ARM 402: Full Practice Exam:
Frequently Missed Questions &
Terminology
"The contractor agrees to indemnify and hold harmless the owner against claims,
damages, bodily injury, or property damage arising out of the contractor's work and
caused by any act of omission of the contractor, his agents, and his employees." This is
an example of which one of the following forms of a hold-harmless agreement?
A) Intermediate form
B) Broad form
C) Limited form
D) Basic form - ANS C
A company's management team is preparing to conduct a SWOT analysis as part of its
strategic management process. Which one of the following questions can the
management team expect to answer as a result of the SWOT analysis?
A) Will this organization's current business strategies still allow it to achieve its goals, or
is a change required?
B) Will this organization achieve its objectives for the current period, or is an
intervention required?
C) Are the organization's current business strategies in alignment with its mission
statement, or is a change required?
D) Are this organization's objectives in alignment with the sound enterprise risk
management practices in a changing environment, or are changes required? - ANS A
A large deductible is similar to a self-insured retention (SIR) in that both
A) Give the insurer complete control over claim handling
B) Provide detailed reports to the insurer on all claims
C) Require the insured organization to retain a relatively large amount of loss
D) Require that the insured adjust and pay claims up to the deductible or SIR amount -
ANS C
A loss limit in the retrospective rating plan formula
,A) Is the maximum amount of losses that will be included in the formula
B) Is applied on an individual loss basis to limit losses included in the formula
C) Is always used in the retrospective rating plan formula
D) Is the most an insured organization will pay during the policy term - ANS B
A patent used for the invention of a machine is a
A) Plant patent
B) Design patent
C) Utility patent
D) Process patent - ANS C
A practice or method used confidentially by an organization to gain a competitive
advantage is
A) A trade secret
B) A patent
C) Goodwill
D) A trademark - ANS A
A primary loss prevention measure for contractual liability is to have most contracts
A) Meet American Bar Association guidelines
B) Be oral rather than written
C) Reviewed by counsel before they are signed
D) Reviewed by management before they are signed - ANS C
A rating plan that adjusts the premium for the current policy period to recognize the loss
experience of the insured organization during past policy periods is
A) A finite insurance rating plan
B) An experience rating plan
C) A retrospective rating plan
D) A minimum premium rating plan - ANS B
A release of liability agreement for activities specified in the contract is
A) An exculpatory agreement
B) A hold harmless agreement
, C) A duty
D) A waiver - ANS A
A state wants to build a road through an environmentally-sensitive area. The area
includes endangered flora and fauna, as well as wetlands. Build-Rite Construction
expressed interest in the project, but is concerned about potential liability. Build-Rite
agrees to build the road if the state assumes all responsibility for any liability arising out
of the construction of the road. A state representative has signed-off on the contract,
agreeing that the state will be responsible for all liability. This transfer of responsibility
for fault illustrates which one of the following forms of noninsurance risk financing
transfer?
A) Broad form
B) Intermediate form
C) Nullification form
D) Limited form - ANS A
A type of reinsurance transaction that involves an agreement between the primary
insurer and the reinsurer specifying how to transfer risks, that defines the eligible risks
in terms of lines and classes of business, that specifies the parties' obligations, and for
which eligible risks are automatically reinsured, is
A) Treaty reinsurance
B) Excess of loss reinsurance
C) Pro rata reinsurance
D) Facultative reinsurance - ANS A
A U.S. based company that has international operations may use a controlled master
program to insure all of its operations. Which one of the following statements regarding
a controlled master program is true?
A) Usually there are separate policies for the domestic U.S. exposures
B) Excess and umbrella liability apply only to coverage on U.S. operations
C) The master policy is excess over locally purchased admitted coverage and can be no
broader than the underlying policies
D) The U.S. company is required to purchase all of the coverages through locally
admitted insurers - ANS A
Frequently Missed Questions &
Terminology
"The contractor agrees to indemnify and hold harmless the owner against claims,
damages, bodily injury, or property damage arising out of the contractor's work and
caused by any act of omission of the contractor, his agents, and his employees." This is
an example of which one of the following forms of a hold-harmless agreement?
A) Intermediate form
B) Broad form
C) Limited form
D) Basic form - ANS C
A company's management team is preparing to conduct a SWOT analysis as part of its
strategic management process. Which one of the following questions can the
management team expect to answer as a result of the SWOT analysis?
A) Will this organization's current business strategies still allow it to achieve its goals, or
is a change required?
B) Will this organization achieve its objectives for the current period, or is an
intervention required?
C) Are the organization's current business strategies in alignment with its mission
statement, or is a change required?
D) Are this organization's objectives in alignment with the sound enterprise risk
management practices in a changing environment, or are changes required? - ANS A
A large deductible is similar to a self-insured retention (SIR) in that both
A) Give the insurer complete control over claim handling
B) Provide detailed reports to the insurer on all claims
C) Require the insured organization to retain a relatively large amount of loss
D) Require that the insured adjust and pay claims up to the deductible or SIR amount -
ANS C
A loss limit in the retrospective rating plan formula
,A) Is the maximum amount of losses that will be included in the formula
B) Is applied on an individual loss basis to limit losses included in the formula
C) Is always used in the retrospective rating plan formula
D) Is the most an insured organization will pay during the policy term - ANS B
A patent used for the invention of a machine is a
A) Plant patent
B) Design patent
C) Utility patent
D) Process patent - ANS C
A practice or method used confidentially by an organization to gain a competitive
advantage is
A) A trade secret
B) A patent
C) Goodwill
D) A trademark - ANS A
A primary loss prevention measure for contractual liability is to have most contracts
A) Meet American Bar Association guidelines
B) Be oral rather than written
C) Reviewed by counsel before they are signed
D) Reviewed by management before they are signed - ANS C
A rating plan that adjusts the premium for the current policy period to recognize the loss
experience of the insured organization during past policy periods is
A) A finite insurance rating plan
B) An experience rating plan
C) A retrospective rating plan
D) A minimum premium rating plan - ANS B
A release of liability agreement for activities specified in the contract is
A) An exculpatory agreement
B) A hold harmless agreement
, C) A duty
D) A waiver - ANS A
A state wants to build a road through an environmentally-sensitive area. The area
includes endangered flora and fauna, as well as wetlands. Build-Rite Construction
expressed interest in the project, but is concerned about potential liability. Build-Rite
agrees to build the road if the state assumes all responsibility for any liability arising out
of the construction of the road. A state representative has signed-off on the contract,
agreeing that the state will be responsible for all liability. This transfer of responsibility
for fault illustrates which one of the following forms of noninsurance risk financing
transfer?
A) Broad form
B) Intermediate form
C) Nullification form
D) Limited form - ANS A
A type of reinsurance transaction that involves an agreement between the primary
insurer and the reinsurer specifying how to transfer risks, that defines the eligible risks
in terms of lines and classes of business, that specifies the parties' obligations, and for
which eligible risks are automatically reinsured, is
A) Treaty reinsurance
B) Excess of loss reinsurance
C) Pro rata reinsurance
D) Facultative reinsurance - ANS A
A U.S. based company that has international operations may use a controlled master
program to insure all of its operations. Which one of the following statements regarding
a controlled master program is true?
A) Usually there are separate policies for the domestic U.S. exposures
B) Excess and umbrella liability apply only to coverage on U.S. operations
C) The master policy is excess over locally purchased admitted coverage and can be no
broader than the underlying policies
D) The U.S. company is required to purchase all of the coverages through locally
admitted insurers - ANS A
