Casualty Insurance Questions

A tornado that destroys property would be an example of which of the following?

A peril

What is consideration on the part of the insurer

A promise to pay in the event of a loss

What is a combined single limit in personal auto policies?

A single limit of coverage for bodily injury and property damage in one accident

What does the term unilateral contract mean?

A unilateral contract is a one-sided contract. This means only one party makes an enforceable promise

What is a covered auto?

A vehicle shown in the policy declarations

With respect to the personal auto policy, which of the following vehicles could be classified as a nonowned auto?

A vehicle that is titled to another person, but is being used with permission by an insured.

According to the Law of Agency, who represents the principal?

Agent or Producer

What are the four elements of an insurance contract?

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the policy depends

In Personal Auto Policy, to what geographical region does the out-of-state coverage apply?

Any U.S. state or territory, as well as Canada

Which of the following defenses attests that if a person recognizes and understands that there is danger involved in an activity and voluntarily chooses to encounter it, he or she may be barred from seeking recovery for injuries due to negligence?

Assumption of Risk

All agents , brokers, and adjusters must keep a record of all transactions that occur under their license. These records must be kept

At the address listed on the license

In property insurance, when must insurable interest exist?

At the time of loss

If an insurer holds a Certificate of Authority, it is known as what type of insurer?

Authorized or admitted

What is consideration in an insurance contract?

Consideration is something of value that each party gives to the other. Consideration on the part of the insurer is binding.

Representations are written or oral statements made by the applicant that are

Considered true to the best of the applicant's knowledge

Which of the following is a mandatory part of an insurance policy that varies with each individual policy?

Declarations

The part of a policy that clarifies terms in the policy is the

Definitions

If an insured peril was the proximate cause of loss, what type of loss is it?

Direct

How are direct and indirect losses related?

Direct losses can cause indirect losses.

Which of the following special liability coverages will provide protection to managers of a corporation for claims arising from a wrongful act committed by the manager while in an official capacity?

Directors and officers liability

Insurers are classified according to their domicile. What are the three types of insurers?

Domestic, foreign, and alien

If an agent converts premium he collects for his personal use, he can be charged with:

Embezzlement

All of the following actions can be described as twisting EXCEPT

Explaining to client the advantages of permanent insurance over term and suggesting changing policies

The pro rata liability clause is designed to protect the principle of

Indemnity

What losses are excluded from coverage in the liability section of the Personal Auto Policy?

Intentional injury or damage, damage to property owned or transported by the insured, use of a vehicle as a public conveyance, or use of a vehicle without permission.

How does the Auto Medical Payments Coverage endorsement modify the auto policy?

It adds medical payment coverage to a commercial auto policy.

What determines an insurer's responsibility for payment, as stated in an insurance policy?

Limits of liability

The insurance Commissioner is empowered by the Washington Insurance Code to perform all of the following duties EXCEPT

Make revisions to the Insurance Code

Under the personal auto policy, liability for bodily injury resulting from the insured's use of a nonowned automobile is

Provided by the insured's policy on an excess basis

What fundamental principle in property insurance holds that when there is an unbroken connection between an occurrence and damage that grows out of the occurrence, then the resultant damage is all a part of the occurrence?

Proximate cause

A situation in which a person can experience only a loss and no gain presents what type of risk?

Pure risk

If during a sales process, a producer gives special favors or advantages such as money or prizes to a prospective client, the producer is guilty of

Rebating

The Federal Fair Credit Reporting Act

Regulates consumer reports

In property insurance, what is actual cash value?

Replacement cost at the time of loss, minus depreciation

Insurance is the transfer of

Risk

The term "producer" refers to any person appointed by an insurer to

Solicit applications for insurance on its behalf

Wagering on a sporting event is known as what type of risk?

Speculative

What type of limits of liability has the limits separately stated for different coverages?

Split limits

Which of the following insurers are owned by stockholders?

Stock

The claims- made trigger is based on which of the following?

The date the claim is first made

A homeowner sells his house to a friend. The friend wants to keep the homeowner's current policy in effect. Under the assignment provision, which of the following is most likely?

The homeowner will need to get written consent from the insurer before the policy can be reassigned.

In personal auto policies, the term "you" refers to

The named insured

Agents who persuade insureds to cancel a policy in favor of another one when it might not be in the insured's best interest are guilty of

Twisting

What is a risk?

Uncertainty regarding loss

What is the process that insurers use to determine whether a policy should be issued and on what terms and conditions?

Underwriting

Insurance contracts are aleatory in nature. What does that mean?

Unequal values are exchanged between the parties to a contract

When would a misrepresentation on an insurance application be considered fraud?

When it is international and material

In insurance contracts, when is the offer usually made?

When the insurance application is submitted

In insurance contracts, when does acceptance usually occur?

When the insurer approves a prepaid application

When does the Underinsured Motorist coverage apply?

When the motorist is at fault in an accident, but the limits of his/her auto insurance are not sufficient to cover the bodily injury to another motorist

If a licensee whose license has been temporarily suspended demands a hearing, the commissioner must hold the hearing demanded as according to all the following statements except

Within 30 days of the license effective date

What are the three types of agent authority?

express, implied, apparent

If an auto policy has split limits of 30/50/25, how much will the policy pay for property damage in a single accident?

$25,000

If an auto policy has split limits of 30/50/25, how much will the policy pay for property damage in a single accident?

$30,000

A tow truck was stolen from the insured's premises. The insured has loss of use coverage on his commercial auto policy. How much will the insured be able to collect from the coverage if unable to use the town truck in its operations for 40 days?

$600

If an auto policy has liability limits of 40/60/20, what would be the equivalent combined single limit?

$80,000 (combined total of coverage for bodily injury and property damage)

What are the five characteristics of an ideally insurable risk?

1. Due to chance; 2. definite and measurable; 3. Statistically predictable; 4. not catastrophic; and 5. randomly selected

What are the 4 categories of uninsured motor vehicles?

1. No insurance or liability bond; 2. insurance is less than what's required by the financial responsibility laws; 3. a hit-and-run accident where the driver cannot be identified; and 4. the insurer denies coverage or becomes insolvent

Coverage for medical payments under a Personal Auto Policy applies to expenses following a covered accident that are incurred and services rendered within what time period?

3 years

What are the most common penalties for violations of insurance statutes?

A cease and desist order, a fine, and license suspension or revocation

Who is an insurance agent?

A person authorized to sell, solicit and negotiate insurance contracts

When other insurance is written on the same basis as a Commercial Property policy, what is the insurer obligated to cover?

A share of the loss

What is a second injury fund?

A workers compensation program designed to pay for any additional benefits when an employee with a previous injury suffers a second injury

What is the limit that the insurer will pay for all losses that occur during a policy period?

Aggregate Limit

Who is considered a nonresident agent

An agent who resides and is licensed in another state, but who is authorized to transact insurance in this state

What type of policy is a liability policy that covers all claims arising out of incidents occurring during the policy period, regardless of whether the policy is still in effect at the time of the claim?

An occurrence policy

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Authorized or admitted

If the Commissioner/Superintendent finds a licensee engaging in an unfair method of competition or an unfair practice, what order will be issued?

Cease and desist order

What does the term reasonable expectations mean in insurance?

Certain expectations for coverage that a reasonable person would have based on sources other than just the policy language

A state-issued document empowering an insurance company to become an admitted insurer is called what?

Certificate of Authority

What coverages are available in the physical damage section of the personal auto policy?

Collision and other-than-collision coverages

A person or business that requires coverage for all liability exposure should purchase what type of insurance?

Commercial General Liability (CGL) and Professional Liability

What are the coverage parts that may be included in a Commercial Package Policy (CPP)?

Commercial property, general liability, crime, equipment breakdown, auto, inland marine, and farm

What are producers required to do in order to renew their license?

Complete continuing education hours and pay a renewal fee

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example

Concealment

What are the 3 liability coverages included in the Commercial General Liability (CGL) Coverage Form?

Coverage A- Bodily Injury and Property Damage, Coverage B- Personal and Advertising Injury, and Coverage C - Medical Payments

If a producer makes maliciously critical statements about another insurer, what is this illegal practice called?

Defamation

What are the 2 coverage triggers in Commercial Crime policies?

Discovery Form and Loss Sustained Form

Two individuals who are in the same risk and age class are charged different rates for their insurance policies due to an insignificant factor. What is this called?

Discrimination

What is the purpose of employers liability insurance?

Employers liability insurance protects the insured from situations that are not covered under a state's workers compensation law

Professional Liability coverage protects the insured against legal liability resulting from what?

Errors and omissions

What type of coverage do umbrella policies provide?

Excess coverage over the primary policy

The requirement that agents must account for and promptly remit all insurance funds collected is known as what type of agent responsibility?

Fiduciary

In Commercial Package Policies (CPPs), who may cancel the policy in writing and make changes to the policy with the consent of the insurer?

First-named insured

What type of insurer is formed under the laws of another state

Foreign

What are the 2 parts of the Garage Liability Coverage

Garage Operations- Covered Autos, and Garage Operations - Other than Covered Autos

Conditions that increase the chance of a loss are known as what?

Hazards

A vehicle rented from a commercial rental company is known as what type of auto?

Hired Auto

The policy conditions define:

How parties to the contract must act following a loss.

How are supplementary payments paid in liability insurance policies?

In addition to the limits of liability

An insured's business is damaged because of a fire, and he is forced to close the business temporarily for repairs. As a result, the insured lost income. What type of loss is the loss of income?

Indirect or consequential

What does the term "exclusive remedy" mean?

Injured employees cannot seek damages outside workers compensation

What does Coverage A of the Commercial General Liability (CGL) form provide coverage for?

Injury or death suffered by a third party, or damage to the property of others

In general, who can be excluded from producer licensing and examination requirements?

Insurance company officers, directors, or any other employees who do not transact insurance and who do not receive commissions for their services (usually, their responsibilities include administrative, executive or clerical).

What are residual markets?

Insurance markets designed to assume risks that are generally not insurable in the normal insurance market

What is controlled business?

Insurance on the producer's own life or property, or the lives or property of the producer's family or business associates

In the agent/insurer relationship, who is considered the principal?

Insurer

What is the name for policy endorsements that may apply to more than one coverage part?

Interline endorsements

What type of perils are covered by the Advertising Injury Form?

Libel, slander, defamation, violation of privacy, infringement of copyright or titles

In a commercial crime policy, what does employee theft cover?

Losses resulting from theft by employees

What type of professional liability coverage will a medical doctor need

Medical malpractice coverage

What are the 4 types of benefits provided by Workers Compensation insurance

Medical payments, disability income, rehabilitation expenses, and death benefits

What types of expenses are covered by Coverage C - Medical Payments in Commercial General Liability policies?

Medical, surgical, hospital, or funeral expenses for third parties injured because of the insured's business operations.

On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. What is the company guilty of?

Misrepresentation

What illegal act does a producer commit when the producer represents a policy in a more favorable light than the policy really is?

Misrepresentation

What type of policy consists of the declarations, conditions, endorsements, and other attachments applicable to a single line of insurance?

Monoline

Where can National Flood Insurance be issued?

Only in participating, flood-prone areas

Who may share in the commission from the sale of a life insurance policy?

Only producers properly licensed for the type of insurance transaction

Which coverage would a business owner need in a crime policy to cover money that may be stolen from a messenger?

Outside the Premises

What are the 2 main parts of workers compensation insurance?

Part 1 is workers compensation, and Part 2 is employers liability

If an insured is injured while driving his own car, what coverage in his personal auto policy will pay for the loss?

Part B: Medical Payments

What is the difference between a personal injury and an advertising injury?

Personal injury refers to individuals; advertising injury is incurred to a business. Both, however, are non physical injuries.

What are the three types of hazards?

Physical, Moral, Morale

What components make up a Commercial Policy?

Policy cover; policy declarations; interlines endorsements; lines of insurance declaration pages; lines of insurance coverage forms; common policy conditions; lines of insurance conditions; causes of loss forms; and endorsements

The policy that pays first in the event of a covered loss is known as the

Primary Policy

In Surety bonds, who purchases the bond and promises to fulfill the obligation?

Principal or obligator

Medical malpractice, agents and brokers errors and omissions, and directors and officers liability are examples of what type of liability insurance?

Professional Liability

An agent offers a client free tickets to a sporting event in exchange for the purchase of an insurance policy. What is the agent guilty of?

Rebating

What is the date stipulated on the declaration page of a claims-made liability form as the earliest date on which an incident may occur and be covered by the policy?

Retroactive Date

What is the name for the deductible in liability umbrella policies?

Self-insured retention (SIR)

What types of entities can be insured under a General Liability policy?

Sole proprietors, partnerships and corporations

Who owns stock companies?

Stockholders

What is the name for nonadmitted insurers who are allowed to transact business in a state?

Surplus lines insurers

Who must be notified of a producer's change of address?

The Department of Insurance (Commissioner/Director/Superintendent)

What type of licensee represents the insurance company?

The agent

What is the occurrence form trigger based on?

The date of the injury or damage

Who is responsible for the costs associated with the examination of insurers?

The insurer who is being examined

What is the limit of liability in Part D: Coverage for Damage to Your Auto?

The lesser of the actual cash value of the vehicle or the amount needed to repair or replace the vehicle

What are the parties to a surety bond?

The principal (or obligor), the obligee (or insured), and the guarantor (or surety)

What is the broadest coverage in the Commercial Crime Form?

Theft Coverage

What is the purpose of interline endorsements in Commercial Package Policies (CPPs)?

They eliminate redundancy and minimize the number of other policy endorsements

To whom may a certificate of authority be issued?

To an insurer authorized to transact business in this state

What is the purpose of the National Flood insurance Program (NFIP)?

To fill the gap in flood coverage left by private insurers

What is the purpose of surety bonds?

To guarantee that specific duties and obligations of the principal will be fulfilled

What is the primary purpose of Workers Compensation insurance?

To pay benefits to employees for injuries arising out of employment

What is the purpose of a claims-made form?

To pay for bodily injuries or property damage reported during the policy period

What is the purpose of a cease and desist order?

To prevent a producer or insurer from further violating laws for transacting insurance

Which type of misrepresentation persuades an insured, to his or her detriment, to cancel, lapse, or switch policies from one to another?

Twisting

What type of auto coverage will apply in a hit-and-run accident where the driver cannot be identified?

Uninsured Motorist

When would a misrepresentation on an insurance application be considered fraud?

When it is intentional and material

When is controlled business legal?

When the commissions from controlled business do not exceed the aggregate commissions on all the other business (specific limits may vary from state to state)

When can insurance be sold through a surplus lines insurer?

When the insurance cannot be obtained through an authorized carrier

When does Uninsured Motorist coverage apply?

When the other party is legally liable but has no insurance

When can the Commissioner or Director examine insurers?

Whenever deemed necessary, but at least once every few years (please check your state regulations for specific time requirement)

What is the minimum amount of additional coverage provided by umbrella policies?

$1 million

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?

$2,500

What would be considered a newly acquired auto?

A vehicle acquired by the insured during the policy period

What type of authority is based on the agent's actions, or words?

Apparent

Who does the Garage Coverage form insure?

Auto dealers, service stations, auto repair shops

What are the methods of managing risk?

Avoidance, transfer, sharing, retention, and reduction

What types of losses are indicated by the split limits in an auto insurance policy?

Bodily injury per person, bodily injury per accident, and property damage per accident

What are the coverage forms used in commercial auto insurance?

Business Auto Coverage Form, Business Auto Physical Damage Coverage Form, Garage Coverage Form and Motor Carrier Coverage Form

What document is required for an insurance company to transact insurance?

Certificate of Authority

Circulating deceptive sales material to the public is what type of Unfair Trade Practice?

False Advertising

What type of insurer is formed under the laws of another state?

Foreign

With regards to the personal auto policy, in the event of a claim or loss, the insured is required to do all of the following EXCEPT

Immediately report to an emergency room for medical examination

What provision states that if a policy allows for greater benefits than the financial loss incurred, the insured may be compensated only for the amount lost?

Indemnity

What do individuals use to transfer their risk of loss to a larger group?

Insurance

Which of the following is NOT a duty of the employer/insured if an injury occurs at the workplace?

Make voluntary payments for treatment of the worker's injury

An independent agent whose agency contract has been terminated

Must be given a reasonable opportunity to transfer affected policies to another insurer

A policy that covers all causes of loss except for those specifically excluded is known as what type of policy?

Open peril (or special) form

What Personal Auto coverage would pay for damages to a covered auto caused by a collision with a deer?

Other Than Collision (Comprehensive)

What Personal Auto Coverage would pay for the insured's travel expenses and loss of earnings while the insured is involved in the settlement process of a covered loss?

Part A: Liability

What sublimit in a liability policy puts a ceiling on the payment for all claims that arise from a single accident?

Per occurance

What is the term for the causes of loss insured against in an insurance policy?

Peril

Underinsured Motorist (UIM) coverage will pay the difference between which 2 limits?

The insured's UIM limits and the at-fault driver's insurance bodily injury limits

What does the term "you" refer to in a personal auto policy?

The named insured shown in the declarations, and the insured's spouse (if resident of the same household)

What coverage is provided in the liability section of the business auto coverage form?

The policy will pay for injury or property damage to third parties.

How much will a physical damage policy pay for transportation expenses due to a theft of a covered auto?

The policy will pay up to $20 per day, up to a maximum of $600, for transportation expenses incurred by the insured

All of the following statements concerning liability coverage are true EXCEPT

The policyholder can sue the insurer whether or not all conditions and provisions of the policy have been met

Who is considered insured under Part A: Liability of a personal auto policy?

The vehicle owner or his/her family member, or any person using the covered auto with permission

What do numerical symbols represent in auto policies?

They define the type of vehicle insured for specific coverages.

What does indemnify mean in insurance?

To restore an insured to the same financial status as before a loss

What is the difference between cancellation and nonrenewal?

Cancellation is the termination of an insurance policy by either party prior to the policy's expiration date. Nonrenewal is the termination of a policy at its expiration date by not offering a continuation of the existing policy.

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

Consideration

An insurance company assures its new policyholders that their premium costs will not increase for a period of at least five year. However, due to increasing financial strain, they plan to raise premium costs for all insureds by 10% over the next two years. What term best describes this act?

Fraud