AD Banker Property & Casualty 2024Advanced Test

Manufacturers, wholesalers, or retailers all have potential legal liability associated with a product that may arise from each of the following, except: A - Breach of warranty B - Expected or intended injury C - Strict liability D - Negligence - ANSWERSB - Expected or intended injury Legal liability to those associated with the manufacturing, wholesaling, or retailing of a product may arise from negligence, breach of warranty, or strict liability. Liability arising out of expected or intended injury is not covered. When the insured and a third party cannot agree on legal liability, the final decision is made by: A - The appraisal method B - The insurer C - The court D - The state Insurance Commissioner - ANSWERSC - The court When disputed by the parties, a court of law (or arbitrator) makes the final determination of liability. The Insuring Agreement of a policy describes: A - Perils that are not covered B - Perils that are covered C - Transfer of the rights of recovery D - The duties of the insured in the event of a loss - ANSWERSB - Perils that are covered The Insuring Agreement includes the perils insured against. The duties of the insured and the transfer of recovery rights (subrogation) would be included in the policy's Conditions. Excluded perils would be listed in the Exclusions section. All of the following are characteristics of a mutual insurance company, except: A - They provide insurance to members B - A policyholder votes for the board of directors C - Stockholders have ownership D - Profits may be returned as policy dividends - ANSWERSC - Stockholders have ownership. A mutual insurance company is owned by its policyholders, and does not have stockholders. Some mutual insurance companies require policyowners to be members of an underlying organization. The following are all correct, except: A - A moral hazard includes dishonesty B - Flammable material near a furnace would be considered a physical hazard C - A physical hazard includes an attitude of indifference to loss D - A physical hazard includes location - ANSWERSC - A physical hazard includes an attitude of indifference to loss. A physical hazard is a physical condition that increases the likelihood of loss. A morale hazard is an attitude of indifference to loss. A cause of loss, such as the theft of a car, is which of the following? A - Occurrence B - A peril C - Hazard D - Accident - ANSWERSB - A peril Property insurance insures against perils. A peril is a potential cause of loss to property such as fire, windstorm, hail, flood, etc. The predictability of loss improves when the number of similar units increase because of which principle? A - The Law of Averages B - Accumulated Experience C - The Golden Rule of Underwriting D - The Law of Large Numbers - ANSWERSD - The Law of Large Numbers The Law of Large Numbers is an underlying principle of insurance, stating that the greater the number of units of exposure, the greater the accuracy in predicting a loss. An insurer authorized to transact insurance in a particular state by that state's insurance department is known as: A - A resident insurer B - A domestic insurer C - A non-admitted insurer D - An admitted insurer - ANSWERSD - An admitted insurer An admitted insurer is an insurer authorized to transact insurance in a particular state by that state's department or division of insurance. An insurer who has a certificate of authority to transact business is an admitted insurer. California's Shine the Light Act establishes disclosure requirements for: A - Categories of personal information shared with third parties and used for direct marketing purposes B - Nonpublic personal information obtained by financial institutions C - The use of consumer credit reports D - Personal information collected by businesses - ANSWERSA - Categories of personal information shared with third parties and used for direct marketing purposes California's Shine the Light Act of 2003 sets disclosure requirements for the sharing of personal information to third parties for direct marketing purposes and gives consumers an opportunity to opt out of those sharing practices. The California Consumer Privacy Act of 2018 gives consumers the right to know about the personal information businesses collect about them and how that information is used and shared. Gasoline-stained clothes stored by a furnace are considered a ___________. A - Severity B - Hazard C - Adverse selection D - Risk - ANSWERSB - Hazard Gasoline stained clothes stored by the furnace increase a chance of loss and would be considered a physical hazard. The California Financial Information Privacy Act provides for all of the following as compared to the GLBA, except: A - An Opt-Out standard concerning information sharing with unrelated third parties B - Penalties for identity theft perpetrators are doubled C - Consumers have the final say in the sharing of their information D - Financial profiling of consumers is greatly restricted - ANSWERSA - An Opt-Out standard concerning information sharing with unrelated third parties The California Financial Information Privacy Act provides that the Opt-Out provisions of GLBA were changed to an Opt-In standard concerning information sharing with unrelated third parties. A person can purchase an insurance policy to cover losses from all the following, except: A - An operation of drug smuggling B - Loss of property through burglary or theft C - Sudden and direct damage to property by natural causes D - Loss of assets through tort actions brought against the person - ANSWERSA - An operation of drug smuggling A contract, including the insurance contract, is void if it is based on an illegal purpose or contrary to public policy. It will not be recognized by a court or enforceable by either party. When insurance cannot be placed with a licensed insurer, it may be placed with a non-admitted insurer by a: A - General use producer B - General surplus producer C - Surplus lines broker D - General consultant Only a surplus lines broker may place business directly with a non-admitted insurer. - ANSWERSC - Surplus lines broker Only a surplus lines broker may place business directly with a non-admitted insurer. The Insuring Agreement in an insurance policy is best described as: A - A description of the property being insured B - The Additional Coverages provided by the policy C - The name and address of the insured and the name of the insurer D - It determines the coverage that is provided - ANSWERSD - It determines the coverage that is provided The Insuring Agreement is the company's commitment of protection to the insured. Which term describes the equal sharing of a loss by two or more insurers until the loss is paid, or until each insurer has exhausted its limits of insurance, whichever comes first? A - Contribution by equal shares B - Pro rata liability C - Excess insurance D - Primary insurance - ANSWERSA - Contribution by equal shares Under contribution by equal shares, each insurer pays an equal amount to the loss settlement until the loss is paid, or until each insurer has exhausted its limits of insurance, whichever comes first. Which of the following best describes the Concealment or Fraud Condition in a property insurance policy? A - The insured must cooperate with the company in the investigation of a claim B - The company will not grant any coverage that benefits a bailee C - Making a false statement accidentally does not constitute fraud D - The policy will be voided if there is material concealment, misrepresentation, or fraud on the insured's part - ANSWERSD - The policy will be voided if there is material concealment, misrepresentation, or fraud on the insured's part The Concealment or Fraud Condition voids coverage in specified instances of concealment, making false statements, misrepresentation, and fraudulent conduct. An individual committing a tort may be referred to as a: A - Tortfeasor B - Felon C - Disinterested party D - Tort producer - ANSWERSA - Tortfeasor An individual committing a tort may be referred to as a tortfeasor. All of the following are considered incompetent persons who do not have the legal capacity to enter into a contract, except: A - Retired persons B - People under the influence of drugs or alcohol C - Mentally incompetent persons D - Minors - ANSWERSA - Retired persons Parties to a contract must have legal capacity to enter into the contract. Minors, mentally incompetent persons, and people under the influence of drugs or alcohol are not deemed legally capable. Which of the following best describes short-rate cancellation? A - The insured will receive exactly half of the unearned premium B - The premium is fully earned by the insurance company C - The insured will receive less than the full amount of the unearned premium D - The insured will receive none of the unearned premium - ANSWERSC - The insured will receive less than the full amount of the unearned premium With short-rate cancellation, the premium refund is based upon a short-rate table in which the insurer retains a portion of the unearned premium. Statements in the application that are guaranteed true but later found to be false at the time of application may result in which of the following? A - A waiver of the provisions of the warranty B - Establishment of a monetary penalty C - Voidance of the contract D - Nullification of the warranty - ANSWERSC - Voidance of the contract A breach of warranty is a determination that a warranty has proven to be untrue, whether intended as a falsehood or not, and may void the contract. Which of the following personalizes an insurance policy? A - The Mortgage Clause B - The Insuring Agreement C - The Declarations D - The Definitions - ANSWERSC - The Declarations The Declarations state the entity insured, the description and location of the property insured, the amount of insurance, and other such information necessary to tailor the policy to a particular risk In property and casualty insurance, when a form is attached to alter or add to policy provisions or conditions, it is known as: A - An exclusion B - A consideration C - A warranty D - An endorsement - ANSWERSD - An endorsement Endorsements are used to modify a policy. They may be used to broaden or restrict coverage, or further define conditions. All of the following are covered perils under the standard fire policy, except: A - Removal of property B - Explosion C - Lightning D - Fire - ANSWERSB - Explosion California's Standard Form Fire Policy insures against losses resulting from fire, lightning, and removal of property from premises endangered by covered perils. A Commercial Property Policy is cancelled because the named insured failed to implement reasonable loss control requirements that the named insured agreed to as a condition of being issued the policy. The insurer must deliver a notice of cancellation how many days in advance of the effective date of cancellation? A - 30 B - 10 C - 60 D - 20 - ANSWERSA - 30 Most commercial insurance policies issued in California require 30 days' advance notice before they may be cancelled for an approved reason. If the reason is for nonpayment of premium, the notice is only required to be delivered 10 days in advance. If an insurer chooses to nonrenew a commercial property policy, notice must be delivered at least: A - 60 days prior to the end of the policy period B - 20 days prior to the end of the policy period C - 30 days prior to the end of the policy period D - 10 days prior to the end of the policy period - ANSWERSA - 60 days prior to the end of the policy period Notice of nonrenewal must be delivered to the insured at least 60 days prior to the end of the policy period, but no more than 120 days in advance. K owns several buildings at several locations and has them insured each on a separate policy and with separate amounts. K has them insured on which of the following methods of writing insurance? A - Specific B - Agreed value C - Blanket D - Scheduled - ANSWERSA - Specific Providing specific insurance means providing a separate policy on each property. Scheduled and blanket insurance covers more than one property per policy. In California, residential property policies that have been in effect for 60 or more days may be cancelled for fraud or nonpayment of premium if notice is provided at least: A - 10 calendar days after the effective date of cancellation B - 15 calendar days after the effective date of cancellation C - 10 calendar days prior to the effective date of cancellation D - 20 calendar days prior to the effective date of cancellation - ANSWERSC - 10 calendar days prior to the effective date of cancellation For residential property policies that have been in effect for 60 or more days, fraud and nonpayment of premium is cause for cancellation, as long as written notice of cancellation is provided at least 10 days prior to the effective date. In property insurance, the clause that prevents the insured from relinquishing ownership and leaving damaged property to the insurer and claiming a total loss is the: A - Abandonment of Property Clause B - Property Assignment Clause C - Claim Settlement Clause D - Loss Payable Clause - ANSWERSA - Abandonment of Property Clause The Abandonment Clause simply makes clear that the company will not accept property abandoned by an insured when there is a claim dispute. During a state of emergency in California, insurers must offer a grace period for premium payments that lasts how many days? A - 45 days B - 30 days C - 60 days D - 10 days - ANSWERSC - 60 days During a state of emergency, insurers must offer a 60-day grace period for premium payments for residential property insurance policies located in the affected area. All of the following statements regarding property insurance are correct, except: A - The insurer may cancel a policy, after providing proper notice B - The owner of clothing left in the care of a dry cleaner is called a bailee C - A property that contains neither occupants nor personal property is deemed vacant D - A binder is a temporary proof of insurance - ANSWERSB - The owner of clothing left in the care of a dry cleaner is called a bailee The owner of clothing taken in for cleaning would be a bailor. The dry cleaner in custody of the clothes is the bailee. H has a Homeowners Policy protecting their home. In the event of a loss to the home, the insurer pays the replacement cost of damaged or destroyed property, but requires that H repair, rebuild, or replace the damaged property before collecting the full replacement cost. If the insurer places a time limit for H to make the repairs and collect the full replacement cost, the time limit must be at least how long? A - 24 months from the date of the first payment towards the actual cash value of the damaged property B - 12 months from the date of the first payment towards the actual cash value of the damaged property C - 12 months from the date of loss D - 6 months from the time the insurer has paid the full actual cash value of the damaged property - ANSWERSB - 12 months from the date of the first payment towards the actual cash value If a time limit is in place that limits the length of time in which the insured may collect the full replacement cost of damaged property, the time limit must be at least 12 months from the date of the first payment toward the actual cash value. Until the property is repaired, rebuilt, or replaced, the insurer will only pay up to the actual cash value of damaged property. All of the following statements regarding the coinsurance provision are correct, except: A - If the specified percentage of insurance is not carried, the insured will share in the loss B - If the insured maintains coverage equal to the coinsurance percentage of the property value, the insurer will charge a lower rate for insurance C - The value of the property at the time the policy was written determines the amount of insurance required at the time of loss D - There is no penalty when the insured suffers a total loss - ANSWERSC - The value of the property at the time the policy was written determines the amount of insurance required at the time of loss The coinsurance clause stipulates that the value of the property at the time of loss determines the amount of insurance required at the time of loss. If the amount of coverage protecting the insured property does not equal the specified percentage of the property value, the insurer will only pay part of any partial loss that occurs, meaning the insured must cover the remainder of the loss. Coinsurance only applies in the event of partial losses, not total losses. Property damage in liability insurance includes: A - Damage to tangible property, including loss of use of that property caused by the insured's negligence B - Damage to property of others in the insured's care, custody, or control C - Damage to property owned by, or leased to, the insured D - Damage to the insured's products arising out of the products - ANSWERSA - Damage to tangible property, including loss of use of that property Tangible property is that property which may be felt or touched, and is necessarily material. Notice that this definition would not include electronic data, for example. In liability insurance, personal injury includes all of the following, except: A - False arrest B - Bodily Injury C - Slander D - Libel - ANSWERSB - Bodily Injury Personal injury is injury to a person arising from wrongful conduct other than injury to the person's body. Some examples would be libel, slander, and false arrest. In liability insurance policies, medical payments coverage includes: A - Payment of necessary medical, surgical, X-ray, dental, ambulance, hospital, professional nursing, and funeral expenses incurred by invitees on the insured's premises B - Payment of medical, surgical, and nursing expenses incurred by persons who occupy the premises C - Payment of necessary medical, surgical, and nursing expenses incurred by an insured while at work on the premises D - Payment of medical, surgical, and nursing expenses caused by illness manifesting itself on the insured's premises - ANSWERSA - Payment of necessary medical, surgical, X-ray, dental, ambulance, hospital, professional nursing, and funeral expenses incurred by invitees on the insured's premises Coverage is not intended for insureds, employees, or residents of the premises. Coverage is for bodily injury caused by an accident. A claimant brings suit against the insured for negligence. The insured's defense argues that the claimant participated in causing the loss and was partially negligent, meaning the claimant is not owed any damages for the loss. This is an example of: A - Vicarious negligence B - Proximate negligence C - Contributory negligence D - Comparative negligence - ANSWERSC - Contributory negligence The doctrine of contributory negligence prevents the claimant from recovering damages if the claimant was in any way also at fault. Which of the following describes the term gross negligence? A - It is negligence characterized by excessive and/or repeated careless acts or behavior B- It is negligence characterized by obscene or offensive behavior C - It is grossness and impropriety in a person's acts toward others D - It is a willful wanton or reckless disregard of the consequences as affecting the life or property of another - ANSWERSD - It is a willful wanton or reckless disregard of the consequences as affecting the life or property of another Gross negligence exhibits such a gross want of care and regard for the rights of others as to justify the presumption of willfulness and wantonness. It is the property owner's obligation that when someone is invited on the premises, the property owner must warn this person of any hidden dangers. This invited person is considered which of the following? A - An invitee B - A trustee C - An obligee D - A licensee - ANSWERSA - An invitee The property owner has a higher obligation for the safety of persons invited on their premises than they do to persons on the premises without an invitation, or to trespassers. The legal defense that prevents recovery for any damages suffered by the claimant is: A - Contributory negligence B - Absolute liability C - Comparative negligence D - Gross negligence - ANSWERSA - Contributory negligence Contributory negligence, a common law defense, denies payment to an injured party if they were even 1% at fault for their damages. It has been replaced by the statutory defense, comparative negligence, in California. All of the following are true of liability policies, except: A - They will cover damage to the insured's own property B - They will pay sums that the insured becomes legally liable to pay C - They are designed to cover third party injuries or damages D - They do not cover medical expenses incurred by the insured - ANSWERSA - They will cover damage to the insured's own property A liability policy will never cover damage to the insured's own property and only covers damage to property of a third party. Most liability policies will provide medical payments for medical expenses incurred only by third parties, but some liability policies may provide medical payments to insureds instead. The property owner has an obligation to warn all of the following of a hidden danger, except: A - Trespasser B - Social guest C - Licensee D - Invitee - ANSWERSA - Trespasser There is no obligation to warn a trespasser of hidden dangers because the trespasser should not be on the property. Named perils coverage on the DP-2 would protect against losses caused by all of the following perils, except: A - Fire and lightning B - Damage by wild animals C - Weight of snow, ice, and sleet D - Wind and hail - ANSWERSB - Damage by wild animals Named perils will not include damage by wild animals. Which of the following statements about coverage provided by the Dwelling Program is incorrect? A - Personal property of a guest or domestic employee is covered while located on the described location B - The Dwelling Broad Form will cover trees, shrubs, and plants up to $500 each C - Under a Dwelling Basic Form without Extended Coverage, if an insured were to accidentally hit a fence in the backyard with their car, the damage to the fence would be covered D - A Special Dwelling Form will cover damage to the building from a vehicle - ANSWERSC - Under a Dwelling Basic Form without Extended Coverage, if an insured were to accidentally hit a fence in the backyard with their car, the damage to the fence would be covered The Basic Dwelling Form does not cover damage to the property done by the insured's owned or operated auto. Which coverage is provided by the Personal Liability Supplement on a Dwelling Policy? A - The supplement provides medical payments only B - The supplement provides both medical payments and personal liability C - The supplement provides neither medical payments nor personal liability D - The supplement provides personal liability only - ANSWERSB - The supplement provides both medical payments and personal liability Both Personal Liability (Coverage L) and Medical Payments to Others (Coverage M) are included in the personal liability supplement. Under a Dwelling Policy, the coverage extension of Debris Removal will cover: A - The cost of removing ash or dust from volcanic eruption that has caused direct loss to the insured property B - The removal of debris resulting from the action of a civil authority C - The removal of debris resulting from demolition required by an ordinance or law D - The removal of the debris from an automobile accident on the insured location - ANSWERSA - The cost of removing ash or dust from volcanic eruption that has caused direct loss to the insured property The removal and disposal of debris from a loss, even a partial loss, frequently constitutes a substantial expense to the insured. Which of the following is true regarding the Personal Liability Supplement on a Dwelling Policy? A - The limit of liability is the same as the Coverage A amount B - It covers professional services rendered by the insured C - It provides coverage for claim expenses, first aid expenses, and damage to property of others D - It covers the insured's personal autos - ANSWERSC - It provides coverage for claim expenses, first aid expenses, and damage to property of others Claim expenses, first aid expenses, and damage to property of others are Additional Coverages that supplement Coverage L - Personal Liability and Coverage M - Medical Payments. Under the Basic Dwelling Form, losses are paid on a(n) ____ basis. A - Agreed value B - Actual cash value C - Market value D - Replacement cost - ANSWERSB - Actual cash value The Basic Dwelling Form is designed to provide basic coverage at a minimum cost. Therefore, losses are paid on an actual cash value, rather than the more expensive replacement cost basis. Of the Dwelling Policy forms, which one does not cover damage by burglars? A - Broad Form (DP-2) B - None of the Dwelling policies cover damage done by burglars C - Special Form (DP-3) D - Basic Form (DP-1) - ANSWERSD - Basic Form (DP-1) Damage by burglars is covered only by the DP-2 and DP-3. Which is true of the Dwelling Special Form? A - It will automatically cover the theft of contents B - It will cover the cracking of walls due to settling C - Losses to the dwelling are paid on an actual cash value basis D - Contents are covered on an actual cash value basis In a DP-3 policy, contents are covered at ACV for losses on a named peril (Broad Form) basis. Losses due to earth movement are excluded, and damage to the dwelling is covered on a replacement cost basis, not ACV. - ANSWERSD - Contents are covered on an actual cash value basis In a DP-3 policy, contents are covered at ACV for losses on a named peril (Broad Form) basis. Losses due to earth movement are excluded, and damage to the dwelling is covered on a replacement cost basis, not ACV. Which statement is correct concerning Dwelling policies? A - The Special Form automatically covers the contents against the peril of theft B - The Special Form insures the dwelling on an open perils basis, and insures the contents against the broad form perils C - 100% of Coverage C applies to worldwide coverage D - The Basic Form pays for losses to the dwelling on a replacement cost basis - ANSWERSB - The Special Form insures the dwelling on an open perils basis, and insures the contents against the broad form perils The Special Form insures the dwelling on an open perils basis, and insures the contents against the broad form perils. Theft is excluded. The Basic Form settles losses to the dwelling on an ACV basis. Up to 10% of the Coverage C limit may be applied to covered property anywhere in the world. Coverage E of the Dwelling Policy includes: A - Coverage for other structures on the described location B - Removal of debris of damaged covered property C - When the dwelling is owner occupied, the policy will pay additional living expenses incurred after a covered direct loss D - Coverage for property removed to a newly acquired principal residence - ANSWERSC - When the dwelling is owner occupied, the policy will pay additional living expenses incurred after a covered direct loss The additional living expenses incurred by the insured while the insured's home is uninhabitable because of a direct loss are an indirect loss, which is covered by Coverage E. Bailee - ANSWERSis a person or organization that has taken the property of another into their care, custody. or control for servicing repair, or storage. Bailor - ANSWERSthe person who retains the ownership of the property that has been taken into a bailee's care, custody, or control primary cause of loss is known as the... - ANSWERSproximate cause proximate cause - ANSWERSthe first event in the unbroken chain of events that resulted in loss Dwelling Coverages A B C D E - ANSWERSA - Dwelling B - Other Structures C - Personal Property D - Fair Rental Value E - Additional Living Expenses Dwelling Coverage Forms DP-1 DP-2 DP-3 - ANSWERSDP-1 Basic Form DP-2 Broad Form DP-3 Special Form DP-1 Basic Form - ANSWERSprovides basic insurance coverage to insure the dwelling, its contents, and other structures on the premises against 3 named perils: fire, lightening, and internal explosion DP-2 Broad Form - ANSWERScovers dwelling, contents, and other structures against named perils DP-3 Special Form - ANSWERSthe broadest coverage in the dwelling program All of the following statements about Coverage F of a Homeowners Policy are correct, except: A - Coverage applies to persons that are on the insured location with permission B - Payments apply to necessary medical expenses incurred within a maximum of 1 year C - Coverage does not apply to injuries of the named insured or any regular resident of the insured's household D - A covered accident must occur during the policy period - ANSWERSB - Payments apply to necessary medical expenses incurred within a maximum of 1 year Coverage F will pay for expenses incurred up to 3 years after the accident. Coverage C of an HO-3 provides all of the following coverages, except: A - Coverage for property of roomers and boarders B - Coverage for machinery used in maintenance of the premises C - A limit of liability equal to 50% of Coverage A D - A special limit of coverage on trailers not used with watercraft - ANSWERSA - Coverage for property of roomers and boarders The Homeowners policy specifically excludes property of roomers and boarders. Which of the following is true regarding the Special Form Homeowners Policy? A - Losses to the dwelling, other structures, and contents are paid for on a replacement cost basis B - Coverages for the dwelling and other structures are written on a Broad Form perils basis C - Coverage for contents is written on an open perils basis D - Coverages for the dwelling and other structures are written on an open perils basis - ANSWERSD - Coverages for the dwelling and other structures are written on an open perils basis The HO-3 (Special Form) provides the broadest coverage available on structures: open perils (or all-risk) coverage. Coverage C, for personal property, is written on a named perils basis, and personal property losses are paid for on an ACV basis. Coverage C of the HO-5 offers a special limit of coverage for which of the following types of property? A - Business property off the residence premises B - Personal property of tenants C - Small outdoor structures, like a treehouse D - Desktop computer - ANSWERSA - Business property off the residence premises Property used primarily for business purposes has special limits of insurance depending on whether the property is on- or off-premises. Coverage C would cover the computer, but a special limit would not apply. Personal property of roomers, boarders, and tenants not related to the insured is excluded from Coverage C coverage. Other structures are covered under Coverage B. All of the following are considered insured locations under a Homeowners Policy, except: A - Farmland that is owned by the named insured B - Premises where named insured maintains a residence C - A vacant lot that is owned by the named insured D - Premises where the named insured is temporarily residing - ANSWERSA - Farmland that is owned by the named insured Vacant land, other than farmland, is an insured location. The Contents Broad Form Homeowners Policy provides which of the following? A - Open perils coverage on an actual cash value basis B - Named perils on a replacement cost basis C - Named perils on an actual cash value basis D - Open perils coverage on a replacement cost basis - ANSWERSC - Named perils on an actual cash value basis The HO-4 provides Broad Form named perils coverage on an actual cash value basis. Replacement cost coverage is available by endorsement, for an additional premium. In order to cover losses due to earthquake, a homeowner must do which of the following? A - Purchase a risk retention policy in the nonstandard market that specifically includes earthquake as a covered peril B - Purchase an earthquake policy issued by the California Earthquake Authority or through their Homeowners insurance company C - Insure the property for a minimum of 200% of replacement cost D - Have the property retrofitted to meet uniform building code standards - ANSWERSB - Purchase an earthquake policy issued by the California Earthquake Authority or through their Homeowners insurance company Earthquake is an excluded peril under a standard Homeowner's Policy, so coverage must be provided through an endorsement, a separate policy written by a Homeowners insurer, or a separate policy written by the California Earthquake Authority and attached to a companion policy. Retrofitting will result in a discounted premium on a CEA policy, but it is not required. Homes eligible for coverage under an HO-3 must: A - Have more than 4 residential units B - Be less than 30 years old C - Be the principal residence of the insured, who is an owner-occupant D - Have no business occupancies in the dwelling - ANSWERSC - Be the principal residence of the insured, who is an owner-occupant The underlying concept of the Homeowners Policy is that owner-occupied property has, in most cases, better care and maintenance than tenant-occupied property, and is therefore eligible for package insurance and discounted rates. The HO-2, HO-3, HO-5, and HO-8 are for owner-occupants. The HO-4 and HO-6 provide more limited coverage for tenants of rental units and condominium unit-owners, respectively. Incidental business occupancies are allowed in the dwelling, and eligible dwellings may only have up to 4 residential units. Which of the following endorsements to the Homeowners Policy adds coverage for injury resulting from libel, slander, false arrest, defamation, invasion of privacy and other such offenses that could result in a personal liability suit? A - Business Pursuits Endorsement B - Additional Residence Rented to Others Endorsement C - Permitted Incidental Occupancies Endorsement D - Personal Injury Endorsement - ANSWERSD - Personal Injury Endorsement The Personal Injury Endorsement provides coverage for injuries to others that are not physical injuries. A manufactured home must have all of the following qualities, except: A - Built in a factory B - On-site assembly on a permanent foundation C - Serial number and HUD tag D - Transportability - ANSWERSB - On-site assembly on a permanent foundation A manufactured home is built in a factory on a sturdy frame, delivered to its destination, and can sit on non-permanent foundations. A modular home, however, is built in parts, then assembled on-site on a permanent foundation. Manufactured homes can be covered by Mobile Home insurance or a Mobile Home Endorsement on a Homeowners Policy. Transportation Expenses Coverage under Part D of the Personal Auto Policy begins how long after the covered auto has been stolen? A - Immediately B - 72 hours C - 48 hours D - 24 hours - ANSWERSC - 48 hours Transportation Expenses Coverage pays $20 per day, up to $600, for transportation expenses incurred due to total theft of the covered auto. Coverage begins 48 hours after the theft. If a newly acquired auto is being added to a Personal Auto Policy, which statement is incorrect? A - It is covered as soon as the insured has insurable interest B - The insurer must be notified immediately C - Coverage is as broad as the broadest coverage for any vehicle now insured by the insurer, except for Part D D - It may be a pickup truck with a gross vehicle weight of up to 10,000 lbs - ANSWERSB - The insurer must be notified immediately Other than Part D, the broadest coverage applicable to an auto already on the policy will apply to the newly acquired auto from the date of ownership without having to notify the insurer. If Part D applies to an auto already and the insured wants the same Part D coverage to apply to the newly acquired vehicle, it must be reported to the insurer within 14 days in order to be covered by Part D from the date of acquisition. If Part D does not apply to an auto already on the policy, or if the insured wants a different Part D coverage to apply only to the new auto, it must be reported within 4 days. In no case must the insurer be notified immediately of a newly acquired auto. Auto physical damage coverage is normally written: A - On a single limit basis B - On an actual cash value basis C - On a stated amount basis D - On a valued basis - ANSWERSB - On an actual cash value basis Collision coverage pays claims on an Actual Cash Value (replacement cost minus depreciation) basis. If damage exceeds about 75% of the vehicle's pre-loss ACV, the vehicle will usually be declared a total loss by the insurer. In the Personal Auto Policy, the definition of family member includes: A - Any person using the insured automobile with the named insured's permission B - Persons related to the named insured who have frequent use of the insured automobile C - A member of the named insured's immediate family, regardless of place of residence D - A person related by blood, marriage or adoption who is a resident of a household (including a foster child) - ANSWERSA - Any person using the insured automobile with the named insured's permission Persons who qualify as a family member must reside in the household Under Uninsured Motorist Coverage of the Personal Auto Policy, which of the following defines insured? A - The operator of an uninsured motor vehicle involved in an accident with the insured B - The owner of an uninsured motor vehicle involved in an accident with the insured C - The named insured, a family member, or any other person occupying an uninsured auto D - The named insured, a family member, or any other person occupying the insured auto - ANSWERSD - The named insured, a family member, or any other person occupying the insured auto Uninsured Motorists Coverage, in effect, acts as the Automobile Liability coverage for an uninsured vehicle involved in an accident with an automobile occupied by the insured or a family member. However, it provides no protection for the owner or operator of the uninsured auto. M and C both have Personal Auto policies. If M borrows C's car and runs over a pedestrian, which policy will provide bodily injury coverage for the injured party? A - Neither; bodily injury is for occupants only B - C's policy C - M's policy D - They will prorate the expenses - ANSWERSB - C's policy Personal insurance follows the item insured, in this case, the vehicle. C's coverage is primary; M's coverage would apply on an excess basis if the total claims exceeded C's liability limits. The Named Non-owner Coverage Endorsement on a Personal Auto Policy would be ideal for whom? A - A person who owns a vehicle and allows a neighbor to use it on a long-term basis B - A business that owns a fleet of vehicles it allows its employees to drive on company or personal business C - A person who does not own a vehicle but frequently drives a borrowed or rented auto D - An unlicensed driver who owns a vehicle - ANSWERSC - A person who does not own a vehicle but frequently drives a borrowed or rented auto In order to satisfy state financial responsibility laws, a person who frequently drives borrowed or rented autos could have a named non-owner auto policy. When an auto has coverage under two or more auto policies (or under more than one part of a single policy) with the same insurer, the insurer's liability would be: A - The highest limit of the two B - The limit of the last one purchased C - The combined limit of the two D - The limit of the first one purchased - ANSWERSA - The highest limit of the two Coverage will not be duplicated, so the policy (or coverage part) with the highest limit applies. California law prohibits stacking liability coverage under multiple policies from the same insurer, but this is not the same in all states. When California primary coverage is provided by multiple insurers, claims are prorated among the available policies. A Personal Auto Policy may be cancelled by the insurer due to suspension of the named insured's driver's license if notice is provided to the named insured at least how many days before the effective cancellation date? A - 30 days B - 14 days C - 10 days D - 20 days - ANSWERSD - 20 days Cancellation by the insurer due to nonpayment of premium requires 10 days' notice, and cancellation for any other acceptable reason requires 20 days' notice. When a consumer in California applies for low-cost auto insurance through the CAARP, all of the following regulations apply, except: A - Policies are issued for 1 year B - Applicants must provide proof of financial eligibility C - An insured may not have a low-cost policy on one vehicle in the household and a standard market auto policy on another vehicle in the household D - The annual premium must be paid at one time at the beginning of the policy period - ANSWERSD - The annual premium must be paid at one time at the beginning of the policy period Premiums for low-cost auto liability policies may be paid on a Commissioner-approved payment plan, such as 20% up front and 7 payments after. The purpose of the California FAIR Plan includes all of the following responsibilities, except: A - Minimize use of the standard insurance market B - Provide basic property insurance when it cannot be obtained elsewhere C - Assure stability of the insurance market for property located in California D - Equitably distribute FAIR Plan policies among property insurers - ANSWERSA - Minimize use of the standard insurance market One of the goals of the FAIR Plan is to maximize use of the standard market, which is why the California FAIR Plan Association established a clearinghouse program to place policies back with standard market insurers. The FAIR Plan's other responsibilities include providing basic property insurance when it cannot be obtained through the standard market, assuring the stability of the property insurance market in California, and distributing FAIR Plan policies to California property insurers based on their pro rata share of the market. Personal Inland Marine insurance is used to do which of the following? A - Insure moveable property against direct loss B - Cover all personal property normally found in a home or residence C - Insure personal property being shipped on inland waters D - Insure personal property being shipped by ocean-going vessels - ANSWERSA - Insure moveable property against direct loss Personal Inland Marine Insurance is designed to cover personal property that moves about such as clothing, jewelry, cameras, furs, sporting equipment, etc., as contrasted to personal furniture, appliances and items that remain in the home. When an insured obtains a Flood Policy through the NFIP, all of the following apply, except: A - The federal government will subsidize all flood losses B - The policy covers direct loss from mudslides caused by the accumulation of water C - The policy covers direct loss from overflow of inland or tidal waters D - There is no deductible - ANSWERSA separate deductible applies to losses to the building and losses to personal property. The standard minimum deductible is $1,000 per occurrence. The Personal Articles Floater is similar to which of the following endorsements? A - The Special Personal Property Endorsement B - The Personal Property - Replacement Cost Endorsement C - The Scheduled Personal Property Endorsement D - The Guaranteed Replacement Cost Endorsement - ANSWERSC - The Scheduled Personal Property Endorsement The PAF and the Scheduled Personal Property Endorsement to the Homeowners Policy are nearly identical. Some companies do not write the endorsement. As provided by the California FAIR Plan, basic property insurance covers real or tangible property from direct loss from all of the following perils, except: A - Windstorm or hail B - Fire or lightning C - VMM D - Theft - ANSWERSD - Theft Basic property insurance does not include coverage for loss by theft. Coverage for theft and other perils not included with basic property insurance can be provided by a Difference in Conditions Policy. Which statement is not true about FAIR Plans? A - They must accept all submitted risks B - Their purpose is to provide property insurance in high-risk areas C - They are state-supervised plans run by the insurance industry D - The perils covered are generally limited to fire, lightning, and extended coverage - ANSWERSA - They must accept all submitted risks FAIR Plans can reject unacceptable risks. Which of the following statements regarding the National Flood Insurance Program is correct? A - Communities in flood-prone areas must have established an approved flood control program in order to participate in the NFIP B - Flood insurance is only available directly from the National Flood Insurance Program C - The NFIP provides all flood insurance on both fixed property and moveable property D - NFIP coverage on residential property supplements the flood coverage contained in the Homeowners Policy - ANSWERSA - Communities in flood-prone areas must have established an approved flood control program in order to participate in the NFIP In order to qualify for coverage in the National Flood Insurance Program, communities must enact floodplain control ordinances and regulate construction in the floodplain. Flood policies are available through the NFIP or through private insurers participating in the Write Your Own program. H lives in a single-family dwelling, insured for flood risks on an NFIP Policy. If H's community has already completed the process to adopt flood control measures, what are the maximum coverage limits H's policy could have on the dwelling and contents? A - $35,000 for dwelling, $35,000 for contents B - $100,000 for dwelling, $10,000 for contents C - $35,000 for dwelling, $10,000 for contents D - $250,000 for dwelling, $100,000 for contents - ANSWERSD - $250,000 for dwelling, $100,000 for contents Under the Regular Program, 1- to 4-family dwellings have a maximum coverage of $250,000 for the building and $100,000 for the contents. When the coverage in a Personal Umbrella Policy is broader than the underlying policy, the umbrella will drop down and cover the entire loss, less a ________. A - Retention B - Penalty C - Deductible D - Copayment - ANSWERSA - Retention The retention amount is essentially the same as a deductible and is the amount not paid by the insurer. An Excess Liability Policy and a Personal Umbrella Policy are different in that: A - Only a Personal Umbrella Policy requires the insured to have and maintain certain underlying primary insurance limits B - Only a Personal Umbrella Policy provides first-dollar coverage when the underlying primary policy does not provide coverage C - Only an Excess Liability Policy drops down to cover a loss not covered by the underlying policy D - Only an Excess Liability Policy has a self-insured retention - ANSWERSB - Only a Personal Umbrella Policy provides first-dollar coverage when the underlying primary policy does not provide coverage A Personal Umbrella Policy will drop down to provide first-dollar coverage when the underlying primary policy does not provide coverage, after the insured pays a self-insured retention. An Excess Liability Policy will not provide this first-dollar coverage and only provides excess coverage over the limits of liability included in an underlying policy. Both policies require the maintenance of certain underlying primary insurance limits. Which of the following is stated by the Examinations of Your Books and Records Condition of a Commercial Package Policy? A - The insurer may examine the insured's books and records only during the policy period B - The insurer may examine the books at any time during the policy period and up to 3 years afterward C - The insurer may examine the insured's books only upon permission by the insured D - Insurer may examine the insured's books and records at any time during the policy period and for up to 1 year immediately following policy expiration - ANSWERSB - The insurer may examine the books at any time during the policy period and up to 3 years afterward The insurer may examine books and records for up to 3 years after the policy expires. Under the Basic Cause of Loss Form, vacancy is allowed for how many days before the peril of vandalism coverage is suspended? A - 60 B - 30 C - 90 D - 120 - ANSWERSA - 60 The risk of loss by vandalism increases greatly in vacant property. Therefore, insurance policies suspend coverage for vandalism losses after 60 days of vacancy, unless special arrangements are made with the company. When the Extended Period of Indemnity Endorsement is added to the Commercial Property Coverage Part, the endorsement extends coverage for which of the following? A - Business interruption after the damaged property has been repaired B - Extra expenses incurred during the period of restoration C - Business income, extra expense, and business interruption expenses incurred within a specified period after the policy expires D - Business income by removing the 72-hour waiting period before the period of restoration begins - ANSWERSA - Business interruption after the damaged property has been repaired The Extended Period of Indemnity Endorsement extends coverage for business interruption after the damaged property has been repaired, for a specified number of days after the period of restoration ends. This accounts for the time it takes businesses to recover customers they lost due to the suspension of operations. Which statement is false regarding the Building and Personal Property Coverage Form? A - The standard deductible is $100 B - If either the insurer or the insured submits a written demand for appraisal, each will choose and pay for their own appraiser C - The limit of insurance shown on the Declarations page applies per occurrence D - Coverage does not apply to money or securities - ANSWERSA - The standard deductible is $100 The standard deductible is $250. Coverage for the building described in the Declarations of the Building and Personal Property Coverage Form does not include which of the following? A - Automobiles held for sale B - Outdoor fixtures C - Completed additions and permanently installed machinery and equipment D - Materials and supplies for repairs in progress, either in or within 100 feet of the premises - ANSWERSA - Automobiles held for sale Merchandise held for sale is usually covered under Business Personal Property, but automobiles held for sale are considered property not covered. Which of the following is true regarding the Basic Form Causes of Loss? A - Smoke damage from industrial operations is covered B - Steam boiler explosion is a covered peril C - Smoke damage from agricultural smudging is not covered D - Vandalism covers glass parts of a building or sign - ANSWERSC - Smoke damage from agricultural smudging is not covered As with vandalism, the hazard of glass breakage and water damage is substantially increased in vacant property. All of the following statements about the Causes of Loss forms applying to the Commercial Property Coverage Part are correct, except: A - Under the Broad Causes of Loss Form, after 60 days of vacancy, water damage coverage is suspended B - The Broad Causes of Loss Form includes damage from ice, snow, or sleet C - Rain damage to the interior after windows are broken by large hail is covered by either the Basic, Broad, or Special Causes of Loss Form D - Earthquake Causes of Loss Form does not need to have another Causes of Loss form accompany it - ANSWERSD - Earthquake Causes of Loss Form does not need to have another Causes of Loss form accompany it Another Causes of Loss Form must accompany the Earthquake Causes of Loss Form because this form is only intended to add coverage for the Earthquake peril to another form. The premium amount, or the method of determination if the premium can only be calculated at the end of the policy period, for a CPP is located in the: A - Consideration Part B - Common Policy Declarations C - Statement of Coverage Part D - Common Policy Conditions - ANSWERSB - Common Policy Declarations The statement of premiums or their method of determination is contained in the Declarations, also known as the Cover Page. The premium will usually be listed for each included coverage part and as a total premium for the full package policy. The Fire Department Service Charge is covered by the Building and Personal Property Coverage Form up to what limit? A - $100,000 B - $500 C - $10,000 D - $1,000 - ANSWERSD - $1,000 This Additional Coverage provides, as an additional amount of insurance, up to $1,000 for payment of a fire department service charge when the department is called to protect insured property. No deductible applies to this Additional Coverage. When someone, who owns and operates a business and has a Business Income Coverage Form along with a Commercial Property Coverage Form, experiences a large fire that requires several weeks of down time due to rebuilding, the Business Income Coverage Form will pay for: A - Property that is spoiled because of loss of utility service B - Gross income, less taxes C - Property that is not covered under the Building and Personal Property Coverage Form D - Net income plus continuing expenses of the business - ANSWERSD - Net income plus continuing expenses of the business The formula of net income plus continuing expenses is intended to restore the insured as nearly as possible to their income status before the loss. Which of the following coverage forms covers those that sell liquor by the drink? A - Products Liability B - Contractual Liability C - Dram Shop Liability Coverage D - Liquor Liability - ANSWERSC - Dram Shop Liability Coverage Dram shop liability laws hold alcohol servers responsible for harm that intoxicated or underage patrons cause to other people. An insured is held liable for false arrest and is obligated to pay damages. These sums will be covered by the insured's CGL under: A - Coverage A of Section I B - Coverage B of Section I C - Section II D - Section III - ANSWERSB - Coverage B of Section I False arrest, detention, or imprisonment is considered a personal injury, so the CGL would cover the costs the insured becomes obligated to pay under Coverage B - Personal and Advertising Injury Liability, which is in Section I. Coverage A is Bodily Injury and Property Damage Liability. Which of the following is provided by Coverage C of the CGL? A - Personal Injury B - Medical Expenses C - Bodily Injury D - Property Damage - ANSWERSB - Medical Expenses Coverage C of the CGL provides coverage for Medical Expenses. Which of the following is included under Coverage C - Medical Expense of the Commercial General Liability policy? A - Bodily injury of any customer B - Bodily injury to a person hired to do work C - Bodily injury to any insured D - Bodily injury to any person on that part of the premises that the insured owns or rents and that the person normally occupies - ANSWERSA - Bodily injury of any customer Medical Payments would cover customers, but not persons hired to work, occupying the premises, or considered an insured. The optional extended reporting period of unlimited duration that may be purchased by endorsement to a Claims-Made Form is called: A - Mini tail B - Midi tail C - Basic Extended Reporting Period D - Maxi tail - ANSWERSD - Maxi tail The SERP is an optional reporting period of unlimited duration that may be purchased by endorsement if requested within 60 days of the end of the policy term. The unlimited duration of the tail of this reporting period is also known as a maxi tail. Which of the following is true concerning medical payments as they relate to Products Liability Coverage? A - Medical payments to others is not included because the coverage of Products Liability does not commence until care, custody and control of the product has been relinquished to the purchaser B - They are made regardless of fault C - All medical expenses incurred within one year of the date of the accident are covered D - Payment of medical expenses under Medical Payments is not an admission of fault - ANSWERSA - Medical payments to others is not included because the coverage of Products Liability does not commence until care, custody and control of the product has been relinquished to the purchaser Medical Payments coverage is specifically designed to cover accidents arising out of the premises or business operations. Since Products Liability applies only to bodily injury and property damage occurring away from the insured's premises, Medical Payments do not apply to Products Liability. A customer in a housewares store is cut while handling a broken piece of glassware. Which type of liability would apply? A - Completed Operations B - Premises C - Operations D - Products - ANSWERSB - Premises Because the product was still under the insured's care, custody, and control, Premises liability, not Product liability, would apply. Advertising injury coverage provided by the CGL does not include which of the following? A - An incorrect price quote B - Misappropriation of advertising ideas or style of doing business C - Violation of copyright D - Defamation of another company in an online advertisement for the insured's business - ANSWERSA - An incorrect price quote Advertising injury arises out of slander, libel, copyright infringement, or misappropriation of advertising ideas. All of the following are insured under the CGL, except: A - A stockholder B - A volunteer worker acting on behalf of the insured C - A person participating in an athletic event D - A partner - ANSWERSC - A person participating in an athletic event Section II of the CGL includes volunteer workers, partners, and stockholders as insureds, as well as individuals named in the Declarations, employees, people acting as the insured's real estate manager, and those with temporary custody of the insured's property if the insured dies. Others who are not part of the business, such as people participating in athletic events or tenants, are not considered an insured. The Business Auto Coverage Form is used: A - For owned, leased, hired, or borrowed private passenger autos, trucks, trailers, and semitrailers that are used by businesses B - For only owned, leased, or hired trucks, trailers, and semitrailers that are used by businesses C - For only owned, leased, hired, or borrowed private passenger autos that are used by businesses D - For only owned, leased, hired, or borrowed trucks, trailers, and semitrailers that are used by businesses - ANSWERSA - For owned, leased, hired, or borrowed private passenger autos, trucks, trailers, and semitrailers that are used by businesses The Business Auto Coverage Form is used for insuring owned, leased, hired, or borrowed private passenger autos, trucks, trailers, and semitrailers used in the business of the insured. A BAP covering only Hired Autos would include which Symbol? A - Symbol 6 B - Symbol 8 C - Symbol 2 D - Symbol 4 - ANSWERSB - Symbol 8 Symbol 8 covers Hired Autos. The endorsement that provides evidence of a motor carrier's financial responsibility is called: A - Form MCS-90 B - Trailer Interchange C - Motor Carrier Act of 1980 D - Drive Other Car - ANSWERSA - Form MCS-90 The Endorsement for Motor Carrier Policies of Insurance for Public Liability (Form MCS-90) provides evidence of financial responsibility, on behalf of the motor carrier, to the Interstate Commerce Commission (ICC). The endorsement must be included in any policy, and the policy must meet the DOT financial responsibility requirements. Transportation expenses begin how many hours after the theft of the vehicle? A - 12 B - 48 C - 0 D - 24 - ANSWERSB - 48 Transportation expenses begin 48 hours after the theft of the vehicle. Which of the following would be considered a non-owned auto by the Business Auto Policy? A - An auto not used in the insured's business B - An auto owned by the insured's employee while being used in the insured's business or personal affairs C - An auto borrowed by the insured D - An auto leased or hired by the insured - ANSWERSB - An auto owned by the insured's employee while being used in the insured's business or personal affairs Symbol 9 - Non-owned Autos Only coverage provides coverage for only those autos the insured does not own, lease, hire, rent, or borrow that are used in connection with the insured's business. This includes autos owned by the employees or members of their household. The Business Auto Coverage Form would not cover: A - An employee using the employee's personal private passenger auto in insured's business B - Private Passenger automobiles owned by the insured and used in the insured's business C - Tractor-trailer units used in the insured's business D - The insured for an employee's use of the employee's personal auto in the insured's business - ANSWERSA - An employee using the employee's personal private passenger auto in insured's business Although the Non-owned Autos Only coverage covers the insured for the use of employee's cars in the insured's business, it does not cover the employee. All of the following are basic sections provided in the Garage Coverage Form, except: A - Liability Insurance B - Garagekeepers Insurance C - Comprehensive Insurance D - Physical Damage Insurance - ANSWERSC - Comprehensive Insurance Comprehensive coverage is part of the Physical Damage coverage. Which Business Auto Symbol provides the broadest coverage? A - 3 B - 2 C - 9 D - 1 - ANSWERSD - 1 Symbol 1 includes any auto, whether owned or not by the insured if it is used in the insured's business. The other choices refer only to owned autos only (2 and 3) or non-owned autos only (9). Non-owned autos includes those owned by employees and used for the benefit of the insured's business. The four major liability coverages provided by Section II of the Garage Policy include all of the following, except: A - Products liability B - Auto liability C - Personal and advertising injury liability D - Premises and Operations liability - ANSWERSC - Personal and advertising injury liability The four major liability coverages include Premises and Operations liability, Products liability, Completed Operations liability, and Auto liability. Personal and advertising injury liability must be added by endorsement in order to be covered. For which of the following persons is the Drive Other Car endorsement intended? A - Individuals who do not own an auto B - Truckers and motor carriers C - The officers and directors of a corporation D - Owners of school buses - ANSWERSA - Individuals who do not own an auto The Drive Other Car endorsement may be added to any of the business auto coverage forms and is designed for individuals who do not personally own and insure an auto. Which of the following describes the implied warranty, Seaworthiness? A - The ship has a full complement of emergency navigation equipment B - The crewmembers are all certified C - The ship must have undergone a comprehensive inspection by the insurer D - The ship must be seaworthy and have a competent crew - ANSWERSD - The ship must be seaworthy and have a competent crew Of course, seaworthiness is of critical importance to the marine underwriter and violation of the implied warranty of Seaworthiness will void the marine insurance. A commercial