chapter eight - commercial property insurance

Question 1

The Common Policy Conditions in commercial property insurance include all of the following, except:

Fire Department Service Charge

Transfer of Rights and Duties

Inspections and Surveys

Changes

Answer 1

Fire Department Service Charge

(The other policy conditions are Cancellation, Examination of Books and Records, and Premiums. The Fire Department Service Charge is automatically included as Additional Coverage.)

Question 2

Which of the following is excluded under the Basic Causes of Loss form?

Volcanic action

Utility services

Sprinkler leakage

Sinkhole collapse

Answer 2

Utility Services.

Utility services are not covered under the basic cause of loss form

Question 3

Which of the following perils is not one of the three included on the Broad Causes of Loss Form?

Steam boiler explosion

Water damage from accidental discharge

Falling objects

Weight of ice, snow or sleet

Answer 3

Steam boiler explosion

Steam boiler explosion is not covered under the broad cause of loss form

Question 4

How much can be paid under the Business and Personal Property Coverage Form for debris removal due to a covered loss?

25% of the loss

$5,000

15% of Coverage A

$1,000

Answer 4

25% of the loss

25% of the coverage applies to direct loss

Question 5

What is the limit of coverage for business personal property away from the premises under the Business and Personal Property coverage form?

$10,000

$1,000

$5,000

$15,000

Answer 5

$10,000

Question 6

A building is considered vacant unless what percentage of the building’s total square footage is rented or used to conduct customary operations?

10%

26%

20%

31%

Answer 6

31%

Question 7

The Builder’s Risk Coverage form automatically ends at the earliest of all of the following, except:

60 days after construction is complete

Policy expires

Property is abandoned

Property is sold

Answer 7

60 days after construction is complete.

The coverage automatically ends 90 days after construction is complete

Question 8

The Condominium Association Coverage Form is used in place of which coverage form when insuring a condo building insured by the association?

Homeowner Policy

Condominium HO–6 policy

Dwelling property

Building and Personal Property Coverage form

Answer 8

Building and Personal Property Coverage Form

(Coverage includes the buildings and the fixtures that are a part of the building, such as refrigerators, air conditioners, and other appliances, if the Association Agreement requires the association insure the property.)

Question 9

The Condominium Commercial Unit-Owners Coverage covers each of the following, except:

Improvements

Appliances

Personal property

Fixtures

Answer 9

Personal Property

(The unit-owners’ appliances cannot be owned by the insured to qualify for coverage, but the business personal property of the insured is covered.)

Question 10

In the Business Income Coverage Form, Period of Restoration begins _______ after the time of loss.

72 hours

86 years

100 months

55 days

Answer 10

72 hours

(The Period of Restoration begins 72 hours after the time of loss, and ends on the earlier of the date when the property should be repaired or rebuilt with reasonable speed, or the date when business is resumed at a new permanent location.)

Question 11

Each of the following is covered under the Legal Liability Coverage Form; except:

Loss of income

Defense costs

Damage to real or personal property owned by others when it is in the insured’s care

Loss of use

Answer 11

Loss of income.

Loss of income is not covered by this coverage form

Question 12

The Ordinance or Law Coverage endorsement covers each of the following losses, except:

Demolition of the undamaged parts of a building

Increased cost of repairing damaged parts of the building

Clearance of the undamaged parts of a building

Loss of value in the damaged portion of the building

Answer 12

Loss of value in the damaged potion of the building

(This endorsement provides coverage if the enforcement of any building, zoning, or land use law results in the loss of value of the undamaged portion of the building)

Question 13

What Endorsement …

The insured’s business is located near a fault line, so the insured wanted to add coverage in case an earthquake occurs.

Answer 13

Earthquake and Volcanic Eruption Endorsement

Question 14

What Coverage …

The insured is concerned that zoning laws will lead to increased costs to repair the building if it were to be damaged.

Answer 14

Ordinance or Law Coverage

Question 15

What Insurance …
The insured’s store sees more traffic around Christmas, and the insured wants higher coverage during the last couple months of the year.

Answer 15

Peak Season Limit of Insurance.

Question 16

A restaurant owner wants coverage in case the refrigeration units break down.

Answer 16

Spoilage.

Question 17

The insured’s business has stock that fluctuates in value, and the insured wants to make sure the policy covers the values actually at risk.

Answer 17

Value Reporting Form (Full Value Form)

Question 18

An office building is going to be unoccupied for an extended period of time, and the insured does not want the unoccupancy to lead to gaps in coverage.

Answer 18

Vacancy Permit.

Question 19

All of the following are Causes of Loss forms under the Commercial Property Coverage Part, except:

The Basic Form

The Special Form

The Broad Form

The Standard Form

Answer 19

The Standard Form.

There are three causes of Loss forms: The Basic Form, the Broad Form, and the Special Form

Question 20

Which of the following would NOT be found in the Common Policy Declarations page of a Commercial Package Policy?

The expiration date

The named insured

The mortgagee

The occurence form

Answer 20

The occurence form

(The Declarations Page shows the Who, What, When, Where, and How Much regarding the insurance provided by the policy. An occurrence form is a separate form used for claim-filing.)

Question 21

Which of the following statements about the CPP is incorrect?

The insured’s rights and duties may be transferred to another party without insurer approval

The insurer may examine the insured’s books and records at any time during the policy period

The first named insured may cancel the policy by mailing advance written notice of the cancellation

The first named insured is responsible for the payment of all premiums

Answer 21

The insured’s right and duties may be transferred to another party without insurer approval.

(The insured’s right and duties cannot be transferred without the written consent of the insurer.)

Question 22

The Extra Expense Coverage Form covers:

Expense of removing the debris of a covered direct loss

Expense of disposing of spoiled merchandise caused by a power outage

Necessary expenses incurred during the period of restoration

Loss of business income during the period of restoration

Answer 22

Necessary expenses incurred during the period of restoration.

(The principal function of the Extra Expense Coverage Form is to reimburse the insured for expenses incurred in getting back into business as soon as possible after a loss.)

Question 23

Under a Building and Personal Property Coverage Form, up to what percent of a partial loss would be available for debris removal?

15%

5%

25%

10%

Answer 23

25%

(The policy will pay up to a maximum of 25% of the coverage applying to the loss. In the event of a total loss, the policy will pay up to an additional $10,000 for debris removal)

Question 24

The Replacement Cost optional coverage of the Building and Personal Property Coverage Form applies automatically to all of the following types of property, except:

The building listed in the Declarations

Merchandise held in storage or for sale

The insured’s business personal property

Personal property of others

Answer 24

Personal Property of Others

Property of others is not included in the replacement cost optional coverage

Question 25

Which statement is false about Commercial Property insurance?

Time element losses and direct losses are the same

Loss of commissions due to interruptions of a manufacturing business is a time element loss

The Builder’s Risk Reporting Form insures a building under construction for an amount that increases with the increasing value of the building

The Condominium Association Form will cover refrigerators, air conditioners and cooking ranges that are owned by the named insured

Answer 25

Time element losses and direct losses are the same.

Time element losses are indirect losses, not direct

Question 26

Which of the following property is not covered under the Building and Personal Property Coverage Form?

Merchandise held in storage

Telephone system

Electronic data

Furniture

Answer 26

Electronic Data.

(Electronic data, including information, facts, and computer programs and the cost to replace or restore the electronic information is not covered.)

Question 27

Which of the following statements regarding Commercial Property insurance is false?

Time element losses and direct losses are the same

The policy limit of the Builder’s Risk Reporting Form increases at intervals to correspond with the value of the building

The Condominium Association Form will cover refrigerators, air conditioners and cooking ranges that are owned by the named insured if the Agreement requires it

The Building and Personal Property form includes an 80% coinsurance provision

Answer 27

Time element losses and direct losses are the same.

Question 28

How long after a loss before the Period of Restoration begins for Business Income coverage?

72 hours

168 hours

48 hours

24 hours

Answer 28

72 hours.

The Period of Restoration begins 72 hours after the time of the loss

Question 29

Under the Commercial Building and Personal Property Coverage Form, the building is considered vacant, unless at least what percentage of the square footage is rented or is used to conduct operations?

61%

51%

41%

31%

Answer 29

31%

(A completed building is considered vacant unless at least 31% or more of the total square footage is rented or is used to conduct operations)

Question 30

Which of the following is correct about Inspections and Surveys under the Common Policy Conditions of the CPP?

The insurer may make inspections and surveys only during the first 90 days of the policy period

The insurer has the right, but is not obligated, to make inspections and surveys at any time

Inspections or surveys must be made prior to the policy effective date

The insurer has the obligation to make inspections and inform the insured if the property has serious hazards

Answer 30

The insurer has the right, but is not obligated, to make inspections and surveys at any time.

(Inspections and surveys are a reasonable and effective underwriting tool of the insurer. They may be made whenever the insurer believes it to be necessary)

Question 31

All of the following are true of the Building and Personal Property Coverage Form, except:

Personal property owned and used to service the building is included in the building coverage

Personal property of others that is in the insured’s care, custody, and control is automatically included up to $2,500

Building Coverage includes the building structure, completed additions, permanently installed fixtures, machinery and equipment

Tenant’s improvements that are not legally removable are included in the Personal Property of Others Coverage

Answer 31

Tenant’s improvement that are not legally removable are included in the Personal Property of Others Coverage

(Tenants Improvement and Betterments are covered under Business Personal Property, not Personal Property of Others Coverage)

Question 32

Which statement is false regarding the Building Personal Property Coverage Form?

Preservation of Property Coverage provides named-perils coverage for 10 days

The optional inflation guard coverage automatically increases the face amount of the policy

There is no coverage for automobiles that are held for sale

The optional agreed value coverage negates the coinsurance clause

Answer 32

Preservation of Property Coverage provides named-perils coverage for 10 days.

(Preservation of Property is provided on an open perils basis for a maximum for 30 days)

Question 33

The Commercial Property policy applies a limit of what dollar amount for business personal property temporarily away from the premises?

A
$5,000
B
$10,000
C
$15,000
D
$2,500

Answer 33

$10,000.

(A limit of $10,000 of coverage is extended for the insured’s covered property (other than stock) while it is temporarily at a location the insured does not own, lease, or operate)

Question 34

Under the Commercial Property policy’s Basic Cause of Loss Form, how long is vacancy allowed before coverage against the peril of vandalism is suspended?

90 days

120 days

60 days

30 days

Answer 34

60 days.

Question 35

All of the following are true of Builders Risk forms, except:

Coverage does not apply to outside radio and television antennas

Coverage is always written on an open perils basis

Coverage terminates when the policy expires or it is cancelled

There is no vacancy provision

Answer 35

Coverage is always written on an open perils basis.

Coverage may be written with any of the Cause of Loss Forms (Basic, Broad, or Special

Question 36

ABC industries has insured a factory building for $80,000. The replacement value is $150,000. If the commercial property policy insuring the building has an 80% coinsurance clause, how much will ABC’s insurer pay for a $12,000 covered loss?

$9,600

$10,000

$8,000

$12,000

Answer 36

$8,000.

(The coinsurance clause requires insurance at 80% of the replacement value, or $120,000. Because the policy limit of insurance is only $80,000, or 2/3 of $120,000, the claim payment would be 2/3 of $12,000 or $8,000.

Question 37

Which of the following is true regarding the Earthquake Cause of Loss Form?

It can be used by itself to provide a stand alone Earthquake policy

It provides coverage for mudslides

It includes coverage for earthquakes that start within 168 hours after the expiration of the policy

It can be used only with another Causes of Loss Form

Answer 37

It can be used only with another Causes of Loss Form.

Question 38

All of the following are common policy conditions under the CPP, except:

Interline endorsement

Changes

Examinations of books and records

Cancellations

Answer 38

Interline endorsement.

(Interline endorsements coordinate coverage contained in one part of the policy with other coverage parts to prevent duplication and are not considered a policy condition)

Question 39

The Condominium Commercial Unit-Owners Coverage Form does not cover which of the following?

Building exterior wall

Business personal property

Improvements

Appliances

Answer 39

Building exterior wall.

The exterior wall is part of the common property covered by the Condominium Association Coverage Form

Question 40

The Basic Cause of Loss form covers damage caused by bacteria during what period of time following policy inception?

12 months

6 months

24 months

18 months

Answer 40

12 months.

Question 41

A commercial property has a $400,000 Commercial Building and Personal Property policy, and a fire breaks out on the loading dock, causing $80,000 in damage and $20,000 in debris removal. What is the maximum that may be received for the damage?

$100,000

$400,000

$80,000

$90,000

Answer 41

$100,000

(The $80,000 loss plus the entire $20,000 debris removal will pay, since that amount is less than the 25% of coverage limit)

Question 42

Which of the following is found in the Common Policy Declarations of the CPP?

The provision granting the insurer the right to make inspections of insured property

The provision that the first named insured is responsible for all premiums

The deductible

The insurer’s cancellation right

Answer 42

The deductible.

(The deductible amount is shown on the Common Policy Declarations page. The other statements appear in the Common Policy Conditions)

Question 43

Under the Common Policy Conditions of the CPP, which of the following is true regarding inspections and surveys?

Inspections or surveys must be made prior to the policy effective date

The insurer may conduct inspections and surveys only during the first 90 days of the policy period

The insurer has the obligation to conduct inspections and inform the insured if the property has serious hazards

The insurer has the right, but is not obligated, to conduct inspections and surveys at any time

Answer 43

The insurer has the right, but is not obligated, to conduct inspections and surveys at any time.

Question 44

Which of the following is true regarding Property Off Premises coverage under the Building and Personal Property Coverage Form?

Property in a motor vehicle or in the care, custody, and control of a salesperson is included

It is offered as an Additional Coverage

Property Off Premises is covered only for 30 days after its removal from the premises

There is a coverage limit of $5,000 on Property Off Premises

Answer 44

Property in a motor vehicle or in the care, custody, and control of a salesperson is included.

Question 45

Which of the following is true regarding the Broad Form under the Commercial Property policy?

The water damage coverage includes sewer backup

After 60 days of vacancy, coverage for glass breakage is suspended

It provides limited coverage for fungus, wet or dry rot, and bacteria up to $25,000

Water damage coverage includes repair of broken or ruptured plumbing

Answer 45

After 60 days of vacancy, coverage for glass breakage is suspended.

(If, at the time of loss, the building where loss or damage occurs has been vacant for more than 60 consecutive days before the loss, there is no coverage for loss resulting from the following six perils: vandalism, sprinkler leakage, building glass breakage, water damage, theft or attempted theft, glass breakage, or water damage.)

Question 46

When considering insurability of a commercial property for renewal, the insurer can use:

Physical inspection

Price of company stock

Police records

Lie detector test

Answer 46

Physical inspection.

Question 47

Which of the following is false regarding the Building and Personal Property Coverage Form?

Newly acquired or constructed property is automatically included for 30 days, not exceeding $250,000 for each building

Business personal property includes property that is either in the building or within 100 feet of the building

The policy covers vehicles licensed for road use

Trees, shrubs and plants are covered up to $1,000 with a sublimit of $250 for any one tree, shrub or plant

Answer 47

The policy covers vehicles licensed for road use.

Autos for sale and those licensed for road use are excluded

Question 48

Choose the false statement regarding the Value Reporting Form.

Reports may be filed either daily, weekly, monthly, or quarterly

Late reporting or under-reporting will result in a penalty in the event of a loss

The insured pays an advance premium at the beginning of the policy period

The insured is only required to report up to 80% of value of the property

Answer 48

The insured is only required to report up to 80% of value of the property.

(Reporting of 100% of values is required to guarantee that adequate insurance is being provided and charged.)

Question 49

Which of the following is not covered under the Building and Personal Property Coverage Form?

Accounts, bills, currency, deeds, evidence of debt, money or securities

Building materials that are on or within 100 feet of the described premises

Completed additions

Personal property owned and used to service and maintain the building

Answer 49

Accounts, bills, currency, deeds, evidence of debt, money or securities.

(these are all excluded under this form)

Question 50

Which Cause of Loss form for the Commercial Property Coverage Part will cover loss of sales merchandise due to a burglary?

The Special Form

The Broad Form and The Special Form

There is no burglary coverage provided by the Commercial Property Policy

The Broad Form

Answer 50

The Special Form.

the perils of Burglary and Theft are not excluded under the Special Form

Question 51

Which of the following is correct regarding preservation of property under the Building and Personal Property Coverage Form?

The policy provides off-premises coverage whenever property is temporarily away from the premises

Preservation of property coverage is provided against the same perils listed in the policy’s causes of loss form

The policy provides open perils coverage for 30 days on insured property that is being moved or temporarily stored at another location because of the endangerment of a covered peril

The policy stipulates how insured property is to be protected when endangered by a named peril

Answer 51

The policy provides open perils coverage for 30 days on insured property that is being moved or temporarily stores at another location because of the endangerment of a covered peril.

Question 52

Choose the property that is not settled on a replacement cost basis under the Building and Personal Property Coverage Form.

Stock held for sale that is shown on the Declarations

Personal property of others

The insured’s business personal property

The building listed in the Declarations

Answer 52

Personal Property of Others

Property of others is valued on an Actual Cash Value basis, unless otherwise specified

Question 53

Which of the following losses would the Building and Personal Property Coverage Form NOT pay on an actual cash value basis?

A loss to awnings and floor coverings

A loss to outdoor equipment or furniture

A loss to appliances, whether attached or not

A loss of $2,500 or less to a building

Answer 53

A loss of $2,500 or less to a building.

(A loss to the building of $2,500 or less would be paid at replacement cost, all others mentioned are paid at actual cash value)

Question 54

Under the Commercial Property policy, debris removal and fire department service charge coverage are examples of:

Endorsements

Exclusions

Additional Coverages

Optional coverages

Answer 54

Additional Coverages.

Question 55

Under the Building and Personal Property Coverage Form, when is abandonment allowed?

Abandonment is allowed whenever the insured and insurer fail to reach agreement on the amount of a loss

Abandonment is never allowed

Abandonment is allowed only after written notice to the company

Abandonment is allowed only in the cases of total loss

Answer 55

Abandonment is never allowed.

Question 56

Which of the following is true regarding the Broad Form under the Commercial Property policy?

The water damage coverage includes sewer backup

Water damage coverage includes repair of broken or ruptured plumbing

It provides limited coverage for fungus, wet or dry rot, and bacteria up to $25,000

After 60 days of vacancy, coverage for glass breakage is suspended

Answer 56

After 60 days of vacancy, coverage for glass breakage is suspended.

Question 57

Which endorsement is the best choice to cover a store’s holiday inventory?

peak season

excess inventory

fluctuating inventory

brands and labels

Answer 57

Peak Season.

Question 58

Which of the following property may be covered under a Building and Personal Property Coverage Form?

Personal property while waterborne

Vehicles licensed for road use

Personal property that is covered elsewhere

Grain stored inside a building

Answer 58

Grain stored inside a buidling.

Hay and grain are covered inside a building, but not outside.

Question 59

A building valued at $200,000 is insured for $150,000 with an 80% coinsurance requirement and a $1,000 deductible. After the building is totally destroyed, incurring debris removal expenses of $10,000, how much will the Building and Personal Property Coverage Form pay?

$155,000

$159,000

$154,000

$160,000

Answer 59

$159,000.

(After a total loss, the policy will pay the face amount less the deductible, plus up to $10,000 for debris removal. The coinsurance requirement only penalizes the insured for not carrying insurance to value in the case of a partial loss.)

Question 60

Which of the following is not included in the Personal Effects and Property of Others Extension under the Building and Personal Property Coverage Form?

Personal effects owned by the insured

Loss by theft of personal effects

Personal effects owned by any partner or member of the insured

Personal property of others in the insured’s care

Answer 60

Loss by theft of personal effects.

(Personal effects of the insured, and of others that is in the insured’s care, custody, or control, are covered up to $2,500. Coverage does not include loss by theft.)

Question 61

Which coverage form may not be added to the Commercial Property Coverage Part?

Building and Personal Property Coverage Form

Homeowners Special Form

Commercial Builders Risk Coverage Form

Legal Liability Coverage Form

Answer 61

Homeowners Special Form

The CPP is designed for Commercial insureds only. Personal lines policies are not eligible for inclusion.

Question 62

All of the following are covered under the Building and Personal Property Coverage Form, except:

Building materials that are on or within 100 feet of the described premises

Personal Property owned and used to service and maintain the building

Accounts, bills, currency, deeds, evidence of debt, money or securities

Completed additions

Answer 62

Accounts, bills, currency, deeds, evidence of debt, money or securities.

Question 63

The Outdoor Property coverage extension under the Building and Personal Coverage Form insures against which of the following perils?

Explosion, riot, and civil commotion

Windstorm, hail, explosion, and vehicles

Riot, civil commotion, and vandalism

Windstorm, hail, riot, and civil commotion

Answer 63

Explosion, riot, and civil commotion

Windstorm, vehicles and vandalism are not covered perils under this coverage extension.

Question 64

Which of the following conditions under a Building and Personal Property Coverage Form determines how losses will be paid?

Deductible

Valuation Clause

Appraisal

Loss Conditions

Answer 64

Valuation Clause

(The Valuation Clause sets forth the method of evaluating losses, and treats valuation of unusual property such as stock that has been sold, glass, outdoor equipment, and valuable papers.)

Question 64

Which of the following conditions under a Building and Personal Property Coverage Form determines how losses will be paid?

Deductible

Valuation Clause

Appraisal

Loss Conditions

Answer 64

Valuation Clause

(The Valuation Clause sets forth the method of evaluating losses, and treats valuation of unusual property such as stock that has been sold, glass, outdoor equipment, and valuable papers.)

Question 65

Which of the following is true regarding Property Off Premises coverage under the Building and Personal Property Coverage Form?

Property Off Premises is covered only for 30 days after its removal from the premises

It is offered as an Additional Coverage

There is a coverage limit of $5,000 on Property Off Premises

Property in a motor vehicle or in the care, custody, and control of a salesperson is included

Answer 65

Property in a motor vehicle or in the care, custody, and control of a salesperson is included.

(The coverage extension for property off premises provides up to $10,000 of coverage for the insured’s covered property (other than stock) while it is temporarily at a location the insured does not own, lease, or operate. This includes property located at a fair, trade show, or exhibition; in or on a vehicle; or in the care, custody, or control of the named insured’s salesperson.)