Property & Casualty Exam Prep

Jane is going to rent a room in her home to a local college student. Would the student's personal belongings be covered under Jane's homeowners policy? A. Yes, all personal property in the insured residence is covered by the policy B. Yes, all personal property in the insured residence, or on the residence premises, is covered. C. Yes, but only up to $1,500. D. No, personal property of roomers or boarders is excluded under the homeowners policy.

No, personal property of roomers or boarders is excluded under the homeowners policy. Property of roomers, boarders, and other tenants is excluded under Coverage C of the homeowners policy unless there the roomer or boarder is related to an insured.

All the following statements regarding the commercial inland marine policy commercial articles floater are correct, EXCEPT: A. Theft is covered under a commercial articles floater. B. The commercial articles floater is designed specifically to insure camera equipment and musical instruments. C. The commercial articles floater insures equipment used commercially or by nonprofit organizations. D. Open perils coverage applies only if the insured property is stored at the insured's premises.

Open perils coverage applies only if the insured property is stored at the insured's premises. A commercial articles floater is designed to insure either camera equipment or musical instruments used commercially or by nonprofit organizations. Open perils coverage, which includes theft, applies wherever the property is located; there are no limitations on the coverage territory.

All of the following are components of an insurance rate EXCEPT: A. loss costs B. expenses C. premium D. profit allowance

Premium The three components of an insurance rate are loss costs, expenses, and an allowance for profits and contingencies.

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? A. The cargo owner (Isla) bears the entire loss. B. All cargo owners on that voyage share equally in the loss. C. All cargo owners on that voyage share proportionately in the loss. D. Any individual who contributed to the loss by accident or through negligence is liable for the loss.

The cargo owner (Isla) bears the entire loss. A particular average is one that does not involve the whole venture; it might involve one party's entire cargo. With a particular average, the cargo owner bears its own loss.

With a valued property insurance policy, the insurer and the insured agree that: A. The policy itself is a valuable document. B. The insurer will pay a stated amount in the event of a total loss. C. The policy will accumulate a cash value. D. The amount payable for a loss will be based on the amount spent to repair or replace the property

The insurer will pay a stated amount in the event of a total loss. With a valued policy, subject to other policy provisions, the insurer agrees to pay a specified dollar amount in the event of a total loss to the covered property.

What coverage if any is provided through a commercial property policy for an employee's personal computer that is brought to the office for business-related work?

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

Vinson Used Autos has an inventory valued at $500,000 at two locations. However, its garage policy has a physical damage coverage limit of $350,000. Why should Vinson increase this coverage limit to match the value of its inventory? A. Vinson may avoid paying a substantial deductible. B. The coverage limit applies to all of Vinson's locations. C. The coverage is subject to a limit for each covered auto. D. The policy requires Vinson to have full insurance to value on all covered autos.

The policy requires Vinson to have full insurance to value on all covered autos. The policy requires the insured to carry full insurance to value on all covered autos at any of its locations or in transit. Coverage is limited to the lesser of actual cash value at the time of loss or the cost to repair or replace the property with like kind and quality, and this coverage is subject to a limit for each covered location. Even if a loss is below the maximum amount shown on the schedule, the insured may recover only a portion of the loss if actual values exceed the limit of insurance.

While driving, Tyler is distracted by a phone call and collides into the rear of Bennett's car while it was stopped for a red light. Bennett's passenger was injured. The passenger's liability claim against Tyler is referred to as a(n) A. First Party Claim B. Second Party Claim C. Third Party Claim D. Fourth Party Claim

Third Party Claim A claim by someone who is not a party to the insurance contract is a third-party claim.

How many sections does the ISO businessowners policy (BOP) contain? A. Two B. Three C. Four D. Five

Three The ISO businessowners policy contains three sections: Section I - Property, Section II - Liability, and Section III - Common Policy Conditions (which apply to both property and liability coverage sections).

The general aggregate limit of coverage under the businessowners policy (BOP) liability coverage form is equal to: A. two times the liability and medical expenses limit B. the greater of the liability or medical expenses limit C. three times the liability limit D. the sum of the liability, medical expenses, and fire legal liability limits

Two times the liability and medical expenses limit The general aggregate limit is two times the liability and medical expenses limit. It applies per policy period to all other injury, damage, or medical expenses.

The products-completed operations aggregate limit of coverage under the businessowners policy (BOP) liability coverage form is equal to: A. the general aggregate limit and the medical expenses limit B. the lesser of the liability or medical expenses limit C. two times the liability and medical expenses limits D. three times the liability limit

Two times the liability and medical expenses limit The products-completed operations aggregate limit is two times the liability and medical expenses limit. It applies per policy period to all injury or damage from the products-completed operations hazard.

When Minerva received her first California homeowners policy, she was surprised to see that the policy was accompanied by a "residential property disclosure statement." What information will she not find in the disclosure statement? A. What valuation approach her policy uses. B. Whether the policy provides replacement cost coverage, extended replacement cost coverage, or guaranteed replacement cost coverage. C. Whether and to what extent building code upgrade costs are covered. D. Whether earthquake coverage is included.

Whether earthquake coverage is included The mandatory disclosure statement describes the policy's valuation approach, the type of replacement cost coverage, and the extent to which ordinance or law coverage applies.

Custom Farming

"Custom farming" is the performance of specific planting, cultivating, harvesting, or related farming operations by an insured at a farm that is not an "insured location," when the performance is under the direction of the owner or operator of the outside farm. Custom farming is excluded from coverage, though coverage can be added by endorsement.

Ada borrows a friend's camping trailer. She tows it behind her car during a road trip until the trailer is damaged in a crash on the highway. Ada's personal auto policy (PAP) includes collision coverage on the trailer as a nonowned auto, subject to what limit? A. $2,500 B. $1,000 C. $1,500 D. the fair market value of Ada's car

$1,500 The most the insurer will pay for loss to a nonowned trailer is $1,500.

Because the value of her inventory varies from month to month, Samantha had a value reporting endorsement attached to her policy, which covers her personal property with a $100,000 limit. The endorsement requires Samantha to submit monthly reports of her values, but she had not yet submitted the first report when a small fire, three months after the policy went into effect, destroyed $10,000 of her covered property. According to the terms of her policy, and ignoring any deductible that might apply, Samantha's insurer is obligated to pay A. $10,000 B. Nothing C. $100,000 D. $7,500

$7,500 Since the first report was overdue at the time of the loss, Samantha's loss recovery is limited to 75 percent of the reported loss, or $7,500.

Dina's unmodified homeowners policy will provide no liability coverage for her outboard boat if its engine has more than: A. 25 Horsepower B. 20 Horsepower C. 15 Horsepower D. 10 Horsepower

25 Horsepower The unmodified homeowners policy excludes liability coverage for boats with outboard engines with more than 25 total horsepower.

Coverage F - Unscheduled Farm Personal Property has a coinsurance provision that requires the insured maintain coverage equal to what percent of the unscheduled property's actual cash value? A. 50 percent B. 65 percent C. 80 percent D. 100 percent

80% The unscheduled farm property form's coinsurance provision stipulates that the insured must maintain coverage on unscheduled farm personal property of at least 80 percent of its actual cash value. Allowances are made for newly acquired equipment.

Because Leonard's business is insured under an ISO businessowners policy (BOP), he has business income coverage that limits his lost-income recovery to A. The same dollar limit as his building coverage B. A coinsurance clause C. A time period D. A specified dollar limit

A time period The business income and extra expense coverage in ISO's BOP has no dollar limit and no coinsurance provision, but there is a 12-month maximum on the insured's loss recovery, and ordinary payroll coverage is limited to 60 days.

After considering whether to add an earthquake endorsement to his homeowners policy or to buy a separate California Earthquake Association (CEA) policy, Rick chose the CEA policy because it includes limited coverage for all the following additional coverages, EXCEPT: A. Costs of removing property for safekeeping when an earthquake is expected. B. Costs to replace, stabilize, or restore the land supporting the home. C. Emergency repair costs D. Required building code upgrades.

A. Costs of removing property for safekeeping when an earthquake is expected. The CEA policy provides up to $1,500 for emergency repair costs; $10,000 to replace, stabilize, or restore land, and $10,000 for building code upgrades. Removal coverage would be impractical, because earthquakes normally occur without advance warning.

All of the following are commercial property conditions in a commercial property insurance policy EXCEPT: A. Arbitration B. Concealment, misrepresentation, and fraud C. No benefit to bailee D. Other insurance

An arbitration provision is not one of the commercial property conditions.

Bonnie is concerned that during the course of the policy year, her dwelling policy's Coverage A limit of liability might not keep pace with inflation. What endorsement do you recommend to address her concerns? A. Broad Theft endorsement B. Dwelling under Construction C. Personal Liability Supplement D. Automatic Increase in Insurance

Automatic Increase in Insurance The Automatic Increase in Insurance endorsement automatically increases the limit of coverage on the dwelling by a stated annual percentage, such as 4 percent.

Mrs. Goldman's car was parked in her driveway when another vehicle crashed into it. The adjuster claims the cost to repair Mrs. Goldman's vehicle is 90 percent of the vehicle's actual cash value. What term is used to apply to the loss? A. Comprehensive B. Constructive Total Loss C. Total Loss D. Passive Total Loss

B. Constructive Total Loss Property damage is considered a constructive total loss when the cost of repairing the damaged property exceeds a certain percentage of the property's pre-loss value, such as 75 or 80 percent.

Charmaine has other-than-collision coverage but no collision coverage on her auto. She has made four claims for physical damage to her auto within the last three years. Which claim did her policy NOT cover? A. damage to the car when it struck a stray dog running in the street B. damage to the car when it skidded into a snowbank and rolled over C. damage to the car when a baseball cracked the windshield D. damage to the car from a hailstorm

B. Damage to the car when it skidded into a snowbank and rolled over. Running into a snowbank and rolling over are considered collision and upset, which do not qualify as an other-than-collision loss.

A combination of toxic fumes and debris from an explosion at a paint supply store forces the evacuation of nearby homes and damages several automobiles. It also damages a neighboring computer repair shop where Quincy delivered his personal computer for repairs. Smoke and water destroy the hard drive containing files in which Quincy stored manuscripts for his doctoral thesis. Under the store's CGL policy, which does NOT qualify as property damage? A. damage to the automobiles B. destruction of the manuscripts C. destruction of the computer's hard drive D. damage to the computer repair shop

B. Destruction of the manuscripts The CGL policy does not include electronic data in its definition of tangible property for which it may provide coverage.

In ocean marine insurance, the term "freight" refers to which of the following? A. the vessel B. charges assessed for carrying cargo C. the hull D. the cargo

Charges assessed for carrying cargo In the context of ocean marine insurance, freight is the charge for carrying goods.

While on a construction site, Dustin's dump truck strikes a rock that makes a hole in the engine's oil pan, releasing motor oil into the soil. The owner of the site wants Dustin to pay for removal of the oil. Dustin's business auto policy (BAP) will: A. not cover this discharge of a pollutant B. not cover this release of a lubricant C. cover only the repair to the oil pan D. cover the cost of the removal

Cover the cost of the removal The pollution exclusion does not apply to liability from the discharge or escape of fluids necessary for the operation of the covered auto.

Mrs. Delaney hired a contractor to build a deck on the back of her house. Under what coverage part of her homeowners policy is the lumber insured?

Coverage A - Dwelling Materials and supplies located on the residence premises that are to be used in the construction, alteration, or repair of the insured dwelling are insured under Coverage A - Dwelling.

Jane has an older car that is insured, although the policy does not cover physical damage. She buys a new car and wants to include collision and other than collision coverages on the new car. To have her insurer add these coverages, she must ask the insurer to provide this coverage within: A. Any time during the policy period B. 15 Days C. 10 Days D. 4 Days

D. 4 Days If the insured does not have collision coverage on at least one auto listed in the declarations, collision coverage on a newly acquired auto begins on the date the insured takes ownership of the auto. However, the insured must ask the insurer to provide this coverage within four days of becoming the owner and a $500 deductible applies

How does the business auto policy (BAP) respond when an employee is driving the employer's delivery truck and is involved in an accident that doesn't hurt the driver but does injure a co-worker who is a passenger in the vehicle? A. It pays promptly. B. It pays subject to the deductible. C. It denies coverage under the contractual liability exclusion. D. It denies coverage under the fellow employee exclusion.

D. It denies coverage under the fellow employee exclusion. The business auto policy does not cover an employee for bodily injury to a fellow employee that arises from the fellow employee's employment. Claims by an injured fellow employee's family member are also subject to this fellow employee exclusion.

While the liability section of a businessowners policy (BOP) generally does not cover liability that the insured assumes through a contract, coverage is provided for insured contracts, which include al the following EXCEPT: A. elevator maintenance agreement B. equipment rental agreement C. premises lease with the insured business's landlord D. an easement

Equipment rental agreement The contractual liability exclusion doesn't apply to an "insured contract," which is defined to include, among other things, a lease of premises, an elevator maintenance agreement, and an easement.

Melinda buys specified causes of loss coverage with the business auto policy (BAP) insuring the trucks in her fleet. She will NOT be covered for losses to the trucks caused by: A. flood B. theft C. glass breakage D. earthquake

Glass Breakage Glass breakage is not among the list of perils covered by specified causes of loss coverage under the BAP.

Which legislation prevents a financial institution from disclosing a consumer's nonpublic personal information to an unaffiliated third party unless it provides notice to the consumer and allows the consumer an opportunity to opt out? A. McCarran-Ferguson Act B. Federal Trade Commission Act C. Health Insurance Portability and Accountability Act D. Gramm-Leach-Bliley Act (GBLA)

Gramm-Leach-Bliley Act (GBLA) The Gramm-Leach-Bliley Act (GLBA) bars a financial institution from disclosing a consumer's nonpublic personal information to an unaffiliated third party unless it provides notice to the consumer and allows the consumer an opportunity to prevent (or "opt out" of) this disclosure.

What is the major cause of loss, or peril, on a crop insurance policy? A. Fire B. Wind C. Hail D. Lightning

Hail Crop insurance typically covers losses that occur from the single peril of hail.

Christie owns the following items that she would like to schedule under a scheduled personal property endorsement to her homeowners policy. Which one of these items cannot be scheduled under this endorsement? A. Hunting Rifle B. Diamond Ring C. Mink Stole D. Violin

Hunting Rifle A scheduled personal property endorsement can cover jewelry, furs, and musical instruments. Although the homeowners policy provides only limited coverage on firearms, the scheduled personal property endorsement is not designed to provide scheduled coverage on firearms.

Improvements and Betterments

Improvements and betterments are made a part of a building that the insured occupies but does not own, and are built at the insured's expense but cannot legally be removed. They are insurable as business personal property under the commercial property policy. There is no need to buy a special endorsement to cover such property.

Hart Food Supply was forced to shut down when the electrical service to its building was disrupted due to a motor vehicle accident that took place on the other side of town. How will the Special Causes of Loss Form on Hart's commercial property policy respond to its claim for spoiled inventory? A. It will pay the claim after applying the deductible. B. It will pay the claim; no deductible applies to coverage for power failure. C. It will deny the claim under the Loss of Market exclusion. D. It will deny the claim under the Off-Premises Utility Service Interruption exclusion.

It will deny the claim under the Off-Premises Utility Service Interruption exclusion.

An unendorsed dwelling policy generally covers all the following risks EXCEPT: A. internal explosion B. windstorm C. liability D. vandalism

Liability The personal liability supplement, which includes medical payments coverage, may be added to the dwelling property policy through an endorsement or written as a separate policy.

Colossal Casualty has introduced a new property insurance policy form that provides broader coverage with no increase in premium. Its current policyholders will also benefit from these coverage enhancements if their policies include what provision? A. Removal B. Supplemental Payments C. Liberalization D. Severability

Liberalization A liberalization provision extends to persons already insured under a particular policy any broadened coverage features that have been introduced in a subsequent edition of that policy form.

The additional BOP coverage for loss from fungi, wet or dry rot, or bacteria that results from one of the specified causes of loss, applies to all of the following EXCEPT: A. direct physical loss B. loss from fungi resulting from fire and lightning C. cost of tearing out and replacing property to gain access to the fungi, wet or dry rot, or bacteria D. cost of testing performed after restoration of the damaged property, if there is a reason to believe that fungi, wet or dry rot, or bacteria are present

Loss from fungi resulting from fire and lightning This additional coverage applies to loss from fungi, wet or dry rot, or bacteria that results from one of the specified causes of loss (other than fire and lightning).

As an additional coverage under a businessowners policy (BOP), the loss of valuable papers and records at the insured premises is subject to a coverage limit of: A. $500 B. $1,000 C. $5,000 D. $10,000

$10,000 The coverage limit on valuable papers and records at the insured premises is $10,000, unless the declarations show a higher limit. The limit at other locations is $5,000.

Cameron was a part-time employee at Simon's fast food store. Simon discovers Cameron stealing money from the cash register and fires him. Simon wrote Cameron a final paycheck for $500. Before cashing the check, Cameron altered the amount of the check so it read $2,500. How much of the $2,500 will be covered under Simon's businessowners policy? A. $0 B. $500 C. $2,000 D. $2,500

$2,000 While the check was altered to read $2,500, the actual loss is $2,000 (i.e., the business owner intended to pay the employee $500). Under the BOP, the applicable limit of coverage for loss due to alteration of a check is $2,500, unless a higher limit is shown in the declarations.

Agustin's building has an insurable value of $100,000, but he has insured it for only $80,000 in a property policy with a 90 percent coinsurance clause. If Agustin's building has a $10,000 loss caused by a covered peril, the insurer will pay him (ignore any deductible that might apply) A. $10,000 B. $8,889 C. $8,000 D. $9,000

$8,889 To avoid a coinsurance penalty, Agustin should have carried at least $90,000 insurance. He will recover $80,000/$90,000, or 8/9 of his $10,000 loss, which comes to $8,889.

Rick and Roseanne's home has a current replacement cost value of $800,000 but, to save on their homeowners insurance, they purchased only $600,000 of coverage on the dwelling. A windstorm causes damage to their home. The damaged property has a replacement cost value of $10,000 and an actual cash value of $8,000. How much will their insurer pay? A. Nothing B. $8,000 C. $9,375 D. $10,000

$9,375 The policy has an applicable limit of $600,000, and 80 percent of its $800,000 value is $640,000, so they will recover $9,375 because $600,000/$640,000 X $10,000 = $9,375.

Robert is having a home built, which is 50 percent completed. He protects it with a dwelling policy that includes the Dwelling Under Construction endorsement. If lightning were to strike and destroy it, what (if anything) would the policy pay? A. The projected completed value of the property B. Nothing, as the home had no insurable value until is was completed C. 50% of the coverage A limit D. The value of materials used in building the house at the point it was destroyed

50% of the coverage A limit. The Dwelling Under Construction endorsement adjusts the dwelling policy to accommodate the increasing value of a home under construction. If a house is destroyed when it is half completed, half the Coverage A limit covers the loss.

The Reynolds family insures its farm with your agency. Livestock coverage is included and you inform Mr. Reynolds that the animal he just purchased isn't covered by the policy because it doesn't meet the definition of "livestock" contained in the policy. What animal did Mr. Reynolds buy? A. a cow B. a horse C. a goat D. a sheep dog

A Sheep Dog A farm policy defines livestock as cattle, sheep, swine, goats, horses, mules, and donkeys.

In which case is the driver of the vehicle not an insured person under a company's business auto policy? A. An employee uses a company van for a personal errand. B. An employee's spouse borrows a company car for recreation. C. A former employee steals a company truck to transport goods. D. An executive uses a company car for a business trip.

A former employee steals a company truck to transport goods. The BAP insures the named insured, a permissive user, and anyone who is responsible for the conduct of the named insured or the permissive user. A thief, not being an employee, is neither a named insured nor a permissive user for whom the named insured is responsible.

Knowing that their current policy from Insurer A will expire next month, Penny bought a dwelling policy from insurer B on the rental home she and her husband own. Insurer B's policy goes into effect next month. After learning that her husband has already arranged to renew the current policy with Insurer A, Penny asked Insurer B to cancel its policy. Because the cancelation took place before the policy's effective date, Penny is entitled to A. A full refund of the earned premium. B. A full refund of the premium she paid. C. A pro-rata refund of the unearned premium. D. A short-rate premium refund because this cancellation was at the insured's request.

A full refund of the premium she paid When a California insurance policy is terminated and the insurer has not been exposed to any risk of loss, the policyholder is entitled to a full refund.

Losses from which of the following incidents would be excluded under standard property insurance? A. Mice chew through electrical wires causing the insulation and rafters in an attic to catch fire. B. A moderate earthquake collapses gas pipes and causes a fire that damages the insured's home. C. A furnace malfunctions and shuts off the heat. D. A furnace explodes and causes structural damage to a building.

A furnace malfunctions and shuts off the heat. Mechanical devices, like a furnace, are expected to wear out and break down. Insurance is better suited to unexpected losses. Some objects, like air conditioning systems, can be separately insured with an equipment breakdown policy.

In which of the following circumstances will the businessowners policy (BOP) owned by Hank cover property damage? A. a hotel room damaged by Hank during a weekend rental B. premises given by Hank to a long-time friend who then accidentally burned it to the ground C. premises abandoned by Hank that was damaged by vandals D. personal property in Hank's care that was then lost by Hank

A hotel room damaged by Hank during a weekend rental The BOP's property damage exclusions apply to premises sold, given away, or abandoned and personal property in the insured's care, custody, or control. Damage to premises rented to the insured for a period of seven or fewer consecutive days is covered.

Because Barry borrowed money from Porcine Bank to buy his building, the declarations of Barry's commercial property policy name Porcine Bank as mortgage holder. Although Barry paid his insurance premium in full, he could not make his mortgage payments, so he set fire to the building. After proving that Barry committed arson, the insurance company refused to pay Barry's fire claim. What may Porcine Bank do in this case? A. It has a right to receive loss payment if it submits a proof of loss. B. It may be able to recover its loss from the California FAIR Plan because it involved arson. C. It may be able to recover its loss from the California Insurance Guarantee Association because of Barry's insolvency. D. It may not be able to collect payment.

A. It has a right to receive loss payment if it submits a proof of loss. The mortgage clause in Barry's policy says that covered loss to the building will be paid to the listed mortgageholder even if the insured's claim is denied because of some act of the insured, provided the mortgageholder pays any premium due, submits a proof of loss, and notifies the insurer of any substantial changes in the risk that it knows of.

Joaquin plans to buy a businessowners policy (BOP) to cover the building and contents of his small retail store. Unless modified by endorsement, a current ISO BOP A. Provides open-perils coverage on the building and contents. B. Provides named-perils coverage on the building and its contents. C. Provides open-perils coverage on the building and named-perils coverage on contents. D. Provides named-perils coverage on the building and open-perils coverage on its contents

A. Provides open-perils coverage on the building and contents Current ISO BOPs provide open-perils coverage on the building and contents, but a named-perils endorsement is available as an option.

Marcie's business is covered by a commercial package policy that uses ISO forms. A California amendatory endorsement attached to the policy seems to contradict some of the provisions of the policy. How should Marcie interpret these contradictions? A. The endorsement takes precedence over the policy it is attached to. B. The policy takes precedence over any endorsement attached to it. C. Marcie should ask the California Department of Insurance for assistance in resolving any discrepancies between these two documents. D. Interpreting contradictions is the role of the courts, not the policyholder.

A. The endorsement takes precedence over the policy it is attached to The endorsement's provisions simply supersede or replace any related provisions in the policy.

All of the following statements regarding accident coverage under the Limited Mexico Coverage endorsement are correct EXCEPT: A. To be covered, an accident must occur more than 25 miles from the U.S. border. B. The trip into Mexico must not exceed ten days. C. The insurer's duty to defend arises only if the original suit for damages is brought in the United States and does not involve a Mexican citizen or resident. D. No physical damage coverage is provided for repairs made in Mexico unless the covered auto cannot be driven in its damaged condition.

A. To be covered, an accident must occur more than 25 miles from the U.S. border. The Limited Mexico Coverage Endorsement contains several major limitations. Coverage only applies within 25 miles of the U.S. border for trips that do not exceed ten days at a time.

In an unendorsed homeowners policy, losses to personal property are settled on what basis? A. market value B. replacement cost C. actual cash value D. wholesale value

Actual Cash Value Loss to personal property (such as furniture and clothing) is settled on an actual cash value basis (replacement cost minus depreciation) at the time of the loss. Replacement cost coverage on personal property is usually available for an additional premium charge.

Freddie has an equipment breakdown policy for his restaurant. There are no additional coverage options included in the policy. When a power surge damaged the restaurant's refrigeration system, the restaurant had to close while repairs were made. The policy will cover all the following losses EXCEPT: A. loss of income while the business was closed for repairs B. additional costs to comply with new building codes C. loss due to spoilage of food D. property damage

Additional costs to comply with new building codes The equipment breakdown form excludes additional costs to clean or rebuild property to meet regulations to comply with new building codes or new boiler safety regulations. Had the insured included the optional coverage for ordinance or law, this would have been covered.

Through the Scheduled Personal Property Endorsement (HO 04 61) to a homeowners policy, the insurer agrees to pay the lowest of the following values, for most types of property insured on the endorsement, EXCEPT: A. cost of repairing the item B. the item's actual cash value C. the item's replacement cost D. an amount agreed upon between the insured and the insurer

An agreed upon amount between the insured and the insurer A Scheduled Personal Property Endorsement (HO 04 61) does not provide for the payment of an agreed upon amount specified in the schedule. Instead, the insurer agrees to pay the lowest of the cost to repair, the actual cash value, the replacement value, or the applicable policy 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? A. the property's actual cash value at the time of the loss B. an amount agreed upon by the insurer and Jane C. the cost to repair or replace the property with similar property D. the dollar amount of insurance specified in the policy schedule

An amount agreed upon by the insurer and Jane With the stated amount approach, the insurer agrees to pay the lowest of three amounts if the covered property is damaged or stolen: the property's actual cash value at the time of the loss, the cost to repair or replace the property with similar property, or the dollar amount of insurance specified in the policy schedule.

Ralph is an agent with the Valley Insurance Agency. Bob has a homeowners policy written through the agency and calls to report a claim for water damage caused by rain. Ralph assures Bob that the loss is covered and reports the claim to the insurance company. After the claims adjuster inspects the loss, he tells Bob that there is no coverage for this water damage, and that Bob needs flood coverage. What type of authority may Ralph have exercised in telling Bob he was covered for this loss? A. implied authority B. express authority C. apparent authority D. statutory authority

Apparent Authority Apparent authority is not granted by the principal directly to the agent but arises out of the impression the principal gives that the agent is authorized to act a certain way. Ralph mistakenly told Bob that the claim was covered and this may commit the insurer to paying the claim under apparent authority, but the insurer might then seek reimbursement from its agent.

Vicente's business property is insured by a standard building and personal property coverage form to which no endorsements or optional coverages apply. This tells us that Vicente's building and personal property are covered A. On an actual cash value basis with no coinsurance provision. B. On an actual cash value basis and are subject to a coinsurance provision. C. On a replacement cost basis with no coinsurance provision. D. On a replacement cost basis and are subject to a coinsurance provision.

B. On an actual cash value basis and are subject to a coinsurance provision. In the standard form, covered property is valued at actual cash value, and it is subject to a coinsurance provision.

Bernadine used to have a live-in nanny, but now that her children are in school she has no residence employees. The California Insurance Code A. Does not require that Bernadine's homeowners policy include workers compensation coverage, because she no longer has employees. B. Requires that Bernadine's current homeowners policy include an endorsement providing workers compensation coverage on residence employees, but no premium for that endorsement will appear in her policy declarations. C. Requires that Bernadine's current homeowners policy include an endorsement providing workers compensation coverage on residence employees, for which she will pay an additional premium that must be shown in her policy declarations. D. Requires that workers compensation coverage on residence employees be offered as an option, but Bernadine may reject that option.

B. Requires that Bernadine's current homeowners policy include an endorsement providing workers compensation coverage on residence employees, but no premium for that endorsement will appear in her policy declarations. The California insurance code requires every California homeowners policy to have the Workers Compensation-Residence Employees (CA) Endorsement, but the cost of this coverage is not to be shown as a separate premium.

Charles wants to know if his new dwelling policy includes coverage for theft. Which of the following is the correct answer? A. Theft is covered in all DP forms without an endorsement. B. Theft is not covered in an unendorsed policy, but may be covered in all DP forms through an endorsement. C. A DP 3 would cover theft without an endorsement, but DP 1 and DP 2 require an endorsement. D. Theft is not covered under any circumstances.

B. Theft is not covered in an unendorsed policy, but may be covered in all DP forms through an endorsement Although none of the DP forms covers loss by theft, it can be added by endorsement. The DP 2 and DP 3 forms cover burglary losses, but not theft losses. The broad theft coverage endorsement provides coverage for theft, attempted theft, and vandalism and malicious mischief that results from a theft.

Earline's business auto policy (BAP) has comprehensive and collision coverage on owned autos. One of the company's trucks is damaged when road debris tears its oil pan, ruining the engine. Replacing the engine will significantly increase the truck's value. What, if anything, will the insurer pay? A. nothing because road debris is not a covered peril B. the cost of the new engine and its installation after adjusting it for the increase in the truck's value C. the cost of the new engine and its installation without adjustment for betterment or diminution in value. D. the cost of the new engine and its installation after adjusting it for the decrease in the truck's value

B. the cost of the new engine and its installation after adjusting it for the increase in the truck's value The BAP covers the collision repair, but the insurer will not pay for the betterment.

With respect to a commercial property policy, which of the following correctly describes the type(s) of property included in the term "building property"? A. Any property used in the business B. The building and any business property in the building and on the grounds, including sidewalk and curbs. C. Buildings and structures, indoor and outdoor fixtures, including signs attached to the building, and personal property used to service the building. D. Fixtures within the building only

Buildings and structures, indoor and outdoor fixtures, including signs attached to the building, and personal property used to service the building. The building property category includes the building(s) identified in the policy declarations, as well as indoor and outdoor fixtures and personal property used to service the building. Additions under construction, alterations, and repairs to the buildings and structures identified in the policy declarations also qualify as covered building property if they are not covered by other insurance.

Judy owns a small beauty salon located on the first floor of her apartment building. A customer trips over a hair dryer cord in the salon and is injured. Judy is held legally liable for the customer's injury. What coverage under her businessowners policy (BOP) will pay for this customer's injury claim? A. supplementary payments coverage B. medical expenses coverage C. commercial general liability coverage D. business liability coverage

Business Liability Coverage Business liability coverage covers sums the insured becomes legally obligated to pay as damages for bodily injury, property damage (including fire or explosion damage to rented premises), and personal and advertising injury.

As defined by the Insurance Services Office (ISO) motor carrier policy, a trucker is a person or organization that: A. owns at least one truck or tractor truck B. owns at least one vehicle with more than four wheels C. is in the business of transporting cargo by auto for hire D. provides transportation by auto in furtherance of a commercial enterprise

C. Is in the business of transporting cargo by auto for hire. A trucker is a person or organization engaged in the business of transporting property by auto for hire.

All of the following are benefits provided by the Loss of Use coverage (Coverage D) in a homeowners policy EXCEPT:

Car Rental Expense The Loss of Use coverage protects policyholders whose residence premises are not fit to be lived in because of an insured loss. Additional living expense, fair rental value, and prohibited use by civil authorities are the three types of coverage provided.

Standard property insurance policies exclude coverage for property damage to electrical devices caused by all of the following EXCEPT: A.explosion of steam equipment B. mechanical breakdown C. electrical injury (other than damage from lightning) D. damage from lightning

Damage From Lightning Exclusions in standard property insurance policies eliminate coverage for property damage caused by explosion of steam equipment, mechanical breakdown, and electrical injury (other than damage from lightning) to electrical devices.

Which expense is NOT covered as property damage by a business auto policy (BAP)? A. lease of a substitute vehicle while a covered auto is repaired B. repairs to a covered auto damaged in a collision C. damage to a structure caused by a covered auto D. damage to property transported in a covered auto

Damage to property transported in a covered auto The BAP excludes damage to property owned or transported by the insured or in the insured's care, custody, or control.

Because the Earthquake-California endorsement has been added to Esteban's homeowners policy, the major difference between his coverage for earthquakes and his coverage for other perils lies in the A. Conditions B. Deductible C. Limits D. Property Covered

Deductible The biggest difference is that earthquake losses are subject to a separate percentage deductible.

Which is NOT one of the three major parts of a personal auto policy (PAP)? A. declarations page B. applicable endorsements C. definitions D. personal auto coverage form

Definitions Although the PAP definitions are important to the policy, they are not one of its three major parts.

Patrick has a commercial property insurance policy that does not cover damage caused by an earthquake. He is interested in obtaining earthquake coverage. He read that it is possible to obtain a separate policy insuring against this specific peril and it was referred to as a(n): A. supplemental policy B. difference-in-conditions policy C. open perils policy D. named perils policy

Difference-in-conditions policy A difference-in-conditions (DIC) policy is a property insurance policy that is purchased in addition to a commercial property policy to obtain coverage for perils, like flood and earthquake, that the commercial property policy does not cover.

Nelson is the president of his company and has a company car. He does not have a personal auto policy because he does not own another vehicle. Which endorsement to his company's business auto policy (BAP) will protect him when he uses another vehicle? A. Drive Other Car-Broadened Coverage for Named Individuals B. Employees as Insureds C. Individual Named Insured D. Hired Autos Specified as Covered Autos You Own

Drive Other Car-Broadened Coverage for Named Insureds The Drive Other Car endorsement is useful for those whose only vehicle is a company car. It is excess coverage when the individual drives an auto that is borrowed or hired for personal us

Maker Manufacturing submits a claim under its equipment breakdown policy for damage to its computer system. If the insurer pays the claim, which of the following occurrences caused the loss? A. A city gas main ruptured and caused an explosion. B. The building flooded during a hurricane. C. Electrical arcing occurred. D. A truck driver lost control of his vehicle and drove through the building.

Electrical Arcing Occurred Electrical arcing is not an excluded peril on an equipment breakdown policy.

Sandy requires her employees to use their personal autos when calling on customers. If she adds the Employees as Insureds endorsement to her company's business auto policy (BAP), employees who use their personal cars for business calls will have: A. excess coverage under the BAP for losses that exceed their personal auto liability limits B. no need to maintain their own personal auto policies C. comprehensive coverage under the BAP D. primary coverage under the BAP

Excess coverage under the BAP for losses that exceed their personal auto liability limits. The endorsed BAP will provide excess coverage over the employee's personal auto policy if an employee is liable for a loss involving the business use of his or her personal vehicle

All of the following could be covered under the Farm Property-Barns, Outbuildings and Other Farm Structures coverage form EXCEPT: A. silos B. portable buildings C. field fences D. animal pens

Field Fences Coverage G-Barns, Outbuildings and Other Farm Structures provides coverage for seven types of structures, including silos (if listed in the declarations), portable buildings, animal pens, and fences other than field and pasture fences.

Metropolitan Millinery rents the first floor of a building to sell and repair hats. One of Metropolitan's employees fails to extinguish a cigarette, which ignites paper in a trash can. The resulting fire and smoke damage the interior of the store. How will Metropolitan's businessowners policy cover this, if at all? A. continuous injury or damage coverage B. it will not cover the loss, as it was caused by an employee C. fire legal liability coverage D. employee dishonesty coverage

Fire Legal Liability Coverage Fire legal liability coverage is included under property damage liability, subject to a separate lower limit of insurance. It covers the insured's tort liability for fire or explosion damage to rented premises.

All of the following are elements of negligence EXCEPT: A. duty of care B. breach of the duty of care C. intent D. damages

Intent The four elements of negligence are a duty of care, breach of that duty of care, causation, and damages (in other words, a loss or injury) resulting from the breach. Negligence does not require intent on the defendant's part.

Arnold's Auto Repair Shop's garage policy does NOT cover it for loss sustained by a vehicle that it: A. is selling to a customer B. owns C. hires D. is painting for a customer

Is painting for a customer The physical damage coverage of the garage policy applies to vehicles that the insured owns, hires, or holds for sale. By adding garagekeepers coverage to its garage policy, an insured can also protect customers' vehicles in its care, custody, or control.

Sebastian insures his farm with your agency on a farm policy, which includes farm livestock coverage (FP 00 40). He submits a claim because three of his cattle were killed while being transported to auction by a contract carrier. How does Sebastian's farm policy respond to his claim? A. It pays the claim because livestock is covered for all causes of loss. B. It denies the claim because livestock is not covered when in the custody of a contract carrier. C. It denies the claim because livestock is only covered when located in a barn. D. It pays the claim because livestock is only excluded when being transported by the insured.

It denies the claim because livestock is not covered when in the custody of a contract carrier. Livestock is not covered property when in the custody of a common or contract carrier, public stockyards and sales barns or yards, slaughterhouses, and packing plants.

As defined in the farm liability coverage form, farming does NOT include: A. agricultural enterprises B. mechanized processing operations C. roadside stands on the farm premises D. aquacultural enterprises

Mechanized processing operations Unless otherwise indicated on the declarations, farming does not include mechanized processing operations.

Manny wants to establish a business that transports the goods of others for a fee. If he only wants to insure his legal liability for damage to his customers' property, what type of commercial inland marine insurance would be most suitable? A. trip transit policy B. annual transit policy C. motor truck cargo policy D. installation floater

Motor Truck Cargo Policy Motor truck cargo insurance provides legal liability coverage for loss or damage to goods owned by others that are being shipped by the insured.

All of the following statements regarding the identity theft or identity fraud expense coverage endorsement under a businessowners policy (BOP) are true EXCEPT: A. No deductible applies to this coverage. B. A limit of $25,000 applies to expenses included in the endorsement. C. It pays loan application fees when the original application is rejected on the basis of incorrect credit information. D. An additional limit of $5,000 applies to advertising expenses incurred to restore the insured's reputation.

No deductible applies to this coverage Identity fraud expense coverage is subject to a single $250 deductible.

A pipe suddenly bursts in a basement and floods an area where new carpeting was recently installed. What exclusion, if any, might eliminate coverage? A. leakage or seepage B. flood C. none, because the loss would be covered D. wear and tear

None, because the loss would be covered Sudden water damage from a burst pipe is typically covered under an open perils property insurance policy. However, damage from water that gradually leaks or seeps from a plumbing system, air conditioning system, or appliance is typically excluded. Flood is excluded in standard property policies.

Four months ago Betty purchased a strip mall building that can house five businesses of equal size. Although she has been trying to find tenants, only one of the five units is in use when vandals break into one of the empty units causing $10,000 in damage. Betty has a standard building and personal property coverage form with a vacancy clause. Assuming the amount of building insurance is adequate and vandalism is a covered peril, and ignoring deductibles, how much will Betty's insurer pay for this loss? A. Nothing B. $10,000 C. $3,100 D. $8,500

Nothing Since the building has been vacant (less than 31 percent occupied) for more than 60 days and the loss was caused by vandalism, this loss is not covered. Recovery for a similar loss from most other perils would be reduced by 15 percent, leaving her with $8,500.

Carlene's insurance agent has suggested she "upgrade" her homeowners insurance by replacing her current HO-3 policy with an HO-5 policy. What will she get with the HO-5 that she does not already have with her unendorsed HO-3? A. Open perils coverage on her household contents. B. Open perils coverage on the building C. Replacement cost coverage on the building D. Replacement cost coverage on her household contents

Open perils coverage on her household contents The HO-5 will provide open-perils coverage on Carlene's personal property, whereas her current HO-3 policy provides named-perils coverage on that property.

Consuela's business auto policy (BAP) has comprehensive and collision coverage on all owned autos. Consuela and several employees take some of these autos on a hunting expedition. Several are damaged. Which occurrence will the BAP cover? A. overturn B. blown tire C. electrical system failure D. depreciation

Overturn Diminution, breakdown, and tire blowouts are excluded, but collision coverage applies to a rollover even if it is not on a roadway.

Mr. Klondike insured property on a commercial inland marine policy. After one item of insured property suffered a total loss, what policy condition paid Mr. Klondike's claim and then refunded the unearned premium on the destroyed item? A. other Insurance B. abandonment C. recovered property D. reinstatement of limit after loss

Reinstatement of limit after loss When there is a total loss to a scheduled item of property, the reinstatement of limit after loss condition requires the insurer to pay the claim and refund the unearned premium for the scheduled item.

Ohio Barge Company operates a barge on the Ohio and Mississippi Rivers. During a storm, the barge is blown against a bridge and severely damaged. The company hires a tugboat to rescue the barge. What ocean marine provision applies to pay for the cost of assistance from the tugboat company? A. salvage clause B. adventure clause C. collision liability clause D. sue and labor clause

Salvage Clause Salvage charges are expenses paid to third-party salvors who help save property that was exposed to loss. For example, a ship that was in danger might have to pay salvage charges to another vessel that came to its rescue.

John and Peter, business partners, purchased a new property insurance policy from Colossal Casualty. The policy will cover claims one insured makes against another insured. This policy includes what provision? A. Severability B. Supplemental Payments C. Removal D. Liberalization

Severability A severability provision, when there is more than one insured, the insurance applies to each insured as though he or she had a separate policy.

Mr. and Mrs. Jones are each sued and submit claims under their homeowners policy. What liability condition states that coverage applies separately to each of them as insureds? A. Severability of Insurance B. Duties after an Occurrence C. Limit of Liability D. Liberalization

Severability of Insurance The Severability of Insurance condition states that liability insurance applies separately to each insured against whom a claim or suit is brought.

Mauricio drives a van to make a delivery to a customer. He drops the parcel and damages the customer's porch. How will his employer's business auto policy (BAP) respond to the customer's claim for property damage, if at all? A. The claim is denied because the accident occurred away from the vehicle. B. The BAP does not cover the claim, although the employer's commercial general liability (CGL) policy might cover it. C. The claim is denied as the damage did not affect the van. D. The BAP covers the claim because the damage occurred while the parcel was being delivered.

The BAP covers the claim because the damage occurred while the parcel was being delivered. The handling of property exclusion would not cover the damage after the parcel was delivered. But because Mauricio was still making the delivery when the accident occurred, this exclusion does not apply.

For a loss to be covered under a property insurance policy, a covered peril must be: A. the immediate cause of the loss B. the sole cause of the loss C. the direct cause of the loss D. the proximate cause of the loss

The proximate cause of the loss The proximate cause is the cause that sets in motion an unbroken chain of events leading to the loss. A proximate cause may or may not be the immediate cause of the loss.

What is the purpose of no-fault auto insurance? A. to lower insurance costs by reducing or eliminating litigation B. to make it easier for accident victims to collect from at-fault motorists C. to eliminate the need for uninsured motorists coverage D. to make motorists responsible for their own injuries

To lower insurance costs by reducing or eliminating litigation No-fault auto insurance is intended to reduce the cost of auto liability coverage and the cost of litigating auto accident claims.

The driver's door on Misty's roadster was damaged in an auto accident. Her insurer wants to have the damage repaired with non-original equipment manufacturer parts. The state law is most likely to require the insurer to do all of the following EXCEPT: A. ensure that the parts identity their manufacturer B. waive the deductible C. disclose the use of non-OEM parts to Misty D. get Misty's consent to use non-OEM parts

Waive the deductible Many states require that OEM parts carry permanent identification and that the insurer disclose and get the consumer's consent to the use of non-OEM parts.

When she added the watercraft endorsement to her homeowners policy, April thought she was fully protected while operating her inboard motorboat, which has a 75 horsepower engine. She was disappointed to learn that this coverage only applies A. While carrying passengers for a charge. B. While participating in an organized race. C. While towing a waterskier. D. While using the boat for any business purpose.

While Towing a Waterskier Exclusions in the endorsement apply to racing, carrying people or cargo for a charge, or business use; there is no waterskiing exclusion.

Ted hires his teenaged neighbor, Darren, to mow his lawn using Ted's riding lawn mower. Darren has never used a riding mower before but Ted assumes Darren will figure it out. Darren accidently mows down her neighbor's plants and flowers. Will Ted be liable for the property damage? A. no, because Darren caused the property damage. B. No, because the damage is not on Ted's property. C. Yes, because Ted was negligent in his supervision of Darren. D. Yes, because Ted owns the motorized lawn mower.

Yes, because Ted was negligent in his supervision of Darren. "Motor vehicle liability" means liability for bodily injury and property damage arising out of an insured's ownership, use, entrustment, negligent supervision, or vicarious liability of a motor vehicle, which includes a motorized lawn mower.

Star Enterprises rents office space and erects partitions and cabinets within the space. Although these are installed at Star's expense, it does not own them. The office sustains a fire and the cabinets and partitions are destroyed. Does Star's commercial property policy cover the loss?

Yes. They are covered as improvements and betterments.

Astro Brands' business auto policy has a limit of $1 million. This limit represents the total amount that Astro's insurer will pay for A. each person injured in all accidents within the policy period. B. all accidents within the policy period. C. each person injured in a single accident. D. all covered autos, insureds, and claims in a single accident.

all covered autos, insureds, and claims in a single accident. The BAP limit of insurance is the most the insurer will pay for all damages resulting from any one accident. This limit applies regardless of the number of covered autos, insureds, claims, or vehicles involved in the accident. The BAP does not have an aggregate limit, so payment of the per accident limit in one loss does not reduce the amount for subsequent losses in the policy period.

What property insurance exclusion, if any, might eliminate coverage for clean-up costs associated with a mice infestation in a home? A. none; the loss would be covered B. maintenence or wear-and-tear C. building ordinance or law D. artificially generated electrical current

maintenance or wear-and-tear Open perils property insurance policies typically contain a group of exclusions sometimes referred to as maintenance or wear and tear exclusions. Among these is an exclusion for damage by birds, vermin, rodents, insects, or animals owned by an insured.

Julius owns an expensive mink coat and carries a personal articles standard loss settlement form to provide additional coverage over that provided in his homeowners policy. If the coat sustains a covered loss, how will the loss be settled? A. on an agreed value basis B. on the cost to repair or replace, ACV, or applicable policy limit, whichever is lowest C. on a stated amount basis D. up to a limit of $500

on the cost to repair or replace, ACV, or applicable policy limit, whichever is lowest The personal articles standard loss settlement form does not provide agreed value loss settlement. Rather, for most types of property, the insurer agrees to pay the lowest of the cost to repair or replace the item, the actual cash value, or the policy limit. For agreed value coverage, Julius would need the personal articles agreed value loss settlement form.