Chapter 2 - Insurance Contracts

Policy A provides liability coverage to F's Grocery up to $500,000. Policy B provides coverage for the same risks up to $1.5 million. Both policies pay on a pro rata basis. If F's Grocery is determined to have a legal liability of $400,000 to a claimant who was injured on the property, how much will Policy A pay? $100,000 $500,000 $400,000 $50,000

$100,000

Generally, most binders will be issued for no longer than: 10 days 60 days 3 months 6 months

60 days

All of the following statements regarding the structure of a property policy are correct, except: The insured's duties and obligations are listed in the Conditions section The Declarations page lists other parties that have an insurable interest in the property The Insuring Agreement describes the perils that are covered under the policy Additional Coverages are added to the policy for an additional premium

Additional Coverages are added to the policy for an additional premium

Which of the following is considered an offer of a legal contract? An agent who solicits an application from a customer An insurer that issues a policy to an applicant who has already paid the initial premium An applicant who submits only a completed application to the insurer An applicant who submits a completed application and initial premium to the insurer

An applicant who submits a completed application and initial premium to the insurer

Which of the following is used to resolve differences between the insured and the insurer when the parties disagree on whether or not a liability claim is payable? Arbitration Appraisal Subrogation Liberalization

Arbitration

The provision that the insured's interest in a property insurance policy may not be transferred to another person without the consent of the insurance company, is called: Waiver or Change Mortgage Clause Assignment Endorsement

Assignment

Because the insurance company must pay claims and the insured must comply with the policy terms, the insurance contract is considered which of the following types of contracts? Aleatory contract Conditional contract Unilateral contract Contract of adhesion

Conditional contract

If an insurer issues a policy for which the insured pays a deposit premium, the insurer will: Conduct a premium audit at the end of the policy period to determine the final premium Charge a penalty against the insured for failing to pay the full premium Nonrenew the policy at the end of the policy period on the basis of premium nonpayment Adjust the premium on a monthly basis only if the insured's actual claims experience would warrant an additional premium

Conduct a premium audit at the end of the policy period to determine the final premium

If an insurer issues a policy for which the insured pays a deposit premium, the insurer will: Conduct a premium audit at the end of the policy period to determine the final premium Nonrenew the policy at the end of the policy period on the basis of premium nonpayment Adjust the premium on a monthly basis only if the insured's actual claims experience would warrant an additional premium Charge a penalty against the insured for failing to pay the full premium

Conduct a premium audit at the end of the policy period to determine the final premium

In an insurance contract, the value that each party gives the other is called the: Consideration Subject matter Acceptance Offer

Consideration

The insurer's promise to pay a covered loss and the insured's payment of the first premium are examples of: Acceptance Consideration Legal Purpose Offer

Consideration

The part of an insurance contract that varies with each individual policy, but is still a mandatory part of the policy, is the: Declarations Exclusions Insuring Agreement Conditions

Declarations

Which of the following is attached to a property and casualty insurance policy to amend policy provisions or conditions? Endorsement Consideration Warranty Exclusion

Endorsement

Which of the following may broaden the coverage found in an insurance policy? Endorsements Declarations Conditions Insuring Agreement

Endorsements

Which policy provision omits certain risks from coverage? Conditions Declarations Additional Coverages Exclusions

Exclusions

Property insurance policies exclude losses resulting from inherent vice, which would include all of the following perils, except: Wear and tear Explosion Mechanical breakdown due to age Rusting

Explosion

A legal contract is composed of all of the following elements, except: Consideration Legal capacity Legal purpose Indemnity

Indemnity

The insurer may void an insurance policy for all of the following reasons, except: Breach of warranty Legal action is taken against the insurer by the insured The insured included material misrepresentations on their application for insurance The insured intentionally withheld information that would have increased the policy premium

Legal action is taken against the insurer by the insured

When writing the application for Homeowners insurance, B's agent asked if B had any theft losses in the past 3 years. B answered no, despite the fact that B was a theft victim 3 times in the past 3 years. B is guilty of which of the following? Waiver Misrepresentation Representation Unilateral statement

Misrepresentation

The person specifically designated in the policy as the person with whom the contract of insurance has been made is considered to be the: Contingent insured Contract insured Additional insured Named insured

Named insured

When the insurer elects to end coverage at the end of the policy period, the policy is said to be which of the following? Cancelled Lapsed Abandoned Nonrenewed

Nonrenewed

Which of the following is the broad term for an accident that also includes a continuous and repeated exposure? Occurrence Disaster Exposure Incident

Occurrence

A named insured on a property insurance policy may transfer their rights and duties under the policy, even without the insurer's permission, to which of the following people? Only someone who is considered an insured on the policy Only their legal representative upon the death of the named insured No insured may assign the policy to another person No one, because only the first named insured may assign the policy to another

Only their legal representative upon the death of the named insured

The principle of indemnity helps avoid which of the following? Underinsurance Adverse selection Loss exposure Overpayment of a claim

Overpayment of a claim

A policyholder has two policies that provide coverage for a covered loss. Policy A responds first, before Policy B, which only provides coverage if the loss exhausts Policy A's limit. Policy A is the: Excess policy Pro rata policy Nonconcurrent policy Primary policy

Primary policy

V has two insurance policies in place that both cover V's liability for bodily injuries to others arising out of the use of V's car. Policy A has a $25,000 limit for bodily injuries sustained by any one person in an accident, and Policy B has a $50,000 limit for bodily injuries sustained by any one person in an accident. V is at-fault in a car accident, injuring the other driver and resulting in $15,000 of bodily injuries. Because of the Other Insurance provisions of the policies, Policy A covers $5,000 of the amounts owed to the injured driver, and Policy B covers $10,000. This is an example of: Absolute liability Excess insurance Contribution by equal shares Pro rata liability

Pro rata liability

The formal statement an insured provides to an insurer, including all the details an insurer needs to assess its liability following a loss, is known as a: Binder Proof of loss Certificate of insurance Notice of loss

Proof of loss

The formal statement an insured provides to an insurer, including all the details an insurer needs to assess its liability following a loss, is known as a: Notice of loss Certificate of insurance Binder Proof of loss

Proof of loss

A homeowner hires a contractor for a renovation project. Before officially hiring the contractor, the homeowner wants to see evidence of liability insurance the contractor has in place. The contractor could provide proof of coverage by: Promising the homeowner that a liability policy is currently in place Showing a certificate of insurance Showing an expired binder Having the homeowner contact the contractor's insurer

Showing a certificate of insurance

J owns a home protected by a property insurance policy. A severe windstorm creates an opening in the roof that exposes the upstairs guest suite in J's home and causes rain damage to the carpet. In order to collect claim payments from the carrier for the damaged roof and carpet, J is required to: Do nothing until the carrier can conduct an inspection Notify the homeowners association of the incident Repair the roof within 60 days of the loss and before notifying the carrier of the loss Tarp the roof to protect the the roof and the guest suite from further damage

Tarp the roof to protect the the roof and the guest suite from further damage

Before closing on a mortgage, N is required by the mortgagee to have Homeowners insurance in place. After evaluating the risk, XYZ Insurer issues a Homeowners insurance binder to N. All of the following statements about the binder are correct, except: The binder does not guarantee full policy issuance Once XYZ Insurer issues the full policy, the binder will be terminated The binder offers temporary coverage The binder must be written in order to be valid

The binder must be written in order to be valid

The Assignment condition of an insurance policy states that: No requirements may be placed upon the insured without legal action The naming of parties other than the insured on loss payment checks is prohibited The insured may not transfer ownership of the policy without the insurer's written permission The insured must give prompt notice to the insurer upon loss

The insured may not transfer ownership of the policy without the insurer's written permission

Which of the following best describes short-rate cancellation? The insured will receive less than the full amount of the unearned premium The premium is fully earned by the insurance company The insured will receive exactly half of the unearned premium The insured will receive none of the unearned premium

The insured will receive less than the full amount of the unearned premium

For any waiver of rights or policy changes to go into effect, they must be made in writing by: A named insured Any insured The insurer The first named insured

The insurer

An insured needs to submit a claim after a property loss, and their insurer requires them to submit a notice of loss. All of the following statements about the notice of loss are true, except: The notice of loss contains an inventory of damaged property The notice of loss is a written notice that a loss occurred The notice of loss contains details about the circumstances of the loss The notice of loss must be submitted promptly

The notice of loss contains an inventory of damaged property

The Other Insurance condition on a casualty insurance policy specifies: The process of settling disputes about the amount payable for a covered claim The process of terminating a policy when the insured replaces it with a new policy from a different insurer The process of paying claims when the insured has two policies apply to the same loss The process of submitting claims when the insured has two policies with the same insurer that would cover the same loss

The process of paying claims when the insured has two policies apply to the same loss

Which of the following is true of the Insuring Agreement? The promise to indemnify an insured for a covered cause of loss It provides the policy conditions It lists the policy premium amount It provides the name and address of the insured and the name of the insurer

The promise to indemnify an insured for a covered cause of loss

While driving, G is hit by a drunk motorist, resulting in physical damage to G's car. G has a Personal Auto policy with ABC Insurance Company, and the policy pays G for the damage. The motorist is also legally obligated to compensate G for the physical damage because the motorist caused the accident. Under the Subrogation condition of G's policy, G must: Choose whether to accept the claim payment from the insurer or the payment from the liable motorist Waive their right to recover from the liable motorist because the insurer already paid for the loss Transfer their right of recovery to the insurer, who will recover the amounts paid by the liable motorist Return the claim payment to the insurer because the liable motorist must pay for the loss

Transfer their right of recovery to the insurer, who will recover the amounts paid by the liable motorist

A contract that binds only one party to future performance, is a(n): Unilateral contract Aleatory contract Conditional contract Contract of adhesion

Unilateral contract

Statements that are guaranteed to be true at the time of application are known as: Waivers Material representations Statements of adhesion Warranties

Warranties