Casualty Quiz Questions- Part 1.2

Which of the following definitions of liability is related only to businesses that create a product? A: Strict Liability B: Absolute Liability C: Vicarious Liability D: All of the Above

A - Strict Liability solely applies to a business that manufactures products. If a product is defective the business is liable for all damages and no negligence needs to be proven.

B purchased a home five years ago and was issued an HO-3 contract. This year, B wants to add the sump pump overflow rider to her policy. Adding coverage to her policy can best be described as an: A: Endorsement B: Change of Beneficiary C: Rider D: Binder

A- An Endorsement is a written change made to a policy at or after issue. Endorsements must be made in writing and they can be applied to a contract to add or delete coverage.

Binders: A: provide immediate coverage B: are a guarantee coverage will be issued by the insurer C: are only effective and in place if premium was paid for a policy D: Only B and C

A- An agent may issue a binder that is written or oral and may or may not require premium to be paid. Binders are temporary coverage that are given by agents to provide immediate coverage pending future issuance of a policy.

Which of the following statements is considered to be the most restrictive standard when applying for a casualty policy? A: warranties B: representations C: concealment D: material misrepresentation

A- Warranties are facts that are sworn to be absolutely true. No matter what an insured would state could be used against them as fraud and thus is the most strict standard that can be applied to a contract.

Which of the following losses are considered to be the most difficult to calculate upon a loss? A: general damages B: special damages C: property Damages D: auto damages

A--General damages compensate a victim for losses due to pain and suffering which are subjective and hard to determine.

The statistical prediction used by the insurer to assess loss when determining risk is: A: law of large numbers B: law of small numbers C: group insurance D: premium assumption

A...The Law of large numbers is a principle of actuarial science that states the greater the number of risks insured in the same risk pool, the more predictable losses will become

P has just purchased a house. In the backyard, P has a patio with a deck and a big in-ground pool. From an insurance standpoint P's pool is considered to be a(an):

An Absolute liability is when an insured has a hazardous condition present such as harboring a wild animal or having a swimming pool. Keep in mind that with absolute liability, there is no negligence that needs to be proven to establish who is responsible for loss.

D purchased an antique muscle car in November with the intent to restore it in the summer. Upon inspection, D decides that the car is in good enough shape to store it in the garage until the weather gets warmer. Although D knows how to fix cars, he misses a very small hole in the gas tank. If the gas were to accumulate over time and cause the car and garage to explode, the event would be defined as a(an): A: Accident B: Occurrence C: Proximate Cause D: Peril

An Occurrence is a repeated exposure to conditions over time that results in a loss. An accident is a sudden, unexpected event that causes property damage or injury. Every accident is an occurrence, but not every occurrence is an accident.

F's toy company has just produced a child's toy that has sharp edges. Although F's toy company guarantees the product is safe, if a child were to get hurt, the company would have: A: Absolute Liability B: Strict Liability C: Vicarious Liability D: Hazardous Liability

B - Strict Liability solely applies to a business that manufactures products. If a product is defective the business is liable for all damages and no negligence need be proven.

Many commercial casualty policies allow the insurer to audit books of the first named insured's company. In general, how are premiums calculated at the beginning of the policy year? A: it is based off the law of large numbers for all the insureds the insurer covers B: it is an estimated premium based off a rate factor for a certain amount of salary paid to employees C: it is calculated based off individual underwriting of the employees D: it is free

B- The Deposit Premium/Audit provision allows the insurer to adjust the estimated premiums collected at the beginning of the year at a later time. The insurer can audit a company's books and records for up to 3 years after the policy expiration date.

The Fair Credit Reporting Act: A: states that the insurer can charge for a credit report B: states that permission must be granted in writing from the insured for the insurer to obtain reports from outside sources C: states that credit can never be used in underwriting D: states that adverse action does not entitle the insured to a copy of their credit report

B- The Fair Credit Reporting Act states that for an insurer to use outside credit information, the insured must give written permission.

An example of a morale hazard is: A: when an insured is dishonest when applying for a policy B: when an insured leaves their home unlocked to visit a neighbor C: when the insured leaves a can of gas too close to the furnace D: when an insured has a criminal mindset and buys a home and coverage just to burn it down

B----A Morale hazard is a state of mind in which the insured displays an indifference to loss possibly occurring.

Which of the following reinforces the concept of indemnity? A: Speculative risk B: Pure Risk C: Replacement Cost D: Hazard

B-Indemnity ensures that an insurer will not profit from a loss in order for insured to become whole after a loss. Pure risk reinforces indemnity because an insured may not profit from a loss.

Which of the following would be an example of concealment? A: an insured purposely misstating a prior event B: an insured withholding important information during application C: an insured unknowingly misstating an unimportant fact D: None of the Above

B-When an insured withholds material information, it is known as concealment. The insurer would have to prove that the concealment was intentional.

When an insured acts with a careless mindset, contrary to what a reasonable prudent person would have acted it is known as: A: Moral Hazard B: Negligence C: Absolute Liability D: Vicarious Liability

B... Negligence is defined as when a person acts careless and causes unintentional damage to another. It is failure to use care that a reasonable prudent person would have used in a given situation.

K is applying for an auto policy. When the agent asked K if he has any moving violations he said no but had three tickets last year. K has committed: A: no offense B: concealment C: material misrepresentation D: a warranty

C

To own a casualty policy, an insured must prove they have a loss potential: A: at the time of policy issuance B: at the time of loss C: at the time of issue and loss D: at the time a claim form is filled out

C

A repeated exposure to conditions over time that results in an unintended loss is the definition of a(an): A: Accident B: Hazard C: Occurrence D: Peril

C - An Occurrence is a repeated exposure to conditions over time that results in a loss. An accident is a sudden, unexpected event that causes property damage or injury. Every accident is an occurrence, but not every occurrence is an accident.

D, who repairs and builds guitars, is working on his neighbor's favorite bass guitar. D cleans the part of the guitar with a flammable oil. When D is done, he throws the rags into a garbage can. What type of hazard does leaving oil soaked rags in a garbage can display? A: Morale B: Moral C: Physical D: Speculative risk

C- A Physical hazard is something tangible that may increase the chance of loss occurring. Oil soaked rags with other garbage that can cause combustion and fire is a physical hazard.

A written change to a contract that may add or delete coverage after the policy was issued is known as a(n): A: Exclusion B: Rider C: Endorsement D: Binder

C- An Endorsement is a written change made to a policy at or after issue. Endorsements must be made in writing and they can be applied to a contract to add or delete coverage.

Since insurance policies are contracts of the utmost good faith, when an insured intentionally fails to disclose a known material fact it is known as A: a warranty B: a misrepresentation C: concealment D: a material misrepresentation

C- Concealment is failure to disclose a known fact that is being hidden by an applicant. The insurer must prove concealment was intentional to void a contract.

In a court of law if a person is found to be negligent, careless actions that are breached and prove actual injury would establish: A: an occurrence B: an intentional act C: proximate cause D: wanton negligence

C- Proximate cause is an unbroken chain of events that starts with a careless, breach of duty of person, leading to actual loss.

K decided to drive to the horse racing track one day. K places a wager that the number 8 horse will win the race. What type of risk did K just encounter? A: Pure B: General C: Speculative D: Guaranteed Loss

C...A Speculative risk involves the chance of loss or gain. Gambling is a perfect example of a speculative risk, which is NOT insurable.

Which of the following provisions found in a casualty contract allows the insurer to adjust premiums at a later date in the contract? A: pure risk B: subrogation C: certificate of insurance D: deposit premium audit

D

Which of the following statements are CORRECT regarding indemnity? A: Indemnity gives the insured less than they need to be reimbursed B: Indemnity gives the insured enough to recover from loss and profit C: Indemnity is illegal in most states and therefore is not present in casualty contracts D: Indemnity gives the insured enough benefits to restore them to where they were before loss occurred.

D- Indemnity restores the insured after a loss, making them whole again. The principle of indemnity states that an insured will never profit from a loss.

Which of the following is true about a certificate of insurance? A: it is a document that is proof a policy has been issued for auto coverage B: it lists a renewal date on the card C: it is not proof the policy is in force D: All of the Above

D- The Certificate of Insurance is evidence from an insurer that a policy was issued to the insured. It does not guarantee that coverage is in force. Most insurers require that the insured carry the certificate in case law enforcement officers request it.

Which of the following will the insurer use in underwriting to assess risk? A: policy application B: the law of large numbers principle C: inspection reports D: All of the Above

D....In underwriting, the insurer uses policy applications and inspection reports to determine risk on an individual. In addition, the law of large numbers is a statistical principle of actuarial science which helps insurer calculate the potential losses for a group of insureds.

Which of the following would be an example of a physical hazard? A: A person leaving their car running, unlocked, while they run into the post office to mail a letter B: A person who decided to buy a home just to burn it down to collect the benefits C: An insured who knowingly lies on a claim form D: A person leaves their tools all over the house after completing a home improvement job.

D...A Physical hazard is a physical condition that makes loss more likely to occur. Physical hazards are something tangible that can be seen, touched, smelled, etc.

Which of the following situations would be legal insurable interest? A: Two business owners having equal ownership stake in a CPP policy covering their company's warehouse. B: A husband and wife owning an HO-3 policy on their home C: An adult son who collected on a loss from his deceased parent's home that was willed to him D: All of the Above

D...Insurable interest is when an insured has a loss potential tied to a property. Insurable interest must be established at the time of policy inception as well as the time of actual loss.

Which of the following is CORRECT about Vicarious liability? A: Vicarious liability only applies when one person is legally responsible for the actions of another individual B: Vicarious liability is derived from old English common law for the master to answer for actions of servants C: Vicarious liability relates to when a business creates a product and it harms a customer D: Only A and B

d- Vicarious Liability is when a person is legally responsible for the actions of another. This idea is derived from old English Common Law that states that the master must answer for actions of the servants. Modern day vicarious liability is related to a parent being responsible for actions of a minor child or employer/employee relationships.