CPCU 552 CORE EXAM TEST 2026 QUESTIONS AND
SOLUTIONS RATED A+
✔✔7. Business Judgement Rule - ✔✔A legal rule that provides that a director will not be
personally liable for a decision involving business judgement, provided the director
made an informed decision and acted in good faith
✔✔7. Ultra Vires - ✔✔an act of a corporation that exceeds its chartered powers
✔✔7. Directors and officers (D&O) Liability Insurance - ✔✔Insurance that covers a
corporation's directors and officers against liability for their wrongful acts covered by the
policy and also covers the sums that the insured corporation is required or permitted by
law to pay to the directors and officers as indemnification.
✔✔7. Claims Made Coverage Trigger - ✔✔the event that triggers coverage under a
claims-made coverage form; the first making of a claim against any insured during
either the policy period or extended reporting period
✔✔7. Outside directors liability policy - ✔✔a policy covering the liability of a
corporation's directors while they serve as outside directors for another corporation
✔✔7. Independent directors' liability policy - ✔✔a D&O liability policy that insureds only
the independent director(s) named in the policy
✔✔7. Employment Practices Liability (EPL) insurance - ✔✔insurance that covers an
organization, its directors and officers and its employees against claims alleging
damages because of wrongful employment practices such as sexual harassment,
wrongful termination and unlawful discrimination
✔✔7. Fiduciary Liability Insurance - ✔✔insurance that covers the fiduciaries of an
employee benefit plan against liability claims alleging breach of their fiduciary duties
involving discretionary judgment
✔✔7. derivative suit - ✔✔is brought against D&O by a stockeholder on behalf of the
corporation
✔✔7. nonderivitive suit - ✔✔suit against D&O brought by entities outside the
corporation
✔✔7. class action - ✔✔a lawsuit in which one person or a small group of people
represent the interest of a large group
✔✔7. Exclusive Indemnification Statues - ✔✔authorize indemnification up to the extent
provided by the statute
, ✔✔7. nonexclusive indemnification statue - ✔✔let corps provide expanded
indemnification (rights broader than state statutory rights)
✔✔7. Coverage A - ✔✔Individual or direct Coverage that indemnifies individuals or
directors and officers for losses the corporation cannot or does not indemnify
✔✔7. Coverage B - ✔✔Corporate reimbursement that reimburses the corporation for its
indemnification payments to directors and officers
✔✔7. Coverage C - ✔✔entity coverage, which insurers the corporation itself against any
claims made against it due to its covered wrongful acts.
✔✔7. Prior Acts Coverage - ✔✔Covers acts that occurred before the policy inception
✔✔7. Discovery Provision - ✔✔states that if the insured knows of a wrongful act that it
is likely to generate a claim and informs the insurer before the end of the policy period
that any subsequent claim associated with that act is covered.
✔✔7. Absolute Consent-to-settle provision - ✔✔does not let the insurer settle claims
without the insured's written approval
✔✔7. the hammer clause - ✔✔states that if the insurer and claimant agree to a
settlement and the insured doesn't, the most the insurer will pay for damages or
subsequent settlements is the amount the claim could have been settled for minus
deductible
✔✔7. modified hammer clause - ✔✔states that if the insurer and claimant agree to a
settlement and the insured doesn't, the most the insurer will pay for damages or
subsequent settlements is the amount the claim could have been settled for plus 70% of
any amount in excess of the original settlement offer.
✔✔7. Severability Clause - ✔✔stating that the wrongful act of any one director or officer
will not be imputed to other D&O for the purpose of determining exclusions
✔✔7. Occupation-Specific policy - ✔✔covers a specific field for D&O
✔✔7. Side A-only coverage - ✔✔D&O liability insurance that covers only the individual
liability of the insured directors and officers
✔✔7. Wrongful Termination - ✔✔the #1 cause of EPL claims. firing without a legitimate
reason
SOLUTIONS RATED A+
✔✔7. Business Judgement Rule - ✔✔A legal rule that provides that a director will not be
personally liable for a decision involving business judgement, provided the director
made an informed decision and acted in good faith
✔✔7. Ultra Vires - ✔✔an act of a corporation that exceeds its chartered powers
✔✔7. Directors and officers (D&O) Liability Insurance - ✔✔Insurance that covers a
corporation's directors and officers against liability for their wrongful acts covered by the
policy and also covers the sums that the insured corporation is required or permitted by
law to pay to the directors and officers as indemnification.
✔✔7. Claims Made Coverage Trigger - ✔✔the event that triggers coverage under a
claims-made coverage form; the first making of a claim against any insured during
either the policy period or extended reporting period
✔✔7. Outside directors liability policy - ✔✔a policy covering the liability of a
corporation's directors while they serve as outside directors for another corporation
✔✔7. Independent directors' liability policy - ✔✔a D&O liability policy that insureds only
the independent director(s) named in the policy
✔✔7. Employment Practices Liability (EPL) insurance - ✔✔insurance that covers an
organization, its directors and officers and its employees against claims alleging
damages because of wrongful employment practices such as sexual harassment,
wrongful termination and unlawful discrimination
✔✔7. Fiduciary Liability Insurance - ✔✔insurance that covers the fiduciaries of an
employee benefit plan against liability claims alleging breach of their fiduciary duties
involving discretionary judgment
✔✔7. derivative suit - ✔✔is brought against D&O by a stockeholder on behalf of the
corporation
✔✔7. nonderivitive suit - ✔✔suit against D&O brought by entities outside the
corporation
✔✔7. class action - ✔✔a lawsuit in which one person or a small group of people
represent the interest of a large group
✔✔7. Exclusive Indemnification Statues - ✔✔authorize indemnification up to the extent
provided by the statute
, ✔✔7. nonexclusive indemnification statue - ✔✔let corps provide expanded
indemnification (rights broader than state statutory rights)
✔✔7. Coverage A - ✔✔Individual or direct Coverage that indemnifies individuals or
directors and officers for losses the corporation cannot or does not indemnify
✔✔7. Coverage B - ✔✔Corporate reimbursement that reimburses the corporation for its
indemnification payments to directors and officers
✔✔7. Coverage C - ✔✔entity coverage, which insurers the corporation itself against any
claims made against it due to its covered wrongful acts.
✔✔7. Prior Acts Coverage - ✔✔Covers acts that occurred before the policy inception
✔✔7. Discovery Provision - ✔✔states that if the insured knows of a wrongful act that it
is likely to generate a claim and informs the insurer before the end of the policy period
that any subsequent claim associated with that act is covered.
✔✔7. Absolute Consent-to-settle provision - ✔✔does not let the insurer settle claims
without the insured's written approval
✔✔7. the hammer clause - ✔✔states that if the insurer and claimant agree to a
settlement and the insured doesn't, the most the insurer will pay for damages or
subsequent settlements is the amount the claim could have been settled for minus
deductible
✔✔7. modified hammer clause - ✔✔states that if the insurer and claimant agree to a
settlement and the insured doesn't, the most the insurer will pay for damages or
subsequent settlements is the amount the claim could have been settled for plus 70% of
any amount in excess of the original settlement offer.
✔✔7. Severability Clause - ✔✔stating that the wrongful act of any one director or officer
will not be imputed to other D&O for the purpose of determining exclusions
✔✔7. Occupation-Specific policy - ✔✔covers a specific field for D&O
✔✔7. Side A-only coverage - ✔✔D&O liability insurance that covers only the individual
liability of the insured directors and officers
✔✔7. Wrongful Termination - ✔✔the #1 cause of EPL claims. firing without a legitimate
reason
