General Lines Agent Unit 2: Property & Liability Insurance Concepts

Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless? (a) They are fraudulent. (b) They are material. (c) Both A & B. (d) Neither A or B.

Both A & B are correct. Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless they are material and fraudulent.

Binders may be? (a) Oral. (b) In Writing. (c) Both A & B. (d) Neither A or B.

Both A & B. Binders may be Oral or in Writing.

Petey's automobile incurs $1,000 of physical damage in an accident caused by Spanky. Petey receives a claims payment of $800 from her own insurer, because of a $200 deductible clause. What subrogation right does the insurance company have? (a) The insurance company is now subrogated to Petey's right to collect from Spanky. (b) Spanky's insurance company will owe $800 to Petey's insurance company. (c) Both A & B. (d) Neither A nor B.

Both A & B. An insurer is subrogated to the claims the insured had against a responsible third party for which the insured has made a claims payment to the insured.

Negligence is failure to... (a) Exercise care to protect others from harm. (b) Act as a prudent person would. (c) Both A & B. (d) Neither A or B.

Both A & B. Negligence is the failure to exercise that degree of care that the law requires to protect others from an unreasonable risk of harm. The failure to act as a prudent person would have acted under similar circumstances.

Bill Williams, your insured, has failed to reveal some relevant facts when he is applying for insurance; this is considered? (a) Concealment. (b) Misrepresentation. (c) Fraud. (d) Both B & C.

Concealment. Concealment is the failure of the insured to reveal relevant facts known to the insured in applying for insurance.

True or False? A moral hazard is an unconscious mental attitude which increase the probability and severity of loss.

False.

True or False? Forbearance is a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies.

False. Insurance is a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies.

True or False? An insurance policy can be assigned to another party if the insured decides to do so?

False. Insurance policies are "personal contracts" and cannot be assigned to another party without specific written agreement with the insurance company. In nearly all instances policies are not as a practical matter assignable.

True of False? The "change of financial loss" refers to the concept of Adhesion.

False. The "change of financial loss" refers to the concept of Risk.

True or False? The rule of law is that contracts of adhesion are subject to having any ambiguities resolved in favor of the insurance company.

False. The rule of law is that contracts of adhesion are subject to having any ambiguities resolved in favor of the insured.

An example of an indirect loss is? (a) Physical damage after a collision. (b) Loss of use. (c) Both A & B. (d) Neither A or B.

Loss of Use is an example of an indirect loss. An indirect loss is the economic loss which flows as a consequence of direct loss.

An insured has a $500 Franchise deductible and suffers a loss of $400, how much will the insured be paid on their claim? (a) $400. (b) No payment will be paid. (c) $500. (d) None of the above.

No payment will be made. No payment will be paid as the loss amount did not exceed the franchise deductible. If the franchise deductible had been exceeded then 100% of the loss would be paid.

You insured's guest has tripped over her own shoe laces at the insured's residence. The insured has agreed in writing to pay all medical bills, lost wages, and pain and suffering to the guest. Has the insured met the conditions of his policy? (a) Yes, he has merely started the claim for the insurer. (b) No, he has prejudiced the insurer's rights. (c) Yes, first aid and ancillary damages are always covered. (d) No, because he is not a licensed claims adjuster.

No, he has prejudiced the insurer's rights and has not met the conditions of the policy. The insured has prejudiced the insurer's rights by agreeing in writing to be responsible for the guest's damages. An insured is required to preserve the insurance company's rights at all times.

Mrs. Byrd was involved in an auto accident three years ago and never reported the claim. A judgement has been rendered against her finding her civilly responsible for $10,000 of property damage. She has just reported the claim; has she met the conditions of her auto policy? (a) Yes, she reported the claim when she received the verdict. (b) Yes, she reported the claim within three years. (c) No, as her policy requires her to provide "prompt notice of loss". (d) Her policy does not address "notice of loss".

No, she has not met the conditions of her policy as her policy requires her to provide "prompt notice of loss".

Which of the following violates the concept of indemnity? (a) Paying for intentional loss. (b) Replacement Cost Endorsements. (c) Agreed Value Policies. (d) All of the above.

Paying for intentional loss would violated the concept of indemnity.

Which of the following increase the probability and/or severity of loss? (a) Physical, Moral, and Operational Hazard. (b) Fiscal, Moral, and Operational Hazard. (c) Fiscal, Morale and Operational Hazard. (d) Physical, Moral, and Morale Hazard.

Physical, Moral, and Morale Hazards increase the probability and/or severity of loss.

In general insurance policies require the insured to undertake certain duties following a loss including all BUT which of the following: (a) Provide prompt notice. (b) Cooperate with the insurer. (c) Preserve the insurer's rights. (d) Post the loss on a blog.

Posting the loss on a blog is definitely not a "duty following a loss" by the insured. The insured must provide prompt notice of loss; the insured must cooperate with the insurer; and the insured must act in a way to preserve the insurer's rights.

The "chance of financial loss" refers to the concept of: (a) Subrogation. (b) Adhesion. (c) Risk. (d) Hazard.

The "chance of financial loss" refers to the concept of RISK.

The appraisal condition is used to resolve issues of? (a) Coverage. (b) Who is an insured. (c) Amount of Loss. (d) Territory.

The appraisal condition is used to resolve ONLY the Amount of Loss.

Which of the following increase the probability and/or severity of loss? (a) Physical hazard. (b) Moral hazard. (c) Morale hazard. (d) All of the above.

The correct answer is "All of the above". Physical hazard, Moral hazard, Morale hazard all increase the probability and/or severity of a loss.

Insurance contracts are considered contracts of adhesion which means the contracts are? (a) Conditional. (b) Personal. (c) Binding. (d) Between parties of unequal bargaining power.

The correct answer is "Between parties of unequal bargaining power". Contracts of adhesion refer to the unequal bargaining power of the insured as the insured cannot negotiate the terms or language of the contract, having to take the offer of the insurer as written by the insurance company.

The basic definition of Actual Cash Value is "current cost to replace": (a) With no allowance for depreciation. (b) Less depreciation. (c) Per stated or agreed value. (d) None of the above.

The correct answer is "Less depreciation". Actual Cash Value as a valuation method is generally defined as the current costs to replace the item, less an allowance for depreciation.

What amount will the insurer pay if an insured has a $40,000 policy with an 80% coinsurance provision, a $45,000 building value and a $10,000 loss? (a) $10,000. (b) $ 8,000. (c) $ 5,000. (d) None of the above.

The correct answer is $10,000. $10,000 as the insured is not subject to a coinsurance penalty due to the policy amount and building value.

What amount will the insurer pay if an insured has a $25,000 policy with an 80% coinsurance provision, a $50,000 building value and a $20,000 loss? (a) $10,000. (b) $12,500. (c) $15,000. (d) None of the above.

The correct answer is $12,500. $12,500, as the insured is only carrying 62.5% insurance to value the 80% coinsurance provision is applicable.

What amount will be paid to an insured who has an insurance policy with separate limits of $200,000 per building on three buildings and $250,000 loss occurs to one of the buildings? (a) The policy will pay to $750,000 for any one loss. (b) The policy will pay $250,000. (c) The policy will pay $200,000. (d) None of the above.

The correct answer is $200,000. The coverage per building is $200,000. The loss of $250,000 to one building exceeds the available coverage. The policy will pay up to the policy limit of $200,000.

A private passenger automobile policy has split liability limits of 100/300. The insured is involved in an at-fault accident and two individuals in the other car have injuries of $100,000 each. How much will the policy pay in total? (a) $100,000. (b) $200,000. (c) $300,000. (d) $300,000.

The correct answer is $200,000. Policies with split limits of liability are expressed by two limits: the first represents a per-person limit; and the second represents a per occurrence limit.

A private passenger automobile policy has a single bodily injury liability limit of $300,000. The insured is involved in an at-fault accident and five individuals in the other car have injuries of $100,000 each. How much will the policy pay in total? (a) $100,000. (b) $300,000. (c) $500,000. (d) $1,500,000.

The correct answer is $300,000. Policies with a single limit of liability state a single amount that is the maximum liability the insurer will pay for any one accident or occurrence.

An insured has a $500 collision deductible on her auto policy. The insured lightly backed into a wall scratching the rear bumper cover resulting in $800 in damages. How much will the insurance company pay the insured? (a) 0. (b) $800. (c) $300.

The correct answer is $300. Computed by taking the $800 in damages less the $500 deductible.

What amount will the insurer pay if an insured has a policy with $200,000 of building coverage, an 80% coinsurance provision; a $225,000 building value and the building suffers a $50,000 loss? (a) $50,000. (b) $40,000. (c) $30,000. (d) None of the above.

The correct answer is $50,000. $50,000 as the insured is not subject to a coinsurance penalty due to the policy amount and building value.

Binders: No notice of cancellation or non-renewal is required unless a binder exceeds ___ days. (a) 30. (b) 60. (c) 90. (d) None of the above.

The correct answer is 60 days. No notice of cancellation or non-renewal is required unless a binder exceeds 60 days.

An insurer MAY not have to perform if the insured? (a) Breaches a warranty. (b) Is guilty of a misrepresentation. (c) Is guilty of a concealment. (d) All of the above.

The correct answer is All of the above. An insurer MAY not have to perform if the insured: breaches a warranty, is guilty of a misrepresentation, or is guilty of concealment.

Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless? (a) They are fraudulent. (b) They are material . (c) The insurer in good faith would either not have issued the policy. (d) All of the above.

The correct answer is All of the above. Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless: they are fraudulent; they are material; and the insurer in good faith would not have issued the policy.

Insurable Interest is the insured's: (a) Exposure to loss. (b) Economic interest. (c) Both A & B. (d) Neither A or B.

The correct answer is Both A & B. Insurable Interest is the insured's economic interest and exposure to a loss.

______________ insurance is insurance which pays on behalf of the insured's legal liability. (a) Property. (b) Casualty. (c) Health. (d) Both A & C.

The correct answer is Casualty. Casualty insurance is insurance where payment will be made on behalf of the insured to "a third party", based upon the insured's liability to the third party ...i.e. the policyholder is responsible for an automobile accident and the insured's insurance company pays the party whose vehicle or property was damaged.

The failure of the insured to reveal relevant facts known to the insured in applying for insurance is? (a) Concealment. (b) Misrepresentation. (c) Fraud. (d) Both B & C.

The correct answer is Concealment. Concealment is the failure of the insured to reveal relevant facts known to the insured in applying for insurance.

Property and liability insurance policies are said to be ___________ contracts because the obligation of the insurer to perform may be conditioned upon the insured satisfying certain conditions. (a) Personal. (b) Adhesions. (c) Written. (d) Conditional.

The correct answer is Conditional. Property and liability insurance policies are said to be conditional contracts because the obligation of the insurer to perform may be conditioned upon the insured satisfying certain conditions.

________ is a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies. (a) Forbearance. (b) Insurance. (c) Reduction. (d) Federalism.

The correct answer is Insurance. Insurance is a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies.

______________ is a policy provision which broadens coverage without additional premium. (a) Subrogation. (b) Cancellation. (c) Liberalization. (d) None of the above.

The correct answer is Liberalization. Liberalization is a policy provision which states that if the insurer adopts a revision to the insurance policy which would broaden coverage without additional premium.

Lightning strikes Joe's building and a fire ensues, with resulting fire, smoke, and water (to put out the fire) damage to the property. Which peril would be considered the proximate cause of the loss? (a) Fire. (b) Lightning. (c) Water. (d) All of the above.

The correct answer is Ligtning. The doctrine of proximate cause states that when there is an unbroken connection between an occurrence and damage that grows out of the occurrence, then the resultant damage is all a part of the originating occurrence.

Risk means the chance of financial: (a) Gain. (b) Loss. (c) Gain and loss. (d) Neither gain or loss.

The correct answer is Loss. Risk means ONLY the chance of financial LOSS.

An untrue statement made by the insured in an application which does not become part of the policy is: (a) Concealment. (b) Misrepresentation. (c) Fraud. (d) Both B & C.

The correct answer is Misrepresentation. An untrue statement made by the insured in an application which does not become part of the policy is considered a MISREPRESENTATION.

Ready Ralph Reiger, your insured, has not exercised the degree of care to protect his neighbor from injury on his property; this is know as? (a) Breach of Contract. (b) Strict Liability. (c) Negligence. (d) Res Ipsa Loquitor.

The correct answer is Negligence. Negligence is the failure to exercise that degree of care that the law requires to protect others from an unreasonable risk of harm. The failure to act as a prudent person would have acted under similar circumstances.

Liability insurance responds on behalf of an Insured's liability to an ___________. (a) Insured. (b) Other Party. (c) Insurer. (d) All of the above.

The correct answer is Other Party. Liability insurance responds on behalf of an Insured's liability to an OTHER PARTY.

A physical characteristics which increase the probability and severity of loss is? (a) Morale hazard. (b) Moral hazard. (c) Physical hazard. (d) All of the above.

The correct answer is Physical Hazard. A Physical Hazard is a physical characteristic which increases the probability and severity of loss.

A physical characteristics which increase the probability and severity of loss is? (a) Morale hazard. (b) Moral hazard. (c) Physical hazard. (d) None of the above.

The correct answer is Physical Hazard. Physical hazards are physical characteristics which increase the probability and severity of loss.

A _________means a written contract of or a written agreement for or affecting insurance. (a) Contract. (b) Insurer. (c) Policy. (d) Legal Proceedings.

The correct answer is Policy. A POLICY means a written contract of or a written agreement for or affecting insurance.

A loss has occurred and two liabilities polices are determined to apply to the same loss. The first policy has a $500,000 limit and the second a $1,000,000 limit. The first policy is responsible for: $500,000/$1,500,000 and the second policy is responsible for $1,000,000/$1,500,000. What type of "Other Policy" provision is this? (a) Excess. (b) Primary. (c) Equal Shares. (d) Pro-Rata.

The correct answer is Pro-Rata. Pro-rata shares provisions provide that each policy pays only the limits each bears to all of the limits.

Liability insurance responds on behalf of an ______ negligence to a third party. (a) Insured's. (b) Other Party's. (c) Plaintiff's. (d) All of the above.

The correct answer is that the a liability insurance policy responds on behalf of an insured's negligence to a third party.

Which of the following does NOT apply to the Mortgagee Clause? (a) Right to cancel the policy. (b) Advance notice of any cancellation. (c) Coverage even if the insured actions prevent recovery by the insured. (d) Right to pay a policy premium.

The correct answer is: "Right to cancel the policy". The Mortgagee does not have the right to cancel a policy.

The insuring agreement in a liability policy states that the insurer agrees to pay on behalf of the insured "all sums the insured": (a) Is legally obligated to pay. (b) Has voluntarily paid. (c) Is required by state law to pay. (d) None of the above.

The correct answer: Is legally obligated to pay. The insuring agreement in a liability policy basically states that the insurer agrees "to pay on behalf of the insured all sums the insured becomes legally obligated to pay as damages.

What amount will be paid to an insured who has an insurance policy with a combined single limit of $600,000 on three $200,000 individual buildings if a $250,000 loss occurs to one of the buildings? (a) The policy will pay to $600,000. (b) The policy will pay $250,000. (c) The policy will pay $200,000. (d) None of the above.

The policy will pay $250,000. The policy will pay up to $600,000 for any one or combination of buildings, the damages were $250,000 which is within the policy limits.

True of False? A single policy may provide both property and liability insurance coverages.

True. A single policy may provide both property and liability insurance coverages.

True or False? Indemnity is the principle of insurance which provides that when a loss occurs, the insured should be restored to the approximate financial condition occupied before the loss occurred, no better, no worse.

True. Indemnity is the principle of insurance which provides that when a loss occurs, the insured should be restored to the approximate financial condition occupied before the loss occurred, no better, no worse.

True or False? Florida's Valued Policy Law (F.S.627.720) states: If there is a total loss by a covered peril to a structure, the insurer must pay the amount stated in the policy for which premium has been paid.

True. The Florida's Valued Policy Law F.S.627.720 states: If there is a total loss by a covered peril to a structure, the insurer must pay the amount stated in the policy for which premium has been paid.

True or False? Indirect loss means economic loss which flows as a consequence of direct loss.

True. Direct loss means physical harm to tangible property and Indirect loss means economic loss which flows as a consequence of direct loss.

True or False? Insurance is a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies.

True. Insurance is a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies

True of False? Cancellation conditions in general allow the insured to cancel at any time.

True. Cancellation conditions in general allow the insured to cancel at any time.

True or False? Insurance may be placed into effect, or "bound," prior to issuance of a policy contract.

True. Insurance may be placed into effect, or "bound," prior to issuance of a policy contract.

True of False? The "change of financial loss" refers to the concept of Risk.

True. The "change of financial loss" refers to the concept of Risk.

In a phone conversation you have told Mrs. Toppings she has insurance coverage with a company your agency represents. Can you orally bind this coverage? (a) No, coverage can only be bound in writing. (b) No, coverage can be bound orally or in writing but you cannot use the telephone to bind coverage. (c) Yes, you can bind coverage either orally or in writing. (d) None of the above.

Yes, you can bind coverage either orally or in writing.

You have given Mrs. Brown, your insured, a written contract and/or agreement for insurance. What have you given Mrs. Brown? (a) Contract. (b) Policy. (c) Bylaws. (d) Legal Proceedings.

You have given Mrs. Brown a POLICY.

"Severability of Interest" means: (a) Several options of interest. (b) Policy cannot be cancelled. (c) Insurance applies to all or none. (d) Insurance applies separately to each insured.

"Severability of Interest" means the insurance coverage applies separately to each insured.

A homeowner with a Homeowners policy Dwelling Coverage: $200,000; a 2% windstorm deductible and a wind loss of $60,000 will collect $56,000 in their claim.

A homeowner with a Homeowners policy with $200,000 of coverage and a 2% windstorm deductible suffers a windstorm loss of $60,000. How much will the insured collect on their claim? (a) $200,000. (b) $60,000. (c) $56,000. (d) $4,000.