ARM 402: Full Practice Exam: Frequently Missed Questions & Terminology

Compensatory damages as a consequence of legal liability might include A) Special and general damages B) Specific and common damages C) Indirect losses and defense costs D) Individual and broad damages

A

States Insurer has a $1,200,000 xs $200,000 per policy excess of loss treaty with Coastal Reinsurer States sustains the following losses: Policy 1: $180,000 Policy 2: $400,000 Policy 3: $1,500,000 How much will States Insurer retain for the loss under Policy 3? A) $200,000 B) $250,000 C) $300,000 D) $600,000

$300,000 ** States Insurer will retain $300,000 for the loss under Policy 3 - Of the total $1,500,000 loss, $1,200,000 is reinsured, leaving $300,000 retained **

A practice or method used confidentially by an organization to gain a competitive advantage is A) A trade secret B) A patent C) Goodwill D) A trademark

A

A release of liability agreement for activities specified in the contract is A) An exculpatory agreement B) A hold harmless agreement C) A duty D) A waiver

A

A state wants to build a road through an environmentally-sensitive area. The area includes endangered flora and fauna, as well as wetlands. Build-Rite Construction expressed interest in the project, but is concerned about potential liability. Build-Rite agrees to build the road if the state assumes all responsibility for any liability arising out of the construction of the road. A state representative has signed-off on the contract, agreeing that the state will be responsible for all liability. This transfer of responsibility for fault illustrates which one of the following forms of noninsurance risk financing transfer? A) Broad form B) Intermediate form C) Nullification form D) Limited form

A

A type of reinsurance transaction that involves an agreement between the primary insurer and the reinsurer specifying how to transfer risks, that defines the eligible risks in terms of lines and classes of business, that specifies the parties' obligations, and for which eligible risks are automatically reinsured, is A) Treaty reinsurance B) Excess of loss reinsurance C) Pro rata reinsurance D) Facultative reinsurance

A

All members of a pool share in the risk with the other members of the pool. This allows the pool to manage uncertainty and meet which one of the other risk financing goals? A) Pay for Losses B) Minimize the Cost of Risk C) Maintain Liquidity D) Comply with Legal & Regulatory Requirements

A

An advantage of a self-insurance plan when compared with another insurance plan is that a self-insurance plan A) Is less expensive over the long run B) Decreases the organization's financial uncertainty C) Is easier to implement D) Easily satisfies contractual requirements

A

Any organization can self-insure its loss exposures, provided that A) The state in which it operates permits self-insurance plans B) It documents its enterprise risk management program with the state insurance departments in the states in which it operates C) Its estimated losses from physical hazards do not exceed a state-specified maximum D) Its operations do not involve the manufacture or distribution of products intended for human consumption

A

If a pool has enough loss exposures to benefit from the law of large numbers, it can help members meet which one of the following risk financing goals? A) Manage uncertainty B) Comply with legal and regulatory requirements C) Maintain liquidity D) Minimize the cost of risk

A

Intellectual property is protected through which one of the following? A) Statutes B) Laches C) Contract D) Tort

A

One reason that primary insurers purchase reinsurance for catastrophes is to A) Stabilize insurer earnings B) Satisfy regulatory requirements for reinsurance C) Reduce policyholders' surplus to acceptable levels D) Increase large-line capacity

A

The duration of a patent right varies depending on the type of patent. Which one of the following patents last for 14 years from the date of issuance? A) Design patent B) Process patent C) Plant patent D) Utility patent

A

Regarding options, the strike price is the A) Specific price at which the holder of an option can buy or sell the asset associated with the option B) Agreement that gives the holder the right to sell an asset a specific price over a period of time C) Price at which the holder of an option will profit D) Price at which the seller of the assets will make a profit

A

Several similar small businesses in a state formed a not-for-profit organization. The businesses pay premiums to the organization, and it manages the businesses' planned retention program for workers compensation. The organization pools the loss exposures of the members. The administrator of the organization collects premiums, manages claims, purchases excess insurance, and makes necessary regulatory filings. The organization described is a A) Group self-insurance plan B) Captive insurance company C) Trade association plan D) Multiple-employer trust

A

The lease for a tenant's occupancy of an office space states that the tenant will maintain the property in reasonable condition. The tenant fails to clear ice and snow from the property and a passerby falls and is injured. On what basis might the tenant most likely be liable for the passerby's injuries? A) Breach of contract B) Negligence C) Strict liability D) Tort

A

The production phase of an organization's fleet life cycle involves A) Purchasing vehicles selected in the conceptual and engineering phases B) Using the vehicles to transport freight or passengers C) Determining what types of vehicles will meet an organization's needs D) Selecting the vehicles, operators, routes, schedules, and maintenance

A

Which one of the following is a motor fleet system component that can likely lead to losses? A) Routes B) Premises C) Financing D) Contracts

A

Which one of the following statements is true regarding the purpose and operation of self-insurance plans? A) Self-insurance best applies to losses that are somewhat predictable in total over a defined time period B) Self-insurance plans have low administrative costs because no recordkeeping or formal payment systems are required C) Informal retention is another term for self-insurance D) Losses that are both low frequency and low severity are the best candidates for self-insurance plans

A

A loss limit in the retrospective rating plan formula A) Is the maximum amount of losses that will be included in the formula B) Is applied on an individual loss basis to limit losses included in the formula C) Is always used in the retrospective rating plan formula D) Is the most an insured organization will pay during the policy term

B

A rating plan that adjusts the premium for the current policy period to recognize the loss experience of the insured organization during past policy periods is A) A finite insurance rating plan B) An experience rating plan C) A retrospective rating plan D) A minimum premium rating plan

B

ABC Company and XYZ Company have entered into a contract which stipulates that, in the event of a breach, the breaching party will pay the non-breaching party the sum of $250,000. Such stipulations are called A) Nominal damages provision B) Liquidated damages provision C) Consequential damages provision D) Assigned damages provision

B

After an organization develops and implements its strategic plan, it needs to determine how risk taking will be controlled. Which one of the following statements is correct with respect to risk taking? A) At all levels with an organization, decisions are made about which risks should be taken to gain competitive advantage B) A factor in strategic decision making is whether an organization has an advantage in controlling risk with a given activity C) Organizations that are risk adverse usually have little difficulty meeting strategic goals if managers are excessively cautious D) In general, there is little difference between risk taking at the strategic and operational levels within an organization

B

An organization that operates warehouses in two locations is using the risk control technique of A) Diversification B) Separation C) Duplication D) Loss prevention

B

In both noninsurance risk control and noninsurance risk financing transfers A) The transfer becomes effective only when the transferee actually performs the action that rids the transferor of risk B) A contract is usually formed before any loss occurs C) The transferor has protection regardless of the transferee's bankruptcy D) The transferor has protection only after the funds to restore a loss are paid

B

Intellectual property is protected through all of the following, EXCEPT: A) Statutes B) Torts C) Case law D) Regulations

B

Punitive damages are intended to A) Compensate the defendant for medical expenses B) Punish the defendant C) Punish the plaintiff D) Compensate the injured party for pain and suffering

B

The two types of compensatory damages are A) Direct and indirect B) Special and general C) Special and punitive D) General and punitive

B

When determining whether an international legal dispute involves public international law, the most important issue is A) Jurisdiction B) Whether a treaty or other international agreement applies to the dispute C) The nature of the legal system in the nation where the dispute is adjudicated D) Comity

B

Which one of the following analysis methods concentrates on an organization's competitive environment? A) SWOT Analysis B) Porter's Five Forces Analysis C) Scenario Analysis D) PESTLE Analysis

B

Which one of the following best describes the differences between a following-form excess liability policy and a self-contained excess liability policy? A) A self-contained excess liability policy is broader than a following-form excess liability policy B) A self-contained excess liability policy is subject only to its own provisions C) A combination excess liability policy follows the provisions of the underlying policies then adds additional conditions or exclusions D) A self-contained excess liability policy requires a self-insured retention

B

Which one of the following risk control techniques might actually increase loss frequency? A) Loss prevention B) Separation C) Loss reduction D) Diversification

B

Which one of the following statements is correct regarding formulating an organization's long-term strategies? A) A long-term strategy should be an aspirational description of what an organization will accomplish in the long-term future B) Long-term strategies to improve performance and/or create a competitive advantage, are based on the organization's goals and analysis of internal and external environments. C) Formulating an organization's long-term strategy involves determining the "who", "what", and "when" responsibilities of each department D) All parts of an organization play a role in formulating an organization's long-term strategies

B

Which one of the following statements is correct with respect to risk tolerance? A) Risk tolerance is stated in both quantitative and qualitative terms B) Risk tolerance levels can have high-end thresholds, low-end thresholds, or both C) A zero-risk tolerance level will typically result in the best risk-based decisions D) An organization's risk tolerance is typically unrelated to its risk appetite

B

Which one of the following trademark categories provides the least protection against infringement by competitors? A) Fanciful mark B) Descriptive mark C) Suggestive mark D) Arbitrary mark

B

Which one of the following types of intellectual property protection automatically applies to any work of expression when it becomes fixed in a tangible medium? A) Trade secret B) Copyright C) Trademark D) Patent

B

An insured has a specific excess liability policy with a $100,000 per occurrence retention and a $1,000,000 maximum limit. The insured suffers separate losses of $25,000, $50,000, $100,000 and $900,000 during one policy year. Under the specific excess liability policy, the insurer will pay A) $100,000 B) $800,000 C) $1,000,000 D) $1,075,000

B ** $900,000 - $100,000 = $800,000 **

"The contractor agrees to indemnify and hold harmless the owner against claims, damages, bodily injury, or property damage arising out of the contractor's work and caused by any act of omission of the contractor, his agents, and his employees." This is an example of which one of the following forms of a hold-harmless agreement? A) Intermediate form B) Broad form C) Limited form D) Basic form

C

A large deductible is similar to a self-insured retention (SIR) in that both A) Give the insurer complete control over claim handling B) Provide detailed reports to the insurer on all claims C) Require the insured organization to retain a relatively large amount of loss D) Require that the insured adjust and pay claims up to the deductible or SIR amount

C

A patent used for the invention of a machine is a A) Plant patent B) Design patent C) Utility patent D) Process patent

C

A primary loss prevention measure for contractual liability is to have most contracts A) Meet American Bar Association guidelines B) Be oral rather than written C) Reviewed by counsel before they are signed D) Reviewed by management before they are signed

C

An organization wants to create a trademark for its line of products. Which one of the following risk control measures for trademarks should the organization use to avoid the possibility of infringing on someone else's trademark? A) Notice B) Restrictive covenants C) Searches and watches D) Registration

C

Clothing Store leases its space from Leasing Company. In the lease agreement between the companies, Leasing Company makes it clear that it wants Clothing Store to be responsible for anyone injured while in the leased space. The wording inclusion in the lease agreement is called a A) Exculpatory agreement B) Unilateral notice C) Hold-harmless agreement D) Waiver

C

Ivanhoe Corporation purchases stock in a bank and in a pharmaceutical manufacturer. Because these are unrelated industries, Ivanhoe hope that any losses in one stock will be more than offset by profits in another. Ivanhoe is using which one of the following risk management techniques? A) Risk transfer B) Separation C) Diversification D) Duplication

C

Maxwell Company has just invested a large sum in new, highly sophisticated computer equipment and building renovations. Maxwell arranged to lease identical equipment at another location so that it could use the equipment in the event of a disaster at its location. Maxwell's lease of identical equipment at another location is an example of A) Separation B) Loss reduction C) Duplication D) Diversification

C

Organizations use retrospective rating plans to A) Shift the burden of retained losses through accounting procedures that take advantage of tax rules B) Reallocate premium dollars to loss exposures not typically covered by such plans, such as workers' compensation C) Finance their low- to medium-severity losses D) Help them predict loss frequency for future risk management decisions

C

Pools can help an organization meet which one of the following risk financing goals through economies of scale in administration and the purchase of excess insurance or reinsurance? A) Maintain liquidity B) Pay for losses C) Minimize the costs of risk D) Manage uncertainty

C

Pools can help an organization meet which one of the following risk financing goals through economies of scale in administration and the purchase of excess insurance or reinsurance? A) Pay for losses B) Manage uncertainty C) Minimize the costs of risk D) Maintain liquidity

C

Self-insurance costs can be lower than the cost of risk transfer because A) Premium taxes for self-insurance are lower than for insurance B) Residual market loadings are lower than for insurance C) An insurer's overhead costs are eliminated D) The risk charge is lower than for insurance

C

Which one of the following is a type of intellectual property protection? A) Contract B) Tort C) Trade secret D) Infringement

C

Which one of the following is true regarding contracting for services as a noninsurance risk control transfer? A) The party that accepts the risk through contracting for services must be an independent contractor for the transfer to be effective B) Organizations rarely use contracting to transfer loss exposures to organizations that are better able to control losses from a particular activity C) Liability loss exposures associated with an activity are not transferred easily, especially regarding harm to third parties D) Personnel loss exposures associated with an activity cannot be transferred through subcontracting

C

Works of fiction, graphic art, chemical formulas, and software are best described as examples of A) Public property B) Real property C) Intellectual property D) Community property

C

Hazard control of the loss exposures of premises and operations, products, and completed operations is a key aspect of risk control for A) Statutory liability B) Contractual liability C) Vicarious liability D) Tort liability

D

In a legal dispute between parties from different countries, which one of the following sets of issues must be considered? A) Jurisdiction and legal system B) Comity and political implications C) Political implications and future trade D) Jurisdiction and comity

D

Intellectual property is protected through A) Laches B) Tort C) Contract D) Statutes

D

Margo is a technology company analyst for a large investment company. To determine a market value for the companies she analyzes, Margo calculates the present value of the future cash flows that will be derived from the intellectual property those companies own. This valuation method is called the A) Fair value market approach B) Capital budgeting approach C) Cost approach D) Income approach

D

Not all trademarks are covered by the U.S. federal laws. One type of mark not receiving the protection of trademark law is A) An implied mark B) An image mark C) A random mark D) A generic mark

D

The right to invade another's interest to promote or protect one's own greater interests is A) Last clear chance B) Immunity C) Self-defense D) Legal privilege

D

Which one of the following can limit liability if they are posted so that they are physically apparent, expressed in clear terms, in language the other party understands, and reasonable in extent? A) Hold-harmless agreements B) Exculpatory agreements C) Waivers D) Unilateral notices

D

Which one of the following explains how group self-insurance plans differ from individual self-insurance plans? A) Group self-insurance plans do not require state regulatory filings B) Group self-insurance plans can handle many different lines of business C) Group self-insurance plans are only used for healthcare benefits D) Group self-insurance plans rely on a not-for-profit association or corporation

D

Which one of the following is a type of intellectual property protection? A) Tort B) Contract C) Infringement D) Trade secret

D

Which one of the following is an effective safety related technology for fleet operations to reduce roll-overs? A) GPS capabilities B) Engine diagnostics C) Antilock braking system D) Lane departure warning system

D

Which one of the following statements is true regarding the strategic management process? A) The strategic management process is the responsibility of an organization's board of directors B) The strategic management process focuses on the internal environment of the organization C) The strategic management process aligns all of an organization's strategies and activities to enable it to meet its short-term goals D) The strategic management process can be applied to any type of organization, including business, not-for-profit organizations, and government entities

D

Wild Animal Park is a commercial zoo. A lion escapes and injures a child. The parents of the injured child are most likely to pursue a legal remedy against Wild Animal Park using which of the following legal bases? A) Contract B) Vicarious liability C) Statute D) Strict liability

D

A company's management team is preparing to conduct a SWOT analysis as part of its strategic management process. Which one of the following questions can the management team expect to answer as a result of the SWOT analysis? A) Will this organization's current business strategies still allow it to achieve its goals, or is a change required? B) Will this organization achieve its objectives for the current period, or is an intervention required? C) Are the organization's current business strategies in alignment with its mission statement, or is a change required? D) Are this organization's objectives in alignment with the sound enterprise risk management practices in a changing environment, or are changes required?

A

Special Damages

Losses awarded in a lawsuit compensating a person for injuries suffered due to another's breach of contract, negligence, or wrongful act Includes medical bills, repair costs, replacement of property, loss of wages, loss of earnings and other tangible and quantifiable losses.

Intermediate Form Hold Harmless Agreement

Where Party A holds Party B harmless for suits alleging negligence of Party A or negligence of both parties

Broad Form Hold Harmless Agreement

Where Party A holds Party B harmless for suits alleging sole negligence of A, joint negligence of A & B, or sole negligence of B

Limited Form Hold Harmless Agreement

Where Party A holds Party B harmless for suits arising out of Party A's sole negligence

A U.S. based company that has international operations may use a controlled master program to insure all of its operations. Which one of the following statements regarding a controlled master program is true? A) Usually there are separate policies for the domestic U.S. exposures B) Excess and umbrella liability apply only to coverage on U.S. operations C) The master policy is excess over locally purchased admitted coverage and can be no broader than the underlying policies D) The U.S. company is required to purchase all of the coverages through locally admitted insurers

A

Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Paoli Hardware has won best local hardware store 3 years in a row. Taylor would like to expand operations and has undertaken a SWOT analysis. His most dedicated customers are generally over 40 years old and engaged in small house projects, but his biggest revenue generator continues to be the sale of lumber. He would like to obtain more commercial customers and increase lumber sales. One of the major complaints Taylor hears from his customers is the difficulty finding local contractors. So, he is considering hiring a general contractor at the store who would also make house calls to assist customers. This will allow him to bill for labor and increase the sale of his products, but he is concerned it may increase his insurance claims and premiums. One of the younger store employees suggested they create a website to expand sales to on-line purchases and target electronic advertisements to commercial accounts. Taylor is not sure that he has the expertise to maintain a website and run the store. The employee claims to know a company that can maintain a website for Paoli at minimal cost. Taylor believes the website is a good idea and will increase sales of lumber. To protect Paoli from increases in the cost of lumber, Taylor is considering a forward contract with the lumber yard. If Taylor completed a PESTLE analysis instead of a SWOT analysis, the PESTLE analysis would include which one of the following? A) Increase in competition B) Introducing on-line sales C) Need for a growth initiative D) Lack of expertise among employees

A