Studied by 57 PeopleTags & Description
For purposes of insurance, a "loss" is best defined as:
an unwelcomed, unplanned reduction in economic value
An automatic sprinkler system in a hotel building is a risk reduction measure because it:
reduces the amount of damage that a fire is likely to do
Insuring a new restaurant against business failure is not possible because business success or failure is:
a speculative risk
Which of the following is an example of pure risk?
the possibility of a business being flooded
Zenith Insurance Company issues a policy to Best Manufacturing Company. A dispute arises between Zenith and Best on the meaning of an ambiguous clause in their contract. The matter goes to court, which can be expected to interpret the clause in a manner that:
favors Best Manufacturing
The fact that insurance policy language is written by an insurance company and is nonnegotiable makes insurance policies:
contracts of adhesion
Which of the following correctly identifies three elements that must be present to create an enforceable contract?
acceptance, consideration, and offer
Rhonda's parents bought her a car for her sixteenth birthday and made her responsible for maintaining and insuring it. However, when Rhonda applied for auto insurance after getting her driver's license, she was told that she could not enter into a binding insurance contract because, according to the law in her state, a 16-year-old does not qualify as a(n):
competent party
A fire severely damages Carl's home, making it uninhabitable. He moves his family to a hotel while the house is repaired. The additional expenses incurs in housing the family are considered what type of loss?
indirect
Butch's Meat Market loses electrical power during a flood. The business closes for several days, during which time there is no refrigeration and a large quantity of meat spoils. The loss of the meat is what type of loss?
consequential
"Replacement cost minus physical depreciation" describes which type of loss valuation method?
actual cash value
From a property insurance perspective, which of the following is NOT a basic type of construction?
steel
For an insurer to pay a property insurance claim, when must the policyholder have an insurable interest in the insured property?
at the time of the loss
Ken's house has an exterior layer of brick that covers wooden walls supported by wooden 2-by-4 studs. What type of construction does Ken's house have?
masonry veneer
Corinne purchased her home with a 10 percent down payment and a 90 percent mortgage from Sidney Bank. Why does Sidney Bank have an insurable interest in Corinne's house?
The bank faces the possibility of a loss if Corinne's house is damaged or destroyed.
All of the following are perils EXCEPT: texting while driving theft lightning windstorm
texting while driving
A dump truck collided with a tall oak tree in Marian's front yard. The tree fell onto her house, breaking a glass picture window and knocking a lamp off the table inside it. Sparks from the lamp started a fire that destroyed half the house. What is the proximate cause of the damage to Marian's house?
the collision
All of the following causes of loss are commonly listed as excluded perils in open perils property insurance policies, EXCEPT: wear and tear flood war vandalism
vandalism
While a homeowner is out of town, a group of teenagers break into her house, throw a beer party, and damage the interior without stealing anything. Connie's resulting property insurance claim will be covered if her policy covers what peril(s)?
vandalism
Laura owns poisonous snakes on her property, which she uses for venom research purposes. One of the snakes escaped and within hours bit a neighbor who sued Laura. Though Laura was not negligent in her ownership of the snakes, the plaintiff easily won the suit based on the doctrine of:
strict (absolute) liability
Which one of the following incidents is an example of vicarious liability? Rudy is held responsible for an accident caused by his employee. Dominic is held responsible for food poisoning due to a pizza he delivered. Edie is held responsible for striking a pedestrian with her bicycle. Lilly is held responsible for her cat's injury to Lilly's guest.
Rudy is held responsible for an accident caused by his employee.
Bill's children have grown up and moved away, but the tree house that he built for them now draws other neighborhood children despite his handmade "No Trespassing" sign. If a neighbor's child is injured by falling from the tree house, Bill might be held liable for the child's injuries under what legal doctrine or principle?
attractive nuisance
Lorraine was parking her car when her brakes failed, and she struck the car next to her, which was owned by Marty. In this case, all the following statements are correct EXCEPT: The rolling of Lorraine's car into Marty's car was the proximate cause of the damage. The costs to repair Marty's car represent compensable damages. The accident was a breach of duty on Lorraine's part. Lorraine had a duty to keep her car from striking Marty's car.
The rolling of Lorraine's car into Marty's car was the proximate cause of the damage.
The gradually expanding brown spot on the ceiling of his barbershop suggests that Edmond might have a plumbing leak, but he ignores it because any drips from the ceiling fall into a sink. When the ceiling collapses because of water damage, Edmond finally submits an insurance claim that the insurer denies because his policy has an exclusion for:
water leakage or seepage
Many endorsements are attached to Bettie's policy. If she examines them closely, she will probably find one or more endorsements that do all the following EXCEPT: expand coverage to cover a specific exposure add exclusions eliminate an exclusion cancel the policy
cancel the policy
Why do insurance policies use quotation marks with certain words and phrases?
to identify words and phrases that are defined in the policy
Which one of the following is NOT a type of provision found in property and casualty insurance policies? declarations insertions definitions conditions
insertions
The standard mortgage (mortgagee) clause in a property insurance policy covering real property does which of the following? -It requires the lender to purchase property insurance on the mortgaged property. -It ensures that the mortgage lender is paid if mortgaged property suffers a loss. -It makes the lender the owner of the property if the borrower does not maintain insurance on the mortgaged property. -It requires the lender to pay off the mortgage should a loss occur on the mortgaged property.
It ensures that the mortgage lender is paid if mortgaged property suffers a loss.
With respect to property and casualty insurance policies, "subrogation" refers to:
the insurer's right to recover its claim payment from the party that was responsible for the loss
When a bank is named as a mortgagee in a customer's homeowners insurance policy, the bank:
is entitled to advance written notice of any policy cancellation
While working at his service station, Bert mistakenly fueled a customer's truck with gasoline rather than diesel fuel, damaging the truck's engine. In responding to the trucker's liability claim for damages, Bert's insurance policy requires him to perform all the following duties EXCEPT:
try to settle the claim on his own
How do public adjusters primarily differ from staff or independent adjusters?
Public adjusters represent insureds, while other adjusters represent insurers.
Most policies require the insured to do all of the following EXCEPT: notify the insurer promptly identify the cause of a loss protect the property from further damage notify the police if the law has been violated
identify the cause of a loss
When settling a property claim, an insurer may offer the insured a choice of each of the following EXCEPT: payment of the insured value of the property replacement of the damaged property reduction in premium to insure the damaged property reparation of the damaged property
reduction in premium to insure the damaged property
A claims adjuster is required to maintain a complete and accurate claim file for all of the following reasons EXCEPT: to support denial of the claim to record the activities that occurred during the adjustment of the claim to facilitate examination by insurance regulators to permit others to service the claim if the adjuster is unavailable
to support denial of the claim
Jeff is a licensed insurance agent in both New York and Florida. He is was charged with embezzlement in New York, and pleaded guilty to the charge on March 1. He must notify the Florida Department of Financial Services of the charge within how many days?
30
Which of the following is a requirement to operate as an insurance agency in Florida? having transacted insurance in Florida for at least two years before applying for a license submitting an application and appointing the Office as its agent for service of process obtaining a license or registration from the state appointment of at least two agents to manage the agency
obtaining a license or registration from the state
BBX Insurers terminated Henry's appointment as its adjuster on December 1. How long will Henry remain eligible to be appointed as an adjuster by another insurer?
48 months
Sasha, Kendall, Adam, and Julio are licensed agents in Florida. The Department of Financial Services would NOT be able to suspend or revoke which agent's license for engaging in the following acts? Julio, who used insurance premiums he collected to renovate his business office Sasha, who sold insurance policies to family members and friends this year Kendall, who intentionally violated an order issued by the Office of Insurance Regulation Adam, who offered season football tickets to prospects who purchased policies
Sasha, who sold insurance policies to family members and friends this year
The Dwelling Property 3-Special Form provides more coverage than the Dwelling Property 2-Broad Form because the DP 3 automatically provides:
open perils coverage rather than named perils coverage on the building
David's job requires him to move from his suburban home to a distant city. He rents it to a couple in his absence. How can he maintain property insurance on the home now that he is leasing it to others?
He should replace the homeowners policy with a dwelling policy.
Dalton rents an unfurnished house. Dalton's dwelling policy is most likely to have Coverage C-Personal Property and:
Coverage E-Additional Living Expense
After buying a DP 1 basic policy, Clement realizes that he has no personal liability coverage. How can he get this coverage?
add the personal liability supplement
Which ISO homeowners insurance form provides open perils coverage on the dwelling and named perils coverage on personal property?
HO 3
A truck crashes into an insured's house. Before repairs can begin, the truck and damaged portions of the house must be removed. The additional coverage for debris removal in the homeowners insurance policy will:
cover only the expense of removing damaged portions of the house
Gertrude's will specifies that, upon her death, her son Dirk will be the executor of her estate. Coverage for Dirk's actions as the executor are described under what policy condition of the homeowners policy?
death
The collapse additional coverage in a homeowners policy applies only when:
all or part of the building falls or caves in
More than half of Darryl's home suffers tornado damage. Because the home did not comply with current building codes, Darryl must tear down the undamaged portion and rebuild it with more expensive components. The ordinance or law additional coverage in his HO 3 policy will NOT cover:
replacement cost of repairing the damaged portion of the home
A tree limb puts a hole in Lesley's roof, so she buys a tarp and hires a handyman to place it over the hole. She then notifies her insurance company that provides her HO 3 policy. What will the insurer do?
It will pay for the tarp and its installation under her reasonable repairs additional coverage.
Subject to a $15,000 limit, the identity fraud expense coverage endorsement to the homeowners insurance policy will reimburse or cover the insured for all the following EXCEPT:
$5,000 stolen from the insured's bank account
Section II of an Insurance Services Office, Inc. (ISO) homeowners policy provides:
liability coverages
Lightning ignites a fire at the Smith Motors garage which damages seven automobiles owned by customers. Smith's garagekeepers coverage has a $1 million limit and a $1,000 deductible. How much of the deductible will be applied to this loss?
None *While the limit of insurance for garagekeepers coverage is set for each insured location and not per auto, the deductible applies to each covered auto. The deductible does not apply for losses caused by fire, lightning, explosion, or other peril covered as a comprehensive loss.
Overland Express Company is insured under a motor carrier policy. Which person is NOT insured under the policy's liability coverage?
Sunshine Fruit Farms, whose products are transported by Overland Express *The named insured, permissive users, and the owner of a borrowed trailer connected to a covered power unit are covered as insureds.
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?
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.
The Motor Carrier Act of 1980 requires some motor carriers to:
carry liability insurance with minimum coverage limits that depend on their cargo *Motor carriers subject to the Motor Carrier Act of 1980 must have insurance coverage of $750,000 to $5 million, depending on the cargo they transport.
The errors and omissions coverage in an equipment breakdown policy is most likely to apply in which of the following situations?
The insured made a mistake in describing the property location on the application. *Errors and omissions coverage insures a loss when the form would not otherwise provide coverage due to an unintentional error by the applicant/insured such as incorrectly describing the property owner or the location where coverage was intended to apply.
The declarations page of Julius's equipment breakdown policy lists a number of coverages, such as property damage, expediting expenses, business income and extra expense, and utility interruption. The word "INCLUDED" is shown next to "property damage," but it does not appear elsewhere in the declarations, nor are there any dollar limits listed on the page. Julius's policy provides coverage for:
property damage only *For any coverage option to apply, a dollar limit or the word "INCLUDED" must be shown on the policy for that coverage. Since the word is shown only for property damage, Julius has coverage for property damage only.
An equipment breakdown policy typically would NOT cover which of these incidents?
Failure of a conveyer belt due to extended use. *An equipment breakdown policy defines breakdown to include pressure or vacuum equipment failure, mechanical failure, and electrical failure. It excludes coverage for equipment parts that are normally subject to periodic replacement or routine maintenance.
Which of the following is a coverage option that is available in a standard equipment breakdown policy?
spoilage damage *As long as the insured is legally responsible for the damaged property, spoilage damage is a covered peril. Dry rot, corrosion, and smoke damage are not coverage options.
Which forms are attached to a commercial property policy to broaden or narrow coverage?
endorsements *Endorsements broaden or narrow the coverage of a property or casualty policy. They may also modify it to comply with state requirements.
Haley's new law office is in a commercial condominium unit she purchased. Which form is suitable for insuring her property?
condominium commercial unit owners coverage form *The condominium commercial unit owners form is designed for businesses that own and occupy commercial condominium units.
Dixie's business personal property coverage of her building and personal property commercial property form covers almost everything in her barbershop, but NOT:
cash in the cash register *Money is on the list of property not covered.
Darnell manufactures building components at a constant rate. When sales are slow, the finished-goods inventory increases, and vice versa. Sales depend on the current construction market. Therefore, the policy covering Darnell's fluctuating inventory should include:
a value reporting form *The reporting form coverage available with the value reporting form can be useful to a business with unpredictable, fluctuating property values at risk.
What type of business is ineligible for a BOP regardless of its size?
parking garage Parking lots or garages are ineligible for a BOP regardless of their size.
Whose insurance needs are businessowners policies specifically designed to meet?
small to medium-sized businesses with typical exposures *The businessowners policy is designed to meet the insurance needs of a typical small to medium-sized business with exposures and coverage needs common to other businesses of the same type.
Where do the definitions appear in an ISO businessowners policy?
at the end of the property section and at the end of the liability section *Definitions of terms used in each coverage section of the policy appear at the end of their respective section.
Which provision is NOT found in the common policy conditions section of a businessowners policy?
property loss settlement *The common conditions section applies to both property and liability sections of the policy. A condition that applies only to property would therefore not appear in the common policy conditions section.
Which business would be eligible for coverage under a businessowners policy? -apartment building seven stories tall -motel four stories tall -office building 20 stories tall -construction contractor that works on buildings up to ten stories tall
apartment building seven stories tall *Apartment buildings are eligible for BOP coverage. Also eligible are construction contractors doing work at heights up to three stories, mercantile risks, motels up to three stories tall, and office buildings up to six stories tall.
While a businessowners policy combines coverages that might otherwise be written on several forms, it does NOT include coverage for:
workers compensation *A single BOP combines coverages that might otherwise be written on separate property, liability, crime, and inland marine forms.
Which coverage cannot be combined with other coverage forms under a single businessowners policy?
workers compensation *A single BOP combines coverages that might otherwise be written on separate property, liability, crime, and inland marine forms. It does not combine workers compensation coverage.
Shawn's ice cream parlor gets most of its customers from the health club next door. What coverage, if any, in Shawn's policy would apply if a fire closes the health club?
Business income from dependent properties additional coverage would apply. *Business income from dependent properties coverage applies to loss of business income resulting from damage from a covered cause to property of another business on which the insured depends.
Which loss would the businessowners policy NOT cover?
Manufacturing error causing defective product *The BOP does not cover manufacturing errors that result in worthless or defective products. This kind of loss arises from a business risk, not a peril that property insurance covers.
Ida's boutique at a shopping mall escapes damage when a portion of the atrium roof caves in. However, her business came to a sudden halt when the debris blocks access to her store. Does Ida's businessowners policy cover the resulting loss of income?
Yes, because the BOP's business income and extra expense coverage applies when a business interruption is caused by damage to any area used to gain access to the insured's premises. *overage applies to cessation of the insured's business activities due to uninhabitability of described premises. This includes any area used to gain access to the insured's premises.
A benefit of the extra expense additional coverage in a businessowners policy is that it
is not subject to the limits of insurance *Extra expense coverage is not subject to the limits of insurance but is provided in addition to those limits.
Bert faced two personal liability claims during the past year. His homeowners insurance policy has a $100,000 personal liability limit. The first claim was $125,000 for bodily injury and $50,000 for property damage. The second claim was $2,000 for bodily injury. How much did Bert's insurer pay in damages?
$102,000 *The insurer will pay the $100,000 limit for the first occurrence and $2,000 for the second.
Which incident that resulted in a liability claim against Aida did NOT involve "bodily injury" as defined in her homeowners insurance policy?
A neighbor's reputation was harmed by rumors Aida spread. *Homeowners forms define "bodily injury" as bodily harm, sickness, or disease, including death. Damage to reputation is not considered bodily injury.
While backing out of her garage, Louise accidentally lowers her garage door. The door strikes her car and is damaged. She learns that her homeowners insurance policy excludes liability coverage for damage to the insured's own property. Where might she find coverage?
Section I of the policy *The homeowners insurance policy provides no liability coverage for property damage to property owned by an insured because first-party property coverage is covered by Section I of the policy.
The chlorinated water that splashes out of Amber's backyard swimming pool eventually kills expensive trees that her neighbor Jeffrey planted at the edge of his property. He wants Amber to pay for the damage. Her homeowners policy may cover this liability claim if it involves an occurrence. Is it an occurrence?
Yes, because the damage can arise from continuous or repeated exposure to the same harmful conditions. *An occurrence can include not only sudden accidents but also losses arising from continuous or repeated exposure to the same harmful conditions.
In an attempt to reduce her expenses, Mattie sells her car. What must she do to cancel her auto insurance policy?
notify the insurer in writing of her intent to cancel the policy *The named insured can cancel by giving the insurer advance written notice of the intent to cancel the policy.
How much advance notice must an insurance company give its policyholder before it cancels a personal auto policy?
At least 10 days *Before an insurance company cancels a personal auto policy, it is required to give the policyholder at least 10 days' written notice in advance.
Pamela lives in a state with a financial responsibility law. When will she be required to prove she has auto liability insurance?
after it is involved in a serious traffic violation or accident. *Financial responsibility laws require motor vehicle owners to furnish evidence of financial responsibility (usually by providing proof of insurance) after a serious traffic violation or accident.
When the front fenders of Bobbie's coupe were damaged in an auto accident, his insurer arranged to replace them with non-original equipment manufacturer (non-OEM) parts. Why does the insurer use non-OEM parts?
to help minimize the cost of repairs and the cost of insurance Insurers' use of aftermarket parts from non-original equipment manufacturers helps minimize the cost of repairs and the cost of insurance.
Because Leanne's personal auto policy (PAP) provides liability coverage on temporary substitute autos, it will protect her if she is driving:
a truck she borrows from a friend while Leanne's car undergoes repairs The truck is a temporary substitute auto because Leanne is using it while her car is temporarily out of operation while it undergoes repairs.
Which is NOT one of the three major parts of a personal auto policy (PAP)? declarations page applicable endorsements personal auto coverage form definitions
definitions Although the PAP definitions are important to the policy, they are not one of its three major parts