AU 61
An insured has decided to use the Business Income Agreed Value Option with its business income coverage. The insured and the underwriter agreed on a value of $400,000 as the amount of insurable business income subject to loss. The insured then purchased a policy with a $200,000 insurance limit. If the insured suffers a $120,000 loss, how much will the insurer pay?
$60,000. The amount of insurance is divided by the agreed value, which is 0.50. This is then multiplied by the loss to get $60,000.
A Commercial Package Policy, whether monoline or multiline, includes which one of the following forms?
A Commercial Package Policy, whether monoline or multiline, includes the Common Policy Conditions form.
Which one of the following businesses would most likely use a proprietary alarm system as its automatic fire detection system?
A business owner with multiple buildings that wants direct involvement in the monitoring system would most likely use a proprietary alarm system.
Which one of the following policy formats is used to cover buildings and/or personal property and general liability and can also be used to provide additional coverages such as crime, inland marine, and equipment breakdown?
A commercial package policy is used to cover buildings and/or personal property and general liability and can also be used to provide additional coverages such as crime, inland marine, and equipment breakdown.
A preaction sprinkler system
A preaction sprinkler system combines elements of wet and dry sprinkler systems.
Wholesale clubs rely on high sales volume and low overhead to maintain their profit margins. Mitchell's, a membership wholesale club in the southeast, carries merchandise typical of stores across the United States, for both home and office. It offers membership both to individuals and businessowners. In addition to dry goods and furniture, Mitchell's maintains refrigerator and freezer cases for cold food; a butcher department; an onsite bakery; and an eatery for its customers that sells a limited selection of simple foods like pizza, cold and hot sandwiches, pretzels, and soft ice cream. A risk control representative who is assessing the property loss potential for Mitchell's is most likely to focus on its
A risk control representative who is assessing the property loss potential for Mitchell's is most likely to focus on its high-rack storage, which can aid the spread of fire and hinder firefighting efforts.
The interior finishing materials of a building affect the building's combustibility and the underwriting desirability of an account. Once a finish is installed, a small fire can ignite the interior finish and quickly engulf the entire room, so that even a small fire may quickly generate and spread toxic gases throughout the building. This process is known as
A small fire can ignite the interior finish and quickly engulf the entire room, a process referred to as flashover. Even a small fire can generate toxic gases that can be distributed quickly throughout the entire building if it involves a highly combustible interior finish.
A standpipe and hose system would be most appropriate in which one of the following situations?
A standpipe and hose system would be most appropriate in a building with a large floor area or that is more than four stories tall.
According to the National Fire Protection Association (NFPA), cooking-related incidents are the leading cause of structure fires in stores or other mercantile occupancies. Which one of the following hazards causes nearly as much direct property damage as cooking equipment in mercantile occupancies?
According to the National Fire Protection Association (NFPA), incendiary fires cause nearly as much direct property damage as cooking equipment in mercantile occupancies.
All of the following are common watch service systems, EXCEPT:
All listed are common watch service systems, EXCEPT video surveillance.
All of the following recent trends in modern offices have tended to increase the fuel load, EXCEPT:
All listed are recent trends in modern offices that tend to increase the fuel load, EXCEPT older wooden desks and filing cabinets have given way to steel equipment.
When considering a risk, the underwriter must consider the perils to which the building is exposed. All of these statements regarding specific perils are true, EXCEPT:
All of the statements are true, EXCEPT if roofing shingles are not replaced on a 10 to 15 year cycle, losses can be expected from hail or wind.
All of the following statements regarding arson are true, EXCEPT:
All of the statements listed are true, EXCEPT the need for arson control in small communities is seldom as great as that of larger communities.
Heather, an underwriter, is reviewing a property insurance submission for a commercial building with an effective date that is only two weeks away. She needs additional information to what is provided on the application in order to be comfortable quoting the account, and to determine the proper premium for the account. Which one of the following sources is Heather most likely to use to obtain additional risk exposure information?
An ISO Building Underwriting Report is a highly detailed report by an advisory organization that can include information and rating of a building's construction, occupancy, fire protection, and exposure. The report can help an underwriter answer questions related to the desirability and risk exposures of a building, without having to conduct a risk control survey.
An electrical fire might best be extinguished with which one of the following fire extinguishers?
An electrical fire might best be extinguished with a Class C fire extinguisher.
Which one of the following is the cause of an incendiary fire?
Arson is the cause of an incendiary fire.
BabyLearn Corporation manufactures toys for infants and toddlers. Its two main product lines are nondestructible plastic toys, and wood products such as puzzles, blocks, and shapes that fit together. Its operations are housed in fully sprinklered fire-resistive buildings. The raw plastic components are manufactured in one area, wood components in another, and final assembly is completed in yet another. Each area is separated from the others by fire divisions. The plastics operations include cast-molding, cutting, and melting of raw materials to form the finished toy components. The wood operations include cutting, treating, assembly, and painting. While all of the following risk characteristics are important to consider, which one is likely to be of most concern to a property insurance underwriter that is evaluating BabyLearn Corporation's account?
BabyLearn Corporation's flammable plastic dust is likely to be of most concern to a property insurance underwriter, because the flammable plastic dust generated by plastics manufacture is the most significant component of the associated fuel load, which can cause fire and explosion. Burning plastics can also generate intense heat and emit poisonous gases.
Insurers will sometimes write blanket insurance coverage to encourage insureds to purchase insurance to value. Which one of the following is one way in which blanket insurance helps avoid problems caused by underinsurance?
Blanket insurance requires insureds to buy more insurance than would otherwise be required to avoid coinsurance penalties.
Business income coverage forms offer the insured the option of limiting the period of indemnity to
Business income coverage forms offer the insured the option of limiting the period of indemnity to 120 days.
The structural materials of a building and the arrangement of those components determine a building's ability to withstand damage, including collapse. A property insurance application for an 8-story office building states that it has curtain walls. By this, the underwriter knows that the building's weight is
Curtain walls are non-load-bearing exterior walls that only enclose the building. They do not support the building's weight.
When evaluating a submission for a building more than 20 years old, some underwriters request a risk control inspection to verify the condition of the key elements of the building. Which one of the following is most likely what an underwriter wants to verify, even with an older building that has been adequately maintained?
Even an older building that is adequately maintained will show its age in its exterior surfaces, particularly the roof. Losses can be expected from hail or wind if the roof shingles and surfaces are not replaced every twenty to thirty years.
Which one of the following is the most common cause of sprinkler system leakage?
Freezing is the most common cause of sprinkler system leakage.
Of the following types of property, which one would be of the most concern to an underwriter as it relates to potential hail damage?
Historic buildings with copper or tin roofing would be of the most concern to an underwriter as it relates to potential hail damage.
Rosa is working with an architect to design a new building for her law firm. They initially discussed frame construction; however, Rosa learned from her insurance agent that frame construction is less desirable to property underwriters than joisted masonry. Therefore, Rosa has asked her architect how they might upgrade the construction to joisted masonry, without drastic changes to the plans or excessive expense. Which one of the following changes is the architect most likely to recommend to Rosa?
In frame construction, materials other than wood can be used without changing the construction classification. A brick or stone veneer; or sheet metal covering, provides some protection, but does not change the classification to joisted masonry if it is bonded to the wood structure.
An underwriter who is concerned about fire spreading due to the combustibility of interior finish materials, as well as the risk of toxic smoke, is most likely to find which one of the following design features favorable?
Increased vertical spacing and reduced window size can limit both the escape of heat from the fire scene and the amount of heat radiated back through the windows of floors above the fire.
Wind speed is important to underwriters when evaluating wind as a cause of loss. An internationally recognized classification of wind velocity that assigns names and numbers to eighteen categories of wind and estimates the effects that winds will produce in each category is the
It is the Beaufort Wind Scale.
The approach to measuring tornadoes is by evaluating the damage they cause. The Enhanced Fujita Tornado Damage Scale was developed in the mid-2000s and reflects
It reflects the more localized nature of damage from tornadoes.
At his hobby shop, Jim Petry uses electrical sanders and planers while woodworking and much dust is created. At the recommendation of his insurance producer, Jim is trying to reduce the likelihood of a dust explosion. Which one of the following would be the most effective method of attaining this result?
Jim should use a high efficiency particulate air (HEPA) vacuum cleaner.
Load-bearing components of a building prevent its collapse. Bill, a property underwriter, is reviewing an application for a convention center. The convention center is a fire-resistive structure with load-bearing exterior walls that enclose the building and support its weight and that of its contents. Bill is most likely to
Larger structures require vertical support in addition to exterior load-bearing walls, in the form of load-bearing interior walls and/or columns. Design and planned occupancy of a building dictate the choice between walls and columns, but the load-bearing components of noncombustible and fire-resistive structures are usually columns.
Marty's Crab Shack is an owner-operated small casual restaurant on the bay shore in Maryland that is best known for its seafood platters and sandwiches. Its deep-fried crab cakes are said to be the best in the area. The building was built in 1987 of frame construction. Marty, the Crab Shack's owner, lives in a second-story apartment above the restaurant. Business has been slow for the past couple of years due to a sluggish economy, but Marty is optimistic that recently completed extensive building and cosmetic renovations and increased advertising will strengthen sales. So far it seems to be working, as sales have been showing a steady improvement. Marty enforces strict housekeeping procedures to make sure that equipment is kept clean and trash is properly disposed. In particular, he requires that the hood and duct above the deep fryer be thoroughly cleaned by his employees each evening before closing to help prevent grease build-up, and he has a service contract in place for quarterly cleaning of the system by professionals. Malik, an underwriter, is evaluating Marty's Crab Shack for property insurance. Which one of the following is Malik most likely to find of concern with respect to this particular risk?
Malik is likely to specifically address risk of severe loss to the restaurant's inventory in the event of a fire, because food commodities are subject to destruction by law in the event of even a small fire, due to the risk of contamination. Seafood is particularly susceptible to loss from contamination, and is costly to replace. Marty's has good risk controls in place with respect to housekeeping and maintenance; the heating and wiring systems are up-to-date because of the recent renovation; and his financial condition should be stable enough that risk of incendiary fire is not a great concern.
Which one of the following will burn readily and also presents a serious explosion hazard?
Metal dust will burn readily and also presents a serious explosion hazard.
Penn Woods Plaza, a strip shopping center in Pennsylvania, is classified as mill construction. Its tenants include an accounting office, a Chinese restaurant, a pizza parlor, a nail salon, and a dry cleaner. From a fire underwriting perspective, a property underwriter is most likely to find this risk
Mill construction is sometimes referred to as "slow-burning construction". It has a minimum two-hour fire-resistance rating on bearing walls, and an absence of floor joists. It is very expensive and rarely used today, but would survive a severe fire.
Insureds sometimes purchase package policies to meet their insurance needs. The underwriting approach can be affected by the type of package policies offered. Which one of the following types of package policies is used to reduce adverse selection and often results in a premium discount for the insured?
Minimum combination requirement policies are used to reduce adverse selection and often results in a premium discount for the insured.
Often, the damage in fires arises not from the fire itself, but through secondary damage from the suppression efforts. Which one of the following is a common secondary damage resulting from fire suppression efforts?
Mold is a common secondary damage resulting from fire suppression efforts.
To reduce the possibility of fire or explosion, most dry cleaning operations use
Most dry cleaning operations use a standard solvent with a flash point comparable to that of kerosene.
Jade, an underwriter, is reviewing a property insurance submission for Miller's Furniture, a 70,000 square-foot area, privately-owned retail furniture store. Miller's offers a large selection of area rugs; metal, wood, and upholstered furniture; and decorative items for the home such as artwork, lamps, small sculptures, artificial flower arrangements, and tapestry wall hangings. Much of the upholstered furniture is made with flame-retardant fabric. Some of the wood items are solid oak, cherry, or mahogany, while other, more modern pieces, are of painted and varnished wood. Of the four ISO occupancy rating system factors, Jade's greatest concern with regard to underwriting Miller's account is likely to be the
Of the four ISO occupancy rating system factors, Jade's greatest concern with regard to underwriting Miller's account is likely to be the susceptibility of contents.
Pointe Woods is a two-year-old eight-story apartment building in Vermont. It is a fully sprinklered, modified fire-resistive building with electric forced-air heat. Which one of the following plumbing risks is most likely to be a concern to Pointe Woods' property insurance underwriter?
Overflow of water from sinks, toilets, and bathtubs is likely to be the plumbing risk of most concern to Pointe Woods' property insurance underwriter. Because the building uses electric heat, there is less likely to be significant piping in the exterior walls, and because the building is newer, subsidence is not a significant concern. However, overflow of water is a significant risk in residential occupancies, and an overflow on an upper floor could severely damage all floors below.
Arthur requested a risk control survey to support his underwriting of a college dormitory. Upon review of the survey report, he discovered that a number of problems had been found, evidencing shoddy workmanship. The building had exposed electrical wiring, stair landings constructed of particle board, and an inoperable sprinkler system. The concrete block walls were penetrated by cables, without application of firestopping material to restore the fire-resistance rating of the walls. Arthur declined to quote the account, due to the building contractor's failure to comply with which one of the following?
Performance codes provide general guidelines on how the building is to be constructed and the required level of performance of the building's structural components after construction.
From an underwriting perspective, which one of the following statements is true regarding vandalism and malicious mischief?
Premises security measures help eliminate vandalism to the interior of buildings and their contents.
The small town of Petersville has a volunteer fire department. The town owns a tank truck that has a pump. The tank holds 250 gallons of water which can pump at a rate of 30 gallons per minute (gpm). Which one of the following public protection classifications would be accurate for the town of Petersville?
Public protection classification 10 would be accurate for the town of Petersville.
Return air plenums using the space above suspended ceilings
Return air plenums can be used to vent heat, smoke and toxic gases from a burning building.
Many causes of loss arise from the nature of the operations that the insured business conducts. For an underwriter to have an easier time establishing equitable rates,
Risk control measures must be applied to loss exposures.
Insureds sometimes purchase package policies to meet their insurance needs. The underwriting approach can be affected by the type of package policies offered. Which one of the following types of package policies provides maximum flexibility for underwriters and does not affect underwriting considerations?
Simple combination policies provide maximum flexibility for underwriters and does not affect underwriting considerations
In which one of the following ways is a fire able to burn without atmospheric oxygen?
Some fuels obtain their oxygen supply from other substances, including most common firefighting materials.
An applicant wants to make sure that it has enough business income insurance to satisfy its policy's coinsurance requirement. However, it does not want to pay an excessive premium by having too high a coverage limit. Which one of the following endorsements or coverage forms would its underwriter most likely suggest as a way of addressing this concern of the applicant?
The Business Income Premium Adjustment endorsement bases the final premium earned by the insurer on the actual exposure as reported by the insured.
The ISO Public Fire Suppression town class rating applies to all class-rated properties and to schedule rated properties that require a water flow of
The ISO Public Fire Suppression town class rating applies to all class-rated properties and to schedule rated properties that require a water flow of 3,500 gallons per minute (gpm) or less.
The National Flood Insurance Program (NFIP) provides up to what maximum amount of insurance to property owners in special flood hazard areas?
The NFIP provides up to a maximum of $1,000,000 to property owners in special flood hazard areas ($500,000 for buildings and up to $500,000 for contents).
The characteristics of interior finishes that are most relevant to fire problems include their ability to do all of the following, EXCEPT:
The characteristics of interior finishes that are most relevant to fire problems include their ability to do all that are listed, EXCEPT spontaneously ignite.
The Falcone Corporation has provided an underwriter with the following information about its estimated net income during the twelve months that will follow policy inception for its business income policy: Sales $650,000Cost of Goods Sold $350,000Gross Income $300,000Operating Expenses $180,000Net Income $120,000 No income has been listed on its business income worksheet as being noncontinuing. Based only on the information given, what is the coinsurance basis for Falcone?
The coinsurance basis is the sum of the insured's estimated net income and operating expenses, or $120,000 + $180,000 = $300,000.
The Galvin Corporation has provided an underwriter with the following information about its net income for the twelve months that preceded policy inception for its business income policy. The corporation estimates that all of these figures will increase by 10 percent over the next twelve months: Sales $1,300,000 Cost of Goods Sold $700,000 Gross Income $600,000 Operating Expenses $360,000 Net Income $240,000 No income has been listed as being noncontinuing. The corporation estimates that its maximum period of shutdown in case of a business income loss would be six months, and income is earned on a uniform basis throughout the year. Based only on the information given, which one of the following represents the coinsurance basis for Galvin?
The coinsurance basis is the sum of the net income and operating expenses for the twelve months following policy inception. This figure was $600,000 last year and will increase by an estimated 10 percent to $660,000.
Which one of the following statements regarding package policy underwriting is true?
The disadvantage of package underwriting is that underwriters cannot be selective in the coverage offered to the applicant.
A business uses hazardous materials, but uses no design factors to contain their spread. The local fire service should be involved in pre-fire planning for this business because when a fire occurs at one of these sites, it is more likely the fire service personnel will do all of the following, EXCEPT:
The fire service personnel will do all that is listed, EXCEPT direct its hose streams onto the property involved in the fire.
Fire inspector Barnard Newton noted that a particular exposure could be described as ordinary masonry construction. The building was carpeted throughout and contained many cubicles with carpeted wall partitions. The fuel load in this situation consists of which one of the following items?
The fuel load in this situation consists of the wood in the joists and floors as well as the carpets and cubicle partitions.
The agent for the Booth Company has determined that the probable maximum loss (PML) for the company is $6,000,000 and its coinsurance basis is $8,000,000. Based on ISO underwriting rules, what is the appropriate coinsurance percentage for Booth's business income coverage?
The percentage is determined by dividing the PML by the coinsurance basis. The result is 75 percent. However, under ISO rules, this is not an acceptable percentage and it will need to be rounded to 80 percent.
The point on the fault line at which movement of the earthen plates begins is an earthquake's
The point on the fault line at which movement of the earthen plates begins is an earthquake's focus.
The premium for combined business income and extra expense coverage under one policy with one limit will be lower because the combined form
The premium for combined business income and extra expense coverage under one policy with one limit will be lower because the combined form eliminates duplicate coverage.
Insurance Services Office (ISO) uses an evaluation system to indicate the degree of hazard that an occupancy presents in a particular classification. The type of code that ISO applies for specifically rated risks, which becomes part of the rating information supplied by ISO, is known as the
The type of code that ISO applies for specifically rated risks, which becomes part of the rating information supplied by ISO, is a Commercial Statistical Plan (CSP) code.
To convert the probable maximum loss (PML) to an amount that represents insurance to value, an underwriter would start by doing which one of the following?
The underwriter would start by dividing the PML by the coinsurance basis.
Which one of the following best describes a curtain wall?
They are generally non-load bearing exterior walls.
An underwriter's estimate of the largest loss that is likely to occur is called the
This estimate is known as the probable maximum loss.
Underestimating a business income loss exposure can have serious consequences for an insured. Which one of the following methods is often used by underwriters to safeguard against underestimates?
To safeguard against underestimates, underwriters often increase the business income probable maximum loss by a selected percentage.
Commercial property underwriters should be aware that self-service laundries, which could operate on a 24-hour basis, are especially susceptible to which one of the following perils?
Twenty-four hour self-service laundries are especially susceptibility to vandalism.
Under ISO rules, which one of the following represents the coinsurance percentages that insurers can offer for business income coverage?
Under ISO rules, insurers can offer the following coinsurance percentages for business income coverage: 50, 60, 70, 80, 90, 100, or 125.
Which one of the following statements is true regarding the monthly limit of indemnity option?
Under this option, the only way to cover the month with the highest income is to purchase a total limit of 3, 4, or 6 times the highest monthly income.
Of the four ISO occupancy rating system factors, Jade's greatest concern with regard to underwriting Miller's account is likely to be the susceptibility of contents.
Underwriters have traditionally grouped occupancy types into six broad categories.
When calculating measures of potential loss severity involving property exposed within a single fire division, underwriters often use the expression "within four walls" to explain the concept of
Underwriters often use the expression "within four walls" to explain the concept of amount subject.
Exemptions for structures in place before building code changes take effect are known as grandfather clauses. Underwriters refer to exempted buildings as
Underwriters refer to exempted buildings as nonconforming occupancies.
Mia is underwriting insurance for Weyville High School. The application shows that the high school facility is a two-story structure with a large cafeteria that uses electrical cooking appliances; a gymnasium; an auditorium for school plays, student assemblies and parent meetings; an art room; and fully equipped science laboratories. The school offers a number of extra-curricular activities and clubs, including art; the sports of basketball, football, lacrosse, baseball and soccer; drama and performing arts; photography; culinary arts; band and choir. Mia requests a risk control site visit in order to properly assess the account risk. Which one of the following areas of Weyville High School is Mia most likely to specifically remind her risk control representative to address?
While these are all typical risks for a large high school, a particular ignition source that an underwriter should note is the theatrical lighting used in many school auditoriums. Weyville High School offers drama, band and choir and presents school plays in its auditorium, so careful attention should be paid to its auditorium and the use of theatrical lights.
