Practice Test #5
Terms in this set (39)
Lightning strikes a 50-ft. oak tree in an insured's yard, splitting the tree in half. The tree falls hitting several small trees causing extensive damage to the trees and scattering debris in the yar. The HO-2 Homeowners Policy will pay:
A maximum of $500 per tree. Explanation: The policy will pay 5% of Coverage A or a maximum amount of $500. on any one tree.
When a person dies without a will, their assets are handled by:
An Estate Administrator. Explanation: An interstate death requires a person to be appointed by the court to administer the estate and also requires that this Estate Administrator secure an Administrator's Bond.
In Aviation Insurance, which of the following would cover crew members?
Medical Payments (by endorsement). Explanation: There is a provision under medical payments coverage that adds coverage for crew members for an extra charge.
Under D, "Coverage For Damage To Your Auto", temporary substitute vehicles under the Personal Auto Policy are considered to be:
Your Covered auto.
Under the 2005 Personal Auto Form, Uninsured Motorist Coverage is excluded for claims settled without the insurer's consent only if:
The claim was settled prejudiced the insurer's subrogation rights.
In insurance terminology, which of the following most accurately describes an indirect loss?
After a loss, an insured homeowner sustains hotel bills while the house is being repaired. Explanation: Indirect losses are expenses designed to temporarily replace the use of the item damaged in a direct, physical loss. The other answer choices describe consequential, but still direct losses.
In the Commercial Property Policy, the coininsurance clause does all of the following except:
There are no exceptions, all of the responses are correct.
Under a Commercial Property policy, which of the following is not a covered peril under the Basic Cause of Loss form?
Water damage. Explanation: Water damage to extinguish a fire and the accidental leakage of water from a sprinkler system would be covered. Other types of water damage would be excluded.
In the ocean marine insurance, which of the following is considered to be the most important implied warranty? 1. Seaworthiness; 2. Conditions of the cargo; 3. Legality.
1 only (Seaworthiness).
Which of the following Dwelling forms provides removal coverage for 30 days?
The Broad and Special Forms only. Explanation: All of the Dwelling forms provide removal coverage when the covered property is endangered by the perils insured against. Under the DP-1 form, the coverage is limited to only 5 days. The two broader forms provide 30 days coverage.
During the "Emergency Program" a National Flood Policy will insure single-family residences for up to:
$35,000. Explanation: Under the regular program, the limit can be $250,000.
In an insurance policy, who is considered to be the principal?
Insurer. Explanation: The principal is the party who promises to do (or not to do) a specific thing. In a property and casualty insurance policy the principal would be the insurance company. In surety bonding the principal is the person being bonded to perform.
Which of the following would be eligible for a BOP?
A dental laboratory. Explanation: A dental lab is the only one eligible for the BOP program.
Should an insurer or agent consider sexual orientation, marital status, living arrangements, occupation, gener or zip codes in order to establish sexual orientation in its underwriting criteria, the insurer or agent can be subject to:
A civil penalty as determined by the court from $1,000 to $5,000. Explanation: This question is addressing discrimination on the part of the insurer in which the civil penalty would be imposed.
In ocean marine, what is covered by a Protection and Indemnity coverage?
All of the responses are correct. Explanation: The protection and indemnity coverage applies to all of the responses.
What is the burial benefit under Texas workers compensation laws?
Usual and customary expenses up to $6,000. Explanation: The law requires that the benefit be the cost for usual and customary burial expenses or a maximum of $6,000.
Businessowners policies provide "Preservation of Property" coverage when property is removed from the premises to protect it from a covered cause of loss. The coverage will apply at other locations for up to:
30 days. Explanation: If an insured moves property from a covered location in order to preserve it from a loss by a covered peril, that property will be covered for ANY direct loss while it is being moved or is temporarily stored at another location for the next 30 days.
An employee has been asked to use his own personal vehicle to perform certain tasks on behalf of his employer. What coverage is used under the Business Auto policy to protect the employer for lawsuits when the employee has an accident that causes legal action against the employer?
Employers non-ownership coverage. Explanation: This coverage protects the employer and not the employee. The employee is covered under his own PAP policy.
Fly-By-Night Construction Co. has a general aggregate limit of $500,000 and a per occurrence limit of $250,000. Fly-By-Night is determined to be liable for a total amount of $1,000,000 is an accident involving five people. The maximum the insurer pay is:
$250,000 and the costs to defend the suit. Explanation: The insurer cannot spend more than the occurrence limit for all claims as a result of an accident. The insured is underinsured because the limit is $250,000. The costs to defend are in addition to the limits of liability.
Assume that the auto in each of the following examples is insured for comprehensive coverage. Which of the losses would be excluded under the BAP?
A fire destroys 10 cassette tapes in an auto. Explanation: The physical damage coverage of the BAP specifically excludes tapes, records, discs or other similar electronic devices designed for use with audio, visual or data electronic equipment.
Under the HO-3 Form, if an insured and an insurance company cannot agree on the amount of a loss the insurance company may take which of the following actions?
Demand an appraisal of the loss. Explanation: This is one of the conditions in the Dwelling and Homeowners policies in case of a dispute between the insured and the insurer as to the value of the loss.
What does an insurer do when an insured has possibly waived his or her rights in a liability claim?
Send the insured a reservation of rights letter. Explanation: There are situations where the insured has waived his or her rights to coverage under a liability policy. Failure to report a claim in a timely fashion could cause the insured to waive coverage. The insurer will normally issue reservation of rights letter to the insured advising it will investigate the claim but will not commit to pay the claim.
An insured with auto limits of 10/20/10 causes bodily injuries to a third party of $8,000. After losing in court, he has defense costs of $5,000. What is the insurance company's responsibility to pay?
$13,000. Explanation: Defense costs are in addition to the limits of coverage. The insurer would be obligated to pay the $8,000 and the $5,000 in defense costs.
What is "gap" insurance?
Pays the difference between the actual cash value of a vehicle at the time of the loss and the amount owed on the vehicle.
The named insured is aware that his business auto policy provides transporation expense in the event of total theft of an insured private passenger vehicle. While the sales manager is attending a seminar in a neighboring state, his company car is stolen on March 10. Since his hotel is located 10 miles from the seminar site, he rents a car that same day. The insurance company pays the insured for the theft loss on March 20 after the police department has recovered the vehicle on March 17. The car has been burned and was a total loss. The insured turned in rental costs of $20/day for 11 days and mileage expense of 800 miles at 30 cents per mile. How much will the insurance company pay for these expenses?
$160. Explanation: First, the insured will not be paid for a rental car until after 48 hours has expired. Second, the transporation coverage will cease once the vehicle has been returned to use or the insurer pays for its loss. The insured is thus entitled to 8 days or rental car expenses at $20 per day or $160 total. There is no coverage for the mileage expenses.
Prior to commencing subrogation, the insurer should:
Obtain a signed subrogation agreement, trust agreement or loan receipt from the insured. Explanation: The insurer should obtain a signed subrogation agreement, trust agreement or loan receipt from the insured.
Under an Equipment Breakdown Protection Policy with $500,000 in coverage, covered "accident" resulted in the following: A. $500,000 worth of damage to the property; B. $10,000 damage to the property of another in the insured's care; C. $5,000 in legal fees to defend the insured in this case.
Texas has adopted which type of negligence law?
Proportional comparative negligence. Explanation: The states that have adopted proportional comparative fault bar recovery if you are more than 51% fault for the accident. In other words, you cannot file a liability claim and lawsuit against the other driver's negligence if you were more than 51% at fault. Texas has adopted proportional comparative negligence.
When a policy is issued by a surplus lines company who later becomes insolvent, who pays the claims?
The insured must assume the loss. Explanation: Surplus lines companies do not participate in the guaranty funds. Therefore, if a company becomes insolvent and cannot pay its claims, the policy must bear the loss.
An Aleatory Contract is most accurately described by which of the following?
It is a contract in which the performance of one party is contingent upon the occurrence of a fortuitous (accidental) event. Explanation: Examples of aleatory contracts include insurance policies and product warranties. The other choices are false. Note: "contingent" means dependent on the occurrence of something not yet certain conditional.
Policies that are considered casualty insurance consist of the following EXCEPT:
Marine insurance. Explanation: Marine insurance is a form of insurance primarily concerned with the means of transportation and goods in transit. The term "marine" used alone refers to ocean transportation and inland marine refers to transportation and goods in transit by land. Some forms include both property and casualty coverages. Most cover property perils and the perils of transportation.
An adjuster has committed a violation and can be chaged with a criminal penalty that is considered to be a misdemeanor. Which of the following is correct?
All of the responses are correct.
A company may write insurance in excess of its retention limits.
By insuring the excess with other companies through a reinsurance agreement or treaty agreement. Explanation: Reinsurance is insurance for insurance companies that enable smaller companies to issue policy coverage above their retention limit without becoming financially damaged.
A slippery floor is an example of:
A physical hazard.
An insured purchases two homeowner policies from two different insurance companies. If a covered loss occurs, on what basis will the loss be settled by each of the insurers?
Pro rata basis. Explanation: Each company will pay it's pro-rata share of the loss. This means the percentage of coverage (the total amount of insurance carried) that each company provides on the risk.
Which of the following Commercial Forms would cover sinkhole collapse? 1. Basic; 2. Broad; 3. Special; 4. Extraordinary.
1, 2 & 3.
Each of the following is true about Builder's Risk Coverage EXCEPT:
Coverage terminates the day after construction is completed. Explanation: Coverage normally terminates 90 days after the work has been completed or has been accepted. In addition, coverage will cease once the building has been put its intended use.
All of the following are included in an insurance property estimate of damages except:
Depreciation. Explanation: Estimating damages do not include the application of depreciation. The application of depreciation is the role of the insurance adjuster after an estimate to replace the damaged property has been performed.
The insured car dealer carries dealer's physical damage coverage with comprehensive and collision coverage. One of the salesmen allows an old customer to test drive a van. The customer steals the car and it is later found heavily damaged in an accident. The adjuster will:
Deny the claim unless the insured carries "false pretense" coverage. Explanation: The claim will be denied unless the insured carries "false pretense" coverage which is an optional coverage purchased, in addition to the other physical damage coverages.