Assignment 9 Questions

A commercial property policy providing coverage on the named insured's personal property can also provide limited coverage for which one of the following? A. Personal property of others in the care, custody, or control of the insured B. Other parties' vehicles that the named insured's employees borrow while conducting the named insured's business C. Residential contents of officers' or managers' homes D. Customers' real property

A. A commercial property policy can provide limited coverage for personal property of others in the insured's care, custody, or control.

In contrast to a claims-made policy, a liability policy that provides occurrence basis coverage will pay for a covered accident that occurs during the policy period, regardless of when the claim is A. Submitted. B. Settled C. Paid. D. Closed.

A. A liability policy that provides occurrence basis coverage will pay for a covered accident that occurs during the policy period, regardless of when the claim is submitted.

When Amy applied for insurance, her agent asked her if she had received more than three traffic tickets in the last five years. Amy had received four, but remembered only three. Thus, she told the agent she had received only three. Amy's statement is an example of A. Misrepresentation. B. Concealment. C. Intent to deceive. D. Intent to withhold information.

A. A misrepresentation is a false statement of a material fact on which the insurer relies; it need not be intentional. Concealment, in contrast, is the intentional failure to disclose a material fact.

The validity of a contract depends on all of the following essential elements, EXCEPT: A. Adhesion B. Legal purpose C. Consideration D. Agreement

A. Adhesion is not one of the four elements of a valid contract. It is a characteristic of insurance contracts.

Documents that can become part of an insurance policy include all of the following, EXCEPT: A. Summary of available coverage options B. Relevant statutory terms and provisions C. Completed application D. Insurer's bylaws

A. All of the answer choices are documents that can become part of a policy, except for summary of available coverage options, which generally does not become part of the policy.

Depending on the policy terms and conditions, property insurance can protect other parties in addition to the named insured. Which one of the following statements best describes the coverage for property of others provided under a homeowners policy? A. Homeowners policies can cover property of others who reside in the named insured's household - relatives of any age, and other persons under the age of twenty-one. B. The spouse receives the same coverage as the named insured, even if the spouse is not named on the declarations and is not residing in the same household. C. The personal property of tenants of the named insured is automatically covered under a homeowners policy while in the part of the residence that the tenant usually occupies. D. A homeowners policy can provide worldwide coverage for property belonging to the named insured's guests, residence employees, and others.

A. Homeowners policies cover property of relatives of any age and other persons under twenty-one who reside in the household.

Self-contained policies A. Address complete coverage needs. B. Require more than one form to address coverage needs. C. Address unique coverage needs. D. Do not address all of an insured's coverage needs.

A. Self-contained policies are single documents that address complete coverage needs.

Standard forms A. May result in different insurers issuing identical policies. B. Prevent insurers from offering significantly different coverage. C. Are commonly used in professional liability insurance. D. Allow insurers to modify terms and conditions to accommodate differences in applicants' needs.

A. Standard forms are not used in professional liability insurance.

A policy exclusion can serve all of the following purposes, EXCEPT: A. State the coverages exclusively provided by the policy. B. Eliminate coverage for uninsurable loss exposures. C. Help manage morale hazards. D. Eliminate coverages requiring special treatments.

A. Stating the coverages exclusively provided by the policy is not a purpose of exclusions.

The definitions section of the policy A. Helps clarify real or perceived ambiguity. B. Contains a definitive statement of coverage. C. Consists of dictionary meanings of words. D. Describes the services provided by the insurer.

A. The definitions section of the policy helps clarify real or perceived ambiguity.

When a policy provides coverage for personal property in which a lender has a secured interest, the secured lender will be listed on the policy as a A. Loss payee. B. Mortgagee. C. Bailee. D. Named insured.

A. The secured lender would be listed as a loss payee.

An insurance-to-value provision in property insurance policies that reduces the amount the insurer will pay for a covered loss that occurs to property that is underinsured is A. A coinsurance clause. B. A deductible. C. A policy limit. D. The replacement value.

A. This would be a coinsurance clause.

Rachel is an insurance broker. She has received a sales referral from another broker concerning an airport management company, Airport Ltd. The company plans to operate a large, national airport in a major city and has requested a quote for airport liability coverage. Rachel will probably recommend the use of which one of the following types of policy forms? A. Miscellaneous B. Manuscript C. Preprinted D. Self-contained

B. . A manuscript policy is a customized contract developed for a specific insured or group of insureds who share unique coverage needs.

Basheer sold his car to Carl. For an additional sum, he also transferred his auto policy to Carl, to go with the car. Is Carl now entitled to the benefits promised by Basheer's policy? A. Yes, because the assignment was a proper transaction. B. No, because Basheer's policy is not transferable. C. It depends on whether or not Carl suffers a subsequent loss. D. It depends on the intent of the parties.

B. After an insurance policy is in effect, an insured may not freely transfer the policy to some other party (a practice called "assignment"). Most policies require the insurer's written permission before assignment to another.

An insurer has decided to take an extremely narrow interpretation of a property insurance policy provision to limit the number of loss payments it will need to make. It realizes that its interpretation is probably wrong, but it knows that individual insured's loss amounts will be small, such that most insureds will not take the trouble to file lawsuits against it. The insurer may be violating the principle that an insurance policy is A. A contract of adhesion. B. A contract of utmost good faith C. A conditional contract. D. A contract of indemnity.

B. An insurance policy is a contract of utmost good faith and both parties to it, the insurer and the insured, are expected to be ethical in their dealings with each other.

Claims-made coverage typically is used to insure businesses that face certain types of liability exposures, such as A. Bailee liability. B. Medical malpractice. C. Homeowners personal liability. D. Garagekeepers liability.

B. Claims-made coverage typically is used to insure businesses that face certain types of liability exposures, such as medical malpractice.

Bea's Restaurant suffered a serious fire due to a lightning strike, and the structure had to be torn down. The damage to the building is an example of A. An indirect loss. B. A direct loss. C. A time element loss. D. A consequential loss.

B. Correct. The damage to the building is an example of a direct loss.

Law Firm asked Insurance Company to provide both a commercial liability policy and a professional liability policy to meet its coverage needs. Insurance Company believes that there could be some types of losses that would be covered under both policies, a situation it wishes to avoid. What type of policy provisions could Insurance Company use to address this problem? A. Coverage sections B. Exclusions C. Additions D. Extensions

B. Coverage exclusions can serve to reduce the likelihood of coverage duplications.

Expenses that a business incurs to reduce the length of a business interruption or to enable a business to continue some operations after the property has been damaged are called A. Deferred expenses. B. Extra expenses. C. Supplementary expenses. D. Emergency expenses.

B. Expenses incurred to reduce the length of business interruption are extra expenses.

Liability coverage that provides insurance for an accident that occurs during the policy period, regardless of when the claim is submitted to the insurer, is which one of the following types of coverages? A. Claims-made coverage B. Occurrence basis coverage C. Retroactive coverage D. Perpetual coverage

B. Liability coverage that provides insurance for an accident that occurs during the policy period, regardless of when the claim is submitted to the insurer is occurrence basis coverage.

Losses arising from maintenance perils are generally excluded from property insurance policies because A. Covering them would result in a moral hazard. B. They are either certain to occur over time or are avoidable. C. Maintenance agreements generally cover them. D. They are unexpected and therefore difficult to insure.

B. Losses arising from maintenance perils are generally excluded from property insurance policies because they are either certain to occur over time or are avoidable.

Racing exclusions appear in both personal and commercial auto policies primarily in an attempt to A. Avoid covering uninsurable losses. B. Eliminate coverage that most insureds do not need. C. Eliminate duplicate coverage. D. To avoid insuring losses that could be prevented.

B. Racing exclusions appear in both personal and commercial auto policies primarily in an attempt to eliminate coverage that most insureds do not need.

The aggregate limit in a liability policy is the maximum amount an insurer will pay for all covered losses during the A. Calendar year. B. Policy period. C. Retroactive period. D. Fiscal year.

B. The aggregate limit in a liability policy is the maximum amount an insurer will pay for all covered losses during the policy period.

Ching is a commercial claim representative who has been assigned a large fire loss. Ching suspects that the insured may not have been completely honest in describing the property before the policy was issued such that coverage for the claim may be denied. In which document might Ching find the representations of the insured regarding the property's description? A. Declarations B. Application C. Endorsements D. Manuscript

B. The application preserves the insured's representations regarding the loss exposure.

In creation of a contract of insurance, what is the consideration that is provided by the insurer? A. The prompt payment of claims B. The insurer's promise to pay claims for covered losses C. The insurer's delivering the insurance policy to the insured D. The acceptance of the application

B. The consideration provided by the insurer in creating an insurance contract is the promise to pay claims for covered losses.

If an insurer mistakenly writes an insurance policy in a state in which it is not licensed, the insured might later successfully argue on what grounds that the contract is not valid? A. No legal purpose B. The lack of competent parties C. The lack of consideration D. No agreement

B. The insured would likely argue that the contract lacked a necessary element, and was therefore invalid, because the insured, by not having a license in the state, did not have the legal capacity to enter into a contract in that state and was therefore not a legally competent party.

Some liability policies place defense costs within the overall policy limit. If such a policy has a limit of $100,000 and the insured has a covered claim involving damage of $85,000 and defense costs of $25,000, what is the total amount that the insurer would pay for damages and defense costs? A. $25,000 B. $85,000 C. $100,000 D. $110,000

B. The total amount that the insurer would pay for damages and defense costs is $100,000.

Which one of the following correctly describes a property insurance policy covering property of others? A. Commercial property policies generally extend coverage to the dwellings and personal property of company owners, officers, and partners. B. Homeowners policies provide coverage for the personal property of others, such as guests or employees, while the property is in the insured's home. C. Floaters typically extend coverage to include the personal property of others while it is in the care, custody, or control of the insured. D. The personal auto policy extends physical damage coverage to any automobile leased by the insured but not listed on the policy.

B.Homeowners policies provide coverage for the personal property of others while the property is in the insured's home.

Which one of the following statements about policy parts is true? A. An insuring agreement establishes procedures for implementing the policy. B. Exclusions define terms to clarify ambiguity. C. A condition clarifies an insurer's promise or an insured's duty. D. Declarations state what an insurer will not cover.

C. A condition clarifies an insurer's promise or an insured's duty.

An insurer will make a loss payment if an insured loss occurs and if the insured performs certain duties. This illustrates that an insurance policy is a A. Contract of adhesion. B. Contract of indemnity. C. Conditional contract. D. Personal contract.

C. An insurance policy is a conditional contract because the parties have to perform only under certain conditions. An insurer pays a claim only when a covered loss occurs. The insured must fulfill certain duties before a claim is paid, such as giving the insurer prompt notice of a loss.

Insurance professionals use standard terminology for precision and clarity.In personal insurance, a residential structure, usually covered under a homeowners policy, is called a A. House. B. Building. C. Dwelling. D. Home.

C. Correct. In personal insurance, a residential structure is generally called a dwelling.

An insurance policy is considered a contract of adhesion when it is drafted by the A. Insured. B. Third party. C. Insurer. D. Insurance commissioner.

C. Insurance is considered a contract of adhesion when one party, the insured, must adhere to the contract as written by the other party (the insurer). The insurer determines the wording of the policy, and the insured has little choice but to take it or leave it.

Wear and tear, rust, marring, and scratching are examples of maintenance perils that are usually excluded by property insurance policies because A. There might not be enough claim adjusters in the event of a loss. B. It is against public policy to cover these types of perils. C. Losses arising from these perils are certain to occur. D. It is illegal to cover these types of perils.

C. Losses arising from these perils are certain to occur.

Joe owns a building covered by a property insurance policy. Joe intentionally sets fire to and destroys this building. He then files a claim with his insurance company. Which one of the following statements best describes why Joe would be precluded from recovering under his policy for this loss?A. Joe acted under emotional duress B. Joe acted irrationally C. Payment of the claim would be a violation of public policy D. Payment of the claim would violate the principle of indemnity

C. Payment of a claim resulting from a loss caused by the insured's intentionally burning a building would be a violation of public policy.

Manufacturing Company experienced a loss on its premises when expensive equipment was destroyed by fire. A provision in its insurance contract maintains that the insurer has a right to enter the premises in the event of a reported loss to inspect the damaged property. Manufacturing Company has refused to grant entry to the insurer's claim representative. Consequently, the insurer is considering whether it can deny coverage for the claim. Which one of the following best explains why Manufacturing Company's insurer may be able to deny coverage under the principle that an insurance policy is a conditional contract? A. The insured has no power to alter the written requirement to allow inspection. B. The insurer may not be able to validate a covered loss and the actual value of the loss without inspection. C. The insured must fulfill its duty to allow an inspection before a claim is paid. D. The insurer may not be able to satisfy itself that the fire was not caused by arson without an inspection.

C. The concept of a contract of adhesion prevents the insured from altering the written agreement. An insurance policy is a conditional contract because parties only have to perform under certain conditions. One of these conditions is that the insured must allow an inspection before a claim is paid.

Which one of the following best describes the coverage usually provided under a commercial property insurance policy? A. It does not cover other outdoor structures that are not buildings, such as carports, antenna towers, and swimming pools. B. It automatically covers any and all buildings owned by the insured and located in the coverage territory. C. The policy's definition of building includes additions that are either completed or under construction, as well as materials and supplies used for constructing the additions. D. Fixtures, machinery, and equipment are considered to be contents rather than part of the building, even if they are permanently installed.

C. The definition of building includes additions that are either completed or under construction, as well as materials and supplies used for constructing the additions.

The homeowners policy excludes coverage for professional services, such as those provided by a physician, primarily in an attempt to A. Avoid covering uninsurable losses. B. Eliminate duplicate coverage. C. Eliminate coverage for exposures that require special handling by the insurer. D. To avoid insuring losses that could be prevented.

C. The homeowners policy excludes coverage for professional services primarily in an attempt to eliminate coverage for exposures that require special handling by the insurer.

Under a liability policy, the maximum an insurer will pay for injury to any one person is known as the A. Per individual limit. B. Single limit. C. Each occurrence limit. D. Each person limit.

C. Under a liability policy, the maximum an insurer will pay for injury to any one person is known as the each person limit.

An insuring agreement may state the insurer's promise to do all of the following in the event of a covered loss, EXCEPT: A. Indemnify the insured B. Defend against the claim C. Surcharge the insured D. Pay the claim

C.Insuring agreements do not concern surcharges. Following a loss, the insurer seeks to fulfill the promise set out in the insuring agreement to pay, defend, or indemnify the insured in the event of a covered claim.

If duress, coercion, fraud, or mistake is involved in the creation of a contract, then the contract is A. Nontransferable B. Under consideration. C. Binding. D. Unenforceable.

D. A contract is unenforceable if duress, coercion, fraud, or mistake is involved in its creation.

Which one of the following is an example of material misrepresentation by Albert, a businessman applying for property insurance on a building he owns? A. Albert does not tell the insurance agent he is about to file for bankruptcy. B. Albert does not tell the insurance agent his building has a defective heating system that could explode at any time. C. Albert tells the insurance agent he has owned the building for seventeen years, but he has actually owned it for eighteen years. D. Albert tells the insurance agent the building is used to store steel, but it is actually used to store steel drums containing flammable liquids.

D. Albert tells the insurance agent the building is used to store steel, but it is actually used to store steel drums containing flammable liquids.

All commercial package policies begin with two components, namely, common policy conditions and common A. Coverages. B. Manuscripts. C. Modules. D. Declarations.

D. All commercial package policies begin with two components, namely, common policy conditions and common declarations. Adding the necessary forms to make up an individual coverage part that meets the insured's specific needs completes the policy.

All of the following are typical examples of conditions in an insurance policy pertaining to the insured's obligations, EXCEPT: A. Documenting losses B. Reporting losses in a timely manner C. Paying premiums D. Defending itself from lawsuits

D. Defending the insured from lawsuits is typically an insurer's obligation.

Because insurance contracts impose an obligation of complete honesty on the parties, an insurance contract is called a A. Contract of indemnity. B. Contract of adhesion. C. Conditional contract. D. Contract of utmost good faith.

D. Insurance contacts are considered contracts of utmost good faith because both parties are obligated to be completely honest with each other.

Which one of the following statements is true regarding insurance policies? A. Because of their special nature, insurance policies must meet several requirements in addition to those required for other valid contracts. B. Because the insurer's promise to pay claims spans several years, insurance policies have a separate set of requirements than those for any other valid contract. C. Insurance policies are approved in advance and therefore are presumed to meet all of the requirements of a valid contract. D. Insurance policies must meet the same requirements as any other valid contract.

D. Insurance policies must meet the same requirements as any other valid contract.

Most claims-made policies contain a retroactive date, which is A. Always the same as the policy inception date. B. Typically subsequent to the policy inception date. C. The date on or after which a claim must be reported in order to be covered. D. The date on or after which injury or damage must occur in order to be covered.

D. Most claims-made policies contain a retroactive date, which is the date on or after which injury or damage must occur in order to be covered.

If Katie purchases auto insurance from an out-of-state insurer without a license to sell insurance in Katie's state, the policy may be an invalid contract because A. The contract does not have a legal purpose. B. Utmost good faith was not practiced by the parties. C. The principle of indemnity has been violated. D. The insurer was not legally competent to make the agreement.

D. The insurer was not legally competent to make the agreement.