rmin cpcu practice test
• A manufacturing company has business personal property valued at $1,500,000. The risk manager is considering insuring the business personal property with 80 percent coinsurance at a $0.40 rate per $100 of coverage. The 100 percent rate is $0.35 per $100 of coverage. if the business personal property is insured with an 80 percent coinsurance, how much premium will be saved? a. 250 b. 350 c. 450 d. 500
C
An insured is reviewing the CPP to determine which conditions apply to all coverage parts in the policy. One of those conditions states that a. Changes can be made by the insurer or insured by verbally contacting the other b. Both the insured and insurer can cancel the policy within 30 days-notice for certain reasons c. The insurer has the right to do an on-site inspection of the insured's books and records d. The insurer will inspect the property to verify the compliance with safety regulations
C. The insurer has the right to do an on-site inspection of the insured's books and records
• A policy that covers two or more lines of business by combining ISO's Commercial Lines coverage parts is o A commercial package policy o A standard form policy o A special form policy o An output policy
a
• The Debris Removal additional coverage may include the cost to clean up pollution depending on which circumstances? o The cost to clean up debris caused by insured peril that releases toxic chemicals in the building o The costs to clean up land o The costs to clean up water o Cleanup of off-premises pollution when it results from a covered loss
a
• The cancellation provisions in the ISO Common Policy Conditions form are nearly always o Superseded by state law o Enforced only when the insurer is an admitted carrier o Enforced over individual state laws o Subject to the rights and duties under this policy clause
a
• The policy valuation approach that determines the basis for using new property of like kind and quality and adjusts for depreciation to determine the amount to be paid at the time of a loss is called o ACV o RC o Agreed Value o Reporting Value
a
• The valuation condition that applies to the cost to replace property with new property of like kind and quality less depreciation is o ACV o RC o Coinsurance o Agreed Amount
a
• Under the Building and Personal Property Coverage Form (BPP), which one of the following is property not covered? o A retaining wall in front of the insured building o A desk that was custom-ordered for the company's CEO o A bottling machine the company is leasing long-term o A crate used to carry empty bottles to the cleaning machine
a
• Under which part of the Building and Personal Property Coverage Form (BPP) would the following types of property normally be included: fine arts, trade fixtures, leased copiers, machinery, and equipment? o Your business personal property o Building o Personal property of others o Improvements and betterments
a
• Various building design features can help prevent the spread of a hostile fire. For example, a solid piece of material that is inserted between wall studs to delay the flow of heat or fire through this open space is a o Fire stop o Fire wall o Fire division o Fire compartment
a
• When analyzing what deductible amount to choose for its Building and Personal Property Coverage Form (BPP), an insured should consider o If the items on the BPP will be listed separately or on a blanket basis o What the total limit of building or BPP coverage will be o The amount of discounts for deductibles higher than $10,000 o Whether it has chosen RC or ACV
a
• When evaluating risk management techniques, loss reduction involves o Reducing the overall severity of the losses that occur o Finding an insurance policy with all the coverages needed for losses that occur o Finding a way to retain and pay for any losses that occur o Determining which business operations will cause losses
a
• Which of the following is correct regarding the Fire Department Service Charge additional coverage? o It pays up to $1,000 for service at each location shown in the declarations o Coverage is payable even if the FDSC is optional and not mandatory o It is subject to a deductible o It is subject to the limits of insurance stated in the declarations
a
• A property owner has a commercial property insurance policy with a 90% coinsurance clause. The building is insured for $1,000,000. The building suffered a $500,000 fire loss. During the loss adjustment, it was determined that the replacement cost of the building is $1,500,000. The total loss payment the property owner will receive, without regard to deductible, is o $266,667 o $370,370 o $427,855 o $500,000
b
• Risk control measures may take both a human behavior approach and o A hazard approach o An engineering approach o A peril approach o A severity approach
b
• A small business owner purchased an unendorsed Building and Personal Property Coverage Form (BPP) with a $120,000 limit on the building, a $60,000 limit on Your Business Personal Property, and a $500 deductible. The insured values meet any coinsurance requirements. A covered loss resulted in damage of $50,000 to the building and $65,000 damage to the insured's business personal property. What will the insurer pay for this loss? o $109,000 o $109,500 o $110,000 o $115,000
c
• An insured owns a mortgaged building that is damaged by accidental fire and insured under a commercial property policy. According to the Insured's Duties in the Event of Loss, the insured must o Give the insurer written notice of the loss within 30 days o Notify the mortgageholder that a loss has occurred o Sign a sworn proof of loss if requested by the insurer o Contact the policy to report the loss
c
• Coverage for Debris Removal in the Building and Personal Property Coverage Form is limited to what percentage of the direct loss payment plus deductible amount? o 10% o 20% o 25% o 50%
c
• The objective of taking the human behavior approach to risk control measures is to reduce o The severity of loss o Unsafe conditions o The frequency of unsafe conditions o The frequency of hazards
c
• Under an unendorsed Building and Personal Property Coverage Form (BPP), if the insured building in which the loss occurs has been vacant for 60 consecutive days before the loss, the insurer will still be obligated to pay for which one of the following causes of loss? o Sprinkler leakage o Theft of property o Fire damage o Glass breakage
c
• Under the Causes of Loss—Basic Form and the Causes of Loss—Broad Form, fungus, wet rot, dry rot, and bacteria are covered as additional coverages instead of being listed as a cause of loss because o They are the effect of flood damage which is excluded in the Basic and Broad Form as a cause of loss. o They were added after the Causes of Loss—Basic and Broad form major revisions in 1983. o It allows insurers to impose the conditions on them that insurers believe are necessary to be able to insure them o It allows insurers to provide limits higher than those that are provided under the policy itself.
c
• Which one of the following statements is true regarding manuscript forms of insurance policies? o They are structured for smaller accounts o The wording is often poor and unacceptable to insurers o The usually offer more favorable terms for insured than standard forms o The tend to have more endorsements to them than standard forms
c
• A printing company owns its building and recently purchased and permanently installed an eight color web printing press. The risk manager is in the process of revising the company's insurance limits to make sure that the new printing press is covered under the company's property insurance. When revising the limits, the risk manager should consider the printing press as o Improvements and Betterments o BPP o Property of Others o Part of the Building
d
• In the event of a loss, the Building and Personal Property Coverage Form (BPP) would provide coverage for o The building's pipes and drains that are located underground o Money, securities, and similar property o The cost to replace information on valuable electronic papers and records o Trees and shrubs that are inventory in an insured's warehouse
d
• Rich purchased an unendorsed Building and Personal Property Coverage Form (BPP) to cover his small business. A covered loss resulted in $24,000 in damage to Rich's building and $20,000 of debris removal. His policy limit is $100,000 with a $1,000 deductible. The insurer calculated the building portion of the loss payment to be $23,000 after applying the deductible. How much will Rich then collect from his insurer for debris removal? o $6,000 o $10,000 o $16,000 o $20,000
d
• The Property Not Covered in the Building and Personal Property Coverage Form (BPP) are initially excluded either to reduce the amount of insurance needed to satisfy the coinsurance condition, or because o These types of property are not subject to the causes of loss in a standard property policy o Most insurers are unwilling to insure such property o Coverage of these types of property violates the principle of indemnity o These types of property require careful underwriting
d
• The risk manager for a group of convenience stores has begun the six step risk management process. He has analyzed various risk control techniques as well as their feasibility for use in the stores. He has identified that a key loss exposure is the risk of armed robbery between 1:00 AM and 3:00 AM. According to the risk management process, which step should the risk manager proceed with next? o Implement risk management technique o Analyze the loss exposure o Identify the loss exposure o Select the appropriate risk management technique
d
• The standard valuation provision for most property covered by the Building and Personal Property Coverage Form (BPP) is o Selling price o RC o Functional RC o ACV
d
The risk manager of a midsize manufacturing company would like several coverage enhancements and a seamless approach to insurance for their Building and Business Personal Property, Inland Marine and Crime insurance. What type of policy format would best suit the risk manager's needs? a. CPP b. BOP c. Output Policy d. Broker Policy
C. output policy
• A building is insured for $200,000 under an agreed value policy. The policy has a $10,000 deductible and the agreed value of the building is $220,000. After suffering a $43,000 loss, the insurer will pay (rounded to the nearest $10) o $29,090 o $33,000 o $39,090 o $43,000
a
• Pete insures his motorcycle rental property for $100,000 on an actual cash value (ACV) basis. The ACV of the property is $150,000 and his Commercial Insurance Policy (CIP) has a 90 percent coinsurance clause. A fire caused $50,000 of damage to the building structure. How much will Pete recoup under his insurance policy? o $37,037 o $47,037 o $50,000 o $100,000
a
• The Business and Personal Property Coverage Form now contains the Electronic Data additional coverage, which has which noteworthy characteristic? o All electronic data damage is deemed to have been sustained in the policy year that an occurrence began, even if the damage continues. o The aggregate limit of coverage is $25,000. o The additional coverage applies to the named insured's stock of prepackaged software. o The additional coverage applies to the electronic data that are integrated in and operate or control the building's elevators, lighting, security, and climate control systems.
a
• Which one of the following risk control techniques involves providing a range of products and services used by a variety of customers? o Diversification o Duplication o Separation o Avoidance
a
• Within the Building and Personal Property Coverage Form, improvements and betterments are sometimes valued on a(n) o Stated value basis determined by the insured prior to binding coverage o Pro rata basis that equals neither ACV or RC o ACV basis using an 80% coinsurance condition o RC basis using an 80% coinsurance basis
b
• If the Replacement Cost optional coverage of the Building and Personal Property Coverage Form (BPP) is selected, tenants' improvements and betterments are o Specifically excluded from RC coverage and valued at ACV only o Valued on a RC basis regardless of whether the tenant elects to replace them or not o Not covered because RC coverage does not apply to buildings or their fixtures and fittings o Valued at RC if the tenant actually repairs or replaces them, at its own cost, as soon as reasonably possible after the loss
d
• The Outdoor Property Extension covers trees, shrubs, and plants subject to what terms? o Not more than $200 may be applied to any one tree, shrub, or plant o Not more than $100 may be applied to any one tree, shrub, or plant o The coverage extension applies to trees, shrubs, and plants owned by the landlord of an insured tenant. o The coverage extension applies to debris removal of trees, shrubs, and plants that are the property of others from the described premises.
d
• The inspections and surveys condition, a common policy condition attached to the ISO Commercial Package Policy, makes it clear that the insurer has the right to inspect the insured premises and o Will make regular physical inspections o May make safety inspections o Will inspect books and records o May recommend changes
d
• A risk manager for a graphic arts company signed a 10-year lease for building space on July 1, 2000. Insurance on the leased space is insured by the graphics art company under a Building and Personal Property Coverage Form (BPP) written on a replacement cost basis. The graphic arts company immediately installed $100,000 of improvements and betterments with a 20 year expected life. The building owner's BPP is written on an actual cash value (ACV) basis. On July 1, 2007, the building suffered a fire loss that destroyed the tenant's space. The improvements and betterments had a replacement cost of $200,000 at the time of the loss. The building owner repairs the rental space, but the graphic arts company does not replace the improvements and betterments. Assuming the policy limits are adequate, what would the insurer pay under the graphic arts company's BPP for this loss? o $30,000 o $60,000 o $65,000 o $100,000
a
• A risk manager for a graphic arts company signed a 10-year lease for space on July 1, 2000. Insurance on the leased space is insured by the graphics art company under a Building and Personal Property Coverage Form (BPP) written on a replacement cost basis. The graphic arts company immediately installed $100,000 of improvement and betterments with a 20 year expected life. The building owner's BPP is written on an actual cash value (ACV) basis. On July 1, 2007, the building suffered a fire loss that destroyed the tenant's space. If the graphic arts company immediately replaces the improvements and betterments once the space is repaired, and assuming the policy limits are adequate, what valuation basis will be used under the graphic arts company's BPP to make payment for this loss? o RC o ACV o Pro-rata based on the length of the lease, the time expired since the improvements and betterments were installed, and the original cost o Pro-rata based on the length of the lease, the time expired since the improvements and betterments were installed, and the replacement cost
a
• A tenant has a Building and Personal Property Coverage Form (BPP) insuring only its Business Personal Property. Which one of the following is true if the tenant adds a room to its leased building? o The room is considered an improvement and betterment and the policy covers the tenant's use interest in the room. o The room is considered part of the building and therefore no coverage is provided for the room itself by the tenant's policy. o The value of the room will have to be added to the building owner's property policy in order to be covered. o The room would be considered Personal Property of Others and that coverage would need to be added to the policy.
a
• An advertising company recently signed a 10 year lease on a new office location in Dallas, Texas. On September 26, 2010, prior to occupying the building, the advertising company spent $250,000 on building improvements. On September 26, 2011, the improvements were destroyed and replaced by the building owner at a cost of $300,000. Under the advertising company's Building and Personal Property Coverage Form (BPP), the amount the insurer will pay for this loss is o $0 o $225,000 o $250,000 o $300,000
a
• An advertising company recently signed a 10 year lease on a new office location in Dallas, Texas. On September 26, 2010, prior to occupying the building, the advertising company spent $250,000 on building improvements. On September 26, 2011, the improvements were destroyed by a covered peril. The building owner repaired the building, but the advertising company decided not to replace the improvements. The replacement cost of the improvements at the time of the loss was $300,000. Assuming adequate limits under the advertising company's Building and Personal Property Coverage Form (BPP), which is written on a replacement cost basis, the amount the insurer will pay for this loss is o $225,000 o $250,000 o $270,000 o $300,000
a
• An insured covers its building under a Commercial Property Policy (CPP) with the Causes of Loss—Broad Form. Lightning struck the building causing a small fire. When replacing some of the damaged wallboard, the insured discovered mold within the walls of the building. The mold had obviously been there for a number of years. The damage caused by the mold would be o Excluded because the mold was not the result of the water used to fight the fire o Covered because lightning, a covered cause of loss, exposed the mold o Covered because the concurrent clause only excludes mold caused by a non-covered cause of loss o Excluded because the water damage exclusion precludes coverage for mold damage
a
• Mid-policy term, a retail clothing chain opens two newly leased stores with contents valued at $75,000 in each store. The owners of the chain attend a week-long industry fair and bring $5,000 worth of merchandise to display. Assuming the coinsurance requirement is met on its Building and Personal Property Coverage Form, how much coverage will be available for business personal property under the coverage extensions? o Newly Acquired or Constructed Property for up to $100,000 at each store for the earlier of 30 days or when they are reported and accepted by the insurer; Property Off-Premises for up to $10,000 at the industry fair for the weeklong event o Newly Acquired or Constructed Property for up to $50,000 at each store for the earlier of 60 days or when they are reported and accepted by the insurer; Property Off-Premises for up to $5,000 at the industry fair for the weeklong even o Newly Acquired or Constructed Property for up to $75,000 at each store for the earlier of 90 days or when they are reported and accepted by the insurer; Property Off-Premises for up to $10,000 at the industry fair for the weeklong event o Newly Acquired or Constructed Property for up to $100,000 at each store for the earlier of 90 days or when they are reported and accepted by the insurer; Property Off-Premises for up to $5,000 at the industry fair for the weeklong event
a
• A Commercial Package Policy, whether monoline or multiline, includes which one of the following forms? o General Conditions Form o Common Policy Conditions Form o Common Policy Exclusions Form o General Forms List
b
• A building and its contents are insured under Building and Personal Property Coverage Form (BPP) with the agreed value option in effect. The Limit of Insurance is $1,000,000, with a $5,000 deductible. The agreed value shown in the policy is $1,500,000. How much will the insurer pay if the insured sustains a $300,000 loss by an insured peril? o $175,000 o $195,000 o $200,000 o $300,000
b
• A building is insured under an unendorsed Building and Personal Property Coverage Form (BPP). The policy limit is $50,000 and the deductible is $2,000. The insured incurred a $12,000 covered loss. Ignoring any coinsurance, which one of the following statements is true? o The insurer will pay $10,000 for this claim, reducing the aggregate limit by $10,000 and thus $40,000 will still be available for any additional claims during the year. o The insurer will pay $10,000 for this claim and the full limit of insurance will still be available for any additional claims during the year. o The insurer will pay $10,000 for this claim and the aggregate limit will be reduced by $10,000 plus the deductible and thus $38,000 will still be available for any additional claims during the year. o The insurer will pay $12,000 for this claim and the full limit of insurance will still be available for any additional claims during the year.
b
• A dry cleaning business is insured under a Building and Personal Property Coverage Form (BPP) with only the replacement cost optional coverage. The policy shows a limit of $250,000 for Building and $150,000 for Your Business Personal Property. A covered loss to the building destroyed the dry cleaning equipment and customers' clothes. The cost to repair the building is $40,000. The replacement cost of the dry cleaning equipment is $12,000 and the actual cash value (ACV) is $9,000. The cost to replace the damaged clothing is $10,000 and the clothing had an ACV of $6,500. Assuming the insured meets its 80% coinsurance requirement and ignoring any deductibles, if the owner immediately repairs the building, replaces the damaged equipment, and replaces the clothing for the customers, the insurer would pay o $52,000 o $54,500 o $58,500 o $62,000
b
• A landlord owns two buildings on the same block that are listed separately on an unendorsed Building and Personal Property Coverage Form (BPP) with a $250,000 limit shown for each building. The BPP has a $1,000 deductible. Each of the buildings contains two office units. Both buildings are destroyed within seconds of each other by a single tornado. The jurisdiction in which the buildings are located has interpreted the definition of occurrence considering the cause of the loss. What is the amount of deductible applicable to the loss? o $0 o $1,000 o $2,000 o $4,000
b
• A risk manager for a graphic arts company signed a 10-year lease for space on July 1, 2000. Insurance on the leased space is insured by the graphics art company under a Building and Personal Property Coverage Form (BPP) written on a replacement cost basis. The graphic arts company immediately installed $100,000 of improvement and betterments with a 20 year expected life. The building owner's BPP is written on an actual cash value (ACV) basis. On July 1, 2007, the building suffered a fire loss that destroyed the tenant's space. If the building's owner immediately repairs the space and replaces the improvements and betterments and assuming the policy limits are adequate, what valuation basis will be used under the building owner's BPP to make payment for this loss? o RC o ACV o Pro-rata based on the length of the lease, the time expired since the improvements and betterments were installed, and the actual cash value (ACV) o Pro-rata based on the length of the lease, the time expired since the improvements and betterments were installed, and the replacement cost
b
• A small business owner has a Building and Personal Property Coverage Form (BPP) to cover his property. The owner erected a temporary structure, a little over 50 feet from the main structure, used to make repairs to the building. A covered peril damaged the temporary structure. Which one of the following statements is accurate? o The temporary structure is not covered because it is more than 50 feet away from the main structure. o The temporary structure is covered because it is less than 100 feet away from the main structure. o The temporary structure is covered because it is a newly acquired property. o The temporary structure is not covered because it is temporary.
b
• A warehouse location of an insured is vacant during a lull in the demand for the insured's merchandise. The insured anticipated at first it would only be for one month, but due to economic conditions, the warehouse was vacant for several months. The insured forgot to notify their property insurer. After three months of vacancy, the building sustained $20,000 worth of damage due to a fire. Later, vandals caused $5,000 worth of damage. Ignoring any deductible, which one of the following describes the amount the insured would recover? o $20,000 for the fire loss; $5,000 for the vandalism loss o $17,000 for the fire loss, $0 for the vandalism loss o $20,000 for the fire loss; $0 for the vandalism loss o $17,000 for the fire loss; $4,250 for the vandalism loss
b
• An insured owns an electronics store and has purchased an unendorsed Building and Personal Property Coverage Form (BPP) with a $500,000 limit on the building and $250,000 on Business Personal Property. The insured installed a computer system that will keep track of its inventory in the store. All receipts are kept in the office in the back of the building. The store has repair operations on site to fix customers' electronic devices. The insured's policy would provide complete coverage for up to the policy limit for o The property of the customers when being repaired o The inventory that is stored in the back storage room o The cash receipts while on the premises o Electronic data on the insured's computer
b
• Bridges, piers, wharves, and docks are initially excluded from the Building and Personal Property Coverage Form primarily because o Property over water is better covered under a marine policy form o They require careful underwriting o Statutory regulation requires these property types to be covered through governmental risk pools o Standard insurance markets are unwilling to cover these exposures
b
• For the contents of a storage unit to be covered under the Business Personal Property Temporarily in Portable Storage Units extension, the unit must be located within how many feet of the building described in the declarations or within the same number of feet of the described premises, whichever is greater? o 50 o 100 o 200 o 1,000
b
• The Building and Personal Property Coverage Form is best used to insure o Either building, your personal property, or personal property of others o Any combination of building, your personal property, or personal property of others o Buildings and personal property not permanently attached to the real building o Real and personal property within direct control of the insured
b
• The Debris Removal additional coverage states that covered debris removal expenses will be paid only if they are reported to the insurer in writing within how many days or years after the direct physical loss or damage? o 90 days o 180 days o 1 year o 2 years
b
• The Personal Effects and Property of Others extension covers property of others in the care, custody, and control of the insured. However, the limit on all property covered by this extension is what at each described location? o $1,000 o $2,500 o $5,000 o $10,000
b
• The inspections and surveys condition clarifies that the insurer does not make o Physical inspections o Safety inspections o Inspections of books and records o Health inspections
b
• The three categories of property covered under a Building and Personal Property Coverage Form are o Building, Your Personal Property, and Business Income o Building, Your Personal Property, and Personal Property of Others o Building, Personal Property, Intellectual Property o Building, Your Personal Property, and Other Personal Property
b
• Which one of the following common policy conditions permits the insurer to verify property and business income values necessary for premium rating purposes? o Inspections and surveys o Examination of books and records o Changes condition o Premiums
b
• Which one of the following is a reason that an insurance organization might develop their own, non-standard forms? o To provide coverage consistent with ISO forms o To differentiate their product from those of their competitors o To write the type of coverage for which there are standard forms o To differentiate between mono-line and multi-line policies
b
• Which one of the following statements about Inflation Guard optional coverage of the Building and Personal Property Coverage Form (BPP) is true? o It is automatically added wherever the agreed value optional coverage is added o It automatically increases the limit of insurance by the % of annual increases shown in the declarations o It is available only on business personal property o It leaves policy limits unchanged while increasing the annual premium by the rate of inflation
b
• Which one of the following statements is true if the Replacement Cost optional coverage of the Building and Personal Property Coverage Form (BPP) is activated? o Coinsurance condition is suspended o The amount of insurance required by the coinsurance condition is calculated by multiplying RC by the coinsurance % o The coinsurance % is amended from 80% to 100% of ACV o Any tenants' improvements and betterments must be separately insured on an ACV basis
b
• Which one of the following would be considered Your Business Personal Property under a Building and Personal Property Coverage Form (BPP)? o Outdoor furniture o Stock o Refrigerator o Fire extinguisher
b
• A Real Estate Investment Trust owns several apartment buildings in San Francisco, California. All of the buildings are insured under the same Building and Personal Property Coverage Form (BPP) with a $750,000 limit per building and $100,000 per occurrence deductible. On December 31 a large fire caused a total loss to two of its insured buildings. The fire was determined to be a single occurrence in the jurisdiction of loss. Ignoring any coinsurance requirements and assuming each building's value is $1,000,000, how much should the company be able to collect under this loss scenario? o $1,300,000 o $1,400,000 o $1,500,000 o $2,000,000
c
• A Real Estate Investment Trust owns several apartment buildings in San Francisco, California. All the buildings are insured under a single Building and Personal Property Coverage Form (BPP) with a $750,000 limit for each building and a $100,000 per occurrence deductible. On December 31 a large fire caused a total loss to two of its insured buildings. The fire was determined to be a single occurrence in the jurisdiction of loss. Ignoring any coinsurance requirements and assuming each building's value equals the insured amount, how much should the company be able to collect under this loss scenario? o $650,000 o $1,300,000 o $1,400,000 o $1,500,000
c
• A building is insured for $200,000 under an unendorsed Building and Personal Property Coverage Form (BPP). The building is completely destroyed by a covered peril. At the time of the loss, the building was worth $200,000. Additional costs incurred by the insured included $27,000 in debris removal and a $1,000 fire department charge required by local ordinance. Ignoring any deductible, the insurer would pay o $200,000 o $211,000 o $226,000 o $228,000
c
• A pizza parlor has property insurance coverage consisting of the ISO Building and Personal Property Coverage Form (BPP) and Special Form causes of loss, with no endorsements. The building limit is $500,000, and the business personal property limit is $300,000. A covered cause of loss caused $125,000 building damage and $75,000 contents damage. Assuming that the coverage amounts satisfy the coinsurance requirement, and ignoring any deductible, how much will the pizza parlor owner recover from its insurance company? o $0 o $180,000 o $200,000 o $225,000
c
• A risk manager for a graphic arts company signed a 10-year lease for space on July 1, 2000 in a building. Insurance on the leased space is insured by the graphics art company under a Building and Personal Property Coverage Form (BPP) written on a replacement cost basis. The graphic arts company immediately installed $100,000 of improvement and betterments with a 20 year expected life. The building owner's BPP is written on an actual cash value (ACV) basis. On July 1, 2007, the building suffered a fire loss that destroyed the tenant's space. If the building owner repairs the rental space, but the graphic arts company does not replace the improvements and betterments once the space is repaired, and assuming the policy limits are adequate, what valuation basis will be used under the graphic arts company's BPP to make payment for this loss? o RC o ACV o Pro-rata based on the length of the lease, the time expired since the improvements and betterments were installed, and the original cost o Pro-rata based on the length of the lease, the time expired since the improvements and betterments were installed, and the replacement cost
c
• A small business owner purchased an unendorsed Building and Personal Property Coverage Form (BPP). The limit on the policy is $500,000 for the building and $250,000 for the business personal property. These limits meet the coinsurance requirements. The deductible is $1,000. The insured suffered a covered loss that destroyed all of the insured property. At the time of the loss, the value of the building was $525,000. The value of the business personal property was $240,000. Which one of the following best describes how the insurer will determine how much to pay? o The insurer will pay the full policy limits for both parts of the loss. Because it is a total loss, the deductible does not apply. o The insurer will pay the policy limit less the $1,000 deductible on the building. The insurer will pay the amount of the business personal property loss, less a $1,000 deductible. o The insurer will pay the policy limit of the building loss because the loss minus the deductible is larger than the policy limit. The insurer will pay the full amount of the business personal property loss. o The insurer will add the policy limit for the building loss and the amount of the business personal property loss, and then subtract the $1,000 deductible to determine the final amount of payment to be made.
c
• A technology firm recently built a new production facility with unique property loss exposures. Of the following possibilities, which one is most likely to address the firm's needs? o A nonstandard form using provisions more favorable to the insurer than standard forms o A standard form developed ISO which includes generally accepted industry best practices o A nonstandard form using provisions more favorable to the insured than standard forms o A standard form developed by the firm's broker and approved for use by the ISO
c
• An insured chooses the "Agreed Value" option for its Building and Personal Property Coverage Form (BPP). The agreed value for the property is $100,000 and the limit of insurance is $120,000 with a $5,000 deductible. The building is totally destroyed by a covered cause of loss. At the time of the loss, the value of the building was $120,000. The insurer would pay o $95,000 o $100,000 o $115,000 o $120,000
c
• An insured chooses the "Agreed Value" option for its Building and Personal Property Coverage Form (BPP). The agreed value for the property is $100,000 and the limit of insurance is $120,000. The building is totally destroyed by a covered cause of loss. At the time of the loss, the value of the building was $130,000. Ignoring any deductible and rounded to the nearest $1,000, the insurer would pay o $100,000 o $108,000 o $120,000 o $130,000
c
• An insured commercial building is located in a city that has a strict building code. After a partially repairable covered loss, the city told the owner that the building cannot be repaired but must be torn down and rebuilt in its entirety because of city building codes. The building is insured under a Broad Form unendorsed Building and Personal Property Coverage Form (BPP) on an actual cash value basis. The owner, therefore, incurs the costs of the loss, the cost to tear down and remove the debris of the undamaged portion of the building, and the increased costs of construction of the new building as a result. Assuming the state law supports the policy wording, which one of the following is true about coverage provided by the policy for this loss? o The insurer would pay all of the costs mentioned as the ordinance or law is a covered peril of the policy. o The insurer would not pay any of the costs mentioned because ordinance or law is an exclusion of this form. o The insurer would pay the costs of the damaged portion of the building but not the increased costs. o The insurer would pay for the damaged portion of the building and the costs to tear down the undamaged portion but not other increased costs.
c
• An insured has a retail store covered with a Building and Personal Property Coverage Form (BPP). The insured has a loss for personal property in an owned vehicle that is an accident while making a delivery. The Causes of Loss forms that may be attached will provide which one of the following? o Coverage under the Causes of Loss - Basic, Broad, and Special Forms o Coverage under both the Causes of Loss - Broad and Special Forms o Coverage under the Causes of Loss - Special Form o No coverage will be provided under any of the Causes of Loss Forms
c
• An insured who owns a large business is comparing the different types of commercial insurance policies. The insured would likely choose a Commercial Package Policy because it will provide o An option for all coverages in one policy at the economical premium o Automatic coverage for equipment breakdown at no additional premium o The option to add lines of insurance for all coverages that are needed o Coverage enhancements that are not included in standard forms
c
• An insured's Commercial Package Policy (CPP) provided coverage for his building. The insured purchased a second policy with different terms, conditions, and provisions to also provide coverage for his building. Applying the Other Insurance clause of the Commercial Property Conditions, which one of the following best describes how each policy would apply to a covered building loss? o The two policies would equally share in the amount of the loss o The loss would be shared by each policy on a pro-rata basis o The CPP would cover only the amount of loss in excess of the amount due from the second policy o The CPP would cover the full loss and the second policy would not apply
c
• Except for pollution cleanup and removal and electronic data additional coverages, how do the limits and deductibles apply on the Building and Personal Property Form? o The largest applicable limit applies to each occurrence; the largest applicable deductible applies to each occurrence. o Limits apply separately to each occurrence; the deductible applies separately to each occurrence o Limits apply separately to each occurrence; the deductible applies separately to each scheduled limit when an occurrence involves loss to two or more items over covered property. o The largest applicable limit applies to each occurrence; the deductible applies separately to each scheduled limit when an occurrence involves loss to two or more items over covered property.
c
• In evaluating the human behavior approach to risk control, a risk manager would generally conclude that o A building designed with trees and poles away from the structure limits windstorm losses o A risk with the newest technology in safes limits employee theft o By modifying people's behavior, the frequency of unsafe acts will be reduced o A building's web cams viewed by security guards limits burglary losses
c
• One Common Policy Condition in the Commercial Package Policy (CPP) is the examination of books and records. The intent of this policy condition is to a. Ensure that the premium charged by the insurer has state approval b. Protect the right of the insured to inspect the insured's premises c. Reserve the right of an insurer to inspect and audit the insured's books and records d. Prevent the insured from concealing hazardous conditions unacceptable to the insurer
c
• The affect of the control of property condition in a commercial property policy is best summarized as o Acts of negligence by the insured will not affect coverage if the property is within their direct control o If the insured has control of a portion of the insured property their own acts of negligence will not affect coverage o If the insured does not have control of the property, any act of neglect by others will not affect coverage o Negligent entrustment of property made by the insured within their control will not affect coverage
c
• To be covered under the Non-Owned Detached Trailers extension, the trailer, among other requirements, must be what? o Accidentally unhitched from a motor vehicle o Being hitched to a motor vehicle o Used in the insured's business o Attached to a motor vehicle while not in motion
c
• Under which one of the following provisions of the Building and Personal Property Coverage Form (BPP) must the insurer be notified within 180 days after the occurrence of loss that a claim will be made under the terms of the optional coverage in order for that optional coverage to pay the maximum benefit available? o Agreed Value o Inflation Guard o RC o Extension of EC to Personal Property of Others
c
• Unlike other coverage extensions, the Outdoor Property extension has its own list of covered causes of loss. Included on that list are losses caused by what? o Windstorm o Hail o Fire o Flood
c
• When an insured is choosing between replacement cost and actual cash value on a policy, the insured should o Evaluate the age of the building, and if it is over 50 years old, choose the RC option o Choose RC if it wants to include contents at the owner's expense o Determine if the policy limits are adequate for RC o Add actual cash value if it wants to waive the coinsurance condition
c
• When used to address property loss exposures, risk control measures are designed to o Encourage behavior known by risk control engineers to reduce the ultimate severity of property losses o Prevent the convergence of related and unrelated events to reduce the frequency and severity of a loss o Address the links in the chain of events and the unrelated events that converge to cause a loss o Prevent the convergence of related and unrelated events to mitigate the ultimate cost of loss
c
• Which one of the following causes of loss is included with Broad Form perils, but not with Basic Form perils? o Volcanic Action o Fungus o Falling Objects o Earthquake
c
• Which one of the following optional coverages would obligate the insurer to pay for new property of like kind and quality, without any deduction for depreciation? o ACV o Functional RC o RC o Agreed Value
c
• Which one of the following statements is correct with respect to the Replacement Cost optional coverage of the Building and Personal Property Coverage Form (BPP)? o The insurer is obligated to pay replacement cost regardless of whether or not the property has actually been repaired or replaced. o If the insured elects to accept an ACV claim settlement, the insured is barred from later requesting payment of replacement cost. o The insurer is obligated to pay the cost to replace the damaged or destroyed property with new property of like kind and quality without any deduction for depreciation or obsolescence. o Insurers underwrite the coverage carefully because some items that can be difficult to value, such as manuscripts, works of art, antiques, and rare articles, are covered for replacement cost.
c
• Agreed Value optional coverage is often elected by risk averse firms in order to o Avoid the application of multiple deductibles in the event of several losses resulting from a single occurrence. o Waive any insurance to value requirements in most commercial leases. o Allow the firm to insure their building and contents for an amount greater than replacement cost. o Alleviate the risk of not complying with the Coinsurance condition.
d
• An advertising company recently signed a 10 year lease on a new office location in Dallas, Texas. On September 26, 2010, prior to occupying the building, the advertising company spent $250,000 on building improvements. On September 26, 2011, the improvements were destroyed and replaced by the advertising company at a cost of $300,000. Assuming adequate limits under the advertising company's Building and Personal Property Coverage Form (BPP), which is written on a replacement cost basis, the amount the insurer will pay for this loss is o $225,000 o $250,000 o $270,000 o $300,000
d
• An important attribute of the Preservation of Property additional coverage is what? o Property is covered only while it is stationary and not in transit o It provides coverage for up to 90 days at the new location o The coverage is limited to either the covered causes of loss or locations stipulated in the coverage form o The coverage is subject to the limits of insurance stated in the declarations
d
• An insured's office building is valued $500,000, contents valued $100,000 and leased computers valued $50,000. The insured wants to be certain covered property can be repaired or replaced without any coinsurance or depreciation penalties in the event of physical loss or damage. Which Limits and Optional Coverage(s) on the Building and Personal Property Coverage Form would best suit this insured's wants? o Building $500,000 with Agreed Value Optional Coverage; Contents $100,000 with Agreed Value Optional Coverage; Extension of Replacement Cost to Personal Property of Others $50,000 o Building $480,000 with Replacement Cost Optional Coverages; Contents $80,000 with Replacement Cost and Agreed Value Optional Coverages; Extension of Replacement Cost to Personal Property of Others $40,000 o Seek no Optional Coverages but make sure to provide the insurer a signed statement of values o Building $500,000 with Replacement Cost and Agreed Value Optional Coverages; Contents $100,000 with Replacement Cost and Agreed Value Optional Coverages; Extension of Replacement Cost to Personal Property of Others $50,000
d
• Insurers underwrite Agreed Value optional coverage carefully for which one of the following reasons? o The insurer is obliged to pay the ACV of the damaged property, regardless of the limit of insurance purchased. o Claims settlements under agreed value policies are typically higher than those under policies that include an 80 percent coinsurance clause. o If the Agreed Value coverage option is not renewed, the coinsurance condition cannot be reinstated. o Insureds are often tempted to underinsure, knowing they will not suffer a coinsurance penalty when the agreed value option is in effect.
d
• The insured owns a building that was previously rented to a retail store. The retail store went out of business four months ago, and the building has been vacant since then. The current building value is $1,800,000. The building is insured on a Commercial Property Policy (CPP) for $1,600,000 on a replacement cost basis with 90 percent coinsurance. In October there was a fire that caused $500,000 in damage. Ignoring any deductible, as a result of the fire, the insured will o Not receive payment because the building was vacant beyond 60 days o Receive the entire amount of the loss payment because the building limit is more than the total loss o Not receive a loss payment because the insured did not meet the coinsurance condition o Receive only a portion of the loss payment because the insured did not meet the coinsurance condition
d
• The risk manager for a painting company purchased a Building and Personal Property Coverage Form which covers their trees, shrubs, and plants for certain losses. The Outdoor Property coverage extension provides coverage caused by all of the following, EXCEPT: o Civil Commotion o Lightning o Explosion o Windstorm
d
• There are several Building and Personal Property Coverage Form, also referred to as the BPP, coverage extensions, including which of these? o Valuable Personal Effects and Records of Others o Non-Owned Outdoor Property o Newly Constructed Property Off-Premises o Business Personal Property Temporarily in Portable Storage Units
d
• Under the Building and Personal Property Coverage Form (BPP), theft of building materials that have not been attached to a building are o Covered by the Broad and Special Forms o Covered by the Special Form o Covered by the Basic, Broad, and Special Forms o Excluded by all Causes of Loss forms
d
