CPCU Virtual Exam Questions

DH Sports (DH) is a retail sporting goods store. The store, which is open seven days a week, has a lot of part-time employees. When Tom, the owner, began to notice some missing merchandise, he suspected shoplifting. He installed a video camera on May 1, 2020. Within a week, the video showed his evening supervisor and one of the part-time employees stealing merchandise from the store. When confronted, the supervisor admitted that they had been stealing merchandise for the last month and had also taken some cash from the register. He promised to repay Tom if he did not report it to the police. Tom fired both employees and reported the crime to the police. They confessed to the following thefts: Date of Theft Item Stolen Value of Stolen Item April 5, 2020 Merchandise $200 April 13, 2020 Merchandise $400 April 19, 2020 Merchandise $350 April 27, 2020 Cash $600 May 3, 2020 Merchandise $450 The Declarations page of DH's Commercial Crime Coverage Form shows Employee Theft coverage with a $10,000 limit of insurance per occurrence and $500 deductible per occurrence. How much, if any, will DH's crime insurer pay for the above loss?

A. $0 B. $100 C. $1,050 D. $1,500

Bud's School Supply Store is located on the bottom floor of an office building. Bud leases the 10,000 square foot space from the building owner. Bud makes half of his annual sales and profits in August and September, and he has a Businessowners Coverage Form (BCF) with limits of $100,000 on Business Personal Property. On August 1st, a fire broke out in Bud's storage room. Bud had just acquired $114,000 worth of merchandise in anticipation of his busy season, all of which was damaged by the fire. An audit of the books showed that the average level of business personal property over the prior twelve months was $102,000. Ignoring any deductible, how much should Bud expect to recover under his BCF for his business personal property claim?

A. $0 B. $100,000 C. $102,000 D. $114,000

A local commercial bank purchased a Commercial Crime Coverage Form with Inside the Premises—Theft of Money and Securities Coverage. There is a limit of $250,000 and a deductible of $10,000. A burglar entered the bank while it was closed, broke into the safe, and stole $224,000. It cost $30,000 to repair the damage to the safe. The bank submitted a claim for $254,000. How much is the insurance company obligated to pay the bank?

A. $25,000 B. $219,000 C. $244,000 D. $250,000

Harriet recently insured her office building, which currently has an actual cash value (ACV) of $500,000. Harriet has coverage under a Building and Personal Property Coverage Form (BPP) subject to an 80 percent coinsurance clause and a $1,000 deductible. What dollar amount would Harriet's insurer pay for a fire loss of $10,000 if she has insured the building for $300,000?

A. $5,000 B. $6,500 C. $7,500 D. $9,000

Red Inc. has an ISO Equipment Breakdown Protection Coverage Form which covers its business income and extra expense losses that result from breakdowns of covered equipment. A boiler explosion caused Red to be shut down for 18 days, during which it suffered $92,000 in business income losses. Red's business income coverage carries a multiple of daily value deductible equal to 5 times the insured's daily value. How much will Red recover from its insurer, considering its deductible?

A. $65,222 B. $66,445 C. $73,600 D. $76,667

Ann's Cards and Gift Shop was insured for $30,000 under a Business Income (and Extra Expense) Coverage Form with a 70 percent coinsurance clause. Ann estimated her net income and all operating expenses to be $50,000 for the coming year. A fire at the shop caused damage that took one month to repair. During that month, Ann lost $2,000 in net income and continuing expenses and incurred $800 to rent space for temporary operations. How much did Ann's insurer pay for the loss under her Business Income (and Extra Expense) Coverage Form?

A. $800 B. $1,400 C. $2,400 D. $2,800

Which one of the following situations would be excluded under the general exclusions applicable to the insuring agreements in the Commercial Crime Coverage Form?

A. A cashier accepts a counterfeit bill. B. An employee discloses company secrets to a competitor. C. An employee steals securities from his employer while outside the regular policy territory for two weeks. D. A recently fired employee uses a computer to fraudulently transfer money.

Filed classes of inland marine insurance are classes for which the policy forms and/or rates must be filed with the state insurance department and are typically characterized by Select one:

A. A large number of potential insureds and relatively diverse loss exposures. B. A large number of potential insureds and relatively homogeneous loss exposures. C. A small number of potential insureds and relatively diverse loss exposures. D. A small number of potential insureds and relatively homogeneous loss exposures.

Which one of the following approaches to business income coverage should be taken by an insured that wants to make sure that it will be able to keep key employees on the payroll until operations resume?

A. An unmodified business income form B. A business income form with the Payroll Exclusion endorsement C. A business income form with the Discretionary Payroll Expense endorsement D. A business income form with the Payroll Limitation endorsement

Under which one of the following approaches to assessing condominium ownership would the floor coverings, electrical fixtures, cabinets, and appliances be considered to be owned by the individual unit owner?

A. Bare-walls concept B. All-in concept C. Single-entity concept D. Original specifications concept

When a commercial property is covered by a Building and Personal Property Coverage Form (BPP) endorsed to include ISO's Flood Coverage Endorsement, a single occurrence may produce losses under both the BPP and the flood endorsement. For example, a flood could trigger a fire, both of which are covered and both of which are subject to a deductible. Which one of the following statements about the application of the two separate flood and fire deductibles is true?

A. Both deductibles will apply. B. Only the lower deductible will apply. C. Only the higher deductible will apply. D. The deductibles will be prorated and applied separately

Which one of the following business income loss exposures has greatly increased as organizations adopt outsourcing and just-in-time inventory systems?

A. Bottleneck exposure B. Dependent property exposure C. Seasonal property exposure D. Interruption of utility services exposure

Which one of the following conditions found only in the Extra Expense Coverage Form represents a significant difference in extra expense coverage between the Business Income (and Extra Expense) Coverage Form and the separate Extra Expense Coverage Form?

A. Cancellation B. Inspections and Surveys C. Examination of Books and Records D. Limits on Loss Payment

Ernest, a butcher, owns Spring Hill Farm and operates a meat and poultry delivery business. Spring Hill Farm owns and operates five trucks used to deliver the meat and poultry products to local restaurants. The employed truck drivers are required to back up to a platform in the pick-up area of the butcher shop each morning to load the trucks. The trucks are loaded with up to $2,000 worth of meat and poultry. Ernest is concerned about damage to the building if one of the drivers is inattentive or careless when backing the trucks for loading. Which one of the following causes of loss forms best addresses Ernest's concerns about vehicle damage to the building?

A. Causes of Loss—Broad Form B. Causes of Loss—General Form C. Causes of Loss—Special Form D. Causes of Loss—Basic Form

There are many similarities between the property coverage found in the Building and Personal Property Coverage Form (BPP) and the Businessowners Coverage Form (BCF). The BCF uses the same coverage approach as the

A. Causes of Loss—Extended Form. B. Causes of Loss—Broad Form. C. Causes of Loss—Special Form. D. Causes of Loss—Basic Form.

Although burglary losses of customers' property in safe deposit boxes are excluded from coverage under the Surety & Fidelity Association of America's Financial Institution Bond, Standard Form 24, coverage for those losses can be obtained by purchasing a separate

A. Combination Safe Depository Policy. B. Market Segments Endorsement. C. Computer Crime Form. D. Crime Insurance Policy.

All of the following are differences between using layered property insurance and standard property insurance policies, EXCEPT:

A. Coverage for perils such as flood and earthquake can more easily be made a part of a layered property coverage program than a standard policy. B. When layered property insurance is used, the insured must deal with several different insurers while standard property insurance must be written by a single insurer. C. Layered property insurance applies only to buildings while standard property insurance applies to buildings and contents. D. Deductibles are usually higher for layered property coverage than those used in most standard property policies.

Which one of the following businesses would most likely be eligible for coverage under an ISO Businessowners Policy?

A. Dry Cleaners - 20,000 square feet, gross sales of $2 million B. Henri's Gourmet Restaurant - gross sales of $3 million, 40,000 square feet C. Convenience Store - gasoline sales 60 percent of gross sales, 25,000 square feet D. Antique Auto Dealers - gross sales of $2 million

The Functional Building Valuation endorsement to the Building and Personal Property Coverage Form (BPP)

A. Eliminates the need to establish an amount of insurance for any particular structure covered under the BPP. B. Requires the policyholder to also purchase the Ordinance or Law Coverage endorsement. C. Applies only to total losses. D. Omits the BPP Coinsurance condition.

Which one of the following statements concerning the ISO Farm Personal Property Coverage Form is most accurate?

A. Farm machinery and equipment and livestock can be insured under the Farm Personal Property Coverage Form or under inland marine forms. B. Coverage F—Unscheduled Farm Personal Property includes a 100 percent coinsurance condition that can be reduced to 90 percent if the insured chooses to add the Value Reporting Form. C. The coverage territory in Coverage E—Scheduled Farm Personal Property is unlimited, so there is worldwide coverage for each of the items listed in the schedule. D. Coverage is available for many forms of livestock, but cattle, sheep and swine are excluded and must be insured under separate inland marine insurance policies.

Building design and construction, along with close consideration of the conditions of the soil on which the structure rests are key to reducing the effects of property losses caused by

A. Flood. B. Earthquake. C. Explosion. D. Windstorm.

Which one of the following statements best describes the Liberalization condition in the Commercial Property Conditions Form?

A. If the insurer modifies its coverage form, an outstanding policy will not be affected by any of the coverage modifications until the policy is renewed after the end of the current policy period. B. If the insurer modifies its coverage form, any broadening of coverage will automatically apply to outstanding policies only if the insured pays an additional premium. C. If the insurer modifies its coverage form, the insured will automatically receive any broadening of coverage as long as there is no additional premium for the broader coverage. D. If the insurer modifies its coverage form, all coverage modifications will automatically apply to outstanding policies regardless of whether they broaden or restrict coverage.

Which one of the following common policy conditions is superseded by state law and an endorsement added to the commercial property policy in almost every state?

A. Inspections and Surveys B. Changes C. Cancellation D. Transfer of Rights and Duties Under This Policy

Lee's has fidelity coverage under a Financial Institution Bond, Form 24, with a $250,000 limit of insurance. Although the fidelity limit of insurance has remained the same, Lee's has changed insurance carriers a few times over the last several years. In 2015 and 2016, coverage was provided by X Insurance Company. In 2017, coverage was provided by Y Insurance Company. In 2018, coverage was provided by Z Insurance Company. In December 2018, Lee's discovered that one of its employees had been embezzling $25,000 every month for the last four years. Which one of the following statements about coverage under Lee's financial institution bond is most accurate?

A. Insurance Company X will pay $500,000 for two years of embezzlement losses and Insurance Company Y and Insurance Company Z will each pay $250,000. B. Each of the insurers will pay up to $250,000 for those losses that occurred while their bonds were in force, as long as they are discovered within five years of the policy's expiration. C. The total loss would be prorated among the insurers in proportion to the insurance limits that they provided during the four year period of the embezzlement. D. Insurance Company Z will pay $250,000 but there is no coverage under the bonds issued by Insurance Company X or Insurance Company Y.

If a condominium unit owner has coverage applying to the same property covered by the condominium association's policy, the unit owner's insurance

A. Is the primary coverage. B. Shares the loss equally. C. Shares the loss on a pro rata basis. D. Is excess coverage.

Which one of the following statements is true regarding a Business Income (Without Extra Expense) Coverage Form?

A. It covers extra expenses only to the extent they reduce the loss. B. It covers any costs incurred to acquire a temporary location. C. It does not include an additional coverage for Extended Business Income. D. It provides coverage for any extra expenses incurred by the insured to minimize the suspension of operations.

Which one of the following statements is true regarding covered property under an unendorsed Insurance Services Office (ISO) Builders Risk Coverage Form?

A. Lawns, trees, and shrubs are covered up to the policy limit. B. Building materials and supplies in transit to the work site are covered. C. Increased cost of construction due to ordinance or law is covered as an additional coverage. D. Temporary structures such as scaffolding are covered, if not covered elsewhere.

John was staying at the Harbor Inn and left a display case containing some expensive items of jewelry in his room. When John returned from dinner, he found the door to his room was open and the jewelry was missing from its case. Which one of the following additional insuring agreement options to ISO's Commercial Crime Coverage Form would best protect the Harbor Inn from its common law liability for John's loss?

A. Lessees of Safe Deposit Boxes endorsement B. Inside the Premises—Theft of Other Property C. Guests' Property endorsement D. Securities Deposited With Others endorsement

Jancy Inc. insures its building and business personal property under the Building and Personal Property Coverage Form (BPP) with the Causes of Loss—Basic Form. Jancy experiences a number of losses during the policy period. Which one of the following losses would be covered by the Basic Form?

A. Lightning damages an overhead power line down the street from Jancy's premises, leaving it without power. Jancy is forced to close for the afternoon. B. A fire causes partial damage to the building. A building ordinance requires that the total building be demolished, turning the partial loss into a total loss. C. Vandals deface the side of the building and break several windows while the business is closed for the weekend. D. A tree falls on the building causing a portion of the outside wall to collapse and damaging equipment inside the premises.

Which one of the following risk management techniques is being used by a retail store chain that decides to close one location due to the frequency of vandalism losses to that property?

A. Loss reduction B. Separation C. Avoidance D. Transfer

Which one of the following describes theft that would be covered under the Inside the Premises—Robbery or Safe Burglary of Other Property insuring agreement of the ISO Commercial Crime Coverage Form?

A. Merchandise is stolen from an employee's unattended car away from the insured premises. B. A salesperson witnesses a shopper stealing merchandise from a retail store. C. An employee who claims to be owed back wages takes merchandise from the insured employer as payment. D. Money disappears from an open safe.

QUA Distributing (QUA) is a distributor of paper goods located in California. QUA has always used its own trucks to distribute paper goods within the state of California. It is now expanding its territory to other states on the West Coast of the United States. QUA will use contract carriers to distribute its paper goods to customers in other states. Which one of the following inland/ocean marine policies should QUA purchase to cover its goods being delivered by the contract carriers?

A. Motor truck cargo insurance B. Open cargo insurance C. Trip transit insurance D. Annual transit insurance.

Which one of the following types of equipment breakdown deductible is most frequently used with spoilage damage coverage?

A. Multiple of daily value deductible B. Dollar deductible C. Time deductible D. Percentage of loss deductible

Argot Mortgage Company (Argot) owns and occupies a two story office building. Argot insures the building and business personal property under a Building and Personal Property Coverage Form (BPP). A windstorm caused damage to the roof of the building which lead to leaks and water damage. Argot placed a temporary tarp over the roof and moved some of the furniture and files to a neighboring building owned by a friend. Two weeks later, there was a fire in the neighboring building and Argot's business personal property was destroyed. Which one of the following additional coverages in the BPP would provide coverage for Argot's business personal property while it is being stored at the neighboring building?

A. Non-Owned Detached Trailers B. Preservation of Property C. Personal Effects and Property of Others D. Debris Removal

The Insurance Services Office (ISO) Commercial Crime Coverage Form that covers losses that occur during the policy period and are discovered no later than one year after the policy period ends is the

A. Occurrence form. B. Loss sustained form. C. Claims-made form. D. Prior insurance form.

Joe hired Azul Pools to install a swimming pool in his backyard. Azul subcontracted the excavation work to Deep Diggers and then installed the pool as requested. Joe was very pleased with the quality of the work and the fact that Azul completed it on time. He wrote the final check to Azul and then began enjoying his pool. However, two weeks later, he discovered that a mechanic's lien had been filed against his property by Deep Diggers for nonpayment for the excavation services. When Joe tried to contact Azul, he found that the phone had been disconnected and that the owner had left town. Joe could have avoided this situation by requiring that before beginning construction, Azul furnish him with a

A. Permit and license bond. B. Payment bond. C. Bid bond. D. Subdivision bond.

When underwriters are examining the "exposure" factor of COPE, which one of the following specific factors that affect commercial property premiums would they be considering?

A. Public fire protection available B. Activity conducted inside the building C. Contents of the building D. Hazard posed by surrounding properties

S&J Construction (S&J) is building a new office building. The building is insured under the ISO Builders Risk Coverage Form with the Causes of Loss—Special Form. Which one of the following losses would be covered under S&J's Builders Risk policy?

A. Scaffolding set up next to the building was destroyed by a windstorm in the middle of the night. B. Plumbing materials were destroyed when the supplier was involved in an accident on the way to the work site. C. Lighting fixtures waiting to be installed were stolen from the site in the middle of the night. D. Shrubs and plants that had been planted were destroyed by a truck delivering furniture to the site.

Office Enterprise leases several office buildings to various tenants but does not occupy any portion of these buildings itself. Office Enterprise does own and occupy its own building as an office. Office Enterprise has a Building and Personal Property Coverage Form (BPP) to cover its exposures at all its locations. It covers only the buildings of the rental properties but covers the building and personal property at its office. Which one of the following would be included under Office Enterprise's building coverage at the rental locations?

A. Tenants' personal property B. Office equipment C. Office Enterprise's on-site photocopier D. Portable fire extinguishers

The Commercial General Liability (CGL) Coverage Form and Legal Liability Coverage Form both provide aspects of liability coverage. Which one of the following is a major advantage of the Legal Liability Coverage Form over the CGL?

A. The Legal Liability Coverage Form provides more covered causes of loss for property of others in the insured's care for no more than three days. B. A broader range of perils can be insured by the Legal Liability Coverage Form if property is rented to the insured for longer than seven consecutive days. C. The CGL only provides coverage for the peril of fire to property temporarily in the insured's care. D. The Legal Liability Coverage Form has a standard deductible of $500, while the CGL has a standard deductible of $5,000.

G-Mack Inc., is considering its alternatives for adding flood insurance coverage to its existing property insurance, and it is trying to decide between purchasing a National Flood Insurance Program (NFIP) General Property Form or adding an ISO Flood Coverage Endorsement to its existing commercial property insurance package. When evaluating the differences between the two alternatives, it is important for G-Mack to remember that

A. The NFIP insurance policy includes a deductible, but the ISO endorsement does not, which makes it less expensive. B. The NFIP insurance includes business income and extra expense coverage at no extra cost, while the ISO endorsement does not. C. The ISO endorsement can provide coverage for a greater variety of property than the NFIP policy. D. The ISO flood endorsement is written on an actual cash value basis, while the NFIP is written on a replacement cost basis.

Gulford Manufacturing (Gulford) uses a common carrier trucker to transport its shipments to customers. In which one of the following loss situations would Gulford have the right to recover against the trucker?

A. The common carrier truck was involved in a crash with another vehicle, resulting in damage to Gulford's goods. B. The common carrier truck was caught in a tornado, and both the truck and Gulford's goods were destroyed. C. Gulford's goods were confiscated by public authorities because the common carrier's truck contained other suspicious goods. D. Some of Gulford's goods were damaged in transit because they were not properly packaged when they left the manufacturing plant.

Which one of the following statements about the open cargo marine insurance policy is most accurate?

A. The open cargo policy is a weather-related insurance policy that covers the transportation exposure for agricultural products such as timber, wheat and corn that are typically shipped in open containers. B. The open cargo policy applies to specific items of cargo listed in a schedule that are shipped by carrier within the boundaries of the continental United States. C. The open cargo policy is designed to provide inland marine coverage for radio towers, tunnels, piers and satellite antennas that are installed in open areas. D. The open cargo policy is an ocean marine insurance contract that automatically covers all shipments for which the insured is at risk.

Which one of the following statements about determining the estimated maximum business income loss is true?

A. The responsibility for determining the appropriate coinsurance basis rests primarily with the insurance underwriter. B. As a rule, firms with highly seasonal business operations should use smaller coinsurance percentages when determining the estimated maximum loss of business income. C. The estimated maximum loss of business income is determined by examining the assets and liabilities reported in a business's balance sheet. D. The coinsurance basis can be used as the starting point for determining the estimated maximum loss of business income.

The most that the insurer will pay for a property loss subject to the Value Reporting Form is

A. The value last reported. B. 75% of the value at the time of the loss. C. The limit of insurance. D. The average of the values reported during the policy period.

Considering the fact that the Standard Property Policy (SPP) is used to insure distressed property risks, the policy contains more restrictions than the Building and Personal Property Coverage Form (BPP). Which one of the following is most likely unavailable in the SPP?

A. Windstorm coverage B. Fire damage coverage C. Replacement cost coverage D. Vandalism coverage

Some types of surety bonds are required by law. For example, the Miller Act is a federal statute that requires

B. That contractors for federal projects supply a performance bond for the protection of the government and a payment bond for the protection of suppliers of labor and materials on the project.