Final Exam Study Guide

Which of the following Texans does the Texas insurance code consider to be an adjuster?

Charlene, who works for an adjustment bureau and adjusts claims for various insurers

Minerva was injured in an auto accident. She makes a claim against the other driver's insurer, Bandera Insurance. Bandera assigns Kendall to adjust the claim. Minerva calls Kendall and leaves an angry message concerning her pending claim. What must Kendall do?

Immediately respond to the call

Ryan owns a summer home on the lake and lives there in June, July, and August. The home is fully furnished and he keeps his summer clothing and sporting goods there. When Ryan arrived in June this year, he found the home had been vandalized and some of his belongings had been stolen. Will his property insurance policy fully cover his loss?

No, because his policy reduces coverage if the building is vacant or unoccupied for at least 60 days

Sheila lives in New Mexico in a home constructed of adobe. What basic type of construction is her home?

masonry

Under an unendorsed businessowners policy (BOP), business personal property coverage covers all he following EXCEPT:

money and securities kept in the business owner's office

Alcoholism and drug abuse are examples of what type of hazard?

moral

What are the two types of compensatory damages?

special and general

Gertrude's television set was stolen from her home. She bought it five years ago, which is half the TV's expected 10-year lifespan. A similar TV costs $1,200 today. Using the actual cash value loss valuation method, how much will Gertrude recover for this loss?

$600 less deductible

Under what circumstances, if any, may a Texas roofing contractor adjust a roofing damage claim?

None

During an accident at sea, all of the cargo that Isla Co. shipped was destroyed but none of the other cargo was damaged. If the law of particular average is applied, who will pay for Isla's loss?

The cargo owner (Isla) bears the entire loss.

A property or liability insurance policy may provide secondary coverages along with the main coverage in its insuring agreement through all of the following EXCEPT:

alternative payments

Liam is shipping cargo internationally and buys ocean marine cargo insurance. Applying the law of general average, if a total of $10,000 cargo is in transit and Liam's cargo is valued at $1,000, he would be responsible for what percentage of any cargo loss that is subject to the law of general average?

10 percent

Marvelous Insurance Company has received notice of a fire insurance claim. The insurance company must now acknowledge receipt of the claim within

15 days.

If XYZ Insurance Company cannot settle a business theft claim within the normal 15-day time period without further investigation, it must accept or reject the claim within how many days after it initially received the necessary proof of loss?

45 days

Janice inherited her mother's diamond earrings, which are valued at $25,000. Why would her agent recommend that Janice insure the earrings on a personal articles floater rather than under Coverage C - Personal Property on her homeowners policy?

A limit of $1,500 applies to loss by theft of jewelry on the homeowners policy.

Which of the following statements correctly describes the difference between an open perils policy and a named perils policy?

A named perils policy requires the policyowner to show the cause of loss is covered, while the insurer has the burden of proving that the loss is excluded with an open perils policy.

While employed as a painter, Alex fell from a scaffold and broke a bone in his neck. Although he was not paralyzed and his condition is improving, he is not yet able to return to work. Therefore, the workers compensation benefits he is now receiving will end when

Alex attains maximum medical improvement.

Linda owns a traveling carnival. She has insured it with Exterra, a New Mexico-based surplus lines insurer. On Monday, July 1, she contacts Exterra to report that several carnival rides were damaged by a windstorm. Exterra must respond to her claim no later than

August 10 (30 business days)

Bianca, a claims adjuster, tells Patrick his policy excludes coverage for his injuries from an auto accident because he was using his cell phone at the time. Bianca knows the policy has no such exclusion. She denies the claim anyway. Under the circumstances,

Bianca misrepresented the coverage and committed a prohibited practice.

The building owned by Greta's Dog Grooming is damaged when a driver crashes through the front of the building, forcing it to shut down while the building is repaired. What commercial property coverage form pays for the income Greta's Dog Grooming loses while it's shut down?

Business Income and Extra Expense Coverage Form

A fire in a commercial building forces the owner to store office furniture and files away from the office. Will the owner's commercial property policy cover this personal property?

Coverage applies for up to 30 days at the new location.

Elliott reports that his Rolex watch was stolen from his hotel room in the casino. An investigation reveals that he had a streak of bad luck at the poker tables that weekend. Which of the following statements is NOT correct?

Elliott has committed insurance fraud.

All of the following statements regarding the rights of a mortgagee under the standard mortgage clause in a property insurance policy are correct EXCEPT:

Exclusions that apply to the insured do not apply to the mortgagee.

Victoria is considering purchasing a condominium unit and asks her insurance agent what type of homeowners policy would be best for her. Her agent correctly recommends an:

HO 6 Unit-Owners Form

Fred and Sharon live in an older home whose replacement cost far exceeds its market value. What homeowners form would be most appropriate for their insurance needs?

HO 8 Modified Coverage Form

The Tuttles own a late-19th-century Victorian home. If it suffered extensive damage and had to be replaced, the replacement value might substantially exceed its market value. The Tuttles are willing to compromise on insurance coverage to reduce their expenses in maintaining the home. What homeowners policy form would best suit the Tuttles' needs?

HO 8 Modified Coverage Form

Which homeowners form provides open perils coverage on the home, named perils coverage on personal property, and personal liability coverage?

HO-3 Special Form

What homeowners form was designed to provide coverage for older homes because their replacement values exceed their market values by a significant amount?

HO-8 Modified Coverage Form

Surreal Manufacturing Co. is on its state's "exportable list." What is the significance of this?

Insurance for the risk is so difficult to obtain that the usual requirements to qualify for surplus lines market are waived.

An insurance adjuster may require any person seeking coverage for a property loss to submit a proof of loss containing detailed information as specified in the policy. Which one of the following is NOT among the items required by a proof of loss?

Insured's Social Security number

The Texas Commissioner believes Newtown Insurance Company is acting in a manner that could cause immediate and irreparable damage to the public safety. What is the best course of action for the Commissioner to take in this situation?

Issue an emergency cease and desist order

Which of the following correctly describes the basic purpose of the MCS-90 endorsement?

It amends the truckers auto liability policy to comply with requirements of the Motor Carrier Act of 1980.

What is the purpose of the "other insurance" clause in a property or casualty insurance policy?

It explains how an insurer will handle a claim in which more than one policy covers the same loss.

Which of the following correctly describes "residence premises" under a homeowners policy?

It is where the insured lives full- or part-time and may be either a single-unit dwelling or a multi-unit building.

If the insured under a property insurance policy fails to comply with duties outlined in the policy following a loss, which of the following correctly describes what the insurer will do?

It may deny claim payment.

What is the purpose of the assignment provision in standard property insurance policies?

It prevents the assignment of the policy to another without the insurer's written consent.

Carol, a business owner, left a message for Craig, a property claims adjuster, concerning a pending water damage claim. When Craig calls Carol to respond to her message, he reaches her voice mail and leaves a message on Carol's machine. What else should Craig do?

Make a notation in Carol's claims file documenting the time and the message he left.

Which of the following statements regarding the concept of insurable risk is true?

Only pure (not speculative) risks are insurable, but not all pure risks are insurable

Which of the following correctly describes the premium grace period of a personal auto policy?

Personal auto policies do not have a premium grace period.

Which of the following correctly explains the difference between the stated amount loss valuation method and the agreed value method?

Policyowner may recover less than the listed amount under the stated amount method, and would recover the listed amount under the agreed value method.

What is the basic principle underlying the law of large numbers?

Prediction becomes more accurate as the number of exposure units increases.

The Texas Insurance Commissioner notifies Gale, a licensed Texas claims adjuster, that the Commissioner has decided to bring disciplinary action against him for violating the insurance code. Gale believes the charges are inaccurate and would like to defend himself. What should Gale do?

Request a hearing.

Jean died following several months of medical treatment for her work-related injuries. Her death was directly attributable to those injuries. According to the Texas Workers Compensation Act, Jean and her survivors are eligible to receive several types of benefits. Which of the following is NOT one of those benefits?

Sustained benefit

Maria was driving her car to work one morning. On the way, she stopped to buy breakfast at a diner. As she drove out of the diner's parking lot, another driver collided with her car and broke her arm. For what reason would her employer's workers compensation insurer refuse to pay benefits for her injury?

The injury did not arise out of and in the course of Maria's employment.

On August 1, Russell discovered that his fence had been vandalized, which he immediately reported to his insurance company. When he hadn't heard from the insurer by August 11, he contacted his state's insurance department to complain that the insurer had failed to promptly acknowledge the claim. Which of the following possible replies by the insurance department to Russell's complaint is the correct one?

The insurer has until August 16 to acknowledge Russell's notification of a loss, so no action can be taken at present.

Which of the following statements comparing the mortgage clause and a loss payable clause in a property insurance policy covering real property is correct?

The mortgagee has more rights under the mortgage clause than the loss payee has under the loss payable clause.

Which of the following correctly describes the coverage (if any) that is provided through a commercial property policy for an employee's personal computer that is brought to the company for business-related work?

The policy covers the personal property of others, such as employees, while the property is in the employer's care, custody, or control.

Martin has an auto policy with split limits of $100,000/$300,000/$50,000. He loses control of his car and crashes into a house. Two of his passengers are seriously injured and the house sustains $50,000 in damages. Passenger A's claim is for $100,000 while passenger B's claim is for $200,000. How are these claims allocated within Martin's liability limits?

The property damage to the house is covered. Passenger A's claim is covered, but $100,000 of B's claim is not covered.

On March 1 Tony promised Bonnie that he would pay her claim, but by March 15 she still had not received the check. When she called Tony to inquire, he assured her that the check was in the mail though he knew it was sitting on his desk. On March 1528, when the check finally arrived, the date on the check showed that it had been issued on March 7. Which of the following correctly describes Tony's actions?

Tony is guilty of misrepresentation.

Sung is an adjuster who receives an auto liability claim from the insurer that employs him. Sung reads the insured's loss report, reviews the police report pertaining to the loss, interviews witnesses to the accident, determines that the parties' negligence caused the accident, and pays the claim. What important step in the process did Sung fail to carry out?

Verification of coverage

All of the following sources of information are commonly used in the underwriting review process EXCEPT:

academic records

What is the term for the maximum amount an insurer will pay for all applicable claims during the policy period?

aggregate limit

Jane's insurance policy contains a stated amount valuation provision. This provision states that she will receive the lowest of three amounts if her covered property is stolen or destroyed. Which of the following is NOT one of those three amounts?

an amount agreed upon by the insurer and Jane

Which of the following is an example of adverse selection?

an applicant whose business was recently burglarized deciding he had better buy some commercial crime insurance coverage

Which of the following persons would be considered legally competent to apply for an insurance policy?

an individual who is physically disabled

Steve and his insurance company are unable to agree about the amount of damage his car sustained in a collision. What process may either party choose to determine the value of the loss?

appraisal

The building and personal property coverage form of a commercial property policy includes what three categories of covered property?

building property, business personal property of the insured, and personal property of others

With respect to a commercial property policy, which of the following correctly describes the type(s) of property included in the term "building property"?

buildings and structures, indoor and outdoor fixtures, including signs attached to the building, and personal property used to service the building

Baxter leased commercial space from Hendrix Towers for his book binding business. At his own expense, he added an endorsement for permanently installed shelving and cabinetry. These improvements and betterments are insurable as:

business personal property

Joanne, an agent, proposes a variety of commercial property insurance forms to provide a customer with the desired coverage. Two of the forms are interline forms, which:

can be used with more than one line of insurance

All of the following are included on the declarations page of a commercial property insurance policy EXCEPT:

causes of loss

Which form of the commercial general liability (CGL) policy covers the insured for injuries or damages only if the policy is in force when the claim arises?

claims-made form

A standard commercial property policy is comprised of all of the following EXCEPT:

commercial general liability form

Which of the following would best serve business owners who want to supplement the liability coverage of their commercial general liability policy with excess liability coverage?

commercial umbrella liability insurance

The Building and Personal Property Coverage Form of a commercial property policy covers all of the following EXCEPT:

company cars

A vessel owned by Del Mar Shipping was damaged during a storm. Adjusters have determined that the cost of salvaging the cargo is more than the value of the cargo. What type of loss did Del Mar Shipping suffer?

constructive total loss

Total Manufacturing, Inc. gets its materials from Material Supply Company. Material Supply suffers a boiler explosion that halts its mechanical equipment. As a result, Total must cease operations until Material Supply restores its equipment and resumes operations. Which coverage, if any, under Total's equipment breakdown policy will cover its loss of income?

contingent business income and extra expense

A complete commercial property policy is made up of several separate forms, which include:

declarations, commercial property conditions, and one or more causes of loss forms

Ari is sued and tells his insurer the lawsuit is without merit. Even if Ari is telling the truth, the insurer still owes him a duty to:

defend

Payment of Tucker Martin's claim is delayed because Arlene, the adjuster handling the case, inadvertently filed it with document for Martin Tucker. Arlene's mishandling of this case is an example of

error.

If an insurer repeatedly fails to exercise its right to cancel a policy due to a policyowner's chronically late payment of a premium, what legal principle would prevent the insurer from exercising that right later on?

estoppel

A storm at sea forces Davy Jones Freight Company to jettison some cargo to lighten the ship and keep it from sinking and losing the entire cargo. In ocean marine insurance, what provision determines how the loss to the cargo owners is treated?

general average clause

Because the Commissioner has decided to bring disciplinary action against Mark, a licensed claims adjuster, for violating the insurance code, the Commissioner may schedule a(n)

hearing

Washington Insurance Company has established the cost of a liability insurance policy at $8.00 per $1,000 of coverage purchased. Which of the following terms correctly describes that $8 value?

insurance rate

All of the following are elements of the tort of negligence EXCEPT:

intent

Several claimants complain that Derek, a licensed Texas adjuster, threatened their safety if they did not drop their claims against his insurance company. If the Commissioner believes Derek is a threat to public safety, the Commissioner may

issue an emergency cease and desist order.

Underwriters know that as the number of units of exposure increases, loss prediction becomes more accurate. This basic insurance principle is known as:

law of large numbers

If Glenn's apartment building were covered by an unmodified Standard Fire Policy (SFP), Glenn would have coverage against damage caused by the perils of fire and

lightning.

A personal articles floater will cover all the following golf equipment EXCEPT:

lost golf balls

Helen submitted an insurance application and premium deposit to TLS Insurance Company. In doing so, she has:

made an offer to the insurer

Though she lives in a high crime area, Hilda rarely locks the door to her apartment when she goes out, figuring that whatever she owns of value is insured and can be easily replaced if stolen. What type of hazard does this represent?

morale hazard

Which of the following would NOT be included in the meaning of "insured" in a homeowners policy?

neighbor who voluntarily mows the insured's lawn

Jack takes his computer to Atlas Computer Repair to have it repaired. The computer is damaged while at the repair shop. Atlas tells Jack that his homeowners coverage will cover Atlas since Atlas is a third-party beneficiary of the policy. What provision in Jack's homeowners policy will eliminate coverage in this situation?

no benefit to bailee clause

Surety bonds, once written, are generally:

noncancellable

In most states, medical payments coverage is:

optional

A property and liability insurance policy that is essentially a bundled collection of different coverage forms is called a:

package policy

Tumbleweed Tim travels around the United States singing country music and playing his guitar free of charge. Occasionally, he offers private lessons for a fee and sometimes accepts payment for his performances. Tim buys a personal articles floater to insure his guitar. His insurance agent advises him that he should also, for an extra premium, buy a:

performance for pay coverage option

What term is used to describe the cause of a loss, such as a fire or explosion?

peril

A person who wants to purchase the most comprehensive insurance coverage available for a valuable diamond ring would be best served by a(n):

personal articles floater

An insurance policy that pays before any other applicable coverage pays is considered:

primary coverage

Zimmerman is a reputable Texas roofing contractor. Insurance adjusters always approve his estimates, but he decides to obtain his own adjusters license so he can approve his own estimates. Zimmerman's proposed action is

prohibited by the Texas Insurance Code.

A typical property insurance policy describes the insured's duties after a loss. One of these duties is to submit a signed, sworn document that includes the specific types of information stated in the policy concerning the loss. This document is known as a(n)

proof of loss.

An insurance adjuster may require a person making a claim for a property loss to submit a signed, sworn document providing detailed information concerning the loss. This document is known as a(n)

proof of loss.

Which of the following correctly describes the type of property covered by inland marine insurance, as defined in the Nationwide Inland Marine Definition?

property in transit with some other relationship to transportation or communication

What type of property are buildings, land, and structures attached to land?

real property

A date has been set for the hearing Shari requested after the Commissioner ordered her to cease and desist from adjusting claims. Until the date of the hearing, Shari is

subject to the cease and desist order.

Mark has arranged for ABC Insurance Company to financially guarantee that Quality Construction Co. will build an addition to Mark's house in accordance with the construction contract between Mark and Quality. This arrangement is called:

suretyship

To be able to predict the number of future losses occurring among their insureds, insurers rely on which of the following?

the law of large numbers

In a property insurance policy, which of the following is the purpose for the building ordinance or law exclusion?

to eliminate coverage for extra expenses, over and above the cost of replacing damaged property, that might be necessary to comply with local ordinances

Bonnie works for an insurance company where she assesses insurance policy applications to determine whether they should be accepted or rejected, a process known as

underwriting