Insurance Questions

• 50. According to the commercial general liability policy's Coverage A insuring agreement, when is the insurer's obligation to pay damages triggered? o a. When the insured "becomes legally obligated" to pay them o b. When the claim is filed o c. Sixty days after the claim is filed o d. Only when a court determines legal liability

a. When the insured "becomes legally obligated" to pay them

• 69. Ozzie and Margaret have a homeowners policy insuring their $1 million home with a personal liability limit of $250,000. Two guests, Ralph and Doug, are inspecting antique furniture in the attic when their weight causes the floor to collapse. Ralph and Doug are both seriously injured. What is the maximum liability amount that is payable to Ralph and Doug in this loss? o a. $250,000 o b. $500,000 o c. $1,000,000 o d. The homeowners policy will not cover this loss.

o a. $250,000

• 6. In which of the following situations would a homeowners insurer not be required to provide a defense for an insured? o a. A lawsuit is filed against John, an insured, after he accidentally hit a neighbor's child in the head with a baseball. o b. A lawsuit is filed against Jeremy, an insured, after he drove to a house in another neighborhood and vandalized it. o c. A lawsuit is filed against Marsha, an insured, after a friend slipped on the loose carpeting and fell down the stairs, severely injuring herself. o d. A lawsuit is filed against Todd, an insured, after he cut a tree down in his yard and it accidentally fell on the neighbor's car as the neighbor was leaving for work.

o b. A lawsuit is filed against Jeremy, an insured, after he drove to a house in another neighborhood and vandalized it.

• 23. Which of the following is an example of real property? o a. A computer o b. A watch o c. A house o d. A fur coat

o c. A house

• 35. In the context of workers compensation, temporary total, permanent total, permanent partial, and temporary partial are the four classes of o a. death benefits. o b. dental benefits. o c. disability benefits. o d. rehabilitation benefits.

o c. disability benefits.

• 72. Acme Inc. has a business auto policy. What is included in Item Two of the business auto declarations, a schedule of coverages and covered autos, to indicate which autos are considered "covered autos"? o a. License plate numbers of all Acme's vehicles o b. Make, model, and year of all Acme's vehicles o c. Numerical symbols o d. Purchase prices of all Acme's vehicles

o b. Make, model, and year of all Acme's vehicles

• 26. Pandora Insurance Company is an "admitted" insurer in the state of California. What does this mean? o a. Pandora has legally identified the types of risks it will write in California. o b. Pandora is an independent insurer. o c. Pandora is licensed to do business in California. o d. Pandora is new and has just begun operations in California.

o a. Pandora has legally identified the types of risks it will write in California.

• 28. Jonathan runs a shoe repair business as a sole proprietor, with the aid of his wife, Laura, who keeps the books. Jonathan is the only named insured listed under the shoe shop's commercial general liability (CGL) policy, and he is not engaged in any other business activities. Laura and her sister Amy also operate a fish restaurant as a partnership. Who is covered as an insured under the shoe shop CGL? o a. Jonathan and Laura with respect to any business activities o b. Jonathan and Laura, but only with respect to the shoe business o c. Jonathan, Laura, and Amy with respect to any business activities o d. Jonathan only

o b. Jonathan and Laura, but only with respect to the shoe business

• 34. An additional coverage in the property section of the homeowners policy covers loss assessment charges up to what amount? o a. $100 o b. $500 o c. $1,000 o d. There is no limit.

o c. $1,000

• 67. Joint ventures, partnerships, or limited liability companies are not given insured status under the commercial general liability policy unless: o a. They are no longer in operation. o b. They are incorporated. o c. They are specifically scheduled as named insureds in the declarations. o d. A coverage gap arises.

o c. They are specifically scheduled as named insureds in the declarations.

• 37. Business income coverage forms do not have a dollar deductible; rather, they impose a waiting period, which might be considered a time deductible. What is the waiting period for business income coverage under the two business income coverage forms? o a. There is no waiting period for business income coverage. o b. 12 hours o c. 24 hours o d. 72 hours

o d. 72 hours

• 11. Trade Builders' commercial property policy is written on the Insurance Services Office, Inc., building and personal property coverage form, which establishes three categories of covered property. Which of the following would not qualify as covered property? o a. The computer used by Trade Builders' CEO in the course of business o b. Trade Builders' office building o c. Trade Builders' office contents o d. An aluminum trench shield being used on a job site

o d. An aluminum trench shield being used on a job site

• 57. Uninsured motorists coverage under Danielle's personal auto policy (PAP) would apply in which of the following situations? o a. Giselle is the negligent driver in an accident with Danielle. Giselle has a PAP with liability coverage. o b. Danielle is the negligent driver in an accident with Polly. Polly has no liability coverage. o c. Danielle strikes a fixed object. o d. Fran is the negligent driver in an accident with Danielle. Fran does not have a PAP.

o d. Fran is the negligent driver in an accident with Danielle. Fran does not have a PAP.

• 9. In property law, a "lien" is a charge on either real or personal property of a debtor that gives the lienholder o a. a security interest in the property. o b. a guarantee. o c. the right to use the property whenever it wishes. o d. funds for the payment of any damage to the property.

o a. a security interest in the property.

• 25. A peril is a direct cause of loss. Perils can be grouped into three categories. All of the following constitute the peril categories, EXCEPT o a. economic perils. o b. human perils. o c. natural perils. o d. supernatural perils.

o d. supernatural perils.

• 24. Eugene is applying for a farmowners policy and must schedule his farm personal property in the declarations page. Which of the following would not be covered under this section of the policy? o a. Cows o b. Grain o c. Personal and advertising injury o d. John Deere tractor

o a. Cows

• 20. Which of the following is not an example of collision that the personal auto policy's physical damage collision coverage would cover? o a. Gertrude's car strikes the railing on a bridge. o b. Perry's car rear-ends another vehicle. o c. Walter's car rolls over and lands in a ditch after a tire blows out. o d. A tree crashes onto the roof of Laura's sedan while it is parked in her driveway.

o d. A tree crashes onto the roof of Laura's sedan while it is parked in her driveway.

• 43. Which of the following loss exposures falls into the property and liability insurance category? o a. The chance that Frank may have a stroke and become permanently disabled o b. The chance that Mary's restaurant may burn to the ground o c. The possibility that Joe may lose money in the stock market o d. The possibility that John may die prematurely

o b. The chance that Mary's restaurant may burn to the ground

• 17. To demonstrate that her risk management activities make a financial contribution to her employer's financial progress, Harriet is most likely to use a financial concept known as o a. budgeting. o b. cost of risk. o c. cost overruns. o d. overhead.

o b. cost of risk.

• 59. Before conducting every marriage at the Elvis Wedding Chapel, Rev. Armand conducts a short counseling session. Rev. Armand's professional liability policy forbids his insurance company to settle a claim without the clergyman's consent but limits the insurer's ultimate liability to the amount for which it could have settled the claim. This settlement procedure is commonly referred to as the o a. claw hammers. o b. hammer clause. o c. runaway bride clause. o d. runaway jury clause.

o b. hammer clause.

• 48. The states where an employer must obtain workers compensation insurance from a compulsory state fund or qualify as a self-insurer (in jurisdictions that allow self-insurance) are known as o a. competitive fund states. o b. involuntary compensation fund states. o c. monopolistic fund states. o d. residual market states.

o b. involuntary compensation fund states.

• 62. Within the Coverage A insuring agreement of the commercial general liability policy, the insurer promises to o a. research and evaluate the best possible coverage for particular loss exposures. o b. pay "sums" that the insured becomes legally obligated to pay "as damages" because of "bodily injury" or "property damage" covered by the policy. o c. sue those who file claims against the insured for "bodily injury" or "property damage." o d. respond to the insured's obligation under an order of injunctive relief.

o b. pay "sums" that the insured becomes legally obligated to pay "as damages" because of "bodily injury" or "property damage" covered by the policy.

Jeremy Jones has decided to rent an apartment from a landlord. He would like to insure his personal belongings, which he will keep in the apartment. Which Insurance Services Office, Inc., homeowners form should his agent sell him? o a. HO 2-Broad Form o b. HO 3-Special Form o c. HO 4-Contents Broad Form o d. HO 6-Unit-Owners Form

o c. HO 4-Contents Broad Form

• 56. Citing a proprietary, unregulated investment strategy, Madcow Investment Company collected money from investors who were promised an unusually high rate of return if they kept their money invested for at least 5 years. During its 6th year, the company delivered on its exorbitant promises to the few investors who chose to cash out. Later investors, however, learned that Madcow had not been investing their money. Rather, Madcow had simply been using current investment funds to pay those who cashed out. Madcow eventually ran out of money, and later investors received nothing. Madcow was operating a(n) o a. class action suit. o b. intergenerational transfer mechanism. o c. Ponzi scheme. o d. pyramid.

o c. Ponzi scheme.

• 49. One week before the expiration date of its commercial property policy, Tasty Foods Products suffers a fire at its processing plant. The plant is shut down for 5 months while repairs are made. Tasty's commercial property policy includes the business income and extra expense coverage form. How will Tasty's policy respond to the loss of income during Tasty's 5-month shutdown? o a. The policy will cover only that portion of the business income loss that Tasty suffers during the week prior to policy expiration. o b. The policy will not cover the loss because the loss occurred less than 1 month prior to policy expiration. o c. The policy will cover the 5-month loss, beginning 72 hours after the explosion. o d. The policy will not cover the loss because fire damage is excluded from coverage.

o c. The policy will cover the 5-month loss, beginning 72 hours after the explosion.

• 27. Physicians professional liability insurance is designed to cover all the following types of claims a medical practitioner might face, except o a. delaying a patient's treatment. o b. discharging a hospital patient too soon. o c. failing to meet continuing education requirements. o d. invading a patient's privacy.

o c. failing to meet continuing education requirements.

• 18. Betsy's Bagels' delivery van is insured with a business auto policy. Betsy occasionally uses her own car for making deliveries to customers. Sometimes, when she has more deliveries than she can handle alone, she hires a vehicle to help her make the deliveries. Symbol 1 is designated on Betsy's Bagels' business auto policy. The term "covered autos" applies in this case to liability coverage on o a. Betsy's car only. o b. the delivery van only. o c. the hired vehicle only. o d. Betsy's car, the delivery van, and the hired vehicle.

o d. Betsy's car, the delivery van, and the hired vehicle.

• 38. Nancy, an insured, is angry with her former boyfriend. She drives over to his apartment and deliberately crashes her car into his parked pickup truck. She subsequently makes a property damage liability claim under her personal auto policy. Her insurer denies the claim. Why? o a. The former boyfriend's pickup truck was parked and was not being driven at the time of the incident. o b. The property damage was intentional on the part of Nancy, the insured. o c. Nancy is probably suffering from temporary insanity. o d. Nancy was unfairly provoked because her former boyfriend treated her poorly.

o b. The property damage was intentional on the part of Nancy, the insured.

• 14. A package policy providing homeowners insurance includes o a. property coverage only. o b. liability coverage only. o c. property and liability coverage. o d. no-fault coverage only.

o c. property and liability coverage.

• 5. Insurance Services Office, Inc. (ISO), develops standard insurance policy forms. South Succotash Insurance Company does not use ISO forms but rather develops its own insurance policy forms. South Succotash's forms are referred to as _______________ forms. o a. derivative o b. mavericky o c. proprietary o d. unfiled

o c. proprietary

• 13. Tasty Food Products has a commercial property policy that includes the business income and extra expense coverage form. An explosion damages a portion of the Tasty Food plant. While repairs are under way, Tasty manages to continue operations using the undamaged portion of the building, but its output is greatly reduced. Will Tasty be able to collect for the reduction in business income caused by this slowdown in its operations? o a. Yes. Coverage applies to either a slowdown or a cessation of the insured's operations. o b. No. Coverage applies only to a complete cessation of the insured's operations. o c. No. The loss was caused by an explosion, which is an excluded cause of loss. o d. No. Business income coverage applies only if the insured's facility is completely destroyed by a covered cause of loss.

o a. Yes. Coverage applies to either a slowdown or a cessation of the insured's operations.

• 61. Last year, the board of directors of Alphabet Corporation voted to sell one of its subsidiaries, Sigma, Inc., which had been operating at a loss, to a competitor. Soon after the sale, Sigma's past research and development paid off, and it launched a very profitable new product. Which of the following is most likely to happen? o a. Alphabet Corporation's directors and officers might sue its shareholders for failing to properly execute their duties. o b. Alphabet Corporation shareholders might sue the directors and officers alleging a lack of due care in making the decision to sell the now-profitable subsidiary. o c. The competitor might sue Alphabet Corporation for misappropriating trade secrets. o d. The competitor might sue Alphabet Corporation's directors and officers alleging a lack of due care in making the decision to sell the now-profitable subsidiary.

o b. Alphabet Corporation shareholders might sue the directors and officers alleging a lack of due care in making the decision to sell the now-profitable subsidiary.

• 71. Donna Dove is injured when her vehicle is struck by a truck that is insured under a business auto policy that provides liability coverage for damages due to bodily injury. Which one of the following would not fall under the policy's definition of bodily injury? o a. Donna broke her leg in the accident. o b. Donna developed pneumonia because she suffered a punctured lung in the accident. o c. Donna suffered mental trauma and anguish as a result of being in the accident. o d. Donna ultimately died as a direct result of the bodily injury suffered in the accident.

o c. Donna suffered mental trauma and anguish as a result of being in the accident.

Hannah, a small business owner, procures a businessowners policy from an insurance company that uses its own proprietary form. In the property coverage section, this policy "agrees to cover the following causes of loss" and then lists exactly which perils are covered. The property coverage in Hannah's policy is written on a(n) _______________ basis. o a. all risks o b. excluded risks o c. named perils o d. no risk

o c. named perils

• 74. Bart's father brings light bulbs, office supplies, and other items home from work and lies to Bart about where he got them. o a. Bart will pay more attention to his father's denials than to his actual actions. o b. Because children emulate their mother's ethical behavior but ignore their father's, this has no effect on Bart. o c. This has no effect on Bart because children ignore their parents' ethical behavior. o d. This influences Bart's later behavior, because everybody learns ethics from his or her parents' words and actions.

o a. Bart will pay more attention to his father's denials than to his actual actions.

• 31. Under the Employee Retirement Income Security Act, which of the following individuals or entities could be held liable as a fiduciary? o a. Calamity Mutual, an insurance company that maintains custody of the assets of its clients' plans o b. Mercy General, a hospital that provides medical services to a corporation's employees o c. Suzy Cue, a payroll clerk who processes employees' time cards to ensure they are paid properly for work-related injuries o d. Prof. Karen Burton, a college professor who teaches a financial planning course

o a. Calamity Mutual, an insurance company that maintains custody of the assets of its clients' plans

• 41. In addition to wisdom, insight, and good luck, risk manager Tom Jones uses a variety of tools to help him evaluate loss exposures. He uses all of the following, except o a. flowcharts of operations. o b. history of past losses. o c. personal inspections of facilities by someone with risk management experience. o d. workers compensation modifiers.

o d. workers compensation modifiers.

• 7. The day before Stage Theater Company presents its premiere performance of Gone with the Wind, a tornado destroys its scenery and props. Stage could have covered this loss if it had purchased a(n) o a. contractors equipment form. o b. equipment breakdown form. o c. film floater. o d. theatrical property coverage form.

o d. theatrical property coverage form.

• 16. Commercial inland marine insurance policies generally cover more perils than commercial property policies cover. For example, a typical commercial inland marine policy would cover loss by all the following perils, except o a. collapse. o b. earthquake. o c. flood. o d. wear and tear.

o d. wear and tear.

Major Manufacturing has a commercial property policy that includes the business income and extra expense coverage form. A fire forces Major to suspend its operations while repairs are made. Major must retain nearly all of its employees during this time so that it will be able to resume operations when repairs are complete. Will Major's policy cover this payroll expense? o a. No. The business income and extra expense coverage form specifically excludes payroll expenses. o b. The business income and extra expense coverage form covers the payroll for officers and managers only. o c. The business income and extra expense coverage form provides 30 days of coverage for payroll expenses. o d. Yes. The business income and extra expense coverage form specifically includes payroll as part of the insured's continuing normal operating expenses.

d. Yes. The business income and extra expense coverage form specifically includes payroll as part of the insured's continuing normal operating expenses.

• 40. Betsy works in the White Pharmaceutical Company office, but she receives her paycheck from Shelly Professional Services Inc. Shelly is in the business of leasing professional employees to firms in the pharmaceutical industry. Under the terms of White's commercial general liability policy, o a. Betsy is not an insured, although White's regular employees are insureds. o b. Betsy is not an insured. o c. Betsy is insured as an employee. o d. Betsy is not an insured unless White directly furnishes her employee benefits.

o a. Betsy is not an insured, although White's regular employees are insureds.

• 30. Ed, who owns more than $1 million of Q Company stock, is offered a position as the CEO of Bond Company. Q is a major customer of Bond Company and purchases $500 million in goods from Bond Company every year. What ethical problem might result if Ed accepts the CEO position? o a. Conflict of interest, or at least the appearance of a conflict o b. Double dipping o c. Opportunity to get more favorable pricing for Q o d. Opportunity to steer more business to Bond

o a. Conflict of interest, or at least the appearance of a conflict

• 46. Lester's insured home and property inside it are damaged when a hailstorm breaks his windows and causes rainwater to leak into his home. Which of the following is not one of the duties after a loss in Lester's homeowners policy that Lester must comply with? o a. He should call the police. o b. He should call his insurer as soon as possible. o c. He should clean up the glass and put some sort of protective covering over the windows. o d. He should make a list of all the items near the windows that were damaged and move other items to a safer location.

o a. He should call the police.

• 63. Janice owns a small home insured with a dwelling policy. Which of the following would not be covered under the dwelling policy? o a. Janice's car o b. Janice's furniture o c. The garage attached to Janice's house o d. Wall-to-wall carpeting installed in Janice's den

o a. Janice's car

• 60. Frank is an owner of a regional chain of auto parts outlets. He is unhappy with his current insurance agent and is looking for a new agent or broker. What criteria should Frank look for when selecting an agent? o a. Knowledge, experience in commercial lines insurance, service orientation, technical proficiency, and responsiveness o b. Knowledge, experience, service orientation, nice office, and CPA designation o c. Knowledge, technical proficiency, friendliness and outgoingness, responsiveness, and at least 30 years in the business o d. Large size, knowledge, respectability, and experience in loss control and safety

o a. Knowledge, experience in commercial lines insurance, service orientation, technical proficiency, and responsiveness

• 70. Based on media reports, it seems obvious that Zeta Construction's negligence caused the stage collapse that resulted in the death of the famous Irish singer, Mary Land. Zeta Construction's commercial general liability policy with Luau Insurance Company has limits of $300,000 that would apply to the multimillion dollar claim of Land's estate. Under the circumstances, o a. Luau may conclude its obligations by immediately paying $300,000 to Land's estate. o b. Luau should seek a declaratory judgment to determine whether it has an obligation to defend Zeta. o c. Luau has a duty to defend Zeta until Luau has paid $300,000 in judgments or settlements. o d. Luau's obligations can be discharged only by a final court judgment.

o a. Luau may conclude its obligations by immediately paying $300,000 to Land's estate.

• 45. Henry and Phyllis Barfield both recently retired and decide to sell their house, buy a motor home, and see the country for the next several years. What specific type of coverage would best protect them? o a. Motor home insurance with full-timers personal liability and medical payments coverage and other necessary coverages o b. Motor home insurance with only liability coverage o c. Motor home insurance with vacation liability coverage o d. Motor home insurance with only uninsured motorists coverage

o a. Motor home insurance with full-timers personal liability and medical payments coverage and other necessary coverages

• 32. Irma Insured has procured a personal auto policy with Ready4U Insurance. In doing so, Irma is transferring her auto-related risks to Ready4U. Why does this transfer of risks benefit Irma? o a. Ready4U is more financially able than Irma to absorb the costs of loss. o b. Ready4U cannot be held liable for any losses that Irma suffers. o c. Irma won't have to prove that she is without fault if she suffers a loss. o d. Irma won't have to worry that her bad driving record will become public.

o a. Ready4U is more financially able than Irma to absorb the costs of loss.

• 33. Rich Company employees Ted and Tom are driving to a business meeting in a company car insured by a business auto policy (BAP). Ted, who is driving the vehicle, runs a red light and crashes into an oncoming vehicle. The resulting accident severely injures Tom. Tom wants to sue Ted for negligently operating the vehicle and causing his injury. The fellow employee exclusion of the BAP stipulates that o a. even though he is Ted's fellow employee, Tom has liability coverage for his own bodily injury. o b. since he was not driving, Tom is not an insured under the policy; therefore the suit is not valid. o c. Ted does not have liability coverage for bodily injury to Tom since Tom's injury arose out of and in the course of Tom's employment. o d. Tom's personal auto policy will pay for his injury.

o a. even though he is Ted's fellow employee, Tom has liability coverage for his own bodily injury.

• 19. Terry Tycoon purchased a $5 million insurance policy to cover an original Van Gogh painting. Smoke from an accidental grease fire in Terry's kitchen damages the painting's surface. Although art restoration experts say the painting can be cleaned, the chemicals in the greasy soot have noticeably changed the tint of the pigments in the paint. As a result, the painting is no longer as valuable as it was before the fire. The insurer and Terry cannot agree as to the amount of the loss that is payable under the policy. The insurer invokes a policy provision requiring Terry to submit to an appraisal. The insurer's expert appraiser thinks the painting has only lost $600,000 in value. Terry's expert appraiser, on the other hand, thinks the painting has lost $2.3 million in value. Under most policies, what are the procedural steps to resolve the dispute between the appraisers? o a. Most policies state that any uncertainty in the appraisal amounts must be construed in favor of the insured. Therefore, the insurer must pay $2.3 million in accordance with Terry's expert's appraisal. o b. Most policies state that a dispute between appraisers will be submitted to an umpire for final resolution. The insurer will be required to pay whatever amount on which two of these three parties (the two appraisers and the umpire) can agree. o c. Most policies state that the insurer's appraiser has the power to override the insured's appraiser. Therefore, the insurer need only pay the $600,000 in accordance with its own expert's appraisal. o d. Most policies do not state any procedural steps for resolving a dispute between appraisers. Therefore, the parties have no choice but to resolve the dispute in court.

o b. Most policies state that a dispute between appraisers will be submitted to an umpire for final resolution. The insurer will be required to pay whatever amount on which two of these three parties (the two appraisers and the umpire) can agree.

• 44. What organization serves as the filing agency and rating organization for workers compensation and employers liability insurance in most states? o a. American Association of Insurance Services (AAIS) o b. National Association of Insurance Commissioners (NAIC) o c. National Council on Compensation Insurance (NCCI) o d. International Risk Management Institute (IRMI)

o b. National Association of Insurance Commissioners (NAIC)

• 36. Which of the following probably would not be considered "bodily injury" as defined in the personal auto policy? o a. Mark suffers a broken leg in a car accident. o b. Peggy suffers mental anguish after a minor fender bender in which she is not injured. o c. Paula suffers mental anguish after a bad car accident leaves her a paraplegic. o d. Igor is killed in a car accident.

o b. Peggy suffers mental anguish after a minor fender bender in which she is not injured.

• 58. Which of the following accurately describes the coinsurance provision in the business income coverage forms? o a. The business income coverage forms do not include a coinsurance provision. o b. The business income coverage forms include a coinsurance provision, but it applies only to extra expenses and expenses to reduce loss. o c. To avoid a coinsurance penalty, the insured must purchase a limit of insurance for business income that is equal to a specified percentage of the business income that would have been earned during the 12-month policy period. o d. The coinsurance provision in the business income coverage forms requires compliance with the direct damage coinsurance provision.

o b. The business income coverage forms include a coinsurance provision, but it applies only to extra expenses and expenses to reduce loss.

• 47. Samantha, a risk management consultant, likes to use flowcharts when evaluating loss exposures for a manufacturing enterprise. Flowcharts are commonly used to show all of the following, except o a. the flow of finished goods or services to customers. o b. the hierarchy of the organization's management and employees. o c. the processing of raw material within the organization. o d. the routes of raw material into an organization.

o b. the hierarchy of the organization's management and employees.

• 8. An insurance trade association is concerned about the tarnished image of the insurance business and wants to do something about it. Probably the best thing the association can do is o a. to continuously remind the public how ethical the association's members are. o b. to ensure that its members set an ethical example in their actions and their words. o c. nothing; the public is skeptical about any organization that brags about its ethics. o d. to point out how unethical other businesses have been.

o b. to ensure that its members set an ethical example in their actions and their words.

A motorist is driving down a road and sees a pedestrian suddenly stroll out into his vehicle's path. Which, if any, of the following is a correct description of the duties a court might impose on the motorist under those circumstances? a. Since the motorist is traveling at a lawful rate of speed and has the right-of-way, a court would not impose a duty on the motorist to avoid injuring the pedestrian. o b. The motorist arguably is not responsible to take any action to avoid hitting the pedestrian because the pedestrian was contributorily negligent. o c. A court will impose a duty on the motorist to take reasonable steps to avoid causing a foreseeable injury to the pedestrian. o d. The motorist would have an absolute duty to take any and all measures to protect the pedestrian, even at the cost of the motorist's life if necessary.

o c. A court will impose a duty on the motorist to take reasonable steps to avoid causing a foreseeable injury to the pedestrian.

• 55. When Gamma Insurers discovers that a data entry clerical error resulted in 30 percent of its customers being overcharged for their policies, the CEO and CFO must decide how to handle the problem. Rather than announce to the customers that they have made a mistake, the CEO and CFO decide to issue the refunds disguised as a "good customer discount." Why would this decision be deemed unethical? o a. Because Gamma Insurers should have better reviews in place for data entry information o b. Because it does not place the blame where it belongs-on the data entry clerk o c. Because they did not admit to making the mistake, and they are not being honest in rectifying the mistake o d. Because the person who actually made the mistake should rectify the mistake

o c. Because they did not admit to making the mistake, and they are not being honest in rectifying the mistake

• 29. John Doe is a commercial property underwriter for XYZ Insurance Company. He receives an application to write insurance for a large bowling alley. Which of the following is not a logical option for John? o a. He accepts the risk after a review of all the necessary reports shows that this business is well run and has an excellent loss history. o b. He agrees to accept the risk, after reviewing all the necessary reports, if the business installs a state-of-the-art burglar alarm due to a theft loss last year. o c. He automatically accepts the risk because the agent who submits it bowls in a league at this alley and knows the risk well. o d. He rejects the risk since it has experienced three fire losses in the past year.

o c. He automatically accepts the risk because the agent who submits it bowls in a league at this alley and knows the risk well.

• 22. Ira Insured has a business auto policy designated with Symbol 9-nonowned autos only. Under which of the following situations would Symbol 9 give "covered auto" status to the vehicle being used? o a. Ira borrows a trailer to move his household goods and personal belongings to a new home. o b. Ira owns a personal vehicle but does not have insurance for it. o c. Ira rents a car to drive to a business meeting. o d. Ira's employee Ernie uses Ernie's personal auto to make a business delivery to Ira's customer.

o c. Ira rents a car to drive to a business meeting.

• 54. Which one of the following is not an example of an intentional loss that is excluded under the homeowners policy? o a. Jonathan hires a teenager to throw a Molotov cocktail through the window of his insured home in order to burn down the house. o b. Jonathan suggests to his friend Mickey that he wouldn't be upset if his wife's fine jewelry were "stolen" so that he can collect insurance money. Mickey steals the jewelry when he has dinner at Jonathan's house. o c. Jonathan is preparing to mow his yard, and he takes the mower out of the garage and puts it on his front lawn. He goes into the house for 2 minutes, and when he returns to the garage, the mower has been stolen. o d. Jonathan decides he wants a new stereo, so he takes his current stereo outside and leaves it there during a rainstorm. He tells the insurance company that a pipe burst in his house, damaging the stereo.

o c. Jonathan is preparing to mow his yard, and he takes the mower out of the garage and puts it on his front lawn. He goes into the house for 2 minutes, and when he returns to the garage, the mower has been stolen.

• 53. Major Manufacturing has a commercial property policy with the business income and extra expense coverage form. Major wants the insurer to activate the business income agreed value coverage option. What will Major probably have to do before the insurer will agree to this? o a. Major will probably have to agree to have its property inspected. o b. Major will probably have to pay the insurer a business income agreed value premium charge. o c. Major will probably have to provide the insurer with a current, completed business income worksheet. o d. Major will probably have to agree to a 3-year policy term.

o c. Major will probably have to provide the insurer with a current, completed business income worksheet.

• 51. Which of the following is not an objective of state regulators in the rate regulatory process? o a. Rates should be adequate to properly cover the insurer's expected losses and expenses while allowing a fair rate of return. o b. Rates should be reasonable. o c. Rates should be set so that insurers are guaranteed very high profits. o d. Rates should not be unfairly discriminatory.

o c. Rates should be set so that insurers are guaranteed very high profits.

• 39. A piece of property that has been abandoned usually meets all of the following criteria EXCEPT: o a. The property was knowingly and voluntarily surrendered or relinquished. o b. The property's owner does not intend to reclaim it. o c. The abandonment automatically transfers ownership to whoever finds it. o d. The abandonment indicates that the owner is relinquishing all right, title, and interest in the property.

o c. The abandonment automatically transfers ownership to whoever finds it.

• 10. John Agent has received competitive quotes from two insurers on one of his commercial accounts. The coverage and pricing terms are extremely close. He feels that one of the insurers will provide better claims service than the other and wants to recommend that insurer. Coincidentally, his agency also has a contingency commission arrangement with that insurer that is likely to result in more compensation for him. When John presents his recommendation, he also informs the insurance manager for the account of this arrangement. Why does John do this? o a. His contingent commission agreement with the insurer likely requires him to disclose it. o b. John is not a very savvy salesperson and doesn't realize that sharing this information with the account manager will hurt him in the long run. o c. The contingent commission arrangement presents John with a conflict of interest, which he is disclosing to avoid any appearance of unethical behavior. o d. The insurance manager must have asked him a direct question about his agreement with the insurer because John wouldn't normally disclose it.

o c. The contingent commission arrangement presents John with a conflict of interest, which he is disclosing to avoid any appearance of unethical behavior.

• 52. Marshall Thomas, a new college graduate, has an interview next week for an underwriting trainee job with a major insurer. Before the interview, he does some research regarding how underwriting works. Which of the following most comprehensively explains the basics of this process? o a. Underwriting involves accepting a large volume of risks in order to maximize profit. o b. Underwriting involves declining nearly every risk in order to reduce losses. o c. Underwriting is the process of deciding (1) whether to accept a risk, (2) the amount of insurance to write, and (3) the proper rate for the risk. o d. Underwriting is the process of deciding whether to (1) accept a risk or to (2) reject a risk with modifications.

o c. Underwriting is the process of deciding (1) whether to accept a risk, (2) the amount of insurance to write, and (3) the proper rate for the risk.

• 21. Fatco's crime insurance policy term, which includes coverage for employee dishonesty, ran from January 1, 2016, to January 1, 2017. On February 19, 2016, an employee stole $1,000 from the safe in Fatco's office. The theft was discovered on February 28, 2016, but the guilty employee did not confess to the crime until September 5, 2016. Fatco's crime insurance policy o a. covers this loss only if it is written on a discovery form. o b. covers this loss only if it is written on a loss sustained form. o c. covers this loss under either a discovery form or a loss sustained form. o d. does not cover this loss under either a discovery form or a loss sustained form.

o c. covers this loss under either a discovery form or a loss sustained form.

• 64. Billy Broker's client asked him to get a competitive quote from at least one other insurer on its insurance program. Billy feels that this client requests competitive quotes too frequently, and he doesn't want to go to the trouble. Instead, he asks his friend Andy Underwriter at another insurer to just give him a more expensive quote so he can easily present two alternatives and leave the account where it is. Which of the following would be most appropriate as Andy's response? o a. "I'll be happy to do it for this account, but in return I want you to move the Handy Tool and Die account to me on their next renewal." o b. "Okay, but I can only do this because our company doesn't write that class of business." o c. "That account does bid too frequently, and this is a good way to help keep them from getting a reputation as insurance shoppers." o d. "What you are asking is unethical and illegal, and I won't do it."

o d. "What you are asking is unethical and illegal, and I won't do it."

• 66. A tornado damaged the roof on Harry Homeowner's house. The roof was 10 years old and had an original total life expectancy of 20 years. Harry submits a claim under his homeowners policy that provides replacement cost coverage on the dwelling. A contractor submits a quote stating that it will cost $5,000 in materials and $5,000 in labor to repair the roof. Disregarding the deductible and assuming the home is properly insured to value, how much should the insurer pay? o a. $2,500. The adjuster should not consider labor a legitimate replacement cost expense because the insurer does not pay for contractor overhead. The adjuster must take a 50 percent deduction from all legitimate replacement cost expenses the insured is reasonably likely to incur in replacing the roof, here being only the $5,000 replacement cost expense for materials. A 50 percent deduction from $5,000 leaves $2,500. o b. $5,000. The adjuster should consider labor a legitimate replacement cost expense because the insured is reasonably likely to incur it during the course of replacing the roof. The adjuster must take a 50 percent deduction from all legitimate replacement cost expenses the insured is reasonably likely to incur in replacing the roof, including the replacement cost expenses for both materials and labor. A 50 percent deduction from $10,000 leaves $5,000. o c. $5,000. The adjuster should not consider labor a legitimate replacement cost expense because the insurer does not pay for contractor overhead. The adjuster may not take a 50 percent deduction for depreciation against the remaining $5,000 replacement cost expense for materials, which is payable in full. o d. $10,000. The adjuster should consider labor a legitimate replacement cost expense because the insured is reasonably likely to incur it during the course of replacing the roof. The adjuster may not take a 50 percent deduction for depreciation against the replacement cost expenses for either materials or labor. The combined amount for both covered expenses, $5,000 for materials and $5,000 for labor, is payable in full.

o d. $10,000. The adjuster should consider labor a legitimate replacement cost expense because the insured is reasonably likely to incur it during the course of replacing the roof. The adjuster may not take a 50 percent deduction for depreciation against the replacement cost expenses for either materials or labor. The combined amount for both covered expenses, $5,000 for materials and $5,000 for labor, is payable in full.

42. Bernard's Bowling and Billiards has a standard commercial property policy with an 80 percent coinsurance provision. The limit of insurance on the building is the same as its estimated value: $1 million. However, the owner of Bernard's feels that there is no need for a $1 million limit of insurance, since the sprinkler system should put out any fire quickly. To save premium, he wants to drop the limit of insurance on the building from $1 million down to $100,000. As the insurance agent for Bernard's, what would you advise? o a. This would be a good way to reduce premium costs. o b. Bernard's should have the sprinkler system inspected to be sure that it is operating correctly before making a decision to lower the limit of insurance so drastically. o c. Bernard's should hire an insurance actuary to determine the probable yearly loss before making a decision to lower the limit of insurance so drastically. o d. Dropping the building limit to only $100,000 would subject Bernard's to a severe coinsurance penalty in the event of loss.

o d. Dropping the building limit to only $100,000 would subject Bernard's to a severe coinsurance penalty in the event of loss.

• 75. Because she frequently deals with prospects whose insurance is currently handled by other local agents, Ann Agent maintains a "conquest list" of Ann's clients that were formerly handled by each of the other agents, along with a brief statement as to what the other agent supposedly did wrong. When necessary, she uses it to disparage her competition. Ann does not have a similar list of accounts that other agents took from her, but if she did, it would be as long as her "conquest list." Ann is a member of the Independent Insurance Agents and Brokers Association. Which of the following provisions of her association's code of ethics does Ann appear to violate? o a. I will follow insurance laws relative to the conduct of my business. o b. I will respect the authority vested in me by the insurance companies I represent and work to maintain open lines of communication with them. o c. I will strive to further the public's understanding of insurance. o d. I will strive to maintain positive relations with other insurance agencies in my community, competing with them on an honorable and fair basis.

o d. I will strive to maintain positive relations with other insurance agencies in my community, competing with them on an honorable and fair basis.

• 65. Jethro and Betsy have a homeowners policy for their $200,000 home. Due to some unfortunate circumstances, they must declare bankruptcy. What is the insurer's obligation regarding their homeowners policy? o a. The insurer is released from all obligations pertaining to Jethro and Betsy's policy. o b. The insurer is required to cancel the policy and give Jethro and Betsy the cash value of the policy toward their debts. o c. The insurer is only required to fulfill obligations relating to liability claims under the policy. o d. The insurer must continue to fulfill all its contractual obligations under the homeowners policy.

o d. The insurer must continue to fulfill all its contractual obligations under the homeowners policy.

• 73. Nearly all state workers compensation laws designate a few types of injuries that are not compensable. Which of the following employee's injuries would most likely be a compensable injury that is covered by a workers compensation policy? o a. Bubba is trying to deliberately run over Jonathan with a backhoe when he crashes the backhoe into a wall, injuring himself. o b. During an employee softball game, Butch hits the umpire with a bat because he doesn't like the call he made. o c. Frank is installing steel beams in the 5th floor of a skyscraper when he slips and falls to the floor below because he decided not to wear a safety harness. o d. Vinnie is walking across a newly shingled roof when a loose shingle gives way, and he slides down the roof, breaking his ankle.

o d. Vinnie is walking across a newly shingled roof when a loose shingle gives way, and he slides down the roof, breaking his ankle.

• 15. The nonprofit Pink Elephant Corporation, based in Tuscaloosa, Alabama, operates a website that deals with political commentary disparaging conservative U.S. political candidates. To avoid oversight by U.S. regulatory officials, the site is maintained on a server located in Finland. Nevertheless, the commentary on Pink Elephant's website leads to a lawsuit alleging libel in an Alabama court against the Alabama-based officers of Pink Elephant. The coverage territory of Pink Elephant's commercial general liability policy o a. does not include offenses taking place on an Internet site based in Finland. o b. does not include offenses taking place on the Internet or elsewhere in cyberspace. o c. does not include the offenses alleged in this incident because nonprofit political organizations have unlimited freedom of speech. o d. includes the offenses alleged in this incident.

o d. includes the offenses alleged in this incident.

• 12. Attorney Sue O'Malley has lawyers professional liability insurance, which provides her with liability coverage for clients' claims arising out of all the following, except o a. administrative omissions. o b. client relations errors. o c. personal injury perils. o d. property damage liability.

o d. property damage liability.

• 68. Omar calls his independent insurance agent to report a claim. Omar's neighbor borrowed Omar's lawn mower and did not return it. Omar has not yet asked for his lawn mower back. However, Omar read in his homeowners policy that there is $2,500 in coverage for "theft." Omar thinks the word "theft" could be interpreted as meaning a situation where another party borrowed the insured's property with the insured's permission but the insured has not yet asked for it back. Omar wants to see if the insurer will pay him to buy himself a new lawn mower so that he will not have to confront his neighbor. What should the agent tell Omar? o a. Omar's argument sounds promising. Omar should immediately make the "theft" claim and find a lawyer who will help him sue the insurer if the insurer denies it. o b. Omar's argument sounds promising. The word "theft" is so incoherent that it is impossible to determine what is meant by it. Therefore, it seems ambiguous and coverage should be construed in the insured's favor. o c. Omar's coverage argument probably will not work. The word "theft" is ambiguous because it is susceptible to more than one reasonable interpretation. On the one hand, it could mean the taking of property without the insured's permission. On the other hand, it could mean the taking of property with the insured's permission where the insured has not yet asked for the property back. Since it is ambiguous, a court should construe it narrowly only to mean the taking of property without the insured's permission. o d. Omar's coverage argument probably will not work. The word "theft" is unambiguous because it is only capable of one reasonable construction. It means the taking of property without the insured's permission.

o d. Omar's coverage argument probably will not work. The word "theft" is unambiguous because it is only capable of one reasonable construction. It means the taking of property without the insured's permission.