P&C Insurance Review Test Chapters 1-19

The insured has a $1 million personal umbrella policy with a retention limit of $1,000. The insured suffers a $15,000 loss that is excluded by the underlying policy, but not the umbrella. How much of this loss would be paid under the umbrella?

$14,000

Nicole has a personal auto policy with limits of 10/20/10 for liability coverage. She causes an accident that results in $12,000 bodily injury damages to the other driver and $5,000 in property damage to the other driver's car. How much would Nicole's policy pay for both the BI and PD losses?

$15,000 *This policy limits coverage to $10,000 per person for bodily injury and $10,000 per accident for property damage. The policy will pay $10,000 of the bodily injury loss and the full amount ($5,000) of the property damage loss because it is within the policy limit.*

It will cost Gary $5,000 to put a new roof on his home to replace a roof destroyed in a windstorm. Assume that the original roof, which Gary paid $3,500 for 10 years ago, depreciated $300 per year. What was the actual cash value of the roof that was destroyed?

$2,000

An insurance policy has a $25,000 per occurrence limit. If the insured has a $5,000 covered loss during the policy period, how much coverage is available for other covered losses that occur during the remainder of the policy period?

$25,000

The insured's home is covered by a DP-3. Two years ago, the insured bought the home for $58,000. Today, its replacement value is $60,000. How much Coverage A does the insured need to qualify for replacement cost coverage?

$48,000 *To be eligible for replacement cost coverage, Coverage A must equal at least 80% of the home's replacement cost. Since this home's replacement cost is $60,000, the insured needs at least $48,000 of Coverage A (60,000 × 80%).*

The insured has $20,000 insurance with Company A and $40,000 with Company B. Assume both policies contain another insurance clause specifying pro rata. What would Company A pay if there was a $24,000 loss?

$8,000

Each of the following business occupancies would be permitted in a dwelling insured under a dwelling form EXCEPT

- a beauty shop run by the insured and her daughter - *a small shop carrying merchandise for sale* - a professional office providing services to clients - a photographic studio *To be elgible for coverage under a dwelling policy, an incidental business must be conducted by the insured, must provide service rather than sales, and must involve no more than two people working on the premises at any one time.*

Each of the following kinds of property may be covered under a building and personal property coverage form EXCEPT

- an insured tenant's use interest in improvements and betterments - permanently installed fixtures and machinery - *account records and evidences of debt* - the insured's stock held for sale

Each of the following is a primary coverage provided under the commercial general liability policy EXCEPT

- bodily injury and property damage liability - medical payments - personal and advertising injury - *pollution liability*

All of the following must be included in a commercial property policy written under the commercial package policy program EXCEPT

- causes of loss form - one or more commercial property coverage forms - *value reporting form* - commercial property conditions for

According to the cancellation condition in the common policy conditions form, if the insurance company is cancelling a commercial package policy for any permitted reason other than nonpayment of premium, the insured must be given at least how many days notice of cancellation.

30

A company that frequently rents autos and trucks for use in the business should include which symbol in the business auto policy declarations?

8

Assume the following items were stolen from the insured's home. Which one of these losses would be fully covered under Coverage C of the homeowners policy, assuming the loss was for the full value of the property described?

A $2,000 laptop computer the insured uses for her in-home accounting business

Who of the following would have a need for the personal inland marine personal property form?

A condominium or apartment dweller who cannot obtain open peril coverage for personal property under the HO-4 or HO-6

Which of the following is a liability loss?

A fire that was caused by the insured's negligence burns a neighboring building.The owner of the building sues the insured.

The named insured on a commercial general liability policy is Sassy Department Store. Which of the following losses would be paid under the policy's medical payments coverage?

A mannequin tips over and injures a customer.

Which one of the following losses would be paid under Part D of the personal auto policy?

A permanently installed tape player was damaged when thieves attempted to remove it from the car.

Which one of the following accidents would NOT be covered under the uninsured motorists coverage of the personal auto policy?

An accident with a driver who carries the minimum liability limits required by law but whose insurance is not adequate to cover the damages

What is a hazard?

An increase in the possibility that a loss might occu

Under the business auto coverage form, the insured's liability arising from which of the following situations would be covered?

Bodily injury resulting from loading or unloading a covered auto

Widget Enterprises wants property insurance for a new warehouse it is building. Widget also wants the policy's limit of insurance to gradually increase as the value of the building under construction increases. Which commercial property coverage form would best fit Widget's needs?

Builders risk reporting form

Which one of the following is NOT one of the components of a commercial package policy?

Causes of loss form

Coverage for which of the following is excluded by a dwelling policy?

Coin collection

Which of the elements of a legal contract does an insurance premium payment represent?

Consideration *Consideration is a thing of value exchanged for the performance promised in the contract. The consideration that the insured gives is the premium payment. The consideration that the insurer gives is the promise to pay covered losses.*

Of the 4 coverages provided under Section I of the homeowners policy, which one provides coverage against an indirect loss?

Coverage D—loss of use

What is the difference between the loss sustained and discovery versions of the commercial crime coverage forms?

Coverage trigger

Which of the following losses to covered equipment would be covered under the equipment breakdown protection coverage form?

Damage from an explosion caused by the centrifugal force of moving parts

Which of the following would NOT generally be included in the supplementary payments portion of a liability policy?

Damage to property owned by the insured

Furniture that is destroyed when a building burns down is an example of what kind of loss?

Direct

Agent Ma'Chelle is under contract with the XYZ Insurance Company to represent and sell insurance only for XYZ. This is an example of what type of agency system?

Exclusive/captive

Which of the following can be covered as business personal property under the businessowners policy?

Exterior building glass

Under the commercial package policy, who may cancel the policy in writing and make changes to the policy with the consent of the insurer?

First-named insured

Which of the following describes an insurance company doing business in a state other than the one where it is incorporated

Foreign

An individual who owns and lives in a condominium can obtain broad coverage for personal property in the condo under which Homeowners form?

HO-6

Which of the following losses would be covered by a flood policy?

Heavy rains cause a lake to overflow and flood the basement and first floor of a house.

What type of ocean marine insurance provides physical damage coverage for the ship while it is in transit?

Hull *Cargo insurance covers goods while they are in transit over water. Freight insurance protects the insured against the loss of shipping costs. Protection and indemnity insurance provides marine liability insurance.*

A hardware store is insured under a business income coverage form with the special causes of loss form. Which of the following losses would be covered?

Income lost when the store closes for a week while damage from a burst water pipe is repaired

Which one of the following statements concerning the farm coverage part is NOT correct?

It covers the farmer's growing crops.

Which one of the following lists all the required elements for establishing a charge of negligence?

Legal duty owed, breach of legal duty owed, proximate cause, damages

Which commercial property coverage form covers damage to the property of others in the insured's care, custody, or control for which the insured is legally liable?

Legal liability coverage form

Which personal auto coverage reimburses the insured without regard to fault, regardless of whether or not the state is subject to no-fault laws?

Medical payments coverage

Which one of the following covers a carrier for liability for loss to cargo while it is being transported in a truck?

Motor truck cargo policy

The insured has a personal auto policy with all cars insured by one company. He sells one of the cars and buys a new one to replace it. Must the insured take any action for the liability portion of his current policy to apply to the replacement vehicle?

No, the insured does not have to do anything; liability coverage for a replacement vehicle is automatic.

In the business auto coverage form, employers that want to cover employees' use of their own cars in the employer's business should opt to have liability coverage apply to which of the following groups of autos?

Nonowned

The personal auto policy's medical payments coverage would NOT provide protection for which one of the following?

Occupants of a car that was struck by the insured

Which one of the following types of benefits is generally not provided by a state's workers' compensation law?

Pain and suffering

Which one of these commercial inland marine forms CANNOT be included in the commercial inland marine coverage part of the commercial package policy?

Parcel post policy

Which of the following can be insured under an unendorsed homeowners policy?

Private residence in which the owner-occupant also maintains an office for her accounting business

Which of the following businesses could be eligible for a businessowners policy?

Rest Easy Motel

Which one of the following is NOT an element of insurability?

Risk of loss is a speculative risk

Under the business auto coverage form, which of the following is NOT considered to be mobile equipment?

Self-propelled snow plow

Which of the following perils is covered by the HO-2 and HO-3?

Sudden and accidental rupture of a heating system

Who of the following would be considered an insured for liability coverage under the personal auto policy?

The named insured's son, who lives with the insured, while driving a neighbor's car

Which of these losses would be covered under the personal auto policy's liability coverage?

Will falls asleep at the wheel of his car and strikes and injures a pedestrian.

Which one of the following is NOT one of the required elements of a legal contract?

Written instrument

An insured needs liability, property, and medical payments coverage for a 30-foot speedboat with a 75 hp engine. This boat could be covered under

a boatowners or watercraft package policy

Most Flood insurance coverage is provided by

a federal government program

The type of insurance company in which the policyholder is considered an owner, with the right to vote and share in the profits, is

a mutual company

In ocean marine insurance, a general average loss is

a partial loss arising from a sacrifice of cargo to save remaining property

In a monopolistic state, an employer purchases workers' compensation insurance from

a state fund

If a building insured under the building and personal property coverage form was vacant for 3 months

a vandalism loss would not be covered; a fire loss would be covered, subject to a 15% penalty

The tendency for people with a greater-than-average exposure to loss to purchase insurance is called

adverse selection

The builders risk reporting form insures a building under construction for

an amount that increases at intervals to correspond with the increasing value of the building

An additional loss that results from a direct loss to property is called

an indirect/consequential loss

In the commercial crime forms, new employees and additional premises obtained through a consolidation or merger

are automatically covered for 90 days

A morale hazard

arises through an individual's carelessness or irresponsible actions

The commercial general liability claims-made coverage form may contain a retroactive date. This date is the date

before which the claims-made form will not cover a claim

In most states, workers' compensation laws are

compulsory

The extra expense coverage form provides

coverage that will permit the insured to continue in business without interruption following a property damage loss

According to the nationwide definition, imports and exports are

eligible for ocean marine insurance

A business can obtain coverage for liability arising out of discrimination and sexual harassment by purchasing

employment practices liability insurance *Both the CGL and workers' compensation and employers liability policies exclude losses arising out of wrongful termination, discrimination, sexual harassment, and other employment-related practices. Difference in conditions insurance provides property insurance, not liability insurance.*

An agent who needs liability coverage for her professional liability exposure can obtain it by purchasing

errors and omissions insurance

Under the commercial general liability coverage form, liability assumed under contract is

excluded except for contracts specifically defined as insured

The authority specifically given to an agent, either orally or in writing, by the principal is called

express authority

Additional living expense coverage that is included under the broad and special dwelling forms protects the insured against

extra living costs incurred when the home becomes uninhabitable due to damage by a peril insured against

The principle that states that an insured should be restored to approximately the same financial position after a loss as before is known as

indemnity

A basic dwelling policy automatically provides coverage against fire, lightning, and

internal explosion

Under a pure no-fault plan, each party to an auto accident

is reimbursed by his own insurance company

Garagekeepers coverage insures against

liability for damage to autos of others that are in the care, custody or control of the insured

The primary purpose of the business income coverage forms is to reimburse the insured for

loss of income resulting from property damage at the insured's property

Ocean marine protection and indemnity insurance provides

marine liability coverage

The physical damage section of the personal auto policy excludes

mechanical breakdown

Medical benefits under the workers' compensation policy are

not subject to time or dollar limits unless they are specified in the state law

Which of the following would be NOT be covered under the building and personal property coverage for

outdoor plants

Coverage for sums an employer becomes legally obligated to pay under common law as a result of a work-related injury to an employee is provided by

part two—employers liability section of the workers' compensation policy *Part Two—Employers Liability provides coverage to the insured for sums the insured becomes legally obligated to pay under common law because of a work-related injury or occupational disease.*

The purpose of a binder is to

provide temporary protection for the insured between the time the application is made and the policy is issued or the binder expires

The businessowners policy

provides a prepackaged policy of property and liability coverages for certain types of small businesses

In a liability loss, the person to whom the insured caused damage is referred to as

the 3rd party

The homeowners form that provides open peril coverage on the dwelling and broad coverage on personal property is

the HO-3

Open peril coverage for both the dwelling and personal property is provided by

the HO-5

The condition that provides a means to settle the amount of a loss when the insured and the insurance company cannot agree is

the appraisal condition

In prior approval states, the rates and policy forms insurance companies use must be approved by

the insurance department of the state where they will be used

In fidelity bonds, the party to whom the promise is made and for whose protection the bond is written is

the obligee

An insured who needs coverage for medical instruments while they are on and off the premises could obtain it by purchasing

the physicians and surgeons equipment coverage form

The party to a surety bond who promises to do or not do a specific thing i

the principal

Under the Commercial General Liability policy, a separate Aggregate Limit applies to

the products-completed operations hazard

The action that, in a natural and continuous sequence, produces a loss is known as

the proximate cause

Under the claims-made commercial general liability coverage form, the first date that a loss may occur and still be covered under the policy is

the retroactive date *The retroactive date is a date in the past; anything that occurred before that date will not be covered by the policy that contains that retroactive date.*

Trailer interchange coverage is a part of

the truckers coverage form and motor carrier coverage form

The purpose of insurance is to

transfer risk from a person, business, or organization to an insurance company that agrees to pay for losses in exchange for a premium *A formal definition of insurance is a contract or device for transferring risk from a person, business, or organization to an insurance company that agrees, in exchange for a premium, to pay for losses through an accumulation of premiums.*