Risk Management and Insurance Exam Two
10. Arguments often used against no-fault automobile insurance laws include all of the following EXCEPT (a) It is often difficult to determine which driver was negligent when a multiple-vehicle accident occurs. (b) Many injured persons will not be compensated for their full losses because payments for pain and suffering will be eliminated. (c) The defects of the negligence system are exaggerated, and the system needs only to be reformed. (d) Claims of efficiency and premium saving are exaggerated, and automobile insurance premiums might actually increase.
A
15. Which of the following statements about joint underwriting associations for insuring high-risk drivers is (are) true? I. Underwriting losses are proportionately shared by all automobile insurers on the basis of premiums written in the state. II. Each company participating in an association sets it own rates. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
16. Which of the following statements about the legal obligations of a property owner is (are) true? I. A property owner must inspect the premises for the benefit of an invitee and correct any unsafe conditions. II. A property owner has the right to set a trap designed to injure a trespasser. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
25. Duties of an insured after a collision loss covered under the PAP include which of the following? I. Take reasonable steps to protect the vehicle from further damage. II. Admit fault if the insured believes he or she caused the collision. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
30. Ken fell asleep while driving late at night. He crossed the center line and hit a car approaching from the other direction. The following losses occurred: —The driver of the other car suffered $30,000 in bodily injuries. —Ken's car sustained $5,000 in damages. —Ken incurred $5,000 in medical expenses. —The car that Ken hit was a total loss. Which of Ken's Personal Auto Policy (PAP) coverages will cover the other driver's medical expenses? (a) bodily injury liability (b) collision coverage (c) medical payments coverage (d) property damage liability
A
31. A defendant who is only slightly liable may be required to pay the full amount of damages under which of the following? (a) the joint and several liability rule (b) the collateral source rule (c) arbitration (d) res ipsa loquitor
A
35. Betty's personal property is insured for $100,000 under her Homeowners 3 policy. If she usually keeps some personal property at a mountain cabin that she owns, how much coverage for this property is available under her homeowners policy? (a) $10,000 (b) $20,000 (c) $40,000 (d) $50,000
A
6. Which of the following statements about the elements of a negligent act is (are) true? I. The negligence of the tortfeasor may arise from a failure to act. II. The damage that results must be in the form of property damage. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
1. Under financial responsibility laws, proof of financial responsibility is generally required under all of the following circumstances EXCEPT (a) the use of an auto by any driver with fewer than 3 years of driving experience. (b) an automobile accident involving property damage over a specified amount. (c) failure to pay a final judgment resulting from an automobile accident. (d) conviction for certain serious traffic offenses, such as driving while intoxicated.
A
11. Which of the following statements about the coverage for other structures (Coverage B) under the Homeowners 3 policy is true? (a) The amount of insurance on other structures is equal to a percent of the coverage on the dwelling. (b) Structures attached to the dwelling by a fence or utility line are considered to be part of the dwelling rather than other structures. (c) Coverage applies even if the other structure is used for business purposes. (d) There is coverage for a private garage only if it is rented to a tenant of the dwelling.
A
13. Under which type of automobile insurance arrangement are all automobile insurers in a state assigned their proportionate share of high-risk drivers based on the total volume of automobile business written in the state? (a) automobile insurance plan (b) unsatisfied judgment fund (c) reinsurance facility (d) specialty automobile plan
A
14. Disadvantages of automobile insurance plans include which of the following? I. High premiums may cause many high-risk drivers to go uninsured. II. Large underwriting profits have resulted in high-risk drivers subsidizing the cost of insurance for good drivers in the voluntary markets. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
17. Liability arising out of all of the following are covered under the personal injury endorsement to the homeowners policy EXCEPT (a) bodily injury. (b) malicious prosecution. (c) slander. (d) invasion of privacy.
A
17. Which of the following persons is most likely to be classified as an invitee? (a) a mail carrier (b) a social guest (c) a door-to-door salesperson (d) a solicitor for a charitable organization
A
17. Which of the following statements about the additional coverages under Section I of the Homeowners 3 policy is true? (a) There is coverage for the reasonable cost incurred to protect property from further damage after a covered loss occurs. (b) There is unlimited coverage for furnishings of the landlord in an apartment on the premises that is rented to others. (c) A standard deductible of $1,000 applies to all losses. (d) Damage caused by the settling of the insured structure is covered as a collapse.
A
18. Liability arising out of all of the following are covered under the personal injury endorsement to the homeowners policy EXCEPT (a) property damage. (b) false arrest. (c) libel. (d) wrongful entry.
A
19. All of the following are covered perils under the personal property coverage (Coverage C) of an unendorsed Homeowners 3 policy EXCEPT (a) earthquake. (b) theft. (c) windstorm. (d) explosion.
A
2. All of the following are examples of intentional torts EXCEPT (a) negligence. (b) trespass. (c) slander. (d) assault.
A
2. Defects in financial responsibility laws include which of the following? I. Accident victims may not be fully compensated for their injuries. II. They apply only to property damage losses, not to bodily injury claims. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
2. Which of the following statements about the payment of defense costs by the PAP is (are) true? I. They are paid in addition to the policy limits. II. They are payable even after the limit of liability is exhausted. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
20. Which of the following statements about endorsements to the homeowners policy is (are) true? I. The purpose of the inflation guard endorsement is to help prevent home-owners from being under-insured. II. The purpose of the watercraft endorsement is to provide coverage for watercraft when they are used outside the United States. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
21. A state just passed a law requiring individuals who have been involved in an auto accident or who have been convicted for certain vehicle-related offenses to demonstrate the ability to pay liability claims up to a specified amount. Such a provision is called a(n) (a) financial responsibility law. (b) compulsory insurance law. (c) unsatisfied judgment fund law. (d) "no pay, no play" law.
A
21. Which of the following statements about covered perils under the personal property coverage (Coverage C) of the Homeowners 3 policy is true? (a) Theft losses to boats and watercraft are covered only if they occur at the insured's residence. (b) Damage from an explosion is covered only if the explosion is the result of fire or lightning. (c) Property damage from vehicles is covered only if it is caused by the insured. (d) Smoke damage is covered only if it arises from agricultural or industrial operations.
A
22. Which of the following statements about an earthquake endorsement for a homeowners policy is (are) true? I. The endorsement also covers landslides and volcanic eruptions. II. The policy is written without a deductible if adequate insurance is purchased. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
27. Janet was unable to obtain auto insurance in the voluntary insurance market. She was contacted by the state insurance department and notified that XYZ Insurance would be her insurer. Eric was also unable to obtain auto insurance, and he received a similar notice. ABC Insurance would be his insurer. The mechanism used in Janet and Eric's state to provide auto insurance to high-risk drivers is a(n) (a) automobile insurance plan. (b) joint underwriting association. (c) specialty automobile insurer. (d) reinsurance facility.
A
29. All of the following are duties of the mortgagee under the standard mortgage clause EXCEPT (a) to reimburse the insurer for any loss payments. (b) to notify the insurer of any change in ownership of the property of which the mortgagee is aware. (c) to provide a proof of loss form if the insured fails to do so. (d) to pay the premium if the insured fails to do so.
A
29. Arguments in favor of reforming the civil justice system include which of the following? I. There is often a long delay in settling lawsuits. II. Compensation awards have decreased significantly over the past two decades. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
3. All of the following are covered autos under the liability section of the PAP EXCEPT (a) a nonowned van which is driven by the insured on a regular basis. (b) a trailer owned by the named insured. (c) a borrowed auto used by the insured as a substitute for a stolen covered auto. (d) a newly acquired auto which replaces a vehicle previously described in the policy.
A
34. Sarah purchased a Personal Auto Policy with liability limits of 50/100/25. Sarah ran a stop sign and hit a van. The van sustained $15,000 in damages. The following bodily injuries were suffered by passengers in the van: Passenger #1, $15,000, Passenger #2, $60,000, and Passenger #3, $10,000. Sarah sustained $5,000 in medical expenses, and Sarah's car sustained $10,000 in damages. How much will Sarah's insurer pay under Part A: Liability Coverage? (a) $90,000 (b) $100,000 (c) $115,000 (d) $125,000
A
39. Louise was in a hurry and tried to cross the street in the middle of the block rather than at a street corner. A motorist hit her. Even though Louise placed herself in danger, she may still be able to collect for her injuries if the motorist had an opportunity to avoid hitting her but failed to do so. This rule is called the (a) last clear chance rule. (b) collateral sources rule. (c) alternative dispute resolution rule. (d) joint and several liability rule.
A
39. The purpose of the collision damage waiver when renting an auto is to (a) relieve the renter of financial responsibility if the rented car is damaged or stolen. (b) relieve the renter from legal liability to third parties arising out of operation of the rented car. (c) relieve the renter's insurer of legal liability to third parties arising out of operation of the rented car. (d) waive the insured's deductible if the rented car is damaged or stolen.
A
4. Which of the following statements about unsatisfied judgment funds is (are) true? I. An accident victim must obtain a judgment against the motorist who caused an accident and must show the judgment cannot be collected. II. The major disadvantage is that the negligent uninsured motorist is relieved of legal liability. (a) I only (b) II only (c) both I and II (d) neither I nor II
A
5. All of the following are elements of a negligent act EXCEPT (a) the existence of a no-fault law. (b) the failure to perform a legal duty to use reasonable care. (c) damages or injuries to a claimant. (d) proximate cause between the negligent act and the infliction of injury.
A
5. Which of the following statements about uninsured motorists coverage is true? (a) An innocent motorist must establish that the uninsured motorist is legally liable. (b) The amount of coverage in most states must be at least $300,000. (c) Property damage is covered in all states but bodily injury is not covered in all states. (d) The coverage is very expensive and beyond the means of all but wealthy insureds.
A
7. Damages awarded for losses that can be determined or measured are (a) special damages. (b) general damages. (c) punitive damages. (d) comparative damages.
A
7. The major difference between the Homeowners 2 policy and the Homeowners 3 policy is the (a) perils applying to the dwelling. (b) perils applying to personal property. (c) type of liability coverage provided. (d) amount of coverage for other structures.
A
8. Section II of the homeowners policy contains exclusions applying to all of the following EXCEPT (a) activities of the named insured's minor children. (b) business activities. (c) transmission of a communicable disease. (d) intentional injuries.
A
9. All of the following situations are excluded from coverage under Section II of the homeowners policy EXCEPT (a) the rental of a spare bedroom which is used by the tenant as an office. (b) the use of a rented airplane to take a vacation. (c) the ownership of a four-unit apartment house as an investment. (d) the performance of professional services by the insured at the residence premises.
A
9. Heather sued Robert for injuries suffered in an automobile accident. Based upon the facts presented, the jury concluded that Heather was 40 percent at fault in the accident and Robert was 60 percent at fault. Under the common law doctrine of contributory negligence, the jury should award Heather (a) nothing. (b) 40 percent of her actual damages. (c) 60 percent of her actual damages. (d) 100 percent of her actual damages.
A
10. All of the following are covered under the dwelling coverage (Coverage A) of the Homeowners 3 policy EXCEPT (a) any structure attached to the dwelling. (b) the land on which the insured dwelling is located. (c) materials and supplies intended for alteration or repair of the dwelling. (d) materials and supplies intended for construction of a detached garage.
B
11. Nancy was injured when she drove her car through a stop sign and was struck by Philip's car. Philip saw Nancy and could have stopped. However, he failed to do so since he had the right-of-way. Nancy can recover damages from Philip under which of the following legal doctrines? (a) vicarious liability (b) the last clear chance rule (c) contributory negligence (d) the assumption of risk doctrine
B
15. Which of the following property is covered under the personal property coverage (Coverage C) of the Homeowners 3 policy? (a) a pet iguana owned by the named insured's spouse (b) a bicycle owned by a foster child living with the named insured (c) music CDs located in the named insured's automobile (d) a stamp collection insured under a separate policy
B
16. Which of the following statements about the additional coverage for damage to property of others in Section II of the homeowners policy is true? (a) The maximum amount of coverage is $25,000 per occurrence. (b) Payments are made on the basis of the replacement cost of the damaged property. (c) There is coverage for property damage arising out of a business engaged in on a full-time basis by an insured. (d) There is coverage for intentional acts by any insured who is a teenager.
B
25. Which of the following statements about the replacement cost provision of the Homeowners 3 policy is true? (a) It applies to personal property losses only. (b) Except for small losses, the insured must repair or replace the damaged property in order to receive full replacement cost. (c) The insured is required to carry an amount of insurance equal to 100 percent of the replacement value of the insured property. (d) Loss settlements are equal to 80 percent of the value of the loss if the insured is carrying less than the required amount of insurance.
B
30. All of the following statements about the cancellation of a Homeowners 3 policy are true EXCEPT (a) The insurer may cancel a new policy for any reason if it has been in force for less than 60 days and is not a renewal policy. (b) At least 100 days notice of cancellation must be given if an insurer cancels a policy for nonpayment of premium. (c) A policy written for longer than 1 year can be cancelled for any reason on the anniversary date by giving the insured at least 30 days notice of cancellation. (d) After a policy has been in force for at least 60 days, it can be cancelled by the insurer if the risk has increased substantially since the policy was issued.
B
36. Michelle had major abdominal surgery. Months after the surgery, she still did not feel well. When she was operated on again, the surgeon discovered two sponges that were not removed at the conclusion of the first operation. Michelle should be able to collect damages without having to prove negligence under the doctrine of (a) joint and several liability. (b) res ipsa loquitor. (c) contributory negligence. (d) uberrimae fidei.
B
37. Angie was injured when her car was struck by a driver who ran a red light. The other driver carried the minimum liability coverage necessary to be considered financially responsible. Angie's injuries were $15,000 above the minimum bodily injury limit. There is a coverage that can be added to the PAP that applies when a negligent driver carries the minimum liability insurance required by the state, but less than the insured's actual damages for bodily injury. This coverage is called (a) medical payments coverage. (b) underinsured motorists coverage. (c) bodily injury liability coverage. (d) uninsured motorists coverage.
B
1. A tort is defined as a (a) breach of contract which is punishable by a fine. (b) legal wrong for which the law allows a remedy in the form of money damages. (c) legal wrong against society which is punishable by fines. (d) legal wrong against society which is punishable by imprisonment or death.
B
10. Which of the following situations is covered under Section II of an unendorsed homeowners policy? (a) injuries which occur at a park resulting from a motorcycle owned by the insured (b) injuries resulting from an auto not subject to registration because it is in dead storage (c) injuries resulting from an auto rented by the insured while on a vacation (d) injuries resulting from a trailer being pulled by the insured's auto
B
10. Which of the following statements about comparative negligence laws is (are) true? I. Under the pure rule, any negligence by the plaintiff automatically bars recovery for damages. II. Under the 50 percent rule, parties who are equally at fault are each allowed to recover damages. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
12. Common situations involving absolute liability include all of the following EXCEPT (a) blasting operations. (b) operating a motor vehicle. (c) work-related injuries under workers compensation. (d) crop dusting.
B
13. All of the following are covered persons under the medical payments coverage of the PAP EXCEPT (a) a family member of the named insured if struck by an auto while crossing the street. (b) a pedestrian struck by the named insured's auto. (c) the named insured who is injured while occupying a friend's auto. (d) a friend who is injured while occupying the named insured's auto.
B
14. All of the following are exclusions in the homeowners policy that apply to medical payments to others (Coverage F) EXCEPT (a) bodily injury resulting from nuclear radiation. (b) bodily injury to persons who are social guests at the insured location. (c) bodily injury to persons eligible to receive workers compensation benefits. (d) bodily injury to residents of the household who are in the care of an insured.
B
14. Tony has a PAP which provides medical payments coverage. Under which of the following circumstances would the injured person be eligible for benefits under Tony's policy? I. A friend is injured while Tony is driving a nonowned auto. II. A hitchhiker riding with Tony's son is injured when the son wrecks Tony's auto. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
15. All of the following requirements must be met to satisfy the doctrine of res ipsa loquitur EXCEPT (a) The injured party has not contributed to the accident in any way. (b) The injured party must prove negligence on the part of the defendant. (c) The event is one that normally does not occur in the absence of negligence. (d) The defendant has exclusive control over the instrumentality causing the accident.
B
16. All of the following statements about the coverage for loss of use (Coverage D) under the Homeowners 3 policy are true EXCEPT (a) If a covered loss makes the home unfit for living, the insurer pays additional living expenses the insured may incur as a result of the loss. (b) The duration of payments for additional living expenses is limited to a maximum of 15 days. (c) There is coverage for the fair rental value of any part of the premises rented to others. (d) There is coverage if civil authorities prohibit the insured from using the premises because of a loss to a neighboring premises from an insured peril.
B
16. Which of the following statements about reinsurance facilities for insuring high-risk drivers is (are) true? I. The reinsurance facility acts as the servicing agent for all policies placed with it. II. An insurer must accept all applicants for insurance, but the insurer has the option of placing high-risk drivers in the reinsurance pool. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
16. Which of the following statements about the uninsured motorists coverage of the PAP is true? (a) The coverage usually applies only to property damage. (b) The coverage applies only if the uninsured motorist is legally liable. (c) Unless higher amounts are purchased, the maximum benefit is normally limited to $1,000. (d) A covered person's only recourse is to sue the insurer if there is a disagreement over the amount of damages.
B
17. Which of the following persons is (are) insured under the uninsured motorists coverage of the PAP? I. A pedestrian struck by a covered auto if he or she has no insurance to pay medical expenses II. The spouse of a named insured who is killed by an uninsured motorist (a) I only (b) II only (c) both I and II (d) neither I nor II
B
17. Which of the following statements about automobile insurers that specialize in insuring motorists with poor driving records is (are) true? I. The actual premium paid by an applicant is set by the federal government and is independent of an applicant's driving record. II. The coverages available may be more limited than those written by insurers in the standard markets. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
19. What is the effect of the family purpose doctrine? (a) to impose liability on children for the care of elderly parents (b) to impose liability on the owner of an automobile for the negligence of immediate family members operating the automobile (c) to impose liability on a parent for any negligence of a child (d) to impose strict liability on the owner of a wild animal for any injuries caused by the animal
B
2. Which of the following statements about eligibility requirements for homeowners insurance is (are) true? I. A contract can be written on a six-unit apartment complex as long as the tenants are families. II. Separate forms are available for renters and condominium owners. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
20. Which of the following statements about the immunity of governmental entities is (are) true? I. Governmental entities are more likely to be immune from liability when performing proprietary functions than when performing governmental functions. II. Many courts have eliminated the immunity of government entities. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
22. Bill was severely injured by an uninsured driver. Bill did not purchase uninsured motorists coverage, and the other driver, although held liable, could not pay the damages awarded. After exhausting all sources of recovery, Bill obtained some relief from a state fund designed to compensate individuals like Bill. These state funds are called (a) guaranty funds. (b) unsatisfied judgment funds. (c) rainy-day funds. (d) second injury funds.
B
23. All of the following losses are excluded under Part D (coverage for damage to your auto) of an unendorsed PAP EXCEPT (a) damage by vandals to a portable car telephone. (b) theft of a compact disc player which was permanently installed in the auto. (c) damage caused to a car's engine because the named insured forgot to use antifreeze. (d) damage by fire to a radar detector which overheated.
B
23. Sharon lives in a state that has a no-fault automobile insurance law. Under the law, an injured person has the right to sue the negligent driver only if the bodily injury claim exceeds a dollar or verbal threshold. The no-fault law in Sharon's state is a(n) (a) pure no-fault plan. (b) modified no-fault plan. (c) add-on plan. (d) choice no-fault plan.
B
23. Under one doctrine, a person who understands the danger inherent in an activity cannot recover damages in the event of injury from the activity. This doctrine is the (a) contributory negligence doctrine. (b) assumption of risk doctrine. (c) comparative negligence doctrine. (d) fellow servant doctrine.
B
24. One tort reform idea would permit manufacturers to assert that as long as the product conformed to the prevailing technology and production methods at the time it was produced, it cannot be considered a defective product today. This defense is called the (a) collateral sources rule. (b) state of the art defense. (c) strict liability defense. (d) privity of contract rule.
B
24. Which of the following statements about the scheduled personal property endorsement to the homeowners policy is (are) true? I. It provides named-perils coverage on scheduled items. II. It is used to insure valuable items such as jewelry, silverware, and coin collections. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
26. Alan has been involved in three accidents and has a number of moving violations. He tried to purchase auto insurance, but three insurers refused to sell him coverage. The generic name for state plans designed to insure drivers like Alan is the (a) exchange market. (b) residual market. (c) voluntary market. (d) excess market.
B
26. In addition to providing coverage in the United States, its territories and possessions, and Puerto Rico, where else does the PAP provide coverage? (a) in Mexico (b) in Canada (c) in both Mexico and Canada (d) anywhere in the world
B
27. All of the following are proposed solutions to the medical malpractice problem EXCEPT (a) shortening the statute of limitations for filing lawsuits. (b) eliminating arbitration panels to resolve disputes. (c) placing limitations on contingent fees charged by attorneys. (d) placing limitations on damage awards.
B
28. In the state where Susan lives, drivers whom private insurance companies do not want to cover are placed in a common pool, and each company pays its pro rata share of pool losses and expenses. A common policy is used for all high-risk drivers. Susan's state handles high-risk drivers through a(n) (a) auto insurance plan. (b) joint underwriting association. (c) pure no-fault plan. (d) specialty auto insurer.
B
28. The Sarbanes-Oxley Act requires which of the following? I. Accounting firms auditing a company's books must provide other major services to the firm besides auditing services. II. The company's CEO and CFO must swear to the accuracy of quarterly and annual financial reports. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
29. Which of the following statements about the Miscellaneous Type Vehicle Endorsement to the PAP is (are) true? I. It provides bodily injury liability coverage for any vehicle rented by the insured. II. To lower premiums when a motorcycle is insured, bodily injury to passengers can be excluded. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
3. All of the following statements about the Homeowners 6 (unit-owners form) policy are true EXCEPT (a) It includes personal liability coverage. (b) It covers personal property on an "all-risks" basis. (c) It provides limited coverage for improvements and alterations. (d) It provides limited coverage for loss assessments.
B
30. All of the following are examples of tort reform proposals EXCEPT (a) modifying the collateral source rule. (b) eliminating caps on noneconomic damages. (c) regulation of attorney fees. (d) imposing penalties to deter frivolous lawsuits.
B
30. Reggie just purchased a home. A friend told him to consider insurance coverage for natural disasters when insuring the home. Losses from all of the following perils are covered under an unendorsed Homeowners 3 policy EXCEPT (a) tornadoes. (b) floods. (c) hurricanes. (d) forest fires.
B
31. All of the following losses are excluded from coverage under Section II of an unendorsed Homeowners 3 policy EXCEPT (a) Phyllis, a medical technician, misread a lab test and the patient is suing her. (b) A canoe Bert was piloting hit another canoe. The other canoe sank. He is being sued. (c) Violet runs a for-profit daycare service in her home. The parents of a child injured at Violet's home are suing her. (d) The homeowner's son was injured when he fell off a swing in the homeowners's yard.
B
31. Ken fell asleep while driving late at night. He crossed the center line and hit a car approaching from the other direction. The following losses occurred. —The driver of the other car suffered $30,000 in bodily injuries. —Ken's car sustained $5,000 in damages. —Ken incurred $5,000 in medical expenses. —The car that Ken hit was a total loss. Which of Ken's Personal Auto Policy (PAP) coverages will cover the damage to Ken's car? (a) bodily injury liability (b) collision coverage (c) medical payments coverage (d) property damage liability
B
32. Some states have enacted laws which prohibit uninsured drivers from suing a negligent driver for noneconomic damages, such as pain and suffering. These laws are called (a) pure no-fault laws. (b) "no pay, no play" laws. (c) financial responsibility laws. (d) unsatisfied judgment laws.
B
33. All of the following are categories of torts EXCEPT (a) intentional torts. (b) breach of contract. (c) absolute liability. (d) negligence.
B
33. Which of the following losses would be covered under the personal liability coverage of the Homeowners 3 policy? (a) liability arising out of the manufacture and sale of illegal narcotics (b) liability arising out of damage to a neighbor's property that occurred over time (c) liability arising out of damage to non-owned property in the care of the insured (d) liability arising out of bodily injury to an insured
B
34. James was injured in an auto accident caused by another motorist's negligence. He received severe facial lacerations, and after dismissal from the hospital he still had severe pain in his lower back. In payment for his hospital bills and lost earnings, items which can be specifically itemized, James will receive (a) punitive damages. (b) special damages. (c) imputed damages. (d) general damages.
B
34. Michelle had four matching end tables in her home. A fire damaged the home, destroying two of the end tables. Michelle's home was covered by an unendorsed Homeowners 3 policy. Which of the following is true with regard to the settlement for the tables in this case? (a) Loss to a pair or set is excluded under the policy. (b) The insurer will pay the actual cash value of the loss. (c) The insurer will pay the replacement cost of the loss. (d) If a partial loss to a pair or set occurs, the insurer is liable for replacement of the entire pair or set.
B
35. Patricia purchased a Personal Auto Policy (PAP). Her car was rear-ended by a driver who fled the scene. Patricia suffered whiplash, migraine headaches, and she was unable to work. Which of the following coverages will cover her lost work earnings? (a) medical payments (b) uninsured motorists (c) underinsured motorists (d) bodily injury liability
B
36. A credit-based score that is highly predictive of future claims cost is an individual's (a) CLUE score. (b) insurance score. (c) loss ratio score. (d) underwriting score.
B
36. Linda wants to purchase a homeowners policy, but she has some valuable personal property to which internal policy limits apply. Her agent said that she could obtain coverage under her homeowners policy by attaching a list of this valuable property with specific amounts of insurance. Such a listing is called a(n) (a) binder. (b) schedule. (c) application. (d) warranty.
B
38. Darla purchased an unendorsed Homeowners 3 policy. While the policy was in force, a fire occurred that destroyed a living room set. The living room set cost $4,000 new, but was 25 percent depreciated when the loss occurred. Replacement furniture will cost $4,400. Assuming no deductible, how much will Darla receive from her insurer? (a) $3,000 (b) $3,300 (c) $3,400 (d) $4,400
B
4. Which homeowners policy is designed for the tenants of rented premises? (a) Homeowners 2 (b) Homeowners 4 (c) Homeowners 6 (d) Homeowners 8
B
4. Which of the following statements about the insurer's obligation to provide a legal defense under the personal liability coverage (Coverage E) of the homeowners policy is (are) true? I. The insurer agrees to defend the insured only if the suit is not groundless, false, or fraudulent. II. The insurer's obligation to defend the insured ceases after the amount paid for damages from an occurrence equals the policy limit. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
40. Bruce believes a local manufacturer is responsible for contaminating some land he owns. He filed suit against the company. Rather than have the case go to court, the manufacturing company's legal team suggested mediation or arbitration to settle the case. Methods that are employed to resolve legal disputes without litigation are called (a) collateral source rules. (b) alternative dispute resolution techniques. (c) joint and several liability techniques. (d) comparative negligence rules.
B
40. Ellen believes the value of the loss to her home is $30,000. The insurer has offered $18,000 to settle the loss. If Ellen and the insurer cannot agree on the value of the loss, which homeowners policy provision specifies how this dispute will be settled? (a) insurer's option (b) appraisal clause (c) loss payment clause (d) mortgage clause
B
41. The purpose of gap insurance is to (a) pay the difference between the bodily injury liability limit purchased and the actual amount of bodily injury liability if it exceeds the limit. (b) pay the difference between the amount the insurer pays if a car is a total loss and the amount owed on a lease or car loan. (c) pay the difference between the medical payments coverage limit and the actual medical expenses of injured family members or passengers in the insured auto. (d) pay the difference between the uninsured motorists coverage limit and the actual amount of the medical expenses incurred by the insured.
B
43. If the value of a vehicle is increased after repairs, such as repainting an entire auto when only one fender or door is damaged, the insurer will not pay for the increase in value. Another name for the increase in value is (a) diminution. (b) betterment. (c) appraisal. (d) subrogation.
B
5. Which of the following statements about the coverage for medical payments to others (Coverage F) under the homeowners policy is true? (a) Medical payments may be made for any resident of the named insured's household. (b) Medical expenses incurred within 3 years of an accident are covered. (c) Medical payments are made only if the insured is not legally liable. (d) Covered medical expenses are limited to emergency room charges.
B
6. All of the following are covered as supplementary payments under the liability section of the PAP EXCEPT (a) the cost of an appeal bond in a lawsuit. (b) the cost of a bail bond for a traffic violation when no accident is involved. (c) interest which accrues on a liability judgment covered by the policy. (d) reasonable expenses incurred by the insured to testify at a trial involving a lawsuit covered by the policy.
B
7. Which of the following situations would be covered by the liability section of an unendorsed PAP if the insured is legally liable? (a) The insured injures a pedestrian while operating a friend's new motorcycle. (b) The insured backs into and damages the garage door of his rented house. (c) A friend's suitcase and laptop computer were damaged in an auto accident while the insured and the friend were vacationing together. (d) The insured damages a parked car while driving a dump truck for his or her employer.
B
8. A no-fault law under which benefits are paid without regard to fault but an injured person can still sue for any injury is referred to as a(n) (a) pure no-fault law. (b) add-on no-fault law. (c) modified no-fault law. (d) comparative no-fault law.
B
8. Which of the following statements about monetary damages awarded by a court is (are) true? I. The purpose of general damages is to provide benefits for medical expenses or loss of earnings. II. The purpose of punitive damages is to punish the tortfeasor so that others are deterred from committing the same wrongful act. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
9. Which of the following situations would be covered under the liability section of the PAP? I. An attendant at a parking lot is sued by a pedestrian who is injured when the attendant has an accident while parking the covered auto. II. The daughter of the named insured is sued after she has an accident when a new friend she just met at a campus hangout lets her drive his car. (a) I only (b) II only (c) both I and II (d) neither I nor II
B
15. All of the following are exclusions under the medical payments coverage of the PAP EXCEPT (a) injuries incurred while riding a motorcycle. (b) injuries incurred while an auto is being used without the presumption that permission would have been granted to use the auto. (c) injuries incurred in an auto while it is used in a share-the-expense car pool. (d) injuries incurred during the course of employment if workers compensation benefits are available.
C
19. All of the following are major rating factors for determining private passenger automobile insurance premiums EXCEPT (a) gender. (b) age. (c) race. (d) marital status.
C
20. Which of the following losses to a dwelling would be covered under an unendorsed Homeowners 3 policy? (a) smoke damage resulting from agricultural operations of a neighboring farmer (b) damage to the structure caused by a flash flood (c) damage caused by the weight of heavy snow (d) damage to a floor caused by water backing up through a sewer pipe
C
21. The doctrine of respondeat superior applies to a(n) (a) parent's liability for a negligent child. (b) pet owner's liability for the pet. (c) employer's liability for a negligent employee. (d) manufacturer's liability for a faulty product.
C
21. Which of the following statements about buying homeowners insurance is true? (a) There is no reason to carry insurance equal to more than 80 percent of a dwelling's replacement cost. (b) The deduction for depreciation will be increased if a personal property replacement cost endorsement is purchased. (c) Premiums often can be reduced substantially by selecting a higher deductible. (d) There is little reason to compare cost since the lack of competition results in little price variation among companies.
C
25. All of the following losses are covered under Section II of an unendorsed Homeowners 3 policy EXCEPT (a) The homeowner accidentally dropped a bowling ball, injuring another bowler's foot. (b) A baby sitter slipped and fell at the insured's home, breaking her ankle and incurring medical expenses. (c) The insured slandered a city council member at a city council meeting. (d) The insured's dog bit a veterinarian while the dog was at the veterinary clinic.
C
26. Shareholders and employees harmed by the negligent acts and deceptive statements of company leaders may file lawsuits against the company leaders. Such claims are covered under which type of insurance? (a) employment practices liability insurance (b) employee benefit liability insurance (c) directors and officers liability insurance (d) general liability insurance
C
35. Which of the following statements is (are) true concerning the use of an individual's credit history as an insurance rating factor? I. Individuals with poor credit histories generally file more homeowners claims than do individuals with good credit histories. II. The use of credit history as a rating factor is controversial. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
5. Which of the following persons is (are) covered for liability insurance under the PAP? I. A family member who drives a covered auto. II. A family member who drives a friend's auto. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
1. All of the following persons are insureds for personal liability insurance under the homeowners policy EXCEPT (a) children of the named insured under age 24 who are attending college full time and temporarily residing elsewhere. (b) foster children under the age of 21 who reside with the named insured. (c) nonresident employees of the named insured. (d) the spouse of the named insured if a resident of the same household.
C
1. Which of the following statements about the liability limits of the PAP is (are) true? I. The policy is written with split limits of liability. II. Prejudgment interest is considered part of the damage award and is subject to the policy limit of liability. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
10. Larry has $25,000 of bodily injury liability coverage under his PAP. This limit is the minimum amount required by his state to be considered financially responsible. While on a vacation, Larry visited a neighboring state which has a minimum financial responsibility limit of $50,000 for bodily injury. Which of the following statements describes the situation for Larry while he was in the neighboring state? (a) Larry's policy was suspended while he was in the neighboring state. (b) Larry had only $25,000 of liability coverage. (c) Larry's policy automatically provided $50,000 of liability coverage. (d) Larry's policy automatically provided $100,000 of liability coverage.
C
11. John occasionally borrows the car of his friend, Sophie. Sophie has the car insured for $300,000 of liability insurance under a PAP. John is also a covered person under his mother's PAP which provides $500,000 of liability insurance. If John has an accident while using Sophie's car and is found to be legally liable in the amount of $400,000, how much will be paid by each policy? (a) Sophie's policy will pay $150,000, and the mother's policy will pay $250,000. (b) Sophie's policy will pay $300,000, and the mother's policy will pay nothing. (c) Sophie's policy will pay $300,000, and the mother's policy will pay $100,000. (d) The mother's policy will pay the entire judgment.
C
11. Which of the following statements about the characteristics of current no-fault laws is true? (a) Most laws in force today are pure no-fault laws. (b) Most laws apply to both bodily injury and property damage. (c) Most laws permit payment of survivor benefits to a surviving spouse and children. (d) States with add-on plans restrict the right of accident victims to sue negligent drivers.
C
12. The term used to describe plans in which automobile insurers participate to make insurance available to drivers unable to obtain coverage in the standard market is the (a) foreign market. (b) fair market. (c) residual (shared) market. (d) high-premium market.
C
12. Which of the following statements about the medical payments coverage of the PAP is true? (a) The amount of the benefit typically is $100,000. (b) Covered expenses must be incurred within 6 months of the accident. (c) Covered expenses include the cost of funeral services. (d) The benefit limit applies on a per-accident basis rather than on a per-person basis.
C
14. The Homeowners 3 policy limits the amount of coverage provided on certain personal property (e.g. coin collections and silverware). This personal property can be adequately insured by (a) lowering the deductible which applies to personal property losses. (b) storing the property away from the home at another location. (c) adding a schedule to the policy listing the property with specific amounts of insurance. (d) adding an appraisal clause to the policy.
C
15. Which of the following statements about the additional coverages included in Section II of the homeowners policy is true? (a) Damage to property of others is covered only if the insured is legally liable. (b) Damage to property owned by the insured is an additional coverage. (c) Interest that accrues on a judgment after the judgment is awarded but before payment is made is covered under claims expenses. (d) First aid expenses incurred by the insured for bodily injury covered under the policy are not covered.
C
18. All of the following are additional coverages under Section I of the Homeowners 3 policy EXCEPT (a) the reasonable expenses of removing debris of covered property after an insured loss. (b) fire department service charges for which the insured is liable by contract or agreement. (c) damage to trees and shrubs caused by a windstorm. (d) losses incurred from the unauthorized use of a stolen credit card.
C
18. All of the following are considered to be uninsured vehicles for purposes of the uninsured motorists coverage of the PAP EXCEPT (a) a vehicle owned by an individual that is insured, but for less than the amount required by the state's financial responsibility law. (b) a hit-and-run vehicle, the ownership of which cannot be determined. (c) a vehicle upon which enough liability insurance has been purchased to satisfy the state's financial responsibility law. (d) a vehicle insured by a company which becomes insolvent before a claim can be paid.
C
18. Which of the following are legal obligations of a property owner with respect to an invitee? I. The property owner must warn an invitee of any unsafe conditions. II. The property owner must inspect the premises and eliminate any dangerous conditions revealed by the inspection. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
19. Factors that affect the cost of homeowners policies include which of the following? I. Construction II. Deductible amount (a) I only (b) II only (c) both I and II (d) neither I nor II
C
21. Which of the following is considered to be a collision loss under Part D (coverage for damage to your auto) of the PAP? (a) The covered auto hits a deer. (b) The covered auto is wrecked by a thief after it is stolen. (c) The covered auto is damaged when it slid off an icy road and hit a fence. (d) The covered auto is damaged when struck by a rock thrown by a child.
C
22. Situations under which parents can be held liable for the actions of a child include which of the following? I. The child uses a gun to injure someone. II. The child is acting as an agent of the parent. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
23. All of the following are general exclusions under Section I of the Homeowners 3 policy EXCEPT (a) losses due to earthquake. (b) losses due to the failure of the insured to use all reasonable means to save and preserve property after the time of a loss. (c) losses resulting from a power failure caused by an insured peril on the residence premises. (d) losses due to radiation from a nuclear power plant.
C
24. The insurance company's options for settling a collision loss to a covered auto under the PAP include which of the following? I. Pay the loss in money. II. Repair or replace the damaged auto. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
24. Which of the following is (are) included among the duties of an insured following a loss covered under the Homeowners 3 policy? I. To file a proof of loss within a specified time period after the insurer's request. II. To prepare an inventory of damaged personal property. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
26. David has a Homeowners 3 policy that provides $280,000 of insurance on his dwelling, which has a current replacement value of $400,000. Ignoring any deductible, how much will David collect if a kitchen with a replacement value of $24,000 but an actual cash value of $18,000 is destroyed in a fire? (a) $18,000 (b) $20,000 (c) $21,000 (d) $24,000
C
26. Tom is planning to build a home. He is weighing many factors, including construction materials, location, and other considerations. Which of the following statements is true with regard to homeowners insurance and Tom's new home? (a) The higher the construction costs are in the area, the lower Tom's homeowners insurance premiums will be. (b) The lower the homeowners deductible selected, the lower the premium will be. (c) Older homes cost more to insure than newer homes. (d) A wood frame home costs less to insure than a brick home.
C
27. All of the following statements about the termination provisions of the PAP are true EXCEPT (a) The insured can cancel the policy for any reason. (b) The insurer can cancel a newly written policy for any reason if it has been in force for less than 60 days. (c) The insurer can cancel the policy after it has been in force for 60 days only if the insured has three or more traffic violations. (d) The insurer can refuse to renew the policy at its annual anniversary date as long as proper notice is given prior to the end of the policy period.
C
27. Robert purchased an unendorsed Homeowners 3 policy. He is concerned that if his personal property is destroyed, the insurer will take depreciation into consideration when determining the settlement and will pay him less than the cost to purchase new assets. Which endorsement can Robert add to his Homeowners 3 policy to address this concern? (a) inflation guard endorsement (b) personal injury endorsement (c) personal property replacement cost endorsement (d) earthquake endorsement
C
28. The Miscellaneous Type Vehicle Endorsement to the PAP can be used to insure all of the following vehicles EXCEPT (a) motor homes. (b) golf carts. (c) snowmobiles. (d) motorcycles.
C
29. Scott had trouble obtaining auto insurance. After three companies refused to insure him, he called the state insurance department. A representative suggested he obtain coverage through Last Chance Insurance Company because "that's all they insure—bad drivers." Scott contacted Last Chance. He was not refused coverage, however, the premium Scott was required to pay was three times greater than the average premium in the market. Last Chance Insurance Company is a(n) (a) reinsurance facility. (b) auto insurance plan. (c) specialty auto insurer. (d) joint underwriting association.
C
3. Criticisms of compulsory insurance laws include which of the following? I. They provide less than complete protection since they require only a minimum amount of liability insurance. II. Even with compulsory insurance laws, substantial numbers of motorists continue to operate vehicles without insurance. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
30. Amber believes that her auto insurance premium is too high. All of the following will reduce Amber's auto insurance premium EXCEPT (a) Amber could raise her physical damage deductible. (b) Amber could move from the city where she lives to a rural area outside the city. (c) Amber could increase the amount of liability insurance that she carries. (d) Amber could improve her driving record.
C
31. Which of the following statements is(are) true with respect to the use of credit scores as an auto insurance rating factor? I. Insurers claim that drivers who have poor credit scores are expected to have relatively more accidents. II. The use of credit scores in personal lines underwriting is controversial. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
32. Alternative techniques for resolving legal disputes without litigation include which of the following? I. Arbitration II. Mediation (a) I only (b) II only (c) both I and II (d) neither I nor II
C
32. Cal is renting an apartment. Which homeowners policy is specially designed to insure renters? (a) HO-2 (b) HO-3 (c) HO-4 (d) HO-6
C
32. Ken fell asleep while driving late at night. He crossed the center line and hit a car approaching from the other direction. The following losses occurred. —The driver of the other car suffered $30,000 in bodily injuries. —Ken's car sustained $5,000 in damages. —Ken incurred $5,000 in medical expenses. —The car that Ken hit was a total loss. Which of Ken's Personal Auto Policy (PAP) coverages will cover Ken's medical expenses? (a) bodily injury liability (b) collision coverage (c) medical payments coverage (d) property damage liability
C
32. Which of the following losses would be covered under the medical payments coverage of the Homeowners 3 policy? (a) injuries to another person arising out of the insured's negligent operation of a vehicle (b) medical payments resulting from the transmission of a communicable disease (c) injury to a resident employee at the insured's home (d) workers compensation medical payments
C
33. A credit-based score that insurers claim is highly predictive of future claims costs is an individual's (a) combined ratio. (b) loss ratio. (c) insurance score. (d) underwriting score.
C
34. Tom and Tammy Evans were ready to purchase a home. The home was to serve as collateral for their mortgage loan. Two insurers declined to insure the home, citing "an adverse CLUE report." Why would an insurer reject a homeowners insurance application because of an adverse CLUE report? (a) because the previous owner had defaulted on the mortgage loan (b) because the home is located in an area where the zoning law had been changed (c) because there had been previous property claims filed on the home (d) because the home is located in an area which does not have a certified fire department
C
36. Rob purchased a Personal Auto Policy (PAP) with collision and other-than-collision coverage. All of the following losses are excluded under this physical damage coverage EXCEPT (a) Rob wrecked his car while using it as a taxi cab. (b) Thieves took Rob's radar detector from his car. (c) A flash flood washed Rob's car off the road and damaged it. (d) The new tires Rob had on the car were defective and wore out after 2 months.
C
37. All of the following are additional coverages provided under Section I of the Homeowners 3 policy EXCEPT (a) reasonable repairs. (b) debris removal. (c) personal liability. (d) property removal.
C
38. Malcolm was involved in an auto accident. He was judged to be 20 percent at fault in the accident, and the other party was judged to be 80 percent at fault. Malcolm's actual damages were $40,000. Under a pure comparative negligence rule, how much will Malcolm receive for his injuries? (a) $8,000 (b) $24,000 (c) $32,000 (d) $40,000
C
39. A dwelling with a replacement cost of $150,000 was insured under a Homeowners 3 policy for $100,000 at the time the roof was destroyed by a windstorm. The actual cash value of the loss was $9,000, but it will cost $12,000 to replace the roof. Assuming no deductible, what will the insurer pay to settle this loss? (a) $8,000 (b) $9,000 (c) $10,000 (d) $12,000
C
4. All of the following are insured persons under the liability coverage of the PAP EXCEPT (a) a friend to whom the named insured loans a covered auto. (b) the employer of the named insured for actions resulting from the named insured's use of a covered auto. (c) the former spouse of the named insured who moved out of the home 2 years ago when the divorce was finalized. (d) a relative of the named insured if a member of the same household.
C
42. A car damaged in an auto accident may have reduced market or resale value. Some insured sought to recover this reduction in market or resale value. This loss in value is called (a) gap coverage. (b) betterment. (c) diminution. (d) subrogation.
C
42. Mike and Michelle built their "dream home." They agreed to insure the home for its full value. Their insurer offered a special homeowners policy. Under the policy, if a total loss occurs, the insurer agrees to replace the home exactly as it was before the loss even if the replacement cost exceeds the amount of insurance stated in the policy. What is this type of homeowners policy called? (a) waiver of inventory policy (b) fair market value policy (c) guaranteed replacement cost policy (d) actual cash value policy
C
42. Trisha was injured by the delivery driver for a local furniture store. The delivery driver claimed that the brakes of the delivery truck failed, causing the accident. Trisha filed suit, and in her lawsuit named the delivery driver, the furniture store, the service station responsible for vehicle maintenance, and the manufacturer of the vehicle. Even though the manufacturer of the vehicle may be only 1 percent responsible for the accident, it may be required to pay a large percentage of the damages under the (a) collateral sources rule. (b) assumption of risk rule. (c) joint and several liability rule. (d) last clear chance rule.
C
6. Which of the following persons is (are) eligible for benefits under medical payments to others (Coverage F) of the homeowners policy? I. A friend who slips and falls on a wet patio while visiting the named insured. II. A neighborhood child who is severely scratched by a cat in the care of the named insured. (a) I only (b) II only (c) both I and II (d) neither I nor II
C
8. Insureds under Section I of the Homeowners 3 policy include which of the following? I. A spouse of the named insured if living in the same household II. The named insured's children who are under age 24 and who are temporarily away at college (a) I only (b) II only (c) both I and II (d) neither I nor II
C
20. All of the following statements about Part D (coverage for damage to your auto) of the PAP are true EXCEPT (a) Coverage may be purchased with or without collision insurance. (b) Losses are paid regardless of fault. (c) Coverage applies to a nonowned auto occasionally driven by an insured. (d) A newly acquired auto is covered only if the named insured asks the company to insure it within 48 hours of acquisition.
D
24. A few states have dual automobile insurance systems. A motorist can pay a higher premium and retain the right to sue under the tort system, or pay a lower premium and be covered under the state's no-fault law. This dual system is called a(n) (a) pure no-fault plan. (b) modified no-fault plan. (c) "no pay, no play" law. (d) choice no-fault plan.
D
33. Ken fell asleep while driving late at night. He crossed the center line and hit a car approaching from the other direction. The following losses occurred. —The driver of the other car suffered $30,000 in bodily injuries. —Ken's car sustained $5,000 in damages. —Ken incurred $5,000 in medical expenses. —The car that Ken hit was a total loss. Which of Ken's Personal Auto Policy (PAP) coverages will cover the damage to the car that Ken hit? (a) bodily injury liability (b) collision coverage (c) medical payments coverage (d) property damage liability
D
34. A few states have enacted laws to make minimum amounts of liability insurance available at reduced rates to individuals who cannot afford regular insurance or who have limited financial assets to protect. The coverage made available through such a plan is called (a) probationary insurance. (b) uninsured motorists insurance. (c) no-fault auto insurance. (d) low-cost auto insurance.
D
5. Which of the following statements about the Homeowners 8 policy is (are) true? I. Losses to the dwelling are settled on a replacement cost basis if the dwelling is insured for its full market value. II. It is designed primarily for very expensive dwellings that are less than 10 years old. (a) I only (b) II only (c) both I and II (d) neither I nor II
D
1. Which of the following statements is (are) true regarding renters insurance? I. Renters insurance is needed if you rent a house, but is not needed if you rent an apartment. II. The ISO renter's policy provides "all-risks" coverage on the insured's personal property. (a) I only (b) II only (c) both I and II (d) neither I nor II
D
11. Which of the following watercraft is covered under Section II of an unendorsed homeowners policy? (a) an owned 40-foot sailboat which has no auxiliary power (b) a rented 30-foot sailboat which has auxiliary power (c) an owned motorboat with a 100 horsepower inboard motor (d) a rented motorboat with a 15 horsepower outboard motor
D
12. All of the following losses are subject to special limits of liability under the Homeowners 3 policy EXCEPT the (a) theft of firearms. (b) destruction by fire of property used for business purposes. (c) damage to a boat by a storm. (d) destruction of jewelry by fire.
D
12. Which of the following situations would be covered under Section II of a homeowners policy? I. The insured is sued by his girlfriend because he infected her with the AIDS virus. II. The insured's son is sued after a friend suffered serious injury as a result of using illegal drugs sold to him by the son. (a) I only (b) II only (c) both I and II (d) neither I nor II
D
13. All of the following may give rise to imputed negligence EXCEPT (a) employer-employee relationships. (b) joint business ventures. (c) vicarious liability laws. (d) attractive nuisance situations.
D
13. For which of the following situations would there be personal liability coverage under the homeowners policy? I. The named insured accidentally injures her husband with a chain saw. II. The named insured breaks his wife's valuable vase while practicing his golf swing. (a) I only (b) II only (c) both I and II (d) neither I nor II
D
13. Which of the following statements about the personal property coverage (Coverage C) of the Homeowners 3 policy is (are) true? I. The coverage applies only in the United States and Canada. II. The full amount of coverage applies only if the property is permanently located at any residence of the insured. (a) I only (b) II only (c) both I and II (d) neither I nor II
D
14. Laws under which businesses that sell liquor may be held liable for the negligence of those who consume the liquor are referred to as (a) proprietary function laws. (b) attractive nuisance laws. (c) assumption of risk laws. (d) dram-shop laws.
D
18. Which of the following statements about the factors affecting automobile insurance rates is true? (a) Because the chance of accidents due to mechanical malfunctions or poor maintenance is increased, the cost of collision coverage increases as a car gets older. (b) Because of high speeds in rural areas, rural drivers tend to pay more for insurance than city drivers. (c) Young unmarried male drivers tend to have fewer accidents than young married male drivers in the same age category. (d) People who drive a car to and from work tend to be charged higher rates than those who use a car for pleasure purposes.
D
19. Joyce was injured by an uninsured drunk driver while she was riding in a friend's car. Joyce and her friend each have a PAP with an uninsured motorists limit of $50,000. How much will be paid by each policy if it is determined that Joyce has $70,000 of bodily injuries? (a) Each policy will pay $35,000. (b) Joyce's policy will pay $50,000, and the friend's policy will pay nothing. (c) Joyce's policy will pay $50,000, and the friend's policy will pay $20,000. (d) The friend's policy will pay $50,000, and Joyce's policy will pay $20,000.
D
2. Persons insured for personal liability coverage under the homeowners policy include which of the following? I. Relatives while visiting the named insured. II. Overnight guests who are not relatives of the named insured. (a) I only (b) II only (c) both I and II (d) neither I nor II
D
20. All of the following statements about shopping for auto insurance are true EXCEPT (a) Adequate liability insurance is the most important consideration. (b) Consideration should be given to dropping physical damage insurance on an older car with a low market value. (c) To obtain the lowest premium, an applicant should review his or her eligibility for all discounts offered. (d) Price comparisons are of little value since insurers tend to charge the same premiums.
D
22. Ian has an auto which is covered for collision losses subject to a $100 deductible. Kate's auto also has collision coverage but her deductible is $500. Which of the following statements describes how a $2,000 collision loss will be paid if it occurs when Ian borrows Kate's car because his car is in the shop for repairs? (a) Ian's policy will pay $1500, and Kate's policy will pay nothing. (b) Ian's policy will pay $1900, and Kate's policy will pay nothing. (c) Kate's policy will pay $1900, and Ian's policy will pay nothing. (d) Kate's policy will pay $1500, and Ian's policy will pay $400.
D
22. Which of the following types of water damage is covered under an unendorsed Homeowners 3 policy? (a) damage from flood (b) damage from water backing up through a drain (c) damage from water below the surface of the ground that seeps into a basement (d) damage from water that overflows from a malfunctioning washing machine
D
23. Which of the following statements about the personal property replacement cost endorsement used with the homeowners policy is (are) true? I. The damaged or destroyed property must be repaired or replaced, no matter the size of the loss. II. It is designed primarily for antiques and fine art. (a) I only (b) II only (c) both I and II (d) neither I nor II
D
25. A number of benefits are payable under no-fault plans. Under one provision, benefits are paid for tasks normally performed by the insured, including such things as lawn care, housework, and home repairs. These tasks are called (a) home health care services. (b) hospice services. (c) activities of daily living. (d) essential services expenses.
D
25. Many medical malpractice insurers have experienced large underwriting losses in recent years. One measure of underwriting profitability is the ratio of claims plus underwriting expenses to premiums. This ratio is called the (a) loss ratio. (b) surplus ratio. (c) expense ratio. (d) combined ratio.
D
27. Which of the following statements about the appraisal clause in the Homeowners 3 policy is true? (a) The appraiser for each party is selected by a judge. (b) A binding settlement can be reached only if the umpire agrees with both appraisers. (c) Both the insured and the insurer must agree that the appraisal process be used. (d) Appraisal expenses are shared by the insured and the insurer.
D
28. Gail lives in southern Illinois, near the New Madrid Fault Line. She added an ISO earthquake endorsement to her Homeowners 3 policy. All of the following statements are true about the endorsement EXCEPT (a) The deductible is expressed as a percentage of the coverage limit rather than as a dollar amount. (b) The endorsement also covers landslides and volcanic eruptions. (c) Aftershocks occurring within 72 hours of an earthquake are considered part of the same occurrence. (d) The endorsement also covers flood losses.
D
28. Under the Homeowners 3 policy, all of the following are options of the insurer for settling claims EXCEPT (a) paying the claim in cash. (b) replacing the property. (c) repairing the property. (d) paying the claim with insurance company stock.
D
29. Lu would like to save money on her homeowners premium. All of the following steps will help her to reduce her homeowners premium EXCEPT (a) raising the deductible in the homeowners policy to a higher amount. (b) shopping around a homeowners policy. (c) installing burglar alarms, smoke detectors, and dead-bolt locks. (d) insuring the value of the land beneath the house.
D
3. A situation in which a person is held legally liable even though fault or negligence cannot be proven is an example of (a) general damages. (b) comparative negligence. (c) an intentional tort. (d) absolute liability.
D
3. All of the following statements about the personal liability coverage (Coverage E) of the homeowners policy are true EXCEPT (a) Coverage is written on an occurrence basis. (b) Coverage is provided for bodily injury liability. (c) Coverage is provided for property damage liability. (d) The minimum amount of coverage is $25,000.
D
31. All of the following statements about conditions under a homeowners policy are true EXCEPT (a) If an insurer broadens coverage without an additional premium during the policy period, the broadened coverage applies immediately to the present policy. (b) A waiver or change in any policy provision must be approved in writing by the insurer to be valid. (c) The insurer must give written consent for an assignment of the policy to be valid. (d) If the named insured dies, coverage automatically ceases with respect to any property of the deceased.
D
33. Shauna purchased a condominium unit. Which homeowners policy is specially designed for condominium unit owners? (a) HO-2 (b) HO-3 (c) HO-4 (d) HO-6
D
35. James was injured in an auto accident caused by another motorist's negligence. He received severe facial lacerations, and after dismissal from the hospital he still had severe pain in his lower back. In payment for his pain and suffering, and his disfigurement, things which cannot be specifically itemized, James will receive (a) punitive damages. (b) special damages. (c) imputed damages. (d) general damages.
D
37. Francis opened a store. She knows that customers who come to the store may be injured on the premises and hold her responsible for their injuries. Under common law, business customers in the store Francis opened are considered (a) aliens. (b) licensees. (c) trespassers. (d) invitees.
D
38. Dennis was involved in an accident. He believes the damage to his auto is $6,000. His insurer believes the damage is only $3,500. Which PAP provision is designed to handle disputes between the insurer and the insured over the amount of the loss? (a) other insurance provision (b) agreed amount endorsement (c) coinsurance provision (d) appraisal provision
D
4. Failure to exercise the degree of care required by law to protect others from harm is (a) premeditated liability. (b) vicarious liability. (c) punitive damages. (d) negligence.
D
40. Which of the following statements is (are) true with respect to the collision damage waiver on rented cars? I. It is inexpensive and is provided at no charge by most rental car companies. II. It waives renter's liability for bodily injury liability arising out of the use of the rented auto. (a) I only (b) II only (c) both I and II (d) neither I nor II
D
41. Jan was injured in a work-related auto accident. She sued the other driver, and the case went to court. While questioning Jan, the defendant's lawyer asked if her injuries and lost earnings were covered under workers compensation. Jan's lawyer objected to the question. The judge ruled the question was improper and instructed the jury to disregard the question. Based on the judge's reaction to the question, we can conclude that which of the following rules is in force where this trial took place? (a) the joint and several liability rule (b) the last clear chance rule (c) the comparative negligence rule (d) the collateral source rule
D
41. Ted purchased a home. To fund the purchase, he borrowed $140,000 from ABC Bank, pledging the home as collateral. Shortly after purchasing the home, Ted lost his job. He could not find another job and could not pay the mortgage. Ted set fire to the home. The claims adjuster suspected arson, and an investigation proved that Ted intentionally caused the loss. Under the mortgage clause of the Homeowners 3 policy, how will this loss be settled? (a) The insurer has no liability because the loss was intentional. (b) The insurer will pay Ted the actual cash value of the loss as intentional loss is not excluded. (c) The insurer will pay ABC the value of its insurable interest and pay Ted the value of his insurable interest. (d) The insurer will pay ABC the value of its insurable interest and then attempt to recoup the loss payment from Ted.
D
43. Jose and Maria would like "all-risks" coverage on their home and their personal property. Which unendorsed homeowners form provides this coverage? (a) Homeowners 2 (b) Homeowners 3 (c) Homeowners 4 (d) Homeowners 5
D
43. One difficulty in asbestos liability cases is that a long period of time may pass between exposure to asbestos and the lung/respiratory problem develops. This period of time between exposure and manifestation of the problem is know as the (a) probationary period. (b) elimination period. (c) waiting period. (d) latency period.
D
6. Which of the following statements about the Homeowners 3 policy is (are) true? I. Losses to the dwelling are always settled on an actual cash value basis. II. Coverage on personal property is limited to $5000. (a) I only (b) II only (c) both I and II (d) neither I nor II
D
6. Which of the following statements is true with respect to a pure no-fault auto insurance plan? (a) Under such a plan, you would collect from your own insurer and retain the right to sue the other party if your injuries surpass a dollar or verbal threshold. (b) Most no-fault plans that have been adopted by states are pure no-fault plans. (c) Under such a plan, you would collect from your own insurer and retain the right to sue the other party without having to satisfy a threshold. (d) Under such a plan, an accident victim cannot sue the other party, and no payments are made for pain and suffering.
D
7. All of the following are considered insured locations for medical payments to others (Coverage F) under a homeowners policy EXCEPT (a) a new vacation home purchased by an insured during the policy period. (b) a motel room where an insured is temporarily residing. (c) a hall rented by the insured for her daughter's graduation party. (d) farmland owned by the insured.
D
7. Which of the following statements about modified no-fault laws is (are) true? I. Claims less than a certain dollar threshold must be assumed by the injured accident victim, but the injured person has the right to sue a negligent driver. II. Claims above a certain dollar threshold are paid in full by an injured accident victim's insurer, and the right to sue a negligent driver is eliminated. (a) I only (b) II only (c) both I and II (d) neither I nor II
D
8. What is the purpose of the extended nonowned liability coverage endorsement to the PAP? (a) to provide liability coverage for an insured's employer when an insured uses his or her auto for business purposes (b) to provide liability coverage for an insured who occasionally operates a nonowned auto (c) to provide liability coverage for anyone who loans a covered auto to another driver (d) to provide liability coverage for an insured who operates a nonowned auto on a regular basis
D
9. All of the following are arguments for no-fault automobile insurance laws EXCEPT (a) It is often difficult to determine fault under the tort liability system. (b) A large portion of each premium dollar is used for purposes other than compensating accident victims for their losses. (c) The tort system fails to compensate many innocent victims of automobile accidents. (d) Seriously injured accident victims tend to be overcompensated, while those with small economic losses are inadequately indemnified.
D
9. Section I of the Homeowners 3 policy provides coverage for all of the following EXCEPT (a) loss of use. (b) personal property. (c) other structures. (d) medical payments.
D
