Property and Casualty Exam 7 with Explanations
Which of the following statements defines a "bailee"?
A "bailee" is a person or business entity that has temporary possession of the insured property usually while performing a service. For example, a TV repair shop may have temporary custody of an insured television while it is being repaired.
Which of the following best demonstrates the meaning of "contract of adhesion"?
A contract that is written by one party and merely accepted by the other party "as is" is known as a "contract of adhesion".
The standard BOP policy will provide coverage for all of the following incidental occupancies in a covered apartment building, EXCEPT:
A contractor whose office occupies 20% of the floor area of the building. A contractor's office is not classified as a "incidental occupancy" for a covered apartment building if it occupies more than 15% of the total floor area of the building.
A non-appointed producer in West Virginia may share commissions with:
A non-appointed producer in West Virginia may share commissions with an appointed producer for the insurer issuing the policy.
Which of the following statements best describes a "representation" made in an insurance application?
A representation is considered to be the truth, to the best of the applicant's knowledge and belief. It is an honest statement of a supposed fact.
In which of the following cases of alleged negligence would the defendant not be legally liable?
Bill was restoring an antique auto at his auto store's garage when Jeff drove by the garage. Jeff slowed his car and looked over his shoulder to admire the antique car. Suddenly his car struck a telephone pole. Jeff sues Bill for damages. is correct. Bill does not owe Jeff for the damages his vehicle sustained. Jeff was negligent for not being more attentive while driving.
What is generally excluded on the Condominium Commercial Unit-Owners form?
Building coverage Coverage for the building is generally excluded from the Condominium Commercial Unit-Owners form as that should be covered on the Condominium Association form.
All of the following are situations in which a credit report may be used as specified under the Fair Credit Reporting Act, EXCEPT:
Credit reports are not used in court cases, but many people do not know they ARE used in underwriting insurance.
The continuing education required for West Virginia insurance licensees must include _____ hours in the subject of:
The CE requirement for West Virginia insurance licensees mandates that 3 of the 24 hours must be in the subject of ethics.
The Hull coverage of a Yacht policy provides settlement on a(n) ___________ for partial losses.
The Hull coverage of a Yacht policy provides settlement on a replacement cost basis for partial losses.
Under the Personal Articles Floater, a loss is covered when it occurs:
The Personal Articles Floater covers covered property on a world-wide basis, except for fine arts.
Which of the following people does NOT have an insurable interest in an insured property?
The homeowner has no insurable interest in the town's water pipes as he does not own them. The other choices are all examples of insurable interest.
The most common method used by employers to obtain workers' compensation coverage is:
The most common method used by employers to obtain workers' compensation coverage is through private insurance companies.
According to the Fair Credit Reporting Act, applicants for insurance must be provided with a notice informing them that an investigative consumer report will be conducted as part of the underwriting process. This notice must be provided to the applicant:
The notice must be provided to the applicant no later than three days following the date the consumer report was requested.
The standardized Building and Personal Property Coverage form requires the insured to submit a signed, sworn proof of loss statement:
The standard Building and Personal Property Coverage form requires the insured to submit a signed, sworn proof of loss statement within 60 days of the insurance company's request. Remember, your state's statutes may amend this, but you need to know the answers for both.
All of the following statements are TRUE with regard to punitive damages, EXCEPT:
They are awarded in such a high amount that the court will not award compensatory damages to the plaintiff because they are no longer necessary. Punitive damages do NOT replace any compensatory damages awarded by the court. Punitive damages are awarded in addition to compensatory damages.
All of the following statements are TRUE regarding the "consent to settle" provision of Professional Liability policies, EXCEPT:
This provision requires the insurer to have the insured's approval on the amount that is settled on the claimant. Explain: The provision DOES NOT require the insurer to have the insured's approval on the amount that is settled on the claimant. The provision has to do with whether or not to settle out of court, it has nothing to do with the amount paid to the claimant.
"Ambiguous language" in an insurance policy means language that is all of the following, EXCEPT:
"Ambiguous language" in an insurance contract means language that is vague, easily misunderstood, or confusing to the insured. Obviously, ambiguous language in a policy would not be fortuitous (advantageous) to the insured.
Which of the following is NOT an intentional tort?
"Negligence" is an unintentional tort (it is not an intentional tort). The other answer choices list torts that are intentional.
The "triggering event threshold" for the Terrorism Risk Insurance Act of 2002 was:
$5 million
Bert's commercial package policy includes a Commercial Property coverage part, a Commercial Auto coverage part, and a Commercial Crime coverage part. How many "Common Policy Declarations" must be included?
1 A single "Common Policy Declarations" applies to all coverage parts.
Patrice has received a reduced payment for her insurance claim and the explanation states that the reduction was due to the "obsolescence" of the damaged property. Which of the following best describes the reason for the reduction in the claims payment?
A reduced claims payment may be made by the insurance company due to the reduced market value of the property because it has become obsolete (no longer used or available). The reason provided by the insurer for the reduced payment would be "obsolescence".
A requirement that a plaintiff file a lawsuit within a specific period of time after the cause of the lawsuit has occurred, which is oftentimes when the injury occurred or was discovered is known as:
A requirement that a plaintiff file a lawsuit within a specific period of time after the cause of the lawsuit has occurred, which is oftentimes when the injury occurred or was discovered is known as the statute of limitations.
A surety bond is:
A surety bond is a form of credit. This is because the premium (paid by the principal) is used to guarantee that the principal will fulfill their obligation or duty.
Daniel has paid a premium to an insurance company for a Homeowners policy, and the policy was issued. Later, a fire occurred, and Daniel's home suffered damage. In this situation, both Daniel and his insurance company are required to perform certain duties because an insurance policy is a(n) ______ contract.
An insurance contract outlines the duties of both the insured and the insurance company, and states that those duties must be performed, before the contract will be fully "executed". This means the contract is "executory".
Which of the following terms is used to describe a contract where the insurance company is the only party to the contract that is legally bound to perform its part of the agreement?
An insurance policy is one-sided or unilateral because only the insurance company is legally bound to perform its part of the agreement.
The "Employee Theft" insuring agreement of a Crime policy provides coverage for loss to all of the following, EXCEPT:
Completed work The "Employee Theft" insuring agreement does not provide coverage for loss of work.
Which of the following offers the broadest physical damage coverage under a Commercial Auto policy?
Comprehensive coverage would be the broadest because it covers anything that is not defined as "collision". The specified cause of loss is a named peril form and thus, is more limited.
Coverage A of a Farm Property policy provides coverage in which of the following amounts for any one tree, shrub, or plant?
Coverage A of a Farm Property policy excludes coverage for trees, shrubs, plants and lawns. Any coverage that may be included on the policy would be found in the coverage extensions.
Under Coverage F - Medical Payments in Section II of the standard Homeowners policies, medical expenses for the injured party will be paid as long as the claim is submitted:
Coverage F -- Medical Payments coverage, pays without regard to the negligence of the insured. All covered expenses up to the specified limit are paid for up to three years.
Farmer Greg's poultry can be covered by:
Coverages E or F of the Farm Personal Property form cover poultry on either a scheduled or blanket basis.
The NAIC Model Unfair Claim Settlement Practice Act DOES NOT apply to any of the following types of coverage, EXCEPT:
Dwelling insurance The NAIC Model Unfair Claim Settlement Practice Act DOES apply to Dwelling insurance.
Which of the following statements is CORRECT regarding fidelity bonds?
Fidelity bonds are two-party contracts between the employer and an insurance company.
Which of the following is NOT typically covered under a property insurance policy?
Flood is not covered under standard property insurance policies. However, it can be covered by a separate Flood insurance policy.
Which of the following statements is TRUE regarding the definition of "mysterious disappearance" as it applies under a Crime insurance policy?
For "mysterious disappearance" to apply under a Crime policy, theft of the property must be ruled out.
Which of the following would be considered "general damages" that could be awarded to a plaintiff in a negligence case?
General damages reimburse an injured party for intangible, non-economic items such as pain and suffering.
All of the following are coverages provided under Coverage D of the Farm Property policy, EXCEPT:
Household personal property is covered under Coverage C of the Farm Property policy.
Morton's Millinery is covered by a Commercial Property policy with a broad cause of loss form attached. Morton's closes up their covered building for a long holiday break. When they return, a loss has occurred. Which of the following loss scenarios would NOT be covered?
Loss caused by freezing is not covered under the broad cause of loss form of the Commercial Property policy, unless precautions were taken to prevent freezing. Turning the thermostat down low enough that the pipes would freeze is definitely not taking precautions to prevent freezing.
Making distinctions in the premium rates charged for insurance between insureds or property having similar risk characteristics is an example of:
Making distinctions (charging different premium rates) on similar risks is unfair discrimination.
Mike lives in Charleston and has a vehicle covered by a personal automobile policy. His truck is quite old so he rents a car from Avis to drive to Morgantown for the WVU game. He does not purchase the additional insurance offered by Avis when he rents the car. On the way to Morgantown, Mike has an at-fault accident that results in extensive bodily injury and property damage. Which of the following statements is CORRECT with regard to which policy will cover the accident?
Mike's policy is primary and Avis' policy would pay only after the limits of Mike's policy are exhausted. The West Virginia Guest Passenger Law specifies how the insurance would cover a loss in this situation.
All of the following statements are TRUE regarding the coverage of mobile or trailer homes under a Dwelling insurance policy, EXCEPT:
Mobile or trailer homes can be insured under the DP-1 (no other Dwelling forms) only if they are owner-occupied, they cannot be tenant-occupied.
Mona feels that she was unfairly denied coverage by the West Virginia Essential Insurance Coverage Association. According to state law, Mona has ______ following the denial to appeal to the Association's Board.
Mona has 15 days to appeal the denial of coverage to the Association's Board.
Homeowners policies provide personal liability coverage that follows an insured anywhere in the world under:
Personal liability coverage for the insured under a Homeowners policy is found in Section II - Coverage E of the Homeowners policy.
In a liability policy, the limits of coverage can be expressed as all of the following, EXCEPT:
Restricted There is no such policy limit known as restricted limit.
The Builders' Risk form covers all of the following, EXCEPT:
Signs when outside the building and unattached are not covered by the Builder's Risk forms.
Which of the following contains provisions to facilitate the collection, allocation and disbursement of premium taxes for placing insurance with a nonadmitted insurer in West Virginia?
The "Nonadmitted Insurance Multi-State Agreement (NIMA)" was adopted by the NAIC to facilitate the collection, allocation and disbursement of premium taxes for placing insurance with a nonadmitted insurer in West Virginia.
The Assisted Living Care Coverage endorsement to a Homeowners policy insures the person scheduled on the endorsement for:
The Assisted Living Care Coverage endorsement to a Homeowners policy insures the person scheduled on the endorsement for Coverages C and E.
The chief operating officer (COO) of the West Virginia Department of Insurance is:
The COO of the West Virginia Department of Insurance is the Insurance Commissioner.
The Homeowners forms exclude coverage for loss resulting from "earth movement" but the peril of "earthquake" can be added by endorsement as an insured peril for:
The Earthquake Endorsement to a Homeowners policy adds "earthquake" as a covered peril for Coverages A, B, and C.
Which of the following is not a covered peril under the Standard Fire policy?
The Standard Fire policy covers only the most basic and specific perils. All property and casualty policies exclude actions of war.
Which of the following basic coverages are provided under a Standard Fire policy?
The Standard Fire policy provides coverage for fire, lightning and removal.
When can an insured assign his or her insurance policy over to another party?
The assignment clause states that the policy may only be assigned with the written consent of the insurer.
A burglar apprehended in Smith's Jewelry Store by Mr. Smith, the owner, puts up a fight and suffers a broken jaw as a consequence. The burglar sues Smith's Jewelry Store for bodily injury. Will the store's CGL policy provide defense of the suit?
The claim is covered because Mr. Smith was trying to protect himself and his property by using reasonable force. If the burglar did not have a weapon and Mr. Smith shot him there might be a coverage problem.
Which of the following injuries would be covered under Part A of the Personal Auto policy?
The coverage applies to third-party bodily injury or property damage claims. The person the insured struck would be covered.
Under the Standard Fire Policy, how many days advance notice does the insurer have to give before cancelling a policy?
The insured can cancel anytime, for any reason. The insurer must give a minimum of 5 days' advance notice. However, cancellation of any policy is based on state laws.
The standardized Dwelling forms allow the insured to bring legal action against the insurer if they have complied with all policy provisions and the action is brought within:
The standardized Dwelling forms allow the insured to bring legal action against the insurer if they have complied with all policy provisions and the action is brought within 2 years after the date of the loss.
Which of the following is NOT a method of determining causation of injuries under a workers' compensation claim?
The tort law concept of proximate cause is beneficial in proving "fault" in relationship to an accident or injury. Workers' compensation is "no-fault" coverage, therefore "proximate cause" is not a concern under a workers' compensation claim.
A "provider" of continuing education to West Virginia insurance licensees includes all of the following, EXCEPT:
A website providing general courses to producers in all states is not a "provider" because the WV Department/Commissioner must approve the website as a provider and the course as being applicable for continuing education credit.
All of the following would be covered under Part B - Medical Payments of the Personal Auto policy, EXCEPT:
Coverage while using the vehicle as a public or livery service is excluded. This does not apply to share-the-expense car pooling.
Horatio is a business owner who is part of a business owners group that are buying old commercial buildings in their small city and refurbishing them. Horatio has bought a beautiful historical building made mostly of wood. He installs a sprinkler system right away to prevent a fire. What risk management strategy is Horatio using?
Horatio is reducing his risk of fire by installing a sprinkler system. Therefore, he is using the risk reduction method to manage his fire risk.
A new homeowner is being forced into purchasing insurance from a particular insurance company as a condition for receiving a mortgage. The mortgage lender is guilty of which of the following?
In this situation, the lender is guilty of coercion. Sometimes called "coercion of borrowers".
The maximum deductible for mine subsidence coverage in West Virginia is:
The West Virginia insurance code specifies that the maximum deductible for mine subsidence coverage is $500.
An insured business is sued for bodily injury covered by their Commercial General Liability policy up to $200,000. The legal costs are $30,000, prejudgment interest is $10,000 and the damages awarded to the claimant against the insured are $200,000. How much will the policy pay on the claim?
The damages are paid under Coverage A at $200,000 because that is the limit. The legal costs and prejudgment interest are also paid in full because they are "supplementary payments" that are paid IN ADDITION TO the policy limits. Neither of these supplementary payments has a coverage limit.
When the triggering event threshold has been met under the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA), the insurer's deductible amount:
The insurer's deductible under TRIPRA is calculated at 20% of the insurer's direct earned premiums for commercial insurance.
Stu carries the minimum financial responsibility limits required by the state of West Virginia for automobile liability coverage. When Stu has an "at-fault" accident, the maximum that will be paid for the bodily injury to the one person Stu injured in the accident is:
The minimum limit for bodily injury for one person in one accident is $25,000. The question stated that Stu carried the minimum limit.
Winifred is a funeral director in West Virginia who is licensed to sell "pre-need burial" insurance contracts. Winifred must complete ______ hours of continuing education each reporting period.
WV producers selling only "pre-need burial" insurance contracts are required to complete only 6 hours of continuing education each reporting period.
A vehicle rolled over while exiting the interstate. The insured carries collision coverage with a $1,000 deductible and other than collision coverage with a $500 deductible. The damage to the vehicle is $2,000. What amount is the insurer responsible to pay?
A vehicle that rolls over and sustains damage is considered to be a collision claim versus an other than collision claim. The damage to the vehicle is $2,000 and the deductible is $1,000. Therefore, the insurer is liable for $1,000.
An insurance agent/producer represents the interests of:
Insurance agents or producers are appointed to act as representatives of insurance companies. Brokers represent the insured.
Adverse selection occurs when:
Insurers must carefully underwrite all risks to avoid being the victim of adverse selection. With adverse selection, the insurer is confronted with the probability of loss due to risks not factored in at the time of sale.
The extended reporting period of an Employment Practices Liability policy must be requested in writing within __________ after the end of the policy period and it is effective for ___________.
The ERP must be requested in writing within 30 days after the end of the policy period and it will be effective for 3 years.
Lucy has insured her one-family home under a standard HO-3 form with a Coverage A limit of $100,000. If she suffered a $100,000 loss to her covered dwelling, how much coverage would be provided under Coverage B for her unattached garage on the premises?
The HO-3 form provides 10% of the Coverage A - Dwelling limit for Coverage B - Other Structures. The most the insurance company will pay is $10,000 ($100,000 multiplied by 10%).
The NAIC Model Unfair Claim Settlement Practices Act specifies that when a violation of the Act is suspected, a hearing must be held:
The NAIC Model Act provides for a hearing not less than 30 days after notice has been provided to those involved. Many states amend this time frame so pay special attention when you are asked this question. If you are asked within the question what the NAIC Model Act requires, the correct answer will always be 30 days.
Under a standardized Dwelling form, a loss by a covered peril for Improvements, Alterations and Additions is covered for up to:
Under a standardized Dwelling form, a loss by a covered peril for Improvements, Alterations and Additions is covered for up to 10% of the Coverage C limit.
Indemnify Insurance, Inc. has decided to nonrenew Dr. Jefferson's malpractice policy in West Virginia. Indemnify must provide the nonrenewal notice:
West Virginia statutes require the nonrenewal notice for a malpractice policy be delivered by certified mail, return receipt requested.
Which of the following types of insurance companies is known as a "nonparticipating company" because they do not pay their policyholders a dividend?
With a stock company, the policyholders do not participate in company profits, therefore they are known as "nonparticipating companies". Topic covered in "Insurance Companies" -- Module A of the Virtual Classroom.
The "Pollution Clean-Up and Removal" coverage under the Building and Personal Property coverage form of a CPP:
"Pollution Cleanup and Removal" is an additional coverage under the Building and Personal Property coverage form (one of several Commercial Property coverage forms that can be added to a Commercial Package Policy).
Which of the sections of the Gramm-Leach-Bliley Act outlines the security programs that financial institutions must use to protect the private financial information of its clients?
"The Safeguards Rule" is the section of the GLB Act and stipulates the security programs that financial institutions must implement to protect the private financial information of their clients.
Morton loses control of his car and hits Jordan's car that was parked legally along the street where Morton was driving. The damage to Jordan's car is covered by which coverage of Morton's personal automobile policy?
Part A -- Liability covers the damage that an insured causes to another person's automobile (among other coverages). Because Morton caused damage to Jordan's car, Morton's personal automobile policy will pay the claim under the Part A -- Liability insuring agreement.
All of the following are powers and duties of the West Virginia Insurance Commissioner, EXCEPT:
The Insurance Commissioner does not establish premium rates, he/she approves rates.
The NAIC Unfair Claim Settlement Practices Act is intended to cover all of the following types of insurance claims, EXCEPT:
The NAIC Model Legislation governing Unfair Claim Settlement Practices does not apply to Equipment Breakdown (Boiler & Machinery) insurance claims.
The term "fault" as defined under the West Virginia Comparative Fault statute may include all of the following, EXCEPT:
The West Virginia Comparative Fault statute does not include "intervening cause" as part of the definition of "fault".
The West Virginia Insurance Commissioner is appointed by __________ with the advice and consent of __________.
The West Virginia Insurance Commissioner is appointed by governor with the advice and consent of the state senate.
Which of the following statements is NOT TRUE of the West Virginia Automobile Insurance Plan?
The answer choice that is NOT TRUE is: "Persons holding an agent/producer license of any type are eligible to place business through the Plan." Agent/producers must hold a valid property and casualty license to be eligible to write policies through the WVAIP.
Mike purchased a policy several years ago to cover him for liability. Last year, Mike determined that the limits of his liability policy were not high enough to cover him adequately should a loss occur, so he purchased an excess liability policy to provide more coverage. Mike experiences a loss, and discovers that his underlying liability policy had expired before the loss, but his excess liability policy is still in effect. How will this loss be paid?
The claim will be denied, due to nonconcurrency. If the underlying liability policy was expired, the excess policy will not be triggered to pay anything on the claim.
All of the following statements are true regarding a Personal Liability Supplement, EXCEPT:
The only answer choice that is NOT true is that the Personal Liability Supplement coverage watercraft liability. The policy does NOT cover watercraft liability, but all three of the other answer choices are true.
Which of the following statements is TRUE regarding the sections of a Homeowners policy?
The only answer choice that is true is: "Section I coverages vary greatly between the different HO forms." This is because of the different perils insured against. Section II of the forms is identical on all forms and the additional coverage provided by Section I and Section II are different.
Loza's automobile, covered by a Business Auto policy, was stolen. Temporary transportation expenses will be paid beginning:
The transportation expenses will be paid (for theft of a vehicle covered by a BAP) beginning 48 hours after the theft.
Which of the following initiates a lawsuit to deal with a liability insurance claim dispute?
To initiate a lawsuit to deal with a liability insurance claim dispute, a "complaint" is issued. While the "proof of loss" or "statement of the claim" is PART of the complaint, it is not the complaint itself.
Willie's Widgets is covered by a policy that includes a franchise deductible of $50,000 and a policy limit of $400,000. A fire rips through Willie's warehouse, and he sustains $342,000 in damage. How much of the claim will Willie's Widgets be responsible for paying?
$0 With a franchise deductible, once the loss has exceeded the amount of the franchise deductible, the ENTIRE LOSS is paid, up to the policy limit. Because the loss was $342,000, it exceeded the $50,000 franchise deductible amount. Therefore, the insurer will pay $342,000 and Willie's will pay $0.
Philip has several vehicles that are all covered under Personal Automobile policies. He has several acres of land with a barn and chicken coup on the property. To drive around on the acreage, Philip has a very old truck that is not licensed or insured. One afternoon, Philip is driving out to check on his cows when he hits a rut and his head slams down on the steering wheel, injuring him severely. How will Part B - Medical Payments provide coverage for Philip's injuries?
Part B would not cover Philip's injuries because bodily injury sustained while occupying an uninsured auto owned by the insured is excluded under Part B.
A Farm Liability policy automatically includes which of the following?
Personal injury liability is the only coverage in the answer choices that is automatically included in a farm liability policy. If the insured farmer would like to add the other coverages mentioned, they can be added by endorsement.
The insuring agreement of a Personal Umbrella policy provides coverage for all of the following, EXCEPT:
Postjudgment interest is NOT covered under the insuring agreement of a Personal Umbrella policy.
West Virginia law regarding the liability of more than one defendant for compensatory damages requires that the amount be ______ and in direct proportion to each defendant's percentage of fault.
Several "Several" means "separate".
Christina's hunting cabin in West Virginia has been appraised at $200,000. Christina has the cabin covered by a Dwelling policy and the full limit of the policy is $175,000. The kitchen catches fire and burns a large portion of the structure, creating a $100,000 loss. Because West Virginia has a "valued policy law", Christina can expect to receive ________ from her insurer.
$100,000 Christina can expect to the receive the total amount of the partial loss, up to the policy limit.
Persons who engage in activities that violate 18 USC 1033, 1034 the Federal Insurance Fraud and False Statements Act may be subject to which of the following?
The United States Attorney General may bring a civil action in the appropriate United States district court against any person who engages in any of these crimes and that person will be subject to a civil penalty of not more than $50,000 for each violation or the amount of compensation which the person received or offered for the prohibited conduct, whichever amount is greater.
In West Virginia, a licensee must report to the Insurance Commissioner any administrative action taken against the producer in another jurisdiction or by another governmental agency in this state within _____ of the final disposition of the matter.
Any administrative action must be reported to the Commissioner within 30 days.
Personal property such as furniture, household goods, machinery, or equipment that the insured owns uses in his/her home or business is classified as:
For insurance purposes, furniture, household goods, machinery, or equipment that the insured owns uses in his/her home or business is classified as personal property in use. If the insured owns the property, it cannot be property that is leased or rented. Additionally, it cannot be personal property held for sale because the insured uses the property and land is not covered.
For a misrepresentation to void an insurance policy, it must be:
Material The misrepresentation (false information) must have been a determining factor (material) in the insurer's decision to accept the risk. If the insurer would have rejected the insurance application had the true facts been known, the false information provided is "material to the risk".
Which of the following is the rule that requires both parties to a loss share the financial burden of the bodily injury or property damage according to their degree of fault?
The comparative negligence rule requires both parties to a loss share the financial burden of the claim by each party's percentage of fault.
