Practice Exam Questions IV

Question 1

Under a standardized Dwelling form, a loss by a covered peril for Improvements, Alterations and Additions is covered for up to:

Answer Choices: Select the Correct Answer
5% of the Coverage C limit of liability.
$1,000.
5% of the Coverage A limit of liability.
10% of the Coverage C limit of liability.

Answer 1

10% of the Coverage C limit of liability. is correct.

EXPLANATION:
Under a standardized Dwelling form, a loss by a covered peril for Improvements, Alterations and Additions is covered for up to 10% of the Coverage C limit.

Question 2

Which of the following would NOT be covered under the specified cause of loss physical damage coverage under a Business Auto policy?

Answer Choices: Select the Correct Answer
Fire.
Lightning.
Glass breakage.
Flood.

Answer 2

The correct answer is: Glass breakage.

EXPLANATION:
The specified cause of loss form covers the following perils: fire, lighting, explosion, theft, windstorm, hail, earthquake, flood, vandalism or mischief, transportation by a conveyance. The coverage does not include glass breakage, hitting a bird or animal nor falling objects or missiles.

Question 3

The insured is covered under a standard Businessowners policy. She has several computers used in the business and the electronic data stored on them becomes corrupted as a result of lightning. The cost to research and restore this data is $20,000. How much will the policy pay for the electronic data?

Answer Choices: Select the Correct Answer
$10,000.
$20,000.
Nothing.
$2,500.

Answer 3

The correct answer is: $10,000.

EXPLANATION:
The coverage provides up to an annual aggregate of $10,000. The cost to replace or restore electronic data is covered if the data is corrupted or destroyed by a covered cause of loss.

Question 4

The Commercial Building and Personal Property coverage form provides extensions of coverage, but only if:

Answer Choices: Select the Correct Answer
An 80% or higher coinsurance percentage is shown on the Declarations page, and the property amount of coverage, based on that percentage, is purchased.
The extensions are listed on the Declarations page of the policy, and an additional premium is paid.
The coverage for buildings is written on a replacement cost basis.
All coverages under the policy are written on a blanket basis.

Answer 4

The correct answer is: An 80% or higher coinsurance percentage is shown on the Declarations page, and the property amount of coverage, based on that percentage, is purchased.

Question 5

George is the named insured under a Homeowners policy. When he attends the symphony one evening, he loses his balance and falls over a railing. George lands on top of several guests who are seated below and injures them quite significantly. Which of the following is the part of George’s Homeowners policy that may cover the medical expenses of those people that were injured?

Answer Choices: Select the Correct Answer
Coverage D.
Section I.
Coverage E.
Coverage F.

Answer 5

The correct answer is: Coverage F.

EXPLANATION:
Coverage F would pay the medical expenses of those that George injured.

Question 6

The standardized Homeowners policy forms provide an additional coverage for loss of trees, shrubs and other plants. The maximum limit for this coverage is:

Answer Choices: Select the Correct Answer
$500 for any one tree, shrub, or plant.
$250 for any one tree, shrub, or plant.
$750 for any one tree, shrub, or plant.
$1,000 for any one tree, shrub, or plant.

Answer 6

$500 for any one tree, shrub, or plant. is correct.

EXPLANATION:
This additional coverage on all the Homeowners forms provides for coverage up to 5% of Coverage A, or a maximum of $500 for any one tree, shrub or plant.

Question 7

An adjuster tells an insured that a claim will be paid. When the insurer attempts to deny the claim, it is prevented from doing so because of the adjuster’s statement. This is an example of:

Answer Choices: Select the Correct Answer
Fiduciary binding.
Express waiver.
Estoppel.
An unfair claim settlement practice.

Answer 7

The correct answer is: Estoppel.

EXPLANATION:
The insurer is “estopped” from denying the claim due to the statement of the adjuster, acting as the insurer’s fiduciary agent.

Question 8

The additional coverage on the Building and Personal Property coverage of a Commercial Property policy for electronic data provides _________ for the cost of replacing and restoring electronic data that has been destroyed or corrupted by a covered cause of loss.

Answer Choices: Select the Correct Answer
$2,000 per policy period.
$2,000 per occurrence.
$2,500 in the aggregate.
$2,500 per policy period.

Answer 8

The correct answer is: $2,500 in the aggregate.

EXPLANATION:
The limit under the additional coverage of the form allows for $2,500 in the aggregate, no matter if the occurrence took place over one or more policy periods.

Question 9

Which of the following common law defenses of employers with regard to workers’ compensation claims is specifically barred from use by the laws of some states?

Answer Choices: Select the Correct Answer
Assumption of risk.
Contributory negligence.
Negligence of a fellow worker.
Comparative negligence.

Answer 9

The correct answer is: Negligence of a fellow worker.

EXPLANATION:
The negligence of a fellow worker is a common law defense of employers that the laws of several states bar it from being used.

Question 10

Adjusters in California are prohibited from having a financial interest of more than _____ in any salvage or repair business or any other type of business that obtains business in connection with any claim that the adjuster has a contract to adjust.

Answer Choices: Select the Correct Answer
10%
5%
2%
3%

Answer 10

The correct answer is: 3%

EXPLANATION:
Adjusters in California are prohibited from having a financial interest of more than 3% in any type of business that obtains business in connection with claims that the person is adjusting.

Question 11

Claims expenses covered under Section II – Personal Liability of the standard Homeowners forms do NOT pay for which of the following?

Answer Choices: Select the Correct Answer
The costs to defend the insured in court.
Premiums on bonds required in a suit the company defends.
Loss of the insured’s earnings subject to a pre-determined limit of $300 per day.
Interest on judgment that accrues after the judgment has been entered.

Answer 11

Loss of the insured’s earnings subject to a pre-determined limit of $300 per day. is correct.

EXPLANATION:
The policy will pay the loss of the insured’s earning for up to $250 per day, not $300.

Question 12

Roxanne has her home covered under a DP-2 policy. She regularly works on her laptop computer at the bar in her kitchen. One day she decided to go out for lunch, leaving her laptop plugged in and turned on. While she was out, the electrical cord attached to her laptop began to short out and create sparks. One of the sparks fell on a dish towel Roxanne had left on the bar and it caught fire. This led to a larger fire that caused extensive damage to Roxanne’s kitchen. The damage caused to the kitchen came to $15,000. The laptop was destroyed and it’s ACV was $1,800. The policy did not have a deductible form attached. How much will be paid on this claim?

Answer Choices: Select the Correct Answer
$15,000.
$16,800.
Nothing because Roxanne should not have left her laptop plugged in and turned on when she wasn’t at home.
$13,200.

Answer 12

The correct answer is: $15,000.

EXPLANATION:
The policy will pay for the damage to the kitchen caused by the fire, but it excludes coverage for the laptop computer under the “Artificially Generated Electrical Current” peril.

Question 13

Which of the following statements is NOT TRUE regarding contractual liability coverage under a Commercial General Liability policy?

Answer Choices: Select the Correct Answer
Contractual liability is always covered.
Insured contracts is the only type of contractual liability that is covered.
“Hold harmless” agreements are a type of contractual liability that is excluded by Coverage A of a CGL policy.
“Indemnity” agreements are a type of contractual liability that is excluded by Coverage A of a CGL policy.

Answer 13

The correct answer is: Contractual liability is always covered.

EXPLANATION:
The statement that is NOT TRUE is that “contractual liability is always covered”.

Question 14

Coverage under the National Flood Insurance Program may be written:

Answer Choices: Select the Correct Answer
Only in eligible communities.
For any property located in the United States.
For any property located in flood prone areas.
Only in participating states.

Answer 14

Only in eligible communities. is correct.

EXPLANATION:
To be a participating community, FEMA guidelines must be accepted. Once an application to be a designated flood zone is received by FEMA, the community can be covered under the emergency flood program. After the community adopts the required flood control measures, they are eligible for coverage under the regular flood insurance program.

Question 15

Under the “supplementary payments” section for Coverages A and B of a CGL policy, which of the following is TRUE?

Answer Choices: Select the Correct Answer
Provides a specific limit of $250 for the cost of bail bonds.
Contains a specific limit for defense costs.
Contains a specific limit for interest accruing after a judgment.
Does not pay for all costs taxed against the insured in case of a lawsuit.

Answer 15

Provides a specific limit of $250 for the cost of bail bonds. is correct.

EXPLANATION:
The policy specifies a limit for the cost of bail bonds in the amount of $250. Remember, only the cost of bail bonds and the insured’s loss of earnings are the only two “supplementary payments” under the CGL that contain a specific limit.

Question 16

Darla has her business covered by a standard Businessowners Policy that includes the “Personal Effects” coverage extension. Catherine, one of Darla’s employees, has brought her brief case to work one day with her purse, make-up bag, tablet, and laptop computer inside. A fire breaks out in Darla’s building and all of the contents of Catherine’s briefcase, worth $2,000, are destroyed. How much will Darla’s BOP pay for Catherine’s lost “personal effects”?

Answer Choices: Select the Correct Answer
$2,000.
$1,000.
$2,500.
$1,500.

Answer 16

$2,000. is correct.

EXPLANATION:
The “Personal Effects” coverage extension will pay up to $2,500, but because the loss was only worth $2,000, that is the amount the insurer will pay.

Question 17

In California, the required minimum financial responsibility limit (until January 1st, 2025) for the bodily injury or death of one person resulting from one automobile accident is:

Answer Choices: Select the Correct Answer
$5,000.
$30,000.
$60,000.
$15,000.

Answer 17

The correct answer is: $15,000.

EXPLANATION:
In California, the required minimum financial responsibility limit (until January 1st, 2025) for the bodily injury or death of one person resulting from one automobile accident is $15,000.

Here are the minimum liability insurance requirements (per California Insurance Code §11580.1b): $15,000 for injury/death to one person. $30,000 for injury/death to more than one person. $5,000 for damage to property

Question 18

Would a claim for an employee who is temporarily on business in France, be covered under Part Two - Employer’s Liability of the standard workers compensation policy?

Answer Choices: Select the Correct Answer
No, because the employee was outside the covered state or territory.
Yes, because the employee was only outside of the United States and Canada temporarily.
Yes, but only if the employer had coverage in France.
No, because Employer’s Liability only responds to claims occurring in the United States.

Answer 18

The correct answer is: Yes, because the employee was only outside of the United States and Canada temporarily.

EXPLANATION:
Employer’s Liability coverage excludes bodily injury occurring outside the United States of America, its territories or possessions, and Canada, but this exclusion does not apply to bodily injury to a citizen or resident of the United States of America or Canada who is temporarily outside these countries.

Question 19

James collects rare stamps that he has covered by the Scheduled Personal Property endorsement of his Homeowners policy. Which of the following losses would be covered?

Answer Choices: Select the Correct Answer
The theft of one of James’ rare stamps while it was being displayed at the “Treasures of Americana” trade show.
The disappearance of a stamp from James’ home, that is described and scheduled for a specific amount of coverage on the endorsement form.
The fading of one of James’ rare stamps, due to age.
James is using tweezers to attempt to repair a small tear in one of his rare stamps. Instead, he ends up ripping the stamp in half, rendering it valueless.

Answer 19

The disappearance of a stamp from James’ home, that is described and scheduled for a specific amount of coverage on the endorsement form. is correct.

EXPLANATION:
The disappearance of a stamp from James’ home, that is described and scheduled for a specific amount of coverage on the endorsement form would be the only loss that would be covered by the Scheduled Personal Property endorsement. All of the other losses are specifically excluded.

Question 20

Ocean marine insurance contracts rely heavily on the principle of utmost good faith because:

Answer 20

The correct answer is: The insurer’s underwriters are not usually in a position to thoroughly investigate the risk.

Question 21

All of the following statements are TRUE regarding the coverage of mobile or trailer homes under a Dwelling insurance policy, EXCEPT:

Answer Choices: Select the Correct Answer
Mobile or trailer homes must be insured under a DP-1.
Mobile or trailer homes can be owner or tenant occupied.
Before the insurance can apply, the mobile home must be permanently installed in the designated location.
The policy period can be for no more than one year.

Answer 21

The correct answer is: Mobile or trailer homes can be owner or tenant occupied.

EXPLANATION:
Mobile or trailer homes can be insured under the DP-1 (no other Dwelling forms) only if they are owner-occupied, they cannot be tenant-occupied.

Question 22

Which of the following BEST describes a tort?

Answer 22

The correct answer is: An act causing harm to an innocent party for which a civil remedy is provided through the payment of monetary damages.

EXPLANATION:
When a tort is committed by a negligent party, the injured party is permitted to bring a lawsuit to request a “civil remedy” for their injuries and property damage.

Question 23

The notice produced annually by the California Department of Insurance in compliance with the Insurance Adjuster Act describes:

Answer Choices: Select the Correct Answer
The most significant California laws pertaining to adjuster licensing.
The most significant California laws pertaining to property and/or casualty insurance policies.
The most significant California laws pertaining to property insurance policies.
The most significant outcomes of lawsuits pertaining to property insurance policies that were settled the previous year.

Answer 23

The correct answer is: The most significant California laws pertaining to property insurance policies.

EXPLANATION:
The notice produced annually by the California Department of Insurance in compliance with the Insurance Adjuster Act describes the most significant California laws pertaining to property insurance policies.

Question 24

Insuring Agreement 7 - Money Orders and Counterfeit Money provides coverage in which of the following countries?

Answer Choices: Select the Correct Answer
Mexico.
Canada.
Any country.
The United States

Answer 24

Any country. is correct.

EXPLANATION:
Insuring Agreement 7 provides coverage anywhere in the world.

Question 25

Which of the following types of property would be covered by Coverage B of a standard, unendorsed Businessowners policy?

Answer Choices: Select the Correct Answer
An owned automobile.
An unscheduled exterior business sign.
A copy machine that is leased by the covered business.
An outdoor fence.

Answer 25

A copy machine that is leased by the covered business. is correct.

EXPLANATION:
A copy machine that is leased by the covered business is covered by Section I - Coverage B Business Personal Property. The other answer choices are listed as “property not covered”.

Question 26

All of the following would be eligible for coverage by the Business Pursuits endorsement to the Homeowners policy, EXCEPT:

Answer Choices: Select the Correct Answer
A salesperson who works for “We Sell Great Stuff” who injures a client while conducting a product demonstration.
An office administrator who injures a client by spilling hot coffee in her lap.
An instructor for a continuing education course, who is sued by a student who is offended by a joke he or she told while conducting the course.
An architect employed by “Architects Are Awesome”, who draws up plans for a client, but has incorrectly drawn the dimensions for the home, causing it to collapse and cause bodily injury.

Answer 26

The correct answer is: An architect employed by “Architects Are Awesome”, who draws up plans for a client, but has incorrectly drawn the dimensions for the home, causing it to collapse and cause bodily injury.

EXPLANATION:
Architectural pursuits are excluded under the Business Pursuits endorsement to a Homeowners policy. The liability of an architect would be covered by a Professional Liability policy.

Question 27

Charlie has her house covered by a DP-1 form with a $50,000 Coverage A limit. There are no endorsements attached for a deductible or any other coverage. When it is damaged by a fire, Charlie is provided how much coverage for “Additional Living Expenses”?

Answer Choices: Select the Correct Answer
$500.
$5,000.
$10,000.
$0.

Answer 27

The correct answer is: $0.

EXPLANATION:
Charlie’s policy is a DP-1 and does not provide Coverage E – Additional Living Expenses unless it is added by endorsement.

Question 28

The standardized Building and Personal Property Coverage form requires the insured to submit a signed, sworn proof of loss statement:

Answer Choices: Select the Correct Answer
Within 30 days of the loss.
Within 30 days of the insurance company’s request.
Within 60 days of the insurance company’s request.
Within 45 days of the loss.

Answer 28

Within 60 days of the insurance company’s request. is correct.

EXPLANATION:
The standard Building and Personal Property Coverage form requires the insured to submit a signed, sworn proof of loss statement within 60 days of the insurance company’s request. Remember, your state’s statutes may amend this, but you need to know the answers for both.

Question 29

The Business Auto policy uses Symbol 7 to cover “specifically described autos” identified in the Declarations. An auto acquired during the policy period will only be covered:

Answer 29

Your answer: If reported to the company within 14 days of acquisition. is incorrect.

The correct answer is: If the insured insures all of their vehicles with the company or it replaces a covered auto.

EXPLANATION:
First, the insured must insure all of the vehicles they own, or if the auto replaces a covered auto, it will already be covered. In either case the insured must notify the insurance company of the change.

Question 30

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?

Answer Choices: Select the Correct Answer
$200 per day.
$250 per day.
$300 per day.
$175 per day.

Answer 30

$250 per day. is correct.

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.

Question 31

An insured is covered under an HO-2 form with a Coverage A limit of $125,000 and a Coverage C limit of $65,000. What amount will automatically be provided for Coverage D?

Answer Choices: Select the Correct Answer
$37,500.
$19,500.
$32,500.
$12,500.

Answer 31

The correct answer is: $37,500.

EXPLANATION:
An HO-2 form provides 30% of the Coverage A limit for Coverage D - Loss of Use. 30% of $125,000 is $37,500.

Question 32

All of the following statements are TRUE regarding a Commercial Inland Marine policy, EXCEPT:

Answer Choices: Select the Correct Answer
Coverage is not dependent on the property being located at a specific “premises” at the time of the loss.
The coverage moves with the property being covered.
Coverage is most often written on a named peril basis.
The controlled forms may be used as part of a Commercial Package Policy.00 of coverage at each location.

Answer 32

The correct answer is: Coverage is most often written on a named peril basis.

EXPLANATION:
Coverage under a Commercial Inland Marine policy is NOT most often written on a named peril basis, it is most often written on an open peril basis.

Question 33

All of the following are examples of forms used to cover cargo in Ocean Marine insurance, EXCEPT:

Answer Choices: Select the Correct Answer
Open form.
Load form.
Floating form.
Single risk form.

Answer 33

The correct answer is: Load form.

EXPLANATION:
A “load form” is not an Ocean Marine form covering cargo.

Question 34

The Refrigerated Property Coverage endorsement to a Homeowners policy includes a _____ deductible.

Answer Choices: Select the Correct Answer
$50
$100
$150
$200

Answer 34

$100 is correct.

EXPLANATION:
The Refrigerated Property Coverage endorsement to a Homeowners policy includes a $100 deductible.

Question 35

Under Coverage A of a Farm Property policy, when the insured meets the co-insurance requirement, a claim will be settled:

Answer Choices: Select the Correct Answer
On an actual cash value basis.
At 80% of the replacement cost.
On the basis of repair or replacement cost.
At replacement cost plus the cost of the enforcement of any ordinance or law.

Answer 35

On the basis of repair or replacement cost. is correct.

EXPLANATION:
When the co-insurance requirement is met, a claim will be settled on the basis of the repair or replacement cost.

Question 36

The liability section of the Business Auto policy excludes coverage for pollution damage except in certain circumstances. Which of the following statements describe a circumstance where pollution would NOT be covered by the Business Auto policy?

Answer Choices: Select the Correct Answer
When there is bodily injury caused in the same accident that caused the pollution loss.
When a covered truck leaks contaminating anti-freeze from its radiator because the radiator cap was accidentally left off.
When a covered truck leaks contaminating anti-freeze from its radiator as a result of an accident.
When there is property damage caused in the same accident that caused the pollution loss.

Answer 36

When a covered truck leaks contaminating anti-freeze from its radiator because the radiator cap was accidentally left off.

Question 37

Under an HO-6 form, the additional coverage for damage to trees, shrubs and other plants is provided at:

Answer Choices: Select the Correct Answer
10% or the Coverage A limit, or a maximum of $500 for any one tree, shrub, or other plant.
5% of the Coverage C limit, or a maximum of $500 for any one tree, shrub, or other plant.
5% or the Coverage A limit, or a maximum of $500 for any one tree, shrub, or other plant.
10% of the Coverage C limit, or a maximum of $500 for any one tree, shrub, or other plant.

Answer 37

The correct answer is: 10% of the Coverage C limit, or a maximum of $500 for any one tree, shrub, or other plant.

EXPLANATION:
Under the HO-6 form, coverage for trees, shrubs and other plants is 10% of the Coverage C limit, or a maximum of $500 for any one tree, shrub, or other plant.

Question 38

Which of the following is NOT covered on the Commercial Property basic cause of loss form?

Answer Choices: Select the Correct Answer
Pollution clean up.
Accidental sprinkler leakage.
Sinkhole collapse.
Volcanic action.

Answer 38

The correct answer is: Pollution clean up.

EXPLANATION:
Pollution clean up is NOT covered under the Commercial Property basic cause of loss form.