Chapter 15 Flashcards
While examining a toy in a manufacturer’s warehouse, a child cuts her finger. The toy manufacturer’s insurer will cover the claim if the manufacturer carried which one of the following types of insurance?
A) Employment practices liability.
B) Commercial property.
C) Commercial general liability.
D) Workers compensation.
Answer: C
One of the exposures that the commercial general liability (CGL) policy covers is bodily injury resulting from the premises, operations, products, and completed operations (Section A). It also covers medical expenses for accidental bodily injury on or away from the premises (Section C).
Which one of the following situations is covered under a commercial general liability (CGL) policy?
A) An insured’s customer is killed while traveling in the insured’s bus.
B) A shopper is injured when a shelf of merchandise collapses.
C) An insured car strikes a pedestrian.
D) An insured boat rams another boat.
Answer: B
The CGL would pay only the reasonable expenses for bodily injury that is caused to a person by an accident on the premises that the insured owns or rents. In the other situations described, the CGL would not apply, though other coverage under other policies (personal auto policy, marine insurance, homeowners insurance) might apply.
Which one of the following situations would most likely be covered by a commercial general liability (CGL) policy?
A) An office worker’s finger is injured in an electric pencil sharpener.
B) A surfboard falls off a shelf and injures a shopper.
C) Manufacturing exhaust kills a crop of tomatoes in a nearby field.
D) An employee drives his auto into his employer’s garage door.
Answer: B
The shopper’s injuries would be covered under Coverage A or Coverage C, depending on whether the insured is found to be liable for the injuries. The CGL policy does not cover work-related bodily injury to any employee, which would be covered by workers compensation insurance. It specifically excludes property damage arising out of the discharge or escape of pollutants. Property damage due to the negligence of an employee operating his own auto would be covered by that person’s personal auto policy (PAP), not by the CGL policy.
Which one of the following is NOT a commercial general liability exposure?
A) Owned premises.
B) Products manufactured or sold.
C) Operations by employees.
D) Operation of automobiles.
Answer: D
General liability insurance is written to cover two major risk exposures: premises and operations, and products and completed operations. Auto-related liability exposures for businesses are covered under commercial auto policies.
Barbara is demonstrating a floor model of her company’s product in its showroom when something goes wrong with the demonstration and the customer is injured. This is an example of what type of loss?
A) Premises liability.
B) Completed operations.
C) Products liability.
D) Personal injury.
Answer: A
Premises liability protects the insured against injury to third parties that occurs on or arises out of the insured’s premises. Products liability begins after the insured has relinquished control of the product and it has left the insured’s premises. Completed operations liability covers finished operations by the insured business. Personal injury insurance provides coverage for libel, slander, invasion of privacy, and other intentional torts.
A person is injured after slipping on a wet floor in a grocery store. Insurance against which of the following exposures would provide coverage?
A) Products liability.
B) Completed operations liability.
C) Operations.
D) Premises.
Answer: D
A businessowner can be held liable if a third party is injured or suffers property damage when using the business premises. Under products liability exposure, a manufacturer or distributor of a faulty product can be held liable if the product injures someone. Completed operations liability exposure arises when a business, such as a contractor, completes operations off its own premises and someone is injured or property is damaged at the site of its operations. Operations exposure involves liability that arises in the course of a business’s daily operations if someone is injured or his property is damaged either where the business is conducted or by an activity of the owner or an employee.
Marcus, an employee at the Beautiful Home Gift Store, dropped and broke a customer’s purchase while carrying it to the customer’s car. The resulting loss would be considered which of the following under the store’s commercial general liability policy?
A) Products-completed operations.
B) Premises-operations.
C) Personal injury.
D) Products liability.
Answer: B
A businessowner can be held liable if a third party is injured or suffers property damage on the premises where the business is conducted. This liability arises in the course of the business’s daily operation and is known as premises-operations exposure. Under products-completed operations liability exposure, a manufacturer or distributor of a faulty product can be held liable if the product or other result of operations injures someone.
A contractor built a home for a family. Four months after the family moved into the home, the kitchen sink fell on a family member’s foot and broke it. This is an example of what type of loss?
A) Insured contracts.
B) Personal injury.
C) Completed operations.
D) Premises liability.
Answer: C
When a business completes operations away from the premises it owns, rents or controls, a completed operations exposure exists. Completed operations liability results when a person is injured or her property is damaged after the business operation has been completed on premises away from the business premises. By contrast, if someone is hurt or suffers property damage before the operation is complete, a business operations exposure exists.
Dennis purchased a small manufacturing firm and wants to purchase coverage for the premises-operations and products-completed operations exposures. Which of the following types of insurance should he purchase?
A) Boiler and machinery.
B) Comprehensive general liability.
C) Commercial general liability.
D) Employment practices liability.
Answer: C
A commercial general liability policy is a commercial lines program covering the premises and operations and products-completed operations exposures.
Mark wants to purchase a policy for his manufacturing company to include premises liability, products liability, and completed operations. Which policy would cover all of these losses?
A) Personal injury liability.
B) Commercial general liability.
C) Contractual liability.
D) Products and completed operations liability.
Answer: B
Section A of the CGL policy covers bodily injury and property damage arising from the premises, operations, products, and completed operations.
Which one of the following statements about occurrence liability policies is CORRECT?
A) Occurrence policies do not have a coverage trigger.
B) Occurrence policies cover losses that happen after a specified retroactive date.
C) Occurrence policies are only used for products/completed operations exposures.
D) Occurrence policies cover events that happen after the policy is in effect but before it expires
Answer: D
An occurrence policy covers losses that occur while the policy is in force, even if a claim is submitted after the policy has expired. Occurrence policies have a coverage trigger. It is the event or damage that must happen during the policy period for coverage to become available. Occurrence policies are not limited to products-completed operations exposures; they are written to cover other types of losses.
A claims-made policy covers claims that are:
A) first reported during the policy period, provided the event occurred before the retroactive date (if any) stated in the policy.
B) triggered by an incident that took place during the policy period, regardless of when the claim is made.
C) triggered by an incident that took place during the policy period, if the claim is made within 2 years of the incident.
D) first reported during the policy period, provided the event occurred after the retroactive date (if any) stated in the policy.
Answer: D
There are 2 CGL policy programs: occurrence and claims made. The claims-made policy’s coverage is triggered by the actual filing date or receipt of the claim, in addition to the date (period) the loss occurred. Any covered loss or claim filed within the policy period is handled by that policy regardless of when the actual loss or injury occurred. The occurrence policy provides protection for covered losses when the actual injury itself occurred during the policy period, regardless of when notification of the loss or claim happened.
An insured’s claims-made CGL policy just expired after having been in effect for one year. The policy included a supplemental extended reporting period endorsement to cover claims filed after the end of the 60 day basic extended reporting period. When a $5,000 claim is filed 3 years later for a loss that occurred during the 60 day basic extended reporting period, how much will the policy pay?
A) $0.00
B) $1,000.00
C) $2,500.00
D) $5,000.00
Answer: A
The claim will not be paid. The supplemental extended reporting period endorsement provides an unlimited extension of the reporting period, but the loss causing the claim must still occur sometime between the retroactive date and the policy expiration date. While the 60 day basic extended reporting period provides for reporting claims, it is not included in the coverage period. Since this loss did not occur during the policy’s coverage period, there is no coverage.
In a claims-made liability policy, the specific date shown in the declarations indicating the first date events are covered by the policy is called its:
A) reporting period.
B) policy period.
C) retroactive date.
D) inception date.
Answer: C
The retroactive date on a claims-made liability policy is the date that triggers the beginning of insurance coverage. A retroactive date is not required. If one is shown on a policy, any claim made during the policy period will not be covered if the loss occurred before the retroactive date.
The retroactive date of a claims-made professional liability policy is which of the following?
A) The date that no claims can be submitted.
B) The earliest date an event or loss may occur and be eligible for coverage under the policy.
C) The date the policy expires.
D) The inception date of the policy.
Answer: B
The retroactive date is the first date on which an event may occur and be covered by the policy if a claim is filed.
A businessowner purchases a commercial general liability (CGL) policy that includes a supplemental extended reporting period. The effective dates of the policy are December 31, 2007, through December 31, 2008. The businessowner is sued over an incident that occurs on April 15, 2008, but is not discovered or reported until June 30, 2009. What coverage, if any, will the policy provide?
A) Coverage is denied because the reporting period expired.
B) Coverage is denied because the owner was sued.
C) Coverage is granted because the incident occurred during the policy term.
D) Coverage is granted because the reporting period has not expired.
Answer: D
The basic reporting period (basic tail) included in the CGL policy form covers claims for up to 5 years after the end of the policy period as long as the occurrence is reported to the insurer no later than 60 days after the end of the policy period. The basic tail would have denied coverage to the businessowner for this incident because it was reported on June 30, 2009, more than 60 days after the policy period. However, the supplemental extended reporting period (supplemental tail) continues coverage after the basic tail expires. The supplemental tail does not limit the reporting period.
The purpose of the extended reporting period in a commercial general liability policy is to provide:
A) additional time for the insured to make monthly reports of information for rating purposes.
B) coverage for claims made after the policy expires.
C) coverage for events that happen up to 5 years after a claims-made policy has expired.
D) coverage for events that have happened before the policy became effective.
Answer: B
An extended reporting period is a period of time during which coverage will be provided for claims made after the expiration date of the policy if certain conditions are met.
The basic extended reporting period included in the commercial general liability (CGL) form covers claims made up to 5 years after the end of the policy period, as long as an occurrence is reported within how long after the end of the policy period?
A) 1 year.
B) 5 years.
C) 60 days.
D) 30 days.
nswer: C
The basic extended reporting period (basic tail) covers claims made up to five years after the end of the policy period, as long as an occurrence is reported within 60 day after the end of the policy period.
If an insured has a claims-made commercial general liability policy with the basic extended reporting period, the insurer will pay for losses after the policy has been cancelled as long as the occurrence is reported within 60 days of cancellation and the claim is filed within how many years?
A) Ten.
B) Five.
C) One.
D) Three.
Answer: B
The basic extended reporting period (basic tail) is included in the CGL policy form. It covers claims made up to five years after the end of the policy period as long as an occurrence is reported to the insurer no later than 60 days after the end of the policy period. The basic tail does not extend the period of time in which occurrences may take place, merely the time frame for reporting the claims. The bodily injury or property damage must have occurred before the end of the policy period and after the retroactive date. In addition, coverage applies to all other claims reported to the insurer within 60 days after the policy period. This means that coverage exists for unknown or unreported claims first made in the 60 days following policy expiration.
Which of the following coverages would protect a policyholder for assumed liability under a construction contract to install water lines for a city?
A) Independent contractors.
B) Incidental contracts.
C) Completed operations.
D) Contractual liability.
Answer: D
A business may assume liability for the negligent acts of another through a contract. When such a contract exists, the business has taken upon itself another’s liability. The CGL excludes liability the insured assumes under contract unless the contract fits the policy’s definition of an insured contract. A contract with a municipality required by ordinance is considered an insured contract.
Harold owns a sports bar. As a promotion, he offers customers tastings of new German beers. One customer, after several samples, drives off and injures another person. The injured party sues the driver and Harold. Harold’s commercial general liability policy will:
A) cover the loss under the bodily injury and property damage insuring agreement.
B) cover the loss under the products/completed operations insuring agreement.
C) cover the loss under host liquor liability because Harold did not actually sell the beer.
D) not cover the loss because of the liquor liability exclusion.
Answer: D
The CGL excludes liability arising out of the sales or service of alcoholic beverages. The exception is for the casual host who simply serves alcoholic drinks. An example would be a clothing store that serves champagne to its customers. The clothing store is in the clothing business and not the business of selling alcoholic beverages, hence it is a casual host. Because Harold owns a bar and is using the beer samples as a promotion for the bar, he could not be considered a casual host.
Bob’s Auto Repair stores its customers’ autos inside its building overnight. A fire destroys the building and everything in it. Bob’s commercial general liability policy will pay for which of the following?
A) Neither the damage to the customers’ autos nor the value of Bob’s work.
B) Damage to the customers’ autos and for the value of Bob’s work already performed on them.
C) Damage to the customers’ autos but not the value of Bob’s work.
D) Value of Bob’s work on the autos but not the damage to the customers’ autos.
Answer: A
The commercial general liability policy contains 2 exclusions that would eliminate coverage for the damage to the customers’ autos and for the value of Bob’s work already performed on them. The first exclusion applies to property of others in Bob’s care, custody, or control. The second exclusion applies to damage to the insured’s product, in this case the work performed by Bob.
A commercial general liability policy will cover a policyholder for contractual liability arising from all of the following EXCEPT:
A) railroad sidetrack agreement.
B) elevator maintenance agreement.
C) escrow agreement.
D) easement agreement.
Answer: C
Contractual liability does not cover damages the insured is obligated to pay because he or she assumes liability under a contract, for example, monies accepted under the terms of an escrow contract. Examples of contracts which may be insured for contractual liability include municipal indemnity agreements, easement agreements, elevator maintenance agreements, and railroad sidetrack agreements.
Which of the following occurrences would be included under the definition of a personal injury?
A) A tenant is evicted by his landlord and sues the landlord for invasion of privacy and wrongful eviction.
B) A customer is injured in a department store when a sign falls on her, and she sues the store for medical costs and pain and suffering.
C) An employee is injured lifting a heavy carton and sues his employer for costs.
D) An individual is fired from her job and sues her employer for unemployment benefits.
Answer: A
A personal injury is one other than bodily injury arising out of false arrest, detention, or imprisonment; malicious prosecution; wrongful entry or eviction; publications that slander or libel a person or an organization or that disparage a person’s or an organization’s goods, products, or services; and publications that violate a person’s right of privacy.
