Property and Casualty Insurance

Midwest Electrical Supplies sustains a $60,000 loss to its building caused by windstorm and hail. The building has a replacement value of $1,000,000 and is insured for $600,000. The policy contains an 80 percent coinsurance clause and a $1,000 deductible. Applying the coinsurance formula, how much will the insurer pay Midwest Electrical?

$44,000

Mateo has two insurance policies that cover his building. Each policy provides primary coverage of $150,000 on a pro rata basis. Mateo's building suffers a loss of $100,000 and he files a claim for that amount under one of his policies. How much of his claim will the insurer pay?

$50,000

Donaldson Insurance Company wrote premiums of $100 million last year and incurred expenses of $40 million in that same time period. What is this insurer's expense ratio?

40%

Donaldson Insurance Company had earned premiums of $100 million last year and incurred losses of $75 million in that same time period. What is this insurer's loss ratio?

75%

One of Vincent's business associates has requested a document that shows evidence Vincent has a certain type of insurance coverage in place. The document must show the name of Vincent's insurance company, the type of coverage that is in place, and the limits of liability. What type of document does Vincent need?

A certificate of insurance

What is the difference between a mortgage clause and a loss payable clause in a property insurance policy covering real property?

A loss payable clause usually is not as broad as the mortgage clause and does not give the loss payee any rights other than a right to share in a claim settlement.

How does an insurance rate differ from an insurance premium?

A rate is the price of insurance for each unit of exposure. A premium is a periodic payment for insurance coverage.

Hank noticed his property insurance policy excluded water damage and was concerned because his property is located in a coastal area that has flooded in the past. After researching the issue, he learned that

A water exclusion also serves as a flood exclusion

Ted is shopping for a new auto insurance policy and calls Sara, an independent agent, for advice on what type of policy to buy. Until the underwriter can review Ted's application, Sara issues a written binder to initiate coverage before the policy is issued. Which statement is correct about this written binder in relation to an oral binder?

A written binder is preferable because it reduces the likelihood of a dispute over terms.

ack, an underwriter with Market Place Insurance Company, reviews many sources of information to decide whether to accept or reject a risk. Which of the following sou

Academic Records

When Mr. and Mrs. Unger lived in New Hampshire, they didn't buy earthquake insurance because they believed they were unlikely to suffer an earthquake loss. When they moved to California, however, they bought earthquake coverage immediately because of their high exposure to earthquakes in that state. What underwriting principal do their actions characterize?

Adverse Selection

All of the following might cause an insurer to revise a standard policy form at the time of renewal EXCEPT:

Adverse economic conditions

What is the term for the maximum amount an insurer will pay for all applicable claims during the policy period?

Aggregate limit

Robin has a valuable porcelain collection she wants to insure. It's difficult to assess the collection's value because some items were purchased through dealers and at auctions and their costs reflect actual value. Other items were purchased online, at flea markets, or at garage sales at significantly reduced prices, but have values greater than their costs. Robin and her insurer have worked out a schedule listing the value of each insured item. What valuation method have they used?

Agreed value

The standard mortgage clause in a property insurance policy covering real property gives certain rights to a mortgagee named in the declarations. Which of the following is not one of these rights?

Any exclusion that applies to the insured will not apply to the mortgagee.

Steve and his insurance company are unable to agree about the amount of damage his car sustained in a collision. What process may either party choose to determine the value of the loss?

Appraisal

Michael wants to transfer his rights in his property insurance policy to another person. Under what provision in his policy will Michael find language that discusses his options?

Assignment provision

Lynn attended a backyard barbeque on the 4th of July. Her host distributed sparklers to guests and Lynn knew they were dangerous. After Lynn's sparkler was lit, some burning ashes landed on her nose and caused permanent scarring. If Lynn sues the host for negligence, which defense might the host raise for the best result in the host's favor?

Assumption of risk

Ed's home is located on several acres of land. Ed used to farm a portion of the land and keeps an old tiller machine on the property. Children from a nearby neighborhood often play on the tiller, even though Ed erected a fence around the property and posted warning signs to prevent trespassing. One day a child is seriously injured while playing on the tiller. On what grounds, if any, may the child's parents sue Ed for the injuries?

Attractive nuisance

Maria called a plumber to clear a drain. The plumber became frustrated when he was unable to unclog the drain and started banging on the pipe under the sink. The pipe broke and caused considerable water damage to Maria's kitchen floor. What element of negligence did the plumber's actions constitute?

Breach of duty of care

Tricia hosts a lawn party. She knows property owners are obligated to protect people on their property from harm and that different degrees of care are required depending upon the circumstances. To whom does Tricia owe the greatest duty to exercise care?

Candy, who is delivering floral centerpieces ordered by Tricia

ABC Insurance Company is able to predict its loss costs based upon data collected about prior losses and because its business expenses have been fairly predictable. ABC should therefore be able to estimate accurately the amount of money it will need to pay claims. What could significantly impact that estimated amount?

Catastrophic events

Jack's property insurance policy protects his property against loss by several perils. These perils may also be referred to as

Causes of loss

Adam's truck was rear-ended in an accident and the new stove he was transporting was totally destroyed. Adam files a claim for the cost of the stove, but his insurer elects to replace the stove and may do so because Adam's insurance policy contains what type of provision?

Claim settlement option

How does class rating differ from individual rating?

Class rates are used when insureds have similar characteristics and are charged the same rates.

Samantha causes an auto accident. An injured party makes a claim against her for $30,000. She discovers that she has two concurrent policies that provide coverage. The limit of liability for the Company A's policy is $50,000 while the limit of liability for Company B's policy is $100,000. How will the companies pay the claim?

Company A pays $10,000 and Company B pays $20,000.

Rob submitted a $1,000 claim against Steve's auto insurance policy, alleging Steve was negligent and caused the accident. When Steve's insurer paid Rob's claim, it only paid $800 because it had determined that Rob was 20 percent responsible for the accident. What defense against negligence did the insurer use?

Comparative negligence

Jane understands that her policy contains certain 'rules' that apply to her relationship with the insurance company. When she asks you what section of the policy she needs to read to review these rules, what policy section do you refer her to?

Conditions

Chandler was in a hurry to walk across the street and did not wait for the traffic signals to give him the right of way in the crosswalk. Eric was driving down the street at an excessive speed and was unable to avoid striking Chandler. What defense might Eric raise in a negligence suit for the best result in his favor?

Contributory negligence

Tom is late for an appointment, parks his car, and runs between two parked cars to cross a busy street. He is struck by a car driven by Ned and breaks an arm. What defense may be available to Ned?

Contributory negligence

Which of the following is a class of legal wrong?

Crime Breach of Contract Tort

John and Mary's home is infested with mice. The mice leave droppings throughout the home and attic. John and Mary hire an exterminator and a cleaning service, and then submit a bill of $800 to their insurance company. What exclusion might eliminate coverage?

Damage by birds, vermin, rodents, etc.

Nancy's property insurance policy will only make payment for a claim after she pays for a specified portion of the covered claim. What term is used to refer to the portion of the claim for which Nancy pays?

Deductibel

Ari is sued and tells his insurer the lawsuit is without merit. Even if Ari is telling the truth, the insurer still owes him a duty to

Defend

Patricia was involved in a car accident and is accused of being negligent. She alleges the other party contributed equally to the accident. What is Patricia's allegation called?

Defense against negligence

The Health Insurance Portability and Accountability Act (HIPAA) affects property and casualty insurers because medical information may be used in each of the following situations EXCEPT:

Deny strict liability claims

Patrick has a commercial property insurance policy that does not cover damage caused by an earthquake. He is interested in obtaining earthquake coverage. He read that it is possible to obtain a separate policy insuring against this specific peril and it was referred to as a(n)

Difference-in-conditions policy

In a liability policy, the insurer typically has two essential duties with regard to protecting the insured. They are the

Duty to pay damages and defend the insured

Edie crashes her car and submits a claim to the insurance company. When the insurance company learns that the car is owned by, and titled to, Edie's boyfriend, it denies her claim. For what specific reason is the claim denied?

Edie doesn't have insurable interest in the car

Which of the following is not a typical provision in a property or casualty insurance policy?

Endorsement

An insurance policy may contain insurance coverages in addition to those contained in the insuring agreement. All of the following terms are used to refer to these secondary coverages EXCEPT:

Exclusion

Ethel's insurance policy contains a provision that states coverage is not provided if loss is caused by any of a list of specified perils. Under what section of the policy is this provision contained?

Exclusions

Wanda is governed by the Health Insurance Portability and Accountability Act (HIPAA), which requires her to protect the privacy of the health information she's given by her clients and individuals applying for insurance. Which of the following types of property and casualty insurance is not subject to HIPAA?

Fire Insurance

Lucy tells you she is the only person authorized to cancel her insurance policy or make changes. Her spouse and other members of her household, who are also insured under the policy, do not have this authority. Lucy is the policy's

First named insured

Which legislation prevents a financial institution from disclosing a consumer's nonpublic personal information to an unaffiliated third party unless it provides notice to the consumer and allows the consumer an opportunity to stop this disclosure?

Gramm Leach Bliley Act

Because Irene owns a dog, her insurance agent tells her that she's more likely to submit a liability claim than someone who doesn't own a dog is. What insurance term BEST defines the condition of Irene's dog ownership?

Hazard

Sara's insurance application was declined because of information provided in a consumer report. She is entitled to receive all the following information about the coverage denial EXCEPT:

Identification of the investigator who collected the information

Malcolm Enterprises sustains a serious fire loss to its factory. Operations are suspended for several weeks while repairs are made. During this time, Malcolm Enterprises cannot produce the goods they sell and lose considerable income. How would you describe the loss of income?

Indirect Loss

While driving in heavy traffic, Sue crashes into the rear of Fred's car. The drivers get out of their cars to exchange information, and Fred tells Sue that she is guilty of negligence. Which of the following is NOT an element of negligence?

Intent

Which of the following statements BEST describes the earthquake coverage on property insurance policies?

It is excluded

What is the purpose of the assignment provision in standard insurance policies?

It prevents the assignment of the policy to another without the insurer's written consent

When the city fire department inspects his house after a fire, the inspector tells Fernando city ordinances require him to update the electrical system when he repairs the damage. How will Fernando's homeowners policy respond to the costs for updating the electrical system?

It provides limited coverage to update

Jack and Mel are involved in an intersection auto accident in which Jack is injured and incurs medical expenses. Jack sues Mel, and the trail court determines that Jack is 30 percent at fault and Mel is 70 percent at fault. If the state apportions liability under a comparative negligence law, what will happen?

Jack will recover 70 percent of his damages

Ted installed a window air conditioner in an upstairs bedroom in his home several years ago. Over the years, drops of condensation falling from the air conditioner stained the siding below it. Ted files a claim on his homeowner's policy to sand and re-paint the siding. What exclusion might apply to eliminate coverage for this loss?

Leakage or seepage exclusion

A rating system should be designed to provide a fair match between what two levels?

Level of premium and level of the exposure to loss

Town Square Insurance Company renews its homeowners policies with an increased limit for Medical Payments to Others coverage, without charging an additional premium. What clause might provide coverage for the increased limit to an insured whose policy has not yet renewed with the increased limit?

Liberalization clause

Landry Office Supply provides your insured with financing to purchase a telephone system. It asks to be listed on your insured's business property policy for its financial interest in the telephone system. Under what policy provision will you list Landry Office Supply's financial interest?

Loss Payable clause

Which of the following is a component of an insurance rate?

Loss costs Expenses Profit margin

Which of the following is not an element of negligence?

Malice

States obtained the principal right to regulate the business of insurance through the

McCarran Ferguson Act

Erica's dire financial condition compels her to consider filing for bankruptcy. What type of hazard does her financial condition represent?

Moral Hazard

John faces bankruptcy and foreclosure of his home. When he abandons his home to avoid the attempts of his mortgage company to collect payment of his mortgage, what type of hazard does John pose to his homeowners insurance company?

Morale

Maurice, the owner of a shoe store, does not take seriously the responsibility to maintain the burglar alarm system in the store because he has insurance. He assumes that insurance will cover any loss due to burglary at the store. Maurice's attitude is an example of a

Morale hazad

Zach's name appears on the Declarations page of his homeowners insurance policy, although the names of his resident wife and children do not. Which of the following terms BEST describes the policy definition that applies to Zach and his wife?

Named Insured

Separate flood insurance policies are available from the federal government under the

National Flood Insurance Program

Nimiroski Motors failed to use a reasonable degree of care in protecting the vehicles parked in its lot overnight. It failed to lock the gate to the fence and turn on the outdoor lights in the lot. As a result, Oscar's car was vandalized. He most likely claimed Nimiroski Motors was guilty of

Negligence

Jack takes his computer to Atlas Computer Repair to have it repaired. The computer is damaged while at the repair shop. Atlas tells Jack that his homeowners coverage will cover Atlas since Atlas is a third party beneficiary of the policy. What provision in Jack's homeowners policy will eliminate coverage in this situation?

No benefit to bailee clause

Ryan owns a summer home on the lake and lives there in June, July, and August. The home is fully furnished and he keeps his summer clothing and sporting goods there. When Ryan arrived in June this year, he found the home had been vandalized and some of his belongings had been stolen. Will his property insurance policy fully cover his loss?

No, because his policy reduces coverage if the building is vacant or unoccupied for at least 60 days

Jeremy leaves his watch at a watch repair shop to have the battery replaced. When he picks it up, he learns it was accidently damaged beyond repair. The owner of the shop suggests Jeremy file a claim with his own insurance company. Is Jeremy's insurer likely to pay this claim?

No,because the policy has a no Benefit to Bailee provision

Sara sustains a water damage loss to her home due to torrential rains that flooded her neighborhood. She reports the loss to her agent and says that according to the insuring agreement of her policy, she is insured against risks of direct loss to her property. Is she covered for this damage to her property?

No. This kind of loss is typically excluded

Jack and Margaret, a married couple, own their home and are insured with a homeowner's policy. Since only Margaret is named in the policy Declarations, Jack is concerned that if he has a claim it will not be covered. What should he do?

Nothing. The named insured's spouse is also considered a named insured in a homeowners policy.

Chad's home suffered severe water damage while he was negotiating its sale. The real estate sales contract had only been signed by Chad at the time the damage occurred. Who will be able to collect insurance to repair this damaged property?

Only Chad, the current owner of the property

Sean posts a notice on the bulletin board at his apartment complex to advertise the sale of his car. He notes that he will transfer the remaining eight months of his auto insurance policy to the new owner. How may Sean assign his auto insurance policy?

Only with the written consent of the insurer

Larry submitted a claim under his homeowners insurance policy. The insurance company has the burden of proof to show that the loss is excluded; otherwise, it must pay Larry's claim. What causes of loss are contained on Larry's policy?

Open Perils

To identify what perils they cover, property insurance policies use either the named perils approach or the

Open perils approach

The air conditioning unit in Myrna's condo malfunctioned. Water seeped under her parquet flooring and caused major damage, which was covered by her insurance. The contractor discovered Myrna's electrical wiring did not meet current building codes and would also have to be replaced. This additional cost was not covered because her policy contained what type of exclusion?

Ordinance or law

Master Care Plumbing Supplies has a standard property insurance policy and operates out of a 100-year-old building. After the building is almost destroyed by an explosion, the insured is told that he must rebuild with new electrical wiring, masonry construction, and fire walls to comply with current building codes. Although the direct damage caused by the explosion is covered, what exclusion might apply to rule out coverage for the reconstruction costs to get the building up to code?

Ordinance or law exclusion

Ned stores several tanks of gasoline in his basement next to the furnace. This presents an example of a

Physical Hazard

A property insurance policy states where coverage applies in what policy provision?

Policy Territory

Bob's careless driving causes an auto accident that results in a serious, traumatic injury to a passenger. The next morning, Dick is reading a newspaper account of the gruesome accident. He suffers a heart attack. He then sues Bob, claiming that Bob caused an accident that led to his heart attack. What are his chances of recovering from Bob?

Por Dick's heart attack was too remote to be considered a result of Bob's negligence

Which of the following is not a component of an insurance rate?

Premium

Trumbull Motors' liability policy paid first when its employee was test driving and caused an accident. Which of the following terms BEST describes what type of coverage Trumbull Motors' policy provides?

Primary

An insurance policy that pays before any other applicable coverage pays is considered

Primary Coverage

The Union Theater had two property policies in place the day it was destroyed in a fire. How did coverage apply under the policies if each made claim payment in proportion to the limits of liability contained in the policies?

Pro rata

The Gramm-Leach-Bliley Act, the Federal Trade Commission Act, and the Health Insurance Portability and Accountability Act were enacted to

Protect the privacy of consumer information

Exclusions limit the broad coverage granted in property and liability insuring agreements. Which of the following is not a purpose of exclusions in insurance policies?

Providing coverage for uninsurable risk

For a loss to be covered under a property insurance policy, a covered peril must be a(n)

Proximate cause of the loss

Which of the following is not a class of legal wrong?

Punitive Damages

Washington Insurance Company has established the cost of a liability insurance policy at $8.00 per $1,000 of coverage purchased. Which of the following terms BEST describes that cost?

Rate

What type of property are buildings, land, and structures attached to land?

Real Property

All of the following may have an insurable interest in certain property EXCEPT:

Real estate agent who sold the property

Exclusions help to keep premiums reasonable and affordable. Which of the following is not a purpose of exclusions?

Reducing coverage sufficiently to earn profit

Mrs. Grant's home suffered a fire. The contractor tells Mrs. Grant it will cost $10,000 to repair the damage and restore her home so it's exactly the same as it was before the fire. What valuation basis did the contractor explain to Mrs. Grant?

Replacement value

Sue buys a standard homeowner's policy, but has some unique needs that may not be included within the scope of typical homeowner's coverage. What options, if any, does she have to adapt the coverage to her specific needs?

She should consider buying an endorsement

Donna is injured in Haley's Hardware store when she slips on a floor that was just mopped by a store employee. Her damages consist of emergency room charges, doctor bills for a cast on her broken arm, X-rays, and lost earnings from her job when she couldn't work for two weeks. What kind of damages did she suffer?

Special Damages

What are the two types of compensatory damages?

Special and General

Most insurance regulation is conducted by the

State governments

A state ordinance prohibits trucks carrying hazardous materials from using Highway 84 and appropriate notices are posted. Jonas carefully drives his truck on Highway 84. Although his truck is loaded with dynamite, he drives carefully and does everything he can to avoid an accident or injury from his cargo. If damage or injury nevertheless results from Jonas' actions, under what doctrine of liability could he be held liable?

Strict Liability

Exclusions in an insuring agreement can apply to all of the following EXCEPT:

Strict Liability

Ned's interest in wildlife preservation has led to his nursing a wolf back to health after the animal was injured in a bear trap. Ned keeps the wolf in his home. Although Ned is very careful to keep the wolf in the basement, the animal breaks a window screen, leaves the house, and attacks a neighbor. On what grounds may the neighbor successfully sue Ned?

Strict Liability

Which of the following types of liability holds an insured legally responsible if another party is injured or damaged because its operations, or other conditions pertaining to the insured, are considered inherently dangerous?

Strict Liability

Ralph was in an auto accident several years ago and the case is now going to trail. His insurer, who is defending Ralph, asks him to be ready to testify at the trial. Ralph is concerned because his employer will not pay his wages while he is away from work at court. What provision in Ralph's auto policy might help him?

Supplementary Payments

Matt is planning a vacation in Greece. He wonders if his casualty insurance policy will cover a loss in Greece. Which provision within the policy should he check to answer this question?

Territory provision

Which of the following federal regulations requires a violent act--or an act that is dangerous to human life, property, or infrastructure'to be insured as a covered peril on certain commercial P&C insurance policies?

Terrorism Risk Insurance Act

n agent is looking at a piece of paper Mrs. Xavier asked her to review. The page contains Mrs. Xavier's name, her mail address, the policy number, the policy dates, coverage limits, and her policy premium. What is the agent reviewing?

The Declaration page

An uninsured, distracted driver crashes into the two cars parked in Kate's driveway. When the driver backs away from the damaged cars, she rips the bumper off Kate's car. The bumper flies through the air and knocks down Kate's fence. What is the proximate cause of the damage to the fence?

The car crash

Mr. Allen is reading his insurance policy. Throughout the entire contract, the words 'we' and 'our' are used and Mr. Allen wonders whom the terms refer to. Mr. Allen's agent says that 'we' and 'our' refer to which of the following parties?

The insurance company

Ken asked his insurance agent who his insurance policy refers to when it uses the term 'we.' His agent stated that 'we' is

The insurance company providing the coverage

Mary's new refrigerator was delivered a few days ago. It catches fire due to an electrical short in the refrigerator. The fire causes extensive damage to the appliance as well as to her kitchen. The adjuster investigates the claim and tells Mary that subrogation is appropriate in this case. What will occur if the claim is subrogated?

The insurer can recover its claim payment from the resonsible party

Martin has an auto policy with split limits of $100,000/$300,000/$50,000. He loses control of his car and crashes into a house. Two of his passengers are seriously injured and the owner of the house sustains $50,000 in damages. Passenger A's claim is for $100,000 while passenger B's claim is for $200,000. How are these claims allocated within Marty's liability limits?

The property damage to the house is covered. Passenger A's claim is covered, but $100,000 of B's claim is not covered.

Jane's insurance policy contains a stated amount valuation provision. This provision states that she will receive the lowest of three amounts if her covered property is stolen or destroyed. Which of the following is not one of those three amounts?

The property's actual cash value at the time of the loss, minus depreciation

Yvonne is confused when she reads her auto policy. Certain words and phrases appear in bold print throughout the policy form. Why do the words and phrases appear in bold print?

They are key words and phrases that are defined in the policy

Monty, an employee of Happiness Bakery, is sending text messages on his phone while driving the company truck to deliver baked goods. He crashes into the car in front of him, injuring the passenger. The passenger sues Monty and Happiness Bakery. On what grounds could Happiness Bakery be held liable?

Vicarious Liability

Santucci Brothers Grocery employs a high school student to delivery groceries on weekends. When the employee accidentally runs over a customer's dog when pulling into the customer's driveway one Saturday morning, which of the following terms BEST describes Santucci Brothers' legal responsibility for the employee's action?

Vicarously Liable

Open perils property insurance policies typically specify a number of maintenance exclusions. These exclusions deal with expected losses that are not generally insurable. Which of the following are among these of maintenance exclusions?

Wear and tear

Matt is planning a vacation in Greece. He wonders if his casualty insurance policy will cover a loss in Greece. Which provision within the policy should he check to answer this question?

When and where coverage applies