IA Test 24 Flashcards
The Homeowners policy on Dylan’s $110,000 home is voided when he intentionally burns the house to the ground. Consequently, he does not receive the settlement check he was hoping to when he committed the arson, but he still has an outstanding mortgage balance of $76,000. How does this event affect the mortgage lender?
Answer Choices: Select the Correct Answer
The insurer pays the mortgage lender $110,000.
The insurer pays the mortgage lender $76,000.
The insurer pays the mortgage lender $55,000 - half the total amount of the loss.
Because the arson voided the policy, the mortgage lender is paid nothing.
Question 1 of 100
Your answer: The insurer pays the mortgage lender $76,000. is correct.
EXPLANATION:
The insured cannot intentionally jeopardize the mortgage lender’s rights. Therefore, the insurer will pay the mortgage lender the $76,000 mortgage balance.
Question 1 of 100
Which statement best describes “defense” coverage under the Section II - Liability coverage of the Businessowners policy?
Answer Choices: Select the Correct Answer
Defense costs are not subject to a limit.
Defense costs are included in the aggregate limit of insurance.
Defense costs are paid but limited to claims submitted during the policy period.
Defense costs are paid at twice the limit of the policy.
Question 2 of 100
Your answer: Defense costs are not subject to a limit. is correct.
EXPLANATION:
Defense coverage is not subject to a policy limit. The insurer can spend whatever it desires in the defense of a claim and it has no effect on the policy limit.
Question 2 of 100
Which of the following would be covered under employee dishonesty?
Answer Choices: Select the Correct Answer Money lost on the way to the bank Inventory shortages Embezzlement Robbery of the employee
Question 3 of 100
Your answer: Inventory shortages is incorrect. The correct answer is: Embezzlement.
EXPLANATION:
Embezzlement is a dishonest act by an employee, and thus would be covered by Employee dishonesty. The other answer choices are excluded or are not dishonest acts of an employee.
Question 3 of 100
Which of the following is a type of “voluntary loss” taken to save the property from further loss?
Answer Choices: Select the Correct Answer General Average Loss Partial Average Loss Actual Total Loss Constructive Total Loss
Question 4 of 100
Your answer: Partial Average Loss is incorrect. The correct answer is: General Average Loss.
EXPLANATION:
A “General Average Loss” is a partial loss that is “voluntary”. This type of loss is taken to save the property from further loss, such as an insured who uses a garden hose to extinguish a fire that has started on her couch. The water damage is “voluntary” but it prevented further loss to the house.
Question 4 of 100
What insurers must participate in accepting business under the California FAIR Plan?
Answer Choices: Select the Correct Answer
All insurers licensed to write basic property insurance or any component of property insurance in multi-peril policies.
Companies who specialize in difficult or hard to place property insurance.
Only those property insurers holding a certificate of authority for 5 years or less in California.
Only those insurers wanting to enter California and have received approval from their board of directors.
Question 5 of 100
Your answer: All insurers licensed to write basic property insurance or any component of property insurance in multi-peril policies. is correct.
EXPLANATION:
The purpose of the FAIR Plan is designed to provide a market for those property owners who are unable to obtain insurance through the normal market. Therefore, the California legislature enacted legislation requiring the participation of admitted insurers licensed to write property insurance to participate.
Question 5 of 100
Each of the following is true about Builders Risk Coverage, EXCEPT:
Answer Choices: Select the Correct Answer
Coverage terminates the day after construction is completed.
The amount at risk increases over time.
Land, lawns and trees are not covered.
In effect, the coverage has a 100% coinsurance requirement.
Question 6 of 100
Your answer: In effect, the coverage has a 100% coinsurance requirement. is incorrect. The correct answer is: Coverage terminates the day after construction is completed. .
EXPLANATION:
Coverage normally terminates 90 days after the work has been completed or has been accepted. In addition, coverage will cease once the building has been put to its intended use.
Question 6 of 100
What is the purpose of freight insurance?
Answer Choices: Select the Correct Answer
Covers shipper fees.
Covers loss to the cargo.
Covers the insurable interest of the shipper due to jettison of the cargo.
Covers the cargo until it reaches the warehouse.
Question 7 of 100
Your answer: Covers the insurable interest of the shipper due to jettison of the cargo. is incorrect. The correct answer is: Covers shipper fees..
EXPLANATION:
Freight insurance is designed to cover the shipper’s fees charged to the shipper. It is the indirect loss/business interruption coverage which comes into play after a direct loss to the vessel.
Question 7 of 100
Which of the following policies does not include coverage for flood?
Answer Choices: Select the Correct Answer
An HO-3 Policy
A Personal Auto policy with “other than collision” coverage
A Personal Articles Floater
A floater covering fine arts
Question 8 of 100
Your answer: An HO-3 Policy is correct.
EXPLANATION:
A homeowner policy specifically excludes flood coverage.
Question 8 of 100
Which of the following statements does NOT describe the major purpose of commercial umbrella liability insurance?
Answer Choices: Select the Correct Answer
To provide supplementary insurance.
To provide excess insurance in addition to the underlying policy.
To provide additional coverage to the underlying insurance policy.
To protect the insured from catastrophic losses by providing additional insurance.
Question 9 of 100
Your answer: To provide additional coverage to the underlying insurance policy. is correct.
EXPLANATION:
In commercial umbrella insurance the insurer will require the insured to carry “underlying” insurance. Underlying policies pay first for claims covered by the underlying coverage and then the umbrella continues to pay according to its policy provisions.
Which of the following would not be addressed by a court in the determination of a declaratory judgment?
Answer Choices: Select the Correct Answer
Determine if a particular exclusion would apply
Determine if a particular insuring agreement would apply
Determine fault or monetary damages
Determine if other insurance policies apply
Question 10 of 100
Your answer: Determine fault or monetary damages is correct.
EXPLANATION:
The court would not determine the fault or monetary judgment in the determination of a declaratory judgment.
Question 10 of 100
The three parties to a contract bond are:
Answer Choices: Select the Correct Answer Principal, obligee, surety. Obligor, principal, surety. Principal, obligee, employee. Employee, obligor, principal.
Question 11 of 100
Your answer: Principal, obligee, surety. is correct.
EXPLANATION:
The three parties to a contract bond are the principal (contractor), obligee (the protected party) and the surety (the guarantor) who pays the loss to the obligee because the principal failed to perform.
Question 11 of 100
Sarah is shopping at a grocery store and wants to purchase a bottle of juice. The aisle is marked off with a rope awaiting the clerk to clean up a previously broken bottle and spill on the floor. Sarah moves the rope to get the item and slips and falls on the floor, cutting her face on the scattered glass. Which of the following would be the defense that the insurance company would most likely use in this situation?
Answer Choices: Select the Correct Answer
Breach of duty on the part of the customer.
Assumption of risk and contributory negligence on the part of the customer.
Trespassing on non-entry areas by the customer.
Comparative negligence.
Question 12 of 100
Your answer: Assumption of risk and contributory negligence on the part of the customer. is correct.
EXPLANATION:
Business owners are only liable for negligence if a failure to carry out their duty caused the accident. For strict liability cases against manufacturers or sellers of defective products, the injury must result from a defect. In this case the grocery store attempted to keep the premises safe and was not negligent and no breach of duty occurred. The customer assumed the risk which contributed to the injuries.
Question 12 of 100
All of the following are exclusions under Section I - Forms HO-2 and HO-3, EXCEPT:
Answer Choices: Select the Correct Answer Collapse. Water including flood. Power failure. Earth movement.
Question 13 of 100
Your answer: Power failure. is incorrect. The correct answer is: Collapse..
EXPLANATION:
The HO-8 form does not include the peril of collapse. However, the broader forms HO-2 and HO-3 include collapse. The other 3 answers are excluded under all of the HO forms.
Question 13 of 100
An insurance company in California has cancelled a Homeowners policy for a reason acceptable by law. How long does the insurer have to return the unearned premium to the insured?
Answer Choices: Select the Correct Answer
The unearned premium must be returned along with the notice provided to the insured that the policy is being cancelled.
Within 30 days of the date of cancellation.
Within 25 days of the date of cancellation.
The unearned premium must be returned within 10 days of mailing the notice of cancellation to the insured.
Question 14 of 100
Your answer: Within 30 days of the date of cancellation. is incorrect. The correct answer is: Within 25 days of the date of cancellation..
EXPLANATION:
When a Homeowners policy is cancelled in California, any unearned premium must be returned to the insured within 25 days of the cancellation date of the policy.
Question 14 of 100
All of the following statements regarding the Commercial Package Policy are correct, EXCEPT:
Answer Choices: Select the Correct Answer
Commercial Package Policies can include Ocean Marine and Aviation Insurance coverage.
Almost all commercial risks are eligible for coverage under the Commercial Package Policy.
The insured can choose a variety of eligible commercial coverages to tailor the package to specific business insurance needs.
A complete Commercial Package Policy (CPP) includes a common policy Declarations page, a common policy Conditions sections, and two or more coverage parts.
Question 15 of 100
Submit
Your answer: Almost all commercial risks are eligible for coverage under the Commercial Package Policy. is incorrect. The correct answer is: Commercial Package Policies can include Ocean Marine and Aviation Insurance coverage. .
EXPLANATION:
Ocean Marine and/or Aviation insurance are “specialty” policies that cannot be packages together with other commercial risks into a package policy.
Question 15 of 100
A Personal Automobile policy provides liability coverage on a single limit basis for $100,000. A covered accident caused by Mr. Jones involves a $75,000 liability judgment to Mr. Allen for his injuries and $25,000 liability judgment for the damage to his car. In addition, $20,000 in legal bills are incurred defending the insured. The company will pay:
Answer Choices: Select the Correct Answer $120,000. $25,000. $75,000. $100,000.
Your answer: $120,000. is correct.
EXPLANATION:
Legal expenses are in addition to the limit of liability. The single limit covers both bodily injury and property damage liability. Therefore, the policy will pay the $100,000 in damages and the cost to defend the insured in the lawsuit for a total of $120,000.
Question 16 of 100
The attempt to restore an insured to his or her previous financial condition before a loss occurred is BEST described as:
Answer Choices: Select the Correct Answer Indemnification. Subrogation. Coinsurance. Self-insurance.
Question 17 of 100
Your answer: Indemnification. is correct.
EXPLANATION:
An insurance policy is not designed for an insured to profit from a loss. The intent is to restore the insured to the same financial condition before the loss subject to policy limits.
Question 17 of 100
The liberalization clause of a Businessowners policy automatically applies favorable expansions of coverage, for which a premium is not charged if the changes are made during the policy period or within ______ prior to the effective date of the policy.
Answer Choices: Select the Correct Answer 45 days Six months Three months 30 days
Question 18 of 100
Your answer: 30 days is incorrect. The correct answer is: 45 days.
EXPLANATION:
A liberalization condition states that the insurer will automatically and immediately apply to the policy any revisions made during the policy period or within 45 days prior to the effective or renewal date if those revisions broaden the coverage without additional premium.
Question 18 of 100
Which of the following are qualifications of an applicant for an independent insurance adjuster license in California?
I. Be at least 18 years of age.
II. Must not have committed acts or crimes constituting grounds for denial of a license.
III. Must have had at least 6 months of experience in adjusting insurance claims or the equivalent as determined by the Commissioner.
IV. Must pay the required fees.
Answer Choices: Select the Correct Answer I, II, III and IV I, II and IV only I, II and III only II, III and IV only
Question 19 of 100
Your answer: I, II and IV only is correct.
EXPLANATION:
An applicant must have two years of experience. All the other statements are correct.
Question 19 of 100
The California Insurance Code (CIC) further details the items required on a valid insurance contract. All of the following are required, EXCEPT:
Answer Choices: Select the Correct Answer The parties to the contract. The insured's mailing address. The objects of insurance. The policy period.
Question 20 of 100
Your answer: The objects of insurance. is incorrect. The correct answer is: The insured’s mailing address..
EXPLANATION:
The California Insurance Code (CIC) requires six specific items of information be included in an insurance policy issued in California. The insured’s mailing address is not one of them.
Question 20 of 100
What coverage under the BOP automatically applies if a customer slips and falls on the named insured’s premises, regardless of legal liability?
Answer Choices: Select the Correct Answer Business liability coverage Personal injury coverage Medical expense coverage Advertising injury coverage
Question 21 of 100
Your answer: Personal injury coverage is incorrect. The correct answer is: Medical expense coverage.
EXPLANATION:
Medical expense coverage pays regardless of the insured’s legal liability. It is a “good will” type of coverage where negligence is not a factor in the claim.
Question 21 of 100
Under a Commercial Property policy, the coinsurance clause does all of the following, EXCEPT:
Answer Choices: Select the Correct Answer
Grants the insured a reduction in premiums for accepting a condition that the insured maintain insurance at a specified percentage of either the actual cash value or replacement cost of the covered property.
The insured could become a co-insurer to a partial loss if the insured is in violation of the clause.
The coinsurance clause does not operate in the event of a total loss.
There are no exceptions, all of the responses are correct.
Question 22 of 100
Submit
Your answer: There are no exceptions, all of the responses are correct. is correct.
EXPLANATION:
There are no exceptions, all of the responses are correct.
Question 22 of 100
The crew of a ship is guilty of fraud with the intention of reaping gains at the expense of the owner. In ocean marine coverage, what is this called?
Answer Choices: Select the Correct Answer Perils of the sea Jettison General average Barratry
Question 23 of 100
called?
Your answer: Barratry is correct.
EXPLANATION:
Barratry means fraud by the master or the crew with the intention of reaping gains at the expense of the owner. Examples include setting the ship on fire, diverting the ship from its course, or embezzlement of the cargo.
Question 23 of 100
Under the CGL coverage part as it relates to products liability coverage, which of the following would apply?
Answer Choices: Select the Correct Answer
Worldwide coverage is provided as long as the product is manufactured or sold in the covered territory and the claim is brought within the coverage territory
Products are covered while being manufactured anywhere in the world
Products made in the USA if a suit is brought in a foreign country
Must be consumed or used within the United States and Canada for coverage to apply
Question 24 of 100
Your answer: Worldwide coverage is provided as long as the product is manufactured or sold in the covered territory and the claim is brought within the coverage territory is correct.
EXPLANATION:
The products must be manufactured within the coverage territory. This includes the US, its possessions, Canada and Puerto Rico. The suit must also be brought within the coverage territory, unless otherwise agreed to by the insurer.
Question 24 of 100
Miranda’s home is covered under a Homeowners policy with an Earthquake Endorsement attached. She has selected the base deductible of 5% and her limit of liability under Coverage C is greater than Coverage A. Her Coverage C limit of liability is $1,000. What is the deductible that Miranda will have to pay?
Answer Choices: Select the Correct Answer $50 $5 $5,000 $500
Question 25 of 100
Your answer: $500 is correct.
EXPLANATION:
Although 5% multiplied by $1,000 is $50, the endorsement states that the deductible will never be less than $500.
Question 25 of 100
A monopolistic state in regards to Workers Compensation insurance is a state in which:
Answer Choices: Select the Correct Answer
Coverage may be purchased from either the state or a private insurance company.
Coverage may only be purchased from a private insurance company.
Workers compensation coverage is not required.
Coverage must be purchased from the state.
Question 26 of 100
Your answer: Coverage must be purchased from the state. is correct.
EXPLANATION:
In a monopolistic state, the state writes all of the coverage (except those that are self-insured) and private insurers are not permitted to provide coverage.
Question 26 of 100
Under “pollution cleanup and removal” coverage under the standard ISO BOP form, when must a loss be reported?
Answer Choices: Select the Correct Answer Within 180 days Within 60 days Immediately Within 90 days
Question 27 of 100
Your answer: Within 60 days is incorrect. The correct answer is: Within 180 days.
EXPLANATION:
The expenses will be paid only if they are reported to the insurer within 180 days of the date of the direct loss or by the end of the policy period, whichever is earlier.
Question 27 of 100
Meg has filed a claim with her insurance company. Conrad, the staff adjuster assigned to her claim, feels there is not coverage under the policy to address Meg’s claim, but he is not sure because he has not investigated the claim. The next step that Conrad will most likely take is to:
Answer Choices: Select the Correct Answer
Issue a non-waiver agreement to Meg.
Issue a reservation of rights letter to Meg.
Request a declaratory judgment.
Begin the claims investigation.
Question 28 of 100
Your answer: Issue a reservation of rights letter to Meg. is correct.
EXPLANATION:
A reservation of rights letter would be issued before the claims investigation would begin. This letter would explain to the claimant that the insurance company intends to investigate the claim, but reserves the right to deny the claim if coverage does not apply under the policy.
Question 28 of 100
The insured was working with a subcontractor installing wiring in an office building the insured was remodeling for a customer. The insured accidentally caused a fire when he crossed some wires. Two of the offices were damaged, and the wiring had to be replaced. Which of the damages will the insured’s commercial umbrella liability policy likely cover if it is needed?
Answer Choices: Select the Correct Answer
The damages to the two offices and the wiring
The damages to the two offices only
The damages to the wiring only
The damages to one of the offices only
Question 29 of 100
our answer: The damages to the two offices only is correct.
EXPLANATION:
The coverage would only apply to the damage to the two offices only. The wiring is not covered. It is part of their work.
Question 29 of 100
Which of the following statements BEST describes the reason it was necessary to create a federal flood insurance program in 1968?
Answer Choices: Select the Correct Answer
Because other property policies routinely exclude flood from coverage.
Because people were building their homes closer and closer to large bodies of water than ever before.
Because the United States was experiencing more flooding than ever before.
Because the flood insurance policies that were being issued at the time, did not provide adequate coverage for contents.
Question 30 of 100
Your answer: Because other property policies routinely exclude flood from coverage. is correct.
EXPLANATION:
It was necessary to create a federal flood insurance program because other property policies routinely exclude flood from coverage. Many citizens were losing everything because they could not purchase insurance to cover their home and their belongings in case of flood.
Question 30 of 100
Which of the following would be considered a “collision” peril under auto physical damage coverage?
Answer Choices: Select the Correct Answer Riot Striking an animal Missiles or falling objects Hitting a pot hole
Question 31 of 100
Your answer: Striking an animal is incorrect. The correct answer is: Hitting a pot hole .
EXPLANATION:
Hitting a pot hole and causing damage to the vehicle (other than the tires) would be a collision peril. The other perils are covered under “other than collision” coverage.
Question 31 of 100
Which of the following statements is correct regarding pollution caused by smoke released from an industrial operation covered under the Commercial Property Policy?
Answer Choices: Select the Correct Answer
Always covered
A gradual release of pollution from industrial operations is not covered
Covered on an “excess basis”
Covered if caused by a covered cause of loss peril
Question 32 of 100
Your answer: Covered if caused by a covered cause of loss peril is correct.
EXPLANATION:
The Commercial Property Policy will not pay for loss or damage caused by or resulting from the discharge, dispersal, seepage, migration, release or escape of pollutants unless the discharge, dispersal, seepage, migration, release or escape was caused by a covered cause of loss.Therefore if a fire or explosion causes the release of pollution, the loss would be covered. The gradual release of smoke from normal agricultural and industrial operations is not a covered cause of loss.
Question 32 of 100
Isaac owns a home with an older furnace in need of repair. He leaves his home for a month to avoid the cold weather. He returns to find that the furnace had stopped working. Water pipes have frozen and burst and his property has been damaged. Since the water ran for almost a month, his water bill is extremely high. What will the adjuster pay?
Answer Choices: Select the Correct Answer
The water damage.
The increased cost of the water bill.
The cost to replace the particular part in the plumbing system that busted and caused the damage.
The furnace repairs and/or replacement.
Question 33 of 100
Your answer: The water damage. is correct.
EXPLANATION:
One could argue that this was caused by neglect, but the damage cannot be tied to the neglect exclusion. This exclusion applies post-loss and not before a loss has occurred. The company would have to prove intent on the part of the insured to damage his own property. Even if the furnace caused a fire, the company would have to prove an intentional act such as arson. Water is not considered covered property so the value of its loss (the water bill) is not covered.
Question 33 of 100
A landlord has wrongfully evicted a tenant. A lawsuit is brought by the tenant against the landlord. The landlord would need:
Answer Choices: Select the Correct Answer Premises liability coverage Bodily injury coverage Personal injury coverage Contractual coverage
Question 34 of 100
Your answer: Contractual coverage is incorrect. The correct answer is: Personal injury coverage.
EXPLANATION:
The landlord would need personal injury liability coverage which is included in the CGL policy.
Question 34 of 100
Hannah must take time away from work to help assist in the investigation of a claim that was made against her BOP policy. The policy will pay for Hannah’s actual loss of earnings up to:
Answer Choices: Select the Correct Answer $150 per day $250 per day $200 per day $500 per day
Question 35 of 100
Your answer: $250 per day is correct.
EXPLANATION:
The BOP policy will pay for actual loss of earnings, $250 per day, if the insured is asked by the insurance company to take time away from work to assist in the investigation and/or defense of a claim.
Question 35 of 10
What is the procedure for an insured to refuse uninsured motorist coverage in California?
Answer Choices: Select the Correct Answer
The insured must advise the insurer in writing that he or she does not want the coverage.
The insured may advise the Insurance Department that he or she does not want the coverage.
The insured may phone the insurance agent and decline the coverage.
The insured may phone the insurance company and decline the coverage.
Question 36 of 100
Your answer: The insured may phone the insurance agent and decline the coverage. is incorrect. The correct answer is: The insured must advise the insurer in writing that he or she does not want the coverage..
EXPLANATION:
According to the California Insurance Code (CIC 11580.2), prior to issuance or renewal of the policy the insured must state in writing that he or she does not want the coverage.
Question 36 of 100
Which of the following best describes the concept of risk?
Answer Choices: Select the Correct Answer Uncertainty of Loss Result of Loss Amount of Loss Cause of Loss
Question 37 of 100
Your answer: Cause of Loss is incorrect. The correct answer is: Uncertainty of Loss.
EXPLANATION:
Risk is the chance that a loss might occur. It is not the cause of the loss.
Question 37 of 100
A customer deposits items in a safe deposit box at the bank. These items are missing the next time the customer opens the box. What crime coverage is necessary to cover this loss?
Answer Choices: Select the Correct Answer Safe Depository Guests Property Lessees of Safe Deposit Boxes Extortion-Commercial Entities
Question 38 of 100
Your answer: Safe Depository is correct.
EXPLANATION:
If the bank is legally liable for the loss, the “Safe Depository” coverage form will cover the loss.
Question 38 of 100
A commercial building worth $400,000 is insured under a Commercial Property policy for $240,000, and an 80% coinsurance clause applies. A $20,000 loss to the building has occurred. How much will the insured receive when a claim is filed?
Answer Choices: Select the Correct Answer $14,000 $10,000 $12,000 $15,000
Question 39 of 100
Your answer: $12,000 is incorrect. The correct answer is: $15,000.
EXPLANATION:
The insured should have carried $320,000 to be in compliance with the 80% coinsurance clause, therefore the building is 25% underinsured, penalizing the insured. $240,000 (the amount carried) divided by $320,000 (the amount required) multiplied by $20,000 loss, equals $15,000.
Question 39 of 100
An insured carries a general liability policy and has hired a trucking company to transport equipment to the business location. The trucking company carries a commercial auto policy. The insured loads a piece of machinery onto the truck and fails to secure it properly. The trucking company is transporting the cargo and it falls off the truck and hits another car. Which policy or policies would cover this claim?
Answer Choices: Select the Correct Answer
The trucking company’s commercial auto policy would cover the claim.
The trucking company’s general liability policy would cover the claim.
Both the commercial auto and the general liability policies would cover the claim. This is because the owner of the equipment was negligent in securing the cargo improperly and the trucking company’s general liability policy should also share in the claim because they were transporting the unsecured cargo.
Neither the commercial auto policy nor the general liability would pay the claim because both parties were negligent.
Question 40 of 100
Your answer: Both the commercial auto and the general liability policies would cover the claim. This is because the owner of the equipment was negligent in securing the cargo improperly and the trucking company’s general liability policy should also share in the claim because they were transporting the unsecured cargo. is incorrect. The correct answer is: The trucking company’s commercial auto policy would cover the claim..
EXPLANATION:
The commercial auto policy would respond to cover the claim for damages to the damaged party. The damage to the cargo itself would not be covered. The trucking company and the insured should both carry Inland Marine cargo coverage.
Question 40 of 100
