OH P&C Chapter 3

A) mortgagee rights.

A bank demanding to be listed as an insurable interest on a property policy is an example of A) mortgagee rights. B) mortgagor requirements. C) lender lien interest. D) additional insured interest.

A) doctrine of assumption of risk. QUESTION RATIONALE Assumption of risk means just what it states--all risk of injury is borne by the individual who participated in the injury-causing activity. The theory is that you should have realized there were dangers inherent with the activity and it makes sense that you also acknowledge responsibility for any forthcoming accident.

A common-law defense (against being sued for negligence) in which it is argued that, since the injured person agreed to participate in the activity causing the injury, he or she accepted all risk of injury, is A) doctrine of assumption of risk. B) contributing negligence. C) doctrine of dual casualty. D) parole-acceptance doctrine.

A) physical

A dead tree beside a home is best described as what type of hazard? A) physical B) moral C) proximate D) morale

A) an indirect loss.

A loss suffered as a result of consequences of another loss is an example of A) an indirect loss. B) extensions of coverage. C) proximate causes. D) a direct loss.

C) proof of loss.

A sworn statement by the claimant stating the facts and damages in a claim is a(n) A) claim notice. B) itemized list of claimed assets. C) proof of loss. D) recorded statement.

A) additional insured clause. QUESTION RATIONALE The Lessor of a vehicle or property will request to be listed as an additional insured on the policy so that all of the coverage provided by the policy will apply to them.

ABC Leasing has leased a car to Dwight. They need a loss payable clause for their interest if the car is damaged. But since it is still titled to ABC Leasing, they want the liability coverage of the policy to protect them as well in case of lawsuit. ABC will request a(n) A) additional insured clause. B) mortgagee clause. C) assignment clause. D) loss payable clause.

A) depreciation due to wear and tear.

Actual cash value is found by taking the property's replacement cost and subtracting the A) depreciation due to wear and tear. B) market value. C) original purchase price. D) assessed value.

C) pay the difference between the cost new and the actual cash value. QUESTION RATIONALE The insurer should make the insured whole again. Answers A and D would make the insured whole again. Answer B would actually make the insured better if the company uses that method. The company cannot offer the difference between the replacement cost and the cash value.

After a covered loss, the insurer may do all of the following, EXCEPT A) repair with like kind and quality. B) replace the damage property with new. C) pay the difference between the cost new and the actual cash value. D) make an Actual Cash Value settlement.

A) slipping on spilled milk in the store.

All of the following are examples of Absolute Liability, EXCEPT A) slipping on spilled milk in the store. B) responsibility for the actions of minors. C) handling explosives. D) dangerous animals.

B) higher than ACV, but lower than the cost of replacement with identical property. QUESTION RATIONALE Functional replacement cost is an evaluation option (as opposed to ACV or replacement cost) that covers the cost to replace specifically described property with similar property that performs the same function when replacement with identical property is impossible or unnecessary.

As a method of valuation, functional replacement cost is usually used when functional replacement cost is A) lower than ACV. B) higher than ACV, but lower than the cost of replacement with identical property. C) both lower than the ACV and the replacement cost with identical property. D) lower than the ACV, but higher than the cost of replacement with identical property.

A) The occurrence limit is restored. QUESTION RATIONALE The occurrence limit is the most the insurer will pay for any one event. If another event occurs, the occurrence limit is available again for that loss. There is no extra premium due for this benefit.

If a liability coverage has an occurrence limit, what happens if there is another occurrence? A) The occurrence limit is restored. B) The occurrence limit is already exhausted and no coverage applies. C) The occurrence limit is reduced by the amount of the previous claim paid. D) The occurrence limit is restored but an extra premium is charged.

B) a person is allowed to press a lawsuit for alleged bodily injury or property damage.

In insurance, the term "statute of limitation" refers to the time A) a consumer has to pay the premium. B) a person is allowed to press a lawsuit for alleged bodily injury or property damage. C) allotted the Department of Insurance to approve rate filings. D) an insurer has to cancel a policy.

B) agreed value. QUESTION RATIONALE Market value is what someone is willing to sell or buy something for. Replacement cost is new for old. John wants a stated or agreed value on the car with the insurance company.

John wants to cover his 1965 Mustang for $17,000, this is an example of A) replacement cost. B) agreed value. C) market value. D) actual cash value.

A) Doctrine of No Benefit to a Bailee QUESTION RATIONALE A bailee is someone who has temporary custody of someone else's property such as a dry cleaner or auto repair shop. Larry's policy will pay Larry as the insured and not someone who happens to have custody of the property at the time of the loss.

Larry's shirts were damaged at a fire at the dry cleaner. He has turned the claim into his insurance company. The dry cleaner would like the claim check made out to them and Larry since he hasn't paid the dry cleaning bill yet. The insurer denies the request under which provision? A) Doctrine of No Benefit to a Bailee B) Doctrine of Utmost Good Faith C) Doctrine of Adhesion D) Doctrine of Reasonable Expectations

C) Mexico

Liability coverage could be worldwide, but most coverage is subject to a coverage territory. Which of the following is NOT part of the coverage territory? A) U.S. Territories B) Puerto Rico C) Mexico D) Canada

C) eliminate small claims.

One purpose of a deductible is to A) allow the insured to ignore physical hazards. B) prevent catastrophic claims. C) eliminate small claims. D) prevent underinsurance.

D) exclusions section

Phil bought an all risk policy and was told by his agent that everything was covered. After a loss, where does Phil look to see if in fact that loss will be covered? A) no need to look anywhere, the agent told him everything was covered B) conditions section regarding what to do after a loss C)declarations page D) exclusions section

C) cause of loss form attached to her policy.

Rita has a property policy covering her home and contents. After a heavy wind storm she wants to know if that peril is covered. She needs to review the A) declarations page. B) exclusion list in a named peril policy. C) cause of loss form attached to her policy. D) time limit to report claims.

B) loss payable clause. QUESTION RATIONALE A lender having an interest in your building will request a mortgagee clause. The lender having an interest in your car or your furniture requests the loss payable clause to protect them.

The clause in a property or auto policy protecting the lender for their interest in your property that is not a building is known as the A) waiver clause. B) loss payable clause. C) insuring clause. D) mortgagee clause.

D) theory of indemnity QUESTION RATIONALE It makes sense that insurable interest and indemnity are closely related. Before you can be made whole, you must have a relationship with the covered property such that its damage caused you to suffer a loss.

The doctrine of insurable interest closely follows what principle? A) replacement cost less depreciation B) doctrine of concurrent causation C) loss assessment D) theory of indemnity

A) insuring clause.

The insurer's responsibilities to the insured is found in the A) insuring clause. B) conditions. C) declarations. D) provisions.

B) 80%.

The most common co-insurance percentage amount that appears in a property contract is A) 60%. B) 80%. C) 90%. D) 75%.

A) per person limit. QUESTION RATIONALE Policies could have a per person limit which is the most that will get paid to any one individual for a particular event. These limits are restored for future events.

The most the insurer will pay for one person's injury or property damage is known as the A) per person limit. B) occurrence limit. C) aggregate limit. D) combined single limit.

D) policy period and policy territory.

The time frame of coverage and the location of coverage are referred to as A) peril exclusions and proof of loss reporting. B) policy exclusions and claim conditions. C) perils covered and proof of loss reporting. D) policy period and policy territory.

A) Claims + Expenses - Interest.

The typical components of a rate filing are A) Claims + Expenses - Interest. B) Claims + Expenses + Interest. C) Claims - Expenses - Interest. D) Claims - Expenses + Interest.

B) $135,000 QUESTION RATIONALE Actual cash value is replacement cost new ($150,000) less accumulated depreciation (5 years x 2% per year x $150,00) or $150,000-$15,000 = $135,000. (RC - D = ACV)

Tom purchased a home five years ago for $110,000. Its current replacement cost is $150,000. If it depreciates two percent per year, what is its current actual cash value? A) $150,000 B) $135,000 C) $110,000 D) $99,000

B) combined single limit. QUESTION RATIONALE Liability can be stated as bodily injury coverage or property damage coverage. When the policy states one dollar amount for both of these situations, it is known as a Combined SINGLE limit. There is one amount for both bodily injury and/or property damage claims combined per event.

Toni's policy states that it will provide a $100,000 liability limit per A) per person limit. B) combined single limit. C) aggregate limit. D) occurrence limit.

C) Doug's insurer agrees to assigning the policy over to Bob. QUESTION RATIONALE Although the insured does have the right to assign a policy to someone else, it is only effective if the insurer agrees to it, which rarely ever happens.

Under which of the following circumstances can the insured exercise the right of assignment of an insurance policy? A) Doug sells his car to Bob and calls his agent to transfer the policy to Bob. B) The department of insurance approves the assignment. C) Doug's insurer agrees to assigning the policy over to Bob. D) Bob contacts Doug's insurer to take over the policy on the car he bought from Doug.

C) intervening cause QUESTION RATIONALE In order to prove negligence, there must be a legal duty, a breach of that duty, a proximate cause, and damages. An intervening cause is a defense against a negligence accusation.

Which of the following is not a requirement to prove negligence? A) proximate cause B) A: duty C) intervening cause D) damages

D) bamboo

Which of the following is not a type of construction for property rating purposes? A) frame B) brick C) fire resistive D) bamboo

A) endorsement. QUESTION RATIONALE An endorsement is any modification to the insurance contract. An endorsement can broaden, restrict, or perhaps clarify coverage. Most policies can be endorsed at any time during the term.

An insurance contract may be modified mid-term by a(n) A) endorsement. B) prologue. C) addendum. D) exclusion.

B) strict liability. QUESTION RATIONALE Some actions are so dangerous that liability is strict or absolute and you are responsible without having to prove negligence, like explosives/fireworks.

Being held responsible for someone's injuries, even though you might not have been negligent, is defined as A) vicarious liability. B) strict liability. C) imputed liability. D) presumed negligence.

b. $10,000 QUESTION RATIONALE The co-insurance formula is (Did / Should) x Loss, or (100,000 / [0.80 x 150,000]) x 12,000; (100,00 / 120,000) x 12,000 = 9,999.999 The insurer will pay $10,000.

Ben Graham purchases a $100,000 commercial fire policy. The value of his building is $150,000 and the policy contains an 80% co-insurance clause. After suffering a $12,000 loss, the insurer will pay A) $4,500. B) $10,000. C) $6,666. D) $8,000.

C) $10,000. QUESTION RATIONALE The co-insurance formula is (Did / Should) x Loss, or (100,000 / [0.80 x 150,000]) x 12,000; (100,00 / 120,000) x 12,000 = 9,999.999 The insurer will pay $10,000.

Ben Graham purchases a $100,000 commercial fire policy. The value of his building is $150,000 and the policy contains an 80% co-insurance clause. After suffering a $12,000 loss, the insurer will pay A) $8,000. B) $4,500. C) $10,000. D) $6,666.

A) the policy limit QUESTION RATIONALE Co-insurance rules only apply to partial losses, never total loss. In the event of a total loss, the insurer owes the limit of coverage on the policy.

If a person violates the co-insurance provisions of the policy, how much will be received in the event of a total loss? A) the policy limit B) the full loss C) nothing D) only a portion of the loss

A) Duty to Defend. QUESTION RATIONALE The insurer's contractual obligation and duty to defend the insured in a liability lawsuit and pay all of the costs of the defense regardless of the outcome of the lawsuit is the core of liability protection. Without that, an insured could go bankrupt paying defense costs even if found not to be negligent in the lawsuit.

In liability insurance, paying defense costs and expenses in a suit brought against the insured is a contractual obligation known as the A) Duty to Defend. B) Doctrine of Estoppel. C) Indemnification principle. D) Doctrine of Adhesion.

A) $80,000.

Ten years ago, an insured purchased a building for $50,000 that would cost $100,000 to rebuild today. If the physical value of the building has depreciated $2,000 each year, the building's present actual cash value is A) $80,000. B) $100,000. C) $50,000. D) $30,000.

A) both general and special damages

What damages awarded to the injured person are covered by liability insurance? A) both general and special damages B) general damages C) neither general or special damages D) special damages

B) valued policy. QUESTION RATIONALE A valued policy has an agreed upon limit for the insured property. The insured will receive that amount in the event of a total loss.

An insurance policy that pays a predetermined amount of insurance at the time of loss best describes a A) fire policy. B) valued policy. C) personal floater. D) blanket form.

B) functional replacement cost QUESTION RATIONALE Functional replacement is designed to put a ring back on her finger but it might not look or be the same. The other choices are three ways of saying the same thing and would help her get the correct value for the ring.

Beth is very concerned that the insurance company will not properly cover her ring that once belonged to her grandmother. Which loss settlement would cause this to happen? A) agreed value B) functional replacement cost C) valued amount D) stated amount

B) Ann's policy is primary, Cheryl's is excess QUESTION RATIONALE The owner's policy is always primary and pays first. After it is exhausted, the driver's policy is excess.

Cheryl is driving Ann's car and has an accident in which she is at fault. How will Ann's policy as the owner and Cheryl's policy as the driver respond? A) Cheryl's policy is primary and Ann's is excess B) Ann's policy is primary, Cheryl's is excess C) Cheryl's policy is primary since she was driving D) Ann's policy is excess since she was not driving

B) general and special QUESTION RATIONALE Compensatory damages include two types: General -- an amount over and above special damages like medical care forever and special damages -- which involve compensation for medical bills and loss of income. Special damages are definite and defined.

Compensatory damages include what? A) vicarious and imputed B) general and special C) intended and unintended D) implied and apparent

C) smoke from a factory discolors the paint on nearby homes QUESTION RATIONALE An occurrence is loss resulting from repeated exposure to a continuously similar event. Over time, the factory smoke discolors the paint on the home and the homeowners suffer a loss to the dwelling.

In liability insurance, what is considered to be an occurrence? A) an auto strikes and injures a pedestrian B) a digging machine breaks a water main C) smoke from a factory discolors the paint on nearby homes D) a customer slips on an oily surface in a store and suffers severe head injuries

C) comparative negligence. QUESTION RATIONALE Comparative negligence tries to make all parties accountable for their contributions (if any) to an accident. If a court finds a person is 20% responsible for the accident, the primary tortfeasor or wrong doer will only be required to reimburse 80% of their injuries.

Liability determined by each party's contribution to an injury defines A) last clear chance. B) pure negligence. C) comparative negligence. D) assumed liability.

C) special damages QUESTION RATIONALE Of the three types of compensatory damages, special damages are designed to compensate an injured party financially for medical bills, rehabilitation, and loss of income. General damages are awarded when the injured party can prove entitlement to an award over and above special damages. Punitive damages are awarded when the injury was caused by gross (willful or wanton) negligence and are not covered by insurance. Imputed damages do not exist.

Lost wages, and medical bills are examples of what type of compensatory damages? A) general damages B) punitive damages C) special damages D) imputed damages

C) One pays for only listed perils, the other pays for perils not excluded QUESTION RATIONALE A named peril policy only covers the peril listed and named. All Risk covers everything that is NOT excluded. "One pays for only listed perils, the other pays for perils not excluded" is the best choice.

Named peril policies differ from all risk policies in which of the following? A) Both contain exclusions, but All Risk is less expensive B) One pays for only listed perils, the other pays for everything C) One pays for only listed perils, the other pays for perils not excluded D) One contains exclusions, the other does not

A) an insured collects from her insurance company for damage caused by a third party.

Subrogation may follow if A) an insured collects from her insurance company for damage caused by a third party. B) forces of nature damage the insured's property. C) an insured causes damage to her own goods. D) firefighters damage the insured's property while putting out a fire.

D) loss ratio. QUESTION RATIONALE The percentage of claims paid out to the premiums received is known as the loss ratio. If a company collects 1,000,000 in premiums and pays out 700,000 in claims, 70% of the premiums received are paying claims, so the loss ratio is 70%

The amount of losses paid out in comparison to the premiums received is referred to as A) expense ratio. B) profit and loss margin. C) profit margin. D) loss ratio.

D) no people, no property. QUESTION RATIONALE The correct definition of vacancy is when both the property and the occupants have been removed from the premises.

Vacancy on a property policy can eliminate certain perils. The definition of vacancy is A) no property and some people. B) some property and some people. C) no people, but some property. D) no people, no property.

B) split limit.

Wendy's policy states that it will pay up to $25,000 for injury to any one person; $50,000 for all people that are injured and $10,000 for property damage. This is known as a(n) A) combined single limit. B) split limit. C) occurrence limit. D) aggregate limit.

A) having a financial stake in the preservation of property

What best describes "insurable interest?" A) having a financial stake in the preservation of property B) restoring the person to the position she was in prior to the loss C) belief that the policy will cover the property D) none of the choices presented

A) functional replacement cost endorsement QUESTION RATIONALE The functional replacement cost endorsement is the compromise between ACV and replacement cost. It is used when ACV coverage might not be practicable while replacement cost with like kind and quality might not be economical or possible because of technological changes in building construction.

What best describes the endorsement used in property policies that modifies building indemnification as a compromise between ACV and replacement cost? A) functional replacement cost endorsement B) alternative indemnification endorsement C) obsolete construction endorsement D) historical building endorsement

D) insurance carried / insurance required x loss = amount paid

What formula is used to calculate a claim payment when a policy contains a co-insurance clause? A) insurance carried / insurance required x total value = amount paid B) insurance required / 80% of replacement cost x total value = amount paid C) insurance required / 80% of cash value x loss = amount paid D) insurance carried / insurance required x loss = amount paid

D) vicarious negligence

What is NOT a defense against negligence? A) contributory negligence B) assumption of the risk C) comparative negligence D) vicarious negligence

D) All risk policies cover unusual losses from undefined perils. QUESTION RATIONALE All risk policies cover unusual losses; unless the event is excluded in the contract, the event is covered.

What statement about all risk coverage is true? A) All risk policies provide coverage for all types of losses with no peril exclusions. B) All risk policies protect against perils specifically listed in the policy. C) All risk policies are also known as specified peril contracts. D) All risk policies cover unusual losses from undefined perils.

B) Open peril contracts cover losses resulting from unusual causes that are not excluded by the policy. QUESTION RATIONALE Open peril is another name for "all risk" peril. Any loss to covered property not specifically excluded is covered.

What statement about open peril coverage is true? A) Open peril contracts are also known as specified peril contracts. B) Open peril contracts cover losses resulting from unusual causes that are not excluded by the policy. C) Open peril contracts cover losses resulting from perils specifically listed in the policy. D) Open peril coverage protects against losses from defined perils.

B) each party must willfully enter into a contract QUESTION RATIONALE There are four requirements for negligence: 1. a duty to act; 2. a breach of that duty; 3. proximate cause; and 4. injury. While "agreement" is a component of a legal contract, it has nothing to do with negligence.

What statement does NOT describe necessary elements for negligence to be present? A) committed act results in an injury B) each party must willfully enter into a contract C) a duty to act D) a breach of duty

C) Functional replacement cost covers the cost to replace with similar property that performs the same function. QUESTION RATIONALE There are no general age restrictions for the endorsement. Also, this coverage is readily available from all insurers, both admitted and non-admitted. Finally, contents can also be covered by the endorsement, whenever appropriate.

What statement regarding "functional replacement cost" is correct? A) Functional replacement cost is only available for buildings, not business contents. B) Functional replacement cost is only offered through non-admitted surplus lines insurers. C) Functional replacement cost covers the cost to replace with similar property that performs the same function. D) Functional replacement cost is only applicable to buildings constructed before 1950.

B) unoccupancy.

When a property is present but there is no occupant, it is an example of A) vacancy. B) unoccupancy. C) a secondary residence. D) a primary residence, vacated at present.

D) at the time of loss

When must insurable interest be present under a property policy? A) before the agent can make a premium commitment B) when you close on your mortgage C) at the time of initial application D) at the time of loss

A) subrogation. QUESTION RATIONALE The insurance company assumes the rights of the policy owner to recover from the responsible party. This comes after the insurer pays the insured for damages.

When the insurer wants to recover the losses already paid to an insured, it sues the responsible third party. The company is exercising its right of A) subrogation. B) assignment. C) indemnification. D) arbitration.

B) each insurer shares the claim equally until their limit is exhausted

Which of the following best describes the Contribution by Equal Shares claim provision? A) the insurer with the lowest limit pays first until the limit is exhausted B) each insurer shares the claim equally until their limit is exhausted C) each insurer pays on a pro-rata percentage based on who is most liable D) the insurer with the highest limit pays first

D) depreciated value QUESTION RATIONALE Replacement cost is paying the cost new of an item without any depreciation. The question is asking which one is NOT replacement cost settlement.

Which of the following is NOT an example of replacement cost loss valuation? A) new for old B) paying the cost new for an item C) no depreciated value D) depreciated value