Coverage Form (FL 00 20) has three basic coverages. Which is not one of them?
pollution liability
Various types of farm property are scheduled under Coverage E—Scheduled Farm Personal Property of Art's Farm Personal Property Coverage Form. However, Art has discovered that this form cannot be used to cover:
power and light poles
Al's farm does not produce enough income to support his family, so he supplements his farming income by working as a veterinarian. Which exclusion in Al's farm liability coverage form precludes coverage for any loss resulting from his veterinary activities?
professional services
While on a business trip, Jorge rents a car from a car rental company and crashes into a wall. Jorge's businessowners policy (BOP) includes a hired auto and nonowned auto liability endorsement. The endorsement's schedule indicates coverage for hired autos but not nonowned autos. The rental company wants Jorge to pay for the damage to its car. His BOP
provides liability coverage on a hired auto but does not cover this physical damage loss.
As part of its reforms, the federal Fair Credit Reporting Act
requires insurance applicants to be informed in advance that the insurer might order a credit report.
Gina was the only employee in OK Convenience Store at 3 a.m. when a gunman entered the store and made her give him all the money in the cash register. The gunman left, and Gina was not injured. Using appropriate insurance terminology, what did Gina then report to the police?
robbery
When the Brianna collided with the Tania, marine experts determined that the captain of the Brianna was at fault. What provision in the Brianna's ocean marine policy protects the shipowner or operator against the Tania's property damage liability claim?
running down clause, also known as a collision liability clause
Miguel purchased an accounts receivable floater because he allows many of his bar's regular customers to run a tab that they pay at the end of the month. If the book where he keeps track of these tabs is destroyed, he expects that the insurer will pay for all the following EXCEPT
tabs that Miguel inflates to cover unpaid tabs of former customers.
Keri's business is protected by an Insurance Services Office, Inc. (ISO), businessowners policy (BOP) with no endorsements. Access to the premises is controlled by a computer system that locks and unlocks the doors to permit access only during normal business hours. If the control system malfunctions and allows thieves to enter the building and steal Keri's property,
the computers and data exclusion precludes coverage.
Amelia owns four homes. Which one of them is eligible for flood coverage under the NFIP's general property form?
the eight-unit apartment building she bought as an investment
A water damage exclusion in Sadie's property insurance policy excludes coverage for any damage that might be caused by a flood. If Sadie wants flood coverage, from where can she get a flood insurance policy?
the federal government's National Flood Insurance Program
As a result of flood damage to his store, Burt was out of business for several months, lost income, and incurred additional expenses to comply with a floodplain management ordinance requiring him to relocate the store to a higher elevation. Under some circumstances, Burt's National Flood Insurance Policy might pay or reimburse him for
the increased cost of complying with floodplain management ordinance.
Loss costs are usually the largest component of an insurance rate. What do loss costs reflect?
the insurer's expected losses for each exposure unit while the policy is in force
Corey discovers that some property in his firm's store room is badly rusted. It is not immediately clear whether a water leak caused the problem. Corey's special causes of loss form might cover damage from a water leak, but not from wear and tear or normal aging. Corey makes a property insurance claim. In this situation,
the loss is covered unless the insurer can demonstrate that the exclusion for wear and tear, rust, etc., applies.
As an English teacher, Omar is troubled by the overuse of quotation marks. It really annoys him that so many words and phrases in his insurance policy appear in quotation marks. Why do insurance policies use quotation marks with certain words and phrases?
to identify words and phrases that are defined in the policy
Harding Paint Store mixed a gallon of paint with the custom color Meghan requested. However, the store clerk failed to tighten the lid on the paint can, which came open while Megan was driving home with the can in her car. Harding was required to pay for the expensive damage to Megan's car that resulted from the paint spill under:
tort law
After paying a vandalism claim under Sam's commercial inland marine policy, the insurer exercised its rights under the policy and attempted to recover all or part of its loss from the person who caused the covered damage and was apprehended by police. What condition in the inland marine common conditions form gives the insurer these rights?
transfer of recovery against others to the insurer
Which one of the following exclusions in a Dwelling Property 3—Special Form (DP 00 01) or DP 3 dwelling policy applies only to the dwelling and other structures coverages?
weather conditions
The following items in Brad's home were damaged by a flood. Which of these items is covered under the personal property coverage (Coverage B) of his NFIP dwelling form?
window air conditioner
A businessowners policy combines coverages that might otherwise be written on all the following types of forms EXCEPT:
workers compensation
Anthony becomes an agent for Acme Insurance Company. Acme has not filed the notice of appointment with the Commissioner. It must do so within how many days?
15
The English family usually eats at home and spends $500 per month on food. When they are temporarily forced out of their home for a month while fire damage is being repaired, the family must eat in a restaurant at a cost of $2,000. The English's dwelling policy includes additional living expense coverage with adequate limits. How much will the insurer pay under this coverage?
$1,500
The ten animals on Pat's farm have blanket coverage under a farm livestock coverage form with a total limit of $25,000. An animal with an actual cash value of $1,500 died when it was struck by lightning—a covered peril. What is the most Pat's insurer will pay for this loss?
$1,500
Before a bolt of lightning destroyed Alphonso's chimney, the building's replacement cost value was $500,000. The Coverage A—Dwelling limit in Alphonso's HO 3 policy is $400,000. It will cost $10,000 to replace the chimney. The depreciated value of the damaged chimney was $9,000. Disregarding any deductible, how much will Alphonso's insurer pay to cover his claim?
$10,000
Samuel has a homeowners insurance policy with a $300,000 liability limit and a personal umbrella liability policy with a $1 million limit. Both policies provide personal liability coverage, and the personal umbrella specifically states that it provides excess coverage. Samuel accidentally damages a friend's property, and the friend obtains a $2,000 judgment against Samuel. How will these two policies handle the claim?
$2,000 will be paid under the homeowners policy and nothing will be paid under the umbrella policy.
If property is damaged due to a loss of power to a freezer at the insured's home and the insured has a Refrigerated Property Coverage (HO 04 98) endorsement on the homeowners policy, the insured's direct losses will be covered up to
$500 The Refrigerated Property Coverage [HO 04 98] endorsement covers property stored in refrigerators and freezers on the residence premises for direct losses up to $500 caused by the loss of power to the refrigeration unit or by mechanical failure of the unit that stores the property.
Among Glenda's business insurance policies is an equipment breakdown policy that covers breakdowns of covered equipment at her factory. Which of the following does not qualify as a breakdown?
A large boiler ruptures and floods the factory floor. The equipment breakdown policy does not cover losses due to flooding.
Which of the following incidents would be covered by the equipment insurance breakdown policy?
A surge in electricity damages a boiler A covered breakdown includes a failure in pressure or vacuum equipment, mechanical and electrical failure. Coverage is excluded for portions of equipment normally subject to periodic replacement and for expenses of routine maintenance.
Harry asks his insurance agent about additional coverage for a small motor boat that he periodically uses in his delivery business. Should a watercraft endorsement (HO 24 75) be considered?
No, this endorsement does not apply to the commercial use of a boat. HO 24 75 is a watercraft endorsement that expands coverage on the non-business use of small sailboats and motor boats and would therefore not be used for this example.
Which of the following administers the North Carolina FAIR Plan?
North Carolina Joint Underwriting Association
A standard homeowners policy does NOT cover
Personal injury A standard homeowners policy covers bodily injury and property damage, but does not cover personal injury. The Personal Injury (HO 32 82) endorsement adds liability coverage for personal injury.
Maria is a retail insurance agent. Before she can place insurance with a nonadmitted insurer, she must obtain rejections from three admitted markets and file with the stamping office a document showing that she made a diligent attempt to place the business in an admitted market. What is this documentation called?
affidavit Except for coverages listed in a state's surplus lines exportable list, the agent must file an affidavit with the stamping office in many states showing that a diligent search was performed in trying to place the business in an admitted market.
Roslyn owns a small manufacturing plant that contains the following items. Which does not qualify as covered equipment in her equipment breakdown coverage form?
boiler room The boiler room is part of the building and is therefore not included in the policy's definition of covered equipment.
Excess and surplus (E&S) lines insurance is any type of coverage that
cannot be placed with an admitted insurer in a certain jurisdiction. Excess and surplus lines insurance cannot be placed with an admitted insurer in a given jurisdiction.
An equipment breakdown policy does not cover which of the following?
damage from smoke An equipment breakdown policy excludes coverage for damage of equipment due to smoke.
Jonathon has a boatowners insurance policy that includes uninsured watercraft coverage. The uninsured watercraft coverage
pays compensatory damages arising from bodily injury Jonathon is legally entitled to recover from the owner or operator of another watercraft that is uninsured. Uninsured watercraft coverage pays compensatory damages arising from bodily injury the insured is legally entitled to recover from the owner or operator of another watercraft that is uninsured.
Although Avery could buy private crop-hail insurance, he decides he may get better protection with federal crop insurance after he learns that
the federal government heavily subsidizes federal crop insurance but not private crop-hail insurance. The federal government heavily subsidizes federal crop insurance but does not subsidize private crop-hail insurance.
Food products in Ethan's Deli's refrigerated cooler would be destroyed if his power is off for more than a few hours. Ethan's insurance agent suggested that the utility services—direct damage endorsement, scheduling overhead transmission lines, be added to his businessowners policy (BOP). If Ethan's shop loses power because a windstorm downs power line, then
Ethan's direct damage will be covered, but his loss of business income will not be covered.
The Insurance Commissioner cannot suspend or revoke an agent's license for which of the following reasons?
Failing to meet projected sales goals
For how long must licensees keep records of their insurance continuing education credits (ICECs)?
Five years
Replacing insured property with property that performs the same function with equal efficiency even though it is not exactly the same as the property being replaced is known as
Functional replacement
Underwriters of property or casualty insurance policies typically do not use which of the following sources of information when deciding to accept or reject a risk?
Genealogical records
Which Insurance Services Office, Inc. (ISO), homeowners insurance form that can be used to insure a single-family home provides named perils coverage on both the dwelling and personal property?
HO 2
When vandals throw a brick through the plate glass window of Giovanni's pizza parlor, he hires a handyman to board up the broken window until the glass can be replaced. Giovanni's businessowners (BOP) policy covers his building and personal property. How much coverage does the BOP provide for these temporary repairs?
His expenses are covered, subject to the applicable limit.
Donovan is buying a home with a 20 percent down payment and a mortgage from River Bank. All the following statements concerning River Bank are correct EXCEPT:
River Bank will buy an insurance policy that protects its interest in Donovan's home.
An insurance company or agent may not knowingly issue a fire insurance policy on property located in North Carolina if the policy has a term longer than
Seven years
Which of the following is NOT a basic type of construction by which insurance policies classify buildings and structures?
Steel and glass
Which of the following statements is correct with regard to the coverage provided by a businessowners policy (BOP) for loss of income due to an interruption in business?
The BOP covers business income and extra expense coverage when the business is inaccessible.
If a producer solicits insurance for an unauthorized insurer, all of the following statements are correct EXCEPT:
The Commissioner may suspend, but not revoke, the producer's license.
Corinne purchased her home with a 10 percent down payment and a 90 percent mortgage from Sidney Bank. Why does Sidney Bank have an insurable interest in Corinne's house?
The bank faces the possibility of a loss if Corinne's house is damaged or destroyed.
Allan's Carpet Cleaning Service removed the stains from Cleo's red family room carpet—and also removed most of the color. To prove that the damage to her carpet was caused by Allen's negligence, Cleo must be able to prove all the following, EXCEPT:
The cleaning solution Allan used contained chlorine.
Adrian left his workbench for a few minutes to answer the phone. When he returned, he discovered that his hot soldering iron had fallen into the wastebasket and started a fire. Adrian rents his shop from the building owner, and Adrian's businessowners policy (BOP) includes only business personal property and liability coverage. Why does Adrian's BOP cover the landlord's claim for damage to the building?
The fire damage was caused by Adrian's negligence.
XYZ Insurance Company's auto insurance application includes a "Fair Credit Reporting Act Notice." What does this notice inform consumers about?
The insurer might order a credit report on the applicant that includes personal information.
