CPCU 530 Practice Exam | Verified with 100% Correct Answers

CPCU 530 Practice Exam | Verified with 100% Correct Answers Miguel seeks to insure his personal auto to comply with state regulations. He contacts an insurance agent who provides Miguel with a personal auto policy with Atlas Motorist Insurance Company ("Atlas"). Which one of the following best describes the contractual relationship between Miguel and Atlas? An express contract Maria owns a commercial building and places insurance with Bastion Insurance. Because the annual premium is high, and cash is tight, Maria decides to enter into a premium finance agreement with Finance Co. ("Finance"). Under the premium finance agreement, Finance pays Bastion the full annual premium and Maria pays Finance a monthly amount for the premium, a fee and interest. At the midpoint of the policy year, which one of the following best describes Maria's premium finance agreement with Finance? A bilateral contract Daniel offers a ride to Lily, a ten-year-old, and takes her to his house where he locks her in his cellar and demands money from Lily's parents to secure her return. The parents agree to pay and Lily is returned, but Daniel never receives the money. He sues Lily's parents for breach of contract. Which one of the following explains why Daniel's contract with Lily's parents is not legally binding? It lacks a legal purpose. Tool Corporation has operated successfully for decades, but in recent years stiff price competition from overseas suppliers and a lack of skilled labor at affordable prices have made the company unprofitable. Tool Company has incurred substantial debt to keep the operation running and save jobs, but they can no longer access bank financing. Tool Company believes that it can return to profitability if it reorganizes. Under which chapter of the bankruptcy code should Tool Corporation file? Chapter 11 Located in a small midwestern town, Bin's Deli hires youthful workers and pays hourly wages. None of their employees are members of a protected class. Which one of the following legal concepts permits Bin's Deli to release any of its employees at any time for any reason, or no reason? Employment at will Fernanda runs a warehouse in New Jersey. The business is successful because it has major highway access and is close to major consumer markets. Manufacturers from around the country store goods bound for Northeastern customers at Fernanda's warehouse. Given the large amount of goods stored by others in her warehouse, Fernanda is concerned about her exposure if something happens to the warehouse or the goods, so she seek advice from a lawyer about how to limit her exposure to loss. Which one of the following best describes Fernanda's options in addressing this liability? UCC Article 7 permits Fernanda to limit her liability through terms in the warehouse receipt. In February, Ann contracts with Mahdi to deliver clean garden top soil for $30 a cubic yard to Mahdi's farm in Pennsylvania. No time for delivery is stated in their contract but the parties understand that Mahdi wants to use the soil for this year's planting season. In March, Ann delivers garden soil that is contaminated and Mahdi refuses to pay because he believes Ann breached their agreement. Which one of the following best describes how a court would rule on Mahdi's claim that Ann breached their agreement? The court would find for Mahdi because Ann's goods are non-conforming. Diego and Georgia meet in a bar and enjoy cocktails together. Diego has many more drinks than Georgia and is stumbling and slurring his speech. Sensing an opportunity, Georgia proposes that Diego sell her his expensive Swiss wristwatch for a mere $100 and Diego agrees. The next day, Georgia appears at Diego's office with $100 asking for the wristwatch. Which one of the following arguments is best for Diego to avoid the contract? Diego lacked capacity to enter into a contract because he was inebriated. Erin has worked full-time for the last five years as a librarian for a law firm with 100 attorneys located in a large downtown office building. Erin and her husband are happy to announce that Erin is expecting a baby in six months. She inquires with the law firm's human resources department about her rights for parental leave under the Family Medical Leave Act (FMLA). Which one of the following best describes what the law firm must offer Erin under the FMLA? The law firm must offer Erin up to 12 weeks of unpaid leave in a 12-month period, with no loss of accrued employment benefits. Tile Roofing is a contractor specializing in roof installation for homes and commercial accounts. Recently several Tile Roofing workers have fallen and suffered significant injuries because the workers do not have any safety harnesses preventing falls. Under which one of the following employee welfare laws would Tile Roofing potentially be subject to civil or criminal penalties? Occupational Safety and Health Act Mustafa met with his insurance agent Lucy to obtain a businessowners policy. Lucy helped Mustafa complete an application and sent the signed application along with Mustafa's premium check to Delmond Insurance Co. Delmond never responded to Mustafa. Ninety days later, Mustafa had a loss to his business that would have been covered by the Delmond policy. If Mustafa files suit against Delmond to receive compensation for his loss, Mustafa will win, if Delmond's s delay on his application was unreasonable. Larissa has a property policy covering her auto repair shop. The shop is totally destroyed by a fire. The process of determining whether and to what extent this specific loss is covered under Larissa's property policy is known as Policy analysis. Which one of the following statements distinguishes estoppel from waiver? Waiver is contractual in nature and rests upon agreement between parties. With a contract of indemnity, the insurer agrees, in the event of a covered loss, to pay An amount directly related to the amount of loss. Which one of the following statements is true regarding warranties? Warranties may be either material or immaterial and are part of the final contract. If an insurance producer tells an insured that the insured's policy covers something that it does not, the producer might be liable For misrepresentation. Cintriell Insurance issued a commercial property insurance policy to Oscar. Cintriell's insurance application asked applicants to rate the condition of their buildings and Oscar stated that his building was in "good" condition. The Cintriell application did not explicitly label the insured's building rating as a warranty and the application did not state that it is considered part of the insurance policy. If a dispute arose, a court would most likely view Oscar's statement about the condition of his building as a Representation, because it is not clear that the parties intended it to be a warranty and the statement was not incorporated into the policy. Magnus, an agent for Insurance Company, received a call from Carla about orally binding coverage on her home at closing which was today. To be effective an agreement to insure must have, whether oral or written, which one of the following components? The object or premises if any to be insured Which one of the following reinforces the principle of indemnity? Subrogation Cian purchased a house with money loaned to him by Keithly Mortgage Co. (KMC). Cian obtained a homeowner policy from Melfor Insurance—containing a standard mortgage clause—which covered the house for damage due to windstorm. A windstorm destroyed Cian's house three years later. Which one of the following correctly states who is entitled to the proceeds payable under Cian's homeowner policy? KMC, as its interests appear. Aaron had recently purchased a home. He called an insurance agent to secure a policy. Aaron told the agent that he needed immediate homeowners coverage for $345,000. The agent told Aaron that his home was covered. Under these circumstances, is Aaron covered? Yes, there is coverage because the agent's oral agreement is binding. Anna had an auto insurance policy written by Hallbinger Insurance Co. Anna had an accident with Beatrice. Beatrice sued Anna and was awarded $100,000 by a jury and the verdict was entered as a judgment against Anna. Beatrice demanded that Hallbinger pay this judgment. Hallbinger refused and Beatrice sued Hallbinger. Hallbinger moved to dismiss the lawsuit, claiming that Beatrice had no right to sue Hallbinger. Which one of the following correctly states how the court will rule on Hallbinger's motion? The motion will be denied and the suit against Hallbinger will continue if the state allows garnishment actions. Which one of the following special characteristics of insurance contracts reflects the idea that insurance companies should be able to select persons who will be insured by them? Nontransferable contract Linnea has a liability policy covering her auto repair shop. Someone slips and falls on the premises. One policy analysis question to ask to make a determination of whether the slip and fall claim is covered under Linnea's liability insurance policy is Does an exclusion apply? Tobias applied for business insurance with Gulford Insurance. Gulford's application asked if Tobias had been refused insurance previously and he replied he had not. In fact, he was refused by Argot Insurance five years ago due to poor credit history. Gulford issued the policy to Tobias. Tobias lived in a state with a contribute-to-loss statute. If Gulford ultimately discovers Tobias' incorrect statement about prior refusal of insurance, it should Do nothing—Tobias' misrepresentation could not contribute to destruction of the property. Which one of the following is the result of an insurer's waiver, estoppel, or election? The insurer is prevented from reviving a defense it forfeited earlier. Which one of the following would most likely be recognized by a court as something that an insurer could properly waive? Policy notice of loss requirements Samuel applied for auto insurance with Barnley Insurance. The application asked Samuel to estimate his annual mileage. He drove 10,000 miles last year, and believing that he would do the same next year he placed this mileage on the application. Barnley issued an auto policy, but Samuel ended up driving 15,000 miles. Samuel's mileage estimate will result in Barnley Taking no action because Samuel gave an opinion and had no fraudulent intent. Martin visited his insurance agent Laura to discuss his insurance needs. Laura recommended that Martin purchase a businessowners policy and Martin agreed with Laura's recommendation. Laura helped Martin complete an insurance application and she sent the completed and signed application to Blythe Insurance Co., along with Martin's premium payment check. Blithe cashed Martin's check, issued the policy, and mailed the policy to Martin. Blythe's actions were An acceptance. Hanna is insured under a life insurance policy written by Cromley Insurance, with a two-year contestable period. Hanna made a material misrepresentation about her health in her insurance application. Hanna died five years after Cromley issued the policy to her. Which one of the following statements correctly describes how Cromley should handle a claim under Hanna's life insurance policy submitted by Hanna's survivors? Pay the claim because more than two years have passed without contest An insurance contract is often said to be a contract of adhesion. Which one of the following is the basis of this characteristic of insurance contracts? The insurer writes the insurance policy so the insured must "take or leave" the policy. Katie met with her insurance agent Luke to discuss Katie's insurance needs. Luke recommended that Katie purchase a renter's policy and Katie agreed with Luke's recommendation. Luke helped Katie complete a renter's insurance application, Katie signed the application, and Luke sent the application to the Argot Insurance Company. The submission of the application to Argot was An offer. Noncompliance with a warranty concerning one type of covered property will not defeat coverage for another type of property to which the warranty does not relate, because courts generally interpret insurance policies as Severable. Delmond Insurance is a large life insurance company. It is required by state law to include an incontestable clause in all life insurance policies. Delmond publicly advocated changing state law so that it can remove this clause from its policies. Which one of the following is Delmond's best argument for repealing the state law requiring inclusion of the incontestable clause in all life insurance policies? The clause is inconsistent with the maxim that fraud vitiates consent. 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? It was neither a warranty nor a misrepresentation. Which one of the following statements correctly describes how courts treat insurance policy provisions that require all waivers to be in writing? They generally do not enforce them. Kenta has a liability insurance policy that has multiple types of provisions. Which one of the following statements best illustrates a policy condition in Kenta's policy? You must notify the insurer promptly if a claim has been made against you. Under Ella's will, Fatima received a life estate in a house located at 1 Salem Street and Harry received a remainder interest in the property. Fatima lived in the house but did not obtain property insurance. The house was destroyed in a windstorm. Harry sued Fatima for failing to have obtained adequate insurance on the property. The court will decide this lawsuit in favor of Fatima, because she was not obligated to obtain insurance. 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? Mehmet has homeowners insurance, as provided by the binder. Which one of the following statements correctly expresses a distinction between waiver and estoppel? Estoppel requires resulting injury or detriment by the party asserting it. Shota submitted an auto insurance application to Cromley Insurance. The application asked if anyone lived with Shota and Shota answered "no." In fact, two other people lived with Shota, each with poor driving records. Cromley issued a policy to Shota, which it would not have done had it known about the other residents. Which one of the following statements about Shota's application for auto insurance is true? Shota made a material misrepresentation, which would allow Cromley to avoid his policy. Insurance agent Benjamin has previously placed business with Etchley Insurance Company for Magnus. Benjamin has also issued oral agreements for coverage for Etchley's Insurance Company on auto policies for Magnus. Benjamin has recently issued an oral binder for Magnus and has made a note on his calendar to place business with Etchley Insurance Company for Magnus. If a loss occurred for Magnus before Benjamin contacted Etchley, what would be the outcome for Benjamin's coverage with Etchley? Etchley Insurance Company would provide coverage since Benjamin had placed previous business with Etchley for Magnus. Juanita paid in advance for her six-month automobile policy but sold her vehicle to Peter after three months. As a part of the sale agreement, Juanita gave Peter the remaining three months of the insurance policy on the vehicle. Which one of the following statements is true regarding the validity of the insurance policy transfer? It is invalid because insurance policies generally cannot be transferred. Which one of the following is an element that must be present for a reservation of rights notice to be effective? The notice must inform the insured fairly of the insurer's position. Sue has submitted a claim to her insurer for fire damage to a building insured under a property policy. Which one of the following questions must be answered in the affirmative to determine whether any coverage applies? Was the loss caused by a covered peril? Logan has a fully paid insurance policy that covers liability and physical damage for his vehicle. Logan lends this vehicle to a neighbor who has an accident and is found legally liable. There were injuries to the not-at-fault driver and damage to that vehicle as well. In this case, which one of the following is considered to be third-party to the automobile insurance policy? Only the accident victim Which one of the following special characteristics of insurance contracts may result in a court interpreting ambiguous insurance contract provisions in favor of the insured? Contract of adhesion Certain elements must be present for a reservation of rights notice or nonwaiver agreement to be effective. Which one of the following is one of these elements? Must communicate the notice by letter to the insured in a timely manner Sho submitted a business insurance application to Blithe Insurance. Sho answered all application questions correctly. Blithe issued the policy. After Sho sustained a covered loss, Blithe realized that there were a number of things about Sho's business that would have caused it not to issue the policy. Based on this, Blithe Cannot deny coverage because Sho's answers were correct and he made no misrepresentation. Oliver contacted his insurance agent Maria about homeowners insurance. Oliver said: "I want homeowners insurance." Maria responded: "You got it." Which one of the following is the best statement of why no agreement to provide insurance was likely reached by the parties? The agreement was not sufficiently specific on key terms. Mitsuki applied for property insurance with Cintriell Insurance. Cintriell's application asked about the type of roof on Mitsuki's building. Mitsuki answered that her building had a tile roof. In fact, the building had a wood shingle roof. Cintriell issued the policy. Two months later, Mitsuki's building was destroyed by fire. Cintriell can deny coverage if Mitsuki's statement about the roof Involved a material fact. Rin applied for auto insurance with Jancy Insurance. Jancy's application asked about any youthful drivers in Rin's household. Rin said there was one youthful driver living with her but in fact there were two, each with excellent driving records. Jancy issued the insurance policy and it would also have issued the policy had it known about both youthful drivers. If Jancy ultimately learns about Rin's incorrect application statement, it should Do nothing because Rin's misrepresentation was not material. Kenta is insured under a property insurance policy. He sustained a loss covered by the policy, but did not notify his insurance company until over a year later. The insurance company denied coverage because of Kenta's failure to promptly report the loss. Which one of the following special characteristics of insurance contracts is the basis of the insurance company's denial? Conditional contract The premium for any particular insurance policy should reflect The insured's share of estimated losses that the insurer must pay. Mikael, a new insurance agent, sent a letter to all residents of his apartment complex that set out the basic terms of a renter's policy and stated: "I will issue this policy to you and expect your $300 annual premium if I don't hear from you to the contrary within 30 days." Linnea, a neighbor, received this letter but did not respond. Which one of the following statements about Linnea's legal obligation under contract law is true? Linnea has no legal obligation to pay Mikael $300 because no prior course of dealing supports this. Elin purchased insurance coverage for her florist business. She received her mulit-page policy from the carrier and calls her agent Olivia to find where the amounts of insurance and the premium is found in the policy. Olivia should tell Elin to look in which section of the policy? Declarations. For an insurer to waive the insured's breach of condition under the insurer's policy, the insurer Must know of the breach of the condition. Leah called her insurance agent Matthias right after Leah purchased her first car. Leah said: "I need coverage on my car (which she described in detail)—$100,000 liability and $250 deductible collision and comprehensive." Mathias responded: "Great—you have this insurance effective immediately." Which one of the following statements about this conversation is true? It resulted in a binding oral insurance contract. Oscar purchased a term life insurance policy from TLife, Inc. The policy included a renewal option. If Oscar chose to renew, TLife had the right to require a detailed medical examination. At the end of the term, Oscar decided to renew the policy, and TLife accepted his renewal without demanding a medical exam. One week into the renewal term, Oscar became seriously ill. TLife began an investigation and asked Oscar to sign a nonwaiver agreement. When he complied, TLife insisted that Oscar participate in the medical exam that was TLife's right under the renewal option. Which one of the following answers best explains whether TLife has the right to demand a medical exam? TLife waived its right to demand a medical exam when it accepted the renewed policy. Luis leases a house from Daniel, the lessor. Luis, the lessee, is concerned about what would happen if he negligently burned down the premises. Which one of the following describes protection that may be available for Luis? A provision is included in the lease that makes the lessor financially responsible to pay for damage to the property. Matt was an insurance applicant. Matt included untrue information on his application for insurance and the insurer agreed to insure Matt based on this false information. Which one of the following special characteristics of insurance contracts will provide Matt's insurer a basis to deny coverage under Matt's policy? Contract of utmost good faith Frederik has an insurance policy with a provision stating, "We will provide the insurance described in this policy in return for the premium and compliance with all applicable provisions of this policy." Which one of the following parts of Frederik's policy does this represent? Insuring agreement 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? Gulford Mortgage Company can obtain separate insurance on Maja's property, solely for the mortgagee's benefit. 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? If the information was false and related to a material fact and relied upon by the insurer, the contract is voidable. 3 multiple choice options If the information was false or misleading and material, the contract is voidable. Argot cannot deny coverage because Mia made no misrepresentation on her application. Estoppel arises in insurance law from the following sequence of events: false representation of a material fact, reasonable reliance on that representation, and the Resulting injury or detriment to the insured. After a windstorm which opened a hole in the roof, an insured was required to place a tarp over the hole. This requirement is an example of an insurance policy being a Conditional contract. 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? It is ineffective due to the parol evidence rule Furkan, who was insured with Argot Insurance Company, ran a stop sign and hit Katie, injuring her severely. Katie sued Furkan and Argot Insurance Company jointly. This action is known as Direct action, pursuant to statute. Vincente applied for business insurance with Hallbinger Insurance. Hallbinger's application asked if Vincente had any prior "serious accidents or losses." Vincente had a small water loss five years ago, but believing it wasn't serious, he answered "no." Hallbinger issued the policy. If Hallbinger subsequently discovers Vincente's prior water loss, Hallbinger should Do nothing because Vincente's statement was not a material misrepresentation. Which one of the following statements describes a waiver? The intentional relinquishment of a known right Joe bought insurance on his vehicle with a new insurance carrier. When the insurer inquired about the physical condition of the vehicle, Joe replied that the vehicle had no physical damage. Subsequently, the insurer issued a policy that included physical damage coverage. A month later Joe made a claim for hail damage. During the loss investigation, it was determined that hail had not fallen on the date Joe claimed. An inspection of the vehicle conclusively proved that the damage occurred well before the policy was issued. What will be the likely outcome of the claim? Because there was misrepresentation of a material fact, the insurer may avoid the policy. Which one of the following statements correctly states the effect of consideration on whether waivers are binding under insurance law? Some waivers are binding without consideration Ida desperately needed to purchase homeowners insurance on her newly purchased dwelling. When she talked with Grace, an agent with Jancy's Insurance Company, Ida lied on the application when she denied having previous total fire losses. She also told Grace she had not had any previous total fire losses. Ida had recently been declined by three other companies for having previous total fire losses that were caused by