Property & Casualty Final Exam

An insured's roof cost $4,000 when installed 5 years ago. It has been damaged by hail and must be replaced. The new roof will cost $6,000 at today's prices. If the roof has been depreciating at $200 per year and the insured's policy is written on the actual cash value(ACV), how much will the policy pay toward the insured's new roof? A$1,000 B$4,000 C$5,000 D$6,000 ACV is calculated as replacement cost less depreciation.

5,000 ACV is calculated as replacement cost less depreciation.

What are the two types of compensatory damages? ASpecial and general BPure and speculative CTort and general DNormal and punitive

A. Special and General Compensatory damages are intended to compensate someone for both tangible and intangible elements of a loss. Special damages are for the actual measurable losses, such as value of property or medical bills. General damages cannot be specifically measured in dollars, such as pain and suffering.

Replacement cost is defined as A Payment of the full policy limits in the event of a total loss. B Full replacement of property at its current cost, new and without reduction for depreciation. C The market value of property of like kind and quality. D Full replacement of property with like kind and quality, less an allowance for physical deterioration and depreciation.

B Full replacement of property at its current cost, new and without reduction for depreciation. Replacement cost policies do not consider depreciation if the proper amount of insurance is maintained. Policies that provide replacement cost coverage require that the amount of insurance written be 80% or more of the replacement cost of the property at the time of loss.

An additional loss that results from a direct loss of property is called a/an ALiability loss. BPunitive loss. CIndirect loss. DProximate loss.

C. Indirect Loss Direct losses come about because of perils named in the policy. Indirect losses, also known as consequential losses, come about as a result of a direct loss.

Which of the following is used in the formula for calculating the actual cash value of a property? AFair market value BAgreed value CReplacement cost DStated value

C. Replacement Costs The actual cash value (ACV) method of valuation reinforces the principle of indemnity because it recognizes the reduction of value of property as it ages. To calculate ACV, depreciation is subtracted from the current replacement cost.

Insurable interest in a property policy must be proven A. When a policyowner is changed. B. When a claim is paid. C. At the time of application. D. At the time of loss.

D. At the time of loss. Between the time a policy is issued and when a loss occurs, ownership may have changed, mortgages may have been put into place, etc. Therefore, in property and casualty insurance, insurable interest must exist at the time of loss.

An insured owns several buildings, each at a different location and insured on a separate policy. What type of coverage does the insured have? ASchedule BBlanket CSpecial DSpecific

DSpecific Specific insurance provides a specific amount of coverage for each property. A blanket insurance policy provides coverage for more than one property with a single limit of coverage.

What is the purpose of the coinsurance clause found in property insurance policies? A Ensure that insureds do not overinsure their property B Prevent insureds from profiting from a loss C Encourage the insured to insure the property closer to its full value D Encourage higher standards of care by requiring the insured to pay a portion of every loss

In return for the insured's promise to insure the property to some certain percent of its value, the insurer agrees to give the insured a reduced rate per hundred on the insurance and pay partial losses in full.

When the amount of insurance written in a property policy is not subject to any coinsurance provision and that amount is paid in the event of a covered loss, the coverage is said to be written as A. Replacement cost. B. Actual cash value. C. Specific insurance. D. Stated amount.

Stated Amount In stated amount coverage, the value of the insured property is determined at the time the policy is written. In the event of a loss, that amount is paid without regard to any coinsurance provision. However, if the loss is less than total, the insurer has salvage rights with the insured having first right of refusal of the salvage.

A policy that insures all property at multiple locations for a single amount is referred to as ABlanket. BReporting. CSpecial. DSpecific. Incorrect! Blanket coverage provides one limit of insurance for multiple locations or classes of property with the entire limit of insurance available to respond to any loss. No single item is assigned a specific amount of insurance. However, different amounts of insurance may be shown for buildings in general and contents in general.

a

All of the following statements describe the concept of strict liability EXCEPT AIt is imposed on defendants engaged in hazardous activities. BClaimants may need to provide proof that a product defect caused an injury. CIt is imposed regardless of fault. DIt is applied in product liability cases. Incorrect! Strict liability is commonly applied in product liability cases. The business is then liable for defective products, regardless of fault or negligence.

a

In which of the following types of property valuation will the policy pay the full value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation? AAgreed value BReplacement cost CStated amount DMarket value Correct! Agreed value is a property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written. When a loss occurs, the policy pays the agreed value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation.

a

Payment for medical expenses, loss of wages, funeral expenses, or the cost to repair or replace damaged property are known as what type of compensatory damages? ASpecial BTort CNormal DGeneral Incorrect! The two classes of compensatory damages that may be awarded are special and general damages. Special damages are tangible damages that can be specifically measured in dollar amounts (such as out-of-pocket expenses for medical, miscellaneous expenses, and loss of wages).

a

Losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected is the definition of which of the following terms? AOccurrence BPeril CHazard DAccident

a. occurence An occurrence includes those losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected.

A Certificate of Insurance is a written document that AAllows the insurer to inspect the insured's books. BShows the types and amounts of insurance issued to the insured. CObligates the insurer to the person to whom the insurance was issued. DNames the insured's beneficiary. Correct! A Certificate of Insurance is a written document showing the types and amounts of insurance purchased by the insured; it does not obligate the insurer to the person to which the certificate was issued.

b

The insured's house is located one mile from the county's new landfill and across the road from the entrance of a rock quarry. It would cost $150,000 to rebuild the house if something happened to it, but when the insured tried to sell it, the best offer he received was $80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property? AFunctional replacement cost BMarket value CActual cost value DReplacement cost Incorrect! When insured for market value, it is insured for what a willing buyer would pay prior to a loss. This is different from actual cash value or replacement cost.

b

Which of the following coverages in dwelling and homeowners policies is for indirect losses? AContents BLoss of use CDwelling DStructures Incorrect! Loss of use coverage applies only after a direct loss caused by a covered peril has occurred.

b

A property insurance policy that is not subject to any coinsurance requirements but has a set amount of insurance scheduled for the property would use what loss valuation method? AReproduction cost BStated amount CActual cash value DReplacement cost Correct! A stated amount is an amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss.

b A stated amount is an amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss.

A policy that insures all property at multiple locations for a single amount is referred to as ASpecific. BBlanket. CReporting. DSpecial.

b Blanket coverage provides one limit of insurance for multiple locations or classes of property with the entire limit of insurance available to respond to any loss. No single item is assigned a specific amount of insurance. However, different amounts of insurance may be shown for buildings in general and contents in general.

What type of compensatory damages will pay for pain and suffering and disfigurement? ANormal BGeneral CSpecial (specific) DTort General compensatory damages are for intangible elements that cannot be specifically measured in terms of dollars.

b General compensatory damages are for intangible elements that cannot be specifically measured in terms of dollars.

When a direct chain of events resulting from a negligent act causes injury or damage, that act is considered to be AAn intervening cause. BThe proximate cause. CThe direct cause. DStrict liability.

b The proximate cause of a chain of events resulting in injury is one that is sufficiently related to an injury that the courts determine it is in fact the cause of that injury.

Payment for medical expenses, loss of wages, funeral expenses, or the cost to repair or replace damaged property are known as what type of compensatory damages? AGeneral BSpecial CTort DNormal Incorrect! The two classes of compensatory damages that may be awarded are special and general damages. Special damages are tangible damages that can be specifically measured in dollar amounts (such as out-of-pocket expenses for medical, miscellaneous expenses, and loss of wages).

b special

A Certificate of Insurance is a written document that ANames the insured's beneficiary. BAllows the insurer to inspect the insured's books. CShows the types and amounts of insurance issued to the insured. DObligates the insurer to the person to whom the insurance was issued. Incorrect! A Certificate of Insurance is a written document showing the types and amounts of insurance purchased by the insured; it does not obligate the insurer to the person to which the certificate was issued.

c

All of the following statements concerning coinsurance are true EXCEPT AThe insured agrees to maintain insurance equal to some specified percentage of the value of the property. BIf the insurance carried is less than required, the insurance may not cover the whole loss. CThe coinsurance formula will also be applied to total losses. DIt is used to help adequacy and equity in rates. Incorrect! In the event of a total loss, the coinsurance clause does not operate and the face amount of the policy is paid.

c

What is the purpose of the coinsurance clause found in property insurance policies? AEnsure that insureds do not overinsure their property BPrevent insureds from profiting from a loss CEncourage the insured to insure the property closer to its full value DEncourage higher standards of care by requiring the insured to pay a portion of every loss Incorrect! In return for the insured's promise to insure the property to some certain percent of its value, the insurer agrees to give the insured a reduced rate per hundred on the insurance and pay partial losses in full.

c

What type of liability would a person who owns wild animals have? AVicarious BImplied CDirect DAbsolute Correct! Any conduct that is inherently dangerous, such as using explosives or keeping wild animals, imposes absolute liability. The claimant does not have to prove anything.

d

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost? AStop-loss BConsideration CReasonable expectations DIndemnity Correct! The principle of indemnity stipulates that the insured can only collect for the amount of the loss even if the policy is written with greater benefit limits.

d

What type of compensatory damages will pay for pain and suffering and disfigurement? ASpecial (specific) BTort CNormal DGeneral Incorrect! General compensatory damages are for intangible elements that cannot be specifically measured in terms of dollars.

general

The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as ALoss. BExposure. CHazard. DRisk.

loss Loss is the reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against.