CPCU 530 - A4 Practice
Questions and Complete
Solutions Graded A+
Sebastian applied for homeowner insurance with Blithe Insurance. Blithe's application asked if Sebastian
had any damage to his house within the last three years. Sebastian had two losses four years ago but
none in the last three years so Sebastian answered "no" to this question. Blithe issued the homeowner
policy. Which one of the following statements about Sebastian's response to the application question is
true?
Select one:
A. It was a warranty
B. It was a misrepresentation
C. It was neither a warranty nor a misrepresentation
D. It was an opinion - Answer: C. It was neither a warranty nor a misrepresentation
An insurance company determines that inaccurate information has been provided by an insurance
applicant. Which one of the following statements is true concerning whether the contract is voidable?
Select one:
A. If the information was made in good faith, with no intent to misrepresent, the contract is not
voidable.
B. If the information was false and related to a material fact and relied upon by the insurer, the contract
is voidable.
C. If the information was related to a material fact but corrected in the first 60 days, the contract is not
voidable.
D. If the information was false or misleading and material, the contract is voidable. - Answer: B. If the
information was false and related to a material fact and relied upon by the insurer, the contract is
voidable.
,Maja is purchasing a home and has plans to finance it with Gulford Mortgage Company. At closing Maja
and Gulford Mortgage Company have not agreed on who will obtain insurance on the property. If such a
provision has not been included on the mortgage which one of the following situations could occur?
Select one:
A. Gulford Mortgage Company can obtain insurance for Maja's benefit by assigning the policy to Maja or
including on the policy a standard mortgage clause.
B. Gulford Mortgage Company can obtain separate insurance on Maja's property, solely for the
mortgagee's benefit.
C. Maja cannot obtain separate insurance on the property.
D. Gulford Mortgage Company can obtain insurance for Maja's benefit only. - Answer: B. Gulford
Mortgage Company can obtain separate insurance on Maja's property, solely for the mortgagee's
benefit.
Which one of the following types of insurance policies pays a stated amount, regardless of the actual
value of the loss?
Select one:
A. Valued policy
B. Actual cash value policy
C. Replacement cost policy
D. Indemnity policy - Answer: A. Valued policy
Mehmet met with insurance agent Leila to obtain homeowners insurance. Leila had binding authority
through Cintriel Insurance and she issued a written binder to Mehmet, submitting a signed homeowners
insurance application to Cintriel at the same time. The binder stated that it provided homeowners
coverage for 30 days, pending issuance of the policy. Five days later, before Cintriel acted on Mehmet's
application, Mehmet's house was damaged by fire. Which one of the following statements about
Mehmet's insurance is true?
Select one:
A. Mehmet has no homeowners insurance but has an errors and omissions claim against Leila.
B. Mehmet has homeowners insurance only if Cintriel ultimately issues a homeowners policy.
,C. Mehmet has homeowners insurance, as provided by the binder.
D. Mehmet has no homeowners insurance. - Answer: C. Mehmet has homeowners insurance, as
provided by the binder.
Which one of the following statements describes a waiver?
Select one:
A. A prohibition of asserting a claim or right that is inconsistent with a party's statement or conduct
B. A voluntary act of choosing between two alternative rights or privileges
C. The intentional relinquishment of a known right
D. A breach of a policy condition - Answer: C. The intentional relinquishment of a known right
With a contract of indemnity, the insurer agrees, in the event of a covered loss, to pay
Select one:
A. The insurance policy limit.
B. The full amount necessary to restore an insured to the insured's financial position before the loss.
C. The replacement cost of all damaged property.
D. An amount directly related to the amount of loss. - Answer: D. An amount directly related to the
amount of loss.
Luis visited his insurance agent, Katarina. Luis told Katarina that he was interested in obtaining a
homeowners policy. Katarina responded that she could help arrange homeowners insurance for Luis,
and she then explained the application process. Katarina's statements were
Select one:
A. An offer.
B. A solicitation of an offer.
C. An acceptance.
D. A counteroffer. - Answer: B. A solicitation of an offer.
, Which one of the following statements correctly describes the effect of an agent's oral promise—made
before or during the finalizing of a policy—to waive an insured's future breach of any policy condition?
Select one:
A. It is ineffective due to the parol evidence rule
B. It is ineffective because oral statements cannot result in a waiver
C. It is effective as a waiver due to the parol evidence rule
D. It is effective as a waiver due to the doctrine of election - Answer: A. It is ineffective due to the parol
evidence rule
Patrick notified his insurer that his insured artwork was stolen. Before beginning an investigation, his
insurer sent a claim representative to offer a nonwaiver agreement that cites potential coverage issues.
Patrick refused to sign the agreement. The representative then sent Patrick a reservation of rights letter
via certified mail, and after Patrick had received the letter, Patrick's insurer began its investigation.
Patrick's insurer is protected
Select one:
A. Against prior or subsequent claims of waiver, estoppel, or election, but only those relating to the
same policy or loss.
B. Against subsequent claims of estoppel and election only.
C. Against subsequent claims of waiver, estoppel, or election.
D. Against subsequent claims of estoppel only. - Answer: C. Against subsequent claims of waiver,
estoppel, or election.
Which one of the following best explains why nonwaiver agreements and reservation of rights letters
must typically be in writing?
Select one:
A. Oral notice is too difficult to prove.
B. Oral insurance contracts are not permitted in some states.
C. Most insurance policies require such agreements to be in writing.
Questions and Complete
Solutions Graded A+
Sebastian applied for homeowner insurance with Blithe Insurance. Blithe's application asked if Sebastian
had any damage to his house within the last three years. Sebastian had two losses four years ago but
none in the last three years so Sebastian answered "no" to this question. Blithe issued the homeowner
policy. Which one of the following statements about Sebastian's response to the application question is
true?
Select one:
A. It was a warranty
B. It was a misrepresentation
C. It was neither a warranty nor a misrepresentation
D. It was an opinion - Answer: C. It was neither a warranty nor a misrepresentation
An insurance company determines that inaccurate information has been provided by an insurance
applicant. Which one of the following statements is true concerning whether the contract is voidable?
Select one:
A. If the information was made in good faith, with no intent to misrepresent, the contract is not
voidable.
B. If the information was false and related to a material fact and relied upon by the insurer, the contract
is voidable.
C. If the information was related to a material fact but corrected in the first 60 days, the contract is not
voidable.
D. If the information was false or misleading and material, the contract is voidable. - Answer: B. If the
information was false and related to a material fact and relied upon by the insurer, the contract is
voidable.
,Maja is purchasing a home and has plans to finance it with Gulford Mortgage Company. At closing Maja
and Gulford Mortgage Company have not agreed on who will obtain insurance on the property. If such a
provision has not been included on the mortgage which one of the following situations could occur?
Select one:
A. Gulford Mortgage Company can obtain insurance for Maja's benefit by assigning the policy to Maja or
including on the policy a standard mortgage clause.
B. Gulford Mortgage Company can obtain separate insurance on Maja's property, solely for the
mortgagee's benefit.
C. Maja cannot obtain separate insurance on the property.
D. Gulford Mortgage Company can obtain insurance for Maja's benefit only. - Answer: B. Gulford
Mortgage Company can obtain separate insurance on Maja's property, solely for the mortgagee's
benefit.
Which one of the following types of insurance policies pays a stated amount, regardless of the actual
value of the loss?
Select one:
A. Valued policy
B. Actual cash value policy
C. Replacement cost policy
D. Indemnity policy - Answer: A. Valued policy
Mehmet met with insurance agent Leila to obtain homeowners insurance. Leila had binding authority
through Cintriel Insurance and she issued a written binder to Mehmet, submitting a signed homeowners
insurance application to Cintriel at the same time. The binder stated that it provided homeowners
coverage for 30 days, pending issuance of the policy. Five days later, before Cintriel acted on Mehmet's
application, Mehmet's house was damaged by fire. Which one of the following statements about
Mehmet's insurance is true?
Select one:
A. Mehmet has no homeowners insurance but has an errors and omissions claim against Leila.
B. Mehmet has homeowners insurance only if Cintriel ultimately issues a homeowners policy.
,C. Mehmet has homeowners insurance, as provided by the binder.
D. Mehmet has no homeowners insurance. - Answer: C. Mehmet has homeowners insurance, as
provided by the binder.
Which one of the following statements describes a waiver?
Select one:
A. A prohibition of asserting a claim or right that is inconsistent with a party's statement or conduct
B. A voluntary act of choosing between two alternative rights or privileges
C. The intentional relinquishment of a known right
D. A breach of a policy condition - Answer: C. The intentional relinquishment of a known right
With a contract of indemnity, the insurer agrees, in the event of a covered loss, to pay
Select one:
A. The insurance policy limit.
B. The full amount necessary to restore an insured to the insured's financial position before the loss.
C. The replacement cost of all damaged property.
D. An amount directly related to the amount of loss. - Answer: D. An amount directly related to the
amount of loss.
Luis visited his insurance agent, Katarina. Luis told Katarina that he was interested in obtaining a
homeowners policy. Katarina responded that she could help arrange homeowners insurance for Luis,
and she then explained the application process. Katarina's statements were
Select one:
A. An offer.
B. A solicitation of an offer.
C. An acceptance.
D. A counteroffer. - Answer: B. A solicitation of an offer.
, Which one of the following statements correctly describes the effect of an agent's oral promise—made
before or during the finalizing of a policy—to waive an insured's future breach of any policy condition?
Select one:
A. It is ineffective due to the parol evidence rule
B. It is ineffective because oral statements cannot result in a waiver
C. It is effective as a waiver due to the parol evidence rule
D. It is effective as a waiver due to the doctrine of election - Answer: A. It is ineffective due to the parol
evidence rule
Patrick notified his insurer that his insured artwork was stolen. Before beginning an investigation, his
insurer sent a claim representative to offer a nonwaiver agreement that cites potential coverage issues.
Patrick refused to sign the agreement. The representative then sent Patrick a reservation of rights letter
via certified mail, and after Patrick had received the letter, Patrick's insurer began its investigation.
Patrick's insurer is protected
Select one:
A. Against prior or subsequent claims of waiver, estoppel, or election, but only those relating to the
same policy or loss.
B. Against subsequent claims of estoppel and election only.
C. Against subsequent claims of waiver, estoppel, or election.
D. Against subsequent claims of estoppel only. - Answer: C. Against subsequent claims of waiver,
estoppel, or election.
Which one of the following best explains why nonwaiver agreements and reservation of rights letters
must typically be in writing?
Select one:
A. Oral notice is too difficult to prove.
B. Oral insurance contracts are not permitted in some states.
C. Most insurance policies require such agreements to be in writing.
