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Flashcards in IA Test 16 Deck (100)
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1

A change in the Qualified Manager of a California independent adjusting business must be reported to the Department of Insurance within ____ days of such change.

Answer Choices: Select the Correct Answer
30
20
15
10

Question 1 of 100

Your answer: 30 is correct.

EXPLANATION:
The change must be reported within 30 days.


Question 1 of 100

2

Which of the following statements about Equipment Breakdown protection coverage is FALSE?

Answer Choices: Select the Correct Answer
It would cover the mechanical failure of a bottle-making machine in a glass factory.
It would cover hail damage to industrial air conditioning units on the roof of an insured business.
It would cover the clean-up costs after a refrigeration unit experienced a sudden pressure failure of the vacuum system and sprayed hazardous refrigerant everywhere.
It would cover the damage to a company's computer server after an electrical failure shorted out many of its internal components.

Question 2 of 100

Your answer: It would cover hail damage to industrial air conditioning units on the roof of an insured business. is correct.

EXPLANATION:
Equipment Breakdown protection does not cover damage caused by the peril of hail. Damage to the industrial air conditioning units caused by hail would be covered by the Commercial Property policy.


Question 2 of 100

3

The Homeowners "Additional Residence Rented to Others" endorsement will provide coverage for an additional structure, used as a residence, that is rented by the insured as a:

Answer Choices: Select the Correct Answer
A one-family dwelling.
A two-family dwelling.
A one to four-family dwelling.
A one to two-family dwelling.

Question 3 of 100

Your answer: A one to four-family dwelling. is correct.

EXPLANATION:
The Homeowners "Additional Residence Rented to Others" endorsement provides coverage for an additional structure, used as a residence, for one to four families.


Question 3 of 100

4

A Personal Umbrella liability policy:

Answer Choices: Select the Correct Answer
Only covers what the base policy covers.
Is not designed to act as a primary policy.
Will not cover professional liability.
May cover risks not covered in an underlying policy.

Question 4 of 100

Your answer: Is not designed to act as a primary policy. is incorrect. The correct answer is: May cover risks not covered in an underlying policy..

EXPLANATION:
Umbrella liability policies are excess coverage over the primary policy in force. There are some situations where an umbrella may cover a risk that's not covered in an underlying policy.


Question 4 of 100

5

The Common Policy Conditions apply to which coverage parts of a Commercial Package Policy?

Answer Choices: Select the Correct Answer
All parts of the policy.
The property insurance coverages.
The optional insurance coverages.
The liability insurance coverages.

Question 5 of 100

Your answer: All parts of the policy. is correct.

EXPLANATION:
With a Commercial Package Policy, the Common Policy Conditions apply to all of the coverage parts.


Question 5 of 100

6

What does the phrase “free on board destination” mean?

Answer Choices: Select the Correct Answer
Makes the seller responsible to the buyer until the goods have been delivered as agreed.
An ocean term referring to jettison.
The title to the goods to be shipped is transferred to the buyer at the shipping point.
The term is in reference to a cruise ship agreement for passengers.

Question 6 of 100

Your answer: Makes the seller responsible to the buyer until the goods have been delivered as agreed. is correct.

EXPLANATION:
The term is used in two common phrases, "FOB shipping point" and "FOB destination," to distinguish when the title of goods passes from the seller to the buyer. Under the terms of "FOB shipping point," the title of the goods passes to the buyer at the shipping point. Similarly, under the terms of "FOB destination," the title of the goods passes to the buyer when the goods arrive at their destination. The distinction is important because it determines who pays for the shipping costs of the merchandise - whoever holds the title to the merchandise at the time of its shipping pays for its transportation costs unless otherwise noted (e.g., freight prepaid or freight collect). Also, it is important that if the shipment is damaged while traveling the owner must file the freight claim.


Question 6 of 100

7

Coverage F under the farm forms covers which of the following?

Answer Choices: Select the Correct Answer
Unscheduled personal property
Scheduled personal property
Scheduled real property coverage
Blanket real property coverage

Question 7 of 100

Your answer: Blanket real property coverage is incorrect. The correct answer is: Unscheduled personal property.

EXPLANATION:
Coverage F covers unscheduled personal property on a blanket basis. One limit for all business personal property is stated. The items are not scheduled as they are under Coverage E.


Question 7 of 100

8

What is the procedure for an insured to refuse uninsured motorist coverage in California?

Answer Choices: Select the Correct Answer
The insured must advise the insurer in writing that he or she does not want the coverage.
The insured may advise the Insurance Department that he or she does not want the coverage.
The insured may phone the insurance agent and decline the coverage.
The insured may phone the insurance company and decline the coverage.

Question 8 of 100

Your answer: The insured may phone the insurance agent and decline the coverage. is incorrect. The correct answer is: The insured must advise the insurer in writing that he or she does not want the coverage..

EXPLANATION:
According to the California Insurance Code (CIC 11580.2), prior to issuance or renewal of the policy the insured must state in writing that he or she does not want the coverage.


Question 8 of 100

9

What commercial auto policy form would be used to cover a company that transports their own property and property of others?

Answer Choices: Select the Correct Answer
The Motor Carrier form.
The Business Auto form.
The Truckers form.
The Garage Liability form.

Question 9 of 100

Your answer: The Truckers form. is incorrect. The correct answer is: The Motor Carrier form..

EXPLANATION:
A motor carrier is anyone who transports property by auto in a commercial enterprise, regardless of whether he or she was hired for that purpose. The BAP can be used to cover an insured when transporting his or her own property. However, if an insured is transporting property of others and his or her own property, the Motor Carrier form should be used. Damage to the cargo itself would be covered under a Commercial Inland Marine form.


Question 9 of 100

10

Which of the following best defines an "insured"?

Answer Choices: Select the Correct Answer
Transfer of the risk of financial loss from one party to another.
A legally binding contract in which the insurance company agrees to pay for specified losses in exchange for premiums.
A company, group, or government agency offering financial protection.
An individual or entity that pays premiums in exchange for financial protection.

Question 10 of 100

Your answer: A legally binding contract in which the insurance company agrees to pay for specified losses in exchange for premiums. is incorrect. The correct answer is: An individual or entity that pays premiums in exchange for financial protection..

EXPLANATION:
The "insured" is a person or entity that pays premiums in exchange for financial protection.


Question 10 of 100

11

QUESTION:
Which of the following is true about "open peril" coverage?

Answer Choices: Select the Correct Answer
It provides coverage for all perils, unless that peril is specifically excluded.
It provides coverage for scheduled risks.
It provides coverage for the named perils.
It does not exclude any perils from coverage.

Question 11 of 100

Your answer: It provides coverage for all perils, unless that peril is specifically excluded. is correct.

EXPLANATION:
On a "named peril" cause of loss form, the covered perils are named or specified. If the peril is not listed, then coverage does not apply. Conversely, on an "open peril" cause of loss form, ALL perils are covered unless the peril(s) is/are specifically excluded. "Open peril" cause of loss forms contain more exclusions than named peril forms for obvious reasons.


Question 11 of 100

12

Which of the following best describes the reason for using various work classifications in the calculation of Workers Compensation premiums?

Answer Choices: Select the Correct Answer
To prevent discrimination by employers.
To assure a proper profit margin for insurers.
To accurately reflect the risks of each employer.
To encourage safety in the workplace.

Question 12 of 100

Your answer: To accurately reflect the risks of each employer. is correct.

EXPLANATION:
There are hundreds of different work classifications which are used in the calculation of Workers Compensation premiums, with a different rate for each one. By classifying an employer's payroll according to work classification, the premiums charged more accurately reflect the actual risk of loss for each employer.


Question 12 of 100

13

An insured is covered under a BOP policy. He insures a piece of equipment separately under a floater policy. In case of a loss what coverage will apply under the BOP policy?

Answer Choices: Select the Correct Answer
The loss is completely covered under the BOP.
The policy will pay its fair percentage of the loss.
The BOP will be excess over the floater policy.
The loss is not covered under the BOP because it is separately insured.

Question 13 of 100

Your answer: The loss is not covered under the BOP because it is separately insured. is incorrect. The correct answer is: The BOP will be excess over the floater policy. .

EXPLANATION:
The BOP would be excess subject to the policy limits if the floater does not cover the entire loss.


Question 13 of 100

14

Extended reporting periods under the Commercial General Liability policy apply only to:

Answer Choices: Select the Correct Answer
Bodily injury claims
Property damage claims
Claims-made policies
Occurrence policies

Question 14 of 100

Your answer: Bodily injury claims is incorrect. The correct answer is: Claims-made policies.

EXPLANATION:
The extended reporting period applies only to the "claims-made" CGL coverage form.


Question 14 of 100

15

Part I of a standard workers compensation policy requires the insurer to pay injured workers the benefits that are required by state statutes. This section of the policy also specifies the:

Answer Choices: Select the Correct Answer
The schedule showing the dollar limit of the policy coverage.
Amount of coverage that federal programs will pay.
Statutory provisions of the policy.
The schedule showing the dollar amount paid for exemplary damages.

Question 15 of 100

Your answer: Statutory provisions of the policy. is correct.

EXPLANATION:
Part I of the standard workers compensation policy specifies the statutory (state-specific) provisions of the policy.


Question 15 of 100

16

When an insured cancels a Homeowners policy before the renewal date, the unearned premium (UEP) is returned to the insured on a short-rate basis. Which of the following is true when a short-rate cancellation occurs?

Answer Choices: Select the Correct Answer
The insurer is permitted to retain a higher percentage of the UEP than when the insurer cancels the policy.
The insurer must return only 50% of the premium the insured has paid.
The insurer must return 100% of the premium the insured has paid.
The insurer is permitted to retain a smaller amount of the UEP with a short-rate cancellation than with a mid-term cancellation.

Question 16 of 100

Your answer: The insurer is permitted to retain a smaller amount of the UEP with a short-rate cancellation than with a mid-term cancellation. is incorrect. The correct answer is: The insurer is permitted to retain a higher percentage of the UEP than when the insurer cancels the policy..

EXPLANATION:
When an insured cancels a Homeowners policy before the renewal date, the insurer is permitted to retain a higher percentage of the UEP than when the insurer cancels the policy. The amount of the short-rate premium return is usually determined by a table within the policy itself.


Question 16 of 100

17

Which of the following bests describes the process of mediation?

Answer Choices: Select the Correct Answer
A summons to give testimony
Estoppel because of certain acts of others
Both parties present their dispute to a person usually in the legal profession; nothing is binding on either party
All parties submit their differences to a disinterested third party; the result is binding on both parties

Question 17 of 100

Your answer: Both parties present their dispute to a person usually in the legal profession; nothing is binding on either party is correct.

EXPLANATION:
In mediation, both opposing parties present their dispute to an impartial third party, usually a trial lawyer or retired judge, who helps the parties analyze their dispute and devise a compromise. Nothing is binding on either party until an agreement is formulated and agreed to by the opposing parties.


Question 17 of 100

18

Some policies will pay full current cost for new property when there is a loss that is insured on:

Answer Choices: Select the Correct Answer
A replacement cost basis.
A valued policy basis.
A market value basis.
An actual cash value (ACV) basis.

Question 18 of 100

Your answer: A replacement cost basis. is correct.

EXPLANATION:
Replacement cost coverage pays to replace the property at today's cost without regard to depreciation. The insured would have to carry coverage based on replacement cost instead of actual cash value (ACV).


Question 18 of 100

19

Which of the following dwelling forms may provide replacement cost coverage for buildings?

Answer Choices: Select the Correct Answer
The broad and special forms only
The basic, broad, and special forms
The basic and broad forms only
The special form only

Question 19 of 100

Broad and Basic forms only

20

The "when more than one coverage applies" condition in Commercial Crime insurance is designed to:

Answer Choices: Select the Correct Answer
Specify how a claim would be allocated among the different insurers.
Allow the insured to choose the company that will pay the claim.
Provide for subrogation of a claim.
Avoid overpayment of a claim.

Question 20 of 100

Your answer: Avoid overpayment of a claim. is incorrect. The correct answer is: Specify how a claim would be allocated among the different insurers. .

EXPLANATION:
The purpose of the clause is to specify how a claim would be allocated among the different insurers.


Question 20 of 100

21

Under which of the following claims settlements are the claim invoices presented and paid with no attempt to obtain a separate release?

Answer Choices: Select the Correct Answer
A partial release.
A walk-away release.
An open-end release.
Structured settlement.

Question 21 of 100

Your answer: An open-end release. is incorrect. The correct answer is: A walk-away release..

EXPLANATION:
Under a "walk-away" release, the bills presented are paid with no attempt to obtain a separate release, although the wording on the draft or check may also serve as a form of release. After a certain amount of time has passed with no further contact with the claimant, the file is considered closed.


Question 21 of 100

22

What is the limit that is paid for water damage under an Equipment Breakdown policy?

Answer Choices: Select the Correct Answer
$10,000
$15,000
$25,000
Nothing

Question 22 of 100

Your answer: Nothing is incorrect. The correct answer is: $25,000.

EXPLANATION:
The limit is $25,000.


Question 22 of 100

23

Each of the following qualifies under the business auto policy definition of "auto", EXCEPT:

Answer Choices: Select the Correct Answer
A truck sometimes used to pull a mobile generator.
A trailer.
A bulldozer.
A motorcycle.

Question 23 of 100

Your answer: A trailer. is incorrect. The correct answer is: A bulldozer..

EXPLANATION:
The bulldozer is considered to be mobile equipment covered under the CGL policy for liability coverages unless it is registered and licensed. If registered and licensed as required by certain states, Symbol 19 would be used under the Business Auto policy. If the bulldozer does not require registration BUT is used on the public roads as a method of transportation, the Mobile Equipment endorsement will be required to make it a covered vehicle under the Business Auto policy.


Question 23 of 100

24

Which of the following is the type of report indicating the initial results of the investigation of a claim?

Answer Choices: Select the Correct Answer
Field Report
Interim Report
Full Report
Claims Report

Question 24 of 100

Your answer: Claims Report is incorrect. The correct answer is: Field Report.

EXPLANATION:
This report can also be called the initial report and is the result of the initial investigation.


Question 24 of 100

25

The insured sets a fire to his home and is found to be guilty of arson. There is a lien on the burned property by a mortgage company in the amount of $150,000. The property is insured for $300,000 and is a total loss. The personal property of the insured, covered separately by a Homeowners policy for $150,000, is also a total loss. How will this claim most likely be paid?

Answer Choices: Select the Correct Answer
The insured is paid a total of $300,000.
The mortgagee is paid $150,000.
The insured is paid $150,000 for the personal property loss.
Since the loss is from an intentional act of the insured the entire loss is denied.

Question 25 of 100

Your answer: The mortgagee is paid $150,000. is correct.

EXPLANATION:
The provisions relative to the suspension of payment due to arson do not apply to a lender that holds a valid recorded mortgage on the property in question. Therefore, the lien holder is fully reimbursed for its insurable interest in the property. The insured is not paid due to the charge and conviction of arson.


Question 25 of 100

26

All the following are covered under Section II of the homeowner policy EXCEPT:

Answer Choices: Select the Correct Answer
Injury to a newspaper carrier who slips on the insured's steps
Premiums on bonds required for lawsuits defended by the insurer
Intentional bodily injury to others by the insured
Reasonable expenses incurred by the insured to assist with a lawsuit

Question 26 of 100

Your answer: Intentional bodily injury to others by the insured is correct.

EXPLANATION:
Intentional acts are not covered under the homeowner policy.


Question 26 of 100

27

Medical payments coverage under the Farmowners policy covers which of the following?

Answer Choices: Select the Correct Answer
Injuries sustained by an invitee.
Injuries sustained by a farm employee.
Injuries sustained by the insured.
Injuries sustained by a tenant living in the insured's dwelling.

Question 27 of 100

Your answer: Injuries sustained by a farm employee. is incorrect. The correct answer is: Injuries sustained by an invitee..

EXPLANATION:
Medical payments would pay for the injuries sustained by an invitee or guest. Coverage does not apply to members of the insured's family, roomers or boarders or tenants of the dwelling, or to farm employees.


Question 27 of 100

28

Losses caused by all of the following are covered under the National Flood Insurance Program, EXCEPT:

Your answer: Mudslide. is correct.

EXPLANATION:
Flood insurance covers loss caused by an overflow of tidal or surface waters and mudflow. The NFIP does not cover mudslide.


Question 28 of 100

29

The current version of the nationwide definition recognizes six broad classes of property as eligible for marine coverage. These eligible classes include all of the following, EXCEPT:

Answer Choices: Select the Correct Answer
Domestic shipments.
Imports and exports.
Instrumentalities of Transportation and Communication
Business personal property.

Question 29 of 100

Your answer: Business personal property. is correct.

EXPLANATION:
Business personal property is not a “class” or category of business mentioned in the definition specifically. Obviously this type of property can be covered under the commercial property forms or the BOP.


Question 29 of 100

30

In a liability policy the insurance company will pay damages on behalf of an insured when:

Answer Choices: Select the Correct Answer
The insurer determines the insured is legally liable and coverage applies under the policy.
A relative is injured on the premises.
The local police department issues a safety citation.
Any time a third party is injured on the insured's premises.

Question 30 of 100

Your answer: The insurer determines the insured is legally liable and coverage applies under the policy. is correct.

EXPLANATION:
Most insurers will pay a claim once it is determined the insured is legally liable. This determination can be made by a court or when the insurer feels that the insured is liable.


Question 30 of 100