Property and Casualty Insurance
Joey owns a building that is insured for $90,000. Company A insures the structure for $40,000, Company B provides coverage for $30,000, and Company C covers the building for $20,000. A fire causes a $10,000 loss. How much will Company C pay on this claim? A. $2,222 B. $3,333 C. $4,444 D. $5,555
A. $2,222 The pro rata liability (or "other insurance") clause limits the liability of the insurance not be liable for a greater proportion of any loss than the amount the insured will bear to the whole sum of insurance covering the property against the perils named in the policy. In this case, Company C has insured the building for $20,000, or 22.22% of the total insured amount. This proportion applies to the company's liability for the loss, which is 22.22% of $10,000, or $2,222.
Which of the following would NOT be covered under the liability section of a personal auto policy? A. Bodily injury caused by the insured's negligence while driving a 3-wheel all-terrain vehicle B. a trailer the insured vehicle is towing accidentally comes loose and causes injury to another person C. An accident caused by a friend of your son using the insured vehicle with his permission D. After a party, the insured causes an accident and is charged with driving under the influence of alcohol
A. Bodily injury cause by the insured's negligence while driving a 3-wheel all-terrain vehicle Coverage for recreation vehicles must be added by endorsement
For a newspaper publishing company to be protected in the event of a serious loss to its printing facility, which of the following should be purchased? A. Extra expense coverage B. Additional living expense C. Dwelling, building, and contents D. Assessment value coverage
A. Extra expense coverage Extra expense coverage provides for the payment of extra expenses over and above the normal operating costs incurred as a result of direct physical loss of or damage to insured property. It is primarily designed for businesses that must continue their operations at all costs (e.g., newspapers, banks, milk distributors) or they may lose customers permanently.
The term burglary, as used in crime insurance, means the felonious taking of property in which of the following ways? A. From within an insured premises, safe, or vault, leaving visible marks of forced entry B. From a custodian, by violence or threats of violence, or from his person or direct custody, if he has been killed or rendered unconscious C. From an armored car or the employee of an armored car D. By the threat of violence to someone inside or outside the insured premises
A. From within an insured premises, safe, or vault, leaving visible marks of forced entry The definition of burglary requires that there be evidence of forced entry. Confrontation with a custodian or armored car or anyone inside or outside the premises is robbery.
Which of the following types of exposures is NOT eligible to be covered by a businessowner's policy? A. General contractor at a fixed location B. Shoe repair shop C. Dry cleaning store D. Tailor
A. General contractor at a fixed location General contractors are not eligible for BOP coverage regardless of size.
Which of the following is NOT considered an insurable peril? A. Loss resulting from gambling B. The loss of revenue caused by the temporary closing of a business following a covered loss C. Loss that results from a fire that starts when lightning strikes a barn D. A woman injured when she falls on the wet floor of her local grocery store
A. Loss resulting from gambling Speculative risk involves the chance for loss or gain. An example of speculative risk is placing bets on a roulette table. This type of risk is insurable.
Which of the following insurance principles permits a policyholder to be reimbursed for losses experienced? A. Subrogation B. Insurable interest C. Direct loss D. Indemnification
A. Subrogation Indemnity means placing an insured in the same financial position following a loss that existed before the loss occurred. This is the principle that allows reimbursement for loss. Subrogation is the principle allowing an insurance company to use the insured's legal right of recovery against an at-fault party for the purpose of recovering the amount it has paid out for the loss. Insurable interest is a relationship between a person and a property such that if a loss occurs, the person is harmed financially. A direct loss means that property was damaged or destroyed by the peril insured against without any intervening cause. All of these principles rely on the principle of indemnity to allow recovery.
In which of the following instances would coverage be triggered under a claims made form? A. When a claim is reported and filed B. When covered employee is injured on the job C. When bodily injury to others occurs following a retroactive date, if any D. When injury or damage occurs during the policy period
A. When a claim is reported and filed Two provisions of the insuring agreement, when met, will activate coverage: the bodily injury (BI) or property damage (PD) must occur after a retroactive date, if any; and the claim must be filed (made) and reported during the policy period. Therefore, a claims-made policy is triggered when the claim is present (reported and filed) to the insurer or insured. Choice C is a condition that must be met for coverage to commence, but Choice A is the actual trigger.
Which of the following coverages is included under the protection and indemnity portion of a marine insurance policy? A. Workers' compensation for crew members B. Liability for damage to another vessel C. Property damage to a vessel owned by the insured D. Property damage to a vessel leased by the insured
A. Workers' compensation for crew members Protection and indemnity provides full legal liability coverage, including BI, to passengers, visitors, crew members, and cargo.
Replacement cost less depreciation defines A. actual cash value B. market value C. insurable value D. liberalization amount
A. actual cash value Actual cash value (ACV) is equal to replacement cost minus depreciation. Market value is not defined by formula but by market forces.
A portion of an insurance contract that informs who and what is covered, in addition to when coverage is effective, is known as the A. declaration page B. insuring agreement C. conditions D. exclusions
A. declaration page The declarations section consists of the information to identify the insured and the risk or risks to be covered, including the named insured, insurer, policy number, policy term, coverage limits, premium amount, and object, property, or person insured.
A farmer's crops being damaged by toxic fumes that have been escaping continuously from a factory is an example of a(n) A. occurrence B. accident C. proximate couse D. insurable interest
A. occurrence Damage from continuous release of toxic fumes would be an occurrence. An accident is fixed in time, but an occurrence may take place over a period of time.
Premium rates for workers' compensation are based on A. per $100 of payroll B. per 100 square feet C. per $100 of protection D. per diem assessments
A. per $100 of payroll Rates reflect the relative value of pure workers' compensation loss amounts, expected to be paid out per $100 unit of payroll. These determinations are based on statistical analysis of past loss experience.
Each of the following may be covered under commercial general liability insurance EXCEPT A. personal liability B. host liquor liability C. contractual liability D. products liability
A. personal liability Personal liability is the exposure arising from the nonbusiness activities of an individual and family, with certain exceptions.
All of the following statements are correct regarding the duties of an insured following a loss EXCEPT A. the insured must reimburse the mortgagee for its interest in the damaged property B. the insured must protect the property from further damage C. the insured must separate the damaged from undamaged property D. the insured must provide immediate written notice to the company
A. the insured must reimburse the mortgage for its interest in the damaged property The duties listed below must be performed by the insured in order for the claim to be settled: notify the insurer promptly; notify the police in case of theft; notify the credit card company or bank in case of a credit card, electronic funds transfer, forgery, or counterfeit loss; protect the property from further damage; cooperate with the company in its investigation; prepare an inventory of damaged property; show the damaged property, provide documentation, and submit to an examination under oath; submit a signed, sworn proof of loss, which is a statement of swearing to the facts of the loss. It includes such items as the time, date, and place of the loss, insurable interests in the damaged property, other insurance in force at the time of the loss, receipts, and affidavits. Reimbursement of a mortgage is not a duty of the insured.
Employee theft coverage would provide for A. the loss of money by a company officer B. the loss of securities resulting from the robbery of a safe C. damage to the premises caused by a fire started by a burglar D. the loss of use of property taken in a robbery
A. the loss of money by a company officer Employee theft covers money, securities, and other property stolen by employees.
All of the following statements are correct about risk retention groups EXCEPT A. they are federally regulated B. they are state regulated C. they are available to almost all businesses D. they are a self-insurance program for business groups
A. they are federally regulated While the Liability Risk Retention Act was passed by US Congress in 1981, individual risk retention groups (RRGs) are regulated by the states they are domiciled in.
Malik is successfully sued for negligence. The jury awards the injured party $175,000. The limits under Malik's liability policy provide coverage unto to $100,000 per occurrence. In addition, his insurance carrier is charged $17,000 for defending the suit. How much will Malik's carrier pay? A. $100,000 B. $117,000 C. $125,000 D. $175,000
B. $117,000 Supplementary payments include the insurer's defense costs of $17,000.
The Hitchcock Clock Company purchases a fire policy with a 90% coinsurance clause and a coverage limit of $150,000. The replacement cost of the building insured is $200,000. The company suffers a $20,000 fire loss. What will the insurance company pay? A. $12,500 B. $16,667 C. $18,750 D. $20,000
B. $16,667 90% x $200,000 = $180,000. Any coverage amount less than that is subject to the coinsurance penalty. Using the formula insurance carried / insurance required x loss amount = loss payment yields a loss payment of $16,667. $150,000 / $180,000 = 83.33%; 83.33% x $20,000 = $16,667.
A building owner purchases a fire policy providing $ 60,000 of coverage with an 80% coinsurance clause for his $100,000 building He suffers a $10,000 loss. How much fo the loss will the company pay? A. $1,667 B. $7,500 C. $8,000 D. $10,000
B. $7,500 If the coinsurance clause is 80% the policyholder must carry at least $80,000 on a $100,000 building to avoid the coinsurance penalty. Since the policyholder carries less than $80,000, the following formula applies: Insurance carried / insurance required X loss amount = loss payment Using the values from the question: $60,000 / $80,000 = 75%; 75% x $10,000 is $7,500, which is the amount the policy will pay.
Jaime has an automobile policy with limits of $50,000 per person and $100,000 per occurrence. An accident occurs, and 2 people are injured, one with $25,000 in injuries and the other with $75,000 in injuries. If Jaime is found responsible, what is the maximum amount his policy will pay for the injuries? A. $50,000 B. $75,000 C. $100,000 D. $0,; the injured parties' policy will pay for their injuries
B. $75,000 The first passenger's damages of $25,000 are within the limits of liability and will be paid in full. The second passenger's damages of $75,000 exceed the per-person limit of $50,000, so the policy will only pay $50,000 toward this passenger's claim. The combined payment will thus be $75,000.
Dram shop coverage protect which of the following insureds? A. A beauty parlor operator B. A tavern owner C. The host of a Christmas party serving alcohol D. A plumbing contractor
B. A tavern owner The dram shop coverage protects owners of taverns or other businesses dispensing alcoholic beverage for bodily injury or property damage caused by the intoxicated customers.
Which of the following endorsements waives any existing coinsurance requirement in a business income form? A. Extended coverage B. Agreed amount C. Optional coinsurance D. Income waiver
B. Agreed amount The agreed amount endorsement substitutes a dollar amount for a coinsurance percentage, which in effect waives the coinsurance requirement. If an insured maintains the amount of coverage as agreed to or stipulated in the contract, all losses incurred will be covered up to that amount. Therefore, there will not be a penalty even if the insured's gross earnings have increased above the agreed amount.
Uninsured motorist coverage in an auto policy provides payments for which of the following? A. Bodily injury to other parties B. Bodily injury to the insured C. Physical damage to the auto D. Bodily injury to the uninsured driver
B. Bodily injury to the insured Uninsured motorist (UM) coverage pays for bodily injury damages the insured would be legally entitled to recover from the operator of an uninsured auto caused by an accident arising out of the ownership, maintenance, or use of the vehicle.
Which of the following types of property would be insured on a value basis by a personal articles floater? A. Jewelry, watches, and furs B. Fine arts C. Cameras D. Silverware
B. Fine arts Fine arts are typically covered on an agreed value basis. In this situation, the insurer and the insured agree on the amount of coverage established for the fine arts to be protected.
If an insured desires coverage on loss of money and securities that can result from breaking and entering the business premises, which of the following crime coverages should be purchased? A. Premises burglary B. Inside - theft of money and securities C. Inside the premises - robbery or safe burglary of other property D. Safe depository
B. Inside - theft of money and securities Inside the premises - Theft of Money and Securities pays for theft of money and securities from within the insured premises. Neither Premises Burglary nor Inside the Premises - Robbery or Burglary covers money and securities. Safe Depository cover the liability of an innkeeper, such as a hotel or motel, for loss of property left by a guest in one of the hotel's safe deposit boxes.
Each of the following is a covered territory under the CGL policy EXCEPT A. Canada B. Mexico C. Puerto Rice D. New Mexico
B. Mexico Coverage applies only to losses, accidents, or occurrences that take place during the policy period and within the United States, its territories and possessions, Puerto Rico, or Canada, or while being transported between ports in any of those places.
Internal limitations on property covered under a homeowners policy include which of the following? A. Antiques and fine arts B. Money, jewelry, and furs C. Furniture and clothes D. Appliances and equipment
B. Money, jewelry, and furs Money, jewelry, furs, and other selected items are subject to limits of liability under Coverage C.
Which of the following commercial liability policy versions covers injuries sustained during the policy period, even if the claim is not actually filed until years after the policy has been cancelled? A. Claims-made form B. Occurrence form C. Premises form D. Contractual liability form
B. Occurrence form The occurrence form provides liability coverage for bodily injury or property damage to others that occurs, starts, or is discovered during the policy period, regardless of when the claim is actually reported and filed by the insured. Coverage may apply even if the policy has expired.
Tony has a liability policy that covers his business. Sometime during the policy period a loss occurs, but Tony does not become aware of the loss until several years after his policy expires. Which of the following types of policies would cover the loss? A. Special policy B. Occurrence policy C. Claims-made policy D. The loss would not be covered under any type of policy
B. Occurrence policy The occurrence form provides liability coverage for bodily injury or property damage to others that occurs, starts, or is discovered during the policy period, regardless of when the claim is actually reported and filed by the insured.
Which of the following constitutes valid consideration? A. Warranties B. Premiums C. Statements D. Representations
B. Premiums Consideration is the exchange of objects of value. It usually means payment - in the case of insurance, a premium payment.
James is an employee of the county government who wants protection in case others believe he does not perform his duties adequately. Which bond should James choose to cover this expense? A. Labor and materials bond B. Public officials bond C. Federal bond D. Fiduciary bond
B. Public officials bond Most elected officials of municipal and state government jurisdictions are required to furnish bonds up to a specific limit or penalty. These bonds guarantee faithful performance by an official of the statutory duties associated with the elected position occupied.
Which crime coverage covers loss to securities in the care of a custodian while inside the custodian's premises? A. Safe depository B. Securities deposited with others C. Premises burglary D. Money orders and counterfeit paper currency
B. Securities deposited with others The securities deposited with others form names a custodian or depository and covers loss of or damage to securities while inside the custodian's premises, conveyed outside the premises by a custodian or its employee, or on deposit at a depository by the custodian for safekeeping.
A fire causes extensive damage to the interior of a small delicatessen. The building was covered by a commercial package policy with a building and personal property form. Which of the following losses was covered by this form? A. The loss of gross earnings of the restaurant B. Tables and chairs destroyed by the fire C. Loss of profits while customers are unable to make purchases D. Expenses incurred to reopen the delicatessen at another location
B. Tables and chairs destroyed by the fire The building and personal property coverage form would cover the building and business personal property, such as table and chairs. Loss of income and extra expense to reopen the business would have to be separately covered by the business income form.
What is the primary difference between a claims-made and occurrence form of a CGL policy? A. The claims-made form provides coverage only for events that take place during the policy period. B. The claims-made policy provides coverage for claims first made during the policy period. C. The occurrence form provides coverage for claims that occur after the expiration of the policy using a tail. D. The occurrence form is issued with an aggregate limit and the claims-made form is not.
B. The claims-made policy provides coverage for claims first made during the policy period. The basic difference between claims-made and occurrence is when coverage is triggered or activated. Occurrence provides coverage for bodily injury or property damage to others that occurs, starts or is discovered during the policy period, regardless of when the claim is actually reported and filed by the insured. Claims-made provides coverage for bodily injury or property damage to others when a claim is made during the policy period. Both forms may be used with policies with an aggregate limit, which determines the maximum an insurer will pay during a specified period.
If Scott and Wendy file bankruptcy, which of the following statements regarding their insurance policy is TRUE? A. Scott and Wendy can abandon their property to the insurance company because they no longer have an insurable interest. B. The insurer's responsibilities are not eliminated. C. The mortgage company loses its interest in the property. D. Scott and Wendy's interest in their property is excess over any other creditors.
B. The insurer's responsibilities are not eliminated. The responsibilities of an insurer are not eliminated because the insured files bankruptcy.
All of the following are eligible risks under a business owners policy EXCEPT A. the tenant of an office building B. a general contractor who operates primarily off-premises C. the owner or a 5-story office building D. a 50-unit apartment complex with a small gift shop on premises
B. a general contractor who operates primarily off-premises Trade contractors whose work is primarily in one specialty, such as plumbing, are eligible. General contractors are not eligible regardless of size.
All of the following are perils covered by a basic fire insurance policy EXCEPT A. fire B. explosion C. lightning D. removal
B. explosion The SFP perils include only fire, lightning, and removal. Explosion is an extended coverage.
A condition creating or increasing the chance for loss is known as a A. peril B. hazard C. loss D. risk
B. hazard A hazard is a condition that increases the chance of a loss occurring. Perils are the happenings or events that cause a loss. Risk is the uncertainty we face that perils will occur and cause us to suffer losses. Loss is unintended, unforeseen damage to property, including injury. For example, if a fire caused by oily rags stored in the basement causes $10,000 damage to a home, the hazard is the storage of the oily rags, the peril is the fire, the loss is the $10,000 damage, and the risk is the uncertainty that the house might be subject to burning by fire.
Aviation hull insurance provides an aircraft with protection while A. in the air only B. in the air or on the ground C. on the ground only D. in the air, including takeoff and touchdown
B. in the air or on the ground Aviation coverage can be provided while the aircraft is in the air or on the ground, on the ground only, or not in motion under its own power.
Each of the following is covered under a commercial property policy EXCEPT A. merchandise B. outdoor curbside signs C. fixtures D. furniture
B. outdoor curbside signs Outside signs - except those attached to the building - are excluded.
The dishonest taking of property while placing another person in fear of physical violence best describes A. burglary B. robbery C. theft D. larceny
B. robbery Robbery is the dishonest taking or stealing of property from an individual in possession of that property. Robbery involves a face-to-face confrontation between the robber and the victim.
A diamond ring that is shoplifted from a jewelry store display is considered the subject of A. mysterious disappearance B. theft C. robbery D. embezzlement
B. theft Theft is the dishonest taking of property without an owner's consent. Shoplifting is example of theft.
Deductibles are used in all of the following purposes EXCEPT A. to reduce the cost of insurance B. to eliminate small losses C. to increase the insured's caution D. to eliminate nuisance claims
B. to eliminate small losses The deductible is intended in part to reduce small claims, since the insured has a reduced incentive to file. However the loss is still suffered by the insured. The deductible does not do anything to reduce the insured's risk.
Summer owns a home with a replacement cost of $150,000. For the replacement cost provisions of a homeowners contract to apply, Summer must carry how much minimum coverage? A. $90,000 B. $105,000 C. $120,000 D. $135,000
C. $120,000 Buildings covered under Coverages A and B are subject to coinsurance. This provision states that if an insured carries, at the time of loss, 80% of coverage in relation to the dwelling value, the insurer will pay the replacement cost of damage to the dwelling in the event of a partial loss. 80% x $150,000 is $120,000.
If an HO-3 policy has a coverage limit of $100,000 on the dwelling, how much coverage would automatically apply to cover the insured's personal property under Coverage C? A. $20,000 B. $25,000 C. $50,000 D. $100,000
C. $50,000 The limit of liability for personal property is 50% of the limit of liability for Coverage A
The owner of a laudromat who dry-cleans clothing belonging to others would purchase which of the following? A. Transportation floater B. Trip transit C. Bailee policy D. Commercial floater
C. Bailee policy Bailee liability is used to meet the needs of persons who have intentionally received temporary custody of good or property belonging to others. A billow, or customer, gives up possession of his property to the bailee, or business. This coverage would reimburse the bailor if his property were lost or damaged while in the care, custody, or control of the bailee.
An auto repairman forgets to replace the oil drain plug in a customer's engine that results in a loss of oil during the next several days. The loss of oil causes the engine to seize. Which of the following coverages would protect the repairman in this situation? A. Owners and contractors protective liability B. Contractual liability C. Completed operations liability D. Owners, landlords, and tenants liability
C. Completed operations liability Injuries or damage covered by completed operations usually takes place away from the premises owned by or rented tot he insured. A completed operations claim involves work negligently performed.
A list of the insured's duties following a loss can be found in which of the following policy sections? A. Declaration B. Insuring agreement C. Conditions D. Exclusions
C. Conditions The duties to be performed by the insured in order for the claim to be settled are listed in the conditions section.
A business is sued because a wall constructed on its property 12 years ago collapsed and injured a child last week. Which of the following statements is NOT correct? A. The current insurance company is obligated to defend the insured. B. Coverage is provided under the premises and operations section of the CGL policy. C. Coverage is provided under the completed liability section of a CGL policy. D. The current insurance company must defend the insured if the case is arbitrated.
C. Coverage is provided under the completed liability section of a CGL policy Because the accident took place on the premises, Completed Operations does not apply.
Collision insurance covers which of the following perils? A. All damage to an auto struck by the insured, if the insured is legally liable B. Upset of the auto without a deductible applying C. Direct loss to the auto caused by collision with another object D. Collision of the covered vehicle with a large animal
C. Direct loss to the auto caused by collision with another object Collision coverage pays for direct and accidental loss due to upset or collision of the vehicle with another object. Losses are subject to a deductible. Animals are a peril covered by other than collision (comprehensive) coverage. Collision does not cover BI and PD liability.
Which of the following losses is covered by the inside the premises - robbery or safe burglary of other property crime coverage form? A. Theft from a messenger while at the bank B. Theft by an employee C. Merchandise stolen from a custodian D. Money stolen from an employee
C. Merchandise stolen from a custodian Inside the premises - Robbery or Safe Burglar of Money and Securities applies to robbery or attempted robbery of a custodian and to actual or attempted safe burglary and must take place within the premises. Robberies during normal business hours are covered as well as robberies after hours that do not involve a watch person or janitor.
If a building owner purchases 2 separate fire policies from 2 separate insurers with identical limits of liability and then suffers a loss, payment will be made on which of the following bases? A. Reimbursement basis B. All-risk basis C. Pro rata basis D. Specified basis
C. Pro rata basis The pro rata liability clause limits the liability of the insurance company by stating that the company will not be liable for a greater proportion of any loss than the amount the insured will bear to the whole sum of insurance covering the property against the perils named in the policy.
Which of the following is closely related to the concept of insurable interest? A. The concept of replacement cost B. Actual cash value C. The principle of indemnity D. Proximate cause
C. The principle of indemnity Indemnity is closely related to the concept of insurable interest, which defines the economic state to be restored.
An employee of an insured is injured on the job. Coverage would be provided under which of the following products? A. CGL B. BOP C. Workers' compensation D. Fidelity bond
C. Workers' compensation In most cases injuries suffered on the job are covered by a workers' compensation policy.
All of the following losses would be covered by a personal auto policy EXCEPT A. a person injured while alighting from the insured's auto B. bodily injury to a passenger who owns her own auto policy C. a medical payment claim reported 4 years after the accident causing the injury D. injuries sustained by an insured who is struck by a car while walking across the street
C. a medical payment claim reported 4 years after the accident causing the injury Medical payment are made, up to a specific limit per accident, regardless of the insured's legal liability for the accident, if expenses are incurred and reported within 3 years of the date of the accident.
All of the following supplementary payments are provided by an auto policy's bodily injury coverage except A. the cost of investigating an accident B. the premium for a bail bond C. all of the insured's lost earnings during attendance at a hearing or trial D. the premium for an appeal bond
C. all of the insured's lost earning during attendance at a hearing or trial Supplementary payments pay loss of earnings only up to $200 per day.
All of the following statements concerning personal liability coverage provided by a homeowners policy are correct EXCEPT A. it is generally a single limit policy B. it covers an insured's legal liability as a result of nonbusiness activity C. an insurer will not defend a liability suit that is obviously groundless D. the basic limit of coverage is $100,000
C. an insurer will not defend a liability suit that is obviously groundless The insurer will pay up to the limit of liability in damages for which the insured is legally liable and provide a defense at company expense even if the suit is groundless, false, or fraudulent. The basic limit of liability provided by a homeowners contract is $100,000.
If a neighbor accidentally drove his vehicle into the insured's fence, this would A. be covered under a basic form - dwelling policy with the extended coverage perils B. not be covered under any of the dwelling policy forms C. be covered under the broad form - dwelling policy D. be covered as part of the extension of coverage under all dwelling coverage forms
C. be covered under the broad form - dwelling policy Fences and other unattached structures are covered under Coverage B of all three dwelling policies (basic, broad, and special).
Aggregate limits are provided under a commercial general liability for product, completed operations, and A. owners protective liability B. personal injury liability C. bodily injury and property damage liability D. comprehensive personal liability
C. bodily injury and property damage liability Coverage A provides products and completed operations liability with a separate aggregate limit.
All of the following losses are excluded under a commercial auto policy EXCEPT A. losses covered by workers' compensation B. bodily injury to a fellow employee arising out of the use of a business auto C. bodily injury caused by an undisclosed driver using an insured vehicle with permission D. damage caused by a covered vehicle to the insured's office building
C. bodily injury caused by an undisclosed driver using an insured vehicle with permission Exclusions to personal and commercial auto policies include workers' compensation claims and liability for damage to property owned by, or transported by, any insured person.
A coverage form added to the commercial package policy that provides protection against the direct loss to buildings under construction is known as A. rent insurance B. legal liability C. builder's risk coverage D. general contractor's insurance
C. builder's risk coverage The builder's risk form covers commercial, residential, or farm buildings that are under construction. Renters insurance covers the personal property of a tenant. General contractor's insurance is not a recognized coverage form.
A nonstandard form of coverage designed to fill in any gaps in some property insurance policies is known as A. excess liability insurance B. fair plan insurance C. difference in conditions insurance D. aviation hull insurance
C. difference in conditions insurance Difference in conditions insurance (DIC) provides coverage to fill the gaps created by the exclusions in the commercial property coverage parts. It is usually written on large risks with high deductibles. There is no standardized form, so insurance companies use their own DIC policies.
Proximate cause may involve all of the following EXCEPT A. covered peril B. break in the chain of causation C. direct loss D. indirect loss
C. direct loss Proximate cause is closely related to direct loss. It indicates that an unbroken chain of events led up to an occurrence. It may be defined as the cause that was responsible for the loss, either directly or indirectly through a chain of events. fore a loss to be covered, the insured peril must be the cause or within the chain of events that links the proximate cause to the loss.
The pair and set clause found in property insurance policies states that in the event of a los to only part of a pair or set, losses will be settled A. as if the entire pair or set had been destroyed B. at the proportionate amount of the stated value C. either by repairing or replacing the damaged part or by paying the difference between the actual cash value before and after the loss D. on the basis of the actual cash value of the individual
C. either by repairing or replacing the damaged part or by paying the difference between the actual cash value before and after the loss The insurer may elect to repair, replace, or restore the damaged item(s) or pay the difference between actual cash value of the property before and after the loss.
All of the following are correct concerning an umbrella liability policy EXCEPT A. it provides extra limits of coverage B. it is an indemnity contract on behalf of an insured for a variety of liability losses C. it is the only liability contract an individual or business needs D. it provides coverage for exposures not covered by other policies
C. it is the only liability contract an individual or business needs An umbrella policy provides additional coverage, over other existing, or underlying, coverages. It cannot be used except in conjunction with existing policies.
All of the following losses are covered by a personal auto policy EXCEPT A. theft B. glass breakage C. liability for damage to the insured's property D. damage to the property of others
C. liability for damage to the insured's property Damage to the insured's property would be covered by the insured's homeowners policy.
The commercial property policy condition that automatically provides broader coverage when an insurer makes revisions to a current policy edition without charging the insured additional premiums is called the A. duplicate coverage clause B. other insurance clause C. liberalization clause D. assignment clause
C. liberalization clause The liberalization clause automatically extends to an insured any advantageous changes made in a later edition of a policy. It includes changes made during the policy's term and within 45 days before a policy is issued.
Uncertainty concerning financial loss best describes the concept of A. indemnity B. insurance C. risk D. hazards
C. risk The definition of risk is uncertainty regarding financial loss. Insurance and indemnity are concepts that mitigate risk. Hazards may contribute to risk but do not describe the uncertainty itself.
By entering into an insurance contract, a policyholder transfers the right of legal action against a responsible third party to the insurer. This process is known as A. insurable interest B. coinsurance C. subrogation D. abandonment
C. subrogation Insureds are required to assign their right of recovery against a negligent third party that caused the loss for the amount the insurer paid the insured for the loss to the insurer. This is called subrogation. Insurable interest is a condition in which an individual or entity may suffer economic loss if property is damaged or destroyed. Coinsurance clauses stipulate that if an insured does not carry a specified percentage of coverage in relation to the value of the property, the insured will not collect the entire amount of a partial loss. Abandonment is a condition imposed upon the insured stating that he may not abandon damaged property to the insurance company.
Each of the following is a producer's responsibility to the insurer EXCEPT A. to be loyal to the insurer's interest B. to obey all legal instructions provided by the insurer C. to perform all duties regardless of the degree of care D. to keep the insurer informed of all facts related to its agency relationship
C. to perform all duties regardless of the degree of care The agent is responsible to the insurer to be loyal to the insurer's interest, avoid engaging in any business activity that competes or interferes with the insurer's business, obey all legal instructions provided by the insurer, deposit funds belonging to the insurer in a separate account in the insurer's name, perform all duties with the degree of care and skill that a reasonably prudent person would exercise in the same circumstances, and keep the insurer informed of all facts related to the agency relationship.
What is the amount provided under the BOP's additional coverage for increased cost of construction? A. $1,000 B. $2,500 C. $5,000 D. $10,000
D. $10,000 The limit under the BOP's increased cost of construction additional coverage is $10,000.
Loss of earnings up to what amount per day is covered by a commercial general liability policy under supplementary payments? A. $25 B. $50 C. $100 D. $250
D. $250 Supplementary payments under the CGL policy will pay for loss of earnings up to $250 per day.
The Turners are concerned about the burglaries that have been occurring frequently in their apartment complex. They decide it's time to buy renters insurance. This describes which of the following? A. Personal contract B. All-risk coverage C. Exposure D. Adverse selection
D. Adverse selection Adverse selection is the tendency for people with a greater than average exposure to loss to purchase insurance.
If an insured and insurer disagree as to whether there is coverage under a policy, which of the following processes will be utilized? A. Appraisal B. Subornation C. Assignment D. Arbitration
D. Arbitration When the insured and the insurer do not agree on the existence of coverage for a particular loss, an arbitration process will be called upon. Appraisal is used when the insured and the insurer will fail to agree as to the actual cash value or the amount of a loss.
The phrase robbery or holdup, as used in crime insurance, means the felonious taking of property in which of the following ways? A. By someone using a scheme, trick, or device designed to deprive the owner of the property B. From within an insured premises, safe, or vault, by actual force and violence, leaving visible marks of forced entry. C. From insured premises unguarded and accessible without evidence of forced entry D. By use of or threat of the use of violence with the means to carry it out
D. By use of or threat of the use of violence with the means to carry it out Robbery involves a face-to-face confrontation between the robber and the victim
Which of the following would NOT be covered under a policy providing coverage for farm property? A. A silo situated within the building line B. A tractor operated by the insured C. Grain stored in a bard D. Livestock being transported by a contract carrier
D. Livestock being transported by a contract carrier Livestock or other farm personal property in the custody of a common carries is not covered by Coverage E or F but may be covered by extension up to $1,000.
A surety bond protects which of the following parties? A. Principal B. Contractor performing the work C. Surety D. Obligee
D. Obligee The obligee is the party reimbursed by the surety if the principal fails to perform.
Which of the following is protected by Coverage A in a commercial general liability policy? A. Personal injury liability B. Medical payments C. Advertising injury liability D. Products and completed operations
D. Products and completed operations Products and completed operations coverage is provided under Coverage A. Personal and advertising injury liability are provided under Coverage B, and medical payments are provided under Coverage C.
Which of the following is excluded from flood insurance? A. Overflow of inland waters B. Surface water run-off C. Mudslide D. Sewer backup
D. Sewer backup A flood policy specifically excludes backup through sewers unless certain conditions are met.
Which of the following statements concerning the principle of indemnity is CORRECT? A. It closely follows the concept of actual cash value B. It involves providing the victim of a loss an amount equal to the current market value of the property damaged or destroyed C. The principle of indemnity must exist at the time of loss D. The insured is placed in the same financial condition following a loss as that which existed before the loss
D. The insured is placed in the same financial condition following a loss as that which existed before the loss Indemnity is placing an insured in the same financial position following a loss that he existed in before the loss occurred. Because a speculative risk may not be insured, the value of the covered property cannot be decided by the market.
An insurance contract does which of the following? A. Eliminates risk by accumulating funds B. Makes risk predictable by transferring funds C. Eliminates risk by transferring funds D. Transfers risk by accumulating funds
D. Transfers risk by accumulating funds Insurance is the transfer of pure risk from one party to another for a price through a legal contract that spells out the terms, the perils covered, the perils and property excluded (not covered), and other specific provisions.
What term best describes a building that contains nothing and in which no normal activities are taking place? A. Absent B. Vacated C. Vacant D. Unoccupied
D. Vacant The term vacant indicates that the premises are empty. Unoccupancy indicates that no occupant is present, but furnishings remain and the occupant intends to return.
Each of the following may be victims of a robbery EXCEPT A. a custodian B. a messeger C. a night watchman D. a safe or vault
D. a safe or vault Robbery involves a face-to-face confrontation between the robber and the victim.
Insurable interest with casualty insurance must exist A. at the time the policy is issued B. by the effective date of the policy C. when the policy is being underwritten D. at the time of loss
D. at the time of loss An insurable interest must exist at the time of the loss for payment to be made. This is true for property as well as casualty insurance.
A short-term proof of insurance coverage provided to an applicant until a policy can be produced is know as a(n) A. endorsement B. preliminary contract C. proposal D. binder
D. binder A binder is a temporary contract pending issue of the policy. It is subject to the terms of the contract to be written later.
A loss that occurs when an individual breaks into a safe and leaves behind visible signs of forcible entry best describes A. robbery B. mysterious disappearance C. larceny D. burglary
D. burglary Burglary is a situation where an individual or intruder steals property from within a premise while leaving visible marks or signs of forced entry. Most burglaries occur when the premises are unoccupied. Offices, safes, and vaults are examples of property most frequently burglarized.
Assuming liability through a hold-harmless agreement may be covered by a A. products liability policy B. completed operations policy C. personal injury liability policy D. contractual liability policy
D. contractual liability policy The hold-harmless agreement illustrates the need for coverage of contractual liability hazards. With hold-harmless agreements, one party agrees to assume the liability of another party. This means that the initial party is held harmless (I.e., not held liable) for some or all of the claims that may result.
All of the following are supplementary payments found in liability policies EXCEPT A. all expenses and defense costs incurred by the insurer B. reasonable expenses incurred by an insured at the insurer's request C. limited amounts for bail bandstand other bonds related to a claim D. costs the insured incurs in hiring their own attorney
D. costs the insured incurs in hiring their own attorney Supplementary payments provisions provide for the cost of investigation and defense even in a groundless suit, bonds for release of attachments (or court bonds), interest on judgments, and the reasonable expenses for assisting in a defense (at the insurer's request) including loss of earnings up to $250 per day. They do not over defense costs at the insured's request.
All of the following are indirect loss coverage available under equipment breakdown forms EXCEPT A. business income B. business interruption C. consequential damage D. extra expense
D. extra expense The term business income is not used in boiler and machinery policies.
All of the following characteristics describe a direct writer EXCEPT A. he owns and controls all accounts, policy records, and renewals B. he is an employee of the insurance company C. he is paid a salary, commission, or both D. he contracts with independent agencies
D. he contracts with independent agencies The direct writing agent is an employee of the insurance company and may be paid a salary, commission, or a combination of both. The insurance company owns and controls all accounts, policy records, and renewals.
All of the following statements regarding medical payments coverage provided by a personal auto policy are correct EXCEPT A. all reasonable medical expenses are covered up to the policy limit B. legal liability need not be proven for payment to be made C. a person struck by a vehicle while a pedestrian would not be covered D. injuries must be incurred and reported within 2 years of an accident
D. injuries must be incurred and reported within 2 years of an accident Medical payments pays for reasonable medical expenses caused by an accident involving any motor vehicle designed for highway use. Coverage is provided whether an individual is occupying a vehicle or struck as a pedestrian. Payment is made, up to a specific limit per accident, regardless of the insured's legal liability for the accident, if injuries are incurred and reported within 3 years of the date of the accident.
A commercial general liability policy provides coverage for A. bodily injury to an employee B. damage to property owned by an insured C. bodily injury caused by an auto accident D. liability for slander
D. liability for slander Coverage B of the CGL policy protects an insured against liability arising out of certain offenses such as libel, slander, or invasion of privacy that are committed during the policy period.
Workers' compensation insurance would cover all of the following employees EXCEPT A. one injured on the job because of his own negligence B. one injured on the job because of an unsafe workplace C. one injured when an employee fails to make necessary repairs D. one injured at a sporting event attended with other employees
D. one injured at a sporting event attended with other employees For an injury to be covered by workers' compensation, it must be incurred in the course of employment. Attending a sporting event is not an act arising out of the course of employment.
The type of inland marine floater that would be used to protect property of tourists and travelers is known as a A. personal articles floater B. personal property floater C. personal effects floater D. bailee policy floater
D. personal effects floater The personal effects floater provides protection for an insured's personal property away from the residence. This policy does not specifically list the personal effect to be covered, but it includes all property usually carried by travelers and tourists.
If a driver loses control of his auto and damages the fence of a neighbor, the damages will be paid for by the driver's A. collision B. comprehensive C. uninsured motorist D. property damage liability
D. property damage liability Property damage liability provides protection when an insured's auto damages the property of others. Collision and comprehensive insurance protect the insured's auto from damage.
When an insured decides to cancel a fire policy mid-term, the cancellation is effected on a(n) A. pro rate basis B. equitable basis C. excess basis D. short-rate basis
D. short-rate basis Short-rate cancellation is used when an insured decides to cancel a property or casualty contract. There is a penalty associated with this form of cancellation that will reduce and return premium.
For a contract to be valid, the parties involved must be competent to contract. Each of the following is considered a competent party EXCEPT A. a 21-year-old man B. a citizen of another country C. someone whose principal aim is to make a profit D. someone who is not sane
D. someone who is not sane For a contract to be legal and enforceable, it must involve competent parties. Most entities involved in an insurance contract are deemed competent except minors, mentally incompetent individuals, and those under the influence of alcohol or narcotics.
Under the liability section of the personal auto policy, all of the following are considered persons insured EXCEPT A. the daughter of the insured while driving her boyfriend's car B. the insured's neighbor who temporarily borrows the insured's car C. a coworker who borrowed the insured's car to run an errand for the insured's employer D. the insured's employer if the insured used the employer's vehicle to run an errand for his employer
D. the insured's employer if the insured used the employer's vehicle to run an errand for his employer Drivers who are insured under a personal auto policy include any individual using the auto with he permission of the named insured or the named insured's family members if they are residents of the insured's household and any person (or organization) with respect to their legal liability for the acts and/or omissions of the insured. In choice D, the employer would be covered under his own PAP or by a commercial auto policy.
Personal business property out in the open is covered under a commercial property policy only while A. located on the described premises B. specifically described on the declaration C. within 50 feet of the described premises D. within 100 feet of the described premises
D. within 100 feet of the described premises Business personal property is covered when it is located in or on the building or in the open within 100 feet of the described premises such as furniture, fixtures, stock, machinery and equipment, all other personal property owned by the insured and used in the business, and improvements and betterments to a structure not owned by the insured.
