Property and Casualty Practice State Exam

Tara lost a bred heifer when it was struck by lightning. Although the cow's actual cash value was $2,050, the animal was not specifically declared on the declarations.Therefore, she expects that the maximum amount payable for the loss will be

$2,000

An insurer may cancel a general liability insurance policy that has been in effect for more than 60 days for all of the reasons listed ___________________ except for a change in the insured's marital status.

(failure to pay premiums, fraud in obtaining coverage, increased in the hazard insured)

What percentage of flood losses occurs in flood zones that have less than a 1 percent chance of flooding in a given year?

25%

All of the following are considered employees while performing consulting services for the insured:

Arlene, a former employee of the insure;Josie, a partner of the insured; Matthew, a manager in the insured's company

Ryan operates an appliance repair shop. He usually has a dozen appliances from customers in the shop. What type of commercial inland marine policy should his agent recommend for him to be covered in the event he damaged any of these appliances?

Bailees customer floater

Bill operates a small grocery store in a rented store which has a large plate glass window in the front. He does not have building coverage.A windstorm damages the window. Bill asks his agent if his businessowners policy will cover the damage. How will the agent respond?

Bill's business personal property coverage will cover the damage

Mercury Manufacturing is insured under an ISO pollution liability coverage form. The insurer will not renew the policy when it expires. The form provides coverage on a claims-made basis. Mercury is concerned about claims that might be made against it after the policy expires. What might Mercury do to cover that exposure?

Buy an extended reporting period endorsement

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

Mrs. Delaney hired a contractor to build a deck on the back of her house.She purchased the necessary lumber and its piled in her backyard. Under what coverage part of her homeowners policy is the lumber covered?

CoverageA' Dwelling

An earthquake ruptures a natural gas line, which starts a fire that damages Robert and Gretchen's home. Is the damage covered under their dwelling policy?

Damage caused by the earthquake is excluded. Damage from the ensuing fire is covered.

Seth, an agent, decides he must protect himself from potential claims from policyholders both legitimate and illegitimate. What are some methods by which he can protect himself in the event of such a claim?

Document conversations with policyholders about insurance transactions and consider Error & Omissions coverage

Cindy is a copywriter for Country Gentleman, a men's fashion magazine.She believes she is a victim of sexual discrimination and has experienced sexual harassment by her supervisor. She files suit against the magazine. What type of liability insurance would Country Gentleman need to cover Cindy's claims?

Employment Practices Liability (EPL)

What Commercial crime endorsement provides coverage when an employee is held captive and forced to surrender money because of a threat to his physical safety?

Extortion' Commercial Entities

All of the following are basic named perils on a property insurance policy:

Fire, vehicles, vandalism

Ibey Motors sells used cars. It also repairs cars for its customers. What type of insurance coverage does Ibey Motors need to provide legal liability insurance for vehicles in its care, custody, and control?

Garagekeepers liability

Nelson Contracting is located in New York and has a commercial general liability policy. It undertakes a new project at location in Paris, France and does not buy separate insurance for the new location. Shortly after beginning the new project, the Paris location receives a completed operations liability claim. How does the CGL policy respond?

It denies the claim

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

Level of the premium and the level of the exposure to loss

What federal law provides workers compensation benefits to employees who load, unload, repair, and build vessels in maritime employment?

Longshore and Harbor Workers Compensation Act (LHWCA)

Mason owns several vehicles, including a dune buggy ad a golf cart. He wants to cover these vehicles under his personal auto policy. What endorsement will his agent likely recommend?

Miscellaneous type vehicle endorsement

Eamon's Clothing Store has crime coverage in the form of inside premises 'theft of money and securities'.The manager hires Russell who was fired from a previous job for stealing merchandise. Nevertheless, the manager trusts that Russell has changed his ways. A month later, Russell is found to have stolen cash from the register and is fired. Eamon's files a claim with the store's insurer. Is the loss covered?

No, because the manager know of Russell's criminal background

Mr. and Mrs. Ferreira were injured when their car was rear ended by a drunk driver, Before they can sue the at fault driver to recover damages for their injuries, they first must submit their injury claim to their own auto insurer for payment. What type of state law makes this requirement?

No- fault system

Which of the following statements BEST describes the transfer of risk via an insurance contract?

Not all risks are transferrable via insurance contracts

Oakland Consulting has a commercial general liability policy. The policy agrees to pay for bodily injury and property damage losses that occur during the policy policy period, regardless of when they are reported on what form is Oakland's Consulting's CGL written?

Occurrence Form

All of the following are considered employees while performing consulting services for the insured, EXCEPT

Paul, an independent contractor

Which endorsement may be used with a commercial property insurance policy to cover high inventory values at certain times of year?

Peak Season Limit of Insurance

Vic is applying for insurance and his agent gathers information about Vic that is contained on consumer reports, including credit information. What does the Fair Credit Reporting Act require the insurance agent to do with the respect to its gathering and review of this information?

Provide a disclosure to Vic about the use of the information

Which of the following activities is not considered farming on the farm liability coverage form?

Sale of farm equipment

All of the following activities are considered farming on the farm liability coverage form:

Sale of vegetables from a roadside stand, operation of an agricultural enterprise, farm processing operations

Which of the following individuals would be considered an employee under Texas's workers compensation laws?

Slobhan, who is a trainee under the Texans Work Program

Aldo's meat market sells and stores meat and related food products. Aldo worries about a malfunction of his refrigeration and cooling systems that could make his products unfit for sale or consumption. What coverage endorsement might Aldo's agent recommend to cover this exposure?

Spoilage Coverage Endorsement

Stuart is involved in a relationship whereby he arranges for ABC Insurance Company to guarantee his performance to Timothy. What term describes Stuart's relationship with ABC and Timothy?

Suretyship

When an insurance contract is formed, only the insurer makes a legally enforceable promise to pay covered claims. After the premium is paid and the policy is in force, the policyholder has no further promises to keep what characteristic of insurance contracts is described?

They are unilateral

Selena is unable to find an insurance company that will write insurance on her home because she has had several losses within the past three years. You tell her you are able to secure coverage in which of the following ways?

Through the state's FAIR plan

Which of the following is not a basic named peril on a property insurance policy?

War

Heather's distraught next-door neighbor was holding his wife hostage at gunpoint. After several hairs, the neighbor's husband still refused to free his wife. The sheriff's department ordered the tear gas canisters be fired into the house. The gas sparked a fire in the house and the sheriff ordered the fire department to contain the fire from spreading to other homes. Will Heather's dwelling policy cover the damage to her home from this fire containment action?

Yes, because a fire containment action ordered by a governmental authority is an exception to the governmental action exclusion

Bailees customer insurance is typically bought by

a bailee to cover customers property

25 percent of all flood loss in

a moderate to low-risk flood zone and not in an SFHA. A special flood hazard area has a higher than average risk of flooding (once in a 100 years)

an employee includes

a person who is a trainee under the Texans work program

Agents or producers have an obligation to act in the best interests of applicants or insureds. All of the following are duties an agent owes an applicant or insured:

accurately state the terms or conditions of a policy, Disclose all pertinent information about a proposed policy, recommend only policies that suit the customer's needs

The FCRA requires that a disclosure be provided to

an applicant for insurance before any consumer reports may be ordered

Some businesses experience especially high sales during a certain time of the year, and therefore increase their inventories to meet demand.The peak season endorsement can be used to

avoid overinsurace during the insured's slow season (and underinsurance during the peak season) by establishing a higher limit for only the period of time specified in the endorsement.

Which of the following is NOT a requirement to obtain an agent's license?

being appointed by at least two insurers

All of the following are requirements to obtain an agent's license:

being at least 18 years of age, submitting a set of fingerprints, successfully completed the licensing examination

obtaining the services of a lawyer to advise the insured is

beyond the duties the agent owes the insured

The CGL Occurrence form provides insurance for

bodily injury or property damage that occurs during the policy period regardless of when losses are reported

Jessica owns a rare violin, a fur coat, a professional camera, and first-edition books. She could separately insure all of these items under the scheduled personal property endorsement EXCEPT:

books

The Spoilage Coverage endorsement covers

businesses that process, store, or sell perishable items (such as food, medicine, or flowers) that must be maintained under controlled conditions to avoid damage. Coverage applies to the insured's property and bailed property in the insured's care if located on the insured premises. The endorsement provides coverage for breakdown or contamination coverage, and power outage coverage.

The Common Policy Conditions section of the business owners coverage form addresses the issues of

cancellation, changes, fraud, audit, inspections, other insurance, liberalization, premiums, recovery rights against others, assignment of the policy, and premium audits. These conditions are essentially the same as those found in other commercial policies.

Freight has two meanings in the context of marine insurance

cargo, and the charges assessed for carrying cargo

Which of the following is NOT an acceptable reason for canceling a general liability policy that has been in effect for more than 60 days?

change in marital status

In ocean marine insurance, the term freight refers to cargo and which of the following?

charges assessed for carrying cargo

For-profit corporations, government entities, and non-profit organizations are subject to

claims from employees who allege discrimination, wrongful termination, sexual harassment, retaliation, and various other workplace torts. EPL coverage responds to such claims.

Coverage under the Extended Non-owned Coverage endorsement is often used for a

company car

No coverage is provided for

completed operations to take place outside the coverage territory, which includes the U.S., its territories and possessions, Puerto Rico, and Canada

Former employees, partners, directors, trustees, ad limited liability company members or managers are

considered employees while performing consulting services for the insured. Independent contractors are not considered employees of the insured business instead, they are self employed

Randy goes to Main Street Insurance Company to buy a homeowners policy. He observes that he cannot negotiate the terms with the insurer, which presented the policy to him on a take-it-or-leave-it basis.This type of contract is considered a

contract of adhesion

If a tenant has not bought building coverage, the tenant's business personal property limit also includes

coverage for glass that is within the tenant's care, custody, or control

The owner of Clark's Trading Post asks you to review its commercial property policy. However, he gives you a single page that contains Clark's Trading Post's name and address, the limits of insurance, and the policy period. What portion of the commercial property policy are you looking at?

declarations page

Insurers use different rating systems for different types of policies. In every case, the rating system is

designed to provide a fair match between the level of the premium and the level of the exposure to loss.

Not all risks are insurable. Before an insurer agrees to accept risk transfer, it must

determine if the risk is eligible.

A contract of adhesion is

drafted by one party and offered on a take-it-or-leave-it basis. The other party has no opportunity to negotiate its terms, price or other elements. The party must adhere to its provisions as presented.

The personal liability supplement, which includes medical payments coverage, may be added to the dwelling property policy via

endorsement or written as a separate stand-alone policy. This coverage is comparable to the liability coverage provided by the homeowners policy.

The destruction or confiscation of property as described in the dwelling, other structures or personal property coverages through the orders of a governmental authority is

excluded. However, the governmental action exclusion does not apply to acts ordered by the government that are taken at the time of a fire to restrict or prevent its spread, if the fire loss is covered by the policy.

War isn't a named peril on a property policy it is an

exclusion

The identity fraud expense coverage endorsement covers

expenses incurred by the insured as a direct result of identity fraud that is discovered during the policy period.

Which of the following licensees works for a person who is licensed as a property and casualty agent and

explains coverage, describes insurance products and quotes premium rates

All of the following are acceptable reasons for canceling a general liability policy that has been in effect for more than 60 days:

failure to pay premiums when due, fraud in obtaining coverage, increase in the hazard insured

Under a no-fault system,state law requires an injured person to

first recover damages from his or her own insurance policy rather than from another party's insurance policy if they exceed the tort threshold, that is, their medical expenses exceed a monetary threshold or the injuries are serious as defined by the law's verbal threshold, they may sue the at-fault third party.

Offering employment or other valuable incentives such as

football tickets (or other consideration that is not provided for in the contract) as an inducement to purchase or renew a policy is rebating and is illegal

By keeping a record of conversations with policyholders, an agent can show that

he or she has dealt honestly and professionally with them. Despite agents' best efforts, mistakes are possible and agents should have E&O insurance to cover claims related to their professional services.

Jack, who owns a hardware store, applies for a loan to expand the premises, His loan application is denied. He learned that someone got his credit card number and used it to make purchases that exceeded his credit limit. Jack hires an attorney to help him repair his credit and loses time from work. What coverage might pay for some or all of those expenses?

identity fraud expense coverage

When an insurance company receives an application for coverage, it begins a process known as underwriting. Underwriting determines

if the particular risk that would be insured should be accepted or rejected

Which of the following is NOT a penalty that TDI may impose?

imprisonment for up to five years

The primary insurance regulatory activities of state insurance departments include all of the following EXCEPT:

imprisonment of unethical agents

Materials and supplies located on the residence premises that are to be used in the construction, alteration, or repair of the insured dwelling are

insured under Coverage A' Dwelling

Garagekeepers liability provides insurance for the

insured's obligations for loss, and loss of use, to a customer's auto while in its care for servicing or repair.

The primary insurance regulatory activities of state insurance include all of the following:

insurer licensing requirements, solvency regulation, market conduct regulation

Major regulatory activities of admitted insurers in which state insurance departments are engaged include

insurer licensing requirements, solvency, market conduct, investments, rate, and policy form regulation

Benny, Jill, and David are all on the owner's property without her consent and are, therefore, considered trespassers, Candy is an

invitee, which is someone invited on the premises for the owner's benefit or for the mutual benefit of the owner and the invitee. The property owner has a greater duty to exercise care toward an invitee than toward a trespasser.

Abbies homeowners policy responds to a lawsuit filed against her. In addition to paying up to the limit of liability, how else will Coverage E' Personal Liability on her policy respond?

it will provide a defense

Jim's auto has a garage policy with garagekeepers liability. Because Jim's Auto has not purchased one of the two direct coverage options, on what basis will the garagekeepers liability coverage pay if a customer's car is damaged by a neighbor's falling tree?

it won't pay

The scheduled personal property endorsement for Texas provides a separate schedule of insurance for various types of personal property including

jewelry, furs, cameras, musical instruments, silverware, goldware, and pewterware, golfer's equipment, fine arts, postage stamps and rare and current coins but not books

In order for the garagekeepers liability coverage to apply, the insured must be

legally liable for the loss

The Extortion' Commercial Entities endorsement provides coverage for

loss caused by the surrender of money, securities, or other property because of a threat to harm an employee, director, or other individual when being held captive.

The three components of an insurance rate are

loss costs, expenses, and profit margin

All of the following are components of an insurance rate:

loss costs, expenses, profit margin

All forms of employee theft policies exclude

losses caused by a dishonest employee once that individual's dishonesty is known to the insured. A loss caused by the dishonest acts of employees discovered by the insured prior to the policy period is excluded under all crime forms.

The dwelling policy excludes

losses from earth movement. However, coverage is provided if a direct loss by fire or explosion ensues.

All of the following are duties of the Texas Department of Insurance?

maintaining records of complaint, making rules and regulations to implement the insurance code, licensing producers and insurance companies

The Miscellaneous Type Vehicle Endorsement broadens the definition of covered autos to include

miscellaneous type vehicles, which include motor homes or similar type vehicles, all terrain vehicles dune buggies, or golf carts. This endorsement is particularly convenient for insureds who own various types of vehicles in addition to private passenger automobiles.all of them can be insured under the PAP with this endorsement.

A typical homeowners policy does not cover

motor vehicles

Typically, a homeowners policy covers the dwelling, other structures, personal property, loss of use (additional living expenses), personal liability and medical payments to others. It does not cover

motor vehicles or liability arising out of the use of motor vehicles. An automobile insurance policy, not a homeowners policy, is appropriate for insuring automobiles of accidents arising out of the use of motor vehicles.

The LHWCA (Longshore and Harbor Workers Compensation Act) provides

no-fault workers compensation benefits to maritime workers, other than the masters or crews of vessels typically, those who load, unload, repair and build vessels.

The insured may request an extended reporting period if the insurer refuses to renew the policy for any reason other than

nonpayment of premium, or if the insurer renews or replaces the insured's pollution liability coverage with policy provisions specifying a later retroactive date. An additional premium is required.

While TDI can impose a broad array of penalties based on the infraction an agent committed, imprisonment is

not one of these penalties

The Common Policy Conditions section of the businessowners coverage form is essentially the same as those conditions provisions found i

other commercial policies

An insurance contract is a unilateral contract in that only the insured makes a legally enforceable promise which is to

pay covered claims, that is, after the premium is paid and policy is in force. The insured must continue to pay premiums to keep the policy in force, but is not obligated to do so.

The exposure base for workers compensation insurance premiums is

payroll

Workers compensation premiums are based on which of the following exposures?

payroll of the employees

A typical homeowners policy covers

personal liability and medical payments; Dwelling, other structures, and personal property; loss of use

Dustin asks his insurance agent if liability coverage is automatically included in dwelling policy. Dustin's agent tells him that it is not and advises him to add which endorsement to his policy?

personal liability supplement

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

premium

The purpose of the FAIR plan is to

provide residential property insurance in designated underserved areas in Texas

The Extended Non-owned coverage endorsement is often used for an insured who is

provided with a company car. It expands liability and medical payments coverage for exposures arising our of the use of vehicles furnished or available for regular use of the named individual by deleting certain exclusions.

Washington Insurance Company has established the cost of a liability insurance policy at $8.00 per $1000 of coverage purchased. Which of the following terms BEST describes that cost?

rate

Jack, an insurance agent, offers free season football tickets to anyone who buys a life insurance policy from him. What is this sales practice called?

rebating

Agents or producers have an obligation to act in the best interests of applicants or insureds.which of the following is not a duty an agent owes to an applicant or insured?

retain legal counsel to advise the insured or applicant who buys compex coverage

All of the following are penalties that TDI may impose

suspension of license, reprimand, administrative penalty

The highest amount payable in any one occurrence for any one animal not specifically declared on the declarations is

the lesser of the actual cash value of the animal, or 120% of the total limit of insurance on each class and type divided by the number of head of that class and type that are owned at the time of loss, or $2000

Coverage E' pays up to

the limit of liability shown on the Declarations page of homeowners policy, and provides a defense at the insurer's expense even if a lawsuit is groundless or fraudulent.Defense costs are paid in addition to the limits of liability.

A state FAIR Access to Insurance Requirements (FAIR) is

the market of last resort for individuals who are unable to secure property insurance in the standard marketplace

The Declarations page of a commercial property policy contains

the name of the insured, the address of the covered premises, and the policy period

Farming is defined to mean

the operation of an agricultural or aquacultural enterprise, including the operation of roadside stands on the farm premises that sell products produced by the farm and farm processing operations. Farming does not include other retail activity.

Suretyship is

the pledge of one party (surety) to a second party (obligee) that a third party (principal) will faithfully perform its obligations

An insurance rate is

the price of insurance for each unit of exposure $8 is the rate for eact $1,000 unit of exposure

Bonnie works for Lincoln Insurance Company where she assesses insurance policy applications to determine whether particular risk should be accepted or rejected. The process Bonnie undertakes is known as

underwriting

Jessica owns a rare violin, a fur coat, a professional camera, and first-edition books. She could separately insure all of these items under the scheduled property endorsement:

violin, fur coat, camera

Which of the following is NOT a duty of the Texas Department of Insurance?

writing the insurance code and laws