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If a property is covered by Company A for $20,000 and Company B covers the same property for $40,000, how much will company A pay on a $24,000 loss?
A. $8,000
B. $0
C. $20,000
D. $12,000
A. $8,000
Pro rate liability applies. Each policy pays a percentage of the loss based on the percentage of coverage that policy provides. Company A carries 1/3 of the total coverage ($20,000 + $40,000 = $60,000). Therefore, it is responsible for 1/3 of the $24,000 loss, or $8,000.
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Which method of loss valuation is contrary to the basic concept of indemnity?
A. Market value
B. Agreed value
C. Replacement cost
D. Functional replacement cost
C. Replacement cost
The replacement cost method of loss valuation is contrary to the basic concept of indemnity because following a loss it may provide the insured with a settlement in excess of the property's actual cash value
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Which DP/HO coverage is for indirect losses?
A. Contents
B. Loss of use
C. Dwelling
D. Structures
B. Loss of use
Loss of use coverage applies only after a direct loss caused by a covered peril has occurred.
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The part of the insurance contract that describes the covered perils, and the nature of coverage of the contractual agreement between the insurer and the insured is called the
A. Conditions
B. Exclusions
C. Declarations
D. Insuring agreement
D. Insuring agreement
The insuring agreement is the part of the policy structure that describes the insured perils and the method of indemnification.
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All of the following statements describe the concept of strict liability EXCEPT:
A. It is applied in product liability cases
B. It is imposed on defendants engaged in hazardous activities
C. Claimants may need to provide proof that a product defect caused an injury
D. it is imposed regardless of fault
B. It is imposed on defendants engaged in hazardous activities
Strict liability is commonly applied in product liability cases. The business is then liable for defective products, regardless of fault or negligence.
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Lily is driving her car through a residential area. She loses control of the car, and crashes into Max's front porch. Max who was sitting on the porch, is injured. Lily's liability insurance policy has a limit set at $500,000. This amount applies to the total damages for any bodily injury and property damage resulting from one accident. Which type of limit of liability does Lily have?
A. Aggregate
B. Per occurrence
C. Combined single
D. Split
C. Combined single
Combined single is a single dollar limit of liability applying to the total of damages for bodily injury and property damage combined resulting from one accident or occurrence.
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An insured's roof cost $4,000 when installed 5 years ago. It has been damaged by hail and must be replaced. The new roof will cost $6,000 at today's prices. If the roof has been depreciating at $200 per year and his policy is ACV, how much will it pay toward the insured's new roof?
A. $5,000
B. $6,000
C. $3,000
D. $4,000
C. $5,000
ACV is calculated as replacement cost less depreciation.
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Which of the following is a statutory defense?
A. Intervening cause
B. Contributory negligence
C. Comparative negligence
D. Assumption of risk
C. Comparative negligence
Many states, by statue, require that damages be apportioned based upon the degree of negligence of each party in an accident.
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Which of the following would NOT be classified as personal property for insurance purposes?
A. Furniture
B. House
C. Car
D. Mobile Home
B. House
Person property that is moveable, real property is non-moveable
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Which of the following best expresses the purpose of a stated value contract?
A. To pre-establish the amount of coverage available for property items that are difficult to value
B. To ensure that the principle of indemnification applies
C. To establish the value of property subject to loss by theft or robbery
D. To provide a maximum limit for which the insurance company may become liable in casualty losses
A. To pre-establish the amount of coverage available for property items that are difficult to value.
The value of the insured items is determined at the time the policy is written, not at the time of loss
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The policy provision found in property insurance policies that prevents the insured from collecting twice for the same loss is called
A. Consent to settle loss
B. Right of salvage
C. Appraisal
D. Subrogation
D. Subrogation
When insureds accept loss payment from the insurance company, they must transfer their rights to recovery to the insurer. This prevents the insured from collecting twice for the same loss, and allows the insurer to indemnify the insurance company.
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What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk?
A. Primary and excess
B. Other insurance
C. Valid insurance
D. Nonconcurrency
B. Other insurance
Other insurance is a provision in an insurance policy that defines how the policy will respond if there is other valid insurance written on the same risk.
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What type of damages may be awarded by the court to create disincentives that discourage behavior that is deemed highly undesirable by society?
A. General
B. Compensatory
C. Specific
D. Punitive
D. Punitive
Punitive damages are a form of punishment, intended to serve as an example to others to discourage undesirable behavior.
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An insured carries a property policy on her home in the amount of $250,000. A bank is shown as the mortgagor in the policy. last month the insured made her final mortgage payment, but did not remove the bank from the policy. In the event of a covered loss to her home, how much will the bank receive?
A. The standard minimum of 10% that is paid to lenders
B. All of the payment would be made to the mortgagor shown in the policy
C. Nothing
D. Up to the amount of debt that the insured has with the bank
C. Nothing
Because of the bank does not have a financial interest in the house at the time of loss, they will receive nothing.
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What is the purpose of the coinsurance clause found in property insurance policies?
A. Encourage higher standards of care by requiring the insured to pay portion of every loss
B. Ensure that insureds do not over insure their property
C. Prevent insureds from profiting from a loss
D. Encourage insurance to value
D. Encourage insurance to value
In return for the insured's promise to insure the property to some certain percent of its value. the insurer agrees to give the insured a reduced rate per hundred on the insurance and pay partial losses in full.
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When is the legal defense that can be used in most states in which proportionate damages may be awarded when both the plaintiff and defendant were negligence?
A. Contributory negligence
B. Proximate cause
C. Comparative negligence
D. Relative degree of damage statue
C. Comparative negligence
Comparative negligence is the apportionment of damages when both the plaintiff and the defendant are at fault. Recovery by the plaintiff is lessened or increased, depending upon the degree of each party's negligence.
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Which of the following describes the transfer of a legal right or interest in an insurance policy?
A. Abandonment
B. Obligation
C. Legal purpose
D. Assignment
D. Assignment
Assignment is the transfer of a legal right or interest in an insurance policy. In property and casualty insurance, assignments of policies usually are valid only with the prior written consent of the insurer.
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Jim and Janet's house is an older home with lath and plaster walls. Following a kitchen fire, the insurance company pays to have the wall replaced with drywall that is just a functional, but cost less than lath and plaster. Which loss valuation allows the insurance company to have plaster replaced by drywall?
A. Functional replacement cost
B. Replacement cost
C. Market value
D. Actual cash value
A. Functional replacement cost
This loss valuation method allows the insurer, at the time of a loss, to adjust the loss on the basis of functional replacement cost, which is the cost to replace damaged property with less expensive and more modern construction or equipment. A building with lath and plaster walls may be replaced with drywall that is just a functional, but at a lower cost to repair.
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Which of the following is a method of claim settlement used when the insured and insurer cannot agree on how to settle a claim?
A. Proof of loss
B. Restoration
C. Appraisal
D. Arbitration
D. Arbitration
Arbitration is a method of claim settlement used when the insured and insurer cannot agree on how to settle a claim. The arbitrator's is binding to both parties.
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Sally did not want to worry about coinsurance in her new insurance policy, but wanted the insurance to represent a fair valuation for her property. What provision did Sally most likely use to do this?
A. Inflation guard
B. Agreed value
C. Market value
D. Stated amount
B. Agreed value
Agreed value is a property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written and suspends any coinsurance or other contribution clauses in the policy
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The part of the policy that sets forth the rules of conduct, duties, and obligations of the parties is called the
A. Conditions
B. Exclusions
C. Declarations
D. Insuring clause
A. Conditions
The conditions is the part of an insurance policy that sets forth obligations and duties of the insurer and the insured
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The Declarations of the Homeowners policy provides all of the following information EXCEPT
A. What deductible amount applies to each loss covered by the policy
B. A statement that earthquake damage is not covered
C. The amount of premium charged for each coverage
D. The insured's address
B. A statement that earthquake damage is not covered
The Declaration provides information as to who is insured; where they are located; when the policy provides coverage; how much coverage and the amount of deductible applied to a loss. The statement that earthquake damage is not covered is found in the policy form.
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The insured has violated the contract without the knowledge of the mortgage holder. After a loss
A. The insured cannot collect but the mortgage holder will still be paid
B. Neither the insured nor the mortgage holder will be paid
C. Both the insured and mortgage holde will be paid
D. The pro rata liability clause applies
A. The insured cannot collect but the mortgage holder will still be paid.
Mortgagees have insurable interest in the property for which they loaned the money for purchase. Therefore, they will still be paid their interest in the loss though the insured does not get paid because they violated the contract.
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Anyone covered under an insurance policy, whether named or not, is known as the
A. Additional insureds
B. Insureds
C. Named insureds
D. First named insureds
B. Insureds
The insured are anyone covered under a policy, whether named or not.
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Which one of the following lists all the required elements for establishing a charge of negligence?
A. Legal duty owed, proximate cause, intervening cause, damages
B. Legal duty owed, deliberate attempt to cause harm, damages
C. Breach of reasonable person rule and proximate degree of care
D. Legal duty owed, breach of legal duty owed, proximate cause, damages
D. Legal duty owed, breach of legal duty owed, proximate cause, damages
Negligence is failure to do what a reasonable and prudent person would do under the same circumstances. Four elements must be present for negligent liability to exist
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What is the purpose of the coinsurance clause found in property insurance policies?
A. Ensure that insureds do not over insureds do not over insure their property
B.Prevent insureds from profiting from a loss
C. Encourage insurance to value
D. Encourage higher standards of care by requiring the insured to pay a portion of every loss
C. Encourage insurance to value
In return for the insured's promise to insure the property to some certain percent of its value, the insurer agrees to give the insured a reduced rate per hundred on the insurance and pay partial losses in full.
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An insured's 9 year old son threw a ball, accidentally breaking a neighbor's plat glass window. The insured was found legally liable for the cost of replacing the window. This is an example of
A. Intervening cause
B. Juvenile delinquency
C. Absolute liability
D. Vicarious liability
D. Vicarious liability
Under vicarious liability, an insured may be held responsible for the acts of other family members or independent contracts engaged by the insured to perform work.
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After a storm dumps 8 inches of snow, Matt spends several hours clearing his walks and driveway. Later that night it begins to sleet. Before Matt can clear his walks again, Rick, Matt's neighbor, walks his dog before going to bed. As he walks past Matt's house, he slips and falls, breaking his arm. Which defense will reduce recovery for Rick's injury?
A. Comparative negligence
B. Statue of limitations
C. Intervening cause
D. Contributory negligence
C. Intervening cause
The intervening cause doctrine bars or reduces recovery to an injured person if an intervening cause interrupted the chain of events and sets in motion a new chain of events.
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An additional loss that results from a direct loss of property is call a/an
A. Punitive loss
B. Indirect loss
C. Proximate Loss
D. Liability Loss
B. Indirect loss
Direct losses come about because of perils named in the policy.
Indirect losses, also known as consequential losses, come about as a result of a direct loss.
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Which of these is defined as the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur?
A. Combinded single limits of liability
B. Per occurrence limit of liability
C. Split limit of liability
D. Aggregate limit of liability
D. Aggregate limit of liability
Aggregate limit is the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur.
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An insured owns a building that is valued a $400,000. To comply with the 80% coinsurance provision of his insurance policy, how much should he insure the property for?
A. 80% of the property's ACV or more
B. 100% of market value
C. $400,000
D. $32,000
A 80% of the property's ACV or more
The coinsurance clause states that, in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. Market value is affected by location. Insurance is designed to pay, in the event of a covered loss, replacement cost minus depreciation.
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With regard to fire insurance premiums, structures with which of the following type of construction would most likely have the most favorable premium rate for the peril of fire?
A. Fire-resistive
B. Frame
C. Masonry
D. Noncombustible
A. Fire-resistive
The fire-resistive construction class is generally given the most favorable rating for fire insurance.
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In commercial policies, who has control of the policy?
A. Second named insured
B. Insurer
C. Beneficiary
D. First named insured
D. First named insured
The first named insured has control of a commercial policy and is the only insured who may cancel it or request changes to it. They first named insured also is responsible for paying the premiums and reporting losses.
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The pro rata liability clause is designed to protect the principle of
A. Insurable interest
B. Waiver and estoppel
C. Indemnity
D. Subrogation
C. Indemnity
If more than one policy is in force on the same property at the same time covering the same perils, this is concurrent coverage.
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When a disagreement occurs as to how to settle a loss in a "fender bender" between two cars, what procedure is followed?
A. Arbitration through the court
B. A lawsuit is filed
C. Appeal to the DOI
D. The adjuster's first opinion must be accepted
A. Arbitration through the court
Arbitration is a low-cost alternative to a full-blown lawsuit
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All of the following causes of loss forms are "named perils" EXCEPT
A. Earthquake form
B. Special form
C. Basic form
D. Broad form
B. Special form
Named peril policies cover only the perils listed in them.
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Which of the following terms refers to other insurance that is written on the same risk, but not on the same coverage basis?
A. Contribution by equal shares
B. Nonconcurrency
C. Primary and excess
D. Pro rata
B. Nonconcurrency
The term nonconcurrency refers to other insurance written on the same risk, but not on the same coverage basis.
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Wilber's house is located 1 mile from the county's new landfill and across the road from the entrance of a rock quarry. To rebuild the house if something happened to it would cost $150,000. But when Wilber tried to sell it, the best offer he received was $80,000. His insurance company will insure the house for only $80,000. How is Wilber's house insured?
A. Replacement
B. Functional replacement cost
C. Market value
D. Actual cost value
C. Market value
When insured for market value, it is insured for what a willing buyer would pay prior to a loss. This is different from ACV or replacement cost.
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If a liability policy limits of 100/300/100, what is the maximum amount that would be payable in the event of injury to a single person?
A. $200,000
B. $300,000
C. $500,000
D. $100,000
D. $100,000
The first limit shown, $100,000, is the most the policy will pay for bodily injury to any one person.
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Which of the following does the term "proximate cause" refer to?
A. Reason for filing a claim
B. Negligence that leads to an injury
C. Injury that leads to a monetary compensation
D. Duty of the defendant to act
B. Negligence that leads to an injury
Proximate cause is reasonable foreseeable act or event that results in an injury or damage. Negligence may often be the proximate cause of the damage; without it. the accident would not have happened. This is also called direct liability.
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All of the following are factors in the determination of actual cash value EXCEPT
A. Original cost
B. Kind and Quality of property
C. Age of the property
D. Replacement cost
A. Original cost
ACV is a valuation method in which the value of property is determined using the replacement cost for property of like kind and quality, minus depreciation. The original cost is not a factor.
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A policy that insures all property at multiple locations for a single amount is referred to as
A. Specific
B. Blanket
C. Reporting
D. Special
B. Blanket
Blanket coverage provides one limit of insurance of multiple locations or classes of property with the entire limit of insurance available to respond to any loss. No single item is assigned a specific amount of insurance. However, different amounts of insurance may be shown for building in general or contents in general.
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Payment for medical expenses, loss of wages, funeral expenses, or the cost to repair or replace damaged property are known as what type of compensatory damages?
A. General
B. Special
C. Tort
D. Normal
D. Normal
Tangible damages that can be specifically measured in dollar amount are specific damages.
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Which of the following clauses establishes the procedure determining the amount of loss when the insurer and the insured cannot agree on the value of property or amount of loss?
A. Valuation clause
B. Loss settlement clause
C. Appraisal clause
D. Loss payment clause
C. Either an insured or insured can request an appraisal. Each hires an appraiser. The appraisers then select a disinterested third party (umpire). Disagreements between the appraisers are settled by the umpire whose decisions are usually binding on both parties.
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Replacement cost is defined as
A. Payment of the full policy limits in the event of a total loss
B. Full replacement of property at its current cost, new and without reduction for depreciation
C. The market value of property of like kind and quality
D. Full replacement of property with like kind quality, less allowance for physical deterioration and depreciation
B. Full replacement of property at its current cost, new and without reduction for depreciation
Replacement cost policies do not consider depreciation if the proper amount of insurance is maintained. Policies that provide replacement cost coverage require that the amount of insurance written be 80% or more of the replacement cost of the property at the time of loss.
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A $100,000 house insured on a policy with an 80% coinsurance requirement has a fire that caused $40,000 of damage; the owner has a policy with $60,000 coverage. How much can the owner collect for his loss?
A. $20,000
B. $30,000
C. $40,000
D. $60,000
B. $30,000
For the total amount of a partial loss to be paid, a house must be insured for at least 80% of its value on the date of loss. In this case, because the house is insured for only $60,000 (75% of the minimum requirement), the policy will only pay 75% of the loss, or $30,000.
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What will happen if a house covered by a standard mortgage clause is a total loss?
A. The insurer pays the mortgagee according to the mortgagee's interest in the property.
B. The mortgagee retains no rights to any contracts involving the policy
C. The insured receives the full benefit and passes the mortgagee's share to the mortgagee
D. The mortgagee receives the full benefit and passes the insured's share to the insured.
A. The insurer pays the mortgagee according to the mortgagee's interest in the property.
The standard mortgage clause ensures that benefits will go to the insured and the mortgagee as their interest appears in the event of a loss to real property.
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Termination of a in-force insurance policy prior to the expiration date shown in the policy is known as
A. Guarantee of insurability
B. Nonrenewal
C. Renewal
D. Cancellation
D. Cancellation
Cancellation is the termination of an in-force insurance policy by either the insured or the insurer prior to the expiration date shown in the policy. Termination may be voluntary, involuntary, or in mutual accordance with provisions contained in the policy.
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What type of insurance policy insures against all risk of loss that are not specifically excluded by the policy?
A. Binder policy
B. Named peril policy
C. Open peril policy
D. Specified peril policy
C. Open peril policy
Open peril (special) policies cover everything except what they say don't. named peril policies cover only perils named in them.
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Greg owns several buildings, each at a different location and insured on a separate policy. What type of coverage does Greg have?
A. Specific
B. Schedule
C. Blanket
D. Special
A. Specific
Specific insurance provides a specific amount of coverage for each property. A blanket insurance policy provides coverage for more than one property with a single limit of coverage.
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An insured was offered a job that required her to move to another city. Her house, which she still owns and insures, has had no one living in it for 3 months. However, the insured is storing some of her furniture and cloths in the house. From an insurance standpoint, the insured's house is considered?
A. Unoccupied
B. Condemned
C. Under repair
D. Vacant
A. Unoccupied
Unoccupancy refers to an insured structure in which no people have been living or working within the required period of time, but the structure contains contents.
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The property condition that precludes the insured from simply turning over damaged property to the insurer and claiming a total loss is called
A. Arbitration
B. Abandonment
C. Assignment
D. Appraisal
B. Abandonment
Until the insurer has determined that the loss is total, the insured must protect the property from further loss.
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The policy conditions define
A. The excluded perils
B. The amount of coverage
C. How parties to the contract must act following a loss
D. The basic underwriting information
C. How parties to the contract must act following a loss
Conditions is an essential part of a policy structure. Conditions define what each party is required to do contractually in the event of a loss
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Sally has a property insurance policy that is not subject to any coinsurance requirements. Her policy has a set amount of insurance scheduled for her property. What loss valuation method does her policy use?
A. Replacement cost
B. Reproduction cost
C. Stated amount
D. Actual cash value
C. Stated amount
A stated amount is an amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss.
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Bob's home is insured for $100,000 under a dwelling policy. Yesterday his home suffered $20,000 damage from a fire. Today the home was struck by lightning, starting another fire completely destroyed the structure. Bob's policy will pay:
A. $80,000
B. $20,000
C. $120,000
D. $100,000
D. $100,000
Bob's policy will pay the $100,000. if the repairs has been made ($20,000) and then the home destroyed, the policy would have paid $120,000 as two separate losses. Due to the unrepaired damage, the total amount of coverage is only the face amount of the policy.
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An insured owns a building that is valued at $400,000. To comply with the 80% coinsurance provision of his insurance policy, how much should he insure the property for?
A. 100% of market value
B. $400,000
C. $32,000
D. 80% of the property's ACV or more
D. 80% of the property's ACV or more
The coinsurance clause states that, in consideration o fa reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. Market value is affected by location. Insurance is designed to pay, in the event of a covered loss, replacement cost minus depreciation.
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All of the following are conditions commonly found in the insurance policy, EXCEPT:
A. Insuring agreement
B. Cancellation and non-renewal
C. Subrogation
D. Appraisal
A. Insuring agreement
The insuring agreement provides information on the policy's coverages. Conditions state the legal obligations and duties of the parties to the contract.
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A beauty parlor burns to the ground. What type of loss is this to the owner?
A. Specific
B. Consecutive
C. Direct
D. Consequential
C. Direct
Damage caused by a peril that is insured against is classified as direct loss
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Where is the policy period stated?
A. On the definitions page of the policy
B. On an endorsement attached to the policy
C. On the declarations page of the policy
D. On the conditions page of the policy
C. On the declarations page of the policy
The policy period is stated on the declarations page of the policy
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A building is insured , but no one has lived or worked in it for 10 years. The building is completely empty of any furniture or personal belongings. From an insurance standpoint, the building is considered
A. Unoccupied
B. Condemned
C. Closed
D. Vacant
D. Vacant
An insured structure in which no people have been living or working and no contents have been stored for the period of time required as stated in the policy (usually 60 days) constitutes vacancy.
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In the event of a loss covered by the policy, if the insurer requests a signed sworn proof of loss, the named insured is required to submit it within
A. A Specified time
B. 1 year
C. 5 business days
D. 30 days
A. A specified time
In the event of a loss covered by the policy, the named insured is required to submit to the insurer a signed sworn proof of loss withing the allotted time (usually 60 days, but may vary)
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Where are the two types of compensatory damages?
A. Normal and punitive
B. Special and general
C. Pure and speculative
D. Tort and general
B. Special and general
Compensatory damages are intended to compensate someone for both tangible and intangible elements of a loss. Special damages are for the actual measurable losses, i.e. value of property or medical bills. General damages cannot be specifically measured in dollars, i.e.pain and suffering
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Insurable interest in the property covered in a policy must be proven:
A. At time of loss
B. When a beneficiary is changed
C. When a claim is paid
D. At the time of application
A. At the time off loss
Between the time a policy is issued and a loss occurs, ownership may have changed, mortgages may have been put into place, etc. Therefore, in property and casualty insurance, insurable interest must exist at the time of loss.
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Negligence is defined as
A. Conduct that is so hazardous that the individual engaging in it will be held fully responsible for any resulting injury or damage
B. An intentional act that results in bodily injury or property damage to another person
C. The failure to do what a reasonable prudent person would do under given circumstances.
D. An unbroken chain of events that results in bodily injury or property damage to another person
C. The failure to do what a reasonable prudent person would do under given circumstances
The definition used for negligence is based on the English law that requires that a person use ordinary care to prevent injury to another person or damage to their property.
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What fundamental doctrine in property insurance holds that when there is an unbroken connection between an occurrence and damage that grows of the occurrence, then the resultant damage is all a part of the occurrence?
A. Doctrine of concurrent causation
B. Doctrine of indemnity
C. Doctrine of common cause
D. Doctrine of proximate cause
D. Doctrine of proximate cause
An example of proximate cause: A property insurance policy cover the peril of fire, and further damage is caused by; a) smoke from the fire; b) water used to extinguish the fire; c) and the process of moving property out of the path fire. Fire would be considered the proximate cause of all the damage.
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The part of a policy that clarifies terms in the policy in the policy is the:
A. Exclustions
B. Definitions
C. Insuring agreement
D. Conditions
B. Definitions
The component of a policy that clarifies terms is the definitions
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When a parent is required to pay for damages caused by his or her children, this is an example of
A. Vicarious liability
B. Strict liability
C. Intervening cause
D. Assumption of risk
A. Vicarious liability
When one party is held liable for act of another party, its is called acting within the scope of their employment. Parents sometimes are held responsible for acts of their children
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Which of the following policy conditions would automatically broaden coverage under a policy without requiring additional premium?
A. Subrogation
B. Assignment
C. Liberalization
D. Other insurance
C. Liberalization
The liberalization clause states that if an insurer changes a policy form to the benefit of the policyholder, all policies issued within a certain time before the change will be interpreted as if they had been changed, provided the change does not require additional premium.
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An insured's building has an actual cash value of $200,000, and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?
A. $0
B. $30,000
C. $32,000
D. $40,000
B. $30,000
The insured only carried 75% of the amount of insurance he had agreed to carry ($120,000 of the agreed $160,000), so the insurer will pay only 75% of the loss, or $30,000. If the insured had carried the required amount of insurance, partial losses would be paid in full. In the event of a total loss, the face of the policy would be paid. If the full amount is not carried, divide the actual amount carried by the amount that should be carried (the coinsurance amount), and multiply it by the loss.
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According to the standard mortgage clause, who has the right to bring a suit in their own named to recover damages, pay policy premiums, and submit a proof of loss?
A. Governor
B. Policyholder
C. Mortgagee
D. Insurance company
C. Mortgagee
The standard mortgage clause, a basis provision of all property policies for "real" property, also ensures that mortgagees have the right to receive prior notice if an insurance policy is to be cancelled.
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All of the following are found in the declarations section of a policy EXCEPT the
A. Exclusions
B. Policy premiums
C. Named of the insured
D. Limits of insurance
A. Exclusions
Declarations state who is insured, what is insured, where the property is located, when the policy begins and ends, how much insurance and how much premium. The exclusions tell what is not covered.
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The legal process that gives the insurer, after payment of a loss, the right to seek recovery from a third party that was responsible for the loss is know as
A. Adverse selection
B. Right of rescission
C. Principle of indemnity
D. Subrogation
D. Subrogation
Subrogation is a provision found in most insurance policies that gives the insurer, after payment of a loss caused by a third party, the insured's rights to recovery against that third party. The insurer's rights are only to the extent of the loss payment.
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The part of a property policy that shows the amount of insurance premium, and policy term is the:
A. Conditions
B. Exclusions
C. Declarations
D. Insuring clause
C. Declarations
Who, what, where, and how much insurance premium, all are stated in the declarations
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What kind of liability would a person who owns a swimming pool have?
A. Vicarious
B. Implied
C. Direct
D. Absolute
D. Absolute
Any conduct that is inherently dangerous (swimming pools, using explosives, keeping wild animals) imposes absolute liability. The claimant does not have to prove anything.
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A couple bought tickets to a college hockey tournament. At the game, a stray puck flies into the stands and hits the wife in the face, breaking her nose. Which legal defense may bar her from recovering damages for the injury she received at the hockey game?
A. Contributory negligence
B. Defense against negligence
C. Assumption of risk
D. Comparative negligence
C. Assumption of risk
This defense of an action for recovery for injuries attest that if a person recognizes and understands that there is danger involved in an activity and voluntarily chooses to encounter it, this assumption of risk may bar recovery for injury caused by negligence.
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All of the following are essential parts of the insurance contract EXCEPT
A. Provisions
B. Exclusions
C. Insuring clause
D. Conditions
A. Provisions
"Provisions" is a broad term used to refer to the sections or clauses of an insurance policy that communicates the policy's benefits, conditions, etc. The essential parts of the policy are declarations insuring clause, conditions and exclusions.
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A homeowner sells his house to a friend. The friend wants to keep the homeowner's current policy in effect. Under the assignment provision, which of the following is most likely?
A. The policy will have to be cancelled
B. The homeowner should let the friend take over the premium payments.
C. The friend will have to apply for coinsurance from another insurance company
D. The homeowner will need to get written consent from the insurer before the policy can be reassigned
D. The homeowner will need to get written consent from the insurer before the policy can be reassigned.
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The policy conditions define:
A. How parties to the contract must act following a loss
B. The basic underwriting information
C. The excluded perils
D. The amount of coverage
A. How parties to the contract must act following a loss
Conditions is an essential part of a policy structure. Conditions define what each party to the policy is required to do contractually in the event of a loss.
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Property insurance that provides $100,000 coverage for a building and $50,000 coverage for personal property at a single location is called
A. Blanket coverage
B. Described coverage
C. Specific coverage
D. Schedule coverage
C. Specific coverage
One location is insured for a specific amount of insurance on the structure and contents
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What are the two types of compensatory damages?
A. Special and general
B. Pure and speculative
C. Tort and general
D. Normal and punitive
A. Special and general
Compensatory damages are intended to compensate someone for both tangible and intangible elements of a loss. Special damages are for actual measurable losses, i.e. value of property or medical bills. General damages cannot be specifically measured in dollars, i.e. pain and suffering
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The policy that pays first in the event of a covered loss, or the policy that covers the first layer of a loss, in a layered program of insurance is known as the
A. Pro Rata policy
B. Nonconcurrency policy
C. Primary policy
D. Excess policy
C. Primary policy
The primary policy is the policy that pays first in the event of a covered loss, or in a layered program of insurance, the policy that covers the first layer of loss
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According to the doctrine of contributory negligence, when an individual is found to have contributed to his or her own loss in any way, another party
A. May be held liable, but to a reduced extent
B. May be held liable for full damages despite the other party's negligence
C. May be held liable only in the case of vicarious liability
D. May not be held liable
D. May not be held liable
Contributory negligence is a common law defense that denies recovery to an injured party who contributed to the loss by falling to meet standards required for self-protection
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What fundamental doctrine in property insurance holds that when there is an unbroken connection between an occurrence and damage that grows out of the occurrence, then the resultant damage is all a part of the occurrence?
A. Doctrine of proximate cause
B. Doctrine of concurrent causation
C. Doctrine of indemnity
D. Doctrine of common cause
A. Doctrine of proximate cause
An example of proximate cause: A property insurance policy covers the peril of fire, and further damage is caused by; a)smoke from the fire; b) water used to extinguish the fire; c) and the process of moving property out of the path fire. Fire would be considered the proximate cause of all the damage.
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A policy that covers all causes of loss except for those specifically excluded is know as
A. Blanket coverage
B. A multi-peril policy
C. Specified perils form
D. Special form
D. Special
Those property policies with a title of "special" form cover loss on an open peril basis, also known as an all risk.
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Tina has four separate but identical policies written by different insurers to cover her $100,000 building. Each policy is written for $100,000, and each has the pro rata liability other insurance clause. In the event of a total loss to the building, what would each insurer pay?
A. Each policy will pay the total policy limits of $100,000
B. The first policy written will pay $75,000, and the other three policies will contribute proportionately to pay for the remaining $25,000
C. The policy with the earliest effective date will pay the entire loss, and the other policies will pay nothing
D. Each policy will pay $25,000 of the loss
D. Each policy will pay $25,000 of the loss
Each policy will pay it pro rata share of the loss, but not more than the amount of loss in total.
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Three years ago, an insured moved to an unfurnished apartment. She bought new furniture that cost $9,000. Last week, there was a fire in the apartment that destroyed the furniture. Replacement cost is $10,500. The adjuster told the insured her furniture depreciated $2,500. If insurance is written on an actual cash value basis, how much will it pay for the loss?
A. $10,500
B. $6,500
C. $8,500
D. $9,000
C. $9,000
When insurance coverage is written on an actual cash value basis, losses paid are for the replacement cost (at the time of loss), minus depreciation.
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In insurance, anything that modifies the original contract, either adding or removing coverage, is done through a(n)
A. Endorsement
B. Additional coverage form
C. Condition
D. Flexible policy
A. Endorsement
Endorsement change the policy's original terms, conditions, or coverages. Endorsements can add or delete coverage, or merely correct items such as the insured's name, address, etc.
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What type of compensatory damages will pay for pain and suffering and disfigurement?
A. Special (specific)
B. Tort
C. Normal
D. General
D. General
General compensatory damages are for intangible elements that cannot be specifically measured in term of dollars.
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Bob insists that the insurer owes him $10,000 for liability damages, while his insurer asserts that they owe him no more than $7,000. Which of the following would most likely describe the type of claim settlement that they might pursue?
A. Independent audit
B. Appraisal hearing
C. Arbitration
D. Small claims court
C. Arbitration
When an insured and insurer cannot agree on how to settle a claim, arbitration is often used. The settlement is submitted to an arbitrator(s) whose decision may or may not be binding on both parties dependent on state law.
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