Study Guide - Property and Casualty Exam

53. Mary's house was badly damaged by a hurricane. A claims representative from her insurance company came out to inspect the damage and put a value on the loss. What Mary thought the value of her property was, and what the claims representative is stating the value to be, do not match. Mary is extremely upset over this dispute in value and wants another opinion. In accordance with Mary's rights under the insurance policy, she can request what option to get a second opinion on her loss value? a. Appraisal b. Outside source opinion c. Value adjustment d. Third-party adjuster

A: Appraisal. An appraisal is a right given by the insurance policy to ask for a third party's opinion on the value of the loss. This right is practiced when the insured does not agree with the value the insurer is putting on the loss sustained. The insurer cannot deny an appraisal, as it is a right stated in the insurance contract.

35. Megan purchased her first vehicle from the local car dealership. She called a local auto insurance agent and gave all the information regarding her driving history and details of her new auto. The agent was able to issue her a temporary agreement of coverage, valid until Megan was able to make it to the office to sign all necessary forms and pay the policy. What is the term for this temporary agreement of insurance coverage? a. Binder b. Endorsement c. Policy d. Notice of coverage form

A: Binder. A binder is a temporary form of insurance coverage agreement. Megan still needs to fulfill all the insurer's requirements of forms and pay before the coverage can be fully issued and out of binder status. The coverage becomes firm once the binder is issued into a full policy.

100. An umbrella policy is a policy that can cover several different exposures on one policy. What is another name for this type of policy? a. Blanket policy b. All-exposures policy c. Non-exclusive policy d. Special forms policy

A: Blanket policy. A blanket policy is similar to an umbrella policy in that it is one insurance policy written to cover multiple different exposures. The different exposures covered may include locations, properties, goods being transported, etc.

48. Martin was visiting a friend's house one night. During his stay, Martin was told that a neighbor had obtained a Super Bowl ring that was worth a lot of money. After Martin left his friend's house, he noticed the neighbor's house was dark and no one was home. Martin snuck in through a window and stole the Super Bowl ring. If caught, Martin will be convicted of what crime? a. Burglary b. Robbery c. Theft d. Malicious mischief

A: Burglary. Martin would be found guilty of burglary because he entered a person's property without permission and stole from this property. If Martin is not caught in this illegal act, the property owner's insurance carrier may have to pay for this loss.

7. The DP-3 Dwelling Form contains all of the following coverages EXCEPT: a. Coverage A - Land b. Coverage B - Other Structures c. Coverage C - Personal Property d. Coverage D - Fair Rental Value

A: Coverage A - Land is not a coverage under a DP-3. The dwelling form includes five coverages: Coverage A - Dwelling, Coverage B - Other Structures, Coverage C - Personal Property, Coverage D - Fair Rental Value, and Coverage E - Additional Living Expense.

15. Vandalism and Malicious Mischief (VMM) is an optional coverage that can be added by endorsement to which policy? a. DP-1 b. DP-2 c. DP-3 d. DP-4

A: DP -1. DP-1 policies are able to add VMM coverage by endorsement. VMM is automatically included in the other dwelling policy forms.

32. Gary owned a popular hardware store in the center of town. He had five employees working full time for the store. One night a fire broke out at a neighboring building and spread to Gary's store. The store was very badly damaged and would take months to restore before it could open again. Which of the following is a direct loss Gary felt from this fire? a. Damage to the building and inventory b. Loss in revenue c. Employees losing their income while the store is closed d. Extra expenses to house the inventory that was untouched until the building is repaired

A: Damage to the building and inventory. The fire caused a direct loss of physical damage to the store building itself and the damaged inventory. There is a reduction in value to the store and the inventory, if not completely damaged by the loss. Loss in revenue, employees losing their pay, and the extra expenses are all results of the loss, but they are indirect losses.

59. In 1970, this act was created to promote an accurate and fair process for collecting and using consumer credit reports. What is the formal name for this federal act? a. Fair Credit Reporting Act b. Federal Agency Reporting Act c. Federal Credit Care Act d. Fair Federal Care Act

A: Fair Credit Reporting Act. The Fair Credit Reporting Act is a federal act that was enacted in 1970. This act defines the legal procedures and standards for using consumer reports, specifically credit reports. The report allows customer to opt out of the sharing of her information between affiliates of the organization pulling the credit information.

42. Bruce obtained an insurance policy for a property he planned to buy in the next two days. The effective date was to be the date the property was purchased. At settlement, the sellers backed away from the deal and Bruce was not able to purchase the property. He called his insurance agent and asked to cancel his policy. What type of cancellation will the insurer most likely process? a. Flat cancellation b. Short-rate cancellation c. Pro-rate cancellation d. It will not cancel due to the policy already being issued

A: Flat cancellation. The insurer will be able to flat cancel Bruce's policy because he never maintained ownership of this property and therefore the policy was never needed. A flat cancellation returns full premium as if the policy was never issued.

90. Sarah was a victim of a car accident in which she severely injured her right leg. It took Sarah months of therapy to recover to nearly 100 percent. While in court to settle her claim, the judge offered Sarah $15,000 for her pain and suffering as a result of the accident. What type of damages was Sarah compensated for? a. General damages b. Punitive damages c. Special damages d. Pain and suffering damages

A: General damages. General damages are awarded to an injured party to compensate for the pain and suffering experienced as a result of an accident or injury. General damages are given as a monetary reward.

3. A tenant who does not need to buy coverage for the dwelling itself but would like to cover his own personal property should obtain which type of homeowners policy? a. HO-4 b. HO-2 c. HO-5 d. HO-6

A: HO-4. An HO-4 is designed to cover a tenant's personal property, but does not cover the dwelling itself. This coverage is provided on a named-perils basis.

4. To obtain the broadest coverage available for an owner-occupied dwelling, the insured should purchase which type of homeowner's policy? a. HO-5 comprehensive form b. HO-2 broad form c. HO-6 unit-owners form d. HO-8 modified coverage form

A: HO-5 provides dwelling, other structures, and coverage on an open-perils basis. The HO-5 provides the broadest coverage form of all the HO policy forms.

30. A loss can arise for many different exposures or situations. What is a condition that leads to an increased possibility that a loss may occur? a. Hazard b. Risk c. Exposure d. Peril

A: Hazard. A hazard is a condition that can lead to the increased chance that a loss will occur. Hazards can be classified in three ways: moral, physical, and morale. An insured should do her best to avoid any hazard, if possible, to reduce the likelihood of a loss.

88. Employment practices liability insurance (EPLI) provides defense costs for the insured in what capacity? a. Included in the limits b. Outside the limits c. Defense costs are not covered by an EPLI policy d. Defense costs can be purchased by endorsement to increase the limits

A: Included in the limits. Employment practices liability policies are written with defense costs within the limits, also known as "shrinking limits." Defense costs can be quite large and therefore may significantly reduce the amount of limits available to cover a claim.

27. Mary recently purchased her first home. She went to her local agent to obtain an insurance policy to ensure that if a loss occurred, she would be covered. Mary is said to have what in respect to this home? a. Insurable interest b. Insurable declaration c. Insurable responsibility d. Insurable commitment

A: Insurable interest. Mary has an insurable interest in her newly purchased home. If there were to be a loss to this location, Mary herself would suffer a direct financial loss.

94. Kerry was involved in an auto accident in which she was deemed at fault. The other driver Kerry hit had minor injuries but still required an ER visit and some additional testing. Which of the split limits would show the maximum amount insurance would pay to cover this one person who was injured? a. Limit 1 b. Limit 2 c. Limit 3 d. Coverage is not available for a single injured operator in the split limits approach auto insurers use.

A: Limit 1. Limit 1, of the three split limits offered in auto insurance, is designed to represent the maximum dollar amount the insurer will pay to any one person injured as a result of an automobile accident. Limit 2 represents the total amount to be paid to all injured persons.

37. Mark and Jennifer are married and live in New York with their three children. Their oldest child, Kevin, was living eight months of the year in New Jersey at college. Mark's mother came into town and was staying with them for two weeks. During this two-week stay, Mark was shopping around for new insurance and the agent asked for a list of all insureds in the household. Taking in account Mark, Jennifer, his three kids (including Kevin), and Mark's mother, who is not considered an insured? a. Mark's mother b. Kevin c. All are insureds due to the nature of their relationship to Mark d. Kevin and Mark's mother

A: Mark's mother. An insured is defined as any member of the household. Kevin, while living most of the time at college, is still considered a household member due to the nature of him being a student and his parents' address still being his "primary location." Mark's mother, while she may be covered if she operated his vehicle as a permissive user insured, is not considered an insured of the household. A two-week visit does not change the fact that she lives and uses another address as her main residence.

70. Besides covering property in transit, inland marine insurance can also cover what exposures? a. Means of communication b. Autos c. The home listed on the insurance d. Aircraft carrying the property in question

A: Means of communication. Inland marine insurance is designed to cover not only transported property, but also means of communication. These communication methods can include radio towers and televisions.

11. Which hazard is defined as intentionally causing, fabricating, or exaggerating a loss? a. Moral hazard b. Morale hazard c. Physical hazard d. Legal hazard

A: Moral hazard. A moral hazard is defined as intentionally causing, fabricating, or exaggerating a loss. An example of a moral hazard is someone exaggerating the extent of damage from an accident in order to receive more money from the at-fault parties' insurance carrier.

22. Whose name always appears on the declarations page of an insurance policy? a. Named insured b. Legal representative for the named insured c. Named insured's household members d. There is no one named on the declarations page of an insurance policy.

A: Named insured. The named insured is always found on the declarations page of the insurance policy. This placement is to name who is the owner of the policy, who is to pay the premium, and who is to collect any premium paid back due to cancellations.

56. Luke set up a meeting with an agent of ABC Insurance Inc. The purpose of this meeting was for Luke to obtain a personal umbrella policy to cover his personal assets and fulfill a requirement of his homeowners association. The agent went over various coverage forms and limits available to Luke, as well as premiums due. At the end of the meeting, Luke left with some paperwork to review and the agent was going to process a quote for Luke as well in the next day or so. If Luke agreed with the terms, he promised to pay his premium within the week. What one element of a contract is missing from Luke's situation? a. Offer and acceptance b. Two or more parties working towards an agreement c. Consideration d. Legal purpose

A: Offer and acceptance. Elements of an insurance contract include two or more parties in agreement, legal purpose, offer and acceptance, and consideration. Luke's legal purpose in obtaining his umbrella policy was to fulfill a requirement of his homeowners association. The agent and Luke are the two parties who are working towards an agreement and contract of insurance coverage. The element of consideration is the exchange of money for the premium from Luke for the coverage the insurance company is going to provide. The fourth element of a contract - offer and acceptance - is not yet met because Luke has not yet agreed to final terms to issue the policy or contract.

14. There are three elements to a loss exposure. What can be defined as a cause of loss? a. Peril b. Risk c. Asset exposed to loss d. Liability

A: Peril. A peril is defined as the cause of loss. A peril, along with the asset exposed to loss and the financial consequence of the loss, all make the elements of a loss exposure

99. Susie has an extensive collection of jewelry and fine arts. Susie's homeowners policy provides coverage for these exposures, but on a limited basis. What type of policy should Susie obtain to increase the coverage available for her jewelry and fine arts? a. Personal articles floater b. Personal property floater c. Personal property extension endorsement d. Specialized property coverage

A: Personal articles floater. Susie should obtain a personal articles floater to secure the insurance limits needed to properly cover her jewelry and fine arts. A personal articles floater can be added by endorsement to a homeowners policy and is provided on an all-risks basis.

83. Intentional or criminal acts and sexual misconduct are two of the exclusions for medical malpractice exclusions. Provide one additional exclusion from the list below: a. Punitive damages b. Unintentional acts by a professional c. Patient chart error d. Insurance coverage discrepancies

A: Punitive damages. Punitive damages, sexual misconduct, and intentional or criminal acts are excluded from the medical malpractice insurance policy. Unintentional acts are not excluded because intent is not a necessary element of malpractice. Patient chart error is not excluded because charts are typically not monitored by the physician or surgeon but rather by office staff or nurses. Finally, insurance coverage discrepancies have to do with the insurance company in question, not the insured (physician or surgeon).

76. Employee dishonesty coverage is an important coverage employers can obtain through a commercial crime policy. Employee dishonesty coverage provides coverage for theft of money, property, and what other exposure? a. Securities b. Other employees' personal property c. Company card spending on personal needs d. Company time unauthorized

A: Securities. Employee dishonesty coverage is an important coverage for employers to obtain. Employee crime can happen in any environment. While it is of utmost importance to try to prevent theft, insurance must be in place to cover extreme cases. Theft of money, property, and securities are coverages provided by the employee dishonesty coverage policy.

67. All of the following are businesses that may be eligible for a business owner's policy (BOP) EXCEPT: a. Self-storage facilities b. Art galleries c. Cheese shops d. Drama schools

A: Self-storage facilities. A self-storage facility is ineligible for a BOP regardless of its size and gross annual income. The art gallery, cheese store, and drama school may all be eligible for a BOP depending on their size and the overall nature of the business.

21. Paul visited a wildlife safari to see the new lion exhibit. If Paul were to enter into the lion's gated area to help the safari worker with a feeding, he may not be able to sue the safari if anything wrong were to happen. Why would he lose the ability to sue? a. Paul would have assumed strict or absolute liability due to the nature of the event. b. Paul would have assumed vicarious liability due to the nature of the event. c. The safari worker being there to help negates any right to sue. d. The safari worker could sue Paul even though the entry was allowed.

A: Strict or absolute liability. Paul working with the lions assumes strict or absolute liability. Lions are extremely dangerous animals that you can have little to no control over. Paul entering this situation on his own terms knew the inherent danger.

65. For a small business to be eligible for a business owner's policy (BOP), the insurer looks not only at the size of the business but what other factor? a. The nature of the business b. The location of the business c. The amount of time the business has been in operation d. The average amount of people visiting the location per week

A: The nature of the business. For a small business to be eligible for a BOP, the business must not exceed $3 million in gross sales annually and the property location itself cannot be larger than 25,000 square feet. The BOP is intended to cover small businesses with commercial locations, and is not necessarily intended for home-based businesses.

78. A surety bond is designed to protect which party of a contract? a. The obligee b. The principle c. The surety d. The surety bond protects all parties to a contract

A: The obligee. A surety bond is designed to protect the obligee in the event that the principal cannot or does not perform their part of the contract. The surety is the party that will uphold the contractual agreement on the part of the principal.

49. Mysterious disappearance is a broader form of coverage that is available by endorsement to a homeowners policy. This coverage is provided on an all-perils basis up to what limit? a. $2,000 b. $2,500 c. $5,000 d. $5,500

B: $2,500. Mysterious disappearance can be a coverage added by endorsement to a homeowners policy. This coverage could be needed for insureds whose business is selling goods out of their homes.

16. The DP-2 and DP-3 deny coverage for a dwelling vacant for more than 30 days. This restriction was amended in 2002 to how many consecutive days? a. 45 days b. 60 days c. 75 days d. 100 days

B: 60 days. In 2002, the definition of "vacancy" was amended to 60 days. This has helped make this form less restrictive and open it up to more insureds for coverage.

68. All of the following property coverages are automatically covered under the business owner's policy EXCEPT: a. Extra expenses b. Auto liability for business vehicles c. Valuable records d. Business income

B: Auto liability for business vehicles. Extra expenses, valuable records, and business income are all automatically included under the business owner's policy. This differs from the home business policy, which covers these exposures only through optional endorsements.

75. Why do most insurance companies stop selling earthquake coverage for a period of time after an earthquake has occurred? a. Because the insurance company is too busy handling claims to take on more risks b. Because of the threat of aftershocks that come in the weeks following a sizeable earthquake c. They are not allowed to by federal statute d. Insurers do not stop selling earthquake insurance at all following an earthquake

B: Because of the threat of aftershocks that come in the weeks following a sizeable earthquake. While the initial earthquake may cause severe damage, the aftershocks that can follow may cause even more widespread devastation. Insurers stop selling insurance right after the initial earthquake because they are trying to avoid those who are buying insurance or increasing limits because they know there is a high chance of an aftershock.

86. Medical malpractice insurance can be purchased through two sources. One source is a commercial insurer and the second source is known as what type of insurance company? a. Professional insurance association b. Bedpan mutual c. Medical professionals insurance d. Mutual insurance organizations

B: Bedpan mutual. Bedpan mutual is the name for a physician-owned insurance company. This type of insurer is available in most states to offer medical malpractice insurance for physicians and surgeons needing coverage for E&O exposures.

29. What type of policy will cover acceptable claims that are submitted to a carrier during the policy period and if the claim occurred during the stated time period on the policy? a. Occurrence policy b. Claims-made policy c. Claims-occurred policy d. Occurrence-made policy

B: Claims-made policy. A claims-made form is a type of liability coverage policy that covers a claim made during the policy period. This claim must be submitted to the carrier during the policy period and the claim must have occurred on or after the retroactive date of the policy. This differs from an occurrence policy, in which the claim can be made after the policy period ends.

55. Lauren sent in an application for a homeowners policy. She answered each question accurately but failed to mention that her current policy was being non-renewed due to a bite claim from her three-year-old boxer terrier. If Lauren is issued the new policy but the carrier later finds out about her claim history, for what reason could it cancel Lauren's policy? a. Misrepresentation b. Concealment c. Policy invalidation d. Lying to licensed agent

B: Concealment. While Lauren did answer every question on the homeowners application accurately, she failed to mention a claim that is relevant to this type of policy. Any facts that could be used to determine eligibility of a risk must be disclosed at the time of quoting or the insurer may have the right to cancel.

9. Coverage C - Personal Property provides coverage for the insured's personal property under what circumstance? a. While in the possession of the insured b. While on the covered premises c. Worldwide coverage d. When the insured knowingly loans the property to a family member off premises

B: Coverage C - Personal Property covers personal property while at the location listed on the DP-3 policy. This does not provide full coverage or coverage at all for personal property while away from the location on the policy.

87. Sexual harassment, retaliation, discrimination, and wrongful termination are common types of claims employers may face during the employment process. What type of insurance is designed to cover against these types of claims? a. Workers' compensation b Employment practices liability insurance c. Errors and omissions d. Employment errors liability insurance

B: Employment practices liability insurance. Employment practices liability insurance (EPLI) is designed to protect employers against claims arising from wrongful acts in the course of the employment process. EPLI can also provide protection against inappropriate acts at work such as invasion of privacy.

5. Broad form provides coverage for which of the following perils? a. Theft b. Glass breakage c. Smoke d. Riot

B: Glass breakage is a peril that is covered on a broad-perils-form basis. Additional perils covered on broad form include ice and snow weight, freezing of pipes, collapse, falling objects, and electrical damage.

61. What law was passed in 1999 to lift many restrictions prohibiting insurance and financial companies from working with each other to act as a single entity? This act also prohibited the release of consumers' personal information to third parties unless the consumer opted out of this restriction. a. Fair Credit Reporting Act b. Gramm Leach Bliley Act c. Fair Federal Care Act d. Consumer Care Act

B: Gramm Leach Bliley Act. The Gramm Leach Bliley Act was enacted in 1999 to set forth a standard for how different agencies and institutions interact with each other. The act also forced financial and banking companies to be upfront with consumers about sharing their information with third parties. It prohibited the release of consumers' personal information to third parties unless the consumer opted out of this restriction. This act is also known as the Financial Services Modernization Act of 1999.

1. HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8 are all types of homeowners policies. Which two sets of policies are not solely designed for owner-occupied dwellings? a. HO-2 and HO-8 b. HO-4 and HO-6 c. HO-3 and HO-4 d. HO-5 and HO-8

B: HO-4 and HO-6 are not designed to be exclusive for owner-occupied dwellings. HO-4 was formed to cover a tenant's personal property. An HO-6 provides personal property coverage for an owner-occupied condominium, and also can provide coverage for co-owners of this condominium who reside there.

36. What type of general liability coverage may be paid to cover specific expenses regardless of whether the insured is at fault or not? a. Auto repair b. Medical payments c. Loss of income d. Workers compensation

B: Medical payments. Medical payments are a type of general liability coverage that will pay the immediate medical bills needed if a person is hurt on the insured's premises. The insured does not need to be found liable for this coverage to apply. An example would be if a child was playing in the insured's yard and fell and required stitches. The medical payments of the insured would cover the child's emergency room visit.

13. Sara is the owner of a gift shop that was struggling to make enough money to cover its bills. Sara knew there were reports of robberies in the area but continued to leave the doors to the store unlocked after she would leave at night. Sara figured if her store was robbed she could collect the insurance money and pay off some debt. Sara's carelessness is an example of what type of hazard? a. Moral hazard b. Morale hazard c. Physical hazard d. Legal hazard

B: Morale hazard. Sara acted carelessly because she knew her insurance would cover any losses from a robbery to her store. Sara is acting in a reckless manner that may lead to insurance claims being paid that could have been otherwise avoided.

23. A policy was written for a term of July 1, 2012, to July 1, 2013. An accident, which involved a completely covered loss, occurred on August 2, 2012. This accident, however, was not reported until April 1, 2014. The policy responded and paid this claim due to the fact that this was what type of policy? a. Claims-made policy b. Occurrence policy c. Extended reporting policy d. Claims-lapse policy

B: Occurrence policy. The policy responded to this claim due to the accident occurring during the policy period, which is defined as an "occurrence policy." Had the accident occurred outside the policy term, it would have been denied. An occurrence policy differs from a claims-made policy because in an occurrence policy, the claim can be submitted after the policy expires.

24. Which part or section of an insurance policy states both the insured and the insurer's rights and duties with respect to the insurance policy? a. Policy exclusions b. Policy conditions c. Policy statement d. Policy declarations

B: Policy conditions. The policy conditions section of an insurance policy will state the rights and duties assigned to both the insured and the insurer with respect to the policy in question. Both rights and duties of each party are dependent on the other party fulfilling his duties, and if one party neglects his responsibilities, it may relieve the other party of his duties.

51. In order for an insurance carrier to begin the claims process, the insured must submit what formal statement? a. Notice of claim b. Proof of loss c. Loss statement d. No notice is needed to start the claims process

B: Proof of loss. An insured is obligated as part of the insurance policy to provide the insurance company with a proof of loss. An insurance company cannot begin to investigate the claim for coverage or denial until the proof of loss statement is received.

92. Lindsey was driving home after a night out with friends. She had been drinking heavily and should not have been operating a vehicle. Lindsey caused a three-car accident in which there were injuries to each driver. While Lindsey was on trial for her actions, the other drivers were each rewarded $50,000 simply due to the fact that Lindsey broke the law and caused significant pain and suffering to the other drivers. This compensation awarded to the claimants is known as what form of damages? a. General damages b. Punitive damages c. Injured party damages d. Compensatory damages

B: Punitive damages. The judge, by awarding $50,000 to each claimant, intended to punish Lindsey for her wrongful acts. Punitive damages are also known as "exemplary damages" and are excluded by most umbrella policies.

62. Many claims-made policies contain a provision that states that regardless of the claim being made during the policy period, the loss must not have occurred before a specific date stated on the policy. This provision is known as: a. Claims-occurred date b. Retroactive date c. Loss-occurred date d. Loss-reported date

B: Retroactive date. The retroactive date is a policy provision on claims-made policies that restricts coverage to claims that are made during the policy period, and the loss must have occurred after a specified date named on the policy. The purpose of the provision is to exclude losses the insured knows about and is buying a policy in anticipation of a claim being reported in the near future.

39. Justin's house was destroyed by a fire. There were a few items that were damaged in the fire but Justin wanted to keep due to sentimental value. When the insurance claims adjuster came to visit the fire site, he took note of all the items Justin was keeping. The insurer will reduce the value of what the house is worth by the amount that the items Justin is keeping are worth. The value associated with these items is called what? a. Loss value b. Salvage value c. Keepsake value d. Recovery value

B: Salvage value. Salvage value is defined as the scrap value of damaged goods or damaged property. Because Justin is keeping this damaged property, the insured will not be required to count these items in the total loss of the house.

44. Sally had her auto policy for years through ABC Insurance. While talking with friends one day, Sally learned she could save money by switching her auto carrier to American Insurance. Sally signed a cancellation notice to ABC and was issued what type of cancellation policy? a. Flat cancellation b. Short-rate cancellation c. Pro-rate cancellation d. It will not cancel midterm just because an insured would like it to

B: Short-rate cancellation. Sally will be issued the amount of premium for the unexpired portion of her policy minus a penalty for cancelling the policy. There is a penalty associated with the cancellation because Sally is the party cancelling, not the insurance company.

8. Special forms coverage is coverage on a DP policy form that combines broad form perils with what other form of perils? a. Basic form perils b. Open perils c. Special perils d. Modified perils

B: Special forms coverage is coverage on a DP policy form that combines broad-form perils and open perils. The open perils are for the dwelling and other structures while the broad form is provided for personal property.

97. What are two reasons why the exclusive remedy provision may not hold up in barring employees from filing tort liability claims against their employers? a. There is nothing that could lift this provision. b. The employer failed to obtain insurance and there was willful negligence that led to the injury. c. The employer intentionally caused the injury and signed a waiver to allow the suit. d. The employee's injuries exceeded the amount of insurance available.

B: The employer failed to obtain insurance and there was willful negligence that led to the injury. Two of the reasons that allow the bar preventing employees from filing a tort liability claim to be lifted is if the employer failed to obtain the proper workers compensation insurance and was deemed willfully negligent. Another reason this provision could be lifted is the dual-capacity doctrine, which allows the employee to file suit against the employer in a third-party capacity.

80. Kyle was injured while operating a piece of machinery in his company's warehouse. The injury left Kyle with permanent damage to his right shoulder, and the doctor told him he would never regain full range of motion for that arm. After two weeks of recovery at home, Kyle felt he was ready to return to work. Kyle's employer and his doctor worked to set up a meeting with a therapist to come to the warehouse and help Kyle learn how to perform his job with modifications for his injury. What type of rehabilitation process is Kyle's therapist helping him complete? a. Machine rehabilitation b. Vocational rehabilitation c. Workers compensation rehabilitation d. Modified job recovery

B: Vocational rehabilitation. Vocational rehabilitation is the process of helping injured workers return to their jobs with some modifications to how they perform their job responsibilities. This process is often completed with the help of a therapist under the regulation of the state's Workers Compensation Act.

71. A floater policy is a type of inland marine policy that covers eligible personal property that is located where? a. At the home listed on the application b. Wherever the personal property may be (the only restriction being the policy territory) c. Worldwide coverage exists d. Only while in possession of the insured

B: Wherever the personal property may be. This, however, is restricted to the territory the policy covers; as is, the policy may say "all U.S. states and territories." The floater policy may be specialized in many ways, including an equipment floater, installation floater, etc.

54. The policy that allows an insured to give or promise her insurance policy as collateral for a loan is known as what? a. Promissory policy b. Policy transfer c. Assignment d. Collateral policy

C: Assignment. Assignment is the right given by some insurance policies to give or promise your own policy as a form of collateral to obtain a loan. Assignment is not allowed in all types of policies, but is common in life insurance policies. A lender may require an assignment agreement if the insured's business is dependent on the insured's presence and therefore his death would mean the business could not survive. The end of the business would not allow the loan to be paid back to the insurer, which is where the assignment of the insurance policy would be used to pay the loan.

64. What type of policy is similar to a commercial package policy in that it combines both property and liability coverage in one policy, but is designed to meet the needs of eligible small businesses? a. Commercial umbrella b. Business owner's umbrella c. Business owner's policy d. Commercial package policy

C: Business owner's policy. A business owner's policy (BOP) is a package policy that offers more specialized and unique features for a small business. Like the commercial package policy, the BOP can often offer a less expensive policy as compared to writing multiple monoline policies to fit all the needs of the insured.

89. Employment practices liability insurance (EPLI) is written on the basis that the claim must be made during the policy period. This type of trigger is known as what type of policy? a. Occurrence basis b. Claims-required basis c. Claims-made basis d. EPLI is not made with the condition of when the claim must be made

C: Claims-made basis. Employment practices liability policies are written on a claims-made basis. A claims-made basis requires the claim to have been made during the stated policy period. The claim must have occurred on or after the retroactive date and before the policy period ends.

84. What is one difference between director and officers (D&O) policies and commercial general liability policies (CGL)? a. D&O policies are written on an occurrence basis b. CGL policies are written on a claims-made basis c. D&O policies include defense cost inside the limits, not in addition to the policy limits d. CGL policies include defense cost inside the limits, not in addition to the policy limits

C: D&O Policies include defense cost inside the limits, not in addition to the policy limits. This is a major difference between the two because defense cost can be substantial and therefore decrease the limits left to cover the claim drastically. This is a disadvantage to the insured over a CGL policy.

45. Noelle was in a minor car accident in which she was deemed "at fault." After the car mechanic determined the extent of the damage, he submitted a $4,795 bill to Noelle's carrier. Noelle was then instructed to pay $500 and the carrier took care of the remaining portion of the bill. Noelle's $500 payment requirement is known as what? a. Accident pay b. Aggregate c. Deductible d. Premium due

C: Deductible. A deductible is the amount noted on the policy that the insured agrees to pay to cover part of the loss. Noelle's $500 deductible payment will be subtracted from the total bill due to pay her for her car repairs. As part of the insurance contract, Noelle's carrier will pay the remaining portion of the bill.

81. What type of professional insurance coverage protects the insured from liability resulting from an error or omission during the course of her professional job duty? a. Employer's liability insurance b. Employer's professional liability c. Errors and omissions insurance d. Employer's negligence insurance

C: Errors and omissions insurance (E&O). Errors and omissions insurance protects against financial losses due to an error or omission by the insured while acting in a professional capacity. This coverage does not apply for property damage or bodily injury.

77. Ben is the President of XYZ Logistics. He found out that one of his employees gained access to its payroll system and issued checks to himself and other co-workers. What type of insurance coverage does Ben need to have in place to protect himself or his company from this loss? a. Payroll dishonesty coverage b. Employee theft coverage c. Forgery or alteration coverage d. Employee forgery coverage

C: Forgery or alteration coverage. Forgery or alteration coverage protects the insured from checks, including payroll, being processed with a forged signature. This coverage also protects against checks made payable to a fake entity or any alteration to the amount of the check.

69. What is a type of property insurance that provides coverage for certain covered items while they are in transit? a. Transportation insurance b. Moveable property insurance c. Inland marine coverage d. Transportation of personal property coverage

C: Inland marine coverage. Inland marine coverage is available to cover certain types of property while they are being transported. Inland marine forms usually provide broader coverage than property forms.

19. An insurance policy contains multiple parts or sections to the document. The part that states the insurer will make payment or provide a service is known as what section? a. Declarations b. Conditions c. Insuring agreement d. Exclusions

C: Insuring agreement. The insuring agreement is part of the insurance policy that states that the insurer will make a payment or provide the insured with services (subject to any conditions or exclusion).

31. Mrs. Smith was trying to demonstrate to her statistics class that if you toss a coin enough times, the results would be even on it landing heads or tails. What theory is Mrs. Smith teaching her students through this exercise? a. Normal distribution b. Standard deviation c. Law of large numbers d. Statistical probability

C: Law of large numbers. The law of large numbers is used in insurance the same way Mrs. Smith is using her coin example. Insurers use this theory to determine how likely it is that a claim will occur. They can use data such as "one in 50 houses will experience a fire." The insurer will then write 50 insurance policies to ensure that the 50 premiums collected can cover the one fire.

95. Samantha was found to be at fault for an accident resulting in total damage to both her vehicle and the vehicle she hit. While submitting her claim to the insurance company, Samantha asked her agent what was the total the company would pay for the damaged property. Which limit of the split limits on her policy will indicate the total amount Samantha's insurance company will pay for the property damage? a. Limit 1 b. Limit 2 c. Limit 3 d. Coverage for property damage is excluded in a policy that has split limits

C: Limit 3. Limit 3 indicates the total amount that the insurance company will pay for property damage claims. This limit applies does not just apply to vehicles damaged, but to any property that may be damaged as a result of the accident.

46. The maximum amount of coverage an insurer will pay for a liability claim is defined as what term? a. Premium coverage b. Limits of coverage c. Limits of liability d. Policy value

C: Limits of liability. The limits of liability an insured purchases for his liability policy is the maximum amount an insurer will pay for a covered claim. The limits of liability for some cases include defense costs, but for some policies, defense costs may be paid in addition to the limits of liability.

33. Insurers use actual cash value (ACV) and replacement cost as two common methods to place value on exposures they are covering. ACV is the method insurers use when they are not willing to assume what hazard commonly associated with replacement cost? a. Physical hazard b. Morale hazard c. Moral hazard d. Legal hazard

C: Moral hazard. When an exposure is covered on a replacement-cost basis, the exposure is repaired or replaced with similar quality materials. An insured could potentially notice his car has some wear and tear over the years and a moral hazard could arise because he wants his car to be replaced with a new one. With actual cost value (ACV), the insured only recovers the replacement cost minus depreciation. The insured with ACV in the same scenario with the car would mostly likely not receive as much claims compensation.

43. ABC Insurance Inc. decided it no longer wanted to write policies for boats over 27 feet in length, effective immediately. ABC was going to cancel any policy in force that had this exposure as well. What type of cancellation would ABC process to return premium to these policyholders? a. Flat cancellation b. Short-rate cancellation c. Pro-rate cancellation d. It will not return premium to the policies holders

C: Pro-rate cancellation. The insurer will have to issue a pro-rate cancellation, as it is the party terminating coverage, not the insured. The insured will be reimbursed the full premium for the unexpired length of the policy term.

10. Risks can be classified as pure or speculative. Which of the two, pure or speculative, is always undesirable from an investor's point of view? a. Speculative b. Speculative and pure c. Pure d. Neither

C: Pure risk. Pure risk is always undesirable to an investor. A pure risk results in either a loss or no loss. A speculative risk has the chance there will be a gain.

60. Applications, inspections, credit reports, motor vehicle reports, etc., all make up different sources of what? a. Producer information b. Agent files c. Sources of underwriting information d. Client services

C: Sources of underwriting information. Applications, inspections, credit reports, and motor vehicle reports all make up informational sources that can help underwrite a risk. An underwriter sometimes needs multiple sources of information in order to make an informed decision to write an account. An example would be the personal umbrella product. To write a personal umbrella, insurers will need to review the application for all exposures noted as well as motor vehicle reports to review the insured's driving history. The underwriter may also order an inspection of the location to be covered.

38. Kelsey was in a car accident in which her car was deemed a total loss. She called her insurance company to start the claims process and was told it would pay $3,500 for the loss. Kelsey was confused, as she had a policy where she assumed the insurer would pay for the full cost of the total loss of $7,700. Which type of policy did Kelsey most likely have? a. Agreed value b. Total value c. Stated value d. Collision value plus

C: Stated value. Kelsey had a stated value policy from her insurance carrier. This type of policy states the maximum amount it will pay out for a claim, but it does not guarantee to pay up to that amount. A stated value policy will often pay less because the insurer can pay the lesser amount of the replacement cost of the car or its actual cash value.

28. Joseph was in a car accident in which his car was totaled. His insurance paid all of his repair bills, even though Joe was deemed not at fault. After Joe was indemnified by his insurance carrier, his carrier then started the process of being reimbursed for the claim from the at-fault party. This process of going after a third party for payment reimbursement is known as what process? a. Recovery b. Reimbursement assignment c. Subrogation d. Right to recovery

C: Subrogation. Subrogation is the right of the insurer to go after the at-fault party's insurer for payment reimbursement. Joseph's insurer paid his repair cost even though he was not at fault for the accident. The insurer, however, does not need to be out this claims money and is legally able to recover its expenses from the at-fault party's insurer.

2. The HO-8, also known as the modified coverage form, is designed to meet the needs of what type of insured? a. Subsidized housing owners. b. Owners of seasonal rental locations where the value of the dwelling exceeds the replacement cost value. c. Owners of a historic home whose replacement cost value exceeds the value of the home itself. d. Tenant-occupied locations in a poor protection class area.

C: The HO-8 policy form. This policy form is designed to provide dwelling, personal property, and other structures coverage for an owner-occupied dwelling. The dwellings eligible for an HO-8 do not meet the standards that insurers require for the other five policy forms.

73. The National Flood Insurance Program provides coverage for direct damage to what types of property? a. All of the insured's property while it is at the insured's location b. The program provides direct and indirect damage coverage for the insured's personal property c. The building and its contents d. The program provides direct and indirect damage coverage for the insured's home building but not personal property

C: The building and its contents. The National Flood Insurance Program provides coverage for direct damage to the insured's building and its contents. There is no coverage provided for any losses suffered as an indirect loss stemming from the flood.

58. Affirmative and promissory are two types of warranties. A warranty is the promise made by what party of the insurance contract? a. The insurer b. The agent representing the insurer c. The insured d. Both the insured and the agent

C: The insured. The insured is promising, or making a warranty, that all facts presented to the insurer are accurate and honest. The insurer is relying on this warranty when it makes the decision to underwrite this risk. A warranty is generally required on information that could be a deciding factor to accept the risk - as in a past claims history or not listing members of the household with poor driving records.

93. Split limits is how an auto insurer represents which dollar amounts apply to each of the three limits stated on the policy. What is the best description of what the second limit of the split limits represents? a. The maximum amount that will be paid to the driver b. The maximum amount that will be paid to one injured person c. The maximum amount that will be paid to all injured people d. The maximum amount that will be paid for property that was damaged

C: The maximum amount that will be paid to all injured people. Three separate limits apply when the auto insurer is offering split limits on an insurance policy. The second limit represents the maximum dollar amount the insurer is willing to pay to cover all people who were injured in the automobile accident.

52. A standard mortgage clause gives the right to the mortgagee to recover after a loss, despite any neglect on the part of the insured. The mortgagee can only recover, however, if it is in possession of what? a. The property b. The insurance policy c. The mortgage d. The title of the land

C: The mortgage. The mortgagee is entitled to recover from the loss if the policy is considered void due to an act by the insured. The mortgagee is bound by the same conditions and exclusions of an insurance policy, but is seen as a separate interest in the property.

20. Aaron is the warehouse manager for the midnight to 7 a.m. shift. One of his workers fell asleep while operating a piece of machinery during his shift and injured another worker. Even though Aaron was not the one who caused this accident, under what form of liability would he still potentially be held accountable? a. Strict liability b. Absolute liability c. Vicarious liability d. Definitive liability

C: Vicarious liability. Aaron as the manager, or one in charge of the employees, can be held liable for the actions of his workers. A court could argue that Aaron should have known his worker was tired and unable to run the equipment in a safe manner.

74. Logan was moving to Las Vegas, Nevada, for a job opportunity. Logan was concerned about the earthquakes he heard were a possibility in this area. When purchasing his homeowners policy, what should Logan ask for to make sure he has some coverage in the event of an earthquake? a. An earthquake policy b. Nothing, earthquake coverage is included c. Nothing because earthquake coverage is not offered due to the frequency of earthquakes in Las Vegas d. An endorsement to add earthquake coverage

D: An endorsement to add earthquake coverage. Earthquake coverage is excluded on most property policies, and the only way to secure the coverage is through an endorsement. The endorsement can be quite expensive in areas where the threat of an earthquake is high.

98. Benjamin was starting the process of building his house. His insurance agent suggested he obtain a policy that would provide property coverage while his house was being built. What type of insurance is Benjamin's agent suggesting he obtain? a. Course of construction insurance b. Construction coverage insurance c. Builder's coverage insurance d. Builder's risk insurance

D: Builder's risk insurance. Builder's risk insurance is designed to protect against damage that may occur during the course of construction. This policy protects the insured's insurable interest in the building, fixtures, and equipment being used to complete the construction.

82. The majority of medical malpractice insurance policies are written with what type of coverage trigger? a. Occurrence trigger b. Occurrence and claims-made triggers are equally common c. There are no conditions regarding when the claim is made d. Claims-made trigger

D: Claims-made trigger. Sometimes coverage is available for medical malpractice insurance on an occurrence basis, but most policies are written on a claims-made basis. This coverage is intended for physicians and surgeons to protect from E&O claims.

63. An insurance company can offer a business what type of policy that would include both liability and property coverage? a. Commercial umbrella b. Business owner's umbrella c. Business package umbrella d. Commercial package policy

D: Commercial package policy. A commercial package policy is a means for business owners to package two or more coverage parts into one policy. This can include property, liability, inland marine, farm, crime, etc. Often a package policy is desirable to an insured because it may have a lower premium due than if multiple separate policies are written.

91. Cassie was a victim of an automobile accident in which substantial but not total damage was done to her car. Cassie sued the party at fault and was rewarded $7,525 to cover the cost of her vehicle and any other costs she incurred due to this accident. What type of damages was Cassie compensated for? a. General damages b. Punitive damages c. Total recovery damages d. Compensatory damages

D: Compensatory damages. Cassie was rewarded the total amount it would take to account for the actual loss sustained. Compensatory damages can include both general and special damages

79. A fidelity bond is designed to protect a business owner from what type of exposure? a. Injured employees b. Intentional acts of customers c. Intentional acts of business partners d. Dishonesty by employees

D: Dishonesty by employees. A fidelity bond protects employers from money, securities, and property losses that are the result of employee dishonesty. Fidelity bonds are just one type of insurance policy designed to protect the company against crime-related activity in the workplace.

96. Tyler was walking down the stairs in his company's office building one day when he slipped and fell, fracturing his wrist. Tyler attempted to file a tort liability claim against his boss, but was told this type of lawsuit would not hold up in court. What is the reason Tyler is not allowed to make a tort liability claim against his employer? a. Employers are not responsible for their employees' actions. b. Tyler should have been more careful and is responsible for his own fall. c. Tyler is actually allowed to file this lawsuit and was inaccurately informed. d. Exclusive remedy bars workers from making tort liability claims against their bosses.

D: Exclusive remedy bars workers from making tort liability claims against their bosses. Exclusive remedy excludes such employees from making tort liability claims because the benefits provided under the workers compensation policy are the only benefits typically provided to an injured employee. This provision is found in every state.

18. The purpose of insurance is to restore the insured's property back to what it was prior to the loss. This is defined by what term? a. Insurance policy b. Risk assumption c. Risk management d. Indemnity

D: Indemnity is the main purpose of obtaining an insurance policy. Indemnity is the term that seeks to restore the insured back to the state his property was in prior to the loss.

41. Insurance carriers require an insured to carry limits high enough to cover the cost to replace or repair the exposure if needed. What is the name given to this requirement by carriers? a. Value policy b. Limits equal/exposure limits c. Coinsurance plus d. Insurance to value/coinsurance

D: Insurance to value/coinsurance. Insurance carriers require limits high enough to cover the cost to replace or repair the exposure if needed. Some insurance policies require limits equal to 100 percent of the cost of the exposure, while other policies may just require 80 percent. It is important to understand this requirement when determining the limit needs of each insured.

34. Bill was interested in updating his house, as it was starting to look a little dated. He looked into all of his options and decided to refinance his mortgage, which would allow him to take money to put towards the repairs. To refinance, an appraiser came to Bill's house to see the state of the property, as well as to take notice of similar houses in the area to determine the worth of Bill's house. The appraiser came back to Bill with a number he calculated to accurately show what type of value of Bill's house? a. Stated value b. Actual cash value c. Replacement cost d. Market value

D: Market value. The market value is the price Bill, or another buyer, would have to pay to purchase the home today. Bill's appraiser took the value he saw in Bill's house and compared it to similar homes in the area to determine the market value of Bill's house. Market value is important to refinancing as well as selling or buying a home. The market value can go up or down depending not only on the house itself, but also the area where the home is located.

57. Abby sent in an application for a homeowners policy. She answered every question, but when asked if she had a previous claim history, she marked "no." Abby in fact was just non-renewed by her previous carrier for pipes bursting due to failure to maintain the heat. After the policy is issued, Abby's carrier learns of the past claim and cancels due to what reason? a. Lying to a licensed agent b. Concealment c. Policy invalidation d. Misrepresentation

D: Misrepresentation. Abby did not answer each question on her insurance application truthfully. When an insurer learns the insured has misrepresented her risk, the insurer has the right to cancel. The insurer has the right to cancel because had it known about the previous claim, it may have never written Abby's policy.

72. What federally funded program was formed in response to a need by insureds for reasonably priced flood insurance? a. Flood Nationwide Coverage b. Specialty Flood Lines c. National Flood Plan d. National Flood Insurance Program

D: National Flood Insurance Program. The National Flood Insurance Program (NFIP) was enacted in 1968 in response to a need by insureds for reasonably priced flood insurance. This program is federally funded and available for specific areas that participate in this governmentsponsored program.

25. Patricia is a 50-year-old woman who teaches at a local college. She is a well-known and respected member of the community. When driving as the sun was setting, Patricia did not turn on her car lights. She caused an accident due to another operator not being able to see her car in the dark. Patricia is accused of acting in a careless and reckless manner. What is a term to define her actions? a. Carelessness b. Reckless action c. Criminal activity d. Negligence

D: Negligence. Negligence can be defined as failure to act in a reasonable manner. Patricia knew well enough that her lights should have been turned on in those driving conditions. If she had acted with the reasonable degree of care owed as a driver, she could have probably avoided causing the accident.

47. Erin is a renewal underwriter. Part of her job is to re-underwrite risks each year to see if they still meet company and state guidelines. When reviewing one risk, Erin found out that a youthful operator received a DUI during the policy term. A DUI for a youthful operator is against company guidelines, and therefore Erin needed to get off of this risk. What type of notice would Erin send to fulfill state requirements as well as inform the insured that the insurer would not be renewing coverage? a. Cancellation b. Rescinding of coverages c. Policy void clause d. Nonrenewal

D: Nonrenewal. A nonrenewal notice is a formal statement that coverage will not be renewed for another policy term. Nonrenewals must be sent to fulfill state requirements of notice to the insured, but must also be sent within the time frame the state requires.

50. Insurance policies contain a provision that requires the insured to notify the carrier that a claim has been made against the insured. This provision is known by what term? a. Proof of claim b. Documentation of claim c. Claims discovery d. Notice of claim

D: Notice of claim. The notice of claim provision is an essential part of an insurance policy. This provision puts the responsibility on the insured to make the insurance carrier aware of the pending claim.

12. There are four types of hazards that cause a loss. An insured failing to salt and shovel her sidewalk after a snowstorm presents what type of hazard? a. Morale hazard b. Moral hazard c. Legal hazard d. Physical hazard

D: Physical hazard. An insured who fails to maintain his property can create a physical hazard. Physical hazards can increase the frequency of losses and lead to an increase in claims.

26. What are documents which can be added to a policy either at inception or midterm that adds or amends the original policy? a. Policy conditions b. Policy exclusions c. Policy definitions d. Policy endorsements

D: Policy endorsements. An endorsement can be attached to a policy at inception or added midterm. An endorsement modifies the policy in some way, either by adding or deleting a coverage or exposure. An example would be that if an insured purchased another location mid-policy period, she could submit to the insurer to have this location added to the current policy.

66. A business owner's policy (BOP) does not cover which of the following exposures? a. Personal injury b. Advertising injury protection c. Extra expenses d. Professional liability

D: Professional liability. The BOP is not intended to provide any professional liability for the business owner (the insured). The liability portion of the BOP does provide coverage for personal injury and advertising injury protection. The property portion will provide coverage automatically for extra expenses on the BOP.

40. What is the term for the peril that directly causes the loss to occur? If there is more than one peril contributing to the loss, this is the term to define the peril most directly associated with the loss. a. Direct peril b. Loss cause c. Cause of concern d. Proximate cause

D: Proximate cause. Proximate cause is the peril that directly causes the loss to occur.

17. Which of the following exposures is excluded under collapse coverage? a. Roofs b. Storage sheds c. Personal property in garages d. Swimming pools

D: Swimming pools. Swimming pools are excluded from coverage when a loss is experienced due to collapse. It is important as an insurance professional that you accurately explain what is excluded from specific coverages when a potential insured is letting you know all of her personal exposures.

6. An unendorsed DP-3 policy does not provide coverage for which of the following exposures? a. Garages b. Storage sheds c. Debris removal d. Theft

D: Theft is not covered on an unendorsed DP-3. Garages and storage sheds fit under the "other structures" definition if they are on the insured's premises. Debris removal is paid in the limit assigned to the property that sustained the loss.

85. Director and officers liability insurance provides coverage for directors and officers of for-profit and not-for-profit organizations while these directors and officers are in what capacity? a. In the course of normal employment b. It is lifelong coverage for the directors and officers c. It does not cover not-for-profit organizations d. While the directors or officers are serving as an officer or on a board of directors

D: While the directors or officers are serving as an officer or on a board of directors. The directors and officers must be serving on a board or as an officer for coverage to apply under a director and officers liability insurance policy. This coverage can apply for both for-profit and notfor-profit organizations.