Kaplan (MD) DP,HO,PAI,MISC.PER,CPP,BOP,CPI,O&I,CGL&CAI Qbank Pt1
High winds and severe storms caused power outages and food spoilage totaling $50,000 in a large grocery store. Utility substations serving the store caused the outages. The store had a businessowners special property form policy with a $1,000 deductible. How much of the spoilage loss will the policy pay? A) $0 because the loss is excluded. B) $0 because the utility company must pay for the loss. C) $50,000.00 D) $49,000.00
A) $0 because the loss is excluded.
Ted's shop has a replacement cost of $250,000, and his contents have a replacement cost of $90,000. Ted purchases $100,000 of insurance for building coverage and $75,000 of insurance contents coverage under an unendorsed BOP. Ted sustains a loss by fire that causes $20,000 damage to the building and $5,000 damage to the contents. How much will his policy pay? A) $15,000.00 B) $20,000.00 C) $5,000.00 D) $25,000.00
A) $15,000.00 Explanation Fire is a covered cause of loss. However, Ted's policy will only pay for half of the building loss, as he did not purchase 80% of the replacement cost to obtain replacement coverage. The coinsurance clause required $200,000 ($250,000 x 80%) on the building. As Ted only had half that amount, his loss would be limited to 50%, or $10,000. Since the amount of coverage on Ted's contents met his coinsurance requirement ($90,000 x 80% = $72,000, and Ted carried $75,000), the contents will be covered in full.
Ted's TV shop, which is covered by a businessowners policy, sustains a fire loss of $50,000 to the building and $25,000 in content damages are incurred. In addition, a customer and an employee are also injured in the fire. Medical payments for their injuries amount to $2,000 for the injured customer and $3,000 for the injured worker. Ted's business income is $5,000 per month, but he is unable to conduct any business for 60 days as a result of the fire. Assuming Ted has adequate limits to cover this loss, how much will his policy pay? A) $87,000.00 B) $75,000.00 C) $77,000.00 D) $90,000.00
A) $87,000.00 Explanation The injured worker is covered by workers' compensation, not the businessowners policy. Assuming that Ted's policy limits are adequate, the calculation is $50,000 (building) + $25,000 (contents) + $10,000 (business income) + $2,000 (injured customer's injuries) = $87,000.
A contractor built a home for a family. Four months after the family moved into the home, the kitchen sink fell on a family member's foot and broke it. This is an example of what type of loss? A) Completed operations. B) Insured contracts. C) Premises liability. D) Personal injury.
A) Completed operations.
How do ocean marine policies define barratry? A) Criminal acts by the crew. B) Action taken by pirates and assailing thieves. C) Abandoning a sinking ship. D) Letters of mart and countermart.
A) Criminal acts by the crew. Explanation Barratry refers to illegal acts committed willfully by the ship's master or crew for the purpose of damaging the ship or its cargo. It includes hijacking, abandonment, or embezzlement.
Which of the following is NOT an eligibility requirement for a homeowners policy? A) Dwelling is used as a primary residence. B) Dwelling may contain an incidental occupancy. C) Named insured is owner-occupant of dwelling or a renter who maintains a residential occupancy. D) No more than 4 families occupy the dwelling.
A) Dwelling is used as a primary residence. Explanation Secondary or seasonal residences may be insured under a homeowners policy.
John's dog bites a friend who is visiting John's house. Which part of John's homeowners policy, if any, would cover the visitor's ensuing medical expenses? A) Either Coverage E or Coverage F. B) This loss is excluded because it was caused by an animal owned by the insured. C) Coverage F only. D) Coverage E only.
A) Either Coverage E or Coverage F. Explanation This loss could be covered under Coverage E if John is determined to be legally liable for the loss, or Coverage F. Loss caused by an animal owned by the insured is not excluded under Coverage E or Coverage F.
Which of the following is NOT one of the requirements for a loss to be paid under the uninsured motorists coverage of the personal auto policy? A) Loss involves property damage to insured's auto. B) Other vehicle meets policy's definition of uninsured vehicle. C) Loss is sustained by an insured. D) Insured is legally entitled to damages.
A) Loss involves property damage to insured's auto. Explanation Under the standard personal auto policy, Part C applies only to bodily injury losses.
Who would use a HO-6 homeowners form? A) Owner of a condominium. B) Tenant of a rental house. C) Owner of a duplex. D) Owner of a rental house.
A) Owner of a condominium.
How would a loss be adjusted under a homeowners policy with an insurance-to-value clause if a homeowner failed to carry coverage of at least 80% of the replacement cost of the home? A) Payment of the actual cash value or a proportional share of the loss, whichever is greater. B) 100% of the loss. C) Cost to repair the property. D) Cost to replace the property.
A) Payment of the actual cash value or a proportional share of the loss, whichever is greater. Explanation Failure to carry insurance of at least 80% of the replacement cost value results in the payment of the greater of these 2 sums: the actual cash value, or the result of dividing the policy limit by 80% of the replacement cost, multiplied by the cost to repair or replace, less the deductible. The insurance-to-value provision of the homeowners policy seeks to reward those policyholders who carry adequate insurance with a replacement cost settlement. If the amount of insurance carried is insufficient, the insured will at least receive the actual cash value of the loss or an amount between ACV and replacement cost.
Marcus, an employee at the Beautiful Home Gift Store, dropped and broke a customer's purchase while carrying it to the customer's car. The resulting loss would be considered which of the following under the store's commercial general liability policy? A) Premises-operations. B) Products liability. C) Products-completed operations. D) Personal injury.
A) Premises-operations. Explanation A businessowner can be held liable if a third party is injured or suffers property damage on the premises where the business is conducted. This liability arises in the course of the business's daily operation and is known as premises-operations exposure. Under products-completed operations liability exposure, a manufacturer or distributor of a faulty product can be held liable if the product or other result of operations injures someone.
A person is injured after slipping on a wet floor in a grocery store. Insurance against which of the following exposures would provide coverage? A) Premises. B) Operations. C) Completed operations liability. D) Products liability.
A) Premises.
Which business auto coverage symbol allows coverage of all vehicles, including owned, nonowned, and hired autos? A) Symbol 1. B) Symbol 3. C) Symbol 4. D) Symbol 8.
A) Symbol 1. Explanation Symbol 1 affords the broadest coverage. It applies to any auto the insured will use during the policy period, including autos that are owned, leased, hired, rented, or borrowed. However, Symbol 1 can be used only for liability coverage. Symbol 3 covers owned private passenger autos. Symbol 4 covers owned autos other than private passenger autos. Symbol 8 covers hired, leased, rented, or borrowed autos.
The limit of liability under the dwelling under construction endorsement is provisional. If a loss occurs, the amount paid will be based on the: A) completion date. B) face amount of the policy. C) actual value of the property. D) actual amount of the loss.
A) completion date.
In automobile insurance, the term supplementary payments refers to payments: A) covering reasonable expenses incurred at the insurer's request and other specified expenses that are not subject to the policy limit. B) made by the insured for damages exceeding the policy limits. C) made by the insurance company for the insured's own medical expenses to supplement any other medical insurance. D) received by the insured directly from the person or persons who caused the loss.
A) covering reasonable expenses incurred at the insurer's request and other specified expenses that are not subject to the policy limit. Explanation As with other liability policies, certain supplementary payments are made on behalf of an insured in addition to the limits of liability. This includes reasonable expenses incurred at the insurer's request and other expenses incurred by the insurance company as specified in the policy.
A DP-2 policy would cover losses from all of the following perils EXCEPT: A) infestation of insects. B) falling objects. C) damage by burglars. D) weight of ice, snow or sleet.
A) infestation of insects.
The property coverage in the unendorsed Businessowners policy is written on a (an): A) open peril basis. B) named peril basis. C) limited liability basis. D) valued basis.
A) open peril basis.
When a loss occurs, the Causes of Loss special form requires the insurance company to: A) pay for all losses not specifically excluded or limited by the policy. B) prove that the insured used defective materials if a collapse occurs during construction. C) pay for decay or deterioration losses. D) pay for all losses to the insured property.
A) pay for all losses not specifically excluded or limited by the policy. Explanation Instead of listing the perils covered under the form, the Causes of Loss special form covers risks of direct physical loss, subject to the exclusions and limitations expressed in the form.
Premium credits for all of the following will lower the insurance premiums for the owner of a mobile home EXCEPT: A) reducing Coverage C limit to 40% of Coverage A. B) tie-down credit. C) installing insurer-approved alarm system, fire system, or both. D) installing an automatic sprinkler system.
A) reducing Coverage C limit to 40% of Coverage A. Explanation Credits are given to owners of a mobile home for doing several things. One is to reduce the Coverage C limit for personal property to 30% of Coverage A. Other actions include tying down the mobile home to make it more secure and less susceptible to damage due to windstorm; installing an insurer-approved alarm, fire system, or both; and installing an automatic sprinkler system.
Trees, shrubs, and other plants are covered as additional coverages for Coverages A through D. The coverage is limited to certain perils, however. All of the following perils are covered when causing damage to a tree or shrub EXCEPT: A)wind. B) riot. C)theft. D)explosion.
A)wind
An insured's claims-made CGL policy just expired after having been in effect for one year. The policy included a supplemental extended reporting period endorsement to cover claims filed after the end of the 60 day basic extended reporting period. When a $5,000 claim is filed 3 years later for a loss that occurred during the 60 day basic extended reporting period, how much will the policy pay? A) $1,000.00 B) $0.00 C) $5,000.00 D) $2,500.00
B) $0.00 Explanation The claim will not be paid. The supplemental extended reporting period endorsement provides an unlimited extension of the reporting period, but the loss causing the claim must still occur sometime between the retroactive date and the policy expiration date. While the 60 day basic extended reporting period provides for reporting claims, it is not included in the coverage period. Since this loss did not occur during the policy's coverage period, there is no coverage.
Frank's house has a replacement cost of $250,000. His HO-3 policy has a Coverage A limit of $180,000 and a $500 deductible. A fire causes a loss of $10,000 replacement cost and $8,000 actual cash value. What is the most Frank can collect for his loss? A) $7,200.00 B) $8,500.00 C) $10,000.00 D) $9,000.00
B) $8,500.00
Damage caused by burglars is excluded under which of the dwelling forms? A) All forms exclude damage caused by burglars. B) Basic Form. C) Broad Form. D) Special Form.
B) Basic Form. Explanation The Basic Form is the most restrictive of the three dwelling forms. The only perils insured against are fire, lightning, and internal explosion. Burglary, vandalism, and mischief are not listed as covered perils.
The insured may list or schedule certain types of property under the scheduled personal property endorsement to increase the coverage. Which of the following items is NOT included in this endorsement? A) Musical instruments. B) Firearms. C) Coins. D) Postage stamps.
B) Firearms. Explanation Firearms cannot be added to the scheduled personal property endorsement. Other categories include jewelry, furs, cameras, silverware, golf equipment, and fine art.
Coverage D in homeowners insurance is for what type of loss? A) Personal property. B) Loss of use. C) Dwelling. D) Personal liability.
B) Loss of use. Explanation The 6 insuring agreements in the homeowners forms are Coverage A--Dwelling, Coverage B--Other Structures, Coverage C--Personal Property, Coverage D--Loss of Use, Coverage E--Personal Liability, and Coverage F--Medical Payments.
Which one of the following is NOT an additional coverage found in homeowners policies? A) Loss assessment. B) Market valuation. C) Fire department service charge. D) Debris removal.
B) Market valuation.
Steve meets with his agent to apply for an automobile insurance policy on his 2 personal cars. In reviewing the policy, Steve finds he is not willing to accept the duties listed in the conditions section. He signs the application but adds a note deleting the duties to the insurer. Is this acceptable to the company? A) No, the agent has to make this request in writing. B) No, a written endorsement by the insurer is the only way to change the policy. C) Yes, the insured has the ability to change the policy at the time of the application. D) Yes, as long as the request is done in writing.
B) No, a written endorsement by the insurer is the only way to change the policy. Explanation In the general provisions section of the policy, the changes section stipulates that a written endorsement by the insurer that forms part of the policy is the only way to change the policy. The insured cannot make changes to the policy because this is a contract of adhesion and is either accepted or rejected by the applicant.
Coverage C of the commercial general liability policy will cover reasonable medical expenses incurred within how many years of the accident? A) Five. B) One. C) Two. D) Three.
B) One.
If the insured hits a deer while driving his own vehicle, which part of the personal auto policy will pay to repair the vehicle? A) Medical payments. B) Other than collision. C) Collision. D) Liability.
B) Other than collision. Explanation Part D--Coverage for Damage to the Insured's Auto provides two major types of coverage: collision and other than collision (comprehensive) coverage. Other than collision (comprehensive) coverage includes fire, theft, explosion, earthquake, windstorm, missiles, falling objects, hail, water, flood, vandalism and malicious mischief, riot and civil commotion, glass breakage, and collision with birds or animals, wild or domestic.
Which homeowners endorsement is used to insure high value items of personal property? A) Business pursuits. B) Scheduled personal property. C) Personal effects. D) Personal property replacement cost.
B) Scheduled personal property. Explanation The scheduled personal property endorsement provides a separate schedule of insurance for one or more of nine categories of valuable property.
Which of the following property may be insured under a flood policy issued by the NFIP? A) Automobile. B) Silo. C) Trees. D) Fence surrounding insured's property.
B) Silo. Explanation Vehicles, fences, and trees are not covered under the NFIP policy. Structures that are primarily containers are also excluded, but an exception is made for silos and grain storage buildings.
Mary is a customer at Bob's bait shop, which is covered by a businessowners policy. Bob's auto strikes her when she is leaving the store parking lot. Mary has medical payments expenses of $450. Bob will find coverage in: A) Bob's businessowners policy under bodily injury and medical payments. B) The businessowners policy does not cover this type of loss. C) under Bob's businessowners policy if he purchased hired and nonowned auto coverage. D) Bob's businessowners policy under bodily injury.
B) The businessowners policy does not cover this type of loss. Explanation The medical payments section of the businessowners policy does not cover medical expenses arising out of automobile accidents.
For there to be a general average claim established, 3 elements must be present. Which of the following is NOT one of these elements? A) The loss must be necessary. B) The cargo loss must be total. C) The loss must be voluntary. D) The loss must successfully save the ship or other property.
B) The cargo loss must be total. Explanation For a general average claim to be legitimate, the loss must be voluntary, necessary, and successful in saving the ship or other property.
Mary was involved in an accident with a hit-and-run driver. Her car was damaged. Which of the following items would be covered under the collision coverage in the personal auto policy? A) The vehicle is towed to the body shop. B) The front windshield is shattered. C) Mary's luggage in the trunk is destroyed. D) The vehicle is stolen before the tow truck can tow it to the body shop.
B) The front windshield is shattered. Explanation Although glass breakage is covered under comprehensive coverage, if collision causes the breakage, the insured may elect to have it included in the collision coverage.
If a California resident with a personal auto policy with the minimum liability limits has an accident in a state that requires higher limits, which of the following will occur? A) The insured must first purchase an other states coverage endorsement. B) The policy will automatically provide the required higher limits at no extra charge. C) The loss is not covered. D) The policy will provide the higher limits, but the insured must first pay the additional premium.
B) The policy will automatically provide the required higher limits at no extra charge. Explanation If the covered auto is used in another state where coverage limits are required by a financial responsibility law and those limits are higher than the limits of the insured's PAP, the insurer will interpret the policy to provide the higher limits required by the law.
Which one of the following principles is used to describe liability resulting from the negligence of a person who uses an auto with the insured's permission? A) Implied liability. B) Vicarious liability. C) Strict liability. D) Absolute liability.
B) Vicarious liability. Explanation Vicarious liability describes insurance extended to anyone who is liable because of the negligence of a person who uses the auto with the named insured's permission. Under the principle of vicarious liability, the named insured may also include any person or organization that is legally responsible for the acts or omissions of the named insured or family member.
Coverage E in the dwelling policy provides coverage for: A) fair rental value. B) additional living expense. C) personal liability. D) medical payments.
B) additional living expense.
Section II of a Homeowners policy covers all the following EXCEPT: A) bodily injury to others. B) bodily injury to one of the insured's resident family members. C) property damage of another caused by the insured. D) liability for loss of use of another's property.
B) bodily injury to one of the insured's resident family members.
The liability coverage in the business auto coverage form covers all of the following EXCEPT: A) expenses to settle claims for losses due to an accident. B) damage to the covered auto. C) bodily injury suffered by others as a result of the insured driving a covered auto. D) damage to property of others as a result of an accident involving a covered auto.
B) damage to the covered auto. Explanation Liability coverage covers bodily injury or property damage to others resulting from the ownership, maintenance, or use of a covered auto. It also covers expenses to defend the insured, and to investigate and settle claims. Damage to a covered auto would be covered under the policy's physical damage coverage.
Mary was involved in an accident with a hit-and-run driver. The car was damaged. Mary is required to comply with all of the following duties EXCEPT: A) calling the police. B) following the hit-and-run driver to get a valid identification. C) protecting the car against further damage. D) permitting the insurer to inspect the damaged car.
B) following the hit-and-run driver to get a valid identification. Explanation Going after the hit-and-run driver is not a duty. Instead, the insured must call the police. Another duty is to cooperate with the insurer.
The commercial property conditions form contains circumstances that apply to all commercial property coverage forms, unless a coverage form contains a condition to the contrary. Commercial endorsements that apply to more than one part of a commercial package policy (CPP) are called: A) interpolicy. B) interline. C) provisional. D) inclusion.
B) interline. Explanation Interline endorsements are commercial endorsements that apply (or could apply) to more than one coverage as part of a package policy (e.g., the commercial property condition form in an interline form that contains circumstances that apply to all commercial property coverage forms, unless a coverage form contains a condition to the contrary).
Harold owns a sports bar. As a promotion, he offers customers tastings of new German beers. One customer, after several samples, drives off and injures another person. The injured party sues the driver and Harold. Harold's commercial general liability policy will: A) cover the loss under the products/completed operations insuring agreement. B) not cover the loss because of the liquor liability exclusion. C) cover the loss under the bodily injury and property damage insuring agreement. D) cover the loss under host liquor liability because Harold did not actually sell the beer.
B) not cover the loss because of the liquor liability exclusion. Explanation The CGL excludes liability arising out of the sales or service of alcoholic beverages. The exception is for the casual host who simply serves alcoholic drinks. An example would be a clothing store that serves champagne to its customers. The clothing store is in the clothing business and not the business of selling alcoholic beverages, hence it is a casual host. Because Harold owns a bar and is using the beer samples as a promotion for the bar, he could not be considered a casual host.
Howard borrows his neighbor's car because his car is in the body shop after his oldest son had an accident on a trip home from college. Under Howard's automobile policy, his neighbor's car is considered a (n): A) owned automobile. B) temporary substitute automobile. C) nonowned automobile. D) uninsured automobile.
B) temporary substitute automobile. Explanation A temporary substitute automobile is one used with the owner's permission as a substitute vehicle for the insured's covered auto while that auto is out of normal service because of breakdown, repair, servicing, loss, or destruction.
The condominium association coverage form may include all of the following property EXCEPT: A) owners' business personal property. B) unit owners' personal property. C) refrigerators, dishwashers, or stoves that are within the individual units. D) alterations that are part of the building.
B) unit owners' personal property. Explanation A condominium association coverage form is a commercial property form designed to cover the joint insurance needs of members of a condominium association who collectively own commercial property. The form provides insurance for the building and equipment to maintain or service the building. If required by the condominium association agreement, appliances within the individual units may be covered. Unit owners' personal property (such as furniture, clothing, and other household item) is specifically excluded.
What is the maximum amount that the businessowners policy will pay for property damage to an outdoor sign attached to a building? A) $500.00 B) Policy limit. C) $1,000.00 D) $2,500.00
C) $1,000.00 Explanation A $1,000 per occurrence limit applies to outdoor signs attached to buildings.
Mr. Jones has an auto policy with Coverage A limits of 15/30/10. He also has a $250 deductible for collisions. He runs a red light at an intersection and collides with Mrs. James' car. Mrs. James is awarded $30,000 for her injuries and $6,000 for the damage to her car. Mr. Jones' car sustains $750 in damage. How much will Mr. Jones' policy pay for this incident? A) $36,500.00 B) $36,750.00 C) $21,500.00 D) $21,750.00
C) $21,500.00
Two personal auto policies cover one vehicle. Company A's limit of liability is $100,000 and Company B's limit of liability is $300,000. How much will Company A pay for a liability loss in the event of an accident when the damages total $100,000? A) $100,000.00 B) $75,000.00 C) $25,000.00 D) $50,000.00
C) $25,000.00 Explanation The other insurance clause for coverage A in the PAP applies on a pro rata basis. This means that if two or more policies cover one vehicle, each insurance company pays the portion that its policy limit bears to the total of all applicable limits. In this question there is $400,000 of total coverage (Company A's $100,000 + Company B's $300,000). This means that Company A has 1/4th of the total coverage in force ($100,000 is 1/4th of $400,000), which in turn means Company A would be responsible for paying 1/4th of the $100,000 loss, which equals $25,000.
Credit card fraud is covered under a homeowners policy to a maximum of what amount? A) $2,000.00 B) $100.00 C) $500.00 D) $1,000.00
C) $500.00 Explanation Credit card fraud is covered to a maximum of $500. Coverage does not apply to loss arising out of business use or the dishonesty of an insured.
Frank owns a house valued at $500,000. He purchases a policy insuring it for $300,000 with an 80% coinsurance clause and a $1,000 deductible. Faulty wiring causes a fire that results in a loss of $100,000. How much will the policy pay? A) $399,000.00 B) $239,000.00 C) $74,000.00 D) $59,000.00
C) $74,000.00 Explanation To satisfy the coinsurance clause requirement, the policyholder must carry coverage in an amount equal to at least the specified percentage of the total value of the property being insured. In this case, the value of the property is $500,000. Therefore, the amount of coverage needed to satisfy the 80% coinsurance requirement is $400,000 (or 500,000 × 80%). However, Frank's policy limit is only $300,000, which is $100,000 less than necessary to satisfy the coinsurance requirement. The following formula is used to determine the amount that the insurer will pay for the loss in this case: amount of insurance carried ($300,000) divided by amount of insurance required ($400,000), multiplied by amount of loss ($100,000), minus any deductible ($1,000). The insurance payment in this case is therefore $74,000, after the deductible is applied.
Which one of the following could be insured under Coverage B of a homeowners policy? A) A detached garage rented to a friend to change the oil for neighbors at a discounted price. B) A garage next to the house with only the roof connecting them. C) A detached garage rented to a neighbor to store his sports car during the winter. D) A detached garage with a second-floor room rented by a travel agent for several representatives to book cruises over the telephone.
C) A detached garage rented to a neighbor to store his sports car during the winter. Explanation Other Structures--Coverage B covers structures on the premises set apart from the dwelling by clear space, such as a detached garage. The policy does not cover other structures rented to others for other than use as a private garage. A detached garage used for business is also not covered.
Jim and his family are considering a move to the West Coast but are very concerned about earthquakes. Jim called an insurance agent for advice. What is the best advice the agent could give Jim about adequately covering his new home for possible earthquake damage? A) A state insurance fund will cover any damage that occurs. B) A separate earthquake policy should be purchased to provide full coverage for earth movement. C) Adding the earthquake endorsement will provide the coverage needed. D) The homeowners policy automatically provides earthquake coverage.
C) Adding the earthquake endorsement will provide the coverage needed.
A property owner wants to insure both the rental property and any of the tenant's belongings if they are stolen. Which policy would you recommend and why? A) DP-1 basic form because the property owner needs only named peril coverage. B) DP-2 broad form because it automatically provides the extended coverage endorsement (ECE). C) DP-3 special form and a separate tenant's policy to cover personal property. D) DP-3 special form because it includes coverage for personal property.
C) DP-3 special form and a separate tenant's policy to cover personal property
Which one of the following commercial auto coverages covers automobiles in the insured's care? A) Comprehensive. B) Business auto. C) Garagekeepers. D) Liability.
C) Garagekeepers. Explanation Garagekeepers insurance covers customers' automobiles while in the care of the insured. Garagekeepers coverage is a special type of insurance necessary because the auto is entrusted to the business.
Which one of the following homeowners forms is used to cover tenants or renters? A) HO-2. B) HO-5. C) HO-4. D) HO-6.
C) HO-4. Explanation The HO-4 is the coverage form for tenants and renters. The HO-2 is the broad form of homeowners insurance. The HO-6 provides coverage for condominium owners and town home owners. The HO-5 is the comprehensive form.
Roberta inherited a home from her grandmother. This home is 150 years old, in fair condition, and has ornate doors and trim. Unfortunately, the market value is much less than the cost to rebuild with the same doors and trims. Which is the best homeowners policy for Roberta? A) HO-3. B) HO-5. C) HO-8. D) HO-2.
C) HO-8. Explanation The HO-8 policy provides coverage for homes whose market value is markedly less than its replacement cost. Loss settlement would be based on actual cash value or repair cost.
If the monthly limit of indemnity option has been selected under the Business Income form, how much will an insurer pay for loss of business income for each month of loss? (Assume the declarations page shows a limit of insurance of $150,000 and a fraction of 1/3.) A) Lesser of $100,000 or the actual loss for each month. B) $100,000.00 C) Lesser of $50,000 or the actual loss for each month. D) $50,000.00
C) Lesser of $50,000 or the actual loss for each month. Explanation The insurer pays for loss of income in each period of 30 consecutive days following a loss. The limit of insurance is multiplied by the fraction shown in the declarations. The insurer pays this resulting amount or the actual loss amount for each month of loss, whichever is less, until the limit of insurance is reached.
What type of endorsement would be used to insure a recreational vehicle under the personal auto policy? A) Motor home endorsement. B) Extended vehicle endorsement. C) Miscellaneous type vehicle endorsement. D) Joint ownership coverage.
C) Miscellaneous type vehicle endorsement. Explanation The miscellaneous type vehicle endorsement to the PAP covers recreational vehicles as well as motorcycles, motor homes, all-terrain vehicles (ATVs), dune buggies, and similar vehicles that otherwise are excluded by the policy.
Which of the following individuals is NOT an insured under Section I of the homeowners policies? A) The spouse of the named insured. B) Resident relative of the insured. C) Person hired by the insured to perform work on the insured premises. D) Person younger than 21 who is in the care of the named insured.
C) Person hired by the insured to perform work on the insured premises.
Richard and his wife own two family cars. In addition, Richard is given a company car to makes sales calls. He occasionally uses the company car for personal use and is concerned that he may not have sufficient company coverage. Which of the following is the best advice his agent can give him? A) Richard has to rely on the coverage his company gives him and follow their usage rules. B) Richard can add the company car to his automobile policy as car number 3. C) Richard can add the extended nonowned coverage for named individual endorsement to his policy. D) Richard can add the drive other car endorsement to his policy.
C) Richard can add the extended nonowned coverage for named individual endorsement to his policy.
Which of the following statements regarding theft coverage in the HO-8 policy is NOT true? A) A maximum of $1,000 coverage per occurrence for loss by theft is available. B) Higher on-premises theft coverage limits are available. C) Special limits of liability for jewelry and furs are provided. D) The standard theft limit applies on the residence premises only.
C) Special limits of liability for jewelry and furs are provided. Explanation Special limits of liability for theft of jewelry, watches, furs, firearms, precious and semiprecious stones, silverware, goldware, and pewterware do not apply to the HO-8.
Patrick's Widget Company has a small fleet of owned cars used by local salespeople. Most of the salespeople, however, travel to other cities and rent cars to make sales calls. Which coverage should Patrick include on his commercial auto policy to cover this exposure? A) Symbol 9--Nonowned autos. B) Symbol 7--Specifically described autos only. C) Symbol 8--Hired autos. D) No coverage is available for rental cars under the commercial auto policy.
C) Symbol 8--Hired autos. Explanation Symbol 8 applies to autos the insured leases, hires, rents, or borrows but not to autos the insured's employees own.
Stephanie is an agent in a local insurance agency. While visiting a client in his home, Stephanie accidentally leaves a coffee cup on an antique coffee table, damaging the wood surface. She asks her sales manager whether she has coverage under her homeowners policy. Which of the following is the best advice given to Stephanie? A) You need to buy a commercial liability policy. B) Your homeowners policy provides coverage for this exposure. C) The business pursuits endorsement should be added to your homeowners policy to protect you if you personally damage property while conducting business. D) The personal injury endorsement should be added to your policy to provide coverage for injury or damage you may cause to a client.
C) The business pursuits endorsement should be added to your homeowners policy to protect you if you personally damage property while conducting business.
If a vehicle is insured for collision, this coverage waives the deductible. What is this coverage? A) UIM. B) Supplementary payments. C) UMPD. D) Other than collision.
C) UMPD. Explanation Some states require insurers to offer uninsured motorist property damage (UMPD). It covers the physical damage to a car caused in an accident qualifying under uninsured motorist. If the insured has collision coverage, the UMPD acts as the collision deductible. The insured is then relieved from paying the deductible.
Medical payments coverage in the commercial general liability policy covers: A) injuries to the insured's employees. B) injuries to the insured. C) injuries to third parties regardless of liability. D) injuries to third parties for which the insured is legally liable.
C) injuries to third parties regardless of liability. Explanation Medical payment is no-fault coverage but it applies only to third parties, not to the insured or to employees of the insured. The insurance pays medical expenses for bodily injury to a third party caused by an accident on the premises that the insured owns or rents, on passageways next to the premises the insured owns or rents, or because of the insured's business operations.
Personal injury protection (PIP) is a form of no-fault auto insurance. All of the following characteristics of PIP are correct EXCEPT: A) pain and suffering are not covered. B) it provides first-party coverage. C) it provides third-party coverage. D) it covers bodily injury from any occurrence without regard to fault.
C) it provides third-party coverage. Explanation PIP is a first-party coverage that protects the insured for bodily injury from any occurrence without regard to fault. It does not cover pain and suffering.
The property coverage in the businessowners policy would cover losses due to all of the following perils EXCEPT: A) fire. B) vandalism. C) off-site power failure. D) riot.
C) off-site power failure.
All of the following vehicles are eligible for coverage under the PAP EXCEPT: A) private passenger auto. B) four-wheel drive SUV. C) pickup with a gross vehicle weight of 15,000 pounds. D) minivan with a 7,500 gross vehicle weight
C) pickup with a gross vehicle weight of 15,000 pounds.
Extensions of coverage are available under the business and personal property form if the: A) insured carries both building and personal property insurance. B) amount of building insurance is $100,000 or greater. C) policy indicates that 80% or higher coinsurance applies or the insured has purchased a reporting form. D) insured has declared an amount of insurance applicable to each extension.
C) policy indicates that 80% or higher coinsurance applies or the insured has purchased a reporting form. Explanation The extensions of coverage are activated if the insured has agreed to meet an 80% or higher coinsurance requirement or has purchased a reporting form.
In a claims-made liability policy, the specific date shown in the declarations indicating the first date events are covered by the policy is called its: A) policy period. B) inception date. C) retroactive date. D) reporting period.
C) retroactive date. Explanation The retroactive date on a claims-made liability policy is the date that triggers the beginning of insurance coverage. A retroactive date is not required. If one is shown on a policy, any claim made during the policy period will not be covered if the loss occurred before the retroactive date.
An insured has a $60,000 special form (DP-3). When a covered loss in the amount of $10,000 damages the attached garage, how much of that amount is paid under the Coverage B-Other Structures? A) $6,000.00 B) $10,000.00 C) $1,000.00 D) $0.00
D) $0.00
An insured has a dwelling policy (DP-3 special form) for $50,000. After a covered fire loss, the insured moves to a local hotel while repairs are being made to the house. While staying in the hotel's penthouse suite, the insured uses room service, always choosing the most expensive food and wine. The entire stay costs $12,000. How much of that amount will the policy cover? A) $0.00 B) $5,000.00 C) $12,000.00 D) $10,000.00
D) $10,000.00
Under an HO-2 policy with a coverage limit of $50,000 on the dwelling, what is the amount of personal property coverage that would be available? A) $50,000.00 B) $30,000.00 C) $20,000.00 D) $25,000.00
D) $25,000.00
Which one of the following losses would be covered by hull insurance? A) Liability if a crew member starts a fire by smoking near flammable cargo. B) A candle shipment that is destroyed due to severe heat. C) Income lost when a ship is lost or destroyed. D) A ship running aground.
D) A ship running aground. Explanation Hull insurance protects a vessel's owner against loss to the ship itself. Cargo insurance would cover the candles lost in a severe heat wave. Freight insurance would cover the income lost to the ship owner because the ship was lost or destroyed. Protection and indemnity insurance would protect the ship owner from damage to cargo caused by negligence.
Bobby, age 16, borrows his parents' car without their permission and gets into an accident. Which of the following statements about coverage under the parents' personal auto policy is CORRECT? A) Bobby is not covered because it was not his car. B) Bobby is not covered for this accident because he used the car without permission. C) Bobby is covered by his parents' policy because he is included in the definition of named insured. D) Bobby is covered by his parents' policy because he is a family member.
D) Bobby is covered by his parents' policy because he is a family member. Explanation Bobby is a family member and thus automatically covered under this family's PAP policy. Even though Bobby is using the car without permission, the exclusion pertaining to nonpermissive users does not apply to use of an owned auto by resident family members.
Which of the following coverages would protect a policyholder for assumed liability under a construction contract to install water lines for a city? A) Independent contractors. B) Completed operations. C) Incidental contracts. D) Contractual liability.
D) Contractual liability.
An insured suffers a covered loss to some rental property that forces the tenant to move to another location. Under which section of the dwelling policy would the insured receive payment during the time the property is being repaired? A) Coverage B--Other Structures. B) Coverage E--Additional Living Expense. C) Coverage A--Dwelling. D) Coverage D--Fair Rental Value.
D) Coverage D--Fair Rental Value. Explanation Coverage D--Fair Rental Value is the amount payable to an insured homeowner for loss of rental income due to damage that makes the premises uninhabitable. Payment is made for the shortest time required to repair or replace the part of the rental location. Reference: 7.2 in the License Exam Manual
Wilson owns a 4-family apartment building. Which dwelling form(s) would provide coverage against building damage caused by the freezing of plumbing, heating, air conditioning, and sprinkler systems? A) DP-1. B) DP-3 only. C) DP-1 and DP-2. D) DP-2 and DP-3.
D) DP-2 and DP-3.
Which of the following forms is NOT eligible to be written as part of a commercial package policy? A) Boiler and machinery coverage forms. B) Commercial crime coverage forms. C) Commercial property coverage forms. D) Dwelling property coverage forms.
D) Dwelling property coverage forms.
Which one of the following is an optional coverage under the businessowners policy? A) Business income. B) Personal effects. C) Valuable papers. D) Employee dishonesty.
D) Employee dishonesty.
A fire destroys the new clothes an employee has brought in to work to show her friends. Coverage applies under the insured's building and personal property coverage form because the clothes are an employee's personal property. When the insurance company settles, who will receive the payment? A) Payroll department. B) Store where the clothes were charged with a credit card. C) Insured business owner. D) Employee.
D) Employee.
Robert wants open perils coverage on his dwelling and named perils coverage for his personal property. Which homeowners form should he choose? A) HO-4. B) HO-6. C) HO-2. D) HO-3.
D) HO-3.
Which one of the following is NOT a coverage ocean marine insurance provides? A) Hull insurance. B) Cargo insurance. C) Freight insurance. D) Longshore insurance.
D) Longshore insurance. Explanation Longshore and harbor workers compensation insurance is a form of workers compensation coverage and not ocean marine insurance.
The businessowners policy form provides protection to buildings, business personal property, or both on a replacement cost basis provided at least 80% insurance-to-value is maintained. If the limit of insurance is less than 80% of replacement, how will the loss be settled? A) Losses will still be paid on a replacement cost basis, because that is how a businessowners policy is written. B) Losses will be paid on an ACV basis. C) Losses will be paid on a proportionate share basis. D) Losses will be paid on either an ACV or proportionate share basis, whichever is lessor.
D) Losses will be paid on either an ACV or proportionate share basis, whichever is lessor. Explanation If the limit of insurance is less than 80% of replacement cost, losses will be paid on either an ACV or proportionate share basis, whichever is lessor. The coinsurance penalty would apply.
Jane's sister, Maggie, who lives with Jane and just sold her car, drives Jane's sports car to a party. On the way home Maggie loses control of the car, hits a parked car, and rolls the car. Maggie dies as a result of her injuries. What coverage will reimburse Jane for Maggie's funeral expenses? A) No coverage is available for funeral expenses. B) Liability coverage. C) Uninsured motorist coverage. D) Medical payments coverage.
D) Medical payments coverage. Explanation Medical payments pay funeral expenses for covered persons, which includes the insured and any family member while in the insured vehicle.
Bob's Auto Repair stores its customers' autos inside its building overnight. A fire destroys the building and everything in it. Bob's commercial general liability policy will pay for which of the following? A) Value of Bob's work on the autos but not the damage to the customers' autos. B) Damage to the customers' autos and for the value of Bob's work already performed on them. C) Damage to the customers' autos but not the value of Bob's work. D) Neither the damage to the customers' autos nor the value of Bob's work.
D) Neither the damage to the customers' autos nor the value of Bob's work.
Which one of the following types of property is NOT covered under the building and personal property form? A) Improvements made by a tenant to the building. B) The cost of labor for work done on customer's property in the insured's possession. C) Property that is 75 feet from the insured premises. D) Patios and walkways.
D) Patios and walkways. Explanation The business and personal property form excludes coverage for bridges, roadways, walks, patios, or other paved surfaces.
Of the dwelling forms, which one of the following provides the broadest coverage? A) Specific. B) Standard. C) Premier. D) Special.
D) Special.
Which one of the following is NOT a factor in determining eligibility for coverage under a particular homeowners form? A) Occupancy. B) Dwelling type. C) Intended use. D) Square footage.
D) Square footage.
Max and Sam are neighbors who get into an argument over the placement of their common property line. The argument becomes a fight in which Sam's nose is broken. Sam sues Max for his medical expenses. How will Max's homeowners policy respond to this loss? A) It will pay Sam's medical bills under Part F--Medical Payments to Others. B) It will pay Sam's medical bills under Part E--Personal Liability. C) It will pay Sam's medical bills under the first aid expenses additional coverage. D) The insurer will deny the claim because of the intentional injury exclusion.
D) The insurer will deny the claim because of the intentional injury exclusion. Explanation Loss arising out of acts the insured expects or intends is excluded under both Coverage E and Coverage F.
What is the common link between bailee's customers insurance, contractor's equipment floaters, and cargo insurance? A) They are all policies issued by the Inland Marine Rating Bureau. B) All 3 policies insure against loss to property owned by the named insured. C) All 3 policies insure loss of property on a named-perils basis only. D) They all cover property that is mobile.
D) They all cover property that is mobile.
Particular average losses cover partial loss without contributions from other parties. Modern ocean marine policies use a free of particular average clause. This clause does which of the following? A) This clause relieves the insurer of any loss if that loss amounts to less than a certain percentage of the cargo. B) This clause relieves the insurer of any loss if that loss amounts to more than a certain percentage of the cargo. C) This clause relieves the insurer of any loss if that loss amounts to less than a certain percentage of the cargo. If losses exceed this deductible, the entire loss is paid less this deductible. D) This clause relieves the insurer of any loss if that loss amounts to less than a certain percentage of the cargo. If losses exceed this percentage or deductible, the entire loss is paid.
D) This clause relieves the insurer of any loss if that loss amounts to less than a certain percentage of the cargo. If losses exceed this percentage or deductible, the entire loss is paid. Explanation This clause relieves the insurer of any loss if that loss amounts to less than a certain percentage of the cargo. If losses exceed this percentage or deductible, the entire loss is paid. This is called a franchise deductible.
Ted, the owner of a TV store, is covered by an unendorsed businessowners policy. He detains Bill, a customer, for shoplifting. The police come, and Bill is not charged with any crime. Bill is very upset with Ted and sues Ted's TV store for damages. Where might Ted find coverage for this loss? A) Ted's businessowners policy will cover this loss under bodily injury. B) Ted's businessowners policy does not provide coverage as he did not buy a separate endorsement. C) This coverage is not covered in businessowners policy and cannot be purchased in the standard market. D) This coverage is included in the businessowners policy under personal injury.
D) This coverage is included in the businessowners policy under personal injury. Explanation The businessowners policy would provide liability protection if the insured becomes legally obligated to pay damages because of bodily injury, property damage, personal injury, or advertising injury caused by an occurrence to which the insurance applies.
Which of the following is NOT a peril covered under the personal property coverage in the HO-3 Special Form? A) Hail. B) Malicious mischief. C) Freezing. D) Water damage.
D) Water damage.
A dwelling policy can be used to insure all of the following EXCEPT: A) duplexes. B) rental homes. C) lake cabins. D) apartment building with 6 units.
D) apartment building with 6 units.
The nationwide marine definition provides insurance underwriters with: A) strict guidelines for pricing unusual risks such as bridges and property floaters. B) prefiled rates for transportation and communication risks. C) greater freedom in pricing and coverage for development for unusual risks. D) definitions for classifying marine, inland marine, or transportation insurance.
D) definitions for classifying marine, inland marine, or transportation insurance. Explanation The nationwide marine definition is a guideline for classifying marine, inland marine, or transportation insurance. It includes property in transit, held by a bailee, at a fixed location and considered an important instrument or transportation or transportable property often at different locations, imports, exports, domestic shipments, bridges, tunnels, and other means of transportation and communication and personal property and commercial property floater risks.
A tavern owner has a CGL policy. A patron who claims he was injured when the bartender forcibly removed him from the premises sues both the tavern owner and the bartender. Under the CGL's duty to defend provision, the policy would: A) have no duty to defend the bartender because he is not an insured. B) defend the insured in the lawsuit only if it has merit. C) defend the insured in the lawsuit, even if it is groundless. D) have no duty to defend because the damages are not covered.
D) have no duty to defend because the damages are not covered.
Medical payments coverage is Part B in the personal automobile policy. All of the following statements about medical payments coverage are true EXCEPT: A) if other auto medical insurance applies when driving a nonowned vehicle, this policy is excess. B) amounts paid under this coverage are reduced by amounts paid for medical expenses under bodily injury or uninsured motorist coverages. C) it does not cover bodily injury while using an insured vehicle as a residence. D) if other auto medical insurance applies when driving an owned vehicle, this policy is excess.
D) if other auto medical insurance applies when driving an owned vehicle, this policy is excess. Explanation If other auto medical payments insurance applies, this policy's share is proportionate to all limits of liability. In a nonowned car, this policy is excess over any other medical payments insurance.
In a flood policy issued by the NFIP, all of the following would be considered a flood EXCEPT: A) mudslide. B) collapse of land as a result of excessive erosion due to flood. C) overflow of inland waters. D) sewer backup into a home.
D) sewer backup into a home.
All of the following statements about debris removal coverage under the homeowners policy are correct EXCEPT: A) the insurer will pay the reasonable expenses associated with the removal of remaining debris following a covered loss. B) debris (e.g., ash, dust, or particles) from a volcanic eruption that caused direct loss to a building or property contained in a building is covered. C) reimbursement for debris removal is included in the limit of liability applying to the damaged property. D) the homeowners policy allows 5% of the limit of liability applying to the damaged property for reimbursement for debris removal.
D) the homeowners policy allows 5% of the limit of liability applying to the damaged property for reimbursement for debris removal.
Section II of the homeowners policy provides liability coverage for all of the following EXCEPT: A) actions of a domestic animal in the care of the insured. B) actions of a residence employee. C) use of a 17-foot sailboat. D) using a speedboat in an organized race.
D) using a speedboat in an organized race. Explanation The homeowners policy excludes liability arising out of the use of watercraft, although some exceptions apply. One exception is for sailing vessels that are less than 26 feet long.
