Other Coverages

Question 1

What is a base flood?
A.
A base flood is a flood that has a 1% chance of being equaled or exceeded in any given year.
B.
A base flood is any flood caused by runoff waters.
C.
A base flood is the average flood level expected in any given year.
D.
A base flood is the highest flood level that has been reached in the previous 50 years.

Answer 1

A.
A base flood is a flood that has a 1% chance of being equaled or exceeded in any given year.

A base flood is a flood so bad that it is likely only to happen once in 100 years. In other words, a flood so bad that it only has a 1% chance of occurring in any given year.

Question 2

A flood inundates Howard’s property, causing $100,000 of damage to the dwelling and $25,000 of damage to the detached garage. If Howard has a Dwelling Form flood policy with a $150,000 limit, how much will the policy pay for the damage to Howard’s home and detached garage combined? (Ignore deductible amounts.)
A.
$100,000
B.
$150,000
C.
$90,000
D.
$115,000

Answer 2

D.
$115,000

Question 3

Which of the following would not be covered under Employers’ Liability insurance?
A.
Injuries caused by an employer’s physical abuse of an employee
B.
Claims by others for the liabilities of the insured’s employees
C.
Injuries caused by an employer’s negligence
D.
Claims by an injured employee’s relatives for consequential damages

Answer 3

A.
Injuries caused by an employer’s physical abuse of an employee

Employers Liability insurance is intended for situations in which employees claim injuries that are not subject to WC law, such as injuries caused by the employer’s negligence; claims by others for the liabilities of the insured’s employees; and claims by an injured employee’s relatives for consequential damages. It does not cover injuries caused intentionally by the employer.

Question 4

Matt, an employee for Smith Builders, Inc., makes an annual salary of $52,000. One day, while working on a new construction project, he is badly injured when a ladder falls on top of him. The doctor determines that Matt will be completely unable to work for at least 6 weeks while he recovers. Assuming that the weekly rate of compensation must fall between $300 and $2,000, how much weekly compensation can Matt expect to receive?

A.
$1000.00
B.
$300.75
C.
$750.00
D.
$666.67

Answer 4

D.
$666.67

Matt qualifies for temporary total disability benefits, which will cover his lost wages by paying 2/3 of his average weekly wage, within the state’s limits. First, calculate Matt’s average weekly wage by dividing the total salary of $52,000 by 52 weeks to get $1000 per week. Then, multiply the AWW of $1000 by 2/3 to get Matt’s weekly rate of compensation at $666.67. Since this falls within the state’s minimum and maximum limits of $300 to $2,000, this is the weekly amount of compensation that Matt will receive while he recovers.

Question 5

Workers’ compensation insurance can provide compensation for all of the following, EXCEPT:
A.
lost income.
B.
death.
C.
lost vacation time.
D.
medical expenses.

Answer 5

C.
lost vacation time.

WC covers medical expenses, and provides income and death benefits, but it does not reimburse employees for lost vacation time.

Question 6

Carl dies in a tragic work accident, leaving his wife and three small children with no income. How much can Carl’s family expect to receive in death benefits?

A.
$250,000
B.
$320,000
C.
$400,000
D.
$290,000

Answer 6

B.
$320,000

Carl’s death benefits will pay $320,000 since he has 3 or more total dependents.

Question 7

What is defined as a hereditary disorder?

A.
An abnormality that is genetically transmitted from parent to offspring and may cause illness or disease
B.
A condition that can be treated or managed, but not cured.
C.
A condition that is present from birth, whether inherited or caused by the environment, which may cause or otherwise contribute to illness or disease
D.
Any condition for which a veterinarian provided medical advice, the pet received treatment for, or the pet displayed signs or symptoms consistent with the stated condition prior to the effective date of a pet insurance policy or during any waiting period

Answer 7

A.
An abnormality that is genetically transmitted from parent to offspring and may cause illness or disease

Hereditary disorder means an abnormality that is genetically transmitted from parent to offspring and may cause illness or disease.

Question 8

During a severe typhoon, the captain of a ship decides to throw several cargo items overboard in order to save the ship and crew from perishing. Company X, Company Y, and Company Z each had equal amounts of cargo aboard this ship, and each carried a single risk form cargo policy. After the ship reaches its destination, they discover that half of Company X’s cargo and a quarter of Company Y’s cargo was lost in the jettison, while Company Z’s cargo all made it safely to shore. If each company had $100,000 worth of cargo aboard ship to begin with, how much will Company X’s insurer have to pay for the losses?

A.
$0
B.
$75,000
C.
$25,000
D.
$50,000

Answer 8

C.
$25,000

Under the Particular Average Clause, for covered perils other than jettison, the losses are applied to each particular company rather than shared by all.

Question 9

Martin is a sailor who makes an average weekly wage of $600 per week. One day, Martin is injured just off the Gulf Coast and breaks both legs. What will his compensation look like?

A.
Under the Longshore and Harbor Workers’ Compensation Act, Martin will receive $400 per week until he is healed.
B.
Under the Jones Act, Martin will receive $300 per week for 200 weeks.
C.
Under the Longshore and Harbor Workers’ Compensation Act, Martin will receive 200 weeks’ worth of wages in a lump sum.
D.
Under the Jones Act, Martin may demand that his employer provide on-shore employment for him until he is ready to go back to sea.

Answer 9

A.
Under the Longshore and Harbor Workers’ Compensation Act, Martin will receive $400 per week until he is healed.

Under the Longshore and Harbor Workers’ Compensation Act, Martin will receive $400 per week until he is healed.
The Longshore and Harbor Workers’ Compensation Act offers ⅔ of an injured sailor’s wages when the sailor cannot work. ⅔ of $600 is $400 per week.
The Jones Act allows sailors to sue their employers for damages and to choose a jury trial, but does not offer compensation for lost wages after an injury.

Question 10

Workers’ compensation premiums are based on all of the following EXCEPT:

A.
the size of payroll.
B.
the race of the employee.
C.
the location of the business.
D.
the risk level of the work performed.

Answer 10

B.
the race of the employee.

WC premiums will vary based on the size of payroll, the riskiness of the work, and the business’ location, but the race of the employees will not affect them.

Question 11

Which of the following statements about a Personal Articles Floater (PAF) policy is FALSE?
A.
A PAF provides coverage on an open-peril basis.
B.
A PAF offers worldwide coverage.
C.
A PAF is used to provide Personal Property Floaters in a single policy form.
D.
A PAF always pays actual cash value for damaged property.

Answer 11

A PAF does offer worldwide coverage. It also pays the lesser of: ACV, replacement/repair cost, or the specified limit of coverage. The insured may also choose to use an agreed value for covered property.

Question 12

Which statement BEST describes a stand alone excess liability policy?
A.
Excess liability insurance that often covers more risks than the base policy
B.
Insurance coverage for damages caused by an excess of any one peril
C.
Excess liability insurance that “follows” the base insurance policy to the letter
D.
Excess liability insurance that “follows” the base policy, but includes its own set of limitations and exclusions

Answer 12

D.
Excess liability insurance that “follows” the base policy, but includes its own set of limitations and exclusions

Excess liability policies are used to provide higher limits and/or broader coverage than a base policy. A stand alone excess liability policy covers the same risks as the base policy, but may have its own exclusions and limitations.

Question 13

Which of the following statements is TRUE?
A.
Exclusive remedy means that workers’ compensation is only for full-time employees.
B.
Exclusive remedy means that any person at fault for an accident will have increased premiums.
C.
Exclusive remedy means an employer takes total responsibility for any accidents.
D.
Exclusive remedy means an injured employee cannot sue his employer.

Answer 13

D.
Exclusive remedy means an injured employee cannot sue his employer.

WC insurance is an employee’s “exclusive remedy,” which means that in the event of an injury, he is not permitted to sue his employer.

Question 14

Which statement about the Federal Employees Compensation Act is TRUE?
A.
It protects only interstate railroad workers and their families.
B.
It protects injured seamen by allowing them to sue for damages and to choose a jury trial.
C.
It provides federal government insurance for civilian employees.
D.
It provides benefits in the form of monthly payments and medical coverage to coal miners.

Answer 14

C.
It provides federal government insurance for civilian employees.

Question 15

Which statement BEST describes Umbrella coverage?
A.
Excess liability insurance that “follows” the base policy, but includes its own set of limitations and exclusions
B.
Insurance coverage for that doesn’t have deductibles
C.
Excess liability insurance that “follows” the base insurance policy to the letter
D.
Excess liability insurance that can also provide additional coverages not provided by the base policy

Answer 15

D.
Excess liability insurance that can also provide additional coverages not provided by the base policy

This describes a Follow Form excess liablity policy. An umbrella policy is extra liability insurance that is able to “drop down” to fill coverage gaps in underlying policies. The term “umbrella” refers to how the policy shields the insured’s assets more broadly than primary coverage.

Question 16

Which of the following businesses would NOT need bailee coverage?
A.
A dry cleaner
B.
A jewelry repair shop
C.
A record store
D.
A shoe repair shop

Answer 16

C.
A record store

A jewelry repair shop will regularly hold customers’ property for servicing or repair, and so would benefit from bailee coverage. A record store does not.

Question 17

Part II of a Workers’ Compensation policy is legal liability coverage. Which of the following would NOT be covered under Part Two?

A.
claims by others for the liabilities to insured’s employees.
B.
claims by employees for on-the-job injuries.
C.
claims by relatives of injured employees for consequential damages.
D.
claims by employees for injuries not subject to a workers’ compensation law, such as injuries caused by the employer’s negligence.

Answer 17

B.
claims by employees for on-the-job injuries.

Claims by employees for on-the-job injuries would not be covered under Part Two; they would be covered under Part One.

Question 18

John rescues a poodle that suffers from hip dysphoria and immediately gets pet insurance. He is shocked when the policy denies coverage for the dog’s pain meds. Was the insurer required to disclose that it did not cover preexisting conditions?

A.
No.
B.
No, as long as it provides the following statement: “Other exclusions may apply. Please refer to the exclusions section of the policy for more information.”
C.
Yes, but only if the insurer had reason to believe that John’s poodle had a preexisting condition.
D.
Yes.

Answer 18

D.
Yes.

The insurer is always required to disclose if it excludes coverage for a pre-existing condition, hereditary disorder, congenital anomaly or disorder, or chronic condition. Otherwise, it can just say that other exclusions apply.

Question 19

A _________ is a specified period of time that is required to transpire before some or all of the coverage in the policy can begin.

A.
benefit pause
B.
pause of coverage
C.
waiting or affiliation period
D.
free look period

Answer 19

C.
waiting or affiliation period

A waiting of affiliation period is the period of time specified in a pet insurance policy that is required to transpire before some or all of the coverage in the policy can begin.

Question 20

Seaborne Shipping Co. has hull coverage on all of its cargo ships with a $50,000 average deductible. One ship is attacked by pirates out at sea and suffers $60,000 in damages. In the same policy year, a fire damages another ship while it’s docked at bay, causing $80,000 in damages. How much in total will Seaborne Shipping Co. be indemnified for their losses?

A.
$90,000
B.
$40,000
C.
$50,000
D.
$120,000

Answer 20

B.
$40,000

To calculate the indemnity for each ship, we subtract the deductible from the total loss amount. The insurer will pay $10,000 for the first ship ($60,000 - $50,000 = $10,000) and $30,000 for the second ship ($80,000 - $50,000 = $30,000). So altogether, Seaborne Shipping Co. will be indemnified $40,000 for their losses ($10,000 + $30,000 = $40,000).

Question 21

Christine was looking quickly at her cell phone when she crashed into her garage, smashing the door. Since her auto liability won’t cover the damage because it doesn’t extend to property she owns, she hopes her excess liability policy will cover the damage to the garage door. Why is this NOT possible?
A.
Excess liability policies cover only what is also covered by the base policy.
B.
Excess liability policies only cover bodily injury.
C.
Christine’s auto liability policy will cover the damages to her garage.
D.
Excess liability policies only cover damages to the insured’s house, not attached structures.

Answer 21

A.
Excess liability policies cover only what is also covered by the base policy.

Excess liability policies only cover what the base policy covers. Since Christine’s base policy won’t cover the damage she caused, neither will her excess liability policy.

Question 22

All of the following are considered employees in the state of California and their employer’s must purchase WC coverage for them, EXCEPT:

A.
commissioned authors under contract.
B.
independent contractors.
C.
childcare professionals.
D.
elected and appointed paid public officers.

Answer 22

B.
independent contractors.

Independent contractors work for a specified payment for a specified result, under the employer’s control as to the result of his work only and not the means by which the work is done. They do NOT need to be covered by WC insurance in California.

Question 23

Which statement about the Federal Employers Liability Act is TRUE?
A.
It protects only interstate railroad workers and their families.
B.
It protects injured seamen by allowing them to sue for damages and to choose a jury trial.
C.
It provides federal government insurance for civilian employees.
D.
It provides benefits in the form of monthly payments and medical coverage to coal miners.

Answer 23

A.
It protects only interstate railroad workers and their families.

The Federal Employers Liability Act protects only interstate railroad workers and their families.

Question 24

Employers of which of the following employees are not required to purchase Workers’ Compensation insurance?

A.
Unpaid student athletes
B.
Illegal aliens
C.
Teachers
D.
Domestic servants

Answer 24

A.
Unpaid student athletes

Employers of unpaid student athletes are not required to purchase Workers’ Compensation insurance.

Question 25

Which of the following would NOT be considered an Instrumentality of Transportation and Communication?
A.
A truck
B.
A bridge
C.
A road
D.
A dock

Answer 25

A.
A truck

Instrumentalities of Transportation and Communication include things that are involved in, or assist in, the transportation of goods, such as bridges, docks, tunnels, roads, dams, radio towers, and power lines. However, this does NOT include the actual vehicles doing the transporting, since these have their own policies, and therefore do not fall under inland marine insurance.

Question 26

Lacey owns a vacation home on the beach in North Carolina. It is 2,600 square feet and includes a finished basement. She’d like to buy flood insurance through the NFIP with replacement cost coverage. Why won’t Lacey be able to purchase a replacement cost policy?
A.
Lacey’s beach house is not her principal residence.
B.
Lacey’s home has a finished basement.
C.
Lacey’s home is more than 2,500 square feet.
D.
The NFIP does not offer replacement cost policies.

Answer 26

A.
Lacey’s beach house is not her principal residence.

Lacey can’t purchase a replacement cost policy because the house isn’t her principal residence. A property will only get replacement cost coverage if it is a single-family dwelling, is the owner’s principal residence, and is insured for at least 80% of its replacement value.

Question 27

Which of the following best describes twenty-four hour coverage?

A.
A worker’s compensation policy that begins compensating an injured employee for lost wages twenty-four hours after the injury occurs.
B.
A combination of workers’ compensation insurance with general health insurance, providing medical care coverage for employees twenty-four hours a day.
C.
An endorsement that an employer can add for specifically named salaried employees in a workers’ compensation policy, which covers those employees for work-related injuries twenty-four hours a day, even if the injury occurs while the employee is “off-the-clock” doing work “off-site” or at home.
D.
A condition in a workers’ compensation policy saying that it can apply to all twenty-four hours in a day, covering employees that may work a night shift or odd hours.

Answer 27

B.
A combination of workers’ compensation insurance with general health insurance, providing medical care coverage for employees twenty-four hours a day.

Question 28

Norman, an employee at Chemical Concoctions, Inc., makes an annual salary of $65,000. One day, while testing some chemicals at work, something goes wrong and the potent mixture reacts and explodes onto Norman’s face. As a result, his face is badly burned and he is left permanently blind in both eyes. Assuming that the weekly rate of compensation must fall between $350 and $2,050, how much weekly compensation can Norman expect to receive?

A.
$833.33
B.
$2000.50
C.
$1,250.00
D.
$666.67

Answer 28

A.
$833.33

Question 29

Which of the following statements is FALSE?
A.
Flood insurance can be purchased through private commercial insurance companies.
B.
Flood insurance is always backed by the National Flood Insurance Program.
C.
All flood insurance policies are settled on an ACV basis.
D.
Condominium associations can purchase flood insurance.

Answer 29

C.
All flood insurance policies are settled on an ACV basis.

Question 30

What does “implied warranties” mean in the context of Ocean Marine Insurance?
A.
Mid-route deviation in voyage must be documented upon arrival.
B.
Strict adherence to good maritime practices is required.
C.
Coverage is implied for all cargo on an insured vessel, regardless of legality.
D.
All cargo must be new and under warranty in order to be covered.

Answer 30

B.
Strict adherence to good maritime practices is required.

Implied warranties initiate a strict adherence to good maritime practices. Because insurers base their insurance coverage on the risks involved, the insurer will only indemnify damages to a ship if it adheres to these warranties, one of which is legality. The cargo must be legal to be covered.

Question 31

According to the workers’ compensation policy conditions, the insurer has the right to:
A.
inspect the workplace at any time.
B.
interview the employer at any time.
C.
cancel the policy at any time.
D.
increase premiums at any time.

Answer 31

A.
inspect the workplace at any time.

The insurer has the right to inspect the workplace at any time.

Question 32

A cruise ship crashes into some rocks off the coast of the Caribbean when a nearby earthquake causes massive waves near the coast. The impact damages the ship and injures several passengers. Which ocean marine coverage will pay for the damages to the cruise ship but not for the injured passengers?

A.
Hull Coverage
B.
Protection & Indemnity (P & I)
C.
Freight Insurance
D.
Cargo Coverage

Answer 32

A.
Hull Coverage

Hull coverage protects against damages to the vessel, whereas liability coverage under P & I insurance pays for third party liability claims such as injured passengers.

Question 33

Lori’s property was damaged in a recent flood. The damages to her home and detached garage came to $80,000 and $15,000, respectively. Lori has a Dwelling Form flood policy with $100,000 limit. How much indemnification can Lori expect to receive for the damage to her garage?
A.
$10,000
B.
$0
C.
$90,000
D.
$15,000

Answer 33

A.
$10,000

Coverage A can pay up to 10% of the coverage limit for detached garages. 10% of Lori’s $100,000 policy limit is $10,000.

Question 34

A ferry boat crashes into port after experiencing engine troubles, damaging a docked pontoon boat and injuring two harbor workers. It will cost the ship owner $50,000 to repair his ferry boat, plus another $20,000 to repair the pontoon and $40,000 in bodily injury payments for the injured workers. Which ocean marine coverage would help pay for the damages to the pontoon boat and the harbor workers’ injuries?

A.
Protection & Indemnity (P & I) Coverage
B.
Cargo Coverage
C.
Hull Coverage
D.
Freight Insurance

Answer 34

A.
Protection & Indemnity (P & I) Coverage

P & I is liability insurance that protects the ship owner in the event that the ship causes property damages or physical injuries to a third party.

Question 35

XYZ Insurance is a private insurer that sells flood insurance policies. Which of the following statements is FALSE?
A.
XYZ Insurance is responsible for adjusting all flood claims made by its policyholders.
B.
XYZ Insurance is responsible for paying claims.
C.
XYZ Insurance receives expense allowances from the federal government.
D.
XYZ Insurance participates in the NFIP Direct Program.

Answer 35

D.
XYZ Insurance participates in the NFIP Direct Program.

Question 36

Which of the following is not included in workers’ compensation benefits?

A.
Death benefits
B.
Disability and impairment benefits
C.
Punitive damages
D.
Medical costs

Answer 36

C.
Punitive damages

Workers’ comp does not pay punitive damages. Punitive damages are awarded in order to punish egregious misconduct. Workers’ comp doesn’t cover general damages; it does cover special damages such as lost wages and medical costs, and it does pay death benefits.

Question 37

What information does an insurer NOT have to disclose when issuing a new pet insurance policy?

A.
How it determines claim payments
B.
Whether it reduces coverage or increases premiums based on the insured’s claim history
C.
If it has any policy provision that limits coverage through a waiting period, a deductible, co-insurance, or an annual or lifetime policy limit
D.
An all-encompassing list of each possible policy exclusion

Answer 37

D.
An all-encompassing list of each possible policy exclusion

An insurer just needs to disclose if it excludes coverage for a pre-existing condition, hereditary disorder, congenital anomaly or disorder, or chronic condition. Then it can include the following statement: “Other exclusions may apply. Please refer to the exclusions section of the policy for more information.”

Question 38

Veterinary expenses do NOT include:

A.
the costs associated with medical advice provided by a veterinarian.
B.
the costs associated with diagnosis, care, or treatment provided by a veterinarian.
C.
the cost of training ADA service animals.
D.
the cost of drugs prescribed by a veterinarian.

Answer 38

C.
the cost of training ADA service animals.

Veterinary Expenses do NOT include the cost of training ADA service animals. They include: the costs associated with medical advice, diagnosis, care, or treatment provided by a veterinarian, including, but not limited to, the cost of drugs prescribed by a veterinarian

Question 39

A pet insurance policy must specify how long a policyholder has to cancel the policy. This “free look” period must be at least ____ days from the policy’s effective date.

A.
60
B.
90
C.
50
D.
30

Answer 39

D.
30

A policyholder must have at least 30 days from the effective date to cancel a pet insurance policy.

Question 40

A cargo ship’s hull policy has a franchise deductible of $100,000. The vessel sustains $150,000 worth of damage due to a fire. How much will the insurer be responsible for?
A.
$50,000
B.
$150,000
C.
$0
D.
$100,000

Answer 40

B.
$150,000

A franchise deductible provides no insurance coverage to a policyholder until a certain level of financial damage or loss is met. When that level is met, the insurer pays the full cost for damage and the policyholder pays nothing.

Question 41

States that allow private insurers to offer workers’ comp coverage as an alternative to the state workers’ comp fund are called:
A.
compulsory.
B.
monopolistic.
C.
competitive.
D.
elective.

Answer 41

C.
competitive.

States that allow businesses to purchase WC insurance from private insurers (as an alternative to the state WC fund) are called competitive.

Question 42

Sail Away Shipping Co. owns three cargo ships. The first ship is covered by a hull policy with a $40,000 average deductible. The second ship is covered by a hull policy with a $60,000 franchise deductible. The third and largest ship is covered by a hull policy with an $80,000 franchise deductible. One unfortunate month, the first and second ships catch fire, each suffering $60,000 in damages. In that same month, the third ship is struck by lightning in a storm and suffers $70,000 in damages. Sail Away Shipping Co. will be indemnified how much in total for their losses?

A.
$40,000
B.
$80,000
C.
$190,000
D.
$70,000

Answer 42

B.
$80,000

To calculate the indemnity for the first ship, subtract the $40,000 average deductible from the $60,000 in covered losses ($60,000 - $40,000 = $20,000). For the second ship, since the $60,000 losses reach the franchise deductible, they will be totally covered by the insurer. For the third ship, since the losses are less than the franchise deductible, none of the damages will be covered by the insurer. Altogether, then, the insurer will pay $80,000 in indemnity ($20,000 + $60,000 = $80,000).

Question 43

Which of the following is TRUE regarding loss settlement in a Jewelers Block?
A.
Value of insured property is agreed upon at the policy inception and cannot change until the next policy period.
B.
It pays on an agreed value basis.
C.
It will pay the least of ACV, the cost to restore, the cost to replace, or the lowest amount listed on the company’s books.
D.
Historical or antique value is factored into the value of damaged property at the time of the loss.

Answer 43

C.
It will pay the least of ACV, the cost to restore, the cost to replace, or the lowest amount listed on the company’s books.

Question 44

Which of the following is not one of the employer’s duties if injury occurs?
A.
Cooperate with the insurer in any investigation
B.
Report the injury within a specific time-frame
C.
Remain with the injured employee until emergency assistance or a family member arrives
D.
Responsible and ethical conduct

Answer 44

C.
Remain with the injured employee until emergency assistance or a family member arrives

The employer is not required to remain with the injured employee until emergency assistance or a family member arrives.

Question 45

Which building would fall under a General Property Form flood insurance policy?
A.
A residential townhouse
B.
A single family home
C.
An individual’s condominium in a condo complex
D.
A 15-room motel

Answer 45

D.
A 15-room motel

The General Property Form would be used to cover the motel, since it insures non-residential buildings and their contents. The condo would use a Dwelling Form. The Dwelling Form is for one-, two-, three- or four-family residential dwellings or condominium units, as well as residential contents.

Question 46

When is a self-insured retention applied in an umbrella policy?
A.
When the umbrella policy covers a loss that is excluded by primary policies
B.
Whenever the umbrella policy covers a claim
C.
When the umbrella policy excludes the peril in question
D.
There are no self-insured retentions in umbrella policies.

Answer 46

A.
When the umbrella policy covers a loss that is excluded by primary policies

Umbrella policies often provide coverage where underlying policies are exceeded. If no underlying policy will pay, the insured must cover the losses up to the point where the umbrella policy attaches (begins to provide coverage). This “deductible” is called a self-insured retention. The SIR will always equal the maximum limits of protection on your base policies.

Question 47

Part Six of a workers’ compensation policy contains:

A.
conditions.
B.
the employer’s duties in the event of an accident.
C.
employers’ liability insurance.
D.
out-of-state coverage conditions.

Answer 47

A.
conditions.

Part Six of a WC policy contains policy conditions. For your reference, here are the different parts of a WC policy:
Part One: Workers’ Compensation;
Part Two: Employers’ Liability;
Part Three: Other States;
Part Four: Your Duties If Injury Occurs;
Part Five: Premiums;
Part Six: Conditions

Question 48

Smith Shipping Co. owns two cargo ships. The first ship is covered by a hull policy with a $50,000 average deductible. The second ship is covered by a hull policy with a $75,000 franchise deductible. One very unlucky month, both ships catch fire, each ship sustaining $100,000 in damages. Smith Shipping Co. will be indemnified ______ (total) for their losses.
A.
$50,000
B.
$150,000
C.
$200,000
D.
$100,000

Answer 48

B.
$150,000

The average deductible of $50,000 is subtracted from the first ship’s loss, resulting in $50,000 in indemnification. The loss exceeds the franchise deductible of the second ship’s loss, so the insurer will pay the full $100,000. Adding both settlements together, we get a total of $150,000.

Question 49

During an ocean voyage, a kitchen fire on a cargo ship gets out of control and destroys some of the cargo. Company X, Company Y, and Company Z each had equal amounts of cargo aboard this ship, and each carried a single risk form cargo policy. After the ship reaches its destination, they discover that half of Company X’s cargo and a quarter of Company Y’s cargo was destroyed in the fire, while Company Z’s cargo all made it safely to shore. If each company had $100,000 of cargo aboard ship to begin with, how much will Company X’s insurer have to pay for the losses?

A.
$50,000
B.
$25,000
C.
$75,000
D.
$0

Answer 49

A.
$50,000

Under the Particular Average Clause, for covered perils other than jettison, the losses are applied to each particular company rather than shared by all. Company X’s insurer will have to pay for all of Company X’s covered losses, which come out to $50,000 (.5 x $100,000 = $50,000).

Question 50

One day, a customer at Jim’s Tire Sales was severely injured when a rack of tires collapsed and fell on her. Later, the customer filed a lawsuit against Jim for $750,000. Jim has a commercial general liability policy, but the limit for this type of loss is only $500,000. Not wanting to use his entire limit on this one claim, Jim tries to use his excess liability policy first, which has a limit of $1,000,000, so he can retain most of the aggregate limit in his base policy. Unfortunately for Jim, this is not possible because:
A.
all excess liability policies have a 10% per occurrence clause.
B.
Jim’s excess liability policy is a Stand Alone policy.
C.
excess liability policies cannot follow commercial general liability policies.
D.
an excess liability policy pays only after the base policy’s limit has been exhausted.

Answer 50

D.
an excess liability policy pays only after the base policy’s limit has been exhausted.

An excess liability policy could follow a CGL. However, Jim’s excess liability policy won’t pay first, because an excess liability policy is used to cover the extra or excess liability after the base policy limits have been met.

Question 51

Which of the following best describes California’s approach to Workers’ Compensation insurance?

A.
Compulsory & monopolistic
B.
Elective & monopolistic
C.
Compulsory & competitive
D.
Elective & competitive

Answer 51

C.
Compulsory & competitive

California’s approach to Workers’ Compensation insurance is compulsory and competitive.

Question 52

The Valuable Papers and Records floater can cover losses to all of the following, EXCEPT:
A.
books.
B.
securities.
C.
maps.
D.
deeds.

Answer 52

B.
securities.

The Valuable Papers and Records floater can cover losses to such items as deeds, books, and maps; but, money and securities are not covered.

Question 53

States that require all businesses to purchase workers’ compensation insurance are called:
A.
monopolistic.
B.
elective.
C.
competitive.
D.
compulsory.

Answer 53

D.
compulsory.

States that require businesses to purchase WC insurance are called compulsory. States that give businesses the option of not purchasing WC are called elective.

Question 54

What is the purpose of the premiums section in a workers’ compensation policy?

A.
It explains how prices are set for different employees.
B.
It lists the conditions for when and how the employer should pay.
C.
It determines which seasons have the most injuries and need a higher premium amount.
D.
It gives the predetermined cost of premium rates for all employers in the state.

Answer 54

A.
It explains how prices are set for different employees.

The premiums section in a WC policy explains how prices are set for different employees. Workers who perform riskier jobs require a higher premium.

Question 55

We’ll Ship It, Inc. has an Ocean Marine policy with both hull coverage and freight insurance, which includes a franchise deductible of $100,000. One summer, an unfortunate miscalculation sends one of the company’s ships into a raging hurricane out in the ocean. Thankfully, the ship and crew make it safely to shore, but only after jettisoning all of their cargo and suffering extreme water damage inside the ship. The damages to the ship total $400,000 and the company loses $12,000 in shipping fees because the cargo did not make it. How much indemnity can We’ll Ship It, Inc. expect from their policy?

A.
$412,000
B.
$312,000
C.
300,000
D.
$400,000

Answer 55

A.
$412,000

Since the damages exceed the franchise deductible, the insurer will cover all of the covered losses. The insurer will pay for the full value of the damages at $400,000 under the policy’s hull coverage. The insurer will also pay $12,000 for the lost shipping fees under the policy’s freight insurance. Altogether, that adds up to a total of $412,000 in indemnity ($400,000 + $12,000 = $412,000).

Question 56

If an employer chooses to provide WC coverage for an independent contractor, volunteer worker, or family member who works for him, he can do so by adding a/an __________________________________________ to his policy.

A.
exclusive remedy endorsement
B.
extra worker endorsement
C.
voluntary compensation endorsement
D.
employer protection endorsement

Answer 56

C.
voluntary compensation endorsement

Employers can add a voluntary compensation endorsement to the policy, which adds workers’ compensation coverage for certain workers that otherwise wouldn’t be covered.

Question 57

Brian has an accident at work and permanently loses his hearing in one of his ears. What kind of disability benefits will he most likely receive?

A.
Permanent total disability benefits
B.
Permanent partial disability benefits
C.
Temporary partial disability benefits
D.
Temporary total disability benefits

Answer 57

B.
Permanent partial disability benefits

Since Brian has lost his hearing permanently, he will receive permanent partial disability benefits.