Commercial Property

Question 1

If a Building and Personal Property Form has a Causes of Loss - Basic Form attached, which damages are NOT covered by this commercial property policy?
A.
Earthquake damage
B.
Damage caused by striking employees
C.
Smoke damage
D.
Damage caused by a non-owned airplane

Answer 1

A.
Earthquake damage

Earthquakes, or land movement, is one of the universal exclusions in a commercial property policy.

Question 2

Grace owns a high-end tea shop and, to improve the ambiance, has purchased some old antique furniture and statues. While these items have intrinsic value, it’s difficult to assign them an actual cash value. Which type of coverage in her commercial property policy could help assign value to these items in the event of a loss?
A.
Value Reporting
B.
Inflation Guard
C.
Replacement Cost
D.
Agreed Value

Answer 2

D.
Agreed Value

Agreed Value Coverage is an optional coverage that lets the policyholder and the insurer agree on a specified value for property before a policy is written.

Question 3

Veronica is in the process of building an extra structure for the sole purpose of kiln firing her pottery. After 40 days of waiting for it to be completed, she decides to go ahead and begin using it, since the kiln is already set up, even though the interior drywall isn’t completely finished. Her Builder’s Risk Coverage Form is then terminated because:
A.
interior drywall isn’t covered under a Builder’s Risk Coverage Form.
B.
Veronica has now put the building to its intended use.
C.
Builder’s Risk policies are only good for 30 days.
D.
the risk of fire voided the policy.

Answer 3

B.
Veronica has now put the building to its intended use.

The policy period of a Builders Risk Coverage form is unique, since the coverage is designed for buildings under construction. So the policy begins when construction starts, and can end for a variety of reasons, one of which is that the building is put into its intended use.

Question 4

Helen’s business is growing rapidly, so she decided to add an annex onto her office and hire another worker. A storm blows down most of the annex structure while it is under construction, forcing Helen to restart from scratch. Assuming she maintains the 80% coinsurance requirement on her commercial policy, which coverage extension could help Helen rebuild?
A.
Outdoor Property
B.
Reasonable Repairs
C.
Property Off-Premise
D.
Newly Acquired Property

Answer 4

D.
Newly Acquired Property

The Newly Acquired Property extension provides thirty days of insurance coverage for new buildings under construction at the insured premises, or for any newly acquired business properties located off the insured premises.

Question 5

XYZ Computer’s production building for circuit boards is struck by lightning, which results in a fire that burns down the entire facility. XYZ Computer cannot continue the production of computers until the facility is rebuilt. Which insurance coverage might indemnify XYZ Computer for lost revenue until a new facility is built?
A.
Business Interruption
B.
Extra Expense
C.
Builders Risk
D.
Leasehold Interest

Answer 5

A.
Business Interruption

The Business Income Coverage Form (a.k.a. Business Interruption Form) indemnifies the insured for lost income due to damages caused by a covered loss, plus any continuing operating expenses incurred during the period of restoration, such as rent, salaries, utilities, taxes, etc.

Question 6

Which of the following is NOT true of the Replacement Cost endorsement to the Buildings & Structures Form of a commercial property policy?
A.
The policy still pays ACV up front, and then the remainder of the actual cost to repair or replace after the repair/replacement has been completed.
B.
It changes the loss settlement terms of the policy from ACV to RCV.
C.
It always requires the policyholder to meet at least an 80% level of coinsurance.
D.
It applies to both the insured property and any property of others on the insured premises.

Answer 6

D.
It applies to both the insured property and any property of others on the insured premises.

The Replacement Cost endorsement does not apply to the property of others while on the insured premises.

Question 7

When a fire burns through The Chronicle newspaper company, it takes out two permanently installed printing presses, three employees’ personal laptops, five rolls of newspaper stock, and in a twist of irony, two fire extinguishers. Which of these would be covered by the Building & Personal Property Form under Coverage B -Business Personal Property?
A.
The printing presses and newspaper stock
B.
The printing presses and fire extinguishers
C.
The employees’ personal laptops
D.
The rolls of newspaper stock

Answer 7

B.
The printing presses and fire extinguishers

Question 8

Each insurance coverage in a commercial property insurance policy will contain a Causes of Loss form. Which of the following is NOT an example of a Causes of Loss form?
A.
General Form
B.
Basic Form
C.
Special Form
D.
Broad Form

Answer 8

A.
General Form

The types of Causes of Loss forms available in commercial property insurance include the Basic, Broad, and Special Forms.

Question 9

Acme Insurance is trying to attract new commercial clients, so they decide to broaden coverage for business personal property items without increasing the premium. Which condition would allow the current clients of Acme Insurance to benefit from the newly expanded coverage?
A.
Policy Period
B.
Changes in Policy
C.
Liberalization
D.
Control of Property

Answer 9

C.
Liberalization

The Liberalization clause states that if the insurer broadens coverage without raising premiums, existing policies are also automatically provided this expanded coverage.

Question 10

A fire in John’s factory causes him to shut the doors for 90 days. While repairs take place, John rents another building, along with some machinery and manufacturing supplies, for $90,000. John’s total loss is $300,000, but by renting the new building and equipment he manages to reduce that loss by $50,000. Assuming John’s commercial property policy provides Business Income Coverage Without Extra Expense, how much will his insurer indemnify him?
A.
$300,000
B.
$210,000
C.
$260,000
D.
$50,000

Answer 10

A.
$300,000

Even without Extra Expense coverage, Business Income covers “Expenses to Reduce Loss”, but only up to the amount that the loss is reduced. So, John’s total loss is $300,000 - $50,000 = $250,000. Then, add back in the $50,000 loss reduction and he ends up with $300,000. (He is not indemnified for the $90,000 he spent to reduce the loss.)

Question 11

A fierce windstorm blows through town, stripping the shingles off of the roof and shattering all of the windows at Gradient Industries. What commercial property coverage might pay for the cost of cleaning up the shingles and broken glass?
A.
Legal Liability coverage
B.
Preservation of Property
C.
Debris Removal
D.
Increased Construction Costs

Answer 11

C.
Debris Removal

Debris Removal coverage indemnifies the insured for the cost of removing the debris of covered property that has been damaged by a covered peril (in this case, windstorm).

Question 12

Jeff’s commercial property policy includes coverage for Fire Department Service Charge, with a limit of $500. When one of Jeff’s business premises catches fire, he calls 911. The fire department arrives and puts out the fire, saving the majority of Jeff’s business. Later that week, Jeff has to call the fire department again when another fire breaks out, this time at his second business location. When the bill arrives for the fire department’s services, it shows a $600 fee for each call, totaling $1,200. Jeff files a claim with his insurer for the charges. How much of the bill will Jeff have to pay?
A.
$0
B.
$700
C.
$1,200
D.
$200

Answer 12

D.
$200

The coverage limit for Fire Department Service Charge applies to each premises, so Jeff can receive $500 for each of two damaged locations, leaving a combined $200 left for him to pay out-of-pocket.

Question 13

In a commercial property policy, Coverage C of the Building and Personal Property Coverage Form provides coverage for:
A.
personal property of others.
B.
liability and medical payments.
C.
business personal property.
D.
buildings and structures.

Answer 13

A.
personal property of others.

In a commercial property policy, Coverage C of the Building and Personal Property Coverage Form provides coverage for personal property of others.

Question 14

In the Business and Personal Property Form of a commercial property policy, Coverage A - Buildings and Structures coverage would apply to which of the following features of a commercial enterprise?
A.
A small copy machine in the break room
B.
A 40-ton printing machine affixed to a factory floor
C.
A briefcase left in the lunchroom by a client
D.
A leased mainframe computer

Answer 14

B.
A 40-ton printing machine affixed to a factory floor

Permanently installed machinery and equipment is included in the definition of “building” in the Commercial Property policy.

Question 15

The XYZ Company has an attached balcony on the top floor of their headquarters. During a summer storm, a lightning bolt strikes the metal railing of the balcony, splitting the balcony into two. XYZ Company would like to repair the balcony, but new building codes require more expensive construction materials. What commercial property coverage pays for this extra expense?
A.
Increased Construction Costs
B.
Extra Expense
C.
Newly Acquired Properties
D.
Preservation of Property

Answer 15

A.
Increased Construction Costs

Increased Construction Costs covers the costs incurred to comply with enforcement of an ordinance or law in the course of repair, rebuilding, or replacement of damaged property.

Question 16

An overhead projector is taken to a conference room at a local hotel for a week. Sometime during the week, the projector falls off its stand and is destroyed. Assuming it is a covered loss, what commercial property coverage might cover the projector?
A.
Extra Expense
B.
Preservation of Property
C.
Property Off-Premises
D.
Valuable Papers and Records

Answer 16

C.
Property Off-Premises

Covered business personal property is provided coverage while it is temporarily away from the insured premises under the Property Off-Premises coverage extension.

Question 17

Which of the following terms refers to the time elapsed between a covered loss to a commercial building and the return to full business operations of the same building?
A.
Period of Construction
B.
Period of Restoration
C.
Period of Indemnity
D.
Property Preservation Window

Answer 17

B.
Period of Restoration

The “period of restoration” is the time elapsed between a loss to a commercial building and the return to full business operations.

Question 18

Extended coverage under a commercial policy often provides coverage for damage to outdoor trees, plants, and shrubs. When covered, what is the maximum per-plant amount?
A.
$250
B.
$200
C.
$100
D.
$50

Answer 18

A.
$250

The Coverage Extension of Outdoor Property applies but is limited to $250 for any one tree, shrub or plant.

Question 19

After a tornado completely destroys the roof and windows of Calah’s business building, she finds that there are new codes in place requiring thicker shingles and reinforced window frames. Calah insured her business using a replacement cost policy. Which commercial property coverage can help Calah with the added costs of bringing her building up to code?
A.
Debris Removal
B.
Business Interruption
C.
Preservation of Property
D.
Increased Construction Costs

Answer 19

D.
Increased Construction Costs

Increased Construction Costs coverage activates when a covered loss must be replaced to conform to new building ordinances.

Question 20

XYZ Carpet Manufacturing’s main factory burns down during the night due to faulty electrical wiring. No longer able to manufacture carpeting, XYZ Carpet faces a serious cash flow dilemma. Which insurance coverage might help pay XYZ Carpet’s bills while the factory is repaired?
A.
Business Income coverage
B.
Control of Property coverage
C.
Preservation of Property coverage
D.
Builders Risk coverage

Answer 20

A.
Business Income coverage

Business Income coverage provides for the loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations.

Question 21

ABC Acoustics builds replica Neumann microphones using tube technology. When a fire takes out the only factory that manufactures these vintage tubes, ABC Acoustics must halt production until their supplier’s factory comes back online. Which commercial property insurance coverage option could indemnify ABC Acoustics from lost income due to halted production?

A.
Extra Expense
B.
Contingent Business Interruption
C.
Vintage Replacement
D.
Electronic Data

Answer 21

B.
Contingent Business Interruption

Contingent Business Interruption coverage indemnifies a business when it loses income because of covered losses to its key suppliers or key customers.

Question 22

Craig purchased some additional machinery for his business so that he can keep up with customer demand. The problem is that Craig does not have enough space for the newly purchased machinery. He rents a storage unit to house the machinery until he can bring it to the company, but when the storage unit burns down, Craig’s equipment goes with it. Which coverage extension might indemnify Craig for his loss?
A.
Property Off-Premise
B.
Preservation of Property
C.
Outdoor Property
D.
Newly Acquired Property

Answer 22

A.
Property Off-Premise

The Property Off-Premises extension provides up to $10,000 for covered business property temporarily not located on the insured premises.

Question 23

ABC Computers experiences a fire overnight at their corporate offices. ABC Computers had purchased an older building to house their offices, and the repair costs include upgrading the old building to adhere to modern fire codes. Which coverage might indemnify ABC Computers for the added expense of these upgrades?
A.
Legal Liability coverage
B.
Builders Risk coverage
C.
Ordinance or Law endorsement
D.
Extra Expense coverage

Answer 23

C.
Ordinance or Law endorsement

The Ordinance or Law endorsement provides coverage for those costs requiring an insured to upgrade the building to current building codes and ordinances after a covered loss.

Question 24

Frank’s computer store lies in the direct path of a rapidly approaching wildfire. In an attempt to diminish possible damages, Frank loads his most valuable computers into a truck and drives them to a remote storage facility. However, as he is unloading the computers, someone hijacks his truck and steals all of the merchandise still inside. What commercial property coverage would indemnify Frank for the theft of the computers?
A.
Electronic Data
B.
Preservation of Property
C.
None
D.
Extra Expense

Answer 24

B.
Preservation of Property

Frank reasonably believes that he is about to incur a loss to covered property (his computers) caused by the covered peril of fire. Since he removes his property in order to save it from a covered loss, that property remains covered under the original peril (fire) no matter what happens to it, for at least 30 days.

Question 25

In a commercial property policy, the Building and Personal Property Form contains three coverages. Which of the following coverages is NOT a part of this form?
A.
Coverage C - Personal Property of Others
B.
Coverage B - Business Personal Property
C.
Coverage D - Loss of Use
D.
Coverage A - Buildings and Structures

Answer 25

C.
Coverage D - Loss of Use

Although included in the homeowners policy, Loss of Use is not a coverage offered by the commercial property policy.

Question 26

Veronica needs to expand her pottery business and add an extra building to her property for the sole purpose of kiln firing her pottery. She adds Builder’s Risk coverage to her commercial property policy to cover the new structure (which is yet to be completed), and finds out she must carry:
A.
125% coinsurance.
B.
80% coinsurance.
C.
100% coinsurance.
D.
50% coinsurance.

Answer 26

C.
100% coinsurance.

Question 27

Which of the following coverage options does NOT waive the coinsurance requirement in a commercial property policy?
A.
Monthly Limit of Indemnity
B.
Replacement Cost
C.
Maximum Period of Indemnity
D.
Agreed Value

Answer 27

B.
Replacement Cost

The replacement cost endorsement will always require the policyholder to meet at least the 80% level of coinsurance.

Question 28

In a commercial property policy, Builders Risk coverage is sold based on which of the following values?
A.
The value of the land underneath the new construction
B.
The highest value of a building currently insured by the policyholder
C.
The value of the completed building
D.
The value of labor and materials used in construction

Answer 28

C.
The value of the completed building

Builders Risk coverage is sold on the basis of the completed value of the building, and the insured must carry 100% coinsurance on the policy to receive full coverage for partial losses.

Question 29

When Herb was just starting out in the textile business, he purchased an older factory building in order to acquire as much square footage as possible, for the lowest cost. After a massive storm blows the roof off the building, Herb finds that the structure will require massive upgrades to bring it up to code. Which endorsement to his commercial property policy can help with this added cost?
A.
Ordinance or Law
B.
Legal Liability
C.
Protective Safeguard
D.
Differences in Conditions

Answer 29

A.
Ordinance or Law

The Ordinance or Law endorsement is designed to provide insurance protection for additional costs associated with repairing or rebuilding a facility damaged by a covered peril in order to comply to current building codes.

Question 30

In a commercial property policy, Coverage C of the Building and Personal Property Coverage Form provides coverage for:
A.
personal property of others.
B.
liability and medical payments.
C.
business personal property.
D.
buildings and structures.

Answer 30

A.
personal property of others.

In a commercial property policy, Coverage C of the Building and Personal Property Coverage Form provides coverage for personal property of others.

Question 31

Which commercial property Causes of Loss form offers open-peril (also called “all-risks”) coverage?

A.
Basic form
B.
Broad Form
C.
All commercial insurance coverage is open peril
D.
Special form

Answer 31

D.
Special form

The Basic and Broad Forms are named-peril Causes of Loss forms, while the Special Form offers “all-risk” coverage - accidental direct physical loss to property from causes other than those excluded.

Question 32

When a fire destroys a car parts manufacturer in China, USA Motors finds itself without the necessary parts to build its vehicles. Which commercial property insurance coverage option could indemnify USA Motors from lost business due to the damages sustained by its Chinese supplier?
A.
Inflation Guard
B.
Order of Civil Authority
C.
Extra Expense Coverage
D.
Contingent Business Interruption

Answer 32

D.
Contingent Business Interruption

Contingent Business Interruption coverage indemnifies a business when it loses income because of covered losses to its key suppliers or key customers.

Question 33

After a fire burns through XYZ Condominiums, they have to replace most of the interior. Which of the following will NOT be covered under the Condominium Coverage Form of the condo association’s commercial property policy?
A.
Computers used by the condo
B.
The common areas of the condo building
C.
Piping, ductwork, or wire units
D.
Upgrades within individual condos

Answer 33

D.
Upgrades within individual condos

It will NOT cover upgrades made by condo unit owners within individual condos, since this is typically covered under most individual condo owner policies.

Question 34

A winter storm has left a lot of snow and ice on the roof of Helen’s business. The weight is too much for the roof to bear and it gives way, bringing with it a torrent of melting ice and snow cascading down on the interior of Helen’s warehouse. Her commercial property policy covers the damage, even though “weight of ice and snow” is not specifically listed as a covered peril. Therefore, which type of Causes of Loss form does Helen have attached to her Building and Personal Property Coverage Form?
A.
Basic Form
B.
Universal Form
C.
Special Form
D.
Broad Form

Answer 34

C.
Special Form

The Special Form provides open-peril coverage, meaning it covers all known perils except for those specifically listed in the exclusions section, and “weight of ice and snow” is not excluded. The Basic Form doesn’t list “weight of ice and snow” but it’s a named-peril coverage, so its omission means this form doesn’t cover this peril. The Broad Form covers this peril, but names it as a covered peril. There is no “Universal Form” for a commercial property policy.

Question 35

A fire in the break room kitchen of Helen’s small business spreads into the utility room, damaging the computer server. Her server is physically destroyed, along with a lot of vital information: client information, pending shipments, etc. Which coverage can help Helen with the costs associated with losing this information?
A.
Business Income
B.
Reasonable Repairs
C.
Records Recovery
D.
Electronic Data

Answer 35

D.
Electronic Data

Electronic Data coverage indemnifies the insured for the costs of replacing or restoring electronic data lost or damaged by a covered cause of loss (in this case, fire).

Question 36

John purchased some business property a few years ago. In the past two years, the property value has grown 4% each year. John maintains the 80% coinsurance requirement on his business policy, but wants a more automated coverage so he doesn’t have to constantly check the appraised value of his property. Which optional coverage can John purchase to help ensure that he always has the right amount of coverage?
A.
Value Reporting
B.
Agreed Value
C.
Inflation Guard
D.
Appraisal Condition

Answer 36

C.
Inflation Guard

Inflation Guard protects the insured from the effects of rising prices by increasing the limit of insurance on a covered property by a specified percentage on a scheduled basis throughout the policy term.

Question 37

When an insurer decides to not renew an existing commercial property policy, it is obliged to follow the Cancellation and Nonrenewal condition of supplying notice to the policyholder 45 days in advance. If the insurer fails to meet this deadline, it must:
A.
offer the same premium rates and policy coverage as before for an additional 3 months.
B.
offer an additional 30 days of coverage without charging any premium.
C.
offer the same premium rates and policy coverage as before for an additional 30 days.
D.
pay a fine of up to $5,000.

Answer 37

C.
offer the same premium rates and policy coverage as before for an additional 30 days.

If an insurer fails to provide at least 45 days’ notice before cancelling or not renewing a commercial property policy, it must offer the same coverage as before for another 30 days.

Question 38

In a commercial property policy, the Monthly Limit of Indemnity coverage option for Business Income insurance:
A.
requires an insured to parcel the stated policy limit into a fractional maximum amount of coverage available per month during the period of restoration.
B.
automatically raises the policy limit every month, to protect against the effects of inflation.
C.
requires the insured to maintain at least an 80% level of coinsurance on the insured property.
D.
establishes a separate aggregate limit for each month of the entire policy period.

Answer 38

A.
requires an insured to parcel the stated policy limit into a fractional maximum amount of coverage available per month during the period of restoration.

The Monthly Limit of Indemnity coverage option for Business Income insurance requires an insured to parcel the stated policy limit into a fractional maximum amount of coverage available per month during the period of restoration.

Question 39

Diana owns a manufacturing company. One evening, a windstorm blows a tree through the side of her building, leaving a hole in the wall and damaging one of her production machines. Diana temporarily fixes the hole with some plywood, but will have to rent a new production machine until hers is repaired. Which coverage in her commercial property policy could indemnify Diana for the cost of the machine rental?
A.
Profit & Loss Form
B.
Rental Equipment Coverage
C.
Extra Expense Coverage
D.
Operating Expense Coverage

Answer 39

C.
Extra Expense Coverage

Extra Expense coverage is designed to help the insured business reduce their loss of income in the event of a covered loss, (such as a production machine to keep the business going).

Question 40

William owns a paint store and employs Brent. One day, while Brent is decorating the window display, he gets carried away dancing to the music in his headphones, falls off his ladder, and smashes through the glass. What policy condition allows William to collect for the loss on his insurance contract?
A.
Subrogation
B.
Other Insurance
C.
Liberalization
D.
Control of Property

Answer 40

D.
Control of Property

The Control of Property condition states that coverage is not impacted by the negligent acts of someone other than the named insured. So, William is still protected under the policy, even though the damage was caused by his employee, Brent.

Question 41

In a commercial property policy, Business Income Coverage would pay for which of the following expenses?
A.
Materials
B.
Cost of goods sold
C.
Rent
D.
Physical property damage

Answer 41

C.
Rent

Business Income coverage provides for the Net Income (net profit) that would have been earned, and continuing normal operating expenses incurred (such as rent).

Question 42

While working on a customer’s industrial copier in the repair facility, an employee at RZJ Electronics Repair accidentally destroys the copier, causing $3,000 in damage. What commercial property coverage might apply?
A.
Extra Expense coverage
B.
Legal Liability coverage
C.
Business Interruption coverage
D.
Employees Personal Property coverage

Answer 42

B.
Legal Liability coverage

The Legal Liability Coverage Form provides insurance protection against negligent damage to the personal property of others while in the insured’s care or on the insured’s premises.

Question 43

A fire in John’s factory causes him to shut the doors for 90 days. While repairs take place, John rents another building, along with some machinery and manufacturing supplies, for $90,000. John’s total loss is $300,000, but by renting the new building and equipment he manages to reduce that loss by $50,000. Assuming John’s commercial property policy includes Business Income Coverage With Extra Expense, how much will his insurer indemnify him?
A.
$420,000
B.
$300,000
C.
$340,000
D.
$120,000

Answer 43

C.
$340,000

John was able to reduce his total loss by $50,000, making his total loss $250,000. The extra expense of the equipment ($90,000) is then added to the total loss ($250,000) giving us a total loss, with extra expenses, of $340,000.

Question 44

Jim has several trailers in the supply yard of his business which belong to his respective buyers. Jim’s business loads the trailers and then contracts with another company to ship the goods to their final destination. One day while loading up a trailer, Jim accidentally pierced the side of a covered trailer with his forklift. The damage to the trailer would be covered by the _____________ coverage extension.
A.
Newly-Acquired Property
B.
Outdoor Property
C.
Non-Owned Detached Trailers
D.
Property of Others

Answer 44

C.
Non-Owned Detached Trailers

The Non-Owned Detached Trailers extension provides up to $5,000 in coverage for any non-owned trailers damaged during use if being used for business purposes on the insured premises.

Question 45

Acme Boats experiences a devastating fire in their factory. They turn to their Business Income coverage to recover their loss of income due to the fire. When Acme Boats initiated the policy, they chose the Maximum Period of Indemnity coverage option with a policy limit of $150,000. Acme Boats experienced the following loss of business income in the months after the fire:

Monthly Income Losses
Month Amount
Month 1 $20,000
Month 2 $20,000
Month 3 $15,000
Month 4 $15,000
Month 5 $10,000
Month 6 $10,000
How much money might Acme Boats be indemnified for the loss of business income?

A.
$40,000
B.
$90,000
C.
$70,000
D.
$20,000

Answer 45

C.
$70,000

The Maximum Period of Indemnity coverage option pays for the actual loss to business income and any extra expenses incurred, but only up to a maximum of 120 days (approximately 4 months). So, add up the losses for months 1 through 4 and we come up with $70,000.

Question 46

Jim receives a letter in the mail from his insurer notifying him that his commercial policy will not be renewed thirty days from now. Jim protests, saying he needs at least two months time to find a new policy. Jim ends up receiving an additional 30 days’ coverage at the same premium as before, because:
A.
Jim prepays his insurance two months at a time.
B.
Jim’s insurer did not notify him by phone.
C.
Jim is an exceptional negotiator.
D.
Jim’s insurer did not provide him with 45 days’ notice.

Answer 46

If an insurer fails to provide at least 45 days’ notice before cancelling or not renewing a commercial property policy, it must offer the same coverage as before for another 30 days.

Question 47

Argo Sciences Inc. wants to build a new testing laboratory for their line of chemicals. They want insurance coverage to protect their insurable interest in the building and materials while under construction. What commercial property coverage might Argo Sciences Inc. purchase to protect their new facility while it’s under construction?
A.
Preservation of Property
B.
Builder’s Risk coverage
C.
Extra Expense coverage
D.
Business Income coverage

Answer 47

B.
Builder’s Risk coverage

The Builders Risk Coverage form insures commercial structures while they are under construction or being remodeled or renovated.

Question 48

In a commercial property policy, Extra Expense Coverage provides indemnification to the policyholder for additional expenses incurred during which of the following time frames?
A.
From 72 hours after the initial damage until the business is up and running again
B.
From 72 hours after the initial damage until 72 hours before the business is up and running again
C.
From the point of initial damage until the moment the business is up and running again
D.
From the point of initial damage until 72 hours before the business is up and running again

Answer 48

C.
From the point of initial damage until the moment the business is up and running again

Extra Expense Coverage compensates business for lost income from the time the direct physical damage occurs until the time the damaged property should be repaired, rebuilt, or replaced.

Question 49

In a typical commercial property policy, an insured building is considered “vacant” when:
A.
for 60 days, the building is either closed or has less than 31% of its available square footage occupied.
B.
for 25 days, the building is either closed or has no business personal property located in the building.
C.
for 30 days, the building is either closed or has less than 61% of its available square footage occupied.
D.
for 45 days, the building is either closed or has no business personal property located in the building.

Answer 49

A.
for 60 days, the building is either closed or has less than 31% of its available square footage occupied.

In a typical commercial property policy, an insured building is considered “vacant” when for 60 days, the building is either closed or has less than 31% of its available square footage occupied.

Question 50

James owns a metal machining shop where he does contract work for local mechanics, manufacturing hard-to-find parts or custom fittings. Being a cautious man, James wants commercial property insurance that provides coverage on an open-peril basis. Which Causes of Loss Form would best suit James’ needs?
A.
Universal Form
B.
Special Form
C.
Basic Form
D.
Broad Form

Answer 50

B.
Special Form

The Basic and Broad Forms offer named-peril coverage, while the Special Form is an open-peril policy which covers all known perils except for those specifically listed in the exclusions section. There is no “Universal Form” for a commercial property policy.

Question 51

If a Building and Personal Property Form has a Causes of Loss - Basic Form attached, which damages are NOT covered by this commercial property policy?
A.
Earthquake damage
B.
Damage caused by striking employees
C.
Smoke damage
D.
Damage caused by a non-owned airplane

Answer 51

A.
Earthquake damage

Earthquakes, or land movement, is one of the universal exclusions in a commercial property policy.

Question 52

Tom leaves his personal laptop at Smith & Co. so a colleague can work on a presentation. While the laptop is in the care of Smith & Co., it is destroyed by a fire in the break room. The laptop was worth $3,200. How much indemnification would Smith & Co.’s Business and Personal Property Form provide for the damaged laptop?
A.
$0
B.
$700
C.
$2,500
D.
$3,200

Answer 52

C.
$2,500

Smith & Co.’s Business Personal Property coverage includes the personal property of others that is in Smith & Co.’s care, custody, or control while it is in (or within 100 feet of) a covered building. This coverage normally has a $2,500 sublimit.

Question 53

Cyril recently purchased a small machining shop. When asked on his commercial property insurance application about how the property will be heated in the winter, he replies “central heat,” when in fact it will be heated by a wood stove. Under which condition could the insurer deny coverage?
A.
No Benefit to Bailee
B.
Changes to the Policy
C.
Control of Property
D.
Concealment, Misrepresentation, and Fraud

Answer 53

D.
Concealment, Misrepresentation, and Fraud

Cyril lied about the building’s heating - essentially misrepresenting a material fact. The Concealment, Misrepresentation, and Fraud condition allows the insurer to void coverage if the policyholder commits fraud, or misrepresents, distorts or conceals any materially relevant facts to the insurance policy.

Question 54

A storm travels through town, partially destroying Wilma’s business, which is covered by a commercial property policy. Wilma maintains Business Income Coverage with a $100,000 limit, and the Maximum Period of Indemnity coverage option. Wilma’s business incurred the following losses:

Monthly Losses
Month Amount
Month 1 $19,000
Month 2 $16,000
Month 3 $14,000
Month 4 $11,000
Month 5 $6,000
How much would her policy pay for lost income?

A.
$100,000
B.
$60,000
C.
$120,000
D.
$66,000

Answer 54

B.
$60,000

The Maximum Period of Indemnity coverage option pays for the actual loss to business income and any extra expenses incurred, but only up to a maximum of 120 days (approximately 4 months). So, add up the losses for months 1 through 4 and we come up with $60,000.

Question 55

Matt, a real estate developer, must submit a report to his insurer every 30 days listing the value of all his properties over the past month. In turn, the insurer adjusts Matt’s premiums based on the values he submits. Which optional coverage does Matt subscribe to?
A.
Value Reporting
B.
Optional Reporting
C.
Agreed Value
D.
Adjusted Income

Answer 55

A.
Value Reporting

A Value Reporting Form is used to periodically report the value of insured property to provide for fluctuating coverage amounts needed by commercial businesses whose property values fluctuate throughout the year, or for businesses that buy and sell multiple properties yearly.

Question 56

Mackey Manufacturing signs a five-year lease at a new location, only to have the building burn down one year into their new lease. Now they have to lease a new property, and the rental prices have increased, so the company now has to pay higher rental costs. Which commercial property coverage form might indemnify Mackey Manufacturing for the difference in lease costs?
A.
Property Off-Premises Coverage Form
B.
None
C.
Leasehold Interest Coverage Form
D.
Preservation of Property Coverage Form

Answer 56

C.
Leasehold Interest Coverage Form

Leasehold Interest Coverage is a type of “time element” coverage that pays for the difference between the cost of the old rental and the new, often more expensive, rental.

Question 57

In what part of a commercial property policy would you look to see if flood damage to your factory is covered?
A.
Causes of Loss Forms
B.
Declarations page
C.
Conditions page
D.
Coverage Forms

Answer 57

A.
Causes of Loss Forms

In a commercial property policy, a Causes of Loss form states exactly what perils are insured under the attached coverage, and which perils are specifically excluded from coverage.

Question 58

ABC Paving owns a warehouse where they store all their pavers. Lightning strikes the warehouse, which burns to the ground and destroys the entire fleet of pavers. In order to complete the projects they are currently working on, ABC Paving has to lease four pavers from another company. What commercial insurance coverage might pay for this expense?
A.
Preservation of Property
B.
Legal Liability
C.
Extra Expense
D.
Order of Civil Authority

Answer 58

C.
Extra Expense

Extra Expense coverage pays for additional costs in excess of normal operating expenses that an organization incurs to continue operations following a covered loss.

Question 59

In a commercial property policy, the Business Income Coverage Form provides indemnification to the policyholder for the loss of income during which of the following time frames?
A.
From 72 hours after the initial damage until 72 hours before the business is up and running again
B.
From the point of initial damage until the moment the business is up and running again
C.
From the point of initial damage until 72 hours before the business is up and running again
D.
From 72 hours after the initial damage until the business is up and running again

Answer 59

A.
From 72 hours after the initial damage until 72 hours before the business is up and running again

The Business Income form covers a company’s loss of income due to a covered loss for a period beginning 72 hours after the loss until the business is running again.

Question 60

A storm travels through town, partially destroying Wilma’s business. Wilma maintains a Business Income coverage policy with $120,000 limit, and the Monthly Limit of Indemnity coverage option. Wilma’s business incurred the following expenses:

Monthly Expenses
Month Amount
Month 1 $29,000
Month 2 $36,000
Month 3 $24,000
Month 4 $31,000
How much would her policy pay for lost income if Wilma had a monthly limit of 1/4 in place?

A.
$129,000
B.
$113,000
C.
$136,000
D.
$120,000

Answer 60

B.
$113,000

With a monthly limit of 1/4, Wilma’s Business Income coverage will pay a maximum of 1/4 of her limit every month during the period of restoration, until the policy limit is reached. 1/4 of $120,000 is $30,000. So, she’ll receive the actual loss amount in months 1 & 3, since they fall below the limit, and she’ll only receive $30,000 for months 2 & 4. This totals $113,000.

Question 61

When Shawn purposefully set fire to Jim’s restaurant, Jim was covered under his commercial property policy. Which condition allows Jim’s insurer to attempt to reclaim those damages from Shawn?
A.
Vandalism
B.
Legal Action Against the Insurer
C.
Misrepresentation
D.
Subrogation

Answer 61

D.
Subrogation

The Subrogation clause gives the insurer the right to sue the responsible third party in order to reclaim damages the insurer paid to the policyholder.

Question 62

Helen owns a manufacturing company. She maintains a commercial property policy that includes Business Income and Extra Expense coverage. One evening, a windstorm blows a tree through the side of her building, leaving a hole in the wall and damaging a production machine. When Helen has to rent another machine to keep her business in operation, how long will she have to wait before she can be indemnified for this indirect loss?

A.
24 hours
B.
72 hours
C.
0 hours—Extra Expense coverage kicks in immediately
D.
12 hours

Answer 62

C.
0 hours—Extra Expense coverage kicks in immediately

The Period of Restoration for Extra Expense coverage begins immediately after damage occurs and continues until the damaged property is repaired or replaced, or until a new property is up and running.

Question 63

In the Business and Personal Property Form of a commercial property policy, Coverage B - Business Personal Property coverage applies to all of the following EXCEPT:
A.
Leased office equipment
B.
Office furniture
C.
Commercial flooring
D.
Business stock/inventory

Answer 63

C.
Commercial flooring

Floor coverings (tile, carpet, etc.) are included in the definition of a “building” and are therefore not considered to be Business Personal Property.

Question 64

Thomas runs a computer repair shop. One morning he arrives to find the front glass window broken and a number of his customers’ computers stolen. Thomas’ Legal Liability Coverage Form would pay for:
A.
the cost of replacing the front window.
B.
Thomas’ own personal computer.
C.
cash taken from the register.
D.
his clients’ computers.

Answer 64

D.
his clients’ computers.

The Legal Liability Coverage Form provides insurance protection against negligent damage to the personal property of others while in the insured’s care or on the insured’s premises.

Question 65

A fire breaks out in Anton’s manufacturing plant, causing extensive damage which will take at least three months to repair. In the meantime, Anton has rent and employees who still need to be paid, and many other expenses that can’t wait until the business is up and running again. Which coverage form of his commercial property policy can help Anton with his cash flow?
A.
Builder’s Risk Coverage
B.
Manufacturer’s Risk Coverage
C.
Rent, Salary, and Repair Coverage
D.
Business Income Coverage

Answer 65

D.
Business Income Coverage

The Business Income Coverage Form (a.k.a. Business Interruption Form) indemnifies the insured for lost income due to damages caused by a covered loss, plus any continuing operating expenses incurred during the period of restoration, such as rent, salaries, utilities, taxes, etc.

Question 66

When Bill’s business is interrupted because of a fire, he must provide a profit and loss statement to his insurer so they can determine an accurate amount of indemnification. Which three core elements from the profit and loss statement are used to calculate the net income?

A.
Operating expenses, inflation, cost of goods sold
B.
Total revenue, cost of goods sold, operating expenses
C.
Inflation, depreciation, cost of goods sold
D.
Total revenue, inflation, operating expenses

Answer 66

B.
Total revenue, cost of goods sold, operating expenses

The three amounts you will need to know to calculate Net Income are: Total Revenue, Cost of Goods Sold, and Operating expenses.

Question 67

Frank found a “favorable lease” for his business two years ago at $10/sq.ft. per year. He ended up leasing a 20,000 sq.ft. space for 6 years to lock in that yearly lease of $200,000. Yesterday, Frank’s business was struck by lightning and burned to the ground, forcing him to lease a new building. Unfortunately the going rate now is $15/sq.ft. and Frank still needs 20,000 sq.ft. of space. How much could Frank’s Leasehold Interest Coverage pay for the additional costs of leasing a new space for the remaining 4 years?

A.
$1,200,000
B.
$100,000
C.
$300,000
D.
$400,000

Answer 67

D.
$400,000

The Leasehold Interest coverage pays for the difference in the amount the insured would have paid for the old lease and how much he’ll pay for the new lease. Frank’s new lease is now $5 more per sq.ft. per year. Multiply that by the 20,000 sq.ft. and 4 years, and you get $400,000 ($5 x 20,000 x 4 = $400,000).

Question 68

When a gas line explodes close to Georgia’s business, it destroys most of her landscaping, leveling trees and uprooting shrubs. Which coverage extension could help cover the cost of replacing these plants?
A.
Property Off-Premise
B.
Shrubbery Endorsement
C.
Outdoor Property
D.
Property On-Premise

Answer 68

C.
Outdoor Property

The Outdoor Property extension provides up to $1,000 in coverage for damage to television and radio antennae, detached signs, trees, plants, or shrubs.

Question 69

After a heavy hailstorm cut the power to Julia’s bakery, she had to rent generators to keep her business going for a few days. Which of the following coverages in her commercial property policy would protect Julia the MOST in this situation?
A.
Business Income
B.
Contingent Business Interruption
C.
ACV valuation
D.
Extra Expense coverage

Answer 69

D.
Extra Expense coverage

Extra Expense coverage is designed to help the insured business reduce their loss of income in the event of a covered loss, (such as renting generators to keep the business going).

Question 70

After a fire burns through XYZ Condominiums, they have to replace most of the interior. Which of the following WILL be covered under the Condominium Coverage Form of the condo association’s commercial property policy?
A.
Computers used by one of the commercial units
B.
Upgrades within individual condos
C.
Personal property of a commercial unit
D.
Computers used by the condo as a whole

Answer 70

D.
Computers used by the condo as a whole

The condo coverage form applies to business personal property used by the condominium including furniture, computers, maintenance equipment, and supplies.

Question 71

Ben owns a souvenir shop in a small town. During the winter time, the population consists of about 2,000 locals, but once the summer season hits, it’s a mad-house. The island can see over a million travelers during the summer season, and Ben must be ready with enough inventory to handle the demand. Which endorsement to his commercial property policy could temporarily increase Ben’s coverage limits during this high-volume time?
A.
Legal Liability
B.
Peak Season
C.
Protective Safeguard
D.
Tourism Endorsement

Answer 71

B.
Peak Season

The Peak Season endorsement allows the insured party to temporarily increase coverage limits at specified intervals over the course of the year in order to account for increased inventories.