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Flashcards in IA Test 24 Deck (100)
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1

The Homeowners policy on Dylan's $110,000 home is voided when he intentionally burns the house to the ground. Consequently, he does not receive the settlement check he was hoping to when he committed the arson, but he still has an outstanding mortgage balance of $76,000. How does this event affect the mortgage lender?

Answer Choices: Select the Correct Answer
The insurer pays the mortgage lender $110,000.
The insurer pays the mortgage lender $76,000.
The insurer pays the mortgage lender $55,000 - half the total amount of the loss.
Because the arson voided the policy, the mortgage lender is paid nothing.

Question 1 of 100

Your answer: The insurer pays the mortgage lender $76,000. is correct.

EXPLANATION:
The insured cannot intentionally jeopardize the mortgage lender's rights. Therefore, the insurer will pay the mortgage lender the $76,000 mortgage balance.


Question 1 of 100

2

Which statement best describes "defense" coverage under the Section II - Liability coverage of the Businessowners policy?

Answer Choices: Select the Correct Answer
Defense costs are not subject to a limit.
Defense costs are included in the aggregate limit of insurance.
Defense costs are paid but limited to claims submitted during the policy period.
Defense costs are paid at twice the limit of the policy.

Question 2 of 100

Your answer: Defense costs are not subject to a limit. is correct.

EXPLANATION:
Defense coverage is not subject to a policy limit. The insurer can spend whatever it desires in the defense of a claim and it has no effect on the policy limit.


Question 2 of 100

3

Which of the following would be covered under employee dishonesty?

Answer Choices: Select the Correct Answer
Money lost on the way to the bank
Inventory shortages
Embezzlement
Robbery of the employee

Question 3 of 100

Your answer: Inventory shortages is incorrect. The correct answer is: Embezzlement.

EXPLANATION:
Embezzlement is a dishonest act by an employee, and thus would be covered by Employee dishonesty. The other answer choices are excluded or are not dishonest acts of an employee.


Question 3 of 100

4

Which of the following is a type of "voluntary loss" taken to save the property from further loss?

Answer Choices: Select the Correct Answer
General Average Loss
Partial Average Loss
Actual Total Loss
Constructive Total Loss

Question 4 of 100

Your answer: Partial Average Loss is incorrect. The correct answer is: General Average Loss.

EXPLANATION:
A "General Average Loss" is a partial loss that is "voluntary". This type of loss is taken to save the property from further loss, such as an insured who uses a garden hose to extinguish a fire that has started on her couch. The water damage is "voluntary" but it prevented further loss to the house.


Question 4 of 100

5

What insurers must participate in accepting business under the California FAIR Plan?

Answer Choices: Select the Correct Answer
All insurers licensed to write basic property insurance or any component of property insurance in multi-peril policies.
Companies who specialize in difficult or hard to place property insurance.
Only those property insurers holding a certificate of authority for 5 years or less in California.
Only those insurers wanting to enter California and have received approval from their board of directors.

Question 5 of 100

Your answer: All insurers licensed to write basic property insurance or any component of property insurance in multi-peril policies. is correct.

EXPLANATION:
The purpose of the FAIR Plan is designed to provide a market for those property owners who are unable to obtain insurance through the normal market. Therefore, the California legislature enacted legislation requiring the participation of admitted insurers licensed to write property insurance to participate.


Question 5 of 100

6

Each of the following is true about Builders Risk Coverage, EXCEPT:

Answer Choices: Select the Correct Answer
Coverage terminates the day after construction is completed.
The amount at risk increases over time.
Land, lawns and trees are not covered.
In effect, the coverage has a 100% coinsurance requirement.

Question 6 of 100

Your answer: In effect, the coverage has a 100% coinsurance requirement. is incorrect. The correct answer is: 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 to its intended use.


Question 6 of 100

7

What is the purpose of freight insurance?

Answer Choices: Select the Correct Answer
Covers shipper fees.
Covers loss to the cargo.
Covers the insurable interest of the shipper due to jettison of the cargo.
Covers the cargo until it reaches the warehouse.

Question 7 of 100

Your answer: Covers the insurable interest of the shipper due to jettison of the cargo. is incorrect. The correct answer is: Covers shipper fees..

EXPLANATION:
Freight insurance is designed to cover the shipper’s fees charged to the shipper. It is the indirect loss/business interruption coverage which comes into play after a direct loss to the vessel.


Question 7 of 100

8

Which of the following policies does not include coverage for flood?

Answer Choices: Select the Correct Answer
An HO-3 Policy
A Personal Auto policy with "other than collision" coverage
A Personal Articles Floater
A floater covering fine arts

Question 8 of 100

Your answer: An HO-3 Policy is correct.

EXPLANATION:
A homeowner policy specifically excludes flood coverage.


Question 8 of 100

9

Which of the following statements does NOT describe the major purpose of commercial umbrella liability insurance?

Answer Choices: Select the Correct Answer
To provide supplementary insurance.
To provide excess insurance in addition to the underlying policy.
To provide additional coverage to the underlying insurance policy.
To protect the insured from catastrophic losses by providing additional insurance.

Question 9 of 100

Your answer: To provide additional coverage to the underlying insurance policy. is correct.

EXPLANATION:
In commercial umbrella insurance the insurer will require the insured to carry "underlying" insurance. Underlying policies pay first for claims covered by the underlying coverage and then the umbrella continues to pay according to its policy provisions.

10

Which of the following would not be addressed by a court in the determination of a declaratory judgment?

Answer Choices: Select the Correct Answer
Determine if a particular exclusion would apply
Determine if a particular insuring agreement would apply
Determine fault or monetary damages
Determine if other insurance policies apply

Question 10 of 100

Your answer: Determine fault or monetary damages is correct.

EXPLANATION:
The court would not determine the fault or monetary judgment in the determination of a declaratory judgment.


Question 10 of 100

11

The three parties to a contract bond are:

Answer Choices: Select the Correct Answer
Principal, obligee, surety.
Obligor, principal, surety.
Principal, obligee, employee.
Employee, obligor, principal.

Question 11 of 100

Your answer: Principal, obligee, surety. is correct.

EXPLANATION:
The three parties to a contract bond are the principal (contractor), obligee (the protected party) and the surety (the guarantor) who pays the loss to the obligee because the principal failed to perform.


Question 11 of 100

12

Sarah is shopping at a grocery store and wants to purchase a bottle of juice. The aisle is marked off with a rope awaiting the clerk to clean up a previously broken bottle and spill on the floor. Sarah moves the rope to get the item and slips and falls on the floor, cutting her face on the scattered glass. Which of the following would be the defense that the insurance company would most likely use in this situation?

Answer Choices: Select the Correct Answer
Breach of duty on the part of the customer.
Assumption of risk and contributory negligence on the part of the customer.
Trespassing on non-entry areas by the customer.
Comparative negligence.

Question 12 of 100

Your answer: Assumption of risk and contributory negligence on the part of the customer. is correct.

EXPLANATION:
Business owners are only liable for negligence if a failure to carry out their duty caused the accident. For strict liability cases against manufacturers or sellers of defective products, the injury must result from a defect. In this case the grocery store attempted to keep the premises safe and was not negligent and no breach of duty occurred. The customer assumed the risk which contributed to the injuries.


Question 12 of 100

13

All of the following are exclusions under Section I - Forms HO-2 and HO-3, EXCEPT:

Answer Choices: Select the Correct Answer
Collapse.
Water including flood.
Power failure.
Earth movement.

Question 13 of 100

Your answer: Power failure. is incorrect. The correct answer is: Collapse..

EXPLANATION:
The HO-8 form does not include the peril of collapse. However, the broader forms HO-2 and HO-3 include collapse. The other 3 answers are excluded under all of the HO forms.


Question 13 of 100

14

An insurance company in California has cancelled a Homeowners policy for a reason acceptable by law. How long does the insurer have to return the unearned premium to the insured?

Answer Choices: Select the Correct Answer
The unearned premium must be returned along with the notice provided to the insured that the policy is being cancelled.
Within 30 days of the date of cancellation.
Within 25 days of the date of cancellation.
The unearned premium must be returned within 10 days of mailing the notice of cancellation to the insured.

Question 14 of 100

Your answer: Within 30 days of the date of cancellation. is incorrect. The correct answer is: Within 25 days of the date of cancellation..

EXPLANATION:
When a Homeowners policy is cancelled in California, any unearned premium must be returned to the insured within 25 days of the cancellation date of the policy.


Question 14 of 100

15

All of the following statements regarding the Commercial Package Policy are correct, EXCEPT:

Answer Choices: Select the Correct Answer
Commercial Package Policies can include Ocean Marine and Aviation Insurance coverage.
Almost all commercial risks are eligible for coverage under the Commercial Package Policy.
The insured can choose a variety of eligible commercial coverages to tailor the package to specific business insurance needs.
A complete Commercial Package Policy (CPP) includes a common policy Declarations page, a common policy Conditions sections, and two or more coverage parts.

Question 15 of 100

Submit

Your answer: Almost all commercial risks are eligible for coverage under the Commercial Package Policy. is incorrect. The correct answer is: Commercial Package Policies can include Ocean Marine and Aviation Insurance coverage. .

EXPLANATION:
Ocean Marine and/or Aviation insurance are "specialty" policies that cannot be packages together with other commercial risks into a package policy.


Question 15 of 100

16

A Personal Automobile policy provides liability coverage on a single limit basis for $100,000. A covered accident caused by Mr. Jones involves a $75,000 liability judgment to Mr. Allen for his injuries and $25,000 liability judgment for the damage to his car. In addition, $20,000 in legal bills are incurred defending the insured. The company will pay:

Answer Choices: Select the Correct Answer
$120,000.
$25,000.
$75,000.
$100,000.

Your answer: $120,000. is correct.

EXPLANATION:
Legal expenses are in addition to the limit of liability. The single limit covers both bodily injury and property damage liability. Therefore, the policy will pay the $100,000 in damages and the cost to defend the insured in the lawsuit for a total of $120,000.


Question 16 of 100

17

The attempt to restore an insured to his or her previous financial condition before a loss occurred is BEST described as:

Answer Choices: Select the Correct Answer
Indemnification.
Subrogation.
Coinsurance.
Self-insurance.

Question 17 of 100

Your answer: Indemnification. is correct.

EXPLANATION:
An insurance policy is not designed for an insured to profit from a loss. The intent is to restore the insured to the same financial condition before the loss subject to policy limits.


Question 17 of 100

18

The liberalization clause of a Businessowners policy automatically applies favorable expansions of coverage, for which a premium is not charged if the changes are made during the policy period or within ______ prior to the effective date of the policy.

Answer Choices: Select the Correct Answer
45 days
Six months
Three months
30 days

Question 18 of 100

Your answer: 30 days is incorrect. The correct answer is: 45 days.

EXPLANATION:
A liberalization condition states that the insurer will automatically and immediately apply to the policy any revisions made during the policy period or within 45 days prior to the effective or renewal date if those revisions broaden the coverage without additional premium.


Question 18 of 100

19

Which of the following are qualifications of an applicant for an independent insurance adjuster license in California?

I. Be at least 18 years of age.
II. Must not have committed acts or crimes constituting grounds for denial of a license.
III. Must have had at least 6 months of experience in adjusting insurance claims or the equivalent as determined by the Commissioner.
IV. Must pay the required fees.

Answer Choices: Select the Correct Answer
I, II, III and IV
I, II and IV only
I, II and III only
II, III and IV only

Question 19 of 100

Your answer: I, II and IV only is correct.

EXPLANATION:
An applicant must have two years of experience. All the other statements are correct.


Question 19 of 100

20

The California Insurance Code (CIC) further details the items required on a valid insurance contract. All of the following are required, EXCEPT:

Answer Choices: Select the Correct Answer
The parties to the contract.
The insured's mailing address.
The objects of insurance.
The policy period.

Question 20 of 100

Your answer: The objects of insurance. is incorrect. The correct answer is: The insured's mailing address..

EXPLANATION:
The California Insurance Code (CIC) requires six specific items of information be included in an insurance policy issued in California. The insured's mailing address is not one of them.


Question 20 of 100

21

What coverage under the BOP automatically applies if a customer slips and falls on the named insured's premises, regardless of legal liability?

Answer Choices: Select the Correct Answer
Business liability coverage
Personal injury coverage
Medical expense coverage
Advertising injury coverage

Question 21 of 100

Your answer: Personal injury coverage is incorrect. The correct answer is: Medical expense coverage.

EXPLANATION:
Medical expense coverage pays regardless of the insured's legal liability. It is a "good will" type of coverage where negligence is not a factor in the claim.


Question 21 of 100

22

Under a Commercial Property policy, the coinsurance clause does all of the following, EXCEPT:

Answer Choices: Select the Correct Answer
Grants the insured a reduction in premiums for accepting a condition that the insured maintain insurance at a specified percentage of either the actual cash value or replacement cost of the covered property.
The insured could become a co-insurer to a partial loss if the insured is in violation of the clause.
The coinsurance clause does not operate in the event of a total loss.
There are no exceptions, all of the responses are correct.

Question 22 of 100

Submit

Your answer: There are no exceptions, all of the responses are correct. is correct.

EXPLANATION:
There are no exceptions, all of the responses are correct.


Question 22 of 100

23

The crew of a ship is guilty of fraud with the intention of reaping gains at the expense of the owner. In ocean marine coverage, what is this called?

Answer Choices: Select the Correct Answer
Perils of the sea
Jettison
General average
Barratry

Question 23 of 100

called?

Your answer: Barratry is correct.

EXPLANATION:
Barratry means fraud by the master or the crew with the intention of reaping gains at the expense of the owner. Examples include setting the ship on fire, diverting the ship from its course, or embezzlement of the cargo.


Question 23 of 100

24

Under the CGL coverage part as it relates to products liability coverage, which of the following would apply?

Answer Choices: Select the Correct Answer
Worldwide coverage is provided as long as the product is manufactured or sold in the covered territory and the claim is brought within the coverage territory
Products are covered while being manufactured anywhere in the world
Products made in the USA if a suit is brought in a foreign country
Must be consumed or used within the United States and Canada for coverage to apply

Question 24 of 100

Your answer: Worldwide coverage is provided as long as the product is manufactured or sold in the covered territory and the claim is brought within the coverage territory is correct.

EXPLANATION:
The products must be manufactured within the coverage territory. This includes the US, its possessions, Canada and Puerto Rico. The suit must also be brought within the coverage territory, unless otherwise agreed to by the insurer.


Question 24 of 100

25

Miranda's home is covered under a Homeowners policy with an Earthquake Endorsement attached. She has selected the base deductible of 5% and her limit of liability under Coverage C is greater than Coverage A. Her Coverage C limit of liability is $1,000. What is the deductible that Miranda will have to pay?

Answer Choices: Select the Correct Answer
$50
$5
$5,000
$500

Question 25 of 100

Your answer: $500 is correct.

EXPLANATION:
Although 5% multiplied by $1,000 is $50, the endorsement states that the deductible will never be less than $500.


Question 25 of 100

26

A monopolistic state in regards to Workers Compensation insurance is a state in which:

Answer Choices: Select the Correct Answer
Coverage may be purchased from either the state or a private insurance company.
Coverage may only be purchased from a private insurance company.
Workers compensation coverage is not required.
Coverage must be purchased from the state.

Question 26 of 100

Your answer: Coverage must be purchased from the state. is correct.

EXPLANATION:
In a monopolistic state, the state writes all of the coverage (except those that are self-insured) and private insurers are not permitted to provide coverage.


Question 26 of 100

27

Under "pollution cleanup and removal" coverage under the standard ISO BOP form, when must a loss be reported?

Answer Choices: Select the Correct Answer
Within 180 days
Within 60 days
Immediately
Within 90 days

Question 27 of 100

Your answer: Within 60 days is incorrect. The correct answer is: Within 180 days.

EXPLANATION:
The expenses will be paid only if they are reported to the insurer within 180 days of the date of the direct loss or by the end of the policy period, whichever is earlier.


Question 27 of 100

28

Meg has filed a claim with her insurance company. Conrad, the staff adjuster assigned to her claim, feels there is not coverage under the policy to address Meg's claim, but he is not sure because he has not investigated the claim. The next step that Conrad will most likely take is to:

Answer Choices: Select the Correct Answer
Issue a non-waiver agreement to Meg.
Issue a reservation of rights letter to Meg.
Request a declaratory judgment.
Begin the claims investigation.

Question 28 of 100

Your answer: Issue a reservation of rights letter to Meg. is correct.

EXPLANATION:
A reservation of rights letter would be issued before the claims investigation would begin. This letter would explain to the claimant that the insurance company intends to investigate the claim, but reserves the right to deny the claim if coverage does not apply under the policy.


Question 28 of 100

29

The insured was working with a subcontractor installing wiring in an office building the insured was remodeling for a customer. The insured accidentally caused a fire when he crossed some wires. Two of the offices were damaged, and the wiring had to be replaced. Which of the damages will the insured’s commercial umbrella liability policy likely cover if it is needed?

Answer Choices: Select the Correct Answer
The damages to the two offices and the wiring
The damages to the two offices only
The damages to the wiring only
The damages to one of the offices only

Question 29 of 100

our answer: The damages to the two offices only is correct.

EXPLANATION:
The coverage would only apply to the damage to the two offices only. The wiring is not covered. It is part of their work.


Question 29 of 100

30

Which of the following statements BEST describes the reason it was necessary to create a federal flood insurance program in 1968?

Answer Choices: Select the Correct Answer
Because other property policies routinely exclude flood from coverage.
Because people were building their homes closer and closer to large bodies of water than ever before.
Because the United States was experiencing more flooding than ever before.
Because the flood insurance policies that were being issued at the time, did not provide adequate coverage for contents.

Question 30 of 100

Your answer: Because other property policies routinely exclude flood from coverage. is correct.

EXPLANATION:
It was necessary to create a federal flood insurance program because other property policies routinely exclude flood from coverage. Many citizens were losing everything because they could not purchase insurance to cover their home and their belongings in case of flood.


Question 30 of 100