AFSB 151 Study Guide Questions With Correct Answers.

AFSB 151 Study Guide Questions With Correct Answers. Anthony is the surety producer for Coyle Construction (CC). CC has a pre-set annual surety credit line of $5 million/$30 million. About 3 months into the fiscal year, the contractor is bidding on an $8 million job and needs a bid bond. Which one of the following correctly describes Anthony's responsibility as the surety producer? Select one: A. Anthony should arrange a back-up surety with adequate capacity because CC appears to be outgrowing the capacity of the current surety. B. Anthony should execute the bid bond because it is within the $30 million annual line of credit. C. Anthony should seek underwriting approval before executing the bid bond because it falls outside the $5 million job contract limit. D. Anthony should execute the bid bond, but will need to seek approval if CC is awarded the job. C. Anthony should seek underwriting approval before executing the bid bond because it falls outside the $5 million job contract limit. Contract bond claims Select one: A. Require that, once the claim is made, the construction project and all affiliated activity, such as materials and other resource delivery, must be halted until the loss is determined and paid. B. Generally require that the surety consult fewer sources to determine the bond loss than are required when investigating commercial surety and fidelity claims. C. That are not handled promptly are not affected by variables such as the construction project, materials, and weather conditions. D. Can raise questions as to fault in the loss, whether the bonded principal or the obligee was responsible. D. Can raise questions as to fault in the loss, whether the bonded principal or the obligee was responsible. Which one of the following statements regarding fidelity bond claims is true? Select one: A. There are no time limits for bringing claims under a fidelity bond, so an insurer does not need to be concerned about whether the loss was discovered during the policy term. B. The insured's prompt notice of loss and the fidelity's prompt investigation has no impact on the insurer's liability, the cause of loss, or the insured's minimization of damages. C. Mishandling of funds by people or entities not employed by the insured, such as auditors, lawyers, or financial institutions, cannot be pursued by the insurer as a source of recovery. D. By promptly investigating a bond loss, an insurer may discover that it has recourse against persons or entities whose conduct caused or contributed to the loss, but is not relevant to the proof of loss. D. By promptly investigating a bond loss, an insurer may discover that it has recourse against persons or entities whose conduct caused or contributed to the loss, but is not relevant to the proof of loss. Which one of the following statements regarding legal research and unfair claims practices acts is true? Select one: A. Even when fidelity and surety businesses are not affected by unfair claims practices laws that originate from individual consumers' concerns, state lawmakers require that they adhere to these laws. B. Unfair claims practices acts can prevent sureties from adequately investigating fidelity and surety claims so that standards for prompt settlement or denial can be met. C. Because sureties can retain attorneys experienced in the fidelity and surety legal matters, claims personnel do not require knowledge of legal rules and theories that govern such coverage and liability. D. Unfair claims practices acts prohibit sureties and insurers from misrepresenting pertinent facts or policy provisions relating to coverages at issue. D. Unfair claims practices acts prohibit sureties and insurers from misrepresenting pertinent facts or policy provisions relating to coverages at issue. Which one of the following statements regarding surety compliance with statutes and regulations is true? Select one: A. Courts may interpret any bond or fidelity policy provision to the insured's benefit whether or not it prejudices an insurer's ability to investigate the claim. B. Surety and fidelity contracts are often prescribed by statute or regulation, including requirements for many license and permit bonds, fidelity coverages, and public official bonds. C. Insurance policy forms are often subject to regulatory approval; however, laws cannot affect the enforcement of rights and remedies under the policies. D. When an obligee drafts a surety bond with provisions that are onerous to the surety, if the surety executes the bond without objections, courts will interpret any dispute in the surety's favor. B. Surety and fidelity contracts are often prescribed by statute or regulation, including requirements for many license and permit bonds, fidelity coverages, and public official bonds. Surety claims against principals who appear to have resources to pay the claims can be referred to the principals and indemnitors who can respond before the surety must pay and before the surety seeks indemnification from them. This practice is called Select one: A. Exoneration. B. Look-see money distribution. C. Quia timet. D. The vouching-in procedure. D. The vouching-in procedure. When a claim is pending on a cosurety bond, Select one: A. Each cosurety may establish a reserve for its cosurety share of the loss. B. The controlling cosurety is normally obligated to pay the full loss and request reimbursement from the cosureties. C. Each cosurety is allowed to take credit for the reinsurer's share of the reserve that the cosurety establishes. D. The controlling cosurety is not allowed to establish a reserve for any part of the loss. A. Each cosurety may establish a reserve for its cosurety share of the loss. Fidelity bond claims Select one: A. Can expose an insurer to waiver of a condition precedent of bond contracts and defamation actions, if they are not handled properly. B. Have variable circumstances; therefore, the fidelity insurer's ultimate loss is rarely fixed when the insured gives notice of the loss. C. Offer protections to the fidelity insurer when a late notice of loss occurs, as late notice is typically a valid defense for the insurer. D. Require a proof of loss filed by the insured before an investigation begins, the claim is verified, and the insured can be confronted. A. Can expose an insurer to waiver of a condition precedent of bond contracts and defamation actions, if they are not handled properly In proper handling of a fidelity loss, when can an insurer begin the loss investigation and when can claims personnel confront the insured? Select one: A. The insurer can begin the investigation, but claims personnel should not confront the insured before the insured has provided an executed proof of loss. B. The insurer cannot begin the investigation until the insured has provided an executed proof of loss; but claims personnel can confront the insured without the proof of loss. C. The insurer can begin the investigation and claims personnel can confront the insured at any time before the insured has provided an executed proof of loss. D. The insurer cannot begin the investigation and claims personnel cannot confront the insured until the insured has provided an executed proof of loss. A. The insurer can begin the investigation, but claims personnel should not confront the insured before the insured has provided an executed proof of loss. Which one of the following statements regarding gathering information for surety claims is true? Select one: A. Principals and obligees are usually more cooperative after the claim has been paid than during the information-gathering process. B. Separate information gathering sessions—to help resolve questions of liability and to determine the possibility of enforcing rights the surety acquired—is more efficient and productive than one session. C. When gathering claims information, the producer is the best source of evidence for recovery from others. D. Claims personnel can gather most of the needed information for a surety claim by applying the questions of who, what, when, where, why, and how to the claim. D. Claims personnel can gather most of the needed information for a surety claim by applying the questions of who, what, when, where, why, and how to the claim. Which one of the following statements is true regarding subrogation when a contract default has occurred and when the principal has admitted to it? Select one: A. Obligees cannot refuse to pay the principal's creditors and instead claim offsets for debts owed to them by the principal, including damages allegedly due on the project. B. The surety's most important right acquired through subrogation is the right of the obligee to use the contract consideration to complete the contract. C. The unpaid and unearned contract money is part of the contractor's property and may be used to satisfy the principal's debts. D. If the surety directly or indirectly remedies the contract defaults, it has no claim to any of the obligee's rights. B. The surety's most important right acquired through subrogation is the right of the obligee to use the contract consideration to complete the contract. Cosureties on a bond Select one: A. Have no right to individually investigate, negotiate, and resolve claims against the bond or to seek recovery of their individual losses and expenses. B. Often appoint one cosurety as the controlling cosurety to investigate, negotiate, and resolve the same claim and seek recovery of the same losses and expenses. C. Each establish their own reserve for the total estimated loss covered by the cosurety bond, taking credit for the other cosureties' losses. D. Are subject to the same accounting rules for reserves that relate to reinsurers when a claim is pending on a cosurety bond. B. Often appoint one cosurety as the controlling cosurety to investigate, negotiate, and resolve the same claim and seek recovery of the same losses and expenses. Which one of the following is true regarding contract bond claims? Select one: A. Issues in a contract bond claim include payment to subcontractors and suppliers as well as the ultimate completion of the construction project. B. The contract bond obligee must prove its right to recover from the surety by producing relevant data about the circumstances that produced the loss. C. Once the surety has appraised the status of the construction contract, changes in the contractor's situation and the contract have no influence on the loss amount. D. A construction contract bond loss is generally fixed at a certain point in time, so the loss amount can be determined quickly and easily. A. Issues in a contract bond claim include payment to subcontractors and suppliers as well as the ultimate completion of the construction project. Westmoreland Surety, as a contract surety, has loss reserves that are Select one: A. Increased to account for the percentage of reinsurance collectible on the bond. B. Established on both gross and net bases and include an expense reserve. C. Based on the principal's estimated costs to complete the project and are usually relatively accurate. D. Intended to incur the loss on the surety's balance sheet in the year in which the loss is discovered. D. Intended to incur the loss on the surety's balance sheet in the year in which the loss is discovered. Reinsurers and cosureties Select one: A. Are both allocated a certain amount as their share of the reserves, and they may expect recoveries up to that extent. B. Perform their reporting function based on their arrangements with the primary surety with respect to risks on which claims are pending. C. Must be aware of the provisions of the primary surety's excess of loss treaties to determine whether they apply to each case. D. Require reports from the primary surety that a claim has arisen and that reserves, if any, have been established. D. Require reports from the primary surety that a claim has arisen and that reserves, if any, have been established. Which one of the following statements is true regarding options available to surety claims personnel after a contract default occurs and the principal admits to it? Select one: A. The surety can demand that the principal and indemnitors execute mortgages and securities in the surety's favor and place them in a trust for any losses or expenses it sustains. B. The surety may permit obligees to complete their projects with alternate contractors selected by the defaulting principal. C. The surety must choose one option from among four basic options available to it. D. Surety claims personnel are only concerned about completion of or payment for the defaulted contract. Which one of the following statements is true regarding financial reporting to reinsurers? Select one: A. When the primary surety establishes a reserve, it advises each reinsurer involved in the reserve that it is established and discloses the net reserve amount. B. When a primary surety establishes reserves, it determines a reinsurance recoverable reserve and notes in the records that reinsurance reserves have reduced posted reserves. C. State insurance laws and regulations do not permit primary sureties to take credit for the reinsurer's share of the reserves. D. Primary sureties may reduce losses and expenses paid by an account receivable only when the final loss payment is made and all receivables have been billed to the reinsurer. B. When a primary surety establishes reserves, it determines a reinsurance recoverable reserve and notes in the records that reinsurance reserves have reduced posted reserves. A basic type of bond that involves all situations in which sureties guarantee performance of obligations that generally do not arise from contracts is Select one: A. Nonstatutory bonds. B. Fidelity surety bonds. C. Commercial surety bonds D. Contract surety bonds. C. Commercial surety bonds A surety bond is a written document in which one party guarantees a second party's Select one: A. Payment to a third party for the second party's failure to earn enough funds to repay the third party. B. Answer to a third party for the second party's failure to resolve the third party's deficiency. C. Satisfaction to a third party for the second party's failure to provide the requested collateral. D. Performance to a third party for the second party's failure to fulfill an obligation. D. Performance to a third party for the second party's failure to fulfill an obligation. group that educates the general public, legislative bodies, contractor associations, and others about the benefits of surety bonds is Select one: A. The Surety and Fidelity Association of America (SFAA). B. The National Association of Surety Bond Producers (NASBP). C. The association of producers and underwriters. D. The National Association of Independent Sureties (NAIS). B. The National Association of Surety Bond Producers (NASBP). Which one of the following characteristics is unique under American personal suretyship compared with corporate suretyship? Select one: A. This form of suretyship was subject to common law. B. This form of suretyship was subject to statutory law. C. Surety bonds were required to be in writing. D. Sureties were protected by laws that were favorable to them. D. Sureties were protected by laws that were favorable to them. Because most bonds are "joint and several liability" documents, the obligee can recover losses from