Practice Exam Questions II Flashcards
The basic minimum limit for bodily injury by accident under an Employer’s Liability policy is:
Answer Choices: Select the Correct Answer
$1,000,000.
$500,000.
$250,000.
$100,000.
The correct answer is: $100,000.
EXPLANATION:
The basic (standard) minimum limit for bodily injury by accident under an Employer’s Liability policy is $100,000.
Which of the following Crime form insuring agreements pays defense costs for the insured?
Answer Choices: Select the Correct Answer
Inside the Premises – Theft of Money & Securities.
Forgery or Alteration.
Employee Theft.
Outside the Premises.
Forgery or Alteration. is correct.
EXPLANATION:
Forgery or alteration is the only Crime insuring agreement that covers defense costs.
Alex has his SUV covered under a standard Personal Automobile policy. He has borrowed a trailer from his friend Josh, hitched it to his SUV, and begins moving some boxes from his house to a new house he recently purchased. After he has unloaded the trailer, he is driving back to his house and loses control of his vehicle, wrapping Josh’s trailer around a tree. There is no other insurance covering Josh’s trailer and Alex’s Part D deductible for “Collision” is $250. His deductible for “Other Than Collision” is $300. Before the accident, the ACV of the trailer was $2,000. The cost to repair or replace the trailer with like kind and quality is $1,800. How much coverage would Alex’s policy provide?
Answer Choices: Select the Correct Answer
$1,800.
$1,550.
$1,500.
$2,000.
The correct answer is: $1,500.
EXPLANATION:
The policy will pay the LESSER of the ACV or the cost to repair or replace with like kind and quality. This would be $1,800 minus the “Collision” deductible of $250, which leaves us with $1,550. However, the Part D limit of liability specifies that no more than $1,500 will be paid for a non-owned trailer, therefore, the correct answer is $1,500.
Which of the following statements BEST describes how deductibles are handled when two or more policies cover the same loss?
Answer Choices: Select the Correct Answer
The insured will only pay the deductible amount specified in the first policy to pay on the loss.
The insured will not pay any deductible because they carried more than one policy.
The insured will pay the deductibles on all policies that pay on the loss.
The insured will only pay the deductible amount specified in the second and any other subsequent policies to pay on the loss.
The insured will pay the deductibles on all policies that pay on the loss. is correct.
EXPLANATION:
Deductibles will apply as usual on all policies covering the loss.
Which of the following is the rule that requires both parties to a loss share the financial burden of the bodily injury or property damage according to their degree of fault?
The correct answer is: Comparative negligence.
EXPLANATION:
The comparative negligence rule requires both parties to a loss share the financial burden of the claim by each party’s percentage of fault.
An applicant may be denied an adjuster license in California if they have been convicted of any of the following, EXCEPT:
Answer Choices: Select the Correct Answer
Advertising injury.
A felony.
A misdemeanor specified in the insurance code.
A fraudulent act against the public dealing with dishonesty in the acceptance, custody, or payment of money or property.
The correct answer is: Advertising injury.
EXPLANATION:
Advertising injury is a civil offense that may result in the payment of damages. It is not a criminal offense.
Under the standardized Homeowners forms, how much “additional coverage” is provided under Section II - Liability for loss of earnings by the insured to assist the insurer in the investigation or defense of a claim?
The correct answer is: $250 per day.
EXPLANATION:
This limit is $250 per day to appear at hearings or trials to assist the insurer in the defense of the insured. This is the amount under the ISO standardized form.
The Businessowners policy excludes coverage for all of the following, EXCEPT:
Answer Choices: Select the Correct Answer
Property of others in the insured’s care, custody, or control.
Loss due to power failure.
Explosion of steam boilers, steam pipes, and steam turbines.
Wear and tear.
The correct answer is: Property of others in the insured’s care, custody, or control.
EXPLANATION:
Property of others in the insured’s care, custody, or control is NOT excluded by the policy.
Samantha has renewed her Commercial Property policy, and it will take effect in 7 days. 14 days prior to Samantha signing the renewal policy, the insurer adopted a form revision that included broadened coverage, with a slight increase in premium. Samantha would like her renewal policy to include this broadened coverage. Which of the following statements is true regarding the required method for Samantha to receive the broader coverage?
Answer Choices: Select the Correct Answer
The liberalization clause will not require that Samantha’s renewal policy include the broadened coverage automatically because there is an additional premium to have the broadened coverage included.
Samantha must do nothing to receive the broadened coverage because the insurer adopted the coverage within 45 days of the renewal (inception) of Samantha’s policy, therefore the coverage will apply automatically due to the liberalization clause.
Samantha must have a new policy written up to include the form revision, but the premium will remain the same.
Samantha’s renewal policy will not include the broadened coverage because the insurer adopted the new coverage more than 7 days prior to the inception date of Samantha’s policy renewal.
The correct answer is: The liberalization clause will not require that Samantha’s renewal policy include the broadened coverage automatically because there is an additional premium to have the broadened coverage included.
EXPLANATION:
The liberalization clause will not require that Samantha’s renewal policy include the broadened coverage automatically because there is an additional premium to have the broadened coverage included. The liberalization clause only provides for the broadened coverage to be automatically included if there is NOT an additional premium involved.
All of the following statements are TRUE regarding the Federal Employers Liability Act (FELA), EXCEPT:
Answer Choices: Select the Correct Answer
It was created to protect railroad workers who were injured on the job.
It provides workers’ compensation coverage for employees working in federal government buildings.
It is not a workers’ compensation benefit because unlike worker’s compensation coverage, which is “no-fault”, the FELA law is “fault-based”.
Unless the workers was 100% at fault, workers covered under FELA can sue their employers.
It provides workers’ compensation coverage for employees working in federal government buildings. is correct.
EXPLANATION:
FELA is similar to workers’ compensation but is not actually a workers’ compensation coverage, and it was not created to provide coverage for employees working in federal government buildings.
Under the “Other Insurance” clause of a Business Auto policy, which of the following statements is TRUE?
Answer Choices: Select the Correct Answer
The BAP provides primary coverage for owned autos and excess insurance for non-owned autos.
The BAP provides primary coverage for owned autos and no coverage for non-owned autos.
The BAP provides primary coverage for owned autos and non-owned autos.
The BAP provides excess coverage for owned autos and non-owned autos.
The BAP provides primary coverage for owned autos and excess insurance for non-owned autos. is correct.
EXPLANATION:
The answer choice that is TRUE of the “Other Insurance” clause of a BAP is: “The BAP provides primary coverage for owned autos and excess insurance for non-owned autos.”
Lawrence’s business is covered by a Business Auto policy and carries the required liability limit for his state of $30,000 for bodily injury to all persons. Lawrence drives the truck to another state where the financial responsibility limit is $50,000 for bodily injury to all persons. While in the other state, Lawrence has an at-fault accident and injures 3 people who sue for $60,000 in total damages. How much will Lawrence’s Business Auto policy pay on this claim?
Answer Choices: Select the Correct Answer
$30,000.
$60,000.
$20,000.
$50,000.
$50,000. is correct.
EXPLANATION:
Lawrence’s policy will automatically pay the financial responsibility limit for the state in which Lawrence was driving, which would be $50,000. Lawrence would have to pay the remaining $10,000 out of pocket. This is due to the coverage extension that modify’s the policy’s liability coverage limit to meet another states’ minimum required limits when the covered auto is being driven in that state.
Which of the following is NOT considered to be a “specialty adjuster”?
Answer Choices: Select the Correct Answer
Workers’ compensation adjuster.
Accident & health adjuster.
Casualty adjuster.
Automobile liability adjuster.
Casualty adjuster. is correct.
EXPLANATION:
A property and/or casualty adjuster is not a “specialty adjuster” because they do not specialized in a single type of claim.
Section III of a Farm Property policy:
Answer Choices: Select the Correct Answer
Adds liability coverage.
Lists the additional coverages.
Contains insuring agreements A and B.
Explains the extensions of coverage.
Lists the additional coverages. is correct.
EXPLANATION:
Section III of a Farm Property policy lists the additional coverages included in the policy.
List the Farm Property policy four sections:
Section I: Coverages (Insuring Agreements A - G)
Section II: Coverage Extensions
Section III: Additional Coverages
Section IV: Other Provisions
An office building is limited in the number of stories it may contain and still be eligible for coverage under a standard Businessowners Policy. This number is:
Answer Choices: Select the Correct Answer
Five stories.
Six stories.
Four stories.
Seven stories.
The correct answer is: Six stories.
EXPLANATION:
Office buildings cannot exceed six stories in height and still be eligible for coverage under the standardized BOP policy.
The insured is covered by two CGL policies. One is written on a “claims-made” basis and the other on an “occurrence” basis. Which of the following statements best describes how this claim will be settled between the two policies?
Answer Choices: Select the Correct Answer
Contribution by Equal Shares.
Contribution by Limits.
The “occurrence” policy is primary and the “claims-made” policy is excess.
The “claims-made” policy is primary and the “occurrence” policy is excess.
The correct answer is: The “occurrence” policy is primary and the “claims-made” policy is excess.
EXPLANATION:
Claims-made policies are always excess over any other policy that is not claims-made. This makes the occurrence form primary.
Which section of a standardized workers’ compensation policy defines the terminology contained in the policy?
The correct answer is: The general section.
EXPLANATION:
The general section of the standardized workers’ compensation policy contains the definitions of terminology used in the policy.
Which of the following is NOT a true statement regarding workers’ compensation coverage in California?
Answer Choices: Select the Correct Answer
First aid treatment is not covered under workers’ compensation coverage.
If an employee is under 16 years of age at the time of injury, disability benefits that the employee becomes eligible for are to be paid at a rate 50% higher than normal.
The waiting period for disability benefits is three days.
Medical benefits provide unlimited coverage with no dollar limitation.
The correct answer is: First aid treatment is not covered under workers’ compensation coverage.
EXPLANATION:
First aid treatment is covered under workers’ compensation coverage, it is not excluded.
All of the following statements are TRUE of the terms used in the standard workers’ compensation policy, EXCEPT:
Answer Choices: Select the Correct Answer
“The Policy” means the Information page and all endorsements and schedules listed there.
“Locations” means all the workplaces listed on the Information page.
“State” means any state of the United States, the District of Columbia, and all territories and possessions.
“The Insured” is the employer named in item 1 of the Information page.
“State” means any state of the United States, the District of Columbia, and all territories and possessions. is correct.
EXPLANATION:
When the term “state” is used in the standard workers’ compensation policy, it means any state of the United States, the District of Columbia. It DOES NOT refer to United States territories and possessions.
Rick lives in a major metropolitan city and does not own a car because he takes public transportation. However, when Rick leaves the city to visit his friend Bob, he often drives Bob’s car. Rick feels he should have some type of liability insurance to provide coverage when he is driving. Rick should purchase:
Answer Choices: Select the Correct Answer
Drive Other Car coverage.
Named Nonowner coverage.
Individual Named Insured coverage.
Extended Nonowned coverage.
The correct answer is: Named Nonowner coverage.
EXPLANATION:
The Named Nonowner Coverage endorsement would provide Rick with liability coverage (along with Medical Payments & Uninsured Motorist) while driving a nonowned (borrowed or rented) vehicle.
Which of the following statements is NOT TRUE regarding FAIR Plans?
Answer Choices: Select the Correct Answer
A FAIR Plan cannot deny coverage because of environmental hazards that are beyond the insured’s control.
A FAIR Plan provides fair access to property insurance to those that cannot obtain coverage in the standard market.
A FAIR Plan cannot deny coverage to anyone because their roof is in need of repair.
Each state has its own FAIR Plan and set their own laws and regulations associated with it.
The correct answer is: A FAIR Plan cannot deny coverage to anyone because their roof is in need of repair.
EXPLANATION:
A FAIR Plan CAN deny coverage to someone whose roof is in need of repair. The Plan will usually make coverage contingent upon repairs being made.
Which of the following would provide coverage for the physical damage of a ship while it is being transported by truck over land?
Answer Choices: Select the Correct Answer
Collision coverage.
The running-down clause.
Protection & Indemnity coverage.
Land transit coverage.
Land transit coverage. is correct.
EXPLANATION:
“Land transit” coverage can be added to an Ocean Marine Hull policy to provide physical damage coverage for the ship while it is being transported over land.
A Business Auto policy covers trailers with a load capacity of:
Answer Choices: Select the Correct Answer
5,000 pounds or less.
Any weight.
2,000 pounds or less.
1,000 pounds or less.
2,000 pounds or less. is correct.
EXPLANATION:
To be covered by the Business Auto policy, trailers must have a load capacity of 2,000 pounds (lbs.) or less.
Gavin, the named insured under a Personal Auto policy, his daughter Tabitha, and two of her friends are riding in the covered auto when Gavin accidentally runs a stop sign, striking another vehicle. Everyone in Gavin’s vehicle was injured as well as the driver and two passengers in the other car. How long do Tabitha’s friends have to submit their medical expense claims for coverage under Part B of Gavin’s standardized Personal Auto policy?
Answer Choices: Select the Correct Answer
Within six months of the date of the accident.
Within two years of the date of the accident.
Within three years of the date of the accident.
Within 18 months of the date of the accident.
The correct answer is: Within three years of the date of the accident.
EXPLANATION:
Reasonable medical and funeral expenses will be paid under Part B - Medical Payments if they are submitted within three years of the date of the accident.
Which of the following would NOT be considered a fiduciary responsibility of an insurance company, agent, producer or adjuster?
The correct answer is: Delivering documents and notices.
EXPLANATION:
Delivering documents and notices is not a “fiduciary responsibility” because the documents and notices are not “assets” such as money or property.
If an insured carries Coverage C under a Dwelling policy, how much coverage applies off the insured premises (world-wide basis)?
Answer Choices: Select the Correct Answer
10% of the Coverage C limit.
25% of the Coverage C limit.
40% of the Coverage C limit.
50% of the Coverage C limit.
10% of the Coverage C limit. is correct.
EXPLANATION:
The DP forms have a 10% limitation of the Coverage C amount when personal property is OFF the premises.
The information provided by the insured in a proof of loss form is considered:
Answer Choices: Select the Correct Answer
A representation.
A warranty.
An assignment.
An agreement.
The correct answer is: A representation.
EXPLANATION:
Representations are statements made by the insured that are assumed to be truthful to the best of the insured’s knowledge.
Holden is a staff adjuster for Binders Keepers, Inc., an insurance company. He has been engaged in an investigation of a third-party claim against an insured. Holden has advised his principal, Binders Keepers, Inc. that while performing the investigation, he found that it is very likely that the insured was not negligent and probably would not be found liable for the claim if the third-party decided to bring a lawsuit. Holden:
Answer Choices: Select the Correct Answer
Is performing his fiduciary responsibilities to his principal by providing factual data gained through the claims investigation.
Is engaging in quid pro quo.
Has made a material misrepresentation.
Is engaging in the unauthorized practice of law.
The correct answer is: Is engaging in the unauthorized practice of law.
EXPLANATION:
Holden is engaged in the unauthorized practice of law by providing an opinion that the insured would likely not be found liable for the claim. Holden would be permitted to show the company the factual data of the claim and allow the counsel (attorney) for the company to formulate an opinion as to the liability of the insured.
Under a Loss Sustained Commercial Crime form, coverage applies:
Answer Choices: Select the Correct Answer
While the policy is in force and for up to one year after the policy expires.
While the policy is in force and for up to 60 days after the policy expires.
Only while the policy is in force.
While the policy is in force and for up to 90 days after the policy expires.
The correct answer is: While the policy is in force and for up to one year after the policy expires.
EXPLANATION:
Coverage applies under the Loss Sustained form while the policy is in force and for up to one year after the policy expires, provided there is sufficient evidence to prove that the loss occurred during the policy period.
The additional coverage for collapse applies under which of the following Commercial Property cause of loss forms?
Answer Choices: Select the Correct Answer
The special form only.
The broad and special forms.
The basic and broad forms.
The basic, broad and special forms.
The correct answer is: The broad and special forms.
EXPLANATION:
The additional coverage of collapse is added to a Commercial Property policy by attaching either the broad or special cause of loss forms. This additional coverage is not included with the basic cause of loss form.
An insured has his business covered by a CGL policy. He also has a Commercial Umbrella policy with a $1 million per occurrence limit and an aggregate limit of $2 million. Claims of $500,000, $800,000, and $900,000, were filed separately during the policy period and were for losses excluded by the CGL policy. In this situation, which of the following statements is TRUE?
Answer Choices: Select the Correct Answer
Only $1,300,000 of the claims will be paid, leaving $900,000 for the insured to pay.
$200,000 of the claims will be left unpaid because of the $2 million aggregate limit.
All 3 claims will be paid in full because they fall under the $1 million per occurrence limit.
Only $900,000 of the claims will be paid, leaving $1,300,000 for the insured to pay.
$200,000 of the claims will be left unpaid because of the $2 million aggregate limit. is correct.
EXPLANATION:
In this situation, the aggregate limit DOES apply (it doesn’t with an underlying Commercial Auto policy). This means there is only a total of $2 million to pay a claim of $2,200,000. This leaves $200,000 of the claim to be paid by the insured.
Which of the following statements best describes the “Efficient Proximate Cause Doctrine”?
Answer Choices: Select the Correct Answer
Two or more losses that were caused by a single peril.
Two or more perils that are independent of each other but combine to cause a single loss.
A direct loss that cases a consequential loss.
Two or more perils that are dependent on each other because one peril instigated the other perils.
The correct answer is: Two or more perils that are dependent on each other because one peril instigated the other perils.
EXPLANATION:
The “Efficient Proximate Cause Doctrine” refers to two or more perils that are dependent on each other because one peril instigated the other perils.
Under a standard HO-3, the limit for Coverage C – Personal Property for a one or two-family dwelling:
Answer Choices: Select the Correct Answer
Owner-occupied residences with up to 2 boarders permitted.
Is set at 50% of Coverage A.
Is set at 30% of Coverage A.
Cannot be higher than $10,000.
The correct answer is: Is set at 50% of Coverage A.
EXPLANATION:
Under the STANDARDIZED HO-2, HO-3, and HO-5, Coverage C is set at 50% of the Coverage A - Dwelling limit. This applies to a one or two- family dwelling. The percentages are different for a three or four-family dwelling and may be modified by the statutory special provisions in some states.
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.
Medical expense coverage. is correct.
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.
