Chapter 4

Question 1

Replacement cost coverage will pay:

Answer 1

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.

Question 2

Each of the following provides coverage over and above the policy limit EXCEPT:

Answer 2

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

Question 3

An Insurer may recover part of the losses paid for an Insured’s damaged auto by:

Answer 3

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

Question 4

An Insurer’s required assignment of rights of recovery after paying a claim is:

Answer 4

Select one:
a. salvage
b. coinsurance
c. subrogation
d. risk
Feedback
The correct answer is: subrogation

Question 5

Using a disinterested third party to resolve a claim dispute is:

Answer 5

Select one:
a. arbitration
b. assignment
Feedback
The correct answer is: arbitration

Question 6

The burden of proving a loss rests on the:

Answer 6

Select one:
a. insured
b. insurer
Feedback
The correct answer is: insured

Question 7

A Special Form policy covers:

Answer 7

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.

Question 8

Which section of a Special form policy determines whether a peril is covered?

Answer 8

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

Question 9

Under the Business Income Policy’s Arbitration Provision:

Answer 9

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.

Question 10

Which is true regarding salvaged property?

Answer 10

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.
Feedback
The correct answer is: The Insurer determines what happens to the property.

Question 11

The Insurer’s right to recover from a negligent third party for a claim paid by the Insurer to the Insured is known as:

Answer 11

Select one:
a. insurable interest
b. subrogation
Feedback
The correct answer is: subrogation

Question 12

Water damage to a building resulting from fire fighting efforts is:

Answer 12

Select one:
a. a direct loss
b. an indirect loss
Feedback
The correct answer is: a direct loss

Question 13

If the parties disagree on the amount of the claim, their first step should be:

Answer 13

Select one:
a.  arbitration
b. a lawsuit
Feedback
The correct answer is:  arbitration

Question 14

Subrogation involves transfer of whose rights?

Answer 14

Select one:
a. Insured
b. Insurer
Feedback
The correct answer is: Insured

Question 15

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:

Answer 15

Select one:
a. $5,000
b. $34,500
c. $34,750
d. $35,000
Feedback
The correct answer is: $34,500

Question 16

The “other insurance clause” reinforces which insurance concept?

Answer 16

Select one:
a. subrogation
b. indemnity
Feedback
The correct answer is: indemnity

Question 17

After a loss, an insured must:

Answer 17

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

Question 18

Basic covers:

Answer 18

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

Question 19

Which is an indirect loss?

Answer 19

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

Question 20

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:

Answer 20

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

Question 21

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:

Answer 21

Select one:
a. arbitration
b. assignment
c. abandonment
d. subrogation
Feedback
The correct answer is: abandonment

Question 22

“Acts of God” are best covered by:

Answer 22

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

Question 23

The Insurer’s recovery from the sale of damaged property is:

Answer 23

Select one:
a. salvage
b. assignment
Feedback
The correct answer is: salvage

Question 24

When the insured property is a total loss, who is entitled to the salvage?

Answer 24

Select one:
a. insured
b. insurer
Feedback
The correct answer is: insurer

Question 25

Which is an example of an indirect loss?

Answer 25

``` 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

Question 26

Which is NOT an extended coverage peril?

Answer 26

``` Select one: a. earthquake b. volcano c. lightning d. smoke and fire Feedback The correct answer is: earthquake ```

Question 27

After a boat accident, the Insured should do each of these EXCEPT:

Answer 27

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.

Question 28

Transfer of rights of recovery against others to the Insurer is:

Answer 28

``` Select one: a. subrogation b. assignment Feedback The correct answer is: subrogation ```

Question 29

A mortgagee must be given how much notice of cancellation?

Answer 29

``` Select one: a. 10 days b. 20 days c. 40 days d. 80 days Feedback The correct answer is: 10 days ```

Question 30

Special covers each of the following EXCEPT:

Answer 30

``` 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

Question 31

Salvage:

Answer 31

``` 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.

Question 32

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:

Answer 32

``` Select one: a. Replacement cost b. Actual cash value Feedback The correct answer is: Replacement cost ```

Question 33

A mortgage clause:

Answer 33

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.

Question 34

Each of the following is true about the mortgagee EXCEPT:

Answer 34

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.

Question 35

The insurer must be notified of the loss:

Answer 35

``` Select one: a. immediately b. within 60 days Feedback The correct answer is: immediately ```

Question 36

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:

Answer 36

``` Select one: a. abandonment b. indemnity Feedback The correct answer is: abandonment ```

Question 37

"New for old" refers to:

Answer 37

``` Select one: a. Replacement cost b. Actual cash value Feedback The correct answer is: Replacement cost ```

Question 38

Replacement cost coverage provides:

Answer 38

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.

Question 39

A sworn proof of loss statement must be submitted within:

Answer 39

``` Select one: a. 10 days b. 30 days c. 45 days d. 60 days Feedback The correct answer is: 60 days ```

Question 40

The policy requires the mortgagee to be notified of:

Answer 40

``` Select one: a. cancellation of the policy. b. losses. Feedback The correct answer is: cancellation of the policy. ```

Question 41

Each is true regarding subrogation EXCEPT:

Answer 41

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.

Question 42

A special coverage policy covers:

Answer 42

Select one: a. all losses except those specifically excluded b. all losses Feedback The correct answer is: all losses except those specifically excluded

Question 43

A process used to negotiate settlement of a claim is:

Answer 43

``` Select one: a. subrogation b. appraisal Feedback The correct answer is: appraisal ```

Question 44

Insurable interest and actual cash value are both related to:

Answer 44

``` 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

Question 45

The Insurer may require the responsible party to pay for the loss under the concept of:

Answer 45

``` Select one: a. indemnity b. subrogation Feedback The correct answer is: subrogation ```

Question 46

A covered loss occurs after a policy is cancelled. The mortgagee was not notified of cancellation. The mortgagee may recover:

Answer 46

``` 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 ```

Question 47

A consequential loss is:

Answer 47

``` Select one: a. a direct loss b. an indirect loss Feedback The correct answer is: an indirect loss ```

Question 48

If your building is destroyed by fire, you must notify the Insurer:

Answer 48

``` Select one: a. within 60 days b. promptly Feedback The correct answer is: promptly ```

Question 49

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:

Answer 49

``` Select one: a. subrogation b. salvage Feedback The correct answer is: subrogation ```

Question 50

Most property policies provide:

Answer 50

``` Select one: a. Actual cash value b. Replacement cost Feedback The correct answer is: Actual cash value ```

Question 51

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:

Answer 51

``` Select one: a. salvage b. abandonment Feedback The correct answer is: abandonment ```

Question 52

The appraisal provision settles disputes about:

Answer 52

``` Select one: a. coverage b. the extent of loss Feedback The correct answer is: the extent of loss ```

Question 53

The best example of indemnification is:

Answer 53

``` Select one: a. actual cash value b. replacement cost Feedback The correct answer is: actual cash value ```

Question 54

After a fire, an Insured is reimbursed in full for the loss. This is:

Answer 54

``` Select one: a. Replacement cost b. Actual cash value Feedback The correct answer is: Replacement cost ```

Question 55

Depreciated value is:

Answer 55

``` Select one: a. Actual cash value b. Replacement cost Feedback The correct answer is: Actual cash value ```

Question 56

Subrogation involves the:

Answer 56

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.

Question 57

Extended Coverage does NOT cover:

Answer 57

``` Select one: a. fire b. explosions c. hail d. earthquake Feedback The correct answer is: earthquake ```

Question 58

Actual cash value:

Answer 58

Select one: a. pays Fair Market Value b. takes physical depreciation into account Feedback The correct answer is: takes physical depreciation into account

Question 59

During a fire, one wall of a building collapses and damages an adjacent building. This is:

Answer 59

``` Select one: a. an indirect loss b. a direct loss Feedback The correct answer is: a direct loss ```

Question 60

Which section of the Basic or Broad form policy determines whether a peril is covered?

Answer 60

``` Select one: a. Insuring agreements b. Exclusions c. Conditions d. Declarations Feedback The correct answer is: Insuring agreements ```

Question 61

Salvage is a right of:

Answer 61

``` 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. ```

Question 62

Payment of the actual cost to replace an item is:

Answer 62

``` Select one: a. Replacement cost b. Actual cash value Feedback The correct answer is: Replacement cost ```

Question 63

If the Insured fails to submit a proof of loss, the mortgagee should:

Answer 63

``` Select one: a. file a proof of loss form. b. sue the insurer. Feedback The correct answer is: file a proof of loss form. ```

Question 64

The cost of hiring the umpire is:

Answer 64

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.

Question 65

If a covered peril causes a loss, the Insurer must:

Answer 65

``` Select one: a. pay the loss b. complete a proof of loss form Feedback The correct answer is: pay the loss ```

Question 66

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:

Answer 66

``` Select one: a. indemnity b. subrogation Feedback The correct answer is: subrogation ```

Question 67

Which is a direct loss?

Answer 67

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

Question 68

If the Insurer and Insured disagree about the amount to be paid under a policy, the parties should:

Answer 68

``` Select one: a. cancel the policy b. demand an appraisal Feedback The correct answer is: demand an appraisal ```

Question 69

In arbitration, the selected third party is the:

Answer 69

``` Select one: a. arbitrator b. umpire Feedback The correct answer is: umpire ```

Question 70

The mortgagee:

Answer 70

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.

Question 71

Under the appraisal provision:

Answer 71

``` 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. ```

Question 72

Broad form covers:

Answer 72

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

Question 73

The mortgagee must be notified of:

Answer 73

``` Select one: a. nonrenewal b. rate changes Feedback The correct answer is: nonrenewal ```

Question 74

The Standard Mortgage Clause:

Answer 74

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.

Question 75

Using an impartial third party to resolve a claim dispute is:

Answer 75

``` Select one: a. arbitration b. subrogation Feedback The correct answer is: arbitration ```

Question 76

A Broad Form policy covers:

Answer 76

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

Question 77

Which is true regarding the appraisal provision?

Answer 77

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.

Question 78

A mortgagee who is not notified that the policy has been canceled may recover:

Answer 78

``` Select one: a. the policy limit b. the balance owing on the mortgage Feedback The correct answer is: the balance owing on the mortgage ```

Question 79

The Actual Cash Value formula is:

Answer 79

Select one: a. Original cost minus physical depreciation b. Replacement cost minus physical depreciation Feedback The correct answer is: Replacement cost minus physical depreciation

Question 80

Which represents replacement cost?

Answer 80

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.

Question 81

Special covers:

Answer 81

``` Select one: a. all perils b. all perils except those excluded Feedback The correct answer is: all perils except those excluded ```

Question 82

Which is correct regarding subrogation?

Answer 82

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.

Question 83

The policy's appraisal provision determines:

Answer 83

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.

Question 84

Firefighter damage to an insured property is an example of:

Answer 84

``` Select one: a. direct loss b. indirect loss c. consequential loss d. an exclusion Feedback The correct answer is: direct loss ```

Question 85

Which is a consequential loss?

Answer 85

Select one: a. lost rental income due to a fire b. a house collapses due to termite damage Feedback The correct answer is: lost rental income due to a fire

Question 86

Which is an indirect loss?

Answer 86

Select one: a. a business loses money due to a fire b. a water pipe breaks on the top floor and floods a basement Feedback The correct answer is: a business loses money due to a fire