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Flashcards in IA Test 8 Deck (100)
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1

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.
It is a contract which alleges certain facts to be true in the written agreement.
It is a contract in which one party offers payment in exchange for the other party's performance.
It is a contract which alters a previous agreement.

Question 1 of 100

Your answer: It is a contract which alters a previous agreement. is incorrect. The correct answer is: 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. Note: "Contingent" means dependent on the occurrence of something not yet certain (conditional).


Question 1 of 100

2

All of the following are listed on the common Declarations page of a Commercial Package Policy (CPP), EXCEPT:

A list of perils insured against.
The policy period.
The name and mailing address of the insured.
The insured's premium for each coverage part purchased.

Question 2 of 100

Your answer: The name and mailing address of the insured. is incorrect. The correct answer is: A list of perils insured against. .

EXPLANATION:
A list of perils insured against is not included on the common policy Declarations page of a Commercial Package Policy. The policy period, the premium for each coverage part, and the name and mailing address of the insured ARE listed.


Question 2 of 100

3

A farmer has unintentionally libeled a neighboring farmer by stating that the neighbor's dairy products are inferior to his. This is an example of:

Advertising/personal injury.
Bodily injury.
Contractual liability.
Vicarious liability.

Question 3 of 100

Your answer: Advertising/personal injury. is correct.

EXPLANATION:
This is an example of personal/advertising injury. No bodily injury or property damage occurred.


Question 3 of 100

4

Under business income coverage, what coverage continues payment of income after the period of restoration is complete?

Maximum period of Indemnification
Extension of coverage
Agreed value
Extended Business Income

Question 4 of 100

Your answer: Maximum period of Indemnification is incorrect. The correct answer is: Extended Business Income.

EXPLANATION:
The coverage is called Extended Business Income and will allow for payment after the period of restoration is complete up to a maximum of 60 days. This is included in the form automatically. Coverage can be extended for a longer period by paying an additional premium.


Question 4 of 100

5

A commercial inland marine condition defining the insurer’s subrogation rights:

Explains the circumstances under which the insurer can cancel the policy.
Imposes a time limit within which the insurer must pay or deny the claim.
Guarantees the insurer’s ability to recover from a third party who is responsible for a covered loss.
Requires the insured to maintain any security system described in the policy application.

Question 5 of 100

Your answer: Guarantees the insurer’s ability to recover from a third party who is responsible for a covered loss. is correct.

EXPLANATION:
When the insurer pays a covered claim caused by a third party, the insurer can seek reimbursement for the loss if they can prove negligence or responsibility on the part of the third party.


Question 5 of 100

6

What is the purpose of the California Fair Access to Insurance Requirements (FAIR) Plan?

To guarantee low cost property insurance to residents of California.
To train agents in the solicitation and selling of property insurance.
To monitor property insurance rates throughout California.
To assure the availability of property insurance to those who are unable to obtain it through the normal insurance market.

Question 6 of 100

Your answer: To guarantee low cost property insurance to residents of California. is incorrect. The correct answer is: To assure the availability of property insurance to those who are unable to obtain it through the normal insurance market..

EXPLANATION:
According to the California Insurance Code (CIC 10090), the purpose of the FAIR Plan is to assure availability of basic property insurance to those who cannot obtain coverage through the normal insurance market.


Question 6 of 100

7

The California Insurance Commissioner, in lieu of suspending or revoking a license issued to an independent adjuster for a violation, may impose which of the following?

Jail sentence for up to six months
$500 monetary penalty
Both a $500 penalty and a jail sentence of up to six months
$1,000 monetary penalty

Question 7 of 100

Your answer: $500 monetary penalty is correct.

EXPLANATION:
The monetary penalty is $500, but no jail time.


Question 7 of 100

8

An adjuster's report that contains all the facts, evidence and disposition of the claim and is considered to be the final report is known as the:

Full Report.
Field Report.
Interim Report.
Settlement Report.

Question 8 of 100

Your answer: Full Report. is correct.

EXPLANATION:
The "full report" is the third and final report containing all the information gathered.


Question 8 of 100

9

Cars driven by Sue Trent and Jim Higgins were involved in an automobile accident where Mr. Higgins was at fault. Sue Trent's car was a total loss and valued at $6,000, plus she sustained bodily injuries totaling $25,000. Scott Finley, Ms. Trent's passenger, was injured and incurred $6,000 in medical expenses. Mr. Higgins, the responsible party, carries bodily injury coverage with limits of $15,000 per person and $30,000 per accident, and property damage coverage of $5,000. His policy will pay a maximum of:

$26,000
$29,000
$35,000
$39,000

Question 9 of 100

Your answer: $26,000 is correct.

EXPLANATION:
Mr. Higgins' policy will pay a maximum of $26,000. The maximum per person limit that can be paid to any one person as a result of Mr. Higgins' negligence is $15,000. Therefore, Sue Trent will receive only $15,000 and Scott Finley will receive $6,000. This amounts to $21,000 in bodily injury payments. The property damage limit carried by Mr. Higgins is only $5,000. Therefore, the most that can be paid for the total loss to Sue Trent's vehicle is $5,000 even though her vehicle is worth $6,000. The total of $21,000 plus the $5,000 is $26,000.


Question 9 of 100

10

Pollutant cleanup under the commercial building and personal property form:

Is completely excluded
Is a coverage extension
Is an additional coverage
Is an optional coverage

Question 10 of 100

Your answer: Is an additional coverage is correct.

EXPLANATION:
The building and personal property coverage form contains several additional coverages (which provide extra limits for added coverage) and a separate set of coverage extensions, which broaden the policy’s existing limits to certain specific situations. Pollutant cleanup is an additional coverage providing an extra $10,000 for the cleanup of pollutants on the insured’s premises when the discharge is a result of a covered loss.


Question 10 of 100

11

The HO-4 provides ____ coverage on the dwelling and ____ peril coverage on personal property.

full / open
limited / basic
no / broad
named peril / open

Question 11 of 100

Your answer: full / open is incorrect. The correct answer is: no / broad.

EXPLANATION:
The HO-4 (Tenants form) insures tenants - people who do not own the building where they reside. It provides no coverage for the dwelling and broad peril coverage on the personal property.


Question 11 of 100

12

Each of the following is true about Difference in Conditions (DIC) insurance, EXCEPT:

Coverage is usually written on an open peril basis.
Traditional perils (such as wind and hail) are usually excluded.
Difference in Conditions insurance can provide Flood insurance.
Difference in Conditions insurance can provide Earthquake coverage.

Question 12 of 100

Your answer: Coverage is usually written on an open peril basis. is correct.

EXPLANATION:
Coverage is usually written on a named peril basis.


Question 12 of 100

13

Which of the following perils is covered by the Broad Form but is not covered by the Basic Form?

Weight of ice and snow
Vandalism
Riot
Sinkhole collapse

Question 13 of 100

Your answer: Sinkhole collapse is incorrect. The correct answer is: Weight of ice and snow.

EXPLANATION:
The Basic Form does not include the peril of the weight of ice and snow.


Question 13 of 100

14

Which of the following policy forms would BEST protect a business that must keep operating at any cost after a loss?

Extra Expense
Business Income
Gross Earnings
Contingent Business Interruption

Question 14 of 100

Your answer: Contingent Business Interruption is incorrect. The correct answer is: Extra Expense.

EXPLANATION:
Certain types of risks cannot be shut down because of a loss. Banks, hospitals, dairies are some examples. Extra Expense coverage is needed.


Question 14 of 100

15

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
Refer the dispute to an independent public adjuster
Submit the dispute to a small claims court
Demand an inquiry by the state insurance department

Question 15 of 100

Your answer: Demand an inquiry by the state insurance department is incorrect. The correct answer is: 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.


Question 15 of 100

16

The Discovery clause in a commercial crime policy states that losses are covered if they are discovered by the insured:

I. During the policy period.
II. Within 60 days of the termination or cancellation date if no other insurance is obtained.

Both I and II.
I only.
II only.
Neither I nor II.

Question 16 of 100

Your answer: Both I and II. is correct.

EXPLANATION:
Normally, losses must be discovered during the policy period in order to be covered. However, the form provides for an extended period of 60 days beyond the termination or cancellation date to discover losses that were sustained during the policy period.


Question 16 of 100

17

In January 2011 ABC Company wrote a fidelity bond for Jim’s Cleaners. In March, Jim discovered an employee theft that took place two years ago. This claim should be handled by:

The carrier who wrote their bond in 2009
ABC Company
Both carriers
Neither carrier

Question 17 of 100

Your answer: Neither carrier is incorrect. The correct answer is: ABC Company.

EXPLANATION:
Fidelity bonds normally contain a clause known as a superseded suretyship rider, which holds that the current bond is to pay all losses that would have been recoverable under prior bonds if the “discovery period” has expired on the previous bond.


Question 17 of 100

18

The Earthquake Endorsement will provide coverage to the dwelling and/or personal property with the deductible stated as:

$1,000
5% of the limit that applies to all Section I coverages.
$500
$2,500

Question 18 of 100

Your answer: 5% of the limit that applies to all Section I coverages. is correct.

EXPLANATION:
The Earthquake Endorsement has a base deductible is 5% of the limit that applies to all Section I coverages, but never less than $500.


Question 18 of 100

19

A house with a replacement value of $100,000 is covered under a Homeowners policy for $40,000. The policy requires the homeowner to insure the house for 80% of its value. What will the homeowner receive if he incurs a $1,000 loss?

$400.
$500.
$750.
$1,000.

Question 19 of 100

Your answer: $500. is correct.

EXPLANATION:
The home is insured for 50% of the required limit of $80,000 and would, therefore, receive 50% payment for the $1,000 loss.


Question 19 of 100

20

The Dwelling Form Flood policy will cover:

I. A single-family residence.
II. A three-family residence.
III. Manufactured housing.

II and III only.
I and III only.
I only.
I, II, and III.

Question 20 of 100

Your answer: I, II, and III. is correct.

EXPLANATION:
The Dwelling Form Flood policy will cover residential structures up to four families or manufactured housing.


Question 20 of 100

21

What is the additional limit under the ISO standard BOP for debris removal in case the basic coverage is inadequate?

$25,000
$20,000
$10,000
$15,000

Question 21 of 100

Your answer: $15,000 is incorrect. The correct answer is: $25,000.

EXPLANATION:
The additional limit is $25,000 when the basic coverage provided by the policy is not enough. The basic coverage provides debris removal coverage up to 25% of the actual amount of the loss up to the policy limit. Sometimes the amount of the loss PLUS the debris cleanup will exhaust the limit and the company will pay up to an additional $25,000 for debris removal.


Question 21 of 100

22

Which one of the following situations may be considered “advertising injury”?

A printer’s accidental misprinting of the price of an item in a store’s advertising flyer.
Libel of an organization.
An overcharge by a newspaper for placement of an ad by an individual.
Misspelling of a product’s name.

Question 22 of 100

Your answer: Libel of an organization. is correct.

EXPLANATION:
Only the libel of an organization would be covered under “advertising injury”.


Question 22 of 100

23

Which of the following is the first duty of the insured after suffering a property loss?

Take steps to protect the property from further loss.
Have the damaged property appraised.
Hire an outside claims adjuster.
Increase his coverage.

Question 23 of 100

Your answer: Take steps to protect the property from further loss. is correct.

EXPLANATION:
The insured is required to protect the property from further loss. The insurance company will pay all reasonable costs involved in protecting the property from further loss or damage.


Question 23 of 100

24

Which of the following is not true about the coinsurance clause in commercial property insurance?

If an insured does not insure up to a stated % of value, they will become a coinsurer on a partial loss
It is not relevant on a total loss.
It allows for a variance in the rate depending on the coinsurance percentage.
It allows an insured to collect up to 80% on a covered loss

Question 24 of 100

Your answer: It allows an insured to collect up to 80% on a covered loss is correct.

EXPLANATION:
Coinsurance has a negative effect on partial losses if the policy limit does not meet or exceed the “limit required”. For example, with an 80% coinsurance clause, a limit set at 40% of building’s value is only half of the limit required, and the insured would be a co-insurer on any covered loss. When the limit is at or above the amount required, the insured will collect fully on partial losses, without any penalty. Rates are adjusted downward slightly, when higher coinsurance percentages are chosen. Coinsurance does not affect total losses, since the policy limit would be paid in any case. But coinsurance does NOT state that an insured can collect up to 80% on a covered loss; this is a misunderstanding of the “coinsurance percentage.”


Question 24 of 100

25

In California, which of the following is the definition of an "insurable event"?

California law requires insurance companies to compensate a policyholder for a covered loss, but that holders should be neither penalized nor rewarded by a loss.
An expected or unexpected event, that is covered by an insurance policy, subject to California law.
Any contingent or unknown event, whether past or future, which may indemnify a person having an insurable interest, or create a liability against him, may be insured against, subject to California law.
Any event caused by a third-party, against an insured, that is covered by insurance and subject to California law.

Question 25 of 100

Your answer: An expected or unexpected event, that is covered by an insurance policy, subject to California law. is incorrect. The correct answer is: Any contingent or unknown event, whether past or future, which may indemnify a person having an insurable interest, or create a liability against him, may be insured against, subject to California law..

EXPLANATION:
The definition of an "insured event" as detailed by California law is: "Any contingent or unknown event, whether past or future, which may indemnify a person having an insurable interest, or create a liability against him, may be insured against, subject to California law."


Question 25 of 100

26

An adjuster has procured a photograph of the scene of an accident on a claim that he/she is adjusting. This photograph is placed into the claims file as which of the following types of evidence?

Criminal
Real
Demonstrative
Documentary

Question 26 of 100

Your answer: Documentary is correct.

EXPLANATION:
Documentary evidence is any evidence that is produced in the form of a "document". Most people think of written documentation, however a photograph or a video can be preserved therefore, they are considered to be documentary evidence.


Question 26 of 100

27

A commercial umbrella policy would, in most cases, provide which of the following coverages?

Excess coverage over an insured auto liability claim
Primary coverage for liability claims
Underlying coverage for liability claims
Primary liability coverage for auto claims

Question 27 of 100

Your answer: Underlying coverage for liability claims is incorrect. The correct answer is: Excess coverage over an insured auto liability claim.

EXPLANATION:
The main purpose of the commercial umbrella policy is to provide excess coverage over the primary or underlying liability coverages. In the rare event that an umbrella policy covered a claim that the underlying policies did not, the umbrella would provide its limits over $0 of primary coverage (and may impose a self-insured retention, sometimes called a deductible, on the insured).


Question 27 of 100

28

The ___ clause covers collision damage to another vessel.

Sistership
Sue and Labor
Inchmaree
Running-Down

Question 28 of 100

Your answer: Sue and Labor is incorrect. The correct answer is: Running-Down .

EXPLANATION:
The running-down clause covers collision damage to another vessel. It does not cover docks or injury to passengers.


Question 28 of 100

29

Hannah must take time away from work to help assist in the investigation of a claim that was made against her BOP policy. The policy will pay for Hannah's actual loss of earnings up to:

$150 per day
$250 per day
$200 per day
$500 per day

Question 29 of 100

Your answer: $150 per day is incorrect. The correct answer is: $250 per day.

EXPLANATION:
The BOP policy will pay for actual loss of earnings, $250 per day, if the insured is asked by the insurance company to take time away from work to assist in the investigation and/or defense of a claim.


Question 29 of 100

30

Claims expenses under Section II of the Homeowners Policy do not include which of the following?

Investigation Costs
Premiums on bonds required in a suit the company defends.
Relocation Expenses
Reasonable expenses incurred at the company's request.

Question 30 of 100

Your answer: Premiums on bonds required in a suit the company defends. is incorrect. The correct answer is: Relocation Expenses.

EXPLANATION:
Claims expenses do not include relocating expenses.


Question 30 of 100