Chapter 4 Flashcards
Replacement cost coverage will pay:
Select one:
a. the fair market value of the property.
b. the original price paid when the property was purchased.
c. the cost to replace the property.
d. the depreciated value of the property.
Feedback
The correct answer is: the cost to replace the property.
Each of the following provides coverage over and above the policy limit EXCEPT:
Select one: a. Fire Department Service Charge b. Debris removal c. Preservation of Property Feedback Key words "over and above."
The correct answer is: Preservation of Property
An Insurer may recover part of the losses paid for an Insured’s damaged auto by:
Select one:
a. using its right of salvage to sell the auto
b. waiving its right to assignment
Feedback
The correct answer is: using its right of salvage to sell the auto
An Insurer’s required assignment of rights of recovery after paying a claim is:
Select one: a. salvage b. coinsurance c. subrogation d. risk Feedback The correct answer is: subrogation
Using a disinterested third party to resolve a claim dispute is:
Select one: a. arbitration b. assignment Feedback The correct answer is: arbitration
The burden of proving a loss rests on the:
Select one: a. insured b. insurer Feedback The correct answer is: insured
A Special Form policy covers:
Select one: a. rats eat wiring insulation. b. decay that causes a wall to collapse. c. termite damage. d. fungus. Feedback Special (as well as Broad Form) will cover collapse. However, mold (fungus), insects and vermin are excluded perils.
The correct answer is: decay that causes a wall to collapse.
Which section of a Special form policy determines whether a peril is covered?
Select one: a. Conditions b. Exclusions c. Declarations d. Insuring agreements Feedback Under a Special Form, the only way we can determine whether a peril is covered is to read the exclusions. If the peril isn't in the list of exclusions, it will be covered.
The correct answer is: Exclusions
Under the Business Income Policy’s Arbitration Provision:
Select one:
a. the insured may request arbitration when submitting a claim.
b. either party may request arbitration.
Feedback
I apologize for blindsiding you on this question, but this is what the exam will do. We have covered the Arbitration Provision and you know from the text and video that either party may initiate the arbitration process in any property policy. The old exam questions would have simply asked if either party can initiate arbitration. However, the newer and tougher questions like to put the arbitration provision within a particular property policy (such as Business Income which we haven’t yet studied) and then ask the same old questions about the arbitration provision.
So, we have covered the arbitration provision. Just don’t panic when they ask about an Arbitration Provision contained in any of the policies we will later study - the answer is the same in all of the policies, Business Income, Commercial Package Policy, Commercial Crime, Business Owner Policy, etc., etc.
The correct answer is: either party may request arbitration.
Which is true regarding salvaged property?
Select one:
a. The Insured is entitled to the property.
b. The Insurer determines what happens to the property.
c. The adjuster is entitled to the property.
d. The Insurer must sell it to a salvage firm.
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The correct answer is: The Insurer determines what happens to the property.
The Insurer’s right to recover from a negligent third party for a claim paid by the Insurer to the Insured is known as:
Select one: a. insurable interest b. subrogation Feedback The correct answer is: subrogation
Water damage to a building resulting from fire fighting efforts is:
Select one: a. a direct loss b. an indirect loss Feedback The correct answer is: a direct loss
If the parties disagree on the amount of the claim, their first step should be:
Select one: a. arbitration b. a lawsuit Feedback The correct answer is: arbitration
Subrogation involves transfer of whose rights?
Select one: a. Insured b. Insurer Feedback The correct answer is: Insured
L insures his garage for $15,000 with Co. A. He insures his building for $20,000 with Co. B. The fire coverage is equal to the replacement cost of the structures. Each policy has a $250 deductible. If both structures are destroyed by a covered peril, the maximum L will receive is:
Select one: a. $5,000 b. $34,500 c. $34,750 d. $35,000 Feedback The correct answer is: $34,500
The “other insurance clause” reinforces which insurance concept?
Select one: a. subrogation b. indemnity Feedback The correct answer is: indemnity
After a loss, an insured must:
Select one:
a. protect the property from further loss
b. notify the Insurance Commissioner
c. request an appraisal
d. pay the next premium payment
Feedback
Remember that insurance policies are unilateral - only the Insurer makes a promise. The Insured never promises to pay any future premiums.
The correct answer is: protect the property from further loss
Basic covers:
Select one:
a. water damage when a fire sprinkler system activates due to a fire
b. rain which blows in an open window and damages goods
Feedback
The correct answer is: water damage when a fire sprinkler system activates due to a fire
Which is an indirect loss?
Select one:
a. a fire causes a business to close
b. water damage from firefighters
c. smoke from an oven damages living room drapes
d. heavy snows cause a roof to collapse
Feedback
The correct answer is: a fire causes a business to close
A policy covers leaky roofs. The insured’s roof leaked after a satellite dish installer improperly mounted a new satellite dish on the roof. The leak damaged the wall, the floor, and a couch. The policy will pay for each of the following EXCEPT:
Select one: a. the damage to the wall b. the couch c. repair of the leaky roof d. the floor Feedback Although the damage from the leaky roof is covered, the Insurer is not expected to repair the leaky roof. Likewise, if a water pipe breaks, the Insurer will cover the damage caused but the Insured is expected to repair the broken pipe.
The correct answer is: repair of the leaky roof
New zoning laws prevent an Insured from replacing a destroyed property. If the Insured transfers ownership of the property to the Insurer, this is an example of:
Select one: a. arbitration b. assignment c. abandonment d. subrogation Feedback The correct answer is: abandonment
“Acts of God” are best covered by:
Select one: a. Broad form b. Liability policies c. Special form d. Basic form Feedback New point - If we are concerned about unusual forces of nature, nothing can provide better coverage than the good old Special form policy! Liability insurance covers acts of the Insured, not acts of God.
The correct answer is: Special form
The Insurer’s recovery from the sale of damaged property is:
Select one: a. salvage b. assignment Feedback The correct answer is: salvage
When the insured property is a total loss, who is entitled to the salvage?
Select one: a. insured b. insurer Feedback The correct answer is: insurer
Which is an example of an indirect loss?
Select one: a. a business loses profits after a fire b. fireplace smoke damages the home c. a frozen pipe bursts d. a twister damages a home Feedback Other names for Indirect Loss are Consequential, Loss of Income, and Loss of Use. Indirect loss refers to the financial loss that is a consequence of the direct loss. All of these refer to direct loss (damage to property) except for the loss of profits after a fire which is an indirect loss.
The correct answer is: a business loses profits after a fire
Which is NOT an extended coverage peril?
Select one: a. earthquake b. volcano c. lightning d. smoke and fire Feedback The correct answer is: earthquake
After a boat accident, the Insured should do each of these EXCEPT:
Select one:
a. Notify the Insurance Commissioner.
b. Notify the insurer as soon as possible.
c. Protect the property from further damage.
d. File a Proof of Loss.
Feedback
The Insurance Commissioner simply doesn’t want to hear about our problems unless the Insurer improperly fails to pay the claim.
The correct answer is: Notify the Insurance Commissioner.
Transfer of rights of recovery against others to the Insurer is:
Select one: a. subrogation b. assignment Feedback The correct answer is: subrogation
A mortgagee must be given how much notice of cancellation?
Select one: a. 10 days b. 20 days c. 40 days d. 80 days Feedback The correct answer is: 10 days
Special covers each of the following EXCEPT:
Select one: a. Theft b. Mysterious disappearance c. Acts of God d. Floods and earthquakes Feedback Floods and earthquakes aren't covered by Special. But, Special will cover mysterious disappearance, theft, and all the other things that are commonly referred to as "Acts of God" because we mortals can't figure out where else to place the blame.
The correct answer is: Floods and earthquakes
Salvage:
Select one: a. reduces the overall cost of claims. b. is a right of the insured. Feedback Only the Insurer has the right of salvage. The right of salvage permits the Insurer to sell the damaged item to reduce its claims costs. It also prevents the Insured from coming out ahead by getting "new stuff" and keeping the "damaged stuff." Thus, the right of salvage upholds the principle of indemnification.
The correct answer is: reduces the overall cost of claims.
To guarantee that depreciation will not be a factor in calculating the amount to be paid at the time of a loss, an Insured should purchase:
Select one: a. Replacement cost b. Actual cash value Feedback The correct answer is: Replacement cost
A mortgage clause:
Select one:
a. Grants the mortgagee specific rights not granted to the Insured.
b. Obligates the Insurer to pay the mortgage payments if the Insured is disabled.
Feedback
The mortgagee can get paid by the Insurer even if the Insured intentionally torches the property.
The correct answer is: Grants the mortgagee specific rights not granted to the Insured.
Each of the following is true about the mortgagee EXCEPT:
Select one:
a. The mortgagee must be notified of cancellation or nonrenewal.
b. The mortgagee may file a claim if the insured fails to do so.
c. The mortgagee has an insurable interest.
d. The mortgagee is entitled to coverage which exceeds the policy limits.
Feedback
Remember, we are looking for the false answer with EXCEPT questions. The mortgagee may only collect up to the balance owing on the mortgage debt but certainly cannot recover more than the policy limit.
The correct answer is: The mortgagee is entitled to coverage which exceeds the policy limits.
The insurer must be notified of the loss:
Select one: a. immediately b. within 60 days Feedback The correct answer is: immediately
After a loss by a covered peril, the Insured demands full payment for damaged property given to the Insurer. This is an illegal attempt at:
Select one: a. abandonment b. indemnity Feedback The correct answer is: abandonment
“New for old” refers to:
Select one: a. Replacement cost b. Actual cash value Feedback The correct answer is: Replacement cost
Replacement cost coverage provides:
Select one:
a. Deductions for depreciation.
b. The total cost to repair or replace an item.
Feedback
The correct answer is: The total cost to repair or replace an item.
A sworn proof of loss statement must be submitted within:
Select one: a. 10 days b. 30 days c. 45 days d. 60 days Feedback The correct answer is: 60 days
The policy requires the mortgagee to be notified of:
Select one: a. cancellation of the policy. b. losses. Feedback The correct answer is: cancellation of the policy.
Each is true regarding subrogation EXCEPT:
Select one:
a. It exists in many types of insurance policies.
b. It places the burden of the loss on the responsible third party.
c. It allows larger recovery by the Insured.
d. It upholds the concept of indemnification by preventing double recovery by the insured.
Feedback
The correct answer is: It allows larger recovery by the Insured.
A special coverage policy covers:
Select one:
a. all losses except those specifically excluded
b. all losses
Feedback
The correct answer is: all losses except those specifically excluded
A process used to negotiate settlement of a claim is:
Select one: a. subrogation b. appraisal Feedback The correct answer is: appraisal
Insurable interest and actual cash value are both related to:
Select one: a. Peril b. Law of Large Numbers c. Indemnity d. Speculative risk Feedback Both serve to make the Insured whole but to not allow the Insured to come out ahead. By requiring an insurable interest, we prevent the Insured from insuring property owned by others. By only paying ACV, we keep the Insured from coming out ahead by getting "new for old."
The correct answer is: Indemnity
The Insurer may require the responsible party to pay for the loss under the concept of:
Select one: a. indemnity b. subrogation Feedback The correct answer is: subrogation
A covered loss occurs after a policy is cancelled. The mortgagee was not notified of cancellation. The mortgagee may recover:
Select one: a. $0 b. the fair market value of the property c. up to the policy limits d. the balance owing on the mortgage Feedback The correct answer is: the balance owing on the mortgage
A consequential loss is:
Select one: a. a direct loss b. an indirect loss Feedback The correct answer is: an indirect loss
If your building is destroyed by fire, you must notify the Insurer:
Select one: a. within 60 days b. promptly Feedback The correct answer is: promptly
After paying an Insured, the Insurer brings suit against the individual causing the loss. This is an example of the exercise of the right of:
Select one: a. subrogation b. salvage Feedback The correct answer is: subrogation
Most property policies provide:
Select one: a. Actual cash value b. Replacement cost Feedback The correct answer is: Actual cash value
If the Insured tries to turn partially or totally destroyed property over to the Insurer while demanding full payment is, this could be construed as the Insured’s illegal attempt at:
Select one: a. salvage b. abandonment Feedback The correct answer is: abandonment
The appraisal provision settles disputes about:
Select one: a. coverage b. the extent of loss Feedback The correct answer is: the extent of loss
The best example of indemnification is:
Select one: a. actual cash value b. replacement cost Feedback The correct answer is: actual cash value
After a fire, an Insured is reimbursed in full for the loss. This is:
Select one: a. Replacement cost b. Actual cash value Feedback The correct answer is: Replacement cost
Depreciated value is:
Select one: a. Actual cash value b. Replacement cost Feedback The correct answer is: Actual cash value
Subrogation involves the:
Select one:
a. third party’s suit against the insurer.
b. insurer’s suit against the insured.
c. insurer’s suit against the third party.
d. insured’s suit against the insurer.
Feedback
The correct answer is: insurer’s suit against the third party.
Extended Coverage does NOT cover:
Select one: a. fire b. explosions c. hail d. earthquake Feedback The correct answer is: earthquake
Actual cash value:
Select one:
a. pays Fair Market Value
b. takes physical depreciation into account
Feedback
The correct answer is: takes physical depreciation into account
During a fire, one wall of a building collapses and damages an adjacent building. This is:
Select one: a. an indirect loss b. a direct loss Feedback The correct answer is: a direct loss
Which section of the Basic or Broad form policy determines whether a peril is covered?
Select one: a. Insuring agreements b. Exclusions c. Conditions d. Declarations Feedback The correct answer is: Insuring agreements
Salvage is a right of:
Select one: a. the insured only. b. both the insurer and insured. c. neither the insurer or insured. d. the insurer only. Feedback The correct answer is: the insurer only.
Payment of the actual cost to replace an item is:
Select one: a. Replacement cost b. Actual cash value Feedback The correct answer is: Replacement cost
If the Insured fails to submit a proof of loss, the mortgagee should:
Select one: a. file a proof of loss form. b. sue the insurer. Feedback The correct answer is: file a proof of loss form.
The cost of hiring the umpire is:
Select one:
a. paid by the insurer alone.
b. paid by the appraisers.
c. split between the insurer and insurance commissioner.
d. split between the insurer and insured.
Feedback
Everyone pays for their own appraiser but the cost of the umpire is split.
The correct answer is: split between the insurer and insured.
If a covered peril causes a loss, the Insurer must:
Select one: a. pay the loss b. complete a proof of loss form Feedback The correct answer is: pay the loss
A third party causes damage to the Insured’s property. After paying the claim, the property Insurer brought suit against the third party under the concept of:
Select one: a. indemnity b. subrogation Feedback The correct answer is: subrogation
Which is a direct loss?
Select one:
a. loss of rental income following a fire
b. water damage caused by firefighters
Feedback
The correct answer is: water damage caused by firefighters
If the Insurer and Insured disagree about the amount to be paid under a policy, the parties should:
Select one: a. cancel the policy b. demand an appraisal Feedback The correct answer is: demand an appraisal
In arbitration, the selected third party is the:
Select one: a. arbitrator b. umpire Feedback The correct answer is: umpire
The mortgagee:
Select one:
a. is required to be the umpire in any appraisal disputes.
b. must be given notice by the insurer if the insurer cancels or nonrenews.
c. must pay the premium.
d. may cancel the owner’s policy.
Feedback
The correct answer is: must be given notice by the insurer if the insurer cancels or nonrenews.
Under the appraisal provision:
Select one: a. each party selects an umpire. b. each party selects an appraiser. c. the court selects the umpire. d. the court selects the appraisers. Feedback The correct answer is: each party selects an appraiser.
Broad form covers:
Select one:
a. Water damage to the floor due to water backing up through a clogged floor drain.
b. glass breakage
Feedback
Sewer backup is an exclusion in all of our policies - that drain is connected to the sewer system.
The correct answer is: glass breakage
The mortgagee must be notified of:
Select one: a. nonrenewal b. rate changes Feedback The correct answer is: nonrenewal
The Standard Mortgage Clause:
Select one:
a. allows the mortgagee to pay the premium if the insured doesn’t.
b. gives the mortgagee the right to modify the policy.
c. pays the insurance premium if the insured dies.
d. is another name for the appraisal provision.
Feedback
The correct answer is: allows the mortgagee to pay the premium if the insured doesn’t.
Using an impartial third party to resolve a claim dispute is:
Select one: a. arbitration b. subrogation Feedback The correct answer is: arbitration
A Broad Form policy covers:
Select one:
a. water which backs up through a basement drain
b. off-premises power failure
c. sonic boom
d. damage from a broken water pipe
Feedback
The correct answer is: damage from a broken water pipe
Which is true regarding the appraisal provision?
Select one:
a. Either party may initiate the appraisal.
b. The Insured may invoke the appraisal provision at the time of submitting the claim.
Feedback
The correct answer is: Either party may initiate the appraisal.
A mortgagee who is not notified that the policy has been canceled may recover:
Select one: a. the policy limit b. the balance owing on the mortgage Feedback The correct answer is: the balance owing on the mortgage
The Actual Cash Value formula is:
Select one:
a. Original cost minus physical depreciation
b. Replacement cost minus physical depreciation
Feedback
The correct answer is: Replacement cost minus physical depreciation
Which represents replacement cost?
Select one:
a. Denying a claim.
b. Paying for new materials to replace old materials.
c. Paying market value for a loss.
d. Reducing payment by depreciation.
Feedback
The correct answer is: Paying for new materials to replace old materials.
Special covers:
Select one: a. all perils b. all perils except those excluded Feedback The correct answer is: all perils except those excluded
Which is correct regarding subrogation?
Select one:
a. It is a method for insurers to recover from responsible third parties.
b. It lists the losses covered by the policy.
Feedback
The correct answer is: It is a method for insurers to recover from responsible third parties.
The policy’s appraisal provision determines:
Select one:
a. whether the loss is caused by a covered peril.
b. the amount of the loss.
Feedback
The correct answer is: the amount of the loss.
Firefighter damage to an insured property is an example of:
Select one: a. direct loss b. indirect loss c. consequential loss d. an exclusion Feedback The correct answer is: direct loss
Which is a consequential loss?
Select one:
a. lost rental income due to a fire
b. a house collapses due to termite damage
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The correct answer is: lost rental income due to a fire
Which is an indirect loss?
Select one:
a. a business loses money due to a fire
b. a water pipe breaks on the top floor and floods a basement
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The correct answer is: a business loses money due to a fire
