Burnham - APA 92 Practice Exam

Question 1

A moral hazard involves

(A) active inducement of loss.
(B) passive inducement of loss.
(C) active indifference to loss.
(D) passive indifference to loss.

Answer 1

(A) active inducement of loss.

Moral hazards involve active inducement of loss, while morale hazards involve passive indifference to loss. (AI)

Question 2

The insurance  rate is
(A)     another  term for premium.
(B)     the total cost for all units  of insurance  under  a policy. 
(C)     the price per exposure.
(D)     the price per unit of insurance.

Answer 2

(D) the price per unit of insurance.

The insurance rate is the price per unit of insurance. (AI)

Question 3

Before workers’ compensation laws existed, employees could sue employers under common law for damages resulting from on-the-job injuries. Employers could defend against such claims by invoking

(A) assumption of risk.
(B) contributory negligence.
(C) the fellow servant rule.
(D) all of the above.

Answer 3

(D) all of the above.

Employers had three defenses against employee suits: contributory negligence, assumption of risk, and the fellow servant rule. (A2)

Question 4

Which of the following methods for meeting workers’ compensation obligations is an assigned risk plan?

(A) Workers’ compensation insurance plan.
(B) Self-insurance.
(C) Self-insured group.
(D) Voluntary private insurance.

Answer 4

(A) Workers’ compensation insurance plan.

An assigned risk plan is a state insurance program that insures applicants rejected by private insurers. State funds can also be assigned risk plans. (A2)

Question 5

All of the following are requirements that must be met for an injured employee to receive workers’ compensation benefits EXCEPT

(A) the injury or disease must be work-related.
(B) the injury or disease must be caused by a covered injury or disease.
(C) there must be a qualified disability.
(D) the employee must notify his employer of the loss.

Answer 5

(C) there must be a qualified disability.

There must be an impairment, not a disability. The two terms do not mean the same thing. An impairment is a purely medical condition, while a disability need not be purely medical. (A2)

Question 6

The total standard premium equals

(A) the insured’s premium for one state, based on authorized rates, without any additional charges.
(B) the insured’s premium for one state, based on authorized rates, including all additional charges.
(C) the insured’s premium for all states covered under the policy, based on authorized rates, without
any additional charges.
(D) the insured’s premium for all states covered under the policy, based on authorized rates, including all additional charges.

Answer 6

(B) the insured’s premium for one state, based on authorized rates, including all additional charges.

The standard premium equals the insured’s premium for one state, based on authorized rates, including all additional charges. The total standard premium is the total premium for all states covered under the policy. (A3)

Question 7

Part Two of The Basic Manual for Workers’ Compensation and Employer’s Liability Insurance addresses

(A) rules.
(B) classifications.
(C) rates.
(D) state exceptions.

Answer 7

(B) classifications.

Part One addresses rules, and Part Three addresses loss costs, rates, and state exceptions. (A4)

Question 8

Which of the following classification reference guides is published by the ISO?
(A) Scopes Manual.
(B) Classification Codes and Statistical Codes Manual (aka Classification Code Book)
(C) Commercial Lines Manual.
(D) Premium Audit Advisory Service Classification Guide.

Answer 8

(C) Commercial Lines Manual.

A) and (B) are published by the NCCI.
(D) is published by the PAAS. (A4

Question 9

All of the following are workers’ compensation coverage standard exception classifications EXCEPT (A) drafting employees.
(B) drivers.
(C) outside salesmen.
(D) lathe operators.

Answer 9

(D) lathe operators.

The four standard exceptions are clerical office employees; drafting employees; drivers, chauffeurs, and their helpers; and outside salespersons, collectors, and messengers. (A4)

Question 10

The classification of irrigation or drainage system construction always excludes all of the following
EXCEPT

(A) installation of septic tanks with leaching fields.
(B) sewer construction.
(C) dredging.
(D) pile driving.

Answer 10

(A) installation of septic tanks with leaching fields.

The classification includes installation of septic tanks with leaching fields if no other plumbing operations are involved. (A5)

Question 11

When classifying construction risks, an insurer

(A) classifies and rates each distinct operation separately.
(B) assigns the best governing classification to all operations.
(C) tries to restrict itself to three to five classifications per risk.
(D) none of the above.

Answer 11

(A) classifies and rates each distinct operation separately.

Each distinct operation (each specific type of work) is separately classified and rated to maintain premium equity among insureds. (AS)

Question 12

Which of the following extensions to the US Longshore and Harbor Workers Act extends coverage to overseas employees of government contractors?

(A) The Jones Act.
(B) The Defense Base Act.
(C) The Outer Continental Shelf Lands Act.
(D) The Civilian Employees of Nonappropriated Fund Instrumentalities Act.

Answer 12

(B) The Defense Base Act.

(A) is not an extension of the USL+HW Act.
(C) extends coverage to employees conducting operations on the outer continental shelf.
(D) extends coverage to employees of US instrumentalities who are not compensated by funds appropriated by Congress. (A6)

Question 13

Shipbreaking involves activities that

(A) scrap a vessel.
(B) launch a vessel.
(C) break through ice floes.
(D) steal from a vessel.

Answer 13

(A) scrap a vessel.

Shipbreakers are considered harborworkers under the USL+HW Act. (A6)

Question 14

All of the following  are bases for civil liability  EXCEPT 
(A)	contracts.
(B)     statutes. 
(C)     mores. 
(D)     torts.

Answer 14

(C) mores.

Mores are customs, established practices of societies. (A 7)

Question 15

When one party voluntarily assumes another’s liability, it causes

(A) premises and operations liability.
(B) vicarious liability.
(C) contractual liability.
(D) completed operations liability.

Answer 15

(C) contractual liability.

(A) is liability that arises out of ownership, maintenance, or use of land or from operations in progress. (B) imposes legal responsibility on one person for the acts of another.
(D) is legal responsibility arising from completed work. (A 7)

Question 16

Coverage C of the commercial general liability coverage form covers

(A) personal injury liability.
(B) advertising injury liability.
(C) bodily injury liability.
(D) medical payments.

Answer 16

(D) medical payments.

Coverage A covers bodily injury and property damage liability. Coverage B covers personal and advertising injury liability. (A 7)

Question 17

When an auditor has trouble classifying a business, he may compare it to other businesses with similar operations and hazards. That form of classification is called

(A) classification by terminology.
(B) classification by cross-reference.
(C) classification by analogy.
(D) classification by activity.

Answer 17

(C) classification by analogy.

(A) occurs when the auditor asks the insured to explain correct terminology applying to the operations.
(B) occurs when the auditor classifies the insured’s operation according to the workers’ compensation Basic Manual and uses the Classification Code Book to locate the corresponding general liability code number.
(D) occurs when the auditor evaluates the processes used in the insured’s operations. (A8)

Question 18

An (a) rated classification means

(A) the rate is incomplete and requires expense and other loadings.
(B) the underwriter must judgment rate that classification himself.
(C) the rate is the result of classification by analogy.
(D) the rate was developed by an apprentice underwriter and should be checked.

Answer 18

(B) the underwriter must judgment rate that classification himself.

For guidance, the ISO issues guide (a) rates to help underwriters rate (a) rated classifications. (A8)

Question 19

Government subdivisions are rated on the basis of

(A) total operating expenditures.
(B) area.
(C) payroll.
(D) units.

Answer 19

(A) total operating expenditures.

Government subdivisions are rated on the basis of total operating expenditures, which is total expenditures without regard to source of revenue. (A8)

Question 20

Under the business auto coverage form, which symbol includes hired autos only?

(A) Symbol 8.
(B) Symbol 5.
(C) Symbol 9.
(D) Symbol 19.

Answer 20

(A) Symbol 8.

Symbol 5 includes owned autos subject to ‘no-fault’. Symbol 9 includes nonowned autos only.
Symbol 19 includes mobile equipment subject to compulsory or financial responsibility or other motor
vehicle law only. (A9)

Question 21

Under the business auto coverage form, collision coverage covers losses from collision and

(A) overturn.
(B) derailment of a conveyance transporting the covered auto.
(C) vandalism.
(D) falling objects.

Answer 21

(A) overturn.

Collision coverage covers losses from collision and overturn. (A9)

Question 22

The business auto coverage form does not cover mobile equipment except when

(A) towed or carried by an auto.
(B) operated on public roads.
(C) operated off public roads.
(D) operated on the insured’s private property.

Answer 22

(A) towed or carried by an auto.

Although mobile equipment is designed for use off public roads, the BAC only covers it while towed or carried by an auto. (A9)

Question 23

A heavy truck has a gross vehicle weight of

(A) 10,000 pounds or fewer.
(B) 10,001 to 20,000 pounds.
(C) 20,001 to 45,000 pounds
(D) over 45,000 pounds.

Answer 23

(C) 20,001 to 45,000 pounds

A) is a light truck;
(B) is a medium truck;
(D) is an extra heavy truck. (A9

Question 24

A vehicle has a sphere of operations of 151 miles from its principal garage. Its radius class is

(A) local.
(B) intermediate.
(C) medium-long distance.
(D) long distance.

Answer 24

(B) intermediate.

A local radius is within 50 miles of principal garaging. An intermediate radius ranges from 51 - 200 miles.
A long distance radius is over 200 miles. (A9)

Question 25

All of the following are business auto coverage primary classifications of trucks, tractors, and trailers
EXCEPT

(A) radius of use.
(B) weight class.
(C) business use.
(D) age of vehicle.

Answer 25

(D) age of vehicle.

The primary classification is based on weight class, business use, and radius class. (A9)

Question 26

For rating purposes, an auto dealer’s Class I employee is counted as a full employee if he works an average of

(A) 40 or more hours per week.
(B) 30 or more hours per week.
(C) 20 or more hours per week.
(D) 10 or more hours per week.

Answer 26

(C) 20 or more hours per week.

An employee who works fewer than 20 hours per week is rated as half an employee. (All)

Question 27

Actual cash value equals

(A) historic cost minus tax depreciation.
(B) historic cost plus tax depreciation.
(C) current replacement cost minus physical depreciation.
(D) current replacement cost plus physical depreciation.

Answer 27

(C) current replacement cost minus physical depreciation.

(A) is net depreciated value. (AI2)

Question 28

What kind of report does an auditor provide when investigating a crime and fidelity loss? 
(A)	A statistical report.
(B)    A narrative report. 
(C)    A notarized report. 
(D)    A standard report.

Answer 28

(B) A narrative report.

The auditor writes a narrative report that advises the insurer’s claims department of the auditor’s findings and recommendations. (AI3)

Question 29

The ideal exposure base has all of the following characteristics EXCEPT
(A) it reflects the size of the exposure.
(B) it responds to inflation.
(C) it is easy to manipulate.
(D) it is acceptable to regulators and society.

Answer 29

(C) it is easy to manipulate.

The ideal exposure base is difficult to manipulate but easily measured. (AI)

Question 30

In an insurance rate, the expense component and the allowance for profit and contingencies are usually combined into a single element known as the

(A) pure premium.
(B) expense loading.
(C) gross rate.
(D) expected loss percentage.

Answer 30

(B) expense loading.

The other element of the insurance rate is the pure premium, which is the expected loss component.
AI

Question 31

Which disability classification includes employees who will not recover but who can return to work at a lower capacity?

(A) Temporary total disability.
(B) Permanent total disability.
(C) Temporary partial disability.
(D) Permanent partial disability.

Answer 31

(D) Permanent partial disability.

In such a case, the employer either pays scheduled injuries, where the statute determines the amount to be paid for a number of weeks, or nonscheduled injuries, where the employer pays the temporary partial disability rate for the number of weeks in a lump sum. (A2)

Question 32

Where on the workers’ compensation and employers’ liability information page is the insured’s name and address listed?

(A) Item 1.
(B) Item 2.
(C) Item 3.
(D) Item 4.

Answer 32

(A) Item 1.

Item 1 lists the insured’s name, address, type of entity, and locations. (A2)

Question 33

Part 5 of the standard workers’ compensation and employers’ liability insurance policy covers

(A) other states’ insurance.
(B) conditions.
(C) the insured’s duties if injury occurs.
(D) premium.

Answer 33

(D) premium.

A) is covered in Part 3,
(B) in Part 6, and
(C) in Part 4. (A2

Question 34

A manual rate that is followed by a “D” or “E” includes

(A) a dismemberment loading.
(B) an expense loading.
(C) a disease loading.
(D) an efficiency loading.

Answer 34

(C) a disease loading.

A disease loading is a loading for inherent hazards of that classification. (A3)

Question 35

What is unusual about the use of the word “or” in a workers’ compensation classification?
(A) it also means “and.”
(B) it never appears.
(C) it is always capitalized so readers can spot it more easily.
(D) it almost always signals a coverage exception.

Answer 35

(A) it also means “and.”

“Or” also means “and” when it’s used in a workers’ compensation classification. (A4)

Question 36

For the purpose of workers’ compensation insurance, assign payroll for miscellaneous employees to

(A) the governing classification.
(B) the closest standard exception code.
(C) the two closest classifications, divided pro rata.
(D) the three closest classifications, divided pro rata.

Answer 36

(A) the governing classification.

Miscellaneous employees perform duties conducted in common for separate operations subject to more than one basic classification. Assign payroll to the governing classification, which is the classification code (other than the standard exception code) with the greatest amount of payroll. (A4)

Question 37

When  computing  gross payroll,  auditors  should use all of the following  source documents  EXCEPT 
(A)	tax documents.
(B)     payrolljoumals. 
(C)     general  ledgers.
(D)     individual  earnings  records.

Answer 37

(A) tax documents.

Don’t base payroll determination on tax documents, which do not include all types of remuneration. (A4)

Question 38

A hiring hall is

(A) a temporary location periodically used for hiring recent and soon-to-be college graduates for entry level positions.
(B) another term for a union hall.
(C) a pool of skilled construction workers.
(D) a recent addition to many unemployment offices.

Answer 38

(C) a pool of skilled construction workers.

Some employers negotiate union contracts in which the union agrees to provide a hiring hall, or a pool of skilled construction workers. (AS)

Question 39

In a construction project, the person responsible for the quality and pace of the work is called the

(A) project superintendent.
(B) general contractor.
(C) project manager.
(D) shop steward.

Answer 39

(B) general contractor.

The project superintendent oversees the work of the general contractor’s employees and organizes the subcontractors’ work. The project manager controls and allocates the project’s resources. (AS)

Question 40

A payroll classification that is already rated for the US Longshore and Harbor Workers’ exposure is called alan

(A) C classification.
(B) sea classification.
(C) LHW classification.
(D) F classification.

Answer 40

(D) F classification.

Non-F classifications, not surprisingly, are not rated for the USL+HW exposure. (A6)

Question 41

To be eligible for compensation under the USL+HW Act, the injury must have occurred in navigable waters or in an area adjoining navigable waters. That requirement is known as the

(A) status test.
(B) situs test.
(C) statute test.
(D) sea state test.

Answer 41

(B) situs test.

The situs test is one of two tests for eligibility for compensation under the USL+HW Act. The other test is the status test. (A6)

Question 42

The commercial general liability coverage form’s extended reporting period applies to

(A) the claims made form only.
(B) the occurrence form only.
(C) both the claims made and occurrence forms.
(D) events that occur and are reported during the coverage period.

Answer 42

(A) the claims made form only.

The extended reporting period applies only to the claims made form and covers events that occur during the coverage period but are not reporting during the coverage period. (A 7)

Question 43

The exposure base for manufacturers is

(A) payroll.
(B) area.
(C) gross sales.
(D) inventory.

Answer 43

(C) gross sales.

Mercantile entities and hotels also use gross sales. (A 7)

Question 44

One of the premium bases used by general liability insurance is total operating expenditures. Total operating expenditures includes all of the following EXCEPT

(A) federal and state training funds.
(B) entitlements.
(C) welfare benefits.
(D) grants.

Answer 44

(C) welfare benefits.

Total operating expenditures include accounts payable, grants, entitlements, shared revenue, expen­
ditures for underinsured independent contractors’ operations, and federal and state training funds. (A 7)

Question 45

In the CLM’s Classification Table, the symbol m represents the premium base

(A) admissions.
(B) total cost.
(C) gross sales.
(D) units.

Answer 45

(A) admissions.

The symbol for admissions is m, for total cost is c, for gross sales is s, and for units is u. (A8)

Question 46

In general liability insurance, all of the following are principles that govern the classification of manufacturing and processing EXCEPT

(A) each named insured is separately classified and rated.
(B) retail operations of a combined retailer/manufacturer are rated and classified separately.
(C) the final product is classified.
(D) interim processes are classified.

Answer 46

(D) interim processes are classified.

Components and interim processes are not classified for manufacturing and processing risks, just the final product. (A8)

Question 47

In general liability insurance, miscellaneous employees who perform various functions related to the entire job are assigned to which classification?

(A) The classification receiving the lowest amount of payroll.
(B) The classification receiving the highest amount of payroll.
(C) The classification that is the closest match for each miscellaneous job.
(D) The classification that is the closest match for all miscellaneous jobs treated as a group.

Answer 47

(B) The classification receiving the highest amount of payroll.

Assign miscellaneous employees to the classification that receives the highest amount pfpayroll. (A8)

Question 48

Under the truckers coverage form, driving with an empty trailer is called

(A) bobtailing.
(B) bobheading.
(C) deadheading.
(D) deadtailing.

Answer 48

(C) deadheading.

Deadheading is hauling an empty trailed. Bobtailing is driving without a trailer. (AIO)

Question 49

Which  item on the truckers  coverage  form declarations  addresses  trailer  interchange  coverage? 
(A)	Item four.
(B)     Item five. 
(C)     Item six. 
(D)     Item seven.

Answer 49

(C) Item six.

Item four contains the schedule of hired or borrowed covered auto coverage and premiums.
Item five contains the schedule for non-ownership liability.
Item seven contains the schedule for gross receipts rating basis for liability coverage. (AlO)

Question 50

Which symbol under the truckers coverage form indicates coverage for hired autos?

(A) Symbol 47.
(B) Symbol 57.
(C) Symbol 37.
(D) Symbol 17.

Answer 50

(A) Symbol 47.

The other answers are nonsense choices. (AIO)

Question 51

Which endorsement meets the insurance liability requirements of the Motor Carrier Act of 1980?

(A) The Truckers Endorsement.
(B) The Truckers – Named Lessee as Insured Endorsement.
(C) The MCS 90 Endorsement.
(D) The No-fault Coverage Endorsement.

Answer 51

(C) The MCS 90 Endorsement.

The MCS 90 Endorsement provides liability coverage for damages resulting from negligence in the operation, maintenance, or use of any motor vehicle subject to the Motor Carrier Act of 1980. (AIO)

Question 52

To qualify as a farmer’s auto, an auto must be all of the following EXCEPT
(A) principally garaged on a farm or ranch.
(B) used only for farming or ranching.
(C) owned by an individual, husband and wife in the same household, family partnership, or family corporation.
(D) not used for commuting to farming or ranching work.

Answer 52

(D) not used for commuting to farming or ranching work.

A farm auto may not be used for commuting to work except for farming or ranching work. (AlO)

Question 53

The most popular premium base for public autos is

(A) gross receipts basis.
(B) specified car basis.
(C) mileage basis.
(D) type of work basis.

Answer 53

(B) specified car basis.

The premium is based on manual rules, with vehicles operated over 200 miles from their principal places of garaging being zone rated. (AIO)

Question 54

The garage coverage form endorsement that provides physical damage coverage for autos being transported over 50 miles is called

(A) false pretense coverage.
(B) broadened coverage.
(C) broad form products coverage.
(D) dealers driveaway collision coverage.

Answer 54

(D) dealers driveaway collision coverage.

(A) Broadens physical damage coverage to include losses caused by voluntary parting.
(B) Adds coverage for personal and advertising injury, fire legal liability, incidental medical malpractice,
Non-owned watercraft and limited worldwide liability.
(C) Extends liability coverage to product damage resulting from a defect existing at the time of sale or transfer. (All)

Question 55

All of the following are reasons for property insurance audits EXCEPT
(A) verify payroll records.
(B) help insureds prepare required reports.
(C) avoid coinsurance penalties.
(D) value property.

Answer 55

(A) verify payroll records.

Two other reasons for property insurance audits are to determine the final premium and to identify possible deficiencies. (AI2)

Question 56

All of the following are specific controls for a business’s sales and shipping activities EXCEPT
(A) require credit approval.
(B) do not use prenumbered sales invoices.
(C) require supporting documentation for returns.
(D) separate sales and shipping duties.

Answer 56

(B) do not use prenumbered sales invoices.

Prenumbered sales invoices make it easier to detect missing or fraudulent invoices. (AI3)

Question 57

Which  method  of rating  is most likely to produce  adverse  selection? 
(A)	The single rate system.
(B)     Class rating.
(C)    Individual  rating. 
(D)     Flex rating.

Answer 57

(A) The single rate system.

The single rate system uses one rate that is too high for some insured’s and too low for others. It leads to adverse selection and causes insurers to reject applicants with high loss exposures. (AI)

Question 58

Which rating plan adjusts the insured’s premium for a given period based on its experience during that same period?

(A) An experience rating plan.
(B) A schedule rating plan.
(C) A retrospective rating plan.
(D) An individual rating plan.

Answer 58

(C) A retrospective rating plan.

(A) Increases the insured’s rates for a future period based on its loss experience in a prior period.
(B) Adjusts the insured’s premium to reflect characteristics not reflected in its experience rating. (AI)

Question 59

Rate regulation  ensures  that rates be all of the following  EXCEPT 
(A)	not unfairly  discriminatory.
(B)     responsive. 
(C)     adequate.
(D)     not excessive.

Answer 59

(B) responsive.

Rates must be adequate, not excessive, and not unfairly discriminatory. (AI)

Question 60

60. The middle two digits of a workers’ compensation and employers’ liability endorsement

(A) identify the state in which the endorsement applies.
(B) identify the coverages to which the endorsement applies.
(C) indicate the type or classification of endorsement.
(D) indicate each endorsement’s place in the sequence of endorsements for that classification.

Answer 60

(C) indicate the type or classification of endorsement.

A) Describes the first two digits.
(D) Describes the last two digits. (A2

Question 61

Glenda will base the workers’ compensation premium on payroll. Payroll is a good premium basis for all of the following reasons EXCEPT

(A) payroll is not subject to manipulation by the insured.
(B) payroll is relatively easy to determine.
(C) payroll is relatively easy to verify.
(D) payroll does not vary with the workers’ compensation exposure.

Answer 61

(D) payroll does not vary with the workers’ compensation exposure.

Payroll is a good basis for wc premium precisely because it does vary directly with the wc exposure. (A3)

Question 62

If Glenda did not use payroll as the basis for the workers’ compensation premium, what other basis might she use?

(A) number and types of employees.
(B) total assets.
(C) number of vehicles.
(D) hours worked.

Answer 62

(D) hours worked.

Some WC insurers base premium computation on hours worked, but it is not as effective a premium base as payroll. (A3)

Question 63

When Glenda computes Wonky Widgets' payroll, she will include all of the following EXCEPT 
(A)	payments for active military duty.
(B)    commissions.
(C)    overtime pay. 
(D)    holiday pay.

Answer 63

(A) payments for active military duty.

Payroll does not include payments for active military duty. (A3)

Question 64

When Glenda computes Wonky Widgets’ payroll, she will exclude

(A) payments for tools.
(B) work uniform allowances.
(C) Davis-Bacon wages.
(D) bonuses.

Answer 64

(B) work uniform allowances.

A), (C), and (D) are all included in payroll. (A3

Question 65

Once she computes the basic payroll amount, Glenda spends time calculating imputed payroll for all of the following employees EXCEPT

(A) executive officers credited with regular salaries that they do not receive.
(B) volunteer workers.
(C) administrative staff.
(D) uninsured subcontractors.

Answer 65

(C) administrative staff.

Imputed payroll calculates and adds to total payroll the actual value of services provided without charge or at greatly reduced rates, such as by volunteer workers and uncompensated executives. (A3)

Question 66

The final step for Knight and Day for both projects is to

(A) set the foundation.
(B) prepare the site.
(C) build the superstructure.
(D) landscape the area.

Answer 66

(D) landscape the area.

The seven basic stages in the construction process are to prepare the site, set the foundation, build the superstructures, install the utilities, enclose the superstructure, finish the surfaces, and landscape the site. (A5)

Question 67

Knight and Day will install the utilities in the office building

(A) at the very end of the project.
(B) after setting the foundation but before building the superstructure.
(C) after building the superstructure but before enclosing the superstructure.
(D) after enclosing the superstructure but before finishing the surfaces.

Answer 67

C) after building the superstructure but before enclosing the superstructure.

As above, the seven basic stages in the construction process are to prepare the site, set the foundation, build the superstructures, install the utilities, enclose the superstructure, finish the surfaces, and landscape the site. (A5)

Question 68

Knight and Day Construction is currently building the frame of the apartment building. Where in the frame are joists found?

(A) In the floor.
(B) In the roof.
(C) In the walls.
(D) In the foundation.

Answer 68

(A) In the floor.

The frame is a rigid skeleton that supports the building’S walls (studs), floors (joists), and roof (rafters). (A5)

Question 69

Knight and Day is installing a built-up roof on the office building. That means the roof is constructed of

(A) three to five alternating layers of tar and gravel.
(B) cement slabs.
(C) steel.
(D) a wood-frame, peaked, artificial roof on top of a flat roof.

Answer 69

(A) three to five alternating layers of tar and gravel.

A built-up roof has three to five alternating layers of tar and gravel. (A5)

Question 70

Billy is injured by a swordfish during one of his voyages. Although the injury is not life threatening, Billy is unable to work for the rest of the voyage. The captain tells him he’ll dock his pay for the food he eats for the rest of the voyage, as the food is meant to restore the energies of working sailors. The captain’s decision is

(A) fine as long as the crew numbers fewer than five.
(B) wrong, because Billy is entitled to maintenance.
(C) wrong, because Billy is entitled to cure.
(D) wrong, because Billy is entitled to damages.

Answer 70

(B) wrong, because Billy is entitled to maintenance.

When injured, Billy has the implied contractual right to maintenance, which includes wages, transportation to home port, and food and quarters to the end of the voyage. (A6)

Question 71

Billy says he intends to sue the shipowner for damages under admiralty law, because he was not adequately warned of the risks of fishing for swordfish. Billy’s plan is

(A) fine, as long as he can prove the captain’s negligence.
(B) fine, and leaves the captain to disprove his own negligence.
(C) flawed, because under admiralty law Billy can only sue for damages based on the vessel’s unseaworthiness.
(D) flawed, because it’s common knowledge that fishing for swordfish is a very risky activity.

Answer 71

(A) fine, as long as he can prove the captain’s negligence.

Admiralty law gives the injured sailor the right to sue the shipowner for damages if the vessel is unseaworthy. (A6)

Question 72

Under admiralty law, Billy can sue two entities for liability. One is the shipowner. What is the other? 
(A)	The captain.
(B)    The crew.
(C)     The shipowner's family. 
(D)    The ship.

Answer 72

(D) The ship.

Admiralty law lets the injured sailor bring an in rem action against the ship. (A6)

Question 73

Billy is also protected by the Jones Act, as long as he meets the definition of a seaman. Under the Jones
Act, an employee is a seaman if he meets all of the following criteria EXCEPT

(A) he works on a vessel in navigation.
(B) he is employed as a master or a member of the crew.
(C) he has a permanent connection with the vessel.
(D) he sleeps on the vessel at least ten days out of every month.

Answer 73

(D) he sleeps on the vessel at least ten days out of every month.

The fourth criterion is that the employee contributes to the function of the vessel or accomplishment of its mission. (A6)

Question 74

Because Calum’s Car Sales is an auto dealership, Section I of its garage coverage form must list which symbol?

(A) Symbol 11.
(B) Symbol 21.
(C) Symbol 31.
(D) Symbol 41.

Answer 74

(B) Symbol21.

Symbol 21 on the garage coverage form includes any auto. It is reserved for dealers and must always be used when the insured is a dealer. (All)

Question 75

Calum’s customers are covered under Calum’s liability coverage

(A) under any circumstance.
(B) only if the customer’s own insurance is insufficient.
(C) only if the customer’s own insurance is sufficient.
(D) only if the customer has no insurance at all.

Answer 75

(B) only if the customer’s own insurance is insufficient.

A dealer’s customer is not insured unless the customer’s own insurance is insufficient. (All)

Question 76

Calum’s liability coverage includes coverage for

(A) cars Calum rents to customers.
(B) cars Calum leases to customers.
(C) ‘loaner’ cars that Calum lets customers use while their cars are being serviced.
(D) all of the above.

Answer 76

(C) ‘loaner’ cars that Calum lets customers use while their cars are being serviced.

Liability coverage excludes autos rented or leased to customers (except loaners). (All)

Question 77

Because Calum’s Car Sales is an auto dealership, its physical damage coverage excludes

(A) expected profit.
(B) loss involving auto transport over 50 miles.
(C) loss from any unreported, nonscheduled location 45 or more days after acquisition.
(D) all of the above.

Answer 77

(D) all of the above.

Additional physical damage exclusions for dealers include expected profit, loss from any unreported, nonscheduled location 45 or more days after acquisition, and loss involving auto transport over 50 miles. (All)

Question 78

Several Main Street businesses have bailees coverage with Springfield Insurance. All of the following businesses are likely to want bailees coverage EXCEPT

(A) Wayne’s Warehouse.
(B) Fiona’s Fur Storage.
(C) Barbara the Builder.
(D) Lee’s Laundry.

Answer 78

(C) Barbara the Builder.

A warehouse, furrier, and laundry are all likely to hold the property of others, and so need baileys coverage. In terms of inland marine coverage, a builder is more likely to need contractors’ equipment insurance. (AI2)

Question 79

Annie’s Art Gallery has fine arts dealers coverage with Springfield Insurance, which covers both sold and unsold property. In the event of loss, damaged property that Annie has sold but not delivered is valued at

(A) the agreed value.
(B) the selling price.
(C) fair market value.
(D) actual cash value.

Answer 79

(B) the selling price.

Unsold property may be valued at the amount in the insured’s inventory, actual cash value, or fair market value. Once it’s sold, property is valued at its selling price. (AI2)

Question 80

Fred’s Fine Furniture has floor plan merchandise coverage with Springfield Insurance, to cover Fred’s interest in payments he’s made on specific items. The value of each covered item is the smallest of any of the following EXCEPT

(A) the price paid by Fred.
(B) the price paid by Fred’s customer.
(C) the cost to restore.
(D) the cost to replace.

Answer 80

(B) the price paid by Fred’s customer.

Once Fred’s customer buys an item covered by the floor plan merchandise coverage (and the item is not yet delivered), the value equals the selling price minus any discounts and allowances. (AI2)

Question 81

Gustaf’s Gems has a jewelers block coverage form with Springfield Insurance. Gustaf’s policy will not cover any of the following losses EXCEPT

(A) property in transit.
(B) employee dishonesty.
(C) processing work on the property.
(D) breakage of fragile articles.

Answer 81

(A) property in transit.

The jewelers block coverage form provides all-risks coverage for jewelry; precious and semiprecious stones; precious metals and alloys; other jewelers’ stock; similar property of others in the jeweler’s care, custody, or control; and property in transit.(A I2)

Question 82

Katriona evaluates a regular audit by making sure it meets all of the following requirements EXCEPT
(A) The auditor follows written procedures.
(B) Some parts of the audit are unannounced.
(C) The auditor is authorized to see all of the records he checks.
(D) The audit is repeated at least every three years.

Answer 82

(D) The auditor follows written procedures.

Auditors should perform a regular audit at least annually. (A13)

Question 83

When Katriona performs an internal control survey, she uses

(A) formal interviews.
(B) informal interviews.
(C) flowcharts.
(D) a questionnaire.

Answer 83

(D) a questionnaire.

The answer is (D).

An internal control survey uses a questionnaire to evaluate internal controls. (A13)

Question 84

Katriona investigates both general and specific controls against crime losses. Which of the following is a specific control?

(A) Have someone not involved in daily financial duties balance the bank statement.
(B) Require people in key financial positions to take regular, annual vacations over consecutive business days.
(C) Segregate shipping and billing duties.
(D) Have owners and managers prepare and enforce budgets.

Answer 84

(A) Have someone not involved in daily financial duties balance the bank statement.

(A) applies to a specific area (control of cash) that needs special procedures to control its unique exposures. (A13)

Question 85

Katriona always checks the insured’s physical security, which means she looks for all of the following
EXCEPT

(A) an enclosed perimeter.
(B) an alarm system.
(C) screening of new employees.
(D) storage of money and valuables in a locked safe or vault.

Answer 85

(C) screening of new employees.

Screening of new employees is not a form of physical security. (AI3)