NC Property Insurance Section lll (Commercial Coverages)

Question 1

In a Building and Personal Property policy which of the following property is covered?

Answer 1

A customer’s coat that was placed in a coat check room.

**A customer’s coat would be covered under Coverage C which is a type of bailees coverage.

Question 2

Under a Business owners Property coverage form, the following happens?

Answer 2

The standard deductible is $250.

**Optional coverages actually are available.
Flood is not one of the covered perils.

The standard deductible is $250.

Question 3

The Causes of Loss-Special form of the Commercial Property coverage part insures against?

Answer 3

All risks of direct physical loss unless specifically excluded

**The Special form is an open peril or all risk for where all perils are covered unless they have been excluded.

Question 4

Coverage is written with 80% coinsurance and a standard deductible. If the value of the property is $500,000 and the insurance limit is $300,000, how much will the insurer pay when a $10,000 loss occurs considering a $250 deductible?

Answer 4

$7,250

**The coverage A limit divided by 80% of the replacement value times the loss minus the deductible.

1. [Coverage A / (.8 x Replacement Cost)] x Loss - Deductible
2. [300,000/( .8 x 500,000)] x 10,000 - 250
3. [300,000/400,000] x 10,000 - 250
4. [.75] x 10,000-250
5. [7,500] - 250
6. 7,250

Question 5

A bailee is?

Answer 5

Someone who keeps other people’s property.

**A bailee is someone who takes into their care, custody and control the personal property of others.
A dry cleaner would be a bailee.

Question 6

Which of the following is part of a Commercial Property coverage part?

Answer 6

One or more cause of loss forms.
Applicable endorsements.
Commercial property conditions.

Question 7

All of the following optional valuation coverages are available on a Building and Personal Property Coverage form EXCEPT?

Answer 7

Actual Cash Value.

Question 8

Which of the following situations would be covered by a General Liability Policy?

Answer 8

A surfboard falls off a shelf and injures a shopper.

**The Commercial General Liability (CGL) policy is a third party liability policy. It does not cover the bodily injury or property damage of the insured or employees of the insured.
The CGL excludes pollution coverage.

The Commercial General Liability policy offers coverage in the event someone such as a customer suffers bodily injury or property damage under the following conditions;
while someone is on the insured PREMISES
while the insured is conducting their OPERATIONS
while using the insured’s PRODUCTS
after the insured has COMPLETED OPERATIONS

Question 9

The Business Income Policy does NOT cover which of the following statements?

Answer 9

Salaries of “key” employees during the period of the business interruption.

**Salaries off key employees are not covered.

Question 10

Which Builder’s Risk policy has a specialized contract whereby there is an increase in the limit of liability on the policy as more construction is reported on the project?

Answer 10

Reported Value Basis.

Question 11

Which form would you use to cover money and securities from loss by hold-up of a messenger?

Answer 11

Robbery

**A hold up is the taking of property by violence or the threat of violence which is the definition of Robbery

Question 12

What does the term “vacancy” mean?

Answer 12

There are no people nor their contents at the property.

**Unoccupied means there are contents but no people.
Vacant means there are no contents nor people, completely empty

Question 13

A commercial building has a Replacement Value of $200,000 and the property insurance is written with an 80% coinsurance clause. The insured carries $120,000 of coverage when a $40,000 loss occurs. How much will the policy pay?

Answer 13

$30,000.

**[Coverage A /(.8 x Replacement Cost)] x Loss - Deductible

[120,000/(.8 x 200,000)] x 40,000 - 0

[120,000/160,000] x 40,000

[.75] x 40,000

30,000

Question 14

All of the following businesses would probably qualify for a Businessowner’s policy EXCEPT?

Answer 14

A small grocery store who sells alcohol.

**Businesses that sell alcohol are ineligible for a Business owners Policy.

Question 15

Under the Building and Personal Property coverage form, what obligation, if any, does an insurer have to a mortgagee in the event the company wishes to cancel the policy?

Answer 15

The company must give the mortgagee 10 days written notice if cancellation is for nonpayment of premium, and 30 days notice of cancellation for any other reason.

**Since the mortgagee has an insurable interest in the property, they have a right to know if the policy protecting the property is cancelled. They may want to force place insurance coverage on the property if the insured is not maintaining coverage on the property.

This is rote memory

10 days notice for nonpayment of premium
30 days notice for any other reason

Question 16

In the event of a claim or suit, the insured has all of the following duties to the insurer EXCEPT?:

Answer 16

Furnish copies of any demands received.

Question 17

Commercial property policies, basic coverage insures all of the following perils EXCEPT:

Answer 17

Falling objects

**In order to obtain the peril of Falling Objects, the insured must upgrade to the Broad form or Special form. Under all of the property policy forms whether it be Dwelling, Homeowners or Building and Personal Property, the Basic form does not include Falling Objects.

Question 18

What is the purpose of the Object Definitions forms in a Boiler and Machinery policy?

Answer 18

It identifies the objects covered by the policy.

**The Object Definitions form identifies the property actually covered by the policy such a boiler or walk-in refrigerator.

Question 19

Which one of the following policies covers liability for loss to merchandise while being transported?

Answer 19

Motor Truck Cargo policy.

Question 20

Provide no benefit if the business chooses to operate out of another building while the insured building is being repaired.

Answer 20

Pay for lost net income in the event a covered peril damages the insured building to the extent that the business must shut down operations.

Question 21

In a Commercial policy, once the building has been repaired there may be a lag time between completion of the building and the return of customers to the levels they were prior to the loss?

Answer 21

Extended Business Income form.

**Extended business income will provide coverage for lost net profit for 30 days after a business reopens.
It will make up the difference between post loss net profit and pre loss net profit.
Once a business reopens, it will take some time for customers to learn of the reopening and then return to patronize the business.

Question 22

The owner of a parking lot wants liability coverage for damage to vehicles left in her custody. The best coverage is?

Answer 22

Garage keepers coverage.

**Garage keepers Liability covers vehicles left in the care, custody and control of the insured.

Question 22

Which one of the following is NOT one of the components that are required in all Commercial Package policies?

Answer 22

Object Definitions Form.

**The Objects Definition form is found in the Boiler and Machinery Policy form not the other Commercial forms.

Question 23

Which of the following would NOT be considered a consequential loss?

Answer 23

Damage to personal property.

**Consequential loss also known as Indirect loss is the result of a Direct loss such as loss of rental income due to a fire burning a rental property.

Damage to property would be a direct loss where the property is directly impacted by the peril such it burns in a fire.

Question 23

The earthquake form covers all of the following situations EXCEPT?

Answer 23

Aftershocks that occur 24 hours after policy inception and 48 hours after the initial quake.

Question 24

All of the following are true about the value reporting form EXCEPT?

Answer 24

It is used by business that have floating inventories.

**With the reported value basis, as the construction progresses and the value of the building increases the updated building value is communicated to the insurer and then the insurer charges a premium appropriate for the new value. For example, each month the building value is communicated and then the premium for the month is calculated.

This method will avoid over and under insurance of the property and require that the limit of liability be changed continually such as every month.

Question 25

Business owners liability coverage includes all of the following EXCEPT?

Answer 25

Has liquor coverage.

**Businesses that sell alcohol are ineligible for coverage under the Business owners Policy.

Question 26

The Business Income coverage form applies to:

Answer 26

Loss of net profit and ongoing operating expenses while operations are suspended due to property damage.

Question 27

A building has sufficient fire insurance coverage. If lightning causes $1,000 damage, a resulting fire causes $1,000 damage, and water used to put out the fire causes $2,000 additional damage, how much would the insured collect?

Answer 27

$4,000.

**Fire insurance covers the perils of Fire and Lightning.
Since the water was brought in to put out the fire and the fire is a covered peril, then water damage becomes a covered peril.
This is known as Proximate Cause or Concurrent Causation.

The Fire damage, Lightning damage and Water damage would all be covered.

Question 28

Which of the following property is covered under a Building and Property Coverage Form?

Answer 28

Property 100 feet from the building.

**Accounts, bills, currency, deed, evidence of debt are specifically excluded in the Building and Personal Property Coverage form.
Property within 100 feet of the building is covered such as outdoor tables and chairs of a restaurant.

Question 29

The Commercial Property condition that automatically provides broader coverage when an insurer makes revisions beneficial to insureds without charging premium is called?

Answer 29

Liberalization clause.

**The Liberalization provision states that when the insurer makes a policy form better without an increase in premium as soon as the new better policy form is made available to new consumers, the existing consumers get the benefit of the new better policy form as soon as new consumer get it.

Question 30

An insured has $400,000 of business income coverage written with a monthly limit of indemnity of ¼. How much will the insurer pay if during a period of restoration the insured’s loss was $120,000 during the first 30 days, $130,000 during the next 30 days and $60,000 during the remaining period before operations were resumed?

Answer 30

$260,000

**The monthly maximum is $400,000 times 1/4 which is $100,000.
Compare the monthly maximum to each month’s losses.

$100,000 is less than $120,000 so we choose $100,000 for month 1.
$100,000 is less than $130,000 so we choose $100,000 for month 2.
$ 60,000 is less than $100,000 so we choose $ 60,000 for month 3.

The total is $260,000.

Question 31

The primary purpose of the cause of loss form is?

Answer 31

To describe the perils insured against.

**The cause of loss form is used to identify which perils are covered.
The Basic, Broad and Earthquake cause of loss forms are named peril forms and the Special is an open peril form.

Question 32

Where on a Farm owner’s policy is the liability section?

Answer 32

Section II.

**The Farm owner’s policy is a multi-line policy similar to the Homeowners policy.
Section 1 covers property and Section 2 covers liability.

Question 33

The standard property insurance deductible on a Business owners policy is?

Answer 33

$250 per occurrence.

**This rote memory

$250 standard deductible