FIN 331 EXAM 3.2

13. The US Supreme Court ruling in The Buick Motor Company vs. McPherson case (1) Weakened the privity of contract doctrine. (2) Established the basis for product liability. (3) Established guidelines for application of the subrogation principle. a. (1) b. (2) c. (1) and (2) d. (1) and (3) e. (2) and (3)

1 & 2

26. The PAP separates the insuring agreement into six major sections, A through F. Which statement about sections A through D is true? Each of the sections 1. Provide coverages. 2. Collectively comprise the policy's insuring agreement. 3. Describe required coverages, while sections E and F describe optional coverages. (1) (2) (1) and (2) (2) and (3) (1), (2), and (3)

1 and 2

34. The damage-to-your-auto section of the PAP's insuring agreement covers _____ losses. Collision Comprehensive Damage to the property of others (1) (2) (3) (1) and (2) (1), (2), and (3)

1 and 2

42. Which of the following statements about tort system auto liability for bodily injury lawsuits is true? (1) A longer period of time is required for tort systems to pay victims for their bodily injuries compared with no-fault states. (2) A significant portion of legal settlements is diverted to attorneys in tort systems. (3) The ten US states with the highest auto premiums all use a tort system. a. (2) b. (1) and (2) c. (1) and (3) d. (2) and (3) e. (1), (2), and (3)

1 and 2

Which of the following is a reason why the rate of auto fatalities has fallen drastically since 1950? (1) Both roads and autos are safer. (2) Driver licensing requirements are tougher. (3) Speed limits are lower than in the 1970s. a. (1) b. (2) c. (1) and (2) d. (1) and (3) e. (2) and (3)

1 and 2

26. The PAP always lists which drivers as covered drivers? (1) Everyone on the Dec page named as drivers (2) All of the insured's family members living at the same address. (3) The insured's resident spouse a. (1) b. (2) c. (1) and (2) d. (1) and (3) e. (1), (2), and (3)

1 and 3 pp. 423-424 Note: Only family members with a driver's license

39. Which statement about auto insurance premiums is true? (1) Most states allow the use of credit scores to set premiums. (2) Most states prohibit the use of gender to set premiums. (3) Most states prohibit the use of vehicle type to set premiums. a. (1) b. (2) c. (3) d. (1) and (2) e. (2) and (3)

1.

8. Commercial general liability insurance policies typically cover claims from which of the following? (1) The insured business' products liability claims. (2) Damage to the insured business' personal property. (3) Damage to the insured business' real property. a. (1) b. (2) c. (3) d. (1) and (2) e. (2) and (3)

1. the insured business' products liability claims

17. Which statement about government provided workers' compensation insurance is most likely to be true? All states offer their own workers' compensation plans. Some state plans are monopoly plans. Premiums charged by state plans usually are lower than premiums charged by private insurers. (1) (2) (3) (2) and (3) (1), (2), and (3)

2

10. Which of the following expenses is covered by the supplementary payments section of most commercial liability insurance policies? Attorney fees incurred defending the insured Note: This is primary, not supplementary. Posting bonds Interest accruing from legal judgments (1) (1) and (2) (1) and (3) (2) and (3) (1), (2), and (3)

2 and 3

14. Weekly workers' compensation insurance benefits for lost wages most often Amount to 90% of a worker's wages. Are subject to a maximum cap. Are subject to a minimum weekly amount. (2) (1) and (2) (1) and (3) (2) and (3) (1), (2), and (3)

2 and 3

22. Which statement about state workers' compensation pools is true? (1) All 50 states allow pools. (2) A pool's insurance premium usually is more stable than private insurance company premiums. (3) Pools usually return any excess premiums to their members at the end of each year. a. (1) b. (2) c. (3) d. (1) and (3) e. (2) and (3)

2 and 3

17. On average, what does it cost employers to provide workers' compensation insurance coverage to their workers? a. ½% of payroll b. 2% of payroll c. 5% of payroll d. 10% of payroll e. 17% of payroll

2% of payroll

12. Suppose a chemical company developed and sold a new herbicide (weed killer) that could be sprayed on crops without harming them. Later, it was discovered that the herbicide made the harvested crops inedible. A farmer filed a claim in 2006 after his 2005 crop was ruined by the herbicide he bought in 2004 (but manufactured in 2003). The insurer paid the claim in 2007. If the chemical had claims-made commercial liability coverage in each year mentioned, the policy for which year paid the claim? 2003 2004 2005 2006 2007

2006

10. Which statement contrasting occurrence CGL policies with claims-made CGL policies is false? The occurrence policy in force when a legal claim is filed is the policy that will pay. The older approach is occurrence. Occurrence policies have longer tails than claims-made policies. Occurrence policies carry a higher premium than claims-made. Occurrence dominates as the policy of choice.

The occurrence policy in force when a legal claim is filed is the policy that will pay.

14. Workers' compensation insurance regulations a. Provides benefits for lost wages, medical expenses, and occupational rehabilitation for work-related injuries or illnesses. b. Prevents injured workers from successfully suing their employers for greater benefits than specified by state laws. c. Provides the same amount of lost wage benefits in all 50 states. a and b a, b, and c

a and b

The Personal Auto Policy was developed by A. The State of New York Insurance Department. B. The National Council of Auto Insurers. C. The National Association of Insurance Commissioners. D. The American Bar Association. E. The Insurance Services Office.

the insurance service office

21. Generally, workers' compensation coverages for medical benefits are Unlimited. Limited to $10,000 per occurrence. Limited to $50,000 per occurrence. Limited to $100,000 per occurrence. Limited to $150,000 per occurrence.

unlimited

5. For which of the following profession is errors and omissions insurance least likely to be the only type of professional insurance needed? Travel agents. Board of directors members. Attorneys. Architects. Brokers.

board of directors members

8. Which of the following is most likely to be covered by the ISO CGL occurrence policy? Workers' compensation claims Damage to property owned by the insured Bodily injuries arising from negligent acts Pollution claims Malpractice claims

bodily injuries arising from negligent acts

43. A major purpose of no-fault auto insurance laws is to reduce the size of ______ claims. Collision Personal injury Bodily injury Comprehensive Both b and c

bodily injury

32. A driver has 100/300/50 PL/PD auto insurance limits. He had an at-fault accident when his car wandered off the road due to his inattention and crashed into a house. Three residents were injured, and they incurred these medical bills: Driver X: $ 50,000 Driver Y: $150,000 Driver Z: $200,000 In addition, repairs to the house cost $40,000. In total, how much will the auto insurance company pay for the $440,000 of claims? a. $ 40,000 b. $100,000 c. $290,000 d. $400,000 e. $440,000

c. $290,000 p. 429 Note: Payment = $50k for A, $100k for B, $100k for PL, and $40k for PD

2. A business has $2 million of CGL coverage, and $5 million of commercial umbrella liability coverage. If the business is sued and a court awards $4 million, how much will each policy pay? Ignore any possible deductible. a. CGL: Nothing; Umbrella: $4 million b. CGL: Nothing; Umbrella: $2 million c. CGL: $2 million; Umbrella: $2 million d. CGL: $2 million; Umbrella: Nothing e. CGL: $2 million; Umbrella: $4 million

c. CGL: $2 million; Umbrella: $2 million

35. The premium rating approach used by the ISO for setting auto insurance premiums begins with a base rate that is increased or decreased based on many rating factors. Which factor below is one of the factors used in the ISO's base rate? a. The driver is a male. b. The driver is married c. The insured driver is between 30 and 39 years old. d. The driver has an excellent credit rating. e. The driver has no dependents.

c. The insured driver is between 30 and 39 years old. p. 449

26. Luke carries PL/PD auto insurance coverage but no collision or comprehensive. Under which condition will collision damage to Luke's vehicle be covered by auto insurance? a. Luke is at-fault. b. The other driver is at-fault but doesn't carry collision damage on his vehicle. c. The other driver is at-fault and carries collision insurance on his own vehicle. d. a, b, and c. e. Damage to Luke's auto is not covered unless he carries collision coverage.

e. damage to Luke's auto is not covered unless he carries collision coverage

20. Which of the following is least likely to be a workers' compensation insurance benefit to a worker who incurs a work-related injury? a. A weekly payment equal to a portion of lost wages b. A funeral benefit to survivors if a worker suffers a fatal injury c. A weekly benefit paid to a surviving spouse if a worker suffers a fatal injury. d. A weekly benefit paid to surviving dependent children if a worker suffers a fatal injury. e. Guarantees that injured workers will get their old job positions back when they are able to return to work.

e. guarantees that injured workers will get their old job positions back when they are able to return to work

39. No-fault laws represent which approach to cost containment of auto insurance premiums? A. Restriction of fraudulent payments B. Loss control c. Loss prevention d. Reduction of insurers' overhead expenses E. Redistribution of losses

e. redistribution of losses

33. What auto insurance protection does PIP provide? Property damage Standard PAP medical benefits Protection against lawsuits Expanded medical coverage Protection for only the named insured

expanded medical coverage

14. On average, which component of workers' compensation claims is largest measured by dollars? a. Lost wages b. Health care expenses c. Death benefits d. Occupational rehabilitation expenses e. Personal injury expenses

health care expenses

31. Split limits is the way of describing which auto insurance policy coverage? a. Collision b. Comprehensive c. PIP d. Liability e. Both a and b

liability

Which of the following components of auto premium cost usually is the largest? a. Medical claims b. Vehicle repairs c. Fraud d. Glass breakage e. Loss-other-than-collision

medical claims

5. E&O insurance is most similar to which type of insurance? a. Medical malpractice b. Employment practices c. Prior acts d. Directors and officers e. Liability umbrella

medical malpractice

45. Which state has not done away with its no-fault auto insurance laws? a. Colorado b. Connecticut c. Michigan d. Nevada e. Georgia

michigan

22. How many states allow workers to sue for pain and suffering when they incur work-related injuries and their employers are covered by workers' compensation insurance? a. None b. All c. 32 d. 17 e. 4

none

35. Which statement about auto insurance premiums is true? a. All states use a driver's gender to set premiums. b. All states use a driver's marital status to set premiums. c. All states use a driver's age to set premiums. d. a, b, and c e. None of the above is true.

none of the above is true

4. Which type of professional liability insurance policy protects an employer against lawsuits filed by only its own employees? a. Medical malpractice b. Errors and omissions c. Directors and officers d. Employment practices e. Prior acts

D. Employment practices

2. Which statement about commercial umbrella liability policies is true? (1) Underlying policies such as the CGL and BAP are required. (2) Coverage is limited to property damages, not liability claims. (3) They are sold with coverage available in multiples of $1,000. a. (1) b. (1) and (2) c. (1) and (3) d. (2) and (3) e. (1), (2), and (3)

a. (1) Note: Multiples of $1 million, not $1,000

26. Which of the following is not one of the six major components of the PAP? a. A Dec page b. PL/PD Liability c. Medical payments and PIP d. Uninsured and underinsured motorist e. Damage to your auto

a. A Dec page

17. Under current workers' compensation laws, if a worker's on-the-job injuries are partly due to the worker's own negligence, a. The employer must pay for the injured worker's claims. b. The employer does not have to pay for the injured worker's claims. c. Both the employer and employee equally share the claim's cost. d. The employer pays only that proportion of the claim for which it is responsible, and the employee pays the rest. e. The employer's responsibility for paying claims varies from state to state.

a. The employer must pay for the injured worker's claims.

39. Successful cost containment of auto insurance premiums focuses on a. Ending state regulation of the auto insurance industry. b. Loss control and prevention activities. c. Reducing profit gouging by auto insurers. d. a and b e. a and c

b. Loss control and prevention activities

Which component of the US average auto premium is smallest? a. PL/PD b. Collision c. Comprehensive d. Uninsured motorist e. Underinsured motorist

comprehensive

5. Which statement about Business Auto Policies is false? a. They are sometimes sold as stand-alone policies. b. They cover autos, trucks, and small trailers. c. They provide needed coverage for virtually all businesses. d. Businesses choose several of the 9 basic coverages as are appropriate. e. They provide coverage for claims arising from bodily injury and property damage caused by the operation of covered vehicles.

d. Businesses choose several of the 9 basic coverages as are appropriate. p. 350 Note: They choose only one of the 9, not several.

44. "No-fault-lite" is an auto insurance regulation term describing a. Tort laws. b. At-fault laws. c. Feeble no-fault laws. d. Verbal threshold laws. e. Monetary threshold laws.

feeble no-fault laws

26. The PAP separates the insuring agreement into six major coverages, A through F. Which section, in most other P&C policies, would be called the conditions section? a. Medical payments and PIP b. General provisions c. Duties after an accident or loss d. Damage to your auto e. Uninsured and under-insured motorist protection

general provisions