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Bradley Enterprises’ Property and Casualty Manual

© Copyright 2002- 2011, Bradley Enterprises Visit us at www.beagent.us or www.aaonlineclasses.com

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This is another Bradley Enterprises’ “Classroom Proven” manual!

Revision 53



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Table of Contents

About Us .............................................................................................................................. 3 Bradley Enterprise’s “Mastermind Learning System” .................................................... 4 Using this manual ............................................................................................................... 5 Chapter 1: Basics ............................................................................................................... 6 Chapter 2: Vocabulary ....................................................................................................... 9 Chapter 3: General ............................................................................................................. 10 Chapter 4: Application ....................................................................................................... 15 Chapter 5: Policies ............................................................................................................. 17 Chapter 6: Liability ............................................................................................................. 24 Chapter 7: Dwelling ............................................................................................................ 26 Chapter 8: Homeowners .................................................................................................... 36 Chapter 9: Auto ................................................................................................................... 50 Chapter 10: Misc. Personal Insurance ............................................................................. 59 Chapter 11: Misc. Commercial .......................................................................................... 63 Chapter 12: Misc. Business Owners ................................................................................ 65 Chapter 13: Comm. Property ............................................................................................. 84 Chapter 14: Ocean and Inland Marine .............................................................................. 101 Chapter 15: Comm. Liability .............................................................................................. 112 Chapter 16: Comm. Auto ................................................................................................... 126 Chapter 17: Crime ............................................................................................................... 139 Chapter 18: Workers Compensation ................................................................................ 148 Chapter 19: Boiler & Machinery ........................................................................................ 154 Chapter 20: Misc. Commercial ........................................................................................... 163 Chapter 21: Alabama Law .................................................................................................. 170 Practice Tests: P&C Part 1 ........................................................................................... P&C Part 1 - 1 P&C Part 2 ............................................................................................ P&C Part 2 - 1 P&C Law ............................................................................................... P&C Law - 1 Study/Answer Sheets: P&C Part 1 ........................................................................................... P&C 1 S/A - 1 P&C Part 2 ............................................................................................ P&C 2 S/A - 1 P&C Law ............................................................................................... P&C 3 S/A - 1 P&C Bonus Questions ....................................................................... P&C B/Q - 1 Rationales: P&C Part 1 ........................................................................................... Rationales 1 - 1 P&C Part 2 ........................................................................................... Rationales 2 - 1 P&C Law ............................................................................................... Rationales 3 – 1 Glossary ........................................................................................................... Ins. Reg. - 1 Glossary ........................................................................................................... Glossary - 1 Blank Answer Sheet ........................................................................................ Blank A/S - 1

Online students only: You may study the manual and take the practice exams on paper while off-line; however you must also take the practice exams online and pass each exam with a score of 90 or better in under an hour, then take the proctored final exam and pass it with a score of 80 or better in under 3 hours to receive your course Certificate of Completion. Pre license course certificates must be notarized according to Alabama state law, your certificate will be emailed upon your successful completion of the online proctored final exam.



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About us…. Bradley Enterprises operates a training school for new insurance agents. We have a number of instructors with varying backgrounds from insurance agents, securities brokers and including one CPA. We have trained agents for most of the insurance and securities companies in Alabama. Bradley Enterprises currently has the highest pass rate in the State.* *as of August 2004

Instructor Directed Classes: Bradley Enterprises: See www.beagent.us for information on this and other classes, L&H, P&C, CE seminars and Securities classes we offer.

Online classes are also available: A A Online Classes: See www.aaonlineclasses.com

- or -

Call Victor Bradley, at 256-679-3163

http://www.beagent.us/�

http://www.aaonlineclasses.com/�



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Mastermind Learning System™ Bradley Enterprise’s “Secret to Passing the Alabama State Test”

Exam prep: 1. Relax! 2. Read the entire manual out loud at least 4 times prior to attempting any

tests! 3. Take each practice test until you score 90 or better in less than an hour. (If

you fail a given test; study the ones you missed and take the test again – you will see your score go up. Once you have “scored 90 or better in less than an hour” on a given test do not take that test again, move on to the next test. – please use ear plugs during testing to limit distractions)

4. Once you have accomplished step three for all practice tests and completed the proctored final then (and only then) schedule your appointment to take the State exam, preferably an early morning exam. (See: www.aldoi.gov for details on test schedules.)

5. Photo copy the “Study/Answer Sheets” including the Bonus State Exam Prep Questions at the back of this manual.

6. The night before the test, study the study sheets. (Studying consist of reading each question and related correct answer.) Starting around 5:00 pm read each question and related correct answer in the order they are listed on each test, including the Bonus State Exam Prep Questions, over and over again until you go to sleep.

The day of your state exam: 7. Do Not Study Any the Day of the Exam. Eat a good meal and go take the

exam. Take a candy bar and a set of earplugs with you to the exam. Eat the candy bar just before you take the exam. (Sugar has been shown to sharpen the mind during testing – the ear plugs will limit distractions)

8. Read each question and all answers to the question before selecting an answer. Watch for key words like: NOT, EXCEPT, WRONG, INCORRECT, etc.

9. Answer each question in the order they appear on the exam. 10. If you get stuck on a question:

a. Look at a blank place on the wall and relax. (This will help clear your mind.)

b. Use the process of elimination on the answers…. If you still have no clue; pick the long answer…. (Test designers generally have difficulty developing long wrong answers.)

11. Never change an answer once you have made your selection.

The average state exam score of students that follow these instructions is an 87.

Make no mistake: the insurance field is a highly competitive profession. It is entirely up to you to become successful in this field and your success starts with passing the state exam by effectively applying the instructions listed above!!



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Using this manual: Items of particular interest are designated in bold text. Topics of critical interest are designated by: A box around text.

You will see information contained in the Boxes again on practice tests and more than likely on the state test.

You need to follow the instructions on page 4 to maximize your success with this course.



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Chapter 1: Basics Definition of insurance: A contract for transferring risk from a person, business, or organization to an insurance company that agrees, in exchange for a premium, to pay for losses (within defined limits) through an accumulation of premiums. Insurance Contract Facts:

Insured: A person who has transferred their risk to an insurance company through the purchase of an insurance policy (insurance contract).

Insurer: An insurance company that is willing to assume a given risk in exchange for a premium.

Property Insurance: contract insures tangible goods such as personal items/business items. Is a two party contract – the insured (individual) and the insurer (insurance company).

Casualty (liability) Insurance: contract insures the insured legal responsibility for damage to other persons or property. Is a third party contract – insured, insurer and the damaged party (third party)

Insurance contracts are Personal (the contracts insure the person or business, not the property).

Insurance contracts are contracts of indemnity (make whole) (putting the customer back where they were financially before the loss, within the predetermined limit defined in the contract – contract may be between two or more parties)

Parts of the insurance contract: (Dice - Declarations, Insuring Clause, Conditions, Exclusions)

Declarations (first page of policy, name of insured, address, amount of coverage, description of property, and perils insured against)

Insuring agreement (heart of policy, states what is covered against what, level of indemnification [how much they will pay if loss occurs])

Conditions (ground rules, responsibilities, and obligations) Exclusions (what is not covered) and they can be categorized as one of

the following:

o Catastrophic Losses (happens to lot of people simultaneously - for example floods, earthquakes, war, etc)

o Predictable Losses (ware and tare, deterioration, inherent vise [iron can not be insured against rust], etc.)

o Covered elsewhere (risk is excluded from a policy because the risk is covered under a different type of policy)



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Endorsements (additional risks included under the policy – for example you can add a jewelry protection endorsement to your Homeowners policy)

Definitions (what the words used in the contract mean) Risk: chance or uncertainty of loss Exposure = Risk Managing Risk (Mitigating Risk of Loss – Cost Containment):

Avoid Control

o Loss prevention: Curtail loss frequency o Risk prevention: Limit loss severity

Retain risk (not insured) Transfer risk (insured) (Insurance is a way of transferring risk)

Note: Contract exclusions, deductibles and coinsurance (coinsurance only applies if you are underinsured) are also used to reduce the costs of losses covered by insurance. Law of large Numbers of Similar Risk (or simply the Law of Large Numbers): the more examples used to develop any statistic, the more reliable the statistic will be. Insurance can only be used to cover Pure Risk (someone may steal something). Insurance cannot be used to cover Speculative Risk (losses in the stock market). All Risk never means “all risk” (All risk policies cover anything NOT excluded in the policy). Elements of insurability (key risk elements)

Insurable interest: You must have an insurable interest at the time of the loss! (you can insure your home or business, but not your neighbor’s)

Loss must be definite (time, place, etc and difficult to falsify) Risk must be unexpected (chance or uncertainty of loss) Risk must be large enough to create a financial hardship Loss must be calculable (quantifiable in dollars) Cost of insurance must be affordable Must be a large number of persons with a similar potential loss

available for insurance so that overall, losses become predicable



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Loss must not happen to a large number of insureds at the same time Spread of risk (insuring many people over large areas, not small number

in a small area) Peril = cause of loss (car wreck, tornado, storm, etc.) Hazard = anything that increase chance of loss

Three type of hazards: Physical hazard (hazard that arises from condition or occupancy of

property) Morale hazard (careless or irresponsible behavior) Moral hazard (person might intentionally create a situation that would

cause a loss) Accident vs Occurrence (accident is a more restrictive term):

Accident: an unforeseen or unintended event (at a specific time and place) that results in an injury.

Occurrence: includes all accidents, but also includes events take place over a specified period of time and subject to limits defined in the policy. After the time period the benefits are restored (restoration or also call non-reduction of limits). Occurrence limits can be subject to an overall aggregate limit (the most the insurance company will pay during a policy period).

Losses

Direct (financial loss directly related to the loss of property) Indirect (consequential) (financial loss indirectly related to the loss of

property, exp: hotel burns, the owners lost the building [direct loss] and also lost the monies [indirect loss] that would have been made from guests staying over the next few months while hotel is being rebuilt [loss of use])

Predetermined Limits: contractually defined and limited to your insurable interest. Note: Predetermined limit is based on the Rule of 4Ls – you get the lower of the loss or the limit up to the level of your insurable interest. Inherent Vise: a predictable loss associated with the item for example: iron can not be insured against rust. Certificate of Insurance (proof the policy has been written – for example when you purchase a home you may be required to provide proof [a certificate of insurance] that you have coverage in place for your new house to obtain a mortgage for same)



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Chapter 2: Vocabulary Elements of valid contract

Competent parties (legal capacity - parties must be of legal age and can not be nuts)

Legal purpose ( you can not enforce a contract for the sell of illegal drugs)

Offer and acceptance Consideration (monies and the statements on the application)

Vocabulary

Estoppel (legally preventing a person from asserting a right or privilege) Waiver (voluntary relinquishment of a right or privilege) Aleatory (equal values are not given by both parties) Contract adhesion (the policy is written by the insurance company and

offered on a take it or leave it basis) Contract of utmost good faith (the insured depends on the insurance

company to fulfill its side of the contract and the insurance company depends on the insured’s statement in the application – simply stated: the honesty of both parties)

Conditional (all insurance policies list the circumstances under which a policy will be paid or not paid)

Unilateral Aspect of Insurance: (Only the insurance company is bound to performance by the insurance contract. The insured may chose to pay the premiums or not at anytime.)

Doctrine of Reasonable Expectations (ambiguities in an insurance contract are normally decided in a court-of-law in favor of the insured]).

Application (= offer) Binders (oral or written statement made by an agent for immediate

protection that is valid for a specific time that provides temporary coverage. A binder does not guarantee that a policy will be issued)

Interim Insuring Agreement (a written binder -- normally valid for 10-30 days and serve as a binder for insurance).

Fiduciary (an individual responsible for another’s financial wellbeing)



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Chapter 3: General Types of insurance companies:

Stock (owned by stock holders – stock bought and sold on the open stock market).

Mutual (owned by policy holders – sells participating policies and pays dividends to policy holders, dividends are received tax free - dividends are considered return of excess premium)

o Assessment (small number of mutual companies who provide fire and windstorm insurance for small towns and farmers)

Risk Retention (also called Reciprocal) (give and take, members of group share in losses)

Lloyd’s associations (example Lloyd’s of London – extreme risk – space shuttle, etc.)

Fraternal Benefit Societies (usually mutual insurance companies, have a mock form of government (lodge work) associated with them)

Government Insurers (sometimes private) (this type of insurance is some times called residual market) coverage provided includes:

o War Risk Insurance o Nuclear Energy Liability Insurance o Flood Insurance o Federal Corp Insurance o Worker Compensation

Mono-line: company that writes only one line of insurance Multi-line: company that writes more than one line of insurance

Lines of Insurance:

Property (covers any type of property risk) Casualty (covers a variety of unrelated insurance products -- examples

include: aviation, auto, workers compensation, and surety bonds) Life (insures against premature death) Health and Disability (health problems and disability problems)

Individual or Business:

Personal Lines (for individuals or family – covers auto, home, boat camper, etc.)

Commercial Lines (for businesses – office buildings, warehouses, inventory, etc.)



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The Agent’s Duties:

Selling insurance Issuing and countersigning policies Collecting premiums Providing a link between the insured and the insurance company Countersigning policies (signing each policy before delivery to

customer) Field underwriting (you are the company’s first line of defense) Prepare quotations Fill-in applications Suspense or Diary system (Maintain customer files) Service customer Be covered by Errors and Omission insurance (E and O insurance

covers the insurance agent against their mistakes while writing insurance policies)

An agent must: o Represent the insurance company’s best interest o Obey all legal instructions from insured o Deposit customer funds in separate account o Use prudent care concerning all duties o Keep insurance company informed of all facts related to the

agency relationship Agent Authority (Producer Authority) (Law of Agency - Agent [producer] is authorized to act on behalf of a Principal [insurance company]): Powers of a producer are:

Expressed (authority specifically given to an agent in writing [contract]) Implied (authority not formally given to an agent [the customer thinks you

have all the answers]) Apparent (authority that a reasonable person assumes the agent has [not

a lawyer or CPA]) Insurance Marketing Systems:

Exclusive agency system (or captive agency system – sell for only one company)

Direct writer system (agents are employees of insurance company) Direct response system (have no agents – sold only through mail or over

phone) Independent agency system (independent, sell for many companies,

not just one company, can bind coverage)



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Insurance Professionals:

Brokers (work for the best interest of the insured, not the insurance company, also independent, can not bind coverage)

Solicitor (can sell insurance, collect premiums, however can not counter sign policies or issue policies)

Excess or surplus lines (have specialized insurance coverages not available from other sources – used to off-load excess risk from one insurance company to another)

Producer (any person that is authorized to sell insurance products: an agent, broker, or solicitor)

Consultant (offers insurance products for a fee, not a commission) Insurance Company Functions:

Underwriting department (approve, rate or reject risks) Policy issue and administration (the worker bees with the insurance

company): o Policy analyst or screener o Assembly and filling areas

Claims Department: o Claims adjusters or representatives o Independent adjusters

Actuarial and statistical department (the numbers department, includes actuaries that determine policies rates)

Accounting department Investment department Legal department Audit department Loss control department Agency department Marketing department Reinsurance department Support department:

o Personnel o Training o Information systems o Administration, forms and filing o Building and maintenance



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State Insurance Operations: Each state has an insurance department with officials to enforce

state rules o Directors o Superintends or commissionaires (commissionaires make up the

members of the National Association Of Insurance Commissionaires, NAIC)

Areas of responsibilities: o Companies o Agents o Ratification o Enforcement (apply the rules and regulations of the state)

Insurance Companies can be either: o Admitted (Authorized) (approved by the Insurance Commissioner

to operate within the state). Or o Non-admitted (Unauthorized) (not approved by the Insurance

Commissioner to operate within the state or may not have submitted themselves for approval at all).

Insurance guaranty associations (provides protection for public if an insurance company becomes insolvent and can not pay claims)

Approval or Ratification (policies forms, endorsements, and rates used doing business in the state. Some states are file and use states where the insurance company only has to file forms, endorsements and rates, then used them. Some states are Open Competition states where the only requirement is the products must be adequate, rates can not be excessive and the company must practice non discrimination).

Rates (in some states rates are mandatory) The Location of the Insurance Company Headquarters Affects How it is Regarded in a Given State (being domiciled [or chartered] in a given state)

Domestic (if insurance company is domiciled in the same state where you are selling insurance)

Foreign (if insurance company is domiciled in another state other than where you are selling insurance)

Alien (if insurance company is domiciled in another country other than where you are selling insurance)

Insurance Rating Companies (rates companies from A++ down to F):

A. M. Best Standard & Poor Finch Moody’s



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Legal requirements for agents: Must be licensed by the state. Fiduciary (responsible with the customer’s monies) Misrepresentation (enjoined from misrepresenting insurance products) Twisting (it is illegal to replace a policy with one of lesser quality) Rebating (it is illegal to split a commission with a customer) Unfair discrimination (agents can not give higher or lower rates for any

reason for policies that have identical coverages – also agents can not accept bribes to provide lower premiums to selected customers)

Service Bureaus (compile statistics, rates, financial records, operational and loss records):

Insurance Service Office (ISO) The National Council on Compensation Insurance (NCCI) Surety Association of America (rates surety bonds) There are numerous other rating bureaus.



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Chapter 4: Application Underwriting (evaluating risk):

Information used during the underwriting process comes from three primary sources:

o Statement on the application o Physical Inspection o Consumer Credit reports

Government bureaus (such as Bureau of Motor Vehicles) Insurance industry bureaus (such as the Automated Property Loss

Underwriting System) Financial information services (such as Standard and Poor’s) Previous insurers The company’s own claim files Fair Credit Reporting Act (credit standing, personal character,

reputation, habits, and lifestyle – limited to 7 years for negative data, 10 years even for bankruptcy):

o Regular o Investigative (includes data gathered through personal interviews

with friends, neighbors and associates) Adverse Selection (underwriters do not want to insure people/property

that have an extremely high risk, they want to avoid adverse selection) Underwriting Measurement:

o Loss ratio (a comparison of “total premiums paid” to “total claims made” in a given year)

o Expense ratio (a comparison of “total premiums paid” to “overhead expenses paid” in a given year)

o Underwriting profit (100% – [Loss ratio % + Expense ratio %] = % of underwriting profit)



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Rating Methods used for Premium Calculation: Judgment Rating (oldest way – involves pure judgment based on

experience) involves the following three rating methods components:

o Schedule rating (list of common ratings which can be adjusted up or down base on individual customer requirements)

o Experience rating (add or subtracts from manual rating [class rating] based on actual loss experience)

o Retrospective rating (allows for adjustments from manual rating [class rating]based on experience within a given year)

Manual Rating (or class rating – based on manuals – Rate per unit X number of units = premium)

Merit Rating (includes both judgment and manual rating methods) Individual Rating (necessary when risk is too uncommon to generate

numbers required for a class rating) Policy and Rate Filings (most state require that policy and rates be filed with the department of insurance in a given state to ensure conformance with state laws and to ensure that rates are adequate to meet solvency requirements while not being excessive or discriminatory in nature) Insurance Application Facts:

Statements on the Application May be either: o Representations (statements which are correct to the “best of the

customer’s knowledge”) – or - o Warranties (warrants of truth)

Misrepresentation (a representation that turns out not to be true) Material fact (information which the insurance company will use to base

the policy on) Concealment (not disclosing a material fact that could effect the issuing

of a policy) Fraud (intentional incorrect statement of material fact):

o Someone deliberately lies o The intent of the lie is for someone else to rely on that lie o Another person relies on that lie o The other person suffers harm as a result of relying on that lie

Note: Many policies contain a statement that says “in the case of fraud, all statement on the application become warranties”.



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Chapter 5: Policies Policy Standardization:

Declaration Section (What’s covered?)

o This section includes the name of person or business insured; if more than one individual is named in this section the person whose name appears first may be assigned a higher level of duties and rights.

o Other parties’ names may be included in this section as insured as well, such as Mortgagees, see Mortgage Condition.

o This section may also include additional insured, such as a mortgage holding company.

o Property coverage:

Specific Insurance: Description of property at a specific location may also be included.

Blanket Insurance: Description of property covered at any location may also be included.

o Policy Period (effective dates of policy, start and stop) o Policy Territory (the location of the property to be covered by policy,

typically included the United States, Puerto Rico and Canada) o Policy Limit (maximum amount the company will pay):

Limit of coverage Limit of insurance Limit of liability How limit is defined:

Split (may have separate limits for BI [bodily injury] and PD [property damage])

Single (or Combined) (may have a single limit combined for BI and PD)

Per Occurrence (accident that occurs at specific time and place)

Per Accident (more restrictive than per occurrence, means essentially the same thing)

Per Person (the most that will be paid per person injured, per accident)

Aggregate Limit (the most that will be paid for all losses, per accident)



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Agreed amount contract or valued (agreed upon values written into the contract)

o Deductibles (amount of lost that the insured must pay out-of-pocket before insurance company will cover the rest of the lost)

Insuring Agreements (defines what losses are actually covered):

o Policy Coverages:

Policy coverages (what is covered in detail) Additional coverages (or extended coverages or coverage

extensions, or other coverages – may have separate limits)

o Perils Insured against:

Named peril (or Specific peril) Open peril (sometimes called all risk or special coverage)

o Injuries/Damages:

Bodily Injury (BI) (injury, sickness, disease and death arising out of injury, sickness or disease)

Property Damages (PD) (destruction of property including the loss of use of same)

Personal Injury (PI) (slander, libel, false arrest, and invasion of privacy)

o Defense Costs (covers defense costs related to defending an insured against claims for BI, PD, and PI)

o Prejudgment Interest (at the time of judgment provides retro active damage compensation as if judgment was made at time of accident – pays the difference, if any. Exp: An accident in 1999 was not settled until 2004, the value of the new 1999 car damaged is now less than in 1999 when the accident actually occurred – prejudgment interest would cover this difference).

o Supplementary Payments (paid in excess of policy limits) include:

Defense cost Claim investigation expenses Bond premiums (exp. Bail bonds, appeal bonds, release of

attachment bonds) First aid to others at time of accident Expenses for investigation or defense of claim (if requested

by insurance company) Lost earnings Prejudgment interest (not included as part of damages) Postjudgment interest (interest accruing on the judgment

after an award, but prior to payment by the insurance company)

Conditions:

o Duties following loss:

Notice of claim (must promptly notify the insurance company and law enforcement [if law was broken])



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Inventory damages Protect the property from further damage Proof of loss (must be detailed official list of damages, if

company requests same) Make property available for inspection and submit to

examination under oath Assist during claim investigation (if required)

o Valuation (how losses will be paid) can collect the lesser of:

Insurable interest Policy value Actual cash value (ACV) (replacement cost – depreciation) Replacement cost (used to replace lost old item with new) Cost to repair (functional replacement cost) Agreed value (used for fine antiques and art – must provide

proof at time of loss) Note: Fair Market Value (a standard in other industries) is almost never used in insurance.

o Liberalization Condition (provides for broader coverages for a specified policy and related policies without increasing premiums)

o Assignment Condition (specifies that written consent is required to transfer policy rights to anyone else, except in the case of death)

o No Benefit Bailee Condition (bailee is a person or organization that has temporary possession of personal property of another – Bailee Condition states that the bailee must be independently insured against any losses and is not covered by any policy owned by the personal property owner)

o Mortgage Condition (or loss payable condition specifies the rights and duties of the mortgagee under the policy)

o Contribution by equal shares (when property is covered by more than one insurance policy the insurance companies share equally in the loss)

Exclusions:

o Named Peril Policy (any peril not specified is automatically excluded, however additional exclusions in this section may also be listed)

o Open Peril Policy (covers all perils except the one listed in this section)

o Five broad categories (commonly in all property policies):

Nonaccidential losses (excluded because lost is certain: wear and tear, deterioration, rust, corrosion/mechanical or electrical breakdown)

Losses controllable by the insured (excluded because loss is controllable when extra care is used: marring, scratching, breaking, or chipping)



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Extra-hazardous perils (unique peril where additional coverage is required, of course at a higher premium)

Catastrophic losses (losses so broad in nature that they could bankrupt the company)

Property covered in other policies (property normally covered by other policies, such as personal property would normal exclude your car—your car would normally be covered by an auto policy)

Limitations (may eliminate or reduce coverages, such as in a building left vacant for 60 days, some losses will not be covered at all, while other loss coverages will be reduced by 15%)

o Other exclusions include:

Damage to property owned by the insured Damage to property in the insured’s Care, Custody or Control

(Fire Legal Liability is used to cover rental property or an Umbrella or Excess Liability policy can be used to cover this liability exclusion)

Bodily injury to an insured Losses covered by other policies (such as Workers

Compensation laws and Nuclear Energy Liability policies) Injuries or damages caused intentionally by the insured Concurrent Causation (refers to when two or more perils are

concurrent in the loss; this creates problems when one of the perils are not covered in the policy)

o Vacancy (absent of people and property on premises) and Unoccupied (absent of people) (property insurance may limit or exclude coverage for losses when the property is vacant or unoccupied.)

Definitions (terms used in policy defined) Determining policy liability for loss:

Actual Cash Value (ACV) (ACV=Replacement Costs – Depreciation) (common method of determining value of loss)

Repair cost (when loss is less than ACV) Replacement Cost (insurance pays the current cost for item replacement

that was lost or destroyed) Functional replacement cost basis (insurance pays the amount to

purchase an equivalent item of equivalent condition prior to lost --- used cars get used parts replaced under this method)

Market Value (current market value of property – for example: house prices may go up or down depending on the surrounding property usage.)

Coinsurance



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o 80% Coinsurance Condition (means the property must be covered by at least 80% of full value – if not insured for at least 80%, partial loss payouts may be reduced proportionally. This is called coinsurance penalty)

o Agreed Value or Stated amount (defines the value of specified items, if loss is within policy limits the policy pays full amount -- used to avoid coinsurance penalty)

Lost payment (must be within a reasonable time – some policies state a specific time frame) Company may:

o Pay full amount for the loss and salvage the damaged property. o Pay to repair or replace property. o Repair/replace with equivalent property.

Pair or set (states that in the case of a loss to an item that is part of a pair or set, the insurance company is not obligated to pay the value of the entire set. The company may either repair or replace part of the set or pay the difference between the actual cash value of the property before and after the loss.)

Salvage and Abandonment Compared

o Salvage (insurance company may take possession of damaged goods after payment of claim, salvaged goods are used to reduce the costs to the insurance company for the payment of claim)

o Abandonment (the insured is not allowed to abandon their damaged property to the insurance company and then demand payment)

Subrogation (the transfer of the insured’s right of recovery against others to the insurance company) May also be called Transfer of Right of Recovery Against Others to Us

Appraisal Condition (either party may demand an appraisal on the item in question – if both parties choose a separate appraiser the appraisers choose an umpire to settle any differences in the appraisals results – insured pays for his own appraiser fees and half of the fees for the umpire)

Arbitration Condition (similar to appraisal condition, however it is not limited to disputes of the value of the loss, such as disputes arising from liability insurance claims between two insurance companies)

Recovered Property condition (states that if the insured or insurer recovers property on which the insurer has made loss payment, the other party must be notified. The insured may have the property returned, in which case the loss payment will be adjusted, or allow the company to have it.)

Other insurance (when two or more insurance companies cover the same loss. Other Insurance is also called: Other Sources of Recovery or Insurance Under Two or More Coverages)

o Primary Insurance (the company responsible for the majority of the loss)

o Excess Insurance (the secondary company or companies that pay for the excess of the loss that the primary insurance company did not pay)



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o Pro Rata Method (most common method of resolution when other insurance companies are involved in a given claim. Example: $10,000 loss --- one insurance policy coverage is $50,000 [we will call this policy A]; the other insurance company policy coverage is for $100,000 [we will call this policy B]:

liability limit of policy A / (liability limit of policy A + liability limit of policy B) X amount of loss = amount to be paid to policy A exp solved: $50,000 / ($50,000 + $100,000) X $ 10,000 = $3,333.33 liability limit of policy B / (liability limit of policy A + liability limit of policy B) X amount of loss = amount to be paid to policy B exp solved: $100,000 / ($50,000 + $100,000) X $ 10,000 = $6666.66)

Determining policy liability for loss (continued)

Reporting Forms

o Non reporting forms (charge a flat premium. For example: auto and home insurance)

o Reporting forms (charge a deposit premium or estimated premium and periodically the insured submits an updated report to the insurer concerning the status of factors on which the premium is based, information is used to determine current/future cost of insurance – when the deposit is used up the insured then pays premium calculated at the end of each reporting period. Insurer may require a premium audit to making any finial adjustment prior to determining a finial premium.)

Cancellation and Non Renewal:

Occurs during policy period or term (the date the policy starts and ends)

Must be by letter Return of unused premiums (may be returned on short rate basis which

includes the cost of issuing the policy) Pro rata basis (in this case the company can only keep used premium) Flat cancellation (occurs when the policy is cancelled by either the

insured or the insurer on the policy anniversary date)



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Chapter 6: Liability Liability Insurance:

Purpose of Liability Insurance (protect an insured from financial losses arising out of liability claims by transferring the risk to insurance company. Only covers liability you are legally obligated to pay – NOT morally or ethically obligated to pay, but legally obligated to pay through a settlement or judgment).

Note: Settlements and judgments are also referred to as Coverage Triggers.

Liability losses (also known as third party losses. Losses that occur from

actions toward other people or their property.) Tort (civil wrong that violates the rights of another: intention or

unintentional)

Negligence (lack of reasonable care that is required to protect others from the unreasonable chance of harm.)

Four factors required to establish negligence: o Legal duty owed (as a general rule: each person owes a duty to

another to protect the other’s rights and property--- sometimes known as the reasonable person rule – sometimes expressed as degree of care or standard of care. Degree of care can vary based on who the individual is; an invitee has much more responsibility than that of a trespasser.)

o Breach of legal duty owed o Proximate cause (the action(s) that caused the loss) o Damages (without damages there can be no finding of negligence)

Defenses against Negligence: o Contributory (in some states if a person contributes to their own

damages in any way, another party can not be held liable) o Comparative (in other states if both parties contribute to a loss,

awards are based on the extent to which each party was negligent) o Assumption of Risk (in some states if a person knowingly

exposes themselves to danger or injury they may not be able collect damages. Exp: spectators injured at racing events)



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o Intervening Cause (an event that changes the sequence of events leading to a loss – intervening cause becomes the proximate cause of the loss)

o Statutes of Limitations (if lawsuits are not filed within a time specified under law, the lawsuit will not be legally valid)

Vicarious Liability (or imputed liability) liability arrived at because of the actions of an individual under the control of another. For exp: employer being held responsible for an accident one of their employees had while on company time

Strict Liability used to settle product liability cases – unlike negligence duty is not a factor

Absolute Liability imposed by law on individuals involved in certain activities involving:

o Dangerous materials o Hazardous operations o Dangerous animals

The Parties Involved in the Loss:

First Party (the insured) Second Party (insurance company representing the insured) Third Party (the person suffering the injury)

Damages/losses: Third Party Losses (again: liability losses are known as Third Party

Losses) Damages (monetary compensation)

o Compensatory Damages (reimbursement for actual losses): Special (includes all direct and specific expenses; exp.

Medical, funeral, lost wages, etc). General (or Noneconomic) (pain, suffering, and

disfigurement; exp. Court sometimes awards damages that are punitive or exemplary for wantonly or willfully committed acts – normally never covered by insurance due to the fact that judgments of this nature are designed to punish the individual or company).



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Chapter 7: Dwelling Dwelling Insurance (protects individuals from financial loss resulting from loss of their dwelling and personal property)

Home owners policies (provides both property and liability coverages – normally sold to homeowners; unendorsed Dwelling policies provide property coverage only )

Dwelling policies (provides more limited Property coverages than Home owners policies – normally sold to landlords)

Dwelling policies may include small businesses (may include incidental business and professional occupancy – must involve service as opposed to sales and involve no more than two people working on premises at any one time. Exp. includes beauty parlor, photography studios and professional offices.) Dwelling 89 policy (issued by Insurance Services Office (ISO))

Basic form (also known as DP-1 or DP 00 01): o Coverage A – Dwelling (covers dwelling and other attached

structures, materials, supplies used for construction or repair and outdoor equipment used to service premises).

o Coverage B – Other Structures (other structures on premises connected only by fences, utility line or similar connection – separate structure may not be used for commercial, manufacturing or farming purposes).

o Coverage C – Personal Property (personal property usually at the dwelling place). Automatic removal (covers property being moved from old

location to new and is based on the amount of property at each location).

Exclusions include:

Personal property owned by guest or servants. Money, securities, manuscripts, bullion, currency,

accounts, deeds, and evidences of debt.



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Bank notes, coins, gold other than gold ware, letters of credit, medals, personal records, platinum, silver other than silverware, ticket, and stamps.

Books of accounting, drawings and other paper records, electronic data processing tapes, wires, records, discs or other software media (does not apply to blank recording or storage media or prerecorded media).

Credit cards and fund transfer cards. Aircraft Motor vehicles; other than motorized equipment used

to maintain the premises Boats; other than rowboats and canoes

o Coverage D (fair rental value if structure is uninhabitable and insured can not collect normal rent on property due to damage – losses are limited to 10% of dwelling coverage and is further limited to two weeks if civil authority prevents use of undamaged property due to damage of other near by property).

o Covered perils:

Automatically covered perils include: o Fire o Lightning o Internal explosion

Extended peril coverages include: o Riot o Explosion o Vehicles o Smoke o Hail o Civil commotion o Aircraft o Windstorm o Volcanic eruption o Vandalism and malicious mischief (V&MM)

(exclusions include:

Damage to glass parts of a building other than glass building blocks

Losses by theft [does cover building damages caused by burglars]

Vandalism to a building that has been vacant for more than 90 consecutive days)

o Other coverages:



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Other Structures (provides that up to 10% of the Coverage A limit may be used to cover losses to other structures. You may also hear the term appurtenant structures used to describe other structures.)

Debris Removal (pays for the expense of removing debris resulting from a loss that is covered by the policy.)

Property Removed (covers loss to property that occurs while the property is being removed to protect it from a covered peril. [This is not the same as automatic removal, which extends personal property coverage to property moved to another residence.] In the Basic form, property removed is covered for five days.)

Reasonable Repairs (pays for the reasonable costs to make necessary repairs to protect property from further damage following a covered loss.)

Improvements, Alterations and Additions (provides coverage for insureds who are tenants for improvements or alterations to the dwelling made at the tenant’s expense. Up to 10% of the Coverage C limit is available for this coverage.)

Fire Department Service Charge (pays up to $500 for fire department charges incurred when the fire department is called to save or protect covered property from a peril insured against. No deductible applies to this coverage.)

Worldwide Coverage (provides 10% of the Coverage C limit for personal property while it is located anywhere in the world. An example is clothing that the insured takes on vacation.)

Rental Value (provides 10% of the Coverage A limit for loss of fair rental value, payable at 1/12th of the 10% limit for each month the described location is unfit for its normal use.)

o Exclusions:

Losses resulting from ordinances or laws that require more elaborate or expensive reconstruction or demolition than was used in the original structure. (Replacing a dwelling’s regular glass with safety glass is covered.)

Losses resulting from earth movement, except for direct loss by fire or explosion resulting from earth movement.

Water damage in general, including flooding, water backing up into a building and water leaking or seeping from below the ground.

Losses due to power interruption that occurs away from the insured location.



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The insured’s failure to save and preserve property after a loss, or to protect it from loss.

War Nuclear hazard Losses caused by the insured or by someone else at the

insured’s direction.

o Conditions: Loss Settlement condition (states that covered

property losses are valued at actual cash value, but not to exceed the amount necessary to repair or replace.)

Our Option condition (gives the insurer the right to repair or replace damaged property with equivalent property within 30 days of receiving the insured’s statement of loss.)

Deductible clause (which is actually listed in the Declarations, states that only the amount of loss over the deductible will be paid, up to the limit of liability.)

Pair Or Set condition (states that in the case of a loss to an item that is part of a pair or set, the insurance company is not obligated to pay the value of the entire set. The company may either repair or replace part of the set or pay the difference between the actual cash value of the property before and after the loss.)

Loss Payment condition (states that the loss will be paid within 30 days after reaching an agreement with the insured.

The Other Insurance condition states that if a loss is also covered by other insurance, the insurance company will pay only its proportion of the loss.)

Recovered Property condition (states that if the insured or insurer recovers property on which the insurer has made loss payment, the other party must be notified. The insured may have the property returned, in which case the loss payment will be adjusted, or allow the company to have it.)

Broad form (also known as DP-2, DP 00 02) (is a named peril policy similar to the Basic Form that lists the perils that dwellings, other structures and personal property are insured against. The Broad form automatically covers all of the standard and optional perils available on the Basic form—fire, lightning, the extended coverage perils, and vandalism and malicious mischief.)

Basic Policy coverages included: o Coverage A – Dwelling (same as DP-1)



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o Coverage B – Other structures (same as DP-1) o Coverage C – Personal Property (same as DP-1) o Coverage D – Fair Market Value (same as DP-1) o Coverage E – Additional Living Expenses (unique with DP-2 and

DP-3) (pays for additional living expenses the insured incurs after a covered loss, including reasonable motel, dining, laundry, and transportation. Covering the time needed to effect repairs or replacement. Limited to two weeks if civil authority prevents use of undamaged property due to damage of other near by property. Note: coverage can be added to DP-1 as an endorsement).

o Trees, Shrubs, and Other Plants (unique with DP-2 and DP-3) (pays up to 5% of the Coverage A limit for damage to trees, shrubs, plants, or lawns caused by a specified list of perils. Limited to $500.00 maximum per tree, shrub or plant.)

o Collapse (pays for the collapse of the dwelling caused by a specific list of perils.)

o Glass or Safety Glazing Materials (unique with DP-2 and DP-3) (pays for the breakage of glass or safety glazing material and damage to covered property caused by glass breakage.)

o Extended Property Removal Time (unique with DP-2 and DP-3) (extends the time for property removal listed in DP-1 [5 days] to 30 days.)

o Replacement Cost Coverage (unique with DP-2 and DP-3) (losses of personal property are settled at actual cash value. Losses to dwelling and other structures are settled at replacement cost [no deduction for deprecation as long as insured carries insurance equal to 80% or more of the full replacement cost of the building at time of loss.] If the insured does not carry enough insurance to qualify for replacement cost coverage, they will be paid:

The actual cash value, or A portion of the replacement cost--- whichever is larger).

Broad form broadens some perils covered under the Basic form and adds additional perils:

o Damage to covered property caused by burglars (does not apply to theft of property)

o Weight of ice, snow or sleet o Falling objects o Freezing of plumbing, heating, air conditioning, or automatic fire

protective sprinkler systems and household appliances. o Sudden and accidental tearing apart, cracking or burning of steam

or hot water heating, air conditioning, or automatic fire protective sprinkler systems and water heaters.



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o Sudden and accidental damage from artificially generated electrical current (does not include damage to a tube, transistor or similar electrical component).

o Accidental discharge of water or steam at the described location from within a plumbing, heating, air conditioning, or automatic fire protective sprinkler system or household appliance).

The Broad form also expands coverage for two perils: o The vehicles peril covers damage to fences, driveways and

walks when the vehicle is driven by someone who is not a resident of the insured’s household. It also covers damage to other types of property when the vehicle is driven by an insured or a resident of the insured’s household.

o The smoke peril includes loss caused by fireplace smoke. Miscellaneous:

o Ice (The weight of ice, snow or sleet peril does not cover damage to awnings, fences, patios, pavement, swimming pools, foundations, retaining walls, bulkheads, piers, wharves, or docks.)

o Falling Objects (The falling objects peril does not include damage to awnings, fences, outdoor equipment, or outdoor radio and television antennas, including their lead-in wires, masts and towers. Damage to a building’s interior or its contents is covered only if the falling object first damages the roof or an exterior wall.)

o Discharge and Overflow (The accidental discharge or overflow peril does not include damage resulting from continuous or repeated leakage/seepage, or freezing/damage to the system or appliance itself.)

o Burglar and Accidental Discharge (The burglars and accidental discharge perils are not covered if the building has been vacant for more than 30 consecutive days.)

o Freezing (Freezing is not covered when the dwelling is vacant, unoccupied or under construction unless reasonable care was taken to maintain heat in the building or to shut off the water and drain the systems and appliances.)

Special form (also called all risk) (DP-3, DP 00 03) (provides open peril coverage on the dwelling and other structures, insuring against all risks of direct physical loss that are not specifically excluded in the policy. Personal property is covered on a named peril basis—the same perils listed in the DP-2.)

Under Coverages A and B, the Special form excludes: o All property, losses and perils not covered due to limitations of the

general exclusions (as described earlier in relation to the Basic form) and the insuring agreement.



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o Any loss involving collapse, other than as provided in the Other Coverages section.

o Freezing of a plumbing, heating, air conditioning, or automatic fire protective sprinkler system or a household appliance, or overflow due to freezing while the dwelling is vacant, unoccupied or under construction, unless reasonable care was taken to maintain heat in the building or to shut off the water supply and drain the systems and appliances.

o Freezing, thawing, pressure, or weight of water or ice to fences, pavement, patios, swimming pools, foundations, retaining walls, bulkheads, piers, wharves, or docks.

o Theft in or to a dwelling or structure under construction, or theft of any property that is not part of a covered building or structure.

o Damage by wind, hail, ice, snow, or sleet to outdoor radio and television antennas and aerials, including their lead-in wires, masts or towers, and damage by these same perils to lawns, trees, shrubs, or plants.

o Vandalism, malicious mischief, theft, and attempted theft if the dwelling had been vacant for more than 30 consecutive days at the time of loss.

o Constant or repeated seepage or leakage of water or steam over a period of time from a plumbing, heating, air conditioning, or fire protective sprinkler system or from a household appliance.

o Gradual and expected losses, such as wear and tear, deterioration, inherent vice, latent defect, mechanical breakdown, smog, rust, corrosion, mold, wet or dry rot, and smoke from agricultural smudging or industrial operations.

o Discharge, dispersal, seepage, migration, release, or escape of pollutants, such as smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.

o Settling, shrinking, bulging, or expansion, including resulting cracking of pavements, foundations, walls, floors, roofs, or ceilings.

o Loss caused by birds, vermin, insects, and domestic animals.

Note 1: If a loss that is not otherwise excluded involves water damage from a plumbing/heating, air conditioning, or fire protective sprinkler system or household appliance, the policy covers the loss caused by water and the cost of tearing out and replacing any part of a building necessary to repair the system or appliance. Loss to the system or appliance itself is not covered.



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Note 2: The DP-1, DP-2 and the DP-3 cover breakage of glass or safety glazing material that is part of a building, storm door or storm window that results from earth movement.

Endorsements: o Broad Theft coverage (adds coverage for theft of personal

property to the dwelling policy. May be written for owner-occupied dwelling or an apartment [rental property] occupied by a tenant who is the named insured. Covers theft, attempted theft, and Vandalism and Malicious Mischief [V&MM] as the result of theft or attempted theft… not covered if dwelling has been left vacant for more than 30 days prior to loss. Property is covered on or off premises with separate limits for each…. Off premises is only offered in conjunction with “on premises” policies. The following property is NOT covered: Animals, birds and fish. Credit cards and fund transfer cards. Property while it is in the mail. Aircraft and parts, other than model or hobby aircraft. Property held as a sample or for sale or delivery after sale. Property separately described and specifically insured by

other insurance. Property of tenants, roomers and boarders that are not

related to an insured. Business property of an insured or residence employee. Property that is in the custody of a laundry, tailor or cleaner

(except for loss by burglary or robbery). Motor vehicles and their equipment (does not apply to

vehicles used to service the location or to assist the handicapped).

o Personal Liability and Medical Payments to Others (may be purchased as an endorsement or separate policy.)

o Coverage L – Personal Liability (covers damages that the insured becomes legally obligated to pay resulting from a covered bodily injury or property damage claim).

o Coverage M – Medical Payments to Others (the insurer will pay all necessary medical expenses incurred within three years of an accident that causes bodily injury. This coverage applies to injuries: Sustained while the injured party is on the insured location

with the insured’s permission; or Sustained while the injured party is off the insured location if

the injury arises out of a condition: On the insured location Caused by the activities of the insured Caused by an animal in the insured’s care)



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Note: There is a limit of $1,000 per person under this coverage. The insured does not have to be legally liable for coverage to apply. Coverage does not apply to any injury sustained by the insured or the insured’s family members.

Additional Coverages

o Personal Liability And Medical Payments To Others (coverage also includes three additional coverages: Claim Expenses, First Aid To Others and Damage To Property Of Others.) Losses under these coverages are paid in addition to the limit of liability. Covered claim expenses include: Defense costs. Court costs charged against an insured in any suit the insurer

defends. Premiums on bonds that do not exceed the Coverage L limit

and that are required in a suit defended by the insurer. Reasonable expenses incurred by the insured at the insurer’s

request while assisting in the claim investigation or defense, including up to $50 per day for lost earnings.

Post judgment interest. Damage to Property of Others is limited to $1,000 (with losses

arising from hovercraft accidents specifically excluded). Note: Expenses for first aid to others are covered when they are incurred by the insured for bodily injury to others that is covered by the policy. If the insured causes damage to the property of others, the policy will provide replacement cost coverage of up to $500 per occurrence.

o Exclusions (Bodily injury or property damage arising out of the following are excluded under both Coverage L and Coverage M): War Losses that are expected or intended by the insured. Business pursuits or the rendering of or failure to render

professional services. Transmission of a communicable disease by an insured. Sexual molestation, corporal punishment or physical or mental

abuse. Use, sale, or possession of controlled substances, other than

the legitimate use of prescription drugs. Rental of a premises that would not be eligible for coverage

under the policy. A premises owned by or rented to the insured or rented by the

insured to others that is not considered an insured location.



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Ownership, maintenance, use, loading, or unloading of most types of watercraft, aircraft or vehicles.

o Additional exclusions to Coverage L (include liability): For damage to property owned by an insured. For damage to property rented to, occupied or used by, or in the

care of an insured (unless the loss is caused by fire, smoke or explosion).

For losses that would be covered under a Workers Compensation or similar law.

For loss assessments charged against the insured as a member of an association, corporation or community of property owners.

Assumed under most contracts or agreements. For injury to the insured or any relative or minor who resides in

the same household. o Coverage M does not apply to bodily injury:

To a residence employee that occurs off the insured location and does not arise out of or in the course of work the employee performs for the insured.

Due to any nuclear hazard. To any person other than a residence employee who regularly

resides on any part of the insured location. o Other Optional Dwelling Endorsements:

Automatic Increase In Insurance: Provides an annual increase in the Coverage A amount of 4%, 6% or 8%.

Dwelling Under Construction: When the intended occupant of a dwelling under construction is the named insured, this endorsement is attached to the Dwelling policy to provide coverage. The limit of liability that applies at any given time is a percentage of the policy limit based on the value of the partially completed home. The available policy limit increases as construction of the home progresses.

Tenant’s form (DP-4, DP 00 04) (provides similar coverage to H0-4)



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Chapter 8: Homeowners Homeowners Policies (multi-line or package policies – provides both Property and Liability coverage): Section I (property insurance):

o Coverage A – Dwelling (same as DP-1) (insured for non-business purposes only, except incidental business described earlier).

o Coverage B – Other structures (same as DP-1) o Coverage C – Personal Property provides coverage for personal

property owned or used by an insured while it is anywhere in the world. At the insured’s request, coverage will also apply to property owned by others while in the part of the residence premises occupied by the insured or to the property of a guest or residence employee while in any residence occupied by the insured.

Property normally kept at a residence other than the residence premises shown in the Declarations is covered for up to 10% of the Coverage C limit or $1000, whichever is greater. However, this restriction does not apply to property being moved from the residence premises to a new principal residence or while living in a temporary residence while repairs are made to principle residence.

Excluded Classes of Property:

Animals, birds or fish Motorized vehicles or aircraft, including equipment and

accessories. Property of boarders Property in an apartment held for rental by the insured. Paper or electronic records containing business data,

except for prerecorded programs available on the retail market.

Property rented to others off the residence premises. Credit cards

Special Limits Of Liability Certain classes of personal property have special limits of liability that are lower than the overall policy limits that apply to personal property. These coverage restrictions are designed to encourage insureds with personal



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property of especially high value) or of a hard-to-value nature to insure this property on a specific basis. Personal Property with Special Limits of Liability are:

$200 (Money or related property, coins and precious metals [not applicable to tableware]).

$1,500 (Securities, manuscripts and other valuable paper property [includes the cost to research, replace or restore the information from the lost or damaged property]).

$1,500 (Watercraft, including trailers and equipment). $1,500 (Trailers not used with watercraft). $2,500 (Property on the residence premises used for

business purposes). $500 (Property away from the residence premises used

for business purposes). $1,500 (Electronic apparatus while it is in, on or away

from a motor vehicle [such as a car phone or portable CD player] provided the apparatus can be operated by both the vehicle’s power and other power sources).

$1,500 for theft of jewelry, watches, furs, and precious/semi precious stones.

$2,500 for theft of firearms. Limits for Theft Losses Only:

$1,500 (jewelry, watches, furs, and precious/semi-precious stones).

$2,500 (sliver, gold, or pewterware) $2,500 (firearms)

Property Not Covered (Hovercraft/parts and water or steam – [water or steam are not considered property])

o Coverage D – Loss of use Additional Coverages (included in all Homeowners forms.

Policy limit applies unless otherwise noted.) Debris Removal: (Pays expenses to remove):

o Debris from covered property if a covered peril caused the loss.

o Ash or other particles from a volcanic eruption that caused direct loss to covered property.

o Fallen trees provided: The tree is not otherwise covered under the policy, the tree damages a covered structure, a covered peril caused the tree to fall (an additional 5% of policy limit may be added for overall damages with a per tree limit of $1,000.)



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Reasonable Repairs: (Pays the reasonable costs incurred by the insured for repairs necessary to protect covered property from further loss after being damaged by a covered peril.)

Trees, Shrubs And Other Plants: (Covers trees, shrubs and plants on the residence premises for loss by fire, lightning, explosion, riot, aircraft, vehicles not owned or operated by a resident, and vandalism or malicious mischief. Coverage is limited to 5% of the Coverage A limit or a maximum of $500 for any one tree, shrub or plant. [In the HO-4 and HO-6, the limit is 10% of the Coverage C limit or a maximum of $500 for any one tree, shrub or plant.][Coverage D’s limit is $1,000 and also covers the removal of fallen trees that block access to driveway or handicapped ramp at an insured’s residence]).

Fire Department Service Charge: (Pays up to $500 when called to save or protect covered property from a covered peril. No deductible applies to this coverage. This coverage is not available for property located within the limits of the city furnishing the fire department service.)

Property Removed: (Covers property against direct loss from any peril while being removed from a premise endangered by a covered peril, and for up to 30 days while removed.)

Credit Card, Fund Transfer Card, Forgery, And Counterfeit Money: (Coverage does not apply to loss arising out of business use or the dishonesty of an insured.) Pays up to $500 for the insured’s legal obligation to pay losses resulting from:

o Theft or unauthorized use of these cards o Forgery or alteration of the insured’s checks o The insured’s acceptance in good faith of

counterfeit money. Loss Assessment: (Pays up to $1,000 for the insured’s

share of a loss assessment charged against the insured during the policy period by a corporation or association of property owners as a result of direct loss to the property owned by all members collectively and caused by a covered peril. For instance, this coverage might pay a condominium owner’s assessment for repair of a community clubhouse that was damaged by lightning.



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[deductible only applies once regardless of the number of assessments in a single occurrence]).

Glass Or Safety Glazing Material: (Covers the breakage of glass that is a part of a building, including windows and storm doors.)

Ordinance Or Law Coverage: (This additional coverage only applies in states that have adopted the 1994 coverage revisions. It allows payment of up to 10% of the Coverage A limit for the increased cost to repair or rebuild a dwelling or other structure to conform with applicable building or land use codes. This coverage is provided as an additional amount of insurance.)

Additional Coverages in Selected Homeowners Forms (The Following coverages are included in the policy limit unless otherwise noted.):

Collapse (HO-2, HO-3, HO-4, HO-5, HO-6) Pays for direct physical loss to covered property involving collapse of a building caused by a covered peril or one of the additional perils listed for this Additional Coverage.

Landlord’s Furnishings (HO-2, HO-3 and HO-5) Provides $2,500 of coverage for loss to appliances, carpeting and other household furnishings in an apartment on the residence premises that is rented or held for rental by the insured.

Building Additions and Alterations (HO-4 only) Covers fixtures, installations and improvements made or acquired at the insured’s expense. Coverage is limited to 10% of the Coverage C amount.

Grave Markers (HO-2, HO-3, HO-4, HO-5, HO-6) Coverage C – limited to $5,000 for damage caused by covered perils to grave markers or mausoleums.

Ordinance Or Law Coverage (HO-2, HO-3, HO-4, HO-5, HO-6) Pays up to 10% of the Coverage A limit for increased cost to repair or rebuild a dwelling or other structure to conform with local codes.

Basic Perils (Vandalism or malicious mischief losses to property are not covered if dwelling has been vacant for 60 or more consecutive days):

o Fire o Lighting o Windstorm or Hail (interior damage is only covered

when an opening is made in the building by peril). o Explosion



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o Riot or Civil Commotion o Aircraft o Vehicles (water craft and related equipment are covered

only when inside of fully enclosed buildings. Vehicle damage caused by insured is not covered.)

o Smoke (including Puff-back) (Smoke from fireplaces or agricultural smudging or industrial operations is not covered.)

o Vandalism & Malicious Mischief o Theft (or attempted theft) (Excludes: Theft by insured,

dwelling under construction, rental property, water craft/trailers/campers while off premises, mysterious disappearances).

o Volcanic Eruption

Broad Named Perils (applies to HO-2, HO-3, HO-4, and HO-6 only) (no Coverage A or B with HO-4):

o Falling objects (damage to a building’s interior or contents by a falling object is covered only if the falling object first damages the roof or an exterior wall.)

o Weight of ice, snow or sleet (Excluding damage to awnings, fences, patios, pavement, swimming pools, foundations, retaining walls, bulkheads, piers, wharves, or docks.)

o Accidental discharge or overflow of water or steam from within appliances or plumbing or related systems; does not include discharge or overflow of water from a sump.

o Sudden and accidental rupture of a heating, air conditioning, fire protective sprinkler, or hot water heating system. (Additions for HO-6: accidental discharge or overflow of water or steam peril includes coverage for the costs to tear out and replace any part of the building necessary to repair the faulty system or appliance.)

o Freezing of plumbing or related systems (Excludes losses that occur while the residence is unoccupied unless the insured has either made an effort to maintain heat in the house or has shut off the water supply and drained the system and appliances of water.)

o Sudden and accidental damage from artificially generated electrical current (Excluding damage to a tube, transistor, or similar electrical component.)



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Expanded coverages include:

o The vehicles peril includes loss to a fence, driveway or walk caused by vehicle owned or operated by a person who lives in the insured household.

o The smoke peril includes loss caused by fireplace smoke.

Exclusions: o Enforcement of law or ordinance regulating construction,

repair or demolition. o Earth movement, including earthquake and mine

subsidence. o Water damage, including flooding and overflow from a

sump pump. o Power interruption that takes place off the residence

premises o The insured’s failure to save and preserve property after

a loss, or to protect it from loss. o War o Nuclear hazard. o Losses caused intentionally by the insured or by

someone else at the insured’s direction. Conditions:

o Loss Settlement condition similar to the one found in the Dwelling Broad and Special forms. Losses are paid at actual cash value, but not more than the cost to repair or replace for the following: Personal property. Awnings, carpeting, appliances, outdoor antennas,

and outdoor equipment. Structures that are not buildings. Losses to the dwelling and other structures are

paid at replacement cost as long as the insured carries an amount of insurance equal to or greater than 80% of the building’s replacement cost. If the insured carries less than 80% of replacement cost, they will be paid: the actual cash value of the loss, or; a proportion of the replacement cost, whichever is larger as long as the amount is within the policy limit. The formula used to determine proportional replacement cost is:

Insurance carried / Insurance required) X Amount of loss = Amount of reimbursement



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Replacement cost is only available if the actual repair or replacement is complete, unless the amount payable is less than a specified amount.

Limits of Liability, Deductible for all forms except HO-4 and HO-6: Coverage A being Primary Limit) Because the Homeowners policy is a package policy, the policy requires a specific minimum limit of liability for each of the major property coverages, which is based on the primary amount of insurance selected by the insured. The following shows how these limits of liability are determined:

o Coverage A -- Primary limit o Coverage B -- 10% of Coverage A limit o Coverage C -- 50% of Coverage A limit o Coverage D -- HO-2 and H0-3: 20% of Coverage

A limit, and last HO-8:10% of Coverage A limit Limits of Liability, Deductible for HO-4 and HO-6:

(Coverage C being Primary Limit) o Coverage A -- Not applicable (except for $1,000

Coverage A limit in H0-6) o Coverage B -- Not applicable o Coverage C -- Primary limit o Coverage D -- HO-4: 30% of Coverage C limit HO-

6: -- 50% of Coverage C limit The Homeowners form also provides for a deductible that applies to coverage under Section I. Typical deductibles are $100, $250 or $500; other deductible amounts may also be available.

Section I Endorsements: o Special Personal Coverage

Jewelry Furs and fur-trimmed garments Cameras, projectors, films, and equipment Musical instruments Silverware Golf equipment Fine arts Postage stamps Coins

o Personal Property endorsement (same coverage as provided by a Personal Articles Floater to cover items like



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jewelry, furs, gun collections, fine arts, antiques, musical instruments -- making it an endorsement rather than a separate Inland Marine contract normally saves time and money)

o Replacement Cost endorsement (converts Coverage C from ACV to replacement cost.)

o Permitted Incidental Occupancy endorsement (provides premises liability and Medical Payments coverage for an in-home business that you own.)

o Earthquake endorsement (covers earthquake and volcanic eruptions. The endorsement is written with a percentage deductible and it treats all tremors or eruptions in a 72 hour period as a single occurrence.)

o Home Day Care Coverage endorsement (is for the home day care business for up to three children. It fills some of the liability gaps concerning molestation, abuse and corporal punishment. It extends the property coverage to include a separate structure like a garage used in the business.)

Section II (Direct and indirect liability and medical coverage – same coverage

for all homeowner forms): o Coverage E – Personal Liability (non business liability)

Bodily injury (bodily harm, sickness or disease, including care, loss or services and death)

Property Damage (physical injury to or destruction of tangible property, including the loss of use)

Insured locations include: (premises defined in the policy Declarations, new residence [including while under construction] , temporary residence locations, vacant land [owned or rented], and cemetery lots or vaults)

Defense costs (real or groundless -- up to policy limits) Standard policy limits (for BI and PD is $100,000 per

occurrence) o Coverage F – Medical Payments to Others (sometimes called Guest

Medical -- expense covered up to 3 years after bodily injury incident – regardless of legal liability) coverage applies to: Injuries on location with insured’s permission Injuries off location arising out of the following conditions:

• On location • Off location but near by insured’s property location • Caused by insured’s activities • Caused by insured’s employee



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• Caused by insured’s animal or animal under insured’s care

Exclusions (applies to Coverage E and Coverage F): • Liability for injury or damage that is expected or intended

by the insured. • BI or PD arising out of business pursuits or the rendering

of or failure to render professional service. • BI or PD arising out of the rental of any part of the

premises, except for the rental of part of an insured location as a residence.

• Liability arising out of ownership, maintenance, use, loading, or unloading of aircraft, watercraft and motor vehicles.

• Liability arising out of war and war-like acts, such as insurrection and rebellion.

• Liability arising out of the transmission of a communicable disease by an insured.

• Liability arising out of sexual molestation, corporal punishment or physical or mental abuse.

• Liability arising out of the use, sale, manufacture, delivery, transfer or possession of a controlled substance (does not apply to the legitimate use of prescription drugs).

• Additional exclusions: • for Coverage E only:

For any loss assessment charged against the insured as a member of an association, corporation or community of property owners.

Assumed under a contract or agreement, except contracts that relate directly to the insured location or contracts where the liability of others is assumed prior to an occurrence.

For property damage to property owned by, used by or in the care of the insured.

For BI or PD for which the insured is covered under a Nuclear Energy Liability policy.

• for Coverage F only: BI to a residence employee that occurs off the

insured location and does not arise out of or in the course of work the employee performs for the insured.

BI due to nuclear reaction, radiation or radioactive contamination, including any consequential injuries.



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o Additional Coverages: Claim Expenses (Reimburses the insured for expenses… these

expenses are paid in addition to the limit of liability). Defense Costs Premiums for Bonds (required in a suit the insurer defends Post

judgment interest.) Reasonable Expenses (incurred by the insured at the company’s

request, including loss of earnings of up to $250.00 per day.) First Aid Expenses (paid as part of policy limit – pays up to $500

per occurrence regardless of liability in addition to Section I coverages for property damaged or destroyed).

Loss Assessment (pays up to $500.00 for loss assessment covered under Section II).

Maximum payable for lost time ($250 a day) Section II Endorsements: Watercraft endorsement (marginally increases the maximum

size and power of watercraft that can be adequately covered under the liability section of a Homeowners policy.)

Business pursuits endorsement (covers business activities away from residence premises)

Personal Injury endorsement (extends the liability section of Homeowners to include Personal Liability. . .libel, slander, defamation of character, wrongful entry or eviction. Useful for landlords.)

Section I and Section II Conditions: o Policy Changes o Assignment o Concealment or Fraud o Liberalization o Subrogation o Policy Period o Cancellation

Homeowner Eligibility Requirements (stricter definition than dwelling):

Named insured must be the occupant (either owner or renter of dwelling or condo).

Home can not contain more than two families or two additional borders per family.

Unless they are renters, they cannot purchase coverage for “personal property only.”

Dwelling must be used exclusively as a residence (except for certain Incidental businesses, offices, professional or private schools, or studios.)

Farms can not be covered with this policy.



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Mobile homes are only covered when the Mobile Home endorsement is attached to H0-2 or H0-3.

Dwellings under construction, secondary, or seasonal residences are eligible.

Homes being purchased on installment plans or being occupied under life estates arrangements are eligible.

o HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8 provides identical liability

coverage and the only coverage that varies is the Property coverage based on form selected.: The HO-2 (HO 00 02) is the Broad form and provides broad

coverage for the dwelling and personal property. The covered perils are similar to those provided by the DP-1 with the Extended Coverage perils and V&MM coverage. Breakage of glass and theft are also covered. In addition, it broadens certain perils and adds other perils.

The HO-3 (HO 00 03) is the Special form and provides open peril coverage for loss to the dwelling and other structures, unless specifically excluded in the policy. It provides broad named peril coverage for personal property, which is identical to the HO-2’s coverage of personal property. Coverage A and B exclusions under HO-3 include:

• Any loss involving collapse, other than as provided in the Other Coverage section.

• Freezing of a plumbing, heating, air conditioning, or automatic fire protective sprinkler system or a household appliance, or overflow due to freezing while the dwelling is vacant, unoccupied or under construction, unless reasonable care was taken to maintain heat in the building or to shut off the water supply and drain the systems and appliances.

• Freezing, thawing, pressure, or weight of water or ice to fences, pavement, patios, swimming pools, foundations, retaining walls, bulkheads, piers, wharves, or docks.

• Theft in or to a dwelling or structure under construction, including theft of materials and supplies used in construction.

• Vandalism and malicious mischief when the dwelling had been vacant for more than 30 consecutive days at the time of loss (does not apply to dwellings under construction).

• Gradual and expected losses, such as wear and tear, deterioration, inherent vice, latent defect, mechanical breakdown, smog, rust, corrosion, mold, wet or dry rot,



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and smoke from agricultural smudging or industrial operations.

• Discharge, dispersal, seepage, migration, release, or escape of pollutants, such as smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste (does not apply when caused by a peril covered under Coverage C.

• Settling, shrinking, bulging, or expansion, including resulting cracking of pavement, foundations, walls, floors, roofs, or ceilings.

• Loss caused by birds, vermin, insects, and animals owned by the insured.

Note: If a loss that is not otherwise excluded involves water damage from a plumbing, heating, air conditioning or fire protective sprinkler system or household appliance, the policy covers the loss caused by water and the cost of tearing out and replacing any part of a building necessary to repair the system or appliance. Loss to the system or appliance itself is not covered.

The HO-4 (HO 00 04) (is the Tenants form and insures tenants

personal property-broad coverage similar to HO-2 with no coverage for the dwelling.)

The HO-5 (HO 00 05) (Covers both dwelling and property on open peril basis for both Dwelling and Personal Property – covers anything not specifically excluded in the policy)

The HO-6 (HO 00 06) (is the Condominium form, provides broad coverage similar to HO-2 on the personal property of condominium owners with very limited dwelling coverage.)

• Limited Coverage A: Alterations, appliances, fixtures, and

improvements that are part of the building containing the residence premises

Items of real property pertaining solely to the residence premises

Property that is the insured’s responsibility under a condo association agreement

Structures other than the residence premises owned solely by the insured at the location of the residence premises

The standard Coverage A limit for the HO—6 is $1,000.



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The HO-8 (HO 00 08) (is the Modified Coverage form, is designed for older homes with replacement values that may far exceed their market values. It provides basic coverage on the dwelling and personal property that is similar to the DP-1 with the Extended Coverage perils and V&MM coverage, but also includes certain restrictions on valuation of losses. In many areas, the HO-8 is no longer available. Only insures against basic perils.)

Overview of Homeowners forms coverages: • HO-2: Broad Dwelling and broad Personal Property • HO-3: Special Dwelling and Broad Personal Property • HO-4: Broad Personal Property • HO-5: Open peril basis for both Dwelling and Personal

Property • HO-6: Broad Personal Property • HO-8: Basic Dwelling and Personal Property

Overview of Perils Homeowners Policies Insures Against:

• HO-2: fire, lighting, windstorm, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism & malicious mischief, theft, volcanic eruption, falling objects, weight of ice & snow or sleet, discharge of water or steam, freezing of plumbing & related systems, and artificially generated electric current.

• HO-3: Dwelling – open peril (risk of loss not otherwise excluded are covered), personal property: fire, lighting, windstorm, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism & malicious mischief, theft, volcanic eruption, falling objects, weight of ice & snow or sleet, discharge of water or steam, freezing of plumbing & related systems, and artificially generated electric current.

• HO-4: fire, lighting, windstorm, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism & malicious mischief, theft, volcanic eruption, falling objects, weight of ice & snow or sleet, discharge of water or steam, freezing of plumbing & related systems, and artificially generated electric current.

• HO-5: open peril basis for both Dwelling and Personal Property.

• HO-6: fire, lighting, windstorm, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism & malicious mischief, theft, volcanic eruption, falling objects, weight of ice & snow or sleet, discharge of water



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or steam (includes costs to tear out or replace area of the building to repair system or appliance), freezing of plumbing & related systems, and artificially generated electric current.

• HO-8: fire, lighting, windstorm, explosion, riot or civil commotion, aircraft, vehicles (does not include losses to fences, driveways or walks caused by vehicles owned or operated by residents of insured household) , smoke (does not include damage from fireplace smoke), vandalism & malicious mischief, theft, and volcanic eruption.

Overview of Additional Coverages: • HO-2: debris removal, reasonable repairs, trees/shrubs

& other plants, fire department service charge, property removal, credit card/fund transfer card/forgery & counterfeiting money, loss assessment, glass/safety glazing material, collapse, and landlord’s furnishings.

• HO-3: debris removal, reasonable repairs, trees/shrubs & other plants, fire department service charge, property removal, credit card/fund transfer card/forgery & counterfeiting money, loss assessment, glass/safety glazing material, collapse, and landlord’s furnishings.

• HO-4: debris removal, reasonable repairs, trees/shrubs & other plants, fire department service charge, property removal, credit card/fund transfer card/forgery & counterfeiting money, loss assessment, glass/safety glazing material, collapse, and building additions & alterations.

• HO-5: open peril basis for both Dwelling and Personal Property.

• HO-6: debris removal, reasonable repairs, trees/shrubs & other plants, fire department service charge, property removal, credit card/fund transfer card/forgery & counterfeiting money, loss assessment, glass/safety glazing material, and collapse.

• HO-8: debris removal, reasonable repairs, trees/shrubs & other plants, fire department service charge, property removal, credit card/fund transfer card/forgery & counterfeiting money, loss assessment, and glass/safety glazing material.



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Chapter 9 : Auto Personal Auto Insurance PAP (Personal Auto Policy) (policy consists of Declarations Page and Policy Form) General Types of Coverage:

Liability (damages to others property resulting from an accident while using a motor vehicle).

Damages to motor vehicle (fire, theft, or accident). Policy Forms (each has its own insuring agreement, exclusions and conditions).

Part A (Liability Coverages – may be written alone or with other coverages).

Part B (Medical Payments Coverages – is optional but requires Part A coverage).

Part C (Uninsured Motorists Coverages– is optional but requires Part A coverage and is subject to varying individual state laws).

Part D (Collision and Other Than Collision [physical damage] -- may be written alone or with Liability coverages).

Definitions

Named Insured: You and Yours - the named insured and their spouse – spouse must reside in the same household as the insured. In cases where there is a legal separation; the spouse remains insured under the same policy for the lesser of: o 90 days o The effective date of a new policy on the spouse. o The next effective date of the existing policy.

Family Member (any person residing in the household who is related by blood or by law [ward, adoption, and foster children]).

Bodily Injury (bodily harm, sickness/disease, and/or death resulting from same).

Occupying (means: in a vehicle, on a vehicle, or getting in/on/out/off a vehicle).

Primary – Excess Rule (policy covering the car is primary and if driver not a regular or frequent driver their policy is secondary and pay for any excess damages.



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Property Damage (means: physical injury to, destruction of, and/or loss of use of tangible property).

Named Insured’s Covered Auto includes:

o Any vehicle listed in the Declarations (limited to private passenger autos [four wheel motor vehicles, pickup trucks, and vans under a certain weight and not used for business – farms and ranches are NOT considered a business] which are owned, purchased during the policy period or leased [for 6 months or more]. Replacement vehicles purchased during policy period are covered for liability, medical payments, and uninsured motorists automatically. Additional vehicles must be added to coverage within 14 days of purchase. If no physical damage coverage exists in the policy it may be added within the first 4 days after acquiring the vehicles and losses during the first fours days are subject to a $500.00 deductible).

o Any trailers owned by the named insured (includes farm wagons and farm implements towed by vehicles listed in the Declarations).

o Other autos or trailers used as temporary substitutes for listed vehicles currently broken down, under repair, servicing, loss or destroyed.

Part A – Liability Coverage (covers insured for bodily injury or property damages related to auto accident that are the legal responsibility of the insured).

Who is the insured? o Named insured and their immediate family while using any motor

vehicle o Anyone using an insured’s car with permission (or had a reasonable

belief they had permission). o Other people or organizations to the extent that they share

responsibility and liability with the insured. o Other people or organizations for their liability arising out of an

accident involving any auto or trailer used for the benefit of other people or organization by the insured or a family member. (if the auto or trailer is owned by the other people or organization the personal policy of the insured does not provide coverage – coverage is provided by the policy owned by the other people or organization).

Supplementary Payments (pays in addition to policy liability limit): o Up to $250 for cost of bail bonds. o Premiums on appeal bonds or bonds to release attachments. o Post judgment interest (pre judgment is included as part of liability

limit). o Up to $200.00 per day for loss of earnings (missed work time related

to company requested hearings and/or trials). o Other reasonable expenses incurred due to request of company.



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Exclusions:

o BI or PD caused by the insured intentionally. o Damage to property owned or being transported by the insured. o Damage to property rented to, used by or in the care of the insured. o BI to an insured’s employees (these losses are covered under

Workers Compensation) o Liability arising out of an insured’s ownership or operation of a vehicle

used as a public or livery conveyance; such as a taxi. (This exclusion does not apply to a share-the-expense carpool.)

o Liability arising while the insured’s auto is being used in an auto business

o Use of a vehicle without permission (does not apply to family members using covered autos owned by the insured)

o BI or PD for which an insured is covered under a Nuclear Energy Liability policy.

o Motorized vehicles with fewer than four wheels or designed for use off public roads (does not apply to non-owned golf carts).

o Vehicles other than covered autos that are owned by the named insured or furnished for the named insured’s regular use.

o Vehicles other than covered autos that are owned by family members or furnished for their regular use (does not apply to the named insured)

o Vehicles used in prearranged racing or speed contests.

Limits of Liability (ex. 30/60/30 -- $30,000 per person for bodily injury / $60,000 per accident for bodily injury collectively per incident / $30,000 per accident for property damage).

Financial Responsibility Laws (most states require that drivers can prove they can meet a minimum financial liability resulting from an accident – this is normally accomplished through the purchase of an insurance policy).

Out of State Coverage Provision (in the case of an out-of-state accident, provision modifies the policy to meet the minimum state financial requirements in that state).

Other Insurance clause (Liability coverage states that the company will pay only its share of a loss that is also covered by other insurance)

Part B – Medical Payment Coverage:

Who Is Insured (the named insured and/or family members [while occupying a motor vehicle designed for use on public roads or trailer], and passengers [any other person while occupying the named insured’s covered vehicle] injured in an accident regardless who is at fault.)

Coverages (reasonable expenses for necessary medical and funeral services incurred within 3 years of the accident.)



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Exclusions: There is no coverage for injuries:

o Sustained while occupying a motor vehicle with fewer than four wheels.

o Sustained while using a covered auto as a public or livery conveyance. o That would be covered under Workers Compensation. o Sustained while the insured is occupying a vehicle without the

reasonable belief that he or she is entitled to do so (Exception: does not apply to family members using covered autos owned by the insured).

o Sustained while occupying an uninsured auto that is owned by a family member or furnished for the family member’s regular use (Exception: does not apply to the named insured).

o Sustained while occupying an uninsured auto that is owned by the insured or furnished for his or her regular use.

o Sustained while occupying a vehicle that is being used in the insured’s business.

o Sustained while occupying a vehicle located for use as a residence or premises.

o Sustained during prearranged racing or speed contest. o Caused by war or nuclear hazard.

Limits of Liability (single limit of liability that applies to all injuries sustained by each person injured in any one accident. Typical limits are $1,000, $2,000, $5,000 or $10,000).

Other Insurance Clause (Liability coverage states that the company will pay only its share of a loss that is also covered by other insurance).

Part C – Uninsured Motorist (UM) / Underinsured Motorist (UIM) Coverage:

Uninsured Motor Vehicle (In most states this coverage indemnifies the insured from bodily injury only resulting from an accident with an uninsured motorist. Punitive damages are excluded from this coverage. Note: some states offer property damage coverage in addition to bodily injury coverage, this is normally added through an endorsement to the policy) defined as:

o Has no liability coverage at the time of the accident. o Does not carry the minimum amount of liability coverage required by

the state. o An insured or family member is involved in a hit and run accident

where the at-fault driver can not be identified. o Has invalid Liability coverage at the time of the accident due to the

insurer insolvency or the insurer denies coverage. Indemnification: To be indemnified under Part C the following conditions

must be met: o The loss must be caused by an auto accident and involve bodily

injury (in most states). o The loss must be sustained by an insured. o The insured must be legally entitled to recover for BI damages.



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o The uninsured vehicle must meet the definition of an uninsured vehicle.

Who is the insured? o Named insured and their immediate family. o Anyone occupying the named insured’s covered auto. o Any person entitled to recover damages because of BI caused by

an uninsured motorist to the named insured, family members or passengers in a covered auto.

Exclusions – (losses that are not covered under Part C): o Losses for BI sustained by an insured while occupying or when

struck by an auto that is owned by the insured, but not insured for Uninsured Motorists Coverage under the policy.

o Losses for BI sustained by a family member while occupying or when struck by an auto owned by the named insured that has primary Uninsured Motorists Coverage under another policy.

o Losses that are settled without the insurer’s consent. o Losses that occur when the auto is being used as a public or livery

conveyance. o Losses that occur while the insured is using an auto without the

reasonable belief that he or she is entitled to do so (does not apply to family members using covered autos owned by the insured).

o Claims which may result through disability policies and workers compensation insurance are prohibited by the policy.

Limits of Liability (similar to Part A) the insurance company will not: o Make duplicate payments for losses the legally responsible person

or paid on their behalf -- Or --

o Pay any part of losses that could be covered under workers compensation or disability benefits law.

Other Insurance (similar to Parts A and B) In the case where the insured has multiple policies the Payout is limited to the highest single policy limit for an uninsured motorist.

Arbitration (similar to Arbitration condition previously discussed.) Underinsured Motorist Coverage (pays the insured the difference between

the actual damages for bodily injury and the amount of the Liability coverage of the driver that is at fault within the limits of the Underinsured Motorist Coverage).

Part D – Coverage for Damage to Your Auto (commonly known as Physical Damage coverage) (optional coverage):

Covered damages (and upset) (named peril coverage - include direct and accidental losses to the named insured’s vehicle or any non-owned vehicle for losses resulting from Collision and Other Than Collision [sometimes referred to as OTC or Comprehensive]. Does not cover property in the vehicle.)



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Collision and Other Than Collision (may be purchased separately or together and represent the amounts of Open Peril coverage to the named insured’s vehicle. When an insured has more than one vehicle, coverage may vary on a vehicle-by-vehicle basis.)

o Collision (defined as the impact of a covered auto with another object or vehicle or the upset of a vehicle).

o Other Than Collision (pays for any accidental loss not specifically excluded in the policy).

Covered perils include: Missiles or falling objects Fire Theft or larceny Explosion or earthquake Windstorm Hail, water or flood Malicious mischief or vandalism Riot or civil commotion Contact with a bird or animal Breakage of glass

Non-owned vehicle coverage (in the case of a named insured having multiple policies or covered vehicles; losses involving a non-owned vehicle are cover at the highest level of existing policies).

Transportation Expenses (pays $20.00 per day to a maximum of $600.00 for accident related loss of use of his/her own or non-owned vehicle – subject to a 48 hour waiting period in the case of theft of vehicle – for other types of losses there is a 24 hour waiting period and extends through a reasonable time to repair or replace the vehicle).

Exclusions: o Losses to an auto used for public or livery conveyance. o Losses due to wear and tear, freezing, mechanical or electrical

breakdown or road damage to tires (does not apply if damage results from theft).

o Losses due to war or nuclear perils. o Losses to all types of audio, visual and date electronic equipment

and accessories not mounted to the vehicle (does not apply to electronics required for the operation of the vehicle).

o Losses due to destruction or confiscation by government or civil authorities.

o Losses to insured owned camper body, trailer or motor home not listed in the Declarations.

o Losses to non-owned auto used by the insured or family member without reasonable belief that he or she is entitled to do so.



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o Losses to awnings, cabanas or equipment designed to create additional living space.

o Losses to custom furnishing or equipment in a pick-up or van (does not apply to caps, covers or bed-liners).

o Losses to radar or laser detection equipment. o Losses to non-owned vehicles being used in any business . o Losses to any auto being used in prearranged racing or speed

contest. o Losses to auto rented by the named insured or family member if

rental agency is prohibited from loss recovery by state law or rental agreement.

Other Provisions o Physical damages limited to: actual cash value, amount needed

to repair or replace property – whichever is less subject to deductibles.

o No Benefit to Bailee Condition: bailee can not benefit from insurance if loss occurs to vehicle while in their possession.

Parts E and F – Conditions (applies to whole policy): Part E -- Duties After an Accident or Loss (similar to other Property and

Liability policies.) Part F – General Provisions (describes obligations of insured and insurer as

well as establishes conditions for coverage.) o Covered losses must occur within the policy territory and policy period. o Legal Action: Insured may not take legal action against an insured until

all policy terms have been complied with (Under Part A legal action can not be taken until the insurer agrees in writing that the insured has an obligation to pay or unless the amount of such an obligation has been established in court of law. No person or organization may take action against the insurer to determine whether or not an insured is liable for a loss).

o Policy Terms may not be Changed or Waived except in writing. o Subrogation rights: losses caused by a person having a reasonable

belief of being entitled to use the auto (included in all coverages except Physical Damage).

o Termination of policy: Insured: must give advanced notice in writing, send in the

policy and specific date to end policy. Insurer: must provide advance notice of cancellation (or

renewal – requires a minimum of 20 days notice) – 10 days advanced notice for nonpayment during the first 60 days of a new policy --- 20 days in all other cases.

Cancellation (after 60 day period on new policies): only reasons a policy can be cancelled are: Nonpayment, Material misrepresentation when obtaining a policy, or a regular operator of a vehicle having a license suspended.



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Personal Auto Policy Endorsements:

Joint Ownership Coverage (covers two or more persons [other than husband and wife] who live in same household).

Towing and Labor Costs (basic limit of $25.00 for towing and labor directly related to towing – higher limits are available).

Miscellaneous Type Vehicle (covers motorcycles, mopeds, and recreational vehicles [golf carts and motor homes]).

Extended Non-owned Coverage for Named Individuals (expands coverage of the Personal Auto policy concerning the driving of other individuals’ vehicles).

Optional Limits Transportation Expense Coverage (allows insured to select daily and maximum limits of coverage for transportation and loss of use expenses for both scheduled and non-owned vehicles).

Named Non-owned Coverage (covers rented or non-owned vehicles driven by the insured for up to 14 days).

No-Fault Insurance (under these laws the insured is reimbursed by their own insurance company for medical expenses and/or loss of wages related to an accident regardless of who caused the accident). Assigned Risk Plans or Automobile Insurance Plans (voluntary agreements between insurance companies licensed in a given state. These companies agree to share the poor risks among themselves. Each company accepts its share of assigned risk drivers according to the size of the individual insurance company). Common Auto Policy Exclusions includes:

Intentional Acts War/nuclear Vehicles used for hire (not including car pools) Using a vehicle without reasonable belief you had permission



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Chapter 10 : Misc. Personal Insurance

Miscellaneous Personal Insurance:

Flood Insurance (the National Flood Insurance Program [NFIP] was created by congress in 1968 to make Flood insurance available to eligible communities through federal subsidization. You do not have to be in a flood plain to be insured. This program is operated under the Federal Emergency Management Agency [FEMA] and is managed by the FEMA branch: the Federal Insurance Administration [FIA]):

o Emergency Program (building $35,000 and contents $10,000 with a $1,000 deductible).

o Regular Program (building $250,000 and contents $100,000 with $500 deductible).

o Covers permanent homes that are insured for at least 80% of value, all other losses on an actual cost basis. Includes debris removal as long as the policy limits are not exceeded.

o Flood is defined as: An overflow of inland or tidal waters. Unusual or rapid accumulation or runoff of surface water

from any source, unless general flood exist. Mudslides caused by accumulations of water on the ground

or underground. Collapse of land as a result of excessive erosion due to

flood.

o Flood Policies do not cover: Accounts, bills, currency, deeds, evidences of debt, money,

securities, bullion, and manuscripts. Lawns, trees, shrubs, plants, growing crops, and livestock. Aircraft, self-propelled vehicles and motor vehicles. Fences, retaining walls, outdoor swimming pools, bulkheads,

wharves, piers, bridges, docks, and other open structures on or over water.

Underground structures and equipment, such as wells and septic tanks.

Newly constructed buildings that are in, on or over water.



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Structures that are primarily containers, such as gas or liquid storage tanks and does not cover silos, grain storage buildings or their contents.

o Write Your Own Program FIA set rates and limitations for private insurers to write policies—government subsidized, losses in excess of collected premiums are covered by government – excess premium is turned over to government.

o Application Procedures -- 30 day waiting period for coverage with the following exceptions: New loans – no waiting period Coverage takes place at 12:01AM the following day after the

application and premium is mailed for communities that first enters either program, if it is sent in the first 30 days of eligibility

Existing policy assignment which occurs prior to title transfer takes effect on title transfer date.

Changes to existing policies take effect at 12:01 AM on the fifth day after request (must included new premium with request).

Earthquake Insurance (sold as an endorsement to either a Dwelling or Homeowners policy and covers structure and contents).

Mobile Home Insurance: o Dwelling policy (Basic form) is used to cover property damage for

mobile homes which are permanently mounted to a foundation only.

o HO-4 forms can be used to cover contents of a mobile home, but not the mobile home itself.

o Alternate Insurance Methods: Mobile Home Package Policy (developed by companies

and rating organizations). Mobile Home Endorsement (ISO has developed an

endorsement for HO-2 and HO-3 to provide coverage for mobile homes).

Coverage provided includes: Mobile home, equipment and accessories

originally built into the unit. Equipment, additions and appurtenant structures

not originally included with the unit. Additional living expenses.

Personal Articles Form – open peril coverage on blanket basis (includes pair or set condition already previously addressed) with following exclusions:

o Insects



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o War o Nuclear hazard o Vermin o Wear and tear o Gradual deterioration o Inherent vice (as built defect in property)

Personal Property Form (coverage for 9 optional classes with automatic coverage newly acquired items identified by [A] if category is already insured: jewelry[A], furs, cameras[A], musical instruments[A], silverware, golf equipment, fine arts[A], stamps, and coins).

Personal Effect Form (open peril coverage for most kinds of personal property) similar to personal property coverage under Homeowners –Coverage C.

Personal Property Floater (open peril coverage designed for apartment or condo dwellers who cannot obtain coverage under HO-4 or HO-6).

Personal Effects Form (open peril coverage designed to cover personal belongings while traveling, on insured’s premises or while in storage) exclusions include the following: valuable papers, tickets, contact lenses, artificial limbs, and sales samples.

Personal Inland Marine Insurance: o Personal Watercraft Insurance (limited coverage of $1,000 and

for some perils there is no coverage at all under Homeowners policy). Boat Owners, Outboard Motor and Boat Policies (covers

Property, Liability and Medical payments on open peril basis for open boats under 25 ft in length or under a maximum dollar value – losses paid on an actual cash value basis).

Outboard Motor and Boat Insurance (open peril - covers physical damage to boats, motors, accessories and trailers with limited coverage for damage to another vessel. Losses paid based on actual cash value basis).

Personal Yacht Policies (Ocean Marine forms that provide a package of Property and Liability coverages on open peril basis – used for most inboard boats, sailboats with inboard auxiliary power and large sailboats) Coverage included are:

o Hull Insurance o Boat Trailer Insurance o Protection and Indemnity o Medical Payments o Federal Longshore and Harbor Workers Compensation

Insurance o Conditions/Exclusions: water skiing clause (does not cover water

skiers while in water off the boat), Layup warranty provides for



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reduced premium for boats while in safe storage, navigational limits (defines area where yacht is permitted to operate – exceptions must be granted by insurer).

Fair Access to Insurance Requirements Plans (FAIR Plans) (state developed insurance plans used to insure inner city property at reasonable rates).

Personal Umbrella Insurance (extended Liability coverage ranging from $1 to $5 million – requires an underlying basic Liability policy coverage).

o Provides additional Liability insurance over and above the basic coverage provided by other policies.

o Covers some losses that are specifically excluded by the underlying Liability insurance.

o Exclusions (intentional acts, liability covered under Workers Compensation and liability arising out of business pursuits).

Note: Excess Liability policies offer a lower cost solution for liability coverage than an Umbrella policy; however excess liability policies only pay if the underling liability policy pays first.



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Chapter 11: Commercial

Commercial Package Policy (CPP) (used to provide almost any commercial insurance the insured might need – all risk):

Common Policy Declarations: o Name and mailing address of the insured. o Policy period, including the time and date coverage begins and

ends. o Description of the business covered. o Coverage parts purchased and related premiums. o List of forms applicable to all coverage parts.

Common Policy Conditions: o Certain responsibilities and obligations are assigned to the First

Named Insured (First Named Insured is the only individual that can make changes to the policy with the responsibility for premium payment being the First Named Insured’s– policies may have any number of individuals listed on the policy, however only one First Named Insured).

o Cancellation (requires a 30 day notice and any unused premium will be returned on a pro rata basis).

o Examination of Books and Records (insurance company may examine and audit the insured’s books and records at any time and may for up to 3 years after the business closes).

o Nonrenewal (if the insurer chooses to non-renew, most states will require prior notice, this requirement varies from state to state)

o Cancellation (The first named insured can cancel without notice, however if the insurer cancels most states will require prior notice, this requirement varies from state to state)

o Inspection and Surveys (gives the insurance company the right to make inspections or surveys of the insured’s business at any time).

o Transfer of Your Rights and Duties Under This Policy (sometimes called Assignment Clause) requires written consent to transfer, except in the case of death of the Named Insured.

Two or More Coverage Parts (package policies):



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o Covered Parts (each line has its own variety of mandatory and optional forms used to provide desired coverage. If only one part is required in a given policy, that policy would be a mono-line policy)

o Eligible Commercial Coverages includes: Property, General Liability, Auto, Crime, Inland Marine, Boiler and Machinery, Professional Liability, Employment Practices Liability, and Farm. (also referred as the Magnificent Seven)



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Chapter 12: Business Owners Businessowners Policy (BOP) (provides Property and Liability coverages for certain low risk small businesses -- eligibility requirements are more stringent than those for CPP – package policy consisting of both CPP and BOP – open peril [if not excluded, it is covered] policy – standard deductible is $500, can be raised to $2,500 – no coinsurance requirement, pays losses settlements on replacement cost basis unless underinsured [insured for less than 80% of replacement cost]; then ACV basis).

Eligible Buildings (Coverage A) o Apartment buildings (including residential condominium

associations) May contain offices and certain associations’ wholesale,

mercantile, service, or processing incidental occupancies. o Office buildings (including office condominium associations):

No more than six stories high. Contain no more than 100,000 square feet. May contain apartments and certain wholesale, service or

processing incidental occupancies that do not exceed 25,000 total square feet.

o Other buildings (occupied principally for certain wholesale, mercantile, service or processing purposes). Contain no more than 25,000 total square feet

Eligible Wholesale Risk: o Auto parts and supplies distributors. o Heating or heating and air conditioning equipment distributors. o Baked goods wholesalers (no baking on the premises). o Hobby, model maker or artists’ supplies distributors. o Barber or beauty shop supplies distributors. o Household appliance distributors. o Bookbinding and printers’ supplies wholesalers. o Janitorial supplies distributors. o Clothing or wearing apparel distributors. o Jewelry distributors. o Coin, stamp or rare book distributors. o Meat, fish, poultry, or seafood distributors. o Drug distributors.



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o Office machines or appliances distributors. o Fabric distributors. o Optical goods distributors. o Floor covering distributors. o Plumbing supplies and fixtures distributors. o Fruit or vegetable distributors. o Refrigeration equipment distributor. o Gardening and light farming supplies wholesalers. o Stationery or paper products distributors. o Grocery distributors. o Tobacco products distributors. o Hardware and tool distributors. o Toy distributors. o Hearing aid distributors. o Wholesale florists.

Eligible Processing or Service Businesses o Commercial or household appliances and accessories installation,

servicing or repair. o Mailing or addressing companies. o Bakeries with baking on the premises. o Photocopy services. o Barber shops. o Photoengraving o Beauty parlors and hair styling salons. o Photographers o Dental laboratories. o Printing o Engraving o Shoe repair shops. o Funeral homes or chapels. o Tailoring or dressmaking. o Laundries and dry-cleaning stores using petroleum or synthetic

solvents and having less than three receiving stations. o Taxidermists o Laundries and dry-cleaning or dyeing receiving stations. o Television or radio receiving set installation or repair. o Lithographing. o Watch, clock and jewelry repair.



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Restaurants (certain fast food and limited-cooking restaurants are also eligible for the business policy).

Limited-cooking restaurant (restaurant where food is pre-pared cold or cooked using appliances that do not emit smoke or grease-laden vapors that require an exhaust system.) Other eligibility requirements include:

o No more than 7,500 square feet of floor area. o Seating capacity of 75 or less. o Sales of beer or wine may represent no more than 25% of total

sales, and liquor may not be sold. o Catering service may not exceed 10% of total sales. o Seasonal risks closed for more than 30 consecutive days during the

year are not eligible. Fast food restaurant (restaurant may use certain appliances that emit

grease-laden vapors, such as grills, enclosed broilers and deep fat fryers, but open broiling and solid fuel [charcoal or hardwood] cooking are not permitted. Additional requirements are the same as for limited-cooking restaurants, except that fast food restaurants may have a seating capacity of 150 and they must have fire extinguishing equipment appropriate for their cooking appliances.) Eligible limited-cooking and fast food restaurants include:

o Cafes o Drugstores o Cafeteria-style buffets o Hot dog or hamburger stands o Coffee shops o Ice cream/yogurt shops o Concession stands o Oriental/ethnic restaurants o Delicatessens/sandwich shops o Pizza shops o Doughnut shops o Salad bars o Drive-ins o Take-out only restaurants

Certain convenience food/gasoline stores are also eligible (Gasoline sales may account for no more than 50% of total sales. The business may not include a restaurant, auto service or repair operations, a car wash, or tank filling operations for propane or kerosene.)

Contractors may be eligible for a Businessowners policy if certain requirements are met. The following factors make a contractor ineligible for coverages:

o Annual payroll over $300,000. o Sales unrelated to installation, service or repair exceed 25% of

annual sales.



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o Subcontracted work exceeds 10% of sales. o Heavy construction such as building bridges, installing or rigging

cranes, pipeline, construction or sandblasting. o Installing or dealing in hot tubs, swimming pools or wood/coal

stoves. o Insulation work. o Rent or lease equipment to others. o Shop-only carpentry or sheet metal. o In compliance work. o Use cranes in business operations. o Demolition, blasting, wrecking, high pressure boiler, or liquid

petroleum gas work. o Waterproofing o Sales, service or installation of automatic opening doors or garage

doors. o Manufacture or sale of products under the contractor’s name. o General contracting o Annual sales over $3 million o Repairing or painting ships. o Lawn chemical spraying, except for landscaping gardeners in

compliance with applicable law. o Work at heights over three stories. o Tree services or removal. o Hazardous material or pollution abatement operations, such as

asbestos, lead and radon. o Repair, installation or services of boilers, burglar alarm systems,

automatic fire extinguishing systems, elevators, escalators, or computers.

Contractors working in the following trades are eligible for a Business owners policy if none of the factors listed in the previous table apply:

o Appliances and accessories o Masonry o Metal ceiling or wall installation o Carpet and furniture cleaning o Metal door, window or assembled millwork installation o Concrete construction o Painting o Decorative or artistic metal o Paper hanging o Driveway, parking area or sidewalk o Plastering or stucco work o Electrical work inside buildings o Plumbing (not industrial) o Fencing



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o Refrigeration systems o Floor covering installation o Roofing o Furniture or fixtures installation o Septic tank cleaning o Glass and glazing o Siding installation o Heating and/or air conditioning systems o Sign painting o Interior decorating o Tile or stone work (interior) o Landscaping/gardening o Window cleaning (three or fewer stories high) o Lawn sprinkler installation

Excluded risks which cannot be covered under the Businessowners policy are as follows:

o Auto repair or service stations o Household personal property o Auto, motor home, mobile home, and motorcycle dealers o Insureds whose business operations involve one or more

locations that are used for manufacturing, processing or service risks.

o Banks, building and loan associations, savings and loan associations, credit unions, stockbrokers, and similar financial institutions.

o One or two family dwellings o Bars, grills and most restaurants. o Parking lots or garages o Buildings occupied wholly or partially for manufacturing or

processing unless the occupancy is an eligible processing risk o Places of amusement, such as theaters and arcades. o Wholesalers that are ineligible wholesale risks o Condominium associations other than office or residential

condominiums.



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ISO’s Businessowners Policy consists of:

Businessowners Declarations Businessowners Common Policy Conditions form - Common Policy

Conditions are as follows (similar to CPP Common Policy Conditions): o Cancellation o Changes o Concealment, Misrepresentation Or Fraud o Examination Of Records o Inspections And Surveys o Insurance Under Two Or More Coverages o Other Insurance o Liberalization o Premiums o Transfer Of Rights Of Recovery Against Others To The

Insurance Company o Transfer Of Rights And Duties Under The Policy

One of two available Businessowners Property forms (either the Standard or Special Form).

Businessowners Liability form (very similar to the Commercial General Liability form … occurrence-triggered):

o Liability is covered only for injury or damage that occurs during the policy period. Includes coverage for the insured’s liability for: Bodily injury, Premises and operations, Product and completed operations, Property damage and advertising, Fire legal (limited to $50,000 per occurrence), Host liquor, Personal injury (liability arising out of offenses such as

libel, slander and invasion of privacy), Medical Expense coverage (limited to $5,000 per

person), Supplementary Payments.

o Standard Liability And Medical Expenses limit of $300,000 (can be increased to $1,000,000) (which is the most the insurer will pay for all damages as a result of BI, PD and medical expenses arising out of any one occurrence, and personal and advertising injury sustained by any one person or organization. Separate limits apply to medical expenses and fire legal liability [which applies to fire damage to premises rented to or temporarily occupied by the insured].)



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o Aggregate Limit (is applicable to all injury or damage during the policy period, except injury or damage falling within the Fire Legal Liability limit or Products-Completed Operations limit [which applies to legal liability arising out of the use of products manufactured by the insured]. This aggregate is twice the Liability and Medical Expenses limit. In addition, there is a separate Products-Completed Operations Aggregate limit. Occurrence limit of $1,000,000 with an aggregate limit of $2,000,000)

o Supplementary Payments are (also included in the Businessowners Liability forms). Most of these are paid in addition to the policy limit:

Expenses the insurance company incurs in defending a claim or suit against the insured.

Up to $250 for the cost of bail bonds related to violations that arise from vehicles to which BI Liability coverage applies.

Cost of bonds to release attachments. Reasonable expenses the insured incurs at the insurance

company’s request to assist in investigating or defending a claim or suit, including up to $100 per day for lost earnings because of time off from work.

Costs the insured is required to pay because of a suit. Prejudgment interest the insured is required to pay.

However, if the insurer makes an offer to pay the limit of insurance, it will not pay prejudgment interest for the period of time after the offer was made.

Interest that accrues after a judgment is made and before it is paid.

o Exclusions for liability losses (BI and PD) are as follows: Arising out of expected or intentional injury. The insured assumes under a contract or agreement. For those in the business of manufacturing, distributing,

selling, serving, or furnishing alcoholic beverages. For work-related injuries covered under Workers

Compensation or Employer’s Liability laws. For most pollution losses that result in bodily injury,

property damage or clean-up costs. Resulting from the maintenance, operation or use of

aircraft, autos or watercraft, except as specified in the policy.

Arising out of the transportation of mobile equipment by auto or the use of mobile equipment in any prearranged racing or related activity, or while practicing or preparing



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for such an activity (mobile equipment is specifically described as land vehicles such as bulldozers, farm machinery and forklifts)

Assumed under a contract for war or warlike acts. Arising out of rendering or failing to render professional

services. For damage to property owned, rented or occupied by

the insured or in the insured’s care, custody or control . For damage to the insured’s own product arising out of

the product itself. For damage to the insured’s own work. For claims based on: defects, deficiencies, inadequacies,

or dangerous conditions in the insured’s products or work; and delays or failures to properly perform contracts. (The exclusion for liability assumed under contract has some important exceptions: liability that the insured would have incurred even without assuming it under contract and liability assumed under insured, or incidental, contacts is covered. Insured contracts include leases, sidetrack agreements, easement agreements, contracts with municipalities required by ordinance, elevator maintenance agreements, and contracts relating to the insured’s business under which the insured assumes another’s liability.)

Related to recall of the insured’s products or work because of a known or suspected defect.

o Excluded losses under Personal And Advertising Injury Personal And Advertising Injury losses excluded

include:

Oral or written publication of material that the insured knows is false, but publishes anyway.

Violation of a penal statute or ordinance. Liability assumed under contract, except for

liability the insured would have incurred even without assuming it under contract.

Advertising Injury specific losses excluded include:

Breach of contract Failure of goods, products or services to conform

with advertised quality or performance. Incorrect price descriptions of goods, products or

services.



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Any offense committed by an insured who is involved in the business of advertising, publishing, broadcasting, or telecasting.

Medical Expense Coverage losses excluded include:

Losses related to Products-Completed Operations Hazard (these losses would be paid under BI and PD Liability coverage).

Losses specifically excluded under BI and PD Liability coverage.

Losses related to war.

Endorsements (defined: modifies the standard policy to include additional coverage) Available endorsements for the Businessowners’ policy include the following:

Utility Services—Direct Damage Coverage endorsement (For coverage to apply, the property must be scheduled for coverage on the endorsement and the service interruption must be caused by a covered cause of loss.) covers loss or damage to property caused by interruption in one of the following:

o Water, o Communication, o Power supply service.

Utility Services—Time Element Coverage endorsement (similar Direct Damage Coverage, except it covers loss of business income and extra expense that occurs due to an interruption in utility service.)

Protective Safeguards endorsement requires the insured to maintain the protective devices or services listed on the endorsement on specified property as a condition of the policy. (The insurer will not pay for fire damage losses if the insured failed to keep the protective safeguard in working order or did not notify the insurer that the device was not working properly. When an automatic sprinkler system is shut off due to breakage, leakage, freezing, or opening of sprinkler heads, the insurer does not have to be notified if the system can be restored within 48 hours.) The



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protective safeguards are identified by the following symbols:

o P-1 Automatic Sprinkler System: Any automatic fire protective system, including related supervisory services and connected sprinklers, pipes, pumps, and similar devices.

o P-2 Automatic Fire Alarm System: An automatic fire alarm system that protects the entire building and is connected to a central station or reports to a public or private fire alarm station.

o P-3 Security Service: A security service with a guard that makes hourly rounds of the premises while the business is closed.

o P-4 Service Contract: A privately owned fire department that provides fire protection service to the premises.

o P-9 Any other protective system described in the endorsement.

Hired And Nonowned Auto Liability endorsement provides coverage for hired or nonowned autos used by the business if the insured does not have Commercial Auto insurance.

Businessowners Property Forms: o Standard Forms (named perils):

Fire Smoke (except smoke from an industrial or agricultural

smudging operation) Sprinkler leakage Sinkhole collapse Lightning Explosion Windstorm or hail Aircraft or vehicles Riot or civil commotion Vandalism and malicious mischief Volcanic action Transportation damage to property in transit

o Special Property Form provides open peril coverage (covers all losses that are NOT specifically excluded).

o Building Coverages (for both Standard and Special Property forms) includes coverages for both Building [ which includes



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landlord’s personal property] and Business Personal Property [which includes property of others to the extent of the insured’s liability] Coverage includes: Completed additions Permanently installed machinery and equipment Fixtures, including outdoor fixtures Personal property owned by the insured that is used to

maintain or service the building, including fire extinguishing equipment, outdoor furniture, floor coverings, and appliances used for refrigerating, ventilating, cooking, dishwashing, or laundering.

Personal property furnished by the insured in apartments or rooms rented to others.

Note: The following are also usually covered if no other insurance applies:

Additions under construction. Alterations and repairs to the buildings or

structures. Materials, equipment, supplies, and temporary

structures that are on within 100 feet of the premises and being used for additions, alterations and repairs.

o Business Personal Property (Coverage B):

Covered Business Property must meet the following conditions in order to be covered:

In or on the building. In the open or in a vehicle within 100 feet of the

premises. Property Covered includes:

Furniture Fixtures Machinery Equipment Stock Other owned personal property used in the

business The value of labor, parts or services on the

personal property of others Leased personal property that the insured has a

contractual responsibility to insure, unless it’s otherwise covered.



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Stock is the insured’s merchandise. It includes items stored or offered for sale, raw materials for manufacturing, materials in the process of being manufactured, manufactured items, and supplies used in packaging and shipping.

Improvements and betterments are fixtures, alterations, installations or additions that are made a part of a building that the insured tenant occupies but does not own, and which are acquired by or made at the expense of the insured but cannot legally be removed by the insured.

Improvements and betterments added by the insured (If the insured is a tenant).

Personal property of others pays for damage to property of others in the insured’s care, custody or control, regardless of whether the insured is legally liable for that loss. The person who owns the property receives payment the loss.

The Four Classes of Business Personal property covered are:

Property owned and used by the insured in the business (such as inventory).

Property of others in the insured’s care, custody or control (such as business equipment rented by the insured for use in the business).

Tenant’s improvements made at the tenant’s expense to a building the tenant occupies but does not own, and which cannot legally be removed (such as alterations tenants make to buildings they rent to operate their business).

Leased personal property that the insured has a contractual responsibility to insure, such as photocopiers and computer equipment.

Exclusions: Property not covered by the Businessowners Property forms:

Aircraft Motor vehicles and other vehicles subject to

motor vehicle registration. Watercraft (while afloat or on land) including

motors, equipment and accessories. Contraband and property being illegally traded or

transported. Land, water, growing crops, and lawns.



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Outdoor fences, trees, shrubs, and plants. Outdoor radio or television antennas, satellite

dishes, and lead-in wiring, masts or towers. Money, securities and bullion. Outdoor signs that are attached to buildings.

(limited to $1,000 - except as provided under coverage extensions or optional coverages)

Valuable papers and records (except as provided as a property extension)

Electronic Data (except that provided as an Additional coverage)

Additional Coverages (Both Property forms include additional coverages that provide reimbursement for specific situations. Normally, these coverages do not provide an amount of insurance in addition to the policy limits.) The following additional coverages are included in both the Standard and Special Property forms (except as noted):

Debris Removal: Pays expenses to remove debris of covered property caused by a covered cause of loss during the policy period. ([included in both] limited to 25% of amount paid for direct loss, plus deductible Additional $10,000 available if certain conditions are met).

Preservation Of Property: Covers loss from any cause of loss to property that was removed from the insured location to protect it from damage by a covered peril. Coverage applies while the property is being moved or while it is temporarily stored at another location, but only for 30 days after the property is first moved. ([included in both] included in policy limit)

Fire Department Service Charge: Pays for fire department service charges. ([included in both] limited to $1,000 in addition to the limit of insurance)

Business Income: Pays loss of income that the insured sustains due to a direct physical loss from a covered peril that forces the insured to suspend business operations. Coverage is provided until the business is repaired, rebuilt or replaced. Payroll expenses are limited to 60 days. ([included in both] Included in policy limit)



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Extended Business Income: Pays for loss of business income, even after operations have been resumed, until the business has been fully restored to its previous earnings level, but for no more than 30 days from the date business is resumed. ([included in both] Included in policy limit)

Extra Expense: Reimburses the insured for additional costs incurred to avoid or minimize suspending business operations after a covered loss. ([included in both] Included in policy limit)

Pollutant Cleanup And Removal: Provides up to $10,000 coverage for the costs to extract pollutants from land or water at the insured’s premises as a result of a covered loss. ([included in both] limited to $10,000)

Civil Authority: Pays loss of income that the insured sustains due to actions of civil authorities that prohibit access to the insured premises because property other than the described premises was damaged by a covered cause of loss. Coverage begins 72 hours after the action by the civil authority and is available for up to three consecutive weeks. ([included in both] Included in policy limit)

Money Orders And Counterfeit Paper Currency: Covers loss incurred when an insured accepts money orders and counterfeit paper currency in good faith in exchange for merchandise, money or services. ([included in both limited to $1,000)

Forgery And Alteration: Covers loss from forgery or alteration of checks, drafts and similar items made or drawn by or on the insured or the insured’s agent. Up to $2,500 ([included in both] Included in policy limit)

Increased Cost Of Construction: Pays up to $10,000 or 5% of building coverage (which ever is less) for additional costs required to comply with ordinances or laws related to repair or replacement of damaged buildings. Applies only to buildings insured on a replacement cost basis. ([included in both] limited to $10,000)



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Exterior Glass: Covers damage to exterior building glass, including lettering and ornamentation. ([included in both] Included in policy limit)

Fire Extinguisher System Recharge Expense: If a fire extinguisher was used within 100 ft of the premises or accidentally discharged this coverage will pay up to $5,000 for same.

Electronic Data: for a covered loss; will pay $10,000 (unless higher limit was set in Declarations) for lost or damaged data including damages caused by viruses.

Interruption of Computer Operations: Business Income or Extra Expense can apply for a covered loss; will pay $10,000 (unless higher limit was set in Declarations).

Limited Coverage for Fungi, Rot and Bacteria: Coverage limit is $15,000.

Additional Coverages that are only included in the Special Property form:

Collapse: Covers damage to covered property caused by the collapse of an insured building if the collapse is caused by a specified peril. ([included in Standard form only] Included in policy limit)

Water Or Other Liquid, Powder Or Molten Materials: Covers loss to a building that indirectly results from the escape of water or other liquid or powder or molten materials, including costs to tear out and replace any part of the building to repair damage to the system from which the material escaped. ([included in Standard form only] Included in policy limit)

Coverage Extensions (include a separate limit of liability that is available in addition to the policy’s limit of liability) The following coverage extensions are included in both Property forms:

Business Personal Property At Newly Acquired Premises: Covers business personal property that is moved to a premises that the insured acquires during the policy term. Coverage under this extension ends as soon as any of the following occur: the policy expires, the insured reports actual values to the insurer or 30 days expire after the date the premises is acquired or construction



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begins. ([included in both] Building coverage is limited to $250,000 and personal property is limited to $100,000 at each premise)

Business Personal Property Off Premises: Covers business personal property while it is in transit or temporarily located at premises not owned, leased or operated by the insured. ([included in both] limited to $10,000)

Outdoor Property: Extends up to $2,500 in coverage for outdoor property such as fences, signs, trees, shrubs, plants, and radio and television antennas. ([included in both] limited to $2,500 overall; $500 for any one tree, shrub or plant)

Personal Effects: Extends up to $2,500 in Business Personal Property coverage at each described premises for personal effects owned by the insured and his or her employees. ([included in both] limited to $2,500)

Valuable Papers And Records: Pays costs to research, replace or restore information on lost or damaged valuable papers and records for which duplicates do not exist. ([included in both] limited to $10,000 on premises and $5,000 off premises)

Accounts Receivable: Reimburses the insured for money that cannot be collected from customers due to damage to the insured’s accounts receivable records. ([included in both] limited to $10,000 on premises and $5,000 off premises)

Optional Coverages are usually preprinted in the policy, but apply only if they are designated in the Declarations and normally require additional premium. They include:

Outdoor Signs: Covers damage to all outdoor signs owned by or in the care, custody or control of the insured. When this optional coverage is selected, policy limitations that apply to outdoor signs do not apply. ([included in both] separate limits defined in Declarations)

Interior Glass: Covers loss to glass items that are permanently attached to walls, floors or ceilings. Each item to be covered must be described in the Declarations. When this optional coverage is selected, policy limitations that apply to interior



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glass do not apply. ([included in Standard form only] Included in policy limit)

Employee Dishonesty: Covers loss to business personal property and money and securities that results from dishonest acts of employees. Losses must occur during the policy period to be covered. ([included in both] separate limits defined in Declarations)

Mechanical Breakdown: Covers damage to covered property caused by sudden and accidental breakdown of boiler and pressure vessels and certain types of air conditioning units. ([included in both] Included in policy limit)

Burglary And Robbery (Standard form only): Covers burglary and robbery to business personal property and money and securities. ([included in Standard form only] separate limits defined for money and securities on and off premises. For business personal property, 25% of business personnel property limit)

Money And Securities (Special form only): Covers loss of money and securities from theft, disappearance and destruction. ([included in Special form only] separate limits defined for money and securities on and off premises)

Exclusions for the Standard and Special forms are as follows:

Loss due to failure of computers Ordinance or law. Earth movement (does not include a fire or

explosion resulting from earth movement). Government action. Nuclear hazard. Failure of power or other utility services occurring

away from the insured’s premises. War and military action. Water, including flood, sewer backup, mudslides,

or seepage of ground water (does not include fire, explosion or sprinkler leakage resulting from water).

Artificially generated electrical current. Rupture or bursting of water pipes (other than

automatic sprinklers).



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Leakage or discharge of water or steam resulting from breaking of water or steam system or appliance (as long as heat has been maintained in building).

Explosion of steam boilers, pipes, engines, or turbines.

Mechanical breakdown. Any consequential loss that causes extra

expenses or increases in loss of income. Loss to valuable papers and records and accounts

receivable records due to the insured’s dishonest or criminal acts.

Additional Exclusions for the Special Property form only are as follows:

Consequential losses caused by delay, loss of use or loss of market.

Wear and tear. Rust, corrosion, fungus, decay, deterioration, and

hidden or latent defects. Smog Pollution (unless the release, discharge or

dispersal is caused by a specified cause of loss). Settling, cracking, shrinking, or expansion. Damage caused by insects, birds, rodents, or

other animals. Dishonest or criminal acts of the insured or his or

her employees. Voluntary parting with property if induced to do so

by fraud or a trick. Rain, snow, ice, or sleet damage to personal

property that is not in a building. Loss resulting from acts or decisions, or the failure

to act or decide. Collapse Faulty planning, development, design,

specifications, workmanship, or repair. Smoke, vapor or gas. Frozen plumbing. Weather conditions that contribute to causing a

loss Additional Features



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Replacement Cost Coverage (if the limit of insurance is 80% or more of the full replacement cost at the time of loss.)

Inflation Guard Coverage provides an automatic 8% per year increase on building coverage. (Other percentages may be selected, but must be shown in the Declarations.) In addition, coverage on business personal property can be increased by 25% to cover seasonal variations. This has a standard deductible of $500.00.

Commercial Package Policy And Businessowners Policy Side-By-Side Comparison Features Commercial Package Policy Businessowners Policy

Eligibility Almost all commercial risks

Small- to medium-sized businesses in limited occupancy classes

Insurer specifies limitations on size of building and specific type of business involved

Format of Policy

Common Policy Declarations

Two or more coverage parts

Businessowners Common Policy Conditions

Businessowners Liability coverage form

One of Two Businessowners Property coverage forms

Coverages All eligible coverages selected separately

Prepackaged policy containing Liability coverage and one of two Property coverage forms



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Chapter 13: Comm. Property Commercial Property Insurance:

Property Insurance (insurance on real property – real property is defined as dirt and the stuff attached to it… for example: office buildings, factories, and warehouses).

Business Personal Property (insurance on stuff – stuff is defined as property that owned by a business… for example: furniture, fixtures, machinery, and inventory).

Commercial Property Coverage Part policy includes:

Common Policy Declarations Common Policy Conditions Commercial Property Declarations form (provides additional

information about premises and the specific forms that apply) Commercial Property Conditions form include:

o Control Of Property (states that acts of neglect beyond the direction or control of the insured will not affect the insurance. Also if the insured violates a condition of the policy with regard to specific location, insurance applicable to other locations will not be affected. )

o Legal Action Against Us (gives you 2 years to bring a claim for a loss)

o Other Insurance (if other insurance, losses are paid on pro rata basis)

o Policy Period, Coverage Territory (states policy period and territory covered)

o Transfer of Rights of Recovery Against Others to US (grants insurance company subrogation rights)

o Concealment or Fraud (if insured intentionally conceals or misrepresents a material fact concerning information related to a policy or claim the policy is void.)

o Insurance Under Two or More Coverages (states that the combined loss payout from all companies will not exceed the actual losses.)

o No Benefit To Bailee (prevents bailee from being reimbursed by Commercial Property insurance in the case of such a loss.)



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o Liberalization (states that any change in the policy that broadens coverage which occurs 45 days prior to policy issue or within the policy period that does not increase premium will automatically apply.)

One or More Commercial Property coverage forms (contains descriptions of the specific coverages being provided) Coverage forms are:

o Building and Personal Property (What is insured? The building itself, the insured’s business personal property and the personal property of others located at the business premises within the limits defined in the Declarations Section of the policy). Building coverage -- in addition to the building itself the

policy also includes:

Completed additions Fixtures, including outdoor fixtures Permanently installed machinery and equipment Outdoor furniture, floor coverings and certain

appliances Personal property used to maintain or service the

premises, such as fire extinguishers Other (If not otherwise covered, additions under

construction and alterations or repairs to the building, including materials, equipment, supplies, and temporary structures within 100 feet of the described premises.)

Business Personal Property Exclusions:

Money, accounts, food stamps, notes, securities and related property (lottery tickets held for sale are not securities and are covered).

Animals, unless they are boarded or held for sale. Autos for sale. Bridges, roads, walks, patios, and other paved

surfaces. Contraband (property being illegally transported or

traded). Cost of excavations and other ground preparation. Foundations of buildings, structures, machinery, or

boilers if their foundation is below the basement level or below ground level if there is no basement.

Land, water, growing crops, and lawns. Personal property while it is airborne or waterborne.



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Bulkheads, pilings, piers, wharves, and docks. Property covered under another policy in which it is

more specifically described. Retaining walls that are not a part of the building

described in the Declarations. Underground pipes, flues and drains. The cost to research, replace or restore information

contained in valuable papers or records, except as provided in the coverage extensions.

Vehicles, including watercraft and aircraft that are licensed for use on public roads, or are principally operated away from the premises. This exclusion does not apply to:

o Vehicles that are manufactured, processed or warehoused by the insured

o Vehicles, other than autos, that the insured holds for sale

o Rowboats or canoes out of water at the described premises

The following property while outside of buildings, except as provided in the coverage extensions:

o Grain, hay, straw, or other crops o Fences o Antennas (including satellite dishes) o Signs that are not attached to the building. o Trees, shrubs and plants.

Additional Coverages: Debris Removal pays expenses to remove debris of

covered property caused by or resulting from a covered cause of loss. It does not cover extraction of pollutants from land or water. It pays up to 25% of the amount paid for direct loss to covered property, plus the deductible. However, if the actual debris removal expense exceeds the 25% limitation, or if the sum of the direct loss and the debris removal expense exceeds the limit of insurance, the insurer will pay an additional $10,000 for debris removal expense.

Preservation Of Property pays for loss to property that was removed from the insured location to protect it from a peril insured against. Coverage only applies if the loss occurs within 30 days after the property was removed.



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Fire Department Service Charge pays up to $1,000 for a fire department service charge. This is paid in addition to the limit of insurance; no deductible applies.

Pollutant Cleanup And Removal covers the costs to extract pollutants from land or water at the insured’s premises if the pollution was caused by a covered cause of loss. This coverage is subject to a $10,000 limit per policy period that applies in addition to the policy limit. The expenses must be reported to the insurer in writing within 180 days of the loss.

Coverage Extensions:

Newly Acquired Or Constructed Property covers new buildings that are being built on the described premises and buildings the insured acquires. The most that will be paid under this coverage extension is $250,000 per building. This coverage also applies to business personal property at any location acquired by the insured. The maximum the company will pay is $100,000 per building. Coverage under this extension applies for up to 30 days or until the policy expires or the insured reports values to the insurer, whichever is earlier.

Personal Effects and Property of Others provides up to $2,500 of coverage for personal effects of the named insured, partners and employees (excluding loss from theft) and personal property of others. This coverage extension is available even if the insured has not purchased personal property of others coverage, as long as the coinsurance requirement is met.

Valuable Papers And Records -- Cost Of Research pays up to $2,500 to research, replace or restore information on damaged valuable papers, including electronic or magnetic media.

Property Off-Premises extends up to $10,000 in coverage for property temporarily off the premises. It does not apply to:

o Stock that is temporarily at a location the insured does not own, lease or operate

o Property in a vehicle o Property in the care of a salesperson o Property at a fair or exhibition



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Outdoor Property extends a limited amount of coverage to fences, antenna, satellite dishes, signs, trees, plants, and shrubs. The maximum payable is $1,000, with a $250 limit applying to any one tree, plant or shrub.

Optional Coverages (coverages are available at additional premium):

Agreed Value coverage suspends the coinsurance requirement for the covered property designated and substitutes an agreement to cover any loss in the same proportion that the limit of insurance carried bears to the stated value. The insured is required to submit a form stipulating the value of the property.

Inflation Guard coverage, the insured and the insurance company agree on one of several percentages that will apply annually to the limits of insurance.

Replacement Cost coverage overrides actual cash value in the Valuation condition by agreeing to pay for loss or damage to covered property on a replacement cost basis, with the exception of certain property listed in the Declarations. Replacement cost coverage is subject to the same coinsurance provisions as the standard ACV valuation.

Earthquake – covers earthquake and volcanic eruption – occurrences within 168 hour period are consider one occurrence. Subject to a deductible (which is a percentage of building value.)

Peak Season – coverage limits varies for business that are seasonal.

Full Value Reporting Form – (adult version of Peak Season) requires strict compliance with reporting requirements (reports must be made 30 days of reporting period). For businesses with high dollar inventories.

Conditions (specific to Building And Personal Property Coverage -- these conditions are in addition to conditions listed in the Common Policy Conditions and Commercial Property Conditions forms)

Duties In The Event Of Loss condition states that after a loss, the insured must:

o Notify the insurer about the loss or damage as soon as possible. The insured must provide a description of the property involved and



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describe how, when and where the loss or damage occurred.

o Notify the police if a law may have been broken o Take reasonable steps to protect the covered

property from further damage and keep a record of expenses incurred to protect the property. If possible, the insured should set the damaged property aside for examination.

o Provide a complete inventory at the insurer’s request.

o Allow the insurer to inspect the property, examine books and records and take samples of the property at its request.

o Testify under oath with regard to the claim if requested by the insurer.

o Send a signed, sworn statement of loss within 60 days of the insurance company’s request.

Loss Payment condition states that the insurance company will give the insured notice of how it intends to settle the loss within 30 days after it receives the insured’s sworn statement of loss. As long as the insured has complied with all of the terms of the coverage part and has reached agreement with the company on the amount of the loss, the insurer will pay the loss within 30 days after it receives the sworn statement of loss.

Valuation condition describes how losses will be settled. Most losses are paid at actual cash value. However, if the Coinsurance conditions are met and costs are $2,500 or less, the policy will pay the cost of building repair or replacement without taking depreciation into account.

Stock already sold is valued at its net selling price. Glass is valued at the cost of replacement with safety

glazing material if this is required by law. Valuable papers and records are valued at the cost

of blank materials needed to reproduce the lost records and labor to transcribe or copy the records.

Tenants improvements and betterments are valued at actual cash value if the insured-tenant makes the repairs promptly or at a proportion of the original cost of the improvements if the repairs are not made promptly. If someone besides the insured, such as the



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building owner, pays for repairs, the insurer will pay nothing for the loss.

Vacancy condition states that if a building has been vacant for more than 60 consecutive days before the loss, the insurer will not pay for loss due to vandalism, water damage, theft or attempted theft, building glass breakage, or sprinkler leakage (unless the system has been protected against freezing). In addition, any amount that would otherwise be paid for a covered loss will be reduced 15%. Note that buildings under construction are not considered vacant.

Mortgage Holders condition promises to pay losses to any mortgage holders named in the Declarations as their interest may appear. This condition protects the interest of mortgage holders by promising advance notice of cancellation. The insurer must provide 10 days’ written notice if it cancels for nonpayment of premium and 30 days’ notice if it cancels for any other reason allowed by the policy. If the insurer decides not to renew, it must give the mortgage holder at least 10 days’ advance written notice.

Coinsurance condition states that when the insured’s amount of coverage at the time of loss does not meet the required coinsurance percentage, the company reduces the payment it would otherwise make in the same proportion as the insurance carried bears to the insurance required. The standard deductible is $250.

o Builders Risk Coverage Form (covers commercial, residential or farm buildings that are under construction -- Coverage includes both the building under construction and its foundation. Fixtures, machinery, equipment used to service the building, and the insured’s building materials and supplies can be covered if they will become a permanent part of the building and are located within 100 feet of the building. In addition, coverage may be extended to cover building materials and supplies owned by others but in the insured’s care, custody or control, provided they are located within 100 feet of the described building. The most that will be paid under this extension is $5,000.) Coverage begins on:

The date construction begins if the building does not have a basement, or;

The date construction starts above the lowest basement floor if there is a basement.



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Coverage Period -- Coverage is written for one year and ceases whenever any of the following occur:

The property is accepted by the purchaser. 60 days after the building is occupied 90 days have elapsed since construction was

completed. The building is occupied or put to its intended use. The insured’s interest in the property ceases. The insured abandons the construction with no

intention of completing it. Exclusions (property is not covered):

Land or water. Lawns, trees, shrubs or plants when outside of

buildings. Radio and television antennas when outside of

buildings, including lead-in wiring, masts or towers. Signs when outside of buildings and not attached to

buildings (attached signs are covered). Amount of Coverage Available (based on the estimated

value of the completed property – pays the actual cash value of loss assuming the building is insured properly, if not the claim will be paid proportionally -- see Need For Adequate Insurance condition).

Miscellaneous Conditions The Builders Risk coverage form includes most of the same conditions found on the Building And Personal Property coverage form, and includes the following variations:

There is “No Vacancy” provision because buildings under construction are not considered vacant.

There is a clause stating that all property is valued at ACV at the time of loss. Since actual cash value is paid for all losses, the form does not include options for replacement cost, agreed value or inflationary adjustment.

There is no Coinsurance condition (the Need For Adequate Insurance condition serves essentially the same purpose by penalizing insureds who do not have the required amount of insurance when a loss occurs).

o Builders Risk Reporting Form -- When this form is attached to the Builders Risk coverage form, the insured is allowed to purchase a smaller amount of insurance that gradually increases as the value of the building under construction increases. (This form requires a report of value that must be filed with the insurer each month. The



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insurance company will not pay more for any loss than the proportion the values last reported before the loss bears to the actual cash value of the covered property on the effective date of the last report.)

o Condominium Coverage Forms (In case both the Association and Unit-Owners forms apply to a specific loss, the Association form’s coverage is primary.) There are two condominium forms available under the Commercial Property: The Condominium Association coverage form (It can be

used to insure the condominium associations of residential or commercial condominiums. The perils insured against are contained in the Causes Of Loss forms) insures a condominium association against direct physical loss or damage to:

Buildings (definition of “building” is extended to cover items such as permanently installed machinery and equipment. It will also cover outdoor fixtures that are a part of the building as well as other specifically named personal property. In general, however, the definition of “building” does not include personal property owned, used or controlled by a unit-owner. Business personal property includes only property owned by the association or owned indivisibly by all unit-owners.)

Business personal property. Personal property of others in the care, custody or

control of the association while it is located at the premises.

Condominium Commercial Unit-Owners coverage form, as its name implies, is designed for the owner of a condominium. It covers the condominium’s contents and is available only for the owner of a commercial condominium. (Residential condo owners can obtain contents coverage with an HO-6. It covers the unit-owner’s business personal property and the personal property of others in the insured’s care, custody or control. It does not cover buildings; this coverage is typically provided under the Condominium Association coverage form issued to the Association.)

o Business Income coverage forms (also known as time element coverage) (pay for loss of income that the insured sustains due to a direct physical loss from a peril insured against that forces the insured to suspend operations during the period of restoration. Period of restoration begins on the date of the direct physical loss



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and ends on the date on which the property can be repaired, rebuilt or replaced with reasonable speed).

Business Income (For loss of business income to be covered, the suspension of operations must result from direct physical loss to property at the described premises caused by a peril insured against in the Causes Of Loss form.) includes: net income that would have been earned if the loss had not occurred, and; the costs of continuing normal operations, including payroll. The two Business Income forms are:

Business Income With Extra Expense (includes an Extra Expense coverage – Extra Expense coverage reimburses the insured for losses[the additional money spent by the insured to avoid or minimize a resulting business shutdown] resulting from a covered peril).

Business Income Without Extra Expense (in this form the Extra Expense coverage is replaced with an Expenses To Reduce Loss coverage that covers expenses the insured incurs to reduce loss, however, reimbursement is limited to the amount of the loss is actually reduced.)

Extra Expense form (provides no reimbursement for lost business income, but concentrates on reimbursing the insured for extra expenses incurred to remain in operation. The Extra Expense coverage form is a time element coverage.) Limits are applied to recovery depending upon the period of restoration. For instance, limits might be stated in the Declarations as 40% / 80% / 100%. This means that if the restoration period was:

30 days or less (40% of the full amount of insurance would be paid).

31 - 60 days (80% of the full amount of insurance would be paid).

Over 60 days (100% of the full amount of insurance would be paid).

The following coverages may be selected with either form: o Business Income coverage, including Rental Value

coverage. o Business Income coverage, other than Rental Value

coverage. o Rental Value coverage only.

(Rental Value is defined as the total anticipated rental income from a tenant’s occupancy).



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Additional Coverages: o Extended Business Income (pays for loss of business

income [even after operations have been resumed until the business has been restored to the previous level for up to 30 days from the date business is resumed]).

o Order Of Civil Authority coverage (pays business income and extra expense losses incurred when a civil authority prohibits access to the described premises because property other than the described premises was damaged by a covered cause of loss. Both business income and extra expense losses are paid for up to three consecutive weeks. Payment for business income losses begins 72 hours after the action by the civil authority.)

o Alterations And New Buildings coverage (pays business income losses incurred when a covered cause of loss damages a new building or an alteration or addition to a new building. Damage to machinery, equipment, supplies, or building materials located on or within 100 feet of the described premises is also covered if these items are being used in construction, alterations or additions or are incidental to the occupancy of new buildings. If the loss delays the start of the insured’s operations, the period of restoration under this coverage begins on the date operations would have begun if the loss had not occurred).

Optional Coverages o Extended Period Of Indemnity option (gives the insured

Extended Business Income coverage for the number of days stated in the Declarations, rather than the 30 days allowed by the Extended Business Income additional coverage).

o Maximum Period Of Indemnity optional coverage (limits reimbursement for loss of business income to no more than the amount of loss incurred during the first 120 days following the direct loss).

o Monthly Limit Of Indemnity optional coverage (allows the insured to establish the amount of reimbursement for loss of business income during each 30-day period. The insured selects a fraction that is multiplied by the limit of insurance to determine the maximum that could be paid for each 30 days).

o Agreed Value optional coverage (requires the insured to submit a business income report/worksheet every 12 months that shows financial data for the 12 months prior



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to the submission as well as estimated data for the 12 months following. The insured is expected to carry insurance to value, or the agreed value established by the worksheets. As long as a new worksheet is submitted every 12 months, the Coinsurance clause will not apply.)

Coinsurance (only applies to the Business Income losses, not to Extra Expense losses. Coinsurance condition that applies to the Business Income coverage forms is waived when either the Maximum Period Of Indemnity or Monthly Limit Of Indemnity coverages are selected by the insured.)

Business Income From Dependent Properties—Broad Form (a variation on the Business Income forms.) It provides coverage for the following: o Contributing Location (Insureds who depend on

another business as their sole supply of merchandise or raw materials may suffer a loss if their supplier is forced to cut back or eliminate shipments because of a direct physical loss. The Business Income From Dependent Properties—Broad Form protects the insured against loss due to loss at such a contributing location.)

o Recipient Location (Insureds who depend on a particular business as the primary buyer for their products are covered under this form if direct physical loss at such a recipient location causes the insured’s earnings to suffer.)

o Manufacturing Location (Insureds may depend on a manufacturer to deliver certain products or components to the insured’s customers under a sales contract. Should the manufacturing location be unable to fulfill the contract because of direct physical loss, insureds may suffer a loss of income that can be covered under this form.)

o Leader Location (Insureds may depend on another business to attract customers to their own business. Loss to such a leader location may cause insureds to suffer a loss of earnings that can be covered under this form.)

o Legal Liability form (Liability coverage form also covers damage to property of others while in the insured’s control, but only if the insured is legally liable for the damage.)

o Glass coverage form (covers glass scheduled in the Declarations and can include the cost of lettering or ornamentation. The Glass form does not require a separate Causes Of Loss form; it contains the perils insured against in the form itself. These include breakage or damage by chemicals that are accidentally or maliciously



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applied. The form excludes loss resulting from the perils of fire, war or nuclear incidents. Additional coverage is provided for debris removal, the cost of temporary plates or boarding up, repair of frames, and the cost to remove obstructions. Safety glazing is covered only when required by law.)

Causes of Loss form (perils) (There are four Causes Of Loss forms: Basic, Broad, Special, and Earthquake.):

o Basic (states what perils are insured against. It also lists specific exclusions.) is a named perils form that lists 11 covered perils:

Fire Lightning Explosion Windstorm or hail Smoke Aircraft or vehicles Riot or civil commotion Vandalism Sprinkler leakage (accidental leakage or discharge from an

automatic sprinkler system) Sinkhole collapse Volcanic action

o Clarifications and Exclusions: Clarifications include Smoke from agricultural smudging or industrial

operations are not covered. The windstorm or hail peril does not include damage

caused by frost, cold weather, snow, sleet, or ice other than hail. Damage to the interior of a building or its contents is covered only when the wind or hail first creates an opening in the walls or roof.

The explosion peril includes explosion of gasses or fuel within the furnace or flues of any fired vessel.

Vehicle damage caused by vehicles the named insured owns or operates in the course of the insured’s business is not covered.

Exclusions include: Ordinance or law Earth movement (does not include a fire or explosion

resulting from earth movement). Government action Nuclear hazard Failure of power or other utility services occurring

away from the insured’s premises.



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War and military action. Water, including flood, sewer backup, mudslides, or

seepage of ground water. Artificially generated current. Rupture or bursting of water pipes (other than

automatic sprinklers). Leakage or discharge of water or steam resulting from

breaking of water or steam system or appliance (does not apply to automatic sprinklers).

Explosions of steam boilers, pipes, engines, or turbines.

Mechanical breakdown. o Broad form (covers all of the perils listed in the Basic form) in

addition it includes the following coverage:

Falling objects (does not cover damage to interior property unless the exterior of the building is damaged first).

Weight of snow, ice or sleet. Water damage (accidental discharge or leakage of water or

steam as a result of the cracking or breaking of a water or steam system or appliance).

Repair Costs (Coverage also includes the cost of tearing out or replacing any part of a building to repair damage to the system from which the water or steam escaped, and costs to repair the system itself. Not covered are the costs to repair any defect that caused the loss, loss from continuous seepage over 14 days or more, or loss caused by freezing unless proper precautions were taken to prevent freezing.)

o Additional Coverages Collapse Coverage covers collapse of a building caused

by: Any of the perils specified in the policy Hidden decay. Insect or vermin damage Weight of people or property Weight of rain on the roof Defective materials or methods used in construction

or remodeling. Breakage Of Glass (pays for broken glass and damage

caused by broken glass when the glass was broken by another covered peril. The glass must be part of the building to be covered. Neon tubing is excluded. Coverage is limited to $100 per pane or $500 per occurrence.)



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o Causes of Loss – Special form (provides open peril coverage, covers any direct physical loss that is not specifically excluded or limited in the form.)

Exclusions:

Wear and tear. Rust, corrosion, fungus, decay, deterioration, and

hidden or latent defects. Smog Pollutants (unless the release, discharge or dispersal is

caused by a specified cause of loss.) Settling, cracking, shrinking, or expansion. Damage caused by insects, birds, rodents, or other

animals Mechanical breakdown. Explosion of steam boilers, pipes and engines Dishonest or criminal acts of the insured or the insured’s

employees. Voluntary parting with property if induced to do so by

fraud or a trick Rain, snow, ice, or sleet damage to personal property

that is not in a building. Loss resulting from acts or decisions, or the failure to act

or decide. Collapse (other than that specifically included under the

Collapse additional coverage.) Faulty planning, development, design, specifications,

workmanship, or repair.

Limitations:

Theft Limitations

o $2,500 for furs, fur garments and garments trimmed with fur.

o $2,500 for jewelry, watches, jewels, pearls, precious and semi-precious stones, gold, silver, and platinum (does not apply to jewelry and watches worth less than $100 per item.)

o $2,500 for patterns, dies, molds, and forms. o $250 for stamps, tickets, lottery tickets held for

sale, and letters of credit.

The following property is only covered if loss is caused by a specific cause of loss or breakage of glass

o Valuable papers and records, abstracts, drawings, and data processing, recording or storage media.



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o Animals, and then only if killed or if it is necessary to destroy them.

o Breakage of fragile articles, such as glassware, statuary, marble, chinaware, and porcelain.

o Building machinery, tools and equipment that the insured owns or is entrusted with while away from the premises.

o Causes Of Loss—Earthquake (must be used in conjunction with one of the above Causes of Loss forms either the Basic, Broad or Special Causes Of Loss forms) covers the following two perils:

Earthquake Volcanic eruption

o Comparison of Cause of Loss Forms

Peril Basic Broad Special Earthquake*

Open Peril** yes

Fire yes yes

Lighting yes yes

Explosion yes yes

Windstorm or Hail yes yes

Smoke yes yes Aircraft or Vehicles yes yes Riot or Civil Commotion yes yes

Vandalism yes yes

Sprinkler Leakage yes yes

Sinkhole Collapse yes yes

Volcanic Action yes yes

Falling Objects yes Weight of Snow, Ice, Sleet yes

Collapse*** yes

Breakage of Glass yes

Earthquake yes

Volcanic Eruption yes

* Must be used in conjunction with Basic, Broad or Special Causes Of Loss form ** Risks of loss not otherwise excluded are covered *** Additional broad coverage and includes:

- Weight of rain - Weight of people or personal property - Hidden decay - Hidden insect or vermin damage - During construction also covers defective materials and construction

methods.



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Any mandatory endorsements (endorsements required by law) Optional Endorsements (endorsements that are the insured’s option to

take) o Value Reporting (used to provide coverage based on actual value

at certain locations at specific times throughout a given year.) o Peak Season (allows the insured to carry increased coverage

during certain seasons of the year when inventory or other covered property is higher than usual.)

o Ordinance or Law Coverage (offsets the ordinance or law policy exclusion which prohibits payment for increased costs due to building regulations or demolition laws exclusion by providing coverage when an insured’s loss is increased because of such laws. Under this endorsement both demolition costs and increased construction costs required or regulated by law or ordinance are covered. Loss in value of the undamaged portion of the building as a consequence of enforcement of such an ordinance or law is also covered. The endorsement does not cover costs resulting from the enforcement of laws regarding pollutants, such as laws concerning pollution cleanup or removal.)

o Spoilage (may be added to the Building And Personal Property and Condominium Commercial Unit-Owners coverage forms to provide coverage for the insured’s perishable stock—personal property that must be maintained under controlled conditions to protect it from loss or damage.)

Terrorism Peril (optional coverage) there is a 3% surcharge on Commercial policies to add coverage for the peril of terrorism. This surcharge is used to pay for a reinsurance program underwritten by the Federal Government. (Farmowners, Commercial Auto and Professional Liability policies are excluded from coverage for this peril)



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Chapter 14: Ocean and Inland Marine

Ocean and Inland Marine Insurance (Marine insurance is a type of Property insurance that protects property on land or sea.) There are two types of Marine insurance:

Ocean Marine (covers cargo and ships in transit over sea. It is one of the oldest types of insurance and one of the first to provide open peril coverage for the insured’s property. This type does not have standardized forms.) A few of the more important characteristics of Ocean Marine insurance is it can be issued on a Named Peril or Open Peril basis. The perils covered by an ocean Marine policy are divided into three categories:

o Perils of the Seas: Heavy weather Collision Stranding Barratry (willful and illegal sinking of a ship or its cargo) Piracy Jettison (dumping cargo to save the ship and/or other cargo)

o Perils on the Seas (applies to transport on both land and sea): Fire Lightning Explosion Wind and Hail Volcanic action Smoke Falling objects Earthquake

o Inchmaree (pronounced inch+marie) (also called the Additional Perils Clause): covers damage caused by latent defects in the hull or machinery of the vessel, errors in navigation or management of the vessel by the captain or crew.

Waterborne properties are subject to a wide variety of perils, such as fire, explosion, pilferage, contact with other cargo, and leakage or damage by ship sweat. Waterborne properties are also subject to a group of perils known as Perils of the Sea, which often result from stormy weather: Unusual wind or wave, stranding, lighting, collision, sinking, jettison (a permitted voluntary action if done to prevent further peril and to



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save the remaining property) and barratry (refers to illegal acts committed willfully by the ship’s master or crew for the purpose of damaging the ship or its cargo; includes hijacking, abandonment or embezzlement.) The four categories of Ocean Marine insurance:

o Hull Insurance (provides Physical Damage coverage for the ship itself while in transit on oceans, rivers and lakes. Coverage may be obtained for a single vessel or an entire fleet. Limited Liability Insurance may also be included through the Running Down Clause, which protects the owner if he or she is held liable for the negligent operation of the vessel in damaging another ship.)

o Cargo Insurance (covers goods while they are in transit over water. Through the use of the Warehouse To Warehouse clause, coverage is also extended to include coverage from the property’s point of origination to its point of destination. This includes not only ocean travel, but any incidental journey by land as well. For instance, the inland trip from the warehouse to the shipping dock would be covered. Coverage may be purchased on a trip or voyage basis or may be purchased Open Cargo. An insured who frequently ships cargoes, such as an importer or exporter, would arrange for open cargo coverage.)

o Freight Insurance (protects the insured against the loss of shipping costs. This coverage can be written separately or included with Hull insurance or Cargo Insurance, depending on how the shipping costs are handled. When shipping is prepaid by the owner of the cargo, he or she would lose the shipping charges if the cargo was lost. In these cases, it is common for the owner to purchase Freight coverage along with the Cargo insurance. Alternately, if the freight is not prepaid and the cargo is lost, it is the shipper or vessel owner who would stand to lose. A ship owner may protect against the loss by adding Freight Insurance to the Hull coverage.)

o Protection And Indemnity Insurance (P&I) (provides Marine Liability insurance.) P&I protects against liability for:

Job-related injuries to sailors (Workers Compensation [under the Jones Act] for injuries to crewmembers and Workers Compensation under the Longshore and Harbor Workers Act for job-related injuries to those individuals)

Defense costs Injuries to stevedores, longshore workers or harbor workers Damage to cargo through negligence Damage to other property not caused by collision Damage to other property or another boat resulting from

collision



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o Miscellaneous: Losses (Partial loss = Average):

General Average Loss (partial losses resulting from a sacrifice of cargo to save remaining property will be shared by all other property owners, including the owners of the ship. Each owner shares in the general average loss in proportion to his or her total property interests regardless of which owner’s property was actually jettisoned.)

Particular Average Loss (Any other partial loss that does not arise from a general sacrifice of property.) There is no distribution of the loss among all property owners for particular average loss; instead, each owner bears whatever loss his or her own property sustained.

Implied Warranties (or Doctrine of Warranties) (Due to various travels of ships and their cargoes, Ocean Marine insurers are particularly dependent on implied warranties. Implied warranties are not written into the policy, but carry the same weight as those that are written. Breach of an implied warranty can void the contract.) These warranties include:

Seaworthiness: The vessel must be fit for the voyage, not overloaded and have a competent crew.

Conditions of cargo: The cargo must be warranted to be sound and packed properly.

Legality: The trip must involve a lawful enterprise. No deviation in voyage: The ship must follow an

agreed route, with no changes in destination and no untoward delays.

Inland Marine (first developed as an extension of Ocean Marine insurance to provide coverage for cargo that travels over land instead of by sea. Domestic shipments are covered through Inland Marine Transportation forms.)

o Classes (forms): Filed Forms:

Mail (included as part of Domestic Shipment [Transportation Forms] provides open peril coverage against loss to property in transit by registered mail, first class mail, certified mail, or express mail. Covered property includes bonds, stock certificates, certificates of deposit and other securities, stamps, money orders, checks, and other



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documents and papers of value except food stamps, unsold travelers checks and money. When sent by registered mail, covered property also includes bullion, platinum and other precious metals, jewelry, watches, precious and semi-precious stones, unsold travelers checks, food stamps, and money.)

Physicians And Surgeons Equipment (covers medical and dental instruments on and off the premises, as well as furniture and fixtures at the office and the insured’s interest in improvements and betterments. Medical and dental equipment of others used by the insured is also covered at the insured’s option. Radium is not covered.)

Accounts Receivable (reimburses the insured for amounts that can’t be collected from customers due to damage to the company’s accounts receivable records. It also covers extra collection expenses and interest on any loans the insured must obtain to stay in business while collections are impaired. Accounts receivable records in storage away from the premises are not covered.)

Valuable Papers And Records (reimburses the insured for the cost of replacing damaged items such as manuscripts, films, maps, drawings, deeds, and books that belong to the insured or are in the insured’s care, custody or control. Money and securities are not covered.)

Camera And Musical Instrument Dealers (covers the insured’s stock in trade as well as customer property in the insured’s care, custody or control, such as an instrument or camera that is being repaired, cleaned or adjusted.)

Theatrical Property (covers scenery, props and costumes used by a theater group in a specific production identified in the Declarations. Also covered is theatrical property in the insured’s care, custody or control or on which the insured has made partial payments.)

Commercial Articles (covers the interests of the owner of commercial cameras, musical instruments and related equipment and similar property of others that is in the insured’s care, custody or control. Provides open peril coverage, with essentially the same exclusions as other Commercial Inland Marine



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forms. Property is covered worldwide. Also covers collapse.)

Jewelers Block (contains two optional coverages, Show Windows coverage covers theft of stock from a show window when the window is cut or smashed. Money coverage covers theft of money. Coverages:

o The insured’s stock in trade, which includes jewelry, precious and semiprecious stones, precious metals and alloys, and other stock used in the business

o Such property that is sold but not delivered o Similar property of others who are not in the

jewelry trade in the insured’s care, custody or control

o Similar property of others in the jewelry trade in the insured’s care, custody or control, but only to the extent of the insured’s legal liability for the property or the amount of money actually advanced by the insured)

Film (provides open peril coverage for exposed motion picture film, soundtracks, video tape and magnetic tapes that are used in the production scheduled in the Declarations and that the insured owns or has in his or her custody or control. It does not cover cut-outs, unused footage, positive prints or films, or library stock.)

Signs (insures businesses against loss to neon, fluorescent, automatic, mechanical electric signs and lights. The form covers the insured’s signs and similar property of others in the insured’s care, custody or control. Breakage during transportation or during installation, repairing or dismantling is not covered. Also excluded is artificially generated current that creates a short circuit or other electric disturbance within a covered item. The standard collapse coverage is included.)

Floor Plan (covers stock that is subject to a floor plan arrangement, in which a dealer borrows money from a lender with which to pay for merchandise. This merchandise can then be insured under a Floor Plan policy. Coverage may be written to cover the interest of the dealer, the lending institution or both.)

Equipment dealers (used to cover dealers of mobile equipment and construction equipment. It covers the



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dealer’s stock in trade consisting primarily of mobile agricultural equipment and construction equipment. It also covers property of others in the dealer’s care, custody or control.)

Nonfiled Forms:

Annual Transit policy (protects the shipper or receiver of goods against loss to goods in transit. Coverage is available on a named peril basis, protecting against such losses as fire, windstorm, collision, and theft, or on an open peril basis. The policy covers all of the insured’s incoming or outgoing shipments during the year.)

Trip Transit policy (similar to the Annual Transit policy. However, it is used to insure single shipments of goods for companies that have only occasional shipments to insure. Coverage extends from the time and point of origination to the time and point of destination.)

Motor Truck Cargo policy (covers cargo while it is being transported in a truck. It protects the carrier, instead of the shipper, for liability for loss to domestic shipments in transit. The carrier has a responsibility to deliver goods entrusted to it unharmed. There are only a few things, such as acts of God [floods, tornadoes] or the shipper’s own neglect [poor packing], for which the carrier is not liable. This form is sometimes called the Motor Truck Cargo—Truckers form which provides direct damage coverage instead of Liability coverage. Some companies issue a Motor Truck Cargo—Combination form that provides both Liability coverage for the shipment of another’s goods and direct damage coverage for the shipment of the insured’s own goods on its own trucks.)

Nationwide Marine Risk Definition. The Definition lists six categories of eligible Marine risks:

o Imports (covered by Ocean Marine) o Exports (covered by Ocean Marine) o Domestic shipments (covered by Inland Marine) o Instrumentalities of transportation or communication (covered

by Inland Marine) (includes forms that cover property related to transportation or communication, such as bridges, pipelines and television towers.)



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o Personal property floater risks (covered by Personal Inland Marine insurance.)

o Commercial property floater risks (covered by Inland Marine) has a number of subcategories of Inland Marine forms including:

Bailee’s Customer forms (Bailment is the delivery of property by the owner to someone else to be held for some special purpose, and then returned to the owner. The bailee is the one who receives the property; the one who owns the property is called the bailor. The Bailee’s Customer policy reimburses the insured for damage to a customer’s property that is in his or her care, regardless of whether the insured is liable for the damage, as long as the damage resulted from a covered peril. There are several different Bailee’s Customer policies available that are tailored to specific businesses, such as the Cleaners, Dyers And Laundries policy.)

Contractors Equipment floaters (covers the heavy machinery, equipment and tools a customer needs to conduct business. It covers the contractor on an open peril or named peril basis for loss to all types of tools, machinery and equipment owned, rented or borrowed by the insured. The property is protected from loss by fire, landslide, theft, and other perils while it is on the site, on the way to and from a job site and in temporary storage.)

Business floaters There are two nonfiled forms in this subcategory of Commercial property floater risks:

Installation policy (insures against loss to machinery, equipment, building materials, and supplies in transit to or being used with or during the course of installation, testing, building, renovating, or repair. It can be issued to cover the interest of the owner, the seller or the contractor.)

Electronic Data Processing Equipment floater (provides open peril coverage for computer hardware, software and data that is owned by the insured or in the insured’s care, custody or control. Property in transit is covered. Optional breakdown coverage insures against damage to the equipment caused by a mechanical breakdown, electrical disturbances and/or temperature change. Extra expense and business interruption coverages are also included.)

Dealers policies (can be written for a number of dealers, including art, stamp, coin, and antique dealers. These policies are generally written on an open peril basis and



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cover property on the premises, off the premises and while in transit, provided certain conditions are met.)

Commercial Inland Marine Coverage Part (written under the CPP) can be written as monocline policies, or they can be added to the Commercial Package policy by attaching:

Commercial Inland Marine Declarations form Commercial Inland Marine Conditions form One or more of the Inland Marine coverage forms Commercial Inland Marine Conditions form

Commercial Inland Marine Coverage requires the following forms includes:

Common Policy Declarations (Inland Marine coverage may be issued as a monoline policy. In this case the Commercial Inland Marine Declarations form may be combined with the Common Policy Declarations to form a single Declarations form.)

Common Policy Conditions (divided into two sections: Loss Conditions and General Conditions. Many of the conditions are similar to those contained in other policies, such as Abandonment, Pairs, Sets Or Parts, Appraisal, and No Benefit To Bailee.)

o Insured’s Duties in the Event of Loss (similar to that found in other policies) the insured must:

Notify the police if a law may have been broken. Give the insurer prompt notice of the loss and describe the

property involved. Give the insurer a description of how, when and where the

loss occurred as soon as possible. Take reasonable steps to protect the property from further

damage, set damaged property aside if feasible, and keep a record of expenses related to the loss.

Make no statement that assumes any obligation or admits any liability without the insurer’s consent.

Permit the insurer to inspect the property and records proving loss

Submit under oath to questioning if requested. Send a signed, sworn statement of loss within 60 days after

it is requested by the insurer. Promptly send the insurer any legal papers or notices

concerning the loss. Cooperate with the investigation or settlement of the claim.

o Other Insurance condition (states that if the insured has other insurance that is written on the same basis as the Commercial Inland Marine form, the Commercial Inland Marine form pays on a



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pro rata basis. If the other coverage is not written on the same basis, Commercial Inland Marine coverage is excess over any other insurance that applies to the loss, regardless of whether the insured can collect under the other insurance.)

o Reinstatement Of Limit After Loss condition (provides that the limit of insurance will not be reduced by payment of any claim, except for a total loss of a scheduled item. When this occurs, the insurer will refund the unearned premium on that item.)

o Loss condition (valued on an actual cash value basis or the cost to restore or replace the property, whichever is less. The property’s value is determined at the time of the loss.)

o Privilege to Adjust with Owner Condition (gives the company the right to settle losses to property belonging to others that was in the care, custody or control of the insured directly with the person or entity who actually owned the damaged or destroyed property.)

Commercial Inland Marine Declarations form Commercial Inland Marine Conditions form One or more of the 12 filed coverage forms listed below (All of the

filed coverage forms provide open peril coverage that is typical of Inland Marine coverages. Nonfiled forms may be written on a named peril or open peril basis.)

o Accounts Receivable floater Covers the insured business against losses resulting from the business’ inability to collect outstanding debts because records of those accounts receivable have been destroyed by a covered peril. Covers the debt, interest and cost of collection.

o Bailees Customers floater Offers coverage to the commercial insured for damage to a customer’s property that is in the insured’s care, custody or control. . .pays even if the insured is not legally liable as long as the loss or damage sterns from a covered peril.

o Commercial Articles floater Covers the owner’s interest in commercial cameras, musical instruments, recording and video equipment worldwide, all risk. Will cover similar items belonging to others in the insured’s care, custody or control.

o Contractors Equipment floater Covers off-road, heavy equipment as well as tools and machinery used by road construction companies and contractors. This property is covered at the job site and to and from the job site.

o Electronic Data Processing floater Open perils property coverage including business income is provided for computer hardware, software and data owned by or in the insured’s care, custody or control. Breakdown coverage; mechanical



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breakdown, electric power or temperature variations is an additional option with this coverage.

o Equipment Dealers floater Covers the dealer’s stock of construction and mobile agricultural equipment. May also cover equipment of a similar nature belonging to others that is in the dealer’s care, custody or control.

o Installation floater Covers losses associated with the storage, transport and installation of major pieces of heating, cooling, electrical, and mechanical or refrigeration systems. This exposure may belong to the owner, the seller or the Contractor responsible for the installation thus the Installation floater can be purchased by any of the three.

o Jewelers Block Coverage floater This contract covers the jeweiry, precious and semi-precious stones, metals and other stock commonplace in the jewelry trade. It covers the merchandise available for sale, inventory that is sold bur not delivered, raw materials that will be used in the manufacture of jewelry and even customer’s jewelry in the care, custody or control of the insured. Optional coverages include Show Windows coverage and Money coverage.

o Signs Coverage floater You should remember that the coverage available for attached or detached signs under the Commercial Property policy was extremely limited. This Inland Marine coverage protects against loss to neon, fluorescent or automatic electrical signs or lights.

o Valuable Papers and Records floater Offsets the cost of replacing manuscripts, books, film, maps, drawing, deeds and records belonging to the insured or in the care, custody or control of the insured which are damaged or destroyed by a covered peril.. .this floater is not intended to cover money or securities.

o Transportation floaters There are several ways in which merchandise in transit can be covered under a Transportation floater; the appropriate contract is selected by determining who has the responsibility for the safe transport of the goods. A common carrier is a bailee and therefore responsible for the safe delivery of cargoes in all but a few instances: Acts of God War Acts of a Public Authority Acts of the Shipper Inherent Vice



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Miscellaneous A Bill of Lading is the contract between the shipper and the carrier. It itemizes the goods being shipped, verifies their receipt by the carrier and guarantees their safe delivery. Though a carrier cannot contractually absolve itself from liability, it can place a maximum dollar limit on its legal responsibility. A common carrier seeking coverage for the goods it transports would purchase a Motor Truck Cargo-Truckers form. Companies who transport their own goods on their own trucks do not need bailees coverage for their own merchandise, they need property coverage available as Motor Truck Cargo-Shippers form, or with some companies: Motor Truck Cargo-Owners form. Companies who transport their own goods on their own trucks and also transport shipments for others need property coverage for their own merchandise and bailees coverage for the property belonging to others. These companies purchase the Motor Truck Cargo-Combination form which provides both necessary coverages. Shippers or receivers of merchandise who wish to purchase their own coverage for goods being shipped or received can purchase either a Trip Transit policy that originates at the time of shipment and ends when the goods reach their final destination or the Annual Transit policy which covers all of the insured’s incoming or outgoing shipments during the policy year.



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Chapter 15 : Comm. Liability Commercial General Liability Coverage Part (policy may be included in the CPP or issued as a stand-alone policy. The coverage provided by the Liability section of the Businessowners policy is similar to that provided by the CGL) A Commercial General Liability coverage part must include the following:

Common Policy Declarations Common Policy Conditions CGL Declarations One or more CGL coverage forms Any mandatory endorsements

Commercial General Liability insurance (covers business liability exposures. Business liability is liability that arises out of the conduct of a business):

Premises and Operations Exposure (Premises an Operations Med Pay) (liability arising out of the business location or the activities of the business. This includes liability for bodily injury, property damage and personal and advertising injury.) (Medical Payments coverage is up to 1 year from the date of the accident)

Personal and Advertising Injury (includes such things as slander, libel, copyright infringement, invasion of privacy, false arrest, wrongful entry onto another’s premises, and malicious prosecution.)

Products or Completed Operations Exposure (a strict liability) (covers liability resulting from defects or poor manufacturing operations of products.)

Indirect or contingent liability (independent or contractual liability) (for the actions of its employees, agents, contractors, or subcontractors.) (a hold-harmless agreement [a contract] can be used to move liability from one individual or company to another during these types of activities)

Exposure Covered by Commercial General Liability Insurance:

o Work-related injuries to employees. o Pollution o Contractual agreements in which the insured assumes liability. o Ownership, maintenance or use of autos, watercraft and aircraft. o Premises and Operations. o Products-Completed Operations. o Indirect/Contingent Liability.



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Two Primary CGL forms (The following two forms contain basically the same coverages, exclusions and conditions, the main difference is how each coverage is activated, or triggered.)

o Occurrence Form (Coverage is triggered by damage or injury that occurs during the policy period.)

o Claims-Made Form (Coverage is triggered when a claim is first made against the insured during the policy period, even if the actual injury or damage occurred at another time) and includes the following:

Retroactive Date (provides some measure of protection against previous losses that may have occurred before the claims-made form was written. The retroactive date is listed in the CGL Declarations.) The insured has three options for the retroactive date:

Use the same date as the policy effective date. Use an earlier date than the policy effective date. Use no retroactive date.

Extended Reporting Period (feature built into the claims-made form that can help close potential coverage gaps. [A gap can occur when a claims-made policy is replaced by an occurrence form.]):

Basic Extended Reporting Period (either 60 days [mini-tail] or five years [midi tail] is available automatically and free of charge under specified conditions.)

Supplemental Extended Reporting Period Endorsement (full-tail or maxi-tail) (provides an unlimited extension of the reporting period, although the event causing the claim must still occur between the retroactive date and the policy expiration date. This ERP takes effect at the end of either the 60-day or five-year ERP, whichever applies. The insured must request this endorsement and pay an additional premium.)

CGL Terminology: Auto (a land motor vehicle, trailer or semitrailer designed for travel on

public roads, including any attached machinery or equipment. It does not include mobile equipment.) The following self-propelled vehicles are considered autos (not mobile equipment):

o Self-propelled vehicles with permanently attached equipment designed primarily for snow removal, road maintenance (other than construction or resurfacing) or street cleaning.

o Cherry pickers and similar devices that are mounted on an automobile or truck chassis and used to raise or lower workers.

o Self-propelled vehicles with attached air compressors, pumps or generators.

Mobile equipment (any of the following types of land vehicles, including any attached machinery or equipment):



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o Bulldozers, farm machinery, forklifts, and other vehicles designed for use principally off public roads.

o Vehicles maintained for use solely on or next to premises the insured owns or rents.

o Vehicles that travel on crawler treads. o Vehicles, self-propelled or not, maintained primarily to provide

mobility to permanently mounted power cranes, shovels, loaders, diggers, or drills, or road construction or resurfacing equipment such as graders, scrapers or rollers.

o Vehicles that are not self-propelled and are maintained primarily to provide mobility to permanently attached equipment such as air compressors, pumps and generators, or cherry pickers and similar devices used to raise or lower workers.

o Any vehicle that does not fit any of the above descriptions and is maintained primarily for purposes other than the transportation of persons or cargo.

Insured’s Product (any goods or products, other than real property, that are manufactured, sold, handled, distributed, or disposed of by the insured, others trading under the insured’s name, or a person or organization whose business or assets the insured has acquired.) Insured’s Product also includes:

o Containers, materials, parts, or equipment furnished in connection with the product.

o Warranties or representations made at any time with respect to fitness, quality, durability, or performance of any part of the product.

o The providing of or failure to provide warnings or instructions. Insured’s Work (work or operations performed by or on behalf of the

insured, and materials, parts or equipment furnished in connection with work or operations. It also includes warranties or representations made anytime with respect to the fitness, quality, durability, or performance of the insured’s work and the providing of or failure to provide warnings or instructions.)

Impaired Property (The property is impaired only if it can be restored to use by repair, replacement, adjustment, or removal of the insured’s product or work, or by the insured fulfilling the terms of the contract or agreement.) Tangible property other than the insured’s product or the insured’s work that cannot be used or is less useful because:

o It incorporates the insured’s product or work that is known or thought to be defective, deficient, inadequate, or dangerous, or

o The insured failed to fulfill the terms of a contract or agreement. Coverage Territory (described territory of the United States of America,

including its territories and possessions, Puerto Rico, and Canada. It also means international waters or airspace if the injury or damage does not occur in the course of travel or transportation to or from any place not



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included in the described territory.) When the insured is determined to be responsible for damages in a lawsuit in the described territory, or in a settlement the insurer agrees to, the coverage territory includes all parts of the world if injury or damage arises out of:

o Goods or products made or sold in the described territory. o Activities of a person whose home is in the described territory, but who is

for a short time out of the described territory on business for the insured. Loading or Unloading (Excluding movement of property by a mechanical

device, other than a hand truck, that is not attached to the aircraft, watercraft or auto.) means handling of property:

o After it is accepted for movement into or onto an aircraft, watercraft or auto.

o While it is in or on an aircraft, watercraft or auto. o While it is being moved from an aircraft, watercraft or auto to the place

where it is finally delivered. Pollutants (any solid, liquid, gaseous or thermal irritant or contaminant,

including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned or reclaimed.)

Products-Completed Operations Hazard (includes all BI and PD occurring away from the premises owned or rented by the insured, and arising out of the insured’s product or work, other than products that are still in the insured’s physical possession and work that has not yet been completed or abandoned.)

Section I Coverage A – Injury and Property Damage Liability The CGL forms provide three coverages:

Coverage A—Bodily Injury And Property Damage Liability (pays those sums the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which the insurance applies. To be covered, the BI or PD must be caused by an occurrence, which is defined in the CGL as an accident, including continuous or repeated exposure to the same general harmful conditions. In addition to paying those sums the insured is legally obligated to pay, the company has the right and duty to defend an insured against any suit alleging liability for damages to which the policy applies.)

o Major Exclusions:

Arising out of intentional injury. The insured assumes under a contract or agreement. For those in the alcoholic beverage business, any liability imposed

by law concerning alcoholic beverages. For work-related injuries covered under Workers Compensation or

Employer’s Liability laws. For most pollution losses that result in bodily injury, property

damage or clean-up costs. Resulting from the maintenance, operation or use of aircraft, autos

or watercraft, except as specified in the policy.



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o Other exclusions:

Arising out of the transportation of mobile equipment by auto or the use of mobile equipment in any prearranged racing or related activity, or while practicing or preparing for such an activity.

Assumed under a contract for war or warlike acts. Damage to property owned, rented or occupied by the insured or

in the insured’s care, custody or control (does not apply to property and its contents for premises rented to the insured for seven consecutive days or less).

Damage to the insured’s own product arising out of the product itself.

Damage to the insured’s own work. Claims based on:

Defects Deficiencies Inadequacies Dangerous conditions in the insured’s products or work. Delays or failures to properly perform contracts.

Related to recall of the insured’s products or work because of a known or suspected defect.

Bodily injury arising out of personal and advertising injury. Sistership Exclusion denies coverage for subsequent claims if a

defective product is not recalled by an insured. (A business that wants coverage for product recall would need to buy Product Recall Insurance to include the extra wages and other costs of identifying the faulty product, notifying consumers, correcting or repairing the product, and redistributing it.)

o Supplementary Payments paid in addition to the amounts paid for Liability claims (in some cases beyond the limits of the policy) – include:

All expenses incurred by the insurance company. Up to $250 for the cost of bail bonds. Loss of earns while preparing a defense (up to $250 a day) Cost of bonds to release attachments. Reasonable expenses incurred by the insured to assist in the

investigation and defense of a claim, including up to $250 per day for loss of earnings.

All costs taxed against the insured in a suit. Prejudgment and post judgment interest. Defense costs for an indemnitee (indemnitee - a party who is not

an insured who is under contract to provide goods or services to an insured.)

Coverage B—Personal And Advertising Injury Liability (covers liability arising out of offenses such as libel or slander. Personal And Advertising Injury Liability coverage may be offered on either an occurrence or claims-made basis):

Exclusions are divided into two categories:

o Exclusions that apply to both personal and advertising injury:



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Liability arising out of any of the following is excluded under both personal and advertising injury:

Knowingly inflicting injury that violates the rights of another Oral or written publication of material that the insured

knows is false, but publishes anyway. Material that was published before the effective date of the

policy. Criminal acts committed by or at the direction of the

insured. Assumed under contract, except for liability the insured

would have incurred even without assuming it under contract.

Pollution losses. Breach of contract. Failure of goods, products or services to conform with

advertised quality or performance. Incorrect price descriptions of goods, products or services. Any offense committed by an insured who is involved in

the business of advertising, publishing, broadcasting, or telecasting.

o Exclusions that apply to pollution losses all pollution losses are excluded!

Supplementary Payments paid in addition to the amounts paid for Liability claims – include:

o All expenses incurred by the insurance company. o Up to $250 for the cost of bail bonds. o Cost of bonds to release attachments. o Reasonable expenses incurred by the insured to assist in the

investigation and defense of a claim, including up to $250 per day for loss of earnings.

o All costs taxed against the insured in a suit. o Prejudgment and post judgment interest. o Defense costs for an indemnitee (indemnitee - a party who is not an

insured who is under contract to provide goods or services to an insured.)

Coverage C—Medical Payments (pays for medical expenses incurred for bodily injury caused by an accident on premises the insured owns or rents, on ways next to premises the insured owns or rents, or arising from the insured’s operations. To be covered, the expenses must be incurred and reported to the insurer within one year of the date of the accident. Medical payments are made without regard to fault, unlike other coverages under the CGL forms.) Excluded injuries are:

To any insured or to a tenant or employee of the insured, including a person injured on a part of the insured’s premises that he or she normally occupies.

Payable under Workers Compensation or related laws.



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That occurs to a person while he or she is taking part in athletics. Included in the products-completed operations hazard (these would be

paid under Coverage A.) Anything excluded under Coverage A. Related to war.

Section II Names Insured (Who is insured) who is considered an insured under the policy depends on how the named insured is designated in the CGL Declarations: as an individual, partnership or joint venture, limited liability company, or organization other than a partnership, joint venture or limited liability company.

Designation In Declarations

Who Are Insured Restrictions

Individual Named insured

Named insured’s spouse

Only in connection with sole proprietorships

Partnership or joint venture

Named insured

Named insured’s members and their spouses

Named insured’s partners and their spouses

Members, partners and their spouses are insureds only in connection with conducting the business

Limited liability company (a company structured like a corporation, but with additional tax and liability advantages for its members)

Named insured Members Managers

restrictions

Organization other than partnership, joint venture or limited liability company

Named insured Executive officers and directors Stockholders

Executive officers and directors are insureds only in connection with conducting the business Stockholders are insureds only in connection with liability as stockholders



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Other insured include:

The named insured’s employees for acts within the scope of their employment or while performing duties related to the conduct of the insured’s business (does not include executive officers of a corporation or managers of a limited liability company.)

A non employee or organization while acting as real estate manager for the named insured.

If the named insured dies: o Any person or organization having temporary custody of the named

insured’s property, but only with respect to liability arising out of the maintenance or use of that property and only until a legal representative has been appointed for the insured.

o The insured’s legal representative with respect to those duties.

Any person driving mobile equipment that is registered to the named insured along a public highway with the insured’s permission, and a person or organization responsible for the driver’s conduct with respect to liability arising out of the operation of the equipment.

Newly Acquired Organizations CGL forms automatically cover newly formed or acquired organizations as a named insured under certain circumstances:

The named insured must maintain ownership or majority interest of the new organization.

There must be no other similar insurance available to the organization. Automatic coverage will be provided for 90 days or until the end of the

policy period, whichever is earlier -- Coverage will continue after the automatic period expires if the insured reports the new organization to the insurer, subject to insurer’s approval.

Coverages A and B do not cover losses that occurred before the organization was acquired or formed.

Section III Limits of Insurance (policy limits – Occurrence vs Claims Made) As defined in the Declarations, are the most that will be paid, regardless of the number of insureds, claims made, suits brought, or persons bringing suit. The amounts to be paid are subject to defined limits:

General Aggregate Limit is the maximum that will be paid for the sum of losses under Coverages A, B and C, except for damages arising out of the products-completed operations hazard. (This limit is subject to modification by endorsement so that it applies separately to each of the insured’s locations or projects.)



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Products-Completed Operations Aggregate Limit that represents the most that will be paid under Coverage A because of injury and damage arising out of the products-completed operations hazard.

Personal and Advertising Injury Limit represents the most that will be paid under Coverage B for the sum of all damages due to personal injury or advertising injury sustained by any one person or organization. This limit is also subject to the overall General Aggregate Limit.

Per Occurrence Limit is the most that will be paid for the sum of damages under Coverages A and C because of all bodily injury, property damage and medical payments arising out of any one occurrence. This limit is also subject to either the General Aggregate Limit or the Products-Completed Operations Aggregate Limit, whichever is applicable.

Damage to Premises Rented to the Insured Limit represents the rent that will be paid under Coverage A for liability for fire damage to premises rented to the insured or occupied by the named insured with the owner’s permission arising out of any one fire. This sub-limit is also subject to the Per Occurrence Limit and the General Aggregate Limit.

Medical Expense Limit is the most that will be paid under Coverage C for all medical expenses because of bodily injury sustained by anyone person. This sub-limit is also subject to the Per Occurrence and General Aggregate Limits.

Section IV Conditions:

Duties in the Event of A Claim The insured has certain duties in the event of an occurrence, offense, claim, or suit. The insured must notify the insurer as soon as practicable of an occurrence or offense that may result in a claim, including how, when and where it took place, the names and addresses of any injured persons and witnesses and the nature and location of any injury or damage arising out of the occurrence. (Under the claims-made form, notice of an occurrence is not notice of a claim.) If a claim is made or a suit is brought against any insured, the insured must immediately record the specifics of the claim or suit and the date it was received and notify the insurer as soon as practicable. The insured must also see to it that the insurer receives written notice of any claim or suit as soon as practicable. The insured must also:

o Immediately send the insurer copies of any demands, notices or other legal papers received in connection with a claim or suit.

o Authorize the insurer to obtain records. o Cooperate with the insurer in the investigation, settlement or

defense of a claim. o At the company’s request, assist the insurer in the enforcement of

any right against someone who may be liable to the insured.



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o Not voluntarily make a payment, assume any obligation or incur any expense, other than expenses for first aid, without the insurer’s consent, except at the insured’s own cost.

Nonrenewal When We Do Not Renew condition states that if the insurer decides not to renew the CGL policy, it must mail or deliver written notice of nonrenewal to the first named insured at least 30 days before the expiration date of the policy.

Other Insurance states that when the insured’s CGL is primary and other primary insurance applies to the same loss, the loss will be divided between the policies by one of two methods:

o Contribution by equal shares (all insurers contribute equally up to the limit of the policy with the lowest limit. At that point, the insurer with the lowest limit stops paying since it has already paid its policy’s limit, and the other insurers share the remainder of the loss. This continues either until the loss is paid in full or each company has paid its limit.)

o Contribution by limits (applies when all policies involved specify this method of handling other insurance. If they don’t, contribution by limits applies. Contribution by limits is a method you are already familiar with for apportioning losses. Each company pays a proportion of the loss equal to the corporation its policy limits bear to the total amount of insurance available.)

Your Right to Claim and Occurrence Information condition is included in the claims-made form, but not the occurrence form. It provides that the insurer will give the first named insured certain information relating to the current CGL claims-made form and any previous claims-made forms the insurer has issued to the insured during the previous three years. The information includes:

o A list or record of each occurrence not previously reported to any other insurer of which this insurer has been notified according to policy provisions.

o A summary, by policy year, of payments made and amounts reserved under any applicable General Aggregate Limit and Products-Completed Operations Aggregate Limit.

Premium Audit – for Commercial policies the customer often pay a premium deposit and at the end of the year the insurer will conduct a premium audit to determine the premium earned; any excess premium will then be assessed or in the case of excess premium paid: refunded.

Bankruptcy – in this case the insurance will still be in effect.



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Other Commercial General Liability Coverage Forms and Endorsements

Pollution Liability Coverage Extension endorsement overrides the Coverage A exclusion for BI or PD claims arising out of pollution losses. It does not provide coverage for clean-up costs associated with pollution losses.

Owners And Contractors Protective Liability (OCP) coverage form is specifically designed to provide liability for operations of independent contractors. It is purchased by someone other than the named insured to protect the insured against liability arising out of work performed for the insured by an independent contractor. It is most frequently used to protect an owner for liability arising out of operations being performed by a general contractor. Coverage applies only to the specific location and contractor named in the Declarations and is written on an occurrence basis.

Liquor Liability Coverage Form covers insureds who are in the liquor business. It covers liability for contributing to a person’s intoxication or for providing liquor in violation of the law for businesses engaged in the liquor business. The standard forms exclude this liability, which is sometimes called dram shop liability. Coverage can be purchased on either a claims-made or occurrence basis.

Pollution Liability Coverage Form and the Pollution Liability--Limited Coverage Form cover certain pollution losses excluded under the standard form. Each covers pollution incidents, which are emissions of pollutants into or on land, the atmosphere or water that cause environmental damage. The only difference is the Pollution Liability—Limited form does not cover clean-up costs, and the Pollution Liability form does. Both Pollution forms are only written on a claims-made basis.

Professional Liability insurance (liability arising out of rendering or failing to render services of a professional nature—is excluded under CGL policies. Special Professional Liability policies have been developed for many professionals, such as physicians, surgeons, dentists, lawyers, insurance agents, architects, accountants, and directors and officers of corporations. Each policy is tailored to fit a specific occupational need.) Most policies are written on a claims-made basis.:

o Professionals have two kinds of legal duty to their clients: to perform the services for which they were hired. to perform them in accordance with the appropriate standards of

conduct. Because of their special skills, professionals are held to a higher standard of conduct.

o Professional Liability policies can go by several different names:

Malpractice insurance (Medical Professional Liability policies written for medical professionals or institutions, including



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physicians, nurses, dentists, surgeons, opticians, optometrists, chiropractors, and veterinarians.)

Errors And Omissions (E&O) insurance (broad term that refers to Professional Liability policies written for professionals, such as insurance agents, accountants, architects, stockbrokers, engineers, consultants, and attorneys.)

Fiduciary Liability policy (type of Professional Liability policy that protects those who manage private pension and employee benefit plans against liability for violation of the federal ERISA law.

Directors And Officers Liability (a type of E&O insurance. Some professionals believe that settling claims out of court is an admission of an error that may harm their professional reputations. In the past, Professional Liability policies contained a provision that the insurer could not settle a claim without the insured’s consent. Most policies now provide that such consent is not required.)

Employment Practices Liability (EPL) insurance (CGL and Workers

Compensation And Employers Liability policies exclude losses arising out of wrongful termination, discrimination, sexual harassment, and other employment-related practices. May be issued as an endorsement to a Directors And Officers Liability policy or as a separate policy. Although standard ISO forms are available, many companies issue their own policies. Policy provisions differ greatly among insurers, particularly those regarding the types of wrongful employment acts covered. Most policies cover wrongful acts committed by the employer and its employees.)

Exclusions include: o Wrongful termination practices committed with dishonest, fraudulent,

criminal, or malicious intent. o Mass layoffs of employees. o Deliberate fraud or purposeful violation of laws, rules or regulations. o BI or PD other than emotional distress, mental anguish or humiliation. o Liabilities of others assumed under contract, except employment

contracts. o Circumstances reported under prior EPL policies.

Difference In Conditions insurance (DIC) (used to address the gaps in insurance caused by exclusions in Commercial Property coverage part. DIC policies are usually written on large risks with a high deductible. Insurance companies issue their own DIC policies since there is no standardized form for this type of coverage.)

Umbrella insurance (provides coverage beyond the underlying polic[y/ies])



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Personal Umbrella policies (provides coverages for catastrophic liability exposures on personal level.)

Commercial Umbrella policies (provides coverages for catastrophic liability exposures on business level) provides coverage for the following:

o The policy limits applying to a loss under an underlying policy have been exhausted.

o A loss is excluded under an underlying contract but not excluded under the Umbrella (the insured must first meet the retention limit.)

o Previous losses reimbursed under an underlying policy have reduced its aggregate limit so that a subsequent loss is not fully covered.



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Chapter 16: Comm. Auto Commercial Auto Coverage Part (Businesses, like individuals, need both Liability and Physical Damage coverage for losses that arise out of autos owned by or used in the business. In this unit, we will focus on automobile coverages designed to cover the private passenger and commercial auto exposures of businesses [vehicles that are owned, leased, rented, hired or borrowed] that can be insured under the Commercial Auto policy – It does not cover vehicles that are not designed to be used on public roads [such as forklifts, graders, backhoes, bulldozers, etc.])

Commercial Auto policies can be written as a mono-line policy or included in the CPP. A Commercial Auto coverage part must contain:

o Common Policy Declarations o Common Policy Conditions o Common Definitions o One of five separate coverage forms:

Business Auto coverage form (used to insure the private passenger and commercial auto exposures of all businesses other than garages, truckers and motor carriers. Because of the specialized nature of these businesses and their unique coverage needs, separate forms were designed to cover these risks.)

Business Auto coverage form includes:

o Liability coverage (similar to that provided by the Personal Auto policy. The policy agrees to pay all sums an insured legally must pay as damages because of BI or PD to which the insurance applies caused by an accident and resulting from the ownership, maintenance or use of a covered auto. Coverage for defense costs and supplementary payments are also included. The insurer also agrees to pay all sums an insured legally must pay as a covered pollution cost or expense to which the policy applies. The pollution cost must be caused by an accident and result from the



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ownership, maintenance or use of covered autos. The insurer will only pay for covered pollution costs if there is bodily injury or property damage caused by the same accident. Coverage for liability for pollution clean-up costs is also included under specific circumstances.

o Who Is An Insured (In addition to the named insured, others have Liability coverage while using covered auto with permission. The policy also covers those who become liable for the conduct of an insured.)

o Who is Not Insured The owner of an auto hired or borrowed

from an employee or family member. A person who is working in an auto-type

business. People besides employees or lessees

while moving property to or from a business.

The owner of a hired or borrowed auto.

o Exclusions (Business Auto Liability coverage contains many of the same exclusions as Personal Auto Liability coverage) specific exclusions include: For expected or intended injuries. Assumed under contract or agreement

(does not apply to liability the insured would have had if there were no contract or agreement or contracts that meet the policy’s definition of an insured contract.)

For work-related injuries to employees, including those covered under Workers Compensation and related laws and injuries caused to an employee by another employee.

For damage to property owned by, transported by or in the care, custody or control of the insured.

For damage arising out of the movement of property by a mechanical device.



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For bodily injury or property damage arising out of the operation of self-propelled vehicles with attached cherry pickers that are used to raise or lower workers, or which have permanently attached equipment such as air compressors, pumps and generators.

For completed operations. For pollution damage, except as

specifically provided in the policy. Assumed under a contract for war or

war-like acts. For covered autos while being used for,

or while practicing or preparing for, organized or professional racing, demolition or stunting activities.

o Supplementary Payments additional items include:

Expenses the insurer incurs. Cost of bail bonds up to $2,000 for

violations because of a covered accident.

Cost of bonds to release attachments, but only within the limit of insurance.

Expenses the insured incurs at the insurer’s request, including the insured’s lost earnings up to $250 a day because of time off from work.

Costs the insured is required to pay because of a suit.

Interest that accrues after a judgment and before it is paid.

o Out of State Coverage Extensions (provides coverage where a business’s autos are driven in more than one state. The Out Of State Coverage Extensions modify the policy’s Liability coverage to meet other states’ financial responsibility requirements and other state laws concerning out-of-state drivers when the covered auto is being driven in that state.)

Physical Damage Coverage (Comprehensive [all risk] or Specified Causes of Lost [named peril coverage] and Collision -- Uninsured Motorists,



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Medical Payments and Underinsured Motorists coverage can be added by endorsement.) Coverage extensions will pay $20 per day up to $600 per day for transportation charges incurred as result of auto theft following a 48 hour waiting period.

Definitions Section of the Business Auto coverage form defines certain key terms used in the policy. These terms help clarify the intent of various coverages and conditions:

o Auto (land motor vehicle, trailer or semi trailer designed for travel on public roads. It generally does not include mobile equipment. An exception is made under the policy’s Liability coverage when mobile equipment is being towed or carried by a covered auto. This provision fills an insurance gap, because the Commercial General Liability policy excludes coverage for mobile equipment while it is being transported by an auto that is owned or operated by an insured. Other exposures arising out of mobile equipment are covered under Commercial General Liability insurance.

o Bodily Injury (bodily injury, sickness or disease, including death resulting from any of these. Property damage means damage to or loss use of tangible property.)

o Covered Pollution Cost or Expense (costs arising out of any order by a government authority demanding that the insured test for, monitor, cleanup, remove, contain, treat, detoxify or neutralize, or respond to or assess the effects of pollutants.) Exclusions:

Costs arising out of the escape of pollutants that are in property being transported or towed by, handled into, onto or from the covered auto, or otherwise in the course of transit by the insured, or being stored, disposed of, treated, or processed in or on the covered auto.

Pollutants released before the property is moved to the place where they are accepted by the insured for movement into the covered auto, and after the



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pollutants are delivered by the insured. This exclusion does not apply to fuels, lubricants, fluids, exhaust gases, or other pollutants necessary for or resulting from the normal operation of a covered auto or its parts.

o Pollutants (any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned or reclaimed.)

Business Auto Physical Damage (towing and labor costs and transportation expenses are also available) contains three principal coverages:

Comprehensive: Covers any loss, other than collision or overturn, that is not excluded by the policy.

Specified Causes Of Loss - Covers only these perils:

o Fire o Lightning o Explosion o Theft o Windstorm o Hail o Earthquake o Flood o Vandalism or mischief o Sinking, burning, collision, or derailment of a

conveyance transporting the covered auto (such as a ship.)

Collision Covers overturn of the covered auto and collision with another object.

Excluded Losses: o To sound reproducing and receiving

equipment, tapes and records. o From wear and tear, freezing, mechanical or

electrical breakdown, or road damage to tires. o Arising out of war. o Arising out of nuclear events. o To covered autos while being used for, or while

practicing or preparing for, organized or



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professional racing, demolition or stunting activities.

Conditions unique to Business Auto are as follows: o Settling physical damage claims: The insurer

has three options for settling physical damage claims: Pay for, repair or replace the damaged

or stolen property. Return stolen property to the insured at

the company’s expense and pay for any damages resulting from the theft.

Take the damaged or stolen property at an agreed or appraised value.

Garage Coverage form (automobile-type businesses such as car dealerships, gas stations and parking garages are excluded by the Business Auto coverage form, these risks must be covered under a separate Garage coverage form. Uninsured Motorists, Underinsured Motorists and Medical Payments coverage may be added by endorsement.)

This form provides: o Liability coverage The Garage coverage form

covers both auto and business liability arising out of:

The ownership, maintenance or use of covered autos (Garage Operations—Covered Autos.)

Garage operations (Garage Operations—Other Than Covered Autos -- those considered insureds include the named insured, his or her employees and the business’s directors and shareholders while acting within the scope of their duties. Contains many of the same Liability exclusions as the Business Auto coverage form. It also contains some general liability-type exclusions such as damage to property of others in the insured’s care, custody or control, property damage to the insured’s own products or work and product or work recalls. Those protected as insureds are essentially the same as those insured for liability under the



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Business Auto coverage form, with one important exception. For auto dealer risks, garage customers are not covered if they have their own Liability coverage. If customers do not have Liability coverage of their own, the Garage form protects them, but only up to the minimum limits of financial responsibility. The insured has the option of adding coverage for customers up to the full limits of the policy.)

o Garagekeepers coverage form (covers the insured’s liability for damage to customers’ property that the insured has for servicing, repair, parking, storage, car washes or any other enterprise that [for a fee] accepts custody of vehicles belonging to others. The insured also has the option of purchasing Direct Damage Garagekeepers insurance, which pays for physical damage to customers’ property in the insured’s custody, whether or not the insured is liable. Direct Damage Garagekeepers insurance can be provided on either a primary or excess basis; the causes of loss that can be covered include Comprehensive or Specified Causes.)

Endorsements Lessor - Additional Insured

and Loss Payee (Any leased auto scheduled on this endorsement is treated as an owned auto; not a hired or borrowed auto. The lessor is included as an insured for both liability and physical damage coverage.)

Mobile Equipment (When a state requires that a piece of mobile equipment be insured to meet the financial responsibility laws of that jurisdiction, this endorsement can be used to allow the auto policy to cover the mobile equipment in question.)



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Auto Medical Payments Coverage (This endorsement provides the Med Pay benefits traditionally found in a Personal Auto policy to the commercial auto policy to which it is attached.)

Drive Other Car Coverage (This endorsement extends bodily injury and property damage liability, medical payments, uninsured motorists and physical damage to vehicles not owned, hired or borrowed by the insured.)

Individual Named Insured (The purpose of this endorsement is to provide the family members of the insured with liability and physical damage coverage as if they were named insureds.)

Employee as Insured (This endorsement protects employees while using their own vehicles on company business.)

o Physical Damage coverage (Typically, auto dealers purchase Physical Damage coverage on a blanket basis. It specifically excludes false pretense coverage—coverage for losses when a dealer voluntarily parts with a covered auto because of a trick. [Such coverage is available by endorsement.]) A few specialized exclusions apply to this blanket coverage, including: Expected profits. Collision damage to autos being driven

or transported from the point of purchase or distribution to the point of destination if this distance is 50 miles or more.

Covered Autos (uses a commercial system to determine which autos are covered autos. It is similar to the one used for the Business Auto coverage form,



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except the numbers are different.) The numerical symbol for the desired selected coverage is entered on the Dec page, the options are as follows: Symbol Type of Auto Selected

21 Any auto

22 Owned autos only

23 Owned Private

24 Owned private passenger autos only

25 Owned autos subject to no fault

26 Owned autos subject to compulsory UM

27 Specifically described autos

28 Hired autos only

29 Non-owned autos used in your garage business

30 Autos left for service, repair, storage or safekeeping

31 Dealers autos physical damage coverages

There are two symbols that are unique to the Garage coverage form:

o Symbol 30: Customers’ autos left with the insured for service, repair, storage, or safekeeping (this is Garagekeepers coverage, which we’ll cover later.)

o Symbol 31: Physical Damage coverage only for the dealers’ autos and autos held for sale by dealers, nondealers or trailer dealers.

Truckers (a modified version of the Business Auto coverage form that takes into consideration the special practices and regulations that apply to the trucking industry. [Is required because the Business Auto coverage form specifically excludes businesses that set themselves out for hire to haul the goods of others.])

The Truckers coverage form includes three coverages:

Liability (The Liability Damage coverages is similar to those provided under the Business Auto coverage form.)

Trailer Interchange (uses a numerical system to determine which autos are covered autos. It is similar to the one used for the Business Auto coverage form, except the numbers are different



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and the “owned auto” options do not include private passenger autos.) o Trailer Interchange coverage: the following

are the symbols that can be entered on the Dec page, two of which are detailed below:

Symbol Type of Auto Selected 41 Any autos 42 Owned autos only 43 Owned commercial autos only 44 Owned autos subject to no fault

laws 45 Owned autos subject to

compulsory UM law 46 Specifically described autos 47 Hired autos only 48 Nonowned trailers in the insured’s

possession under a written interchange agreement

49 Insured trailers in the possession of anyone else under a written interchange agreement

50 Nonowned autos only Symbol 48: Trailers borrowed or leased

by the named insured for which liability for loss has been assumed under a written trailer interchange agreement; applies to Comprehensive, Specified Causes Of Loss or Collision coverages of Trailer Interchange coverage only.

Symbol 49: Trailers owned or hired by the named insured while the trailers are in someone else’s possession under a written trailer interchange agreement.

o Borrowed or Hired Trailers (Trailer Interchange insurance covers damage to a specific trailer under the policy of the trucker in whose possession the trailer is at the time of loss.) Must meet the following requirements to be covered: The trucker is liable under a written

interchange agreement. The damage is caused by a covered

peril.



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Physical Damage (Physical Damage coverages is similar to those provided under the Business Auto coverage form.)

Motor Carrier Act of 1980 (The Motor Carrier coverage form is an alternate to the Truckers coverage form. While a trucker is a person hired to haul the goods of others. A motor carrier is anyone who transports property by auto in a commercial enterprise, regardless of whether they were hired for that purpose.)

MCS-90 Endorsement (This endorsement provides public liability coverage for bodily injury, property damage and environmental restoration.) This endorsement is the most common method to obtain adequate Truckers coverage to cover the automobile exposure, as well as Commercial Inland Marine Motor Truck Cargo insurance to cover the liability for cargo being hauled.

Limits (limits of liability required by the Motor Carrier Act affect vehicles that have a gross vehicle weight of 10,000 pounds or more.) The required limits are divided into three categories, based on the kind of hazardous cargo hauled:

o $750,000 for interstate transportation of non-hazardous property.

o $5,000,000 for interstate or intrastate transportation of large quantities of certain hazardous materials, such as compressed gas, radioactive materials, explosives, or oil.

o $1,000,000 for interstate or intrastate transportation of oil or other hazardous wastes.

o Appropriate Declarations for coverage form selected: Covered Autos (The insured selects what autos are to be

considered covered autos for each coverage. These selections are based on a numerical symbol system described in the policy. If the insured has Liability coverage, then the following vehicles are also covered: Temporary substitute autos, Trailers with a load capacity of 2,000 pounds or less and Mobile equipment while it is being towed or carried by a covered auto) The insured may select from the following list:



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Symbol Type of Auto Selected Description 1 Any auto (broadest

coverage.) Any auto the insured will use during the

policy period, including autos that are owned, leased, hired, rented, or borrowed

Used to designate Liability coverage only. 2 Owned autos only. Any auto the insured owns.

Designates other coverages besides Liability coverage.

3 Owned private passenger

autos only. Any private passenger auto the insured owns . Designates any coverage provided by the

Business Auto coverage form. 4 Owned autos other than

private passenger autos only.

Other types of vehicles the insured owns, such as trucks, trailers, buses, and motorcycles.

Designates any coverage provided by the Business Auto coverage form.

5 Owned autos subject to no-fault law.

Designates owned autos required to have no-fault coverage in a particular state.

6 Owned autos subject to

compulsory Uninsured Motorists laws.

Designates owned autos required to have Uninsured Motorists coverage in a particular state.

7 Specifically described autos (most restrictive.)

Applies only to autos specifically listed in the Business Auto coverage form Declarations.

8 Hired autos only. Designates Liability and/or Physical Damage

coverage only. Only used for autos the insured has leased,

hired, rented, or borrowed. Does not include autos rented or borrowed

from employees or members of their households.

9 Nonowned autos only. Only used for autos used in the insured’s business that are not leased, hired, rented, or borrowed.

Includes autos owned by employees but used in the insured’s business or personal affairs.

Designates Liability coverage only.

o Endorsements:

Drive Other Car—Broadened Coverage For Named Individuals (DOC) endorsement (used to extend the definition of a covered auto to include autos the named insured does not own, hire or borrow while being used by the person named in the endorsement, particular in the case



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where the individual does not have Personal Auto Insurance. Coverage does not apply to autos owned by the person named in the endorsement or a family member.)

Individual Named Insured endorsement (used to extend Personal Auto-type coverage to immediate family members of the named insured, subject to certain exclusions and provides very similar coverage to that provided by the Personal Auto policy.)

Changes in Commercial Auto Coverage Forms endorsement (a mandatory endorsement used with all Commercial Auto coverage forms. It modifies the transportation expenses coverage extension to cover loss of use expenses to rented autos for which the insured is legally responsible under a rental contract or agreement. Coverage is limited to $15 per day to a maximum of $450. The endorsement also provides worldwide Liability coverage for private passenger autos the insured hires, leases, rents, or borrows without a driver for a period of 30 days or less. The suit against the insured must be filed in the United States or its territories or possessions, Puerto Rico or Canada.)

Employees As Additional Insureds endorsement (states that any employee is an insured while using an auto the business does not own, hire or borrow when the autos are used in the business or personal affairs of the named insured. This coverage insures employees for the business use of their own autos or autos owned by family members. It does not protect other family members who may own a vehicle being used by an employee.)

Medical Payments, Uninsured Motorists and Underinsured Motorists endorsement. (These endorsements provide coverage similar to that provided for Personal Auto coverage.)

Additional Insured—Lessor (Leased vehicles are treated as owned vehicles for coverage purposes with this endorsement.)

Specified Hired Autos (used to add coverage for specified hired autos as if they were covered autos owned by the named insured. When attached to a policy, the hired autos scheduled in the endorsement will be treated as if they were covered automobiles owned by the named insured.)

Mobile Equipment (This endorsement covers mobile equipment as if it is a covered auto.)



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Chapter 17: Crime

Crime Insurance

Crime Forms (designed to protect businesses and government entities against property loss resulting from crimes such as burglary, robbery, theft, and employee dishonesty.)

o Commercial Crime Insurance (available as either a mono line policy or package policy.)

o Government Crime Insurance (available as either a mono line policy or package policy.)

Crime Form Versions (The difference between the form versions is what triggers coverage.)

o Loss Sustained Form (Crime insurance written under a loss sustained form covers losses that are sustained during the policy period and discovered either during the policy period or up to one year after the policy expires. This one-year discovery period terminates immediately when the insured obtains other Crime insurance. Losses that occur during the policy period and are discovered within one year after policy expiration are covered.) Loss Sustained During Prior Insurance condition (which

appears only in the loss sustained forms, states that the policy will pay for a loss that occurred during the term of a previous policy but was discovered during the term of the present policy. The most that will be paid for the loss is the lesser of the current or previous policy limit.) For coverage to apply, three conditions must be met:

The discovery period under the previous policy has expired.

The current policy became effective on the date the prior policy expired.

The loss is covered under both the current and previous policies.

o Discovery Form (Crime insurance written on a discovery basis covers losses [such as extortion and embezzlement] that are sustained at anytime and discovered either during the policy period or up to 60 days after the policy expires [up to one year for losses related to employee benefit plans]). A loss is “discovered” when the insured:



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First becomes aware that a loss has occurred or will occur, even if the actual amount of loss or details concerning the loss are not known, or

Receives notice of an actual or potential claim for a covered loss.

Definitions o Premises (interiors of buildings occupied by insured’s businesses) o Burglary (the taking of property from inside the premises by a

person unlawfully entering or leaving the premises. There must be evidence of forcible entry or exit, such as marks made by tools, explosives, chemicals, or electricity.)

o Safe burglary (the taking of property from within a locked safe or vault by a person unlawfully entering the safe or vault as evidenced by marks of forcible entry on the exterior of the safe or vault. It also includes the taking of the entire safe or vault from inside the premises.)

o Robbery (the unlawful taking of property from the care and custody of another person. The robber must have caused or threatened to cause bodily harm to the person being robbed or must have committed an obviously unlawful act that is witnessed by the person being robbed.)

o Theft (the unlawful taking of money, securities or other property. This broad term includes burglary, safe burglary and robbery. Theft also includes the taking of property by stealth [action designed to escape notice]).

o Forgery (is signing the name of another person or organization with the intent to deceive.)

o Custodian (someone who has care or custody of property inside the premises. It includes the insured, the insured’s partners or members, or any employee. It does not include a watchperson or janitor.)

o Messenger (someone who has care and custody of property while it is outside the premises. It can include the insured, a relative of the insured, the insured’s partners or members, or any employee.)

o Watchperson (guard) (someone retained specifically by the insured whose sole duty is to have care and custody of property inside the premises.)

o Employee Benefit Plan (any welfare or pension plan subject to the Employee Retirement Income Security Act Of 1974 (ERISA), such as a 401(k), profit sharing, health, life, or disability insurance plan. Government plans, such as Social Security, are not employee benefit plans.)

o Money (currency, coins, bank notes, travelers checks, register checks and money orders.)



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o Other Property (any tangible property other than money or securities that has value.)

o Securities (instruments or contracts that represent money or property. Checks, drafts, bonds, certificates of deposit, stock certificates, stamps, and credit card receipts are all considered securities.)

o Mysterious disappearance (missing property) o Occurrence (one or more acts by one or more people that results

in a loss) Insuring Agreement – Commercial Crimes Forms (The insured must select the coverages that will apply to the policy. For each insuring agreement selected, a limit of insurance and deductible must be listed on the Declarations. The policy limit and deductible both apply per occurrence. Any insuring agreements the insured does not want must be designated as “Not Covered” on the Declarations page. Each insuring agreement is subject to specific rules and has its own rating plan.)

Includes the following insuring agreements:

o Employee Theft (coverage pays for loss of or damage to money, securities and other property resulting from theft committed by an employee, either acting alone or in collusion with others. The employee does not have to be identified for coverage to apply. No deductible applies to losses sustained by an employee benefit plan.) There is no coverage for:

Any employee who has previously had similar insurance cancelled and not reinstated.

Loss resulting from trading, either in the insured’s name or in a genuine or fictitious account.

Loss resulting from fraudulent or dishonest use of warehouse receipts.

o Forgery Or Alteration (coverage pays for loss from forgery or alteration of checks, drafts, promissory notes, or similar instruments made or drawn by or on the named insured or the insured’s agent. This includes documents that are forged or altered with a mechanically reproduced facsimile signature. If sued for collections on forged or altered instruments the defense expenses are paid in addition to the limit of liability, with no deductible required. Coverage is provided worldwide.)

o Inside The Premises—Theft Of Money And Securities (coverage pays for theft, disappearance or destruction of money and securities while inside the insured premises or a banking premises. If the insured owns the premises or is liable for damage to it, it also covers damage to the interior or exterior of the premises that results from



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theft or attempted theft. Damage to a locked safe, vault, cash register, cash box, or cash drawer that is inside the premises is also covered when the damage results from theft, attempted theft or unlawful entry.)

o Inside The Premises—Robbery Or Safe Burglary Of Other Property (If the insured owns the premises or is liable for damage to it, it also covers damage to the interior or exterior of the premises that results from actual or attempted robbery or safe burglary. Damage to a locked safe or vault that is inside the premises is also covered when the damage results from actual or attempted robbery or safe burglary.) Has two primary coverages:

Loss of other property (not money or securities) while inside the premises from actual or attempted robbery of a custodian.

Loss of other property from a safe or vault inside the premises from actual or attempted safe burglary.

o Outside The Premises provides two types of coverage: Theft, disappearance or destruction of money and securities

while outside the premises and in the care and custody of a messenger or an armored car company.

Loss of other property by actual or attempted robbery while outside the premises and in the care and custody of a messenger or an armored car company.

o Computer Fraud (also called Funds Transfer Fraud) (coverage covers loss of or damage to money, securities and other property due to the use of a computer to fraudulently transfer that property from inside the premises or banking premises to a place or person [other than a messenger] outside the premises. Coverage is provided worldwide. Proof of loss may not be based on an inventory shortage or profit and loss computation.)

o Money Orders And Counterfeit Paper Currency (covers losses that result when the insured accepts invalid money orders or counterfeit paper currency in good faith.)

Exclusions: o Exclusions (Applies To All Crime Coverages)

Theft or dishonest acts committed by the insured, partners or members, whether acting alone or in collusion with others.

Theft or dishonest acts committed by any of the insured’s employees, managers, directors, trustees, or authorized representatives, except as covered under Employee Theft coverage. The exclusion applies whether the person is acting alone or in collusion with others and while actually working for the insured or otherwise.

Seizure or destruction of property by government authority.



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Indirect or consequential losses. Legal expenses, except as provided under Forgery Or

Alteration coverage. Nuclear hazard. War and similar actions.

o Exclusions for Selected Coverages Only (Certain Exclusions Apply Only to the Inside of the Premises—Theft Of Money And Securities, Inside The Premises Robbery Or Safe Burglary Of Other Property, and Outside The Premises coverages.) These coverages exclude loss:

Resulting from accounting or arithmetic errors or omissions. Resulting from giving or surrendering property in an

exchange or purchase. Due to fire (does not apply to safes or vaults or destruction

of money and securities under Inside The Premises—Theft Of Money And Securities coverage.)

Of property contained in any money-operated device, unless it is equip, with a recording instrument.

To motor vehicles, trailers or semi trailers, including attached equipment and accessories.

Of property when it is transferred or surrendered outside the premises or banking premises on the basis of unauthorized instructions or as a result of a threat to cause bodily harm or property damage.

This does not apply to loss of money, securities or other property while outside the premises and in the custody of a messenger if the insured was not aware of a threat at the time the property left the premises.

To the interior or exterior of the premises or to a safe, vault, cash register, cash box, cash drawer, or other property by vandalism or malicious mischief.

Resulting from the insured or anyone acting with the insured’s authority being induced by any dishonest act to voluntarily part with title to or possession of property.

Valuation: o For loss or damage to property other than money or securities the

insurer will pay the lesser of the property’s replacement cost, the amount needed to repair or replace the property or the limit of insurance.

o Losses to money are paid at face value, but loss of a foreign currency may be paid at its face value in that other currency or in the American dollar equivalent determined by the exchange rate on the day the loss was discovered.



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o Losses to securities are paid at their value at the close of business on the day the loss was discovered, but the insurer also has the option of replacing them in kind.

Conditions: o Conditions (Applies To All Crime Coverages):

Theft Or Other Dishonest Act (Coverage for any employee is cancelled immediately upon discovery of any theft or other dishonest act committed [or has been previously committed] by the employee by the named insured, partners, officers, directors, members, or managers.)

Cancellation (The insurance company also reserves the right to cancel coverage for any employee.)

Cancellation Notification (The insured must be notified in writing at least 30 days before the effective date of cancellation.)

Consolidation Or Merger (New employees and additional premises obtained through a consolidation or merger are automatically covered for 90 days. However, the insured is required to provide written notice to the insurer and pay any additional premium required. This condition does not appear in Crime forms written for government entities.)

Limit of Insurance (not cumulative, regardless of how long the insurance remains in force.)

Covered Under More Than One Coverage (If a loss is covered under more than one coverage in the Crime form, the insurer will pay the actual amount of loss or the sum of the limits of the applicable coverages, whichever is less.)

Other Insurance (If other insurance applies to a loss, Crime insurance pays on an excess basis.)

Legal Action (The insured cannot take legal action against the insurer for 90 days after filing the proof of loss. Legal action must be instigated within two years of the date of loss.)

Coverage Territory (The coverage territory includes the United States and its territories and possessions, Puerto Rico and Canada.)

Duties In The Event Of Loss: The insured’s duties in the event of loss include:

Notifying the insurer as soon as possible. Notifying the police if a law may have been broken

(does not apply to Employee Theft or Forgery Or Alteration coverage.)

Submitting to examination under oath at the insurer’s request.



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Providing a sworn proof of loss within 120 days. Cooperating with the insurer in the investigation and

settlement of the claim. o Conditions for Selected Coverages Only (Applies Only to Certain

Coverages) There are separate Crime forms for commercial businesses and government entities. The primary difference is that a separate Common Policy Conditions form is not required for a monoline policy because these conditions are incorporated into the policy. For a CPP, a separate form is required. Other conditions apply only to certain coverages include:

Employee Theft Coverage (Losses that occur outside the coverage territory are covered when the employee is temporarily outside the territory for 90 days or less.)

Forgery Or Alteration Coverage (In addition to the proof of loss, the insured must submit the instrument involved in the loss or an affidavit describing the amount and cause of loss.)

Inside The Premises—Robbery Or Safe Burglary Of Other Property And Outside The Premises Coverages (A $5,000 per occurrence limit applies for loss to precious metals, precious or semi-precious stones, furs, pearls, or other articles that contain these materials.)

Outside The Premises Coverage (The insurer will only pay the amount of loss that cannot be recovered under the insured’s contract with the armored car company and from any insurance available from the armored car company.)

Computer Fraud Coverage (A $5,000 per occurrence limit applies for loss to manuscripts, drawings or records, including the costs of reproducing or reconstructing information in them.)

Endorsements o Funds Transfer Fraud (covers losses resulting from fraudulent

instructions to a financial institution to pay money from an insured’s transfer account. A transfer account is an account maintained at a financial institution that allows money to be transferred electronically, either by phone or in writing. Fraudulent instructions are instructions by someone who is impersonating an insured or an employee to transfer money without the insured’s knowledge or consent.)

o The Extortion—Commercial Entities (pays for loss of money, securities and other property resulting from extortion. Extortion means the surrender of property away from the premises as the result of a threat communicated to the insured to do bodily harm to the insured, an employee or a relative of either who is being held captive.)



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o Lessees of Safe Deposit Boxes (This coverage pays for losses to the insured’s property that is stored in a vault or safe deposit box inside a bank or safe deposit business. Money and securities are covered against theft and/or disappearance while kept in the vault or safe deposit box or from other places at the scheduled premises during the course of deposit or removal from the vault or safe deposit box. Property other than money and securities is covered similarly against the perils of theft, burglary, robbery and vandalism.)

o Securities Deposited With Others (This endorsement is not written to cover securities owned by the policyowner.. . it covers securities belonging to clients in the care, custody or control of the policyowner. . . it is a bailee’s coverage. The securities are covered on the insured’s premises or in transit to and from a named depository.)

o Guests Property (Covers property of guests of the insured either inside the insured premises or held in a safe deposit box inside the insured’s business premises. This coverage further provides defense costs necessitated by a guest’s claim. . . an important endorsement for hotels, motels, hospitals and nursing home facilities.

o Safe Depository (This endorsement provides bailee’s coverage for the property of others. The first insuring agreement offers legal liability coverage for client property located in a vault or safe deposit box or in other places while in the course of deposit or removal from the vault or safe deposit box. The second coverage is for direct damage to the client’s property by robbery, burglary or destruction while in the vault or safe deposit box or other places while in the course of deposit or removal from the vault or safe deposit box.)

Fidelity Bonds (A bond is a guarantee that a specific duty will be discharged, a certain performance maintained or a specific obligation fulfilled. Fidelity bonds guarantee an employee’s honest discharge of duty and are written to protect an insured from dishonest acts by employees. The Employee Dishonesty coverage we discussed earlier provides coverage comparable to that provided by Fidelity bonds. Fidelity bonds are continuous and do not have expiration date, although they may be terminated by the parties to the bond. Like Commercial Crime forms, Fidelity bonds provide a discovery or cut-off period for losses that occurred during the term of the bond, but were not discovered until after its termination.):

o Parties to a Bond Insurance contracts include two parties—the insured and the insurance company while Bonds are contracts between three parties:

Principal (The party who promises to do [or not do] a specific thing. This is the person or company bonded.)



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Surety (The party [often the insurance company] who agrees to be responsible for loss that may result if the principal does not keep his or her promise.)

Obligee (Party to whom the principal makes the promise, and for whose protection the bond is being written.)

o Types of Fidelity Bonds: Name Schedule bonds (cover each employee named on

the policy schedule for the amount listed in the schedule. The limit of liability may be different for different employees on the list.)

Position Schedule bonds (list positions in the company that are covered, rather than the individuals who fill these positions. A new employee hired in a scheduled position is automatically covered.)

Commercial Blanket bonds (cover losses arising from the dishonesty of one or more employees acting separately or together [in collusion]. Neither the employees nor their positions are specifically named. The bond’s limit of liability applies separately to each loss, regardless of the number of employees involved in a single loss.)

Blanket Position bonds (similar to Commercial Blanket bonds in that employees or positions are not specifically listed. However, the bond’s limit applies separately to each employee involved in a loss.)



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Chapter 18 : Workers Compensation Workers Compensation (or Workmen Compensation) (Workers Compensation laws [provides a fair means of handling work-related injuries, including occupational diseases.] gives employees the right to collect from their employers for injury, disability or death that occurs in the course of employment regardless of who is at fault [occupational related health or disorder]. Exclusive Remedy: Employees cannot sue their employers in court to obtain additional compensation.) RULE #1 The Workers Comp laws and coverages across America differ greatly from one another. In most states (but not all) Workers Compensation is required by law for most employments. In some jurisdictions an employer purchases his Workers Compensation coverage from the state and in others from private companies. RULE #2 In almost every situation where two policies could pay Workers Compensation either pays exclusively or is primary.

Method Employers Used to Avoid Liability (Prior to the enactment of Workers Compensation laws workers had to sue his or her employer and prove the employer negligent to be reimbursed for a work-related injury.) Employers proved very successful at avoiding liability through the use of three common law defenses.

o Assumption of Risk (Assumption of risk allowed the employer to deny liability on the basis that the employee knew what the situation was like before he or she was employed and, therefore, assumed all of the risk of injury himself or herself.)

o Contributory Negligence (Contributory negligence was used to deny liability on the basis that, no matter how negligent the employer was, the employee had also been negligent, and therefore the employee should be responsible for the consequences.)



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o Fellow Servant Rule (The fellow servant rule was used to deny liability on the basis that the injury was caused by a fellow employee and, therefore, the employer could not be held liable.)

Exempt Job Classifications (Every state has some exempt classifications, but the majority of the nation’s employees are now covered under Workers Compensation laws. In some states, the hours worked or wages earned determine whether or not an employee is exempt. Benefits may always be voluntarily provided by purchasing Workers Compensation insurance to cover exempt employees.) Although the exemptions are not the same in all states, the following classes of employees are typically exempt:

o Certain farm and agricultural workers. o Charitable organization workers. o Domestic employees and casual laborers. o Newspaper vendors. o Police and fire department employees covered by pension plans o Anyone covered by a Federal Workers Comp Plan

Covered Losses (Workers Compensation laws vary from state to state, but in general they pay benefits in four categories.):

o Disability/Loss Of Income Benefits (compensate employees who are unable to work as the result of a work-related injury. These benefits are intended to replace a portion of lost income.)

o Medical Benefits (pay for the cost of various types of medical services required because of an employment-related injury. Nearly any type of related medical expense is covered without limit amount or duration the expenses will be paid.)

o Survivor/Death Benefits (compensate a surviving spouse, children or other relatives of an employee whose death results from a work related injury. In general survivor benefits usually include a weekly benefit and a stipulated amount for funeral and burial expenses)

o Rehabilitation Benefits (include medical rehabilitation, such as physical therapy designed to improve physical functioning, and vocational rehabilitation, such as retraining for a different occupation. Workers compensation rehabilitation benefits usually pay any reasonably justifiable expenses for these purposes.)

Injuries Compensable Under Worker Compensation Laws Three factors are used to determine if the injury arose in the course of employment:

o Time (important because a compensable injury must occur during the time work is actually being performed for the purposes of employment)

o Place (where the injury occurred.)



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o Circumstances (Must occur during the execution of employment duties.)

Level Of Disability Level Of Disability suffered by an injured worker is categorized into one of four types:

o Permanent total (permanent total disability is one that will affect the worker for the rest of their life without chance of recovery.)

o Permanent partial (permanent partial disability is one that will affect the worker for the rest of their life without chance of recovery, however does not rise to the level of total disability.)

o Temporary total (temporary total disability is one that will affect the worker for a short period of their life with recovery.)

o Temporary partial (temporary partial disability is one that will affect the worker for a short period of their life with recovery.)

Total/Partial (Determining the difference between a total and a partial disability depends on what standard the state uses to determine the degree of disability.) In different areas, the determination is made by deciding first whether the worker is:

o Industrially disabled (refers to the individual’s loss of earnings. Where industrial disability is the standard, the difference between partial and total disability depends on whether the individual is able to earn at least some money by working or has completely lost the ability to work for a living.)

o Medically Disabled (refers to the physical condition that affects functioning. When medical disability is the standard, partial or total disability depends whether the individual has partial physical functioning after the injury or having sustained a complete loss of physical functioning– based on ADL [activities of daily living].)

Compulsory Or Elective (State Workers Compensation laws are either compulsory or elective.):

o Compulsory States (In most states, the law is compulsory, meaning that the employer must accept and comply with all provisions of the law.) Both elective and compulsory states often exclude certain classes of employees, such as farm workers or domestic servants.

o Elective States (If the state law is elective, the employer may choose not to be subject to the law.) Exceptions: Even in elective states, there are certain occupations or groups for which Workers Compensation is compulsory, such as government employees. Both elective and compulsory states often exclude certain classes of employees, such as farm workers or domestic servants.

Fund Requirements/Methods for Workers Compensation insurance (benefits are often extended to employees over long periods of time, it is important that measures be taken to guarantee that the company will have



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the funds to pay benefits required under the law.) There are five basic methods for funding these benefits. Each state requires that employers provide security through at least one of the following methods:

o Insurance Purchased From A Private Insurer (The employer transfers compensation obligations to the insurance company from which the policy was purchased. Then, the insurance company pays benefits required by law.)

o Monopolistic State Funds (Some states have created monopolistic state funds that require employers to purchase Workers Compensation insurance from them. Private insurance companies are not allowed to compete against these funds. To be insured against Workers Compensation claims, the employer must buy coverage from the state fund.)

o Competitive State Funds (Other states have created competitive state funds that give employers a choice between purchasing Workers Compensation insurance from a state fund or a private insurance company. Thus, the state fund competes with private insurance.)

o Self-Insurance (Some employers assume their own Workers Compensation liability through the self-insurance method. If this method is chosen, the employer will set up a fund to pay Workers Compensation claims and file evidence of its existence with the state Workers Compensation authority. The employer must handle benefit costs and claim expenses, as well as medical and legal services.)

o Individual Employers To Form Groups (Many states allow individual employers to form groups to insure the group members’ workers compensation exposure in a particular state. Eligibility requirements vary from state to state.)

Coverage (Workers Compensation and Employers Liability Policy -- Most states that allow private insurance companies to offer coverage use the standardized Workers Compensation And Employers Liability policy filed by the National Council On Compensation Insurance [NCCI].) A complete policy contains an Information Page (similar to the Declarations used with other types of policies) and a policy form that contains the following sections:

o General Section (contains definitions and conditions that apply to the policy as a whole.)

o Part One-Workers Compensation (promises to pay all compensation and other benefits required of the insured by the Workers Compensation law in the state or states where the insured’s business operates. No dollar limit applies, except for those that are a part of the law. Coverage applies to any work-related accident



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occurring during the policy period.) Benefits included fall into four categories:

Medical Expense benefits – no limit on time or dollars Disability Income benefits to replace a percentage of income Death benefits Rehabilitation benefits

o Part Two-Employers Liability (provides coverage to the insured for sums the insured becomes legally obligated to pay under common law because of a work-related injury or occupational disease. A minimum limit of $100,000 per accident applies. There is also a per employee limit for disease and an overall limit for additional claims.)

o Part Three-Other States Insurance (may be used to provide coverage for states that are not specifically listed in the Information Page for Part One coverage. The state must be listed in the Information Page for Other States coverage and the insured must provide notice to the insurer as soon as work begins in a new state.)

o Part Four-Your Duties If Injury Occurs (addresses the insured’s obligations when an injury occurs for which there may be coverage. The insurer must provide medical services required for the injured party, report the injury to the insurer and cooperate with the insurer in the investigation and settlement of the claim.)

o Part Five-Premium (explains how the cost of the policy is determined.)

o Part Six-Conditions (sets forth the various conditions that apply to the policy, such as cancellation procedures, subrogation and the insurer’s right to inspect the insured’s workplace.)

Exclusions The following exclusions apply to the Employers Liability section (Part Two) of the policy:

o Liability assumed under contract. o Punitive damages awarded because a worker was employed in

violation of the law. o Injury to a worker while employed in violation of the law with the

insured’s knowledge. o Obligations imposed by any Workers Compensation, occupational

disease unemployment compensation, or disability benefits law. o Injury intentionally caused or aggravated by the insured. o Injury that occurs outside the U.S., its territories or possessions or

Canada (does not apply to residents of these areas who are temporarily outside these areas).

o Damages arising out of violations of employment practices laws, such as discrimination or harassment.

o Injury that is covered under a Federal Workers Compensation law. o Injury to the master or member of the crew of any vessel.



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o Fines and penalties imposed for violations of federal or state law. o Damages payable under the Migrant And Seasonal Agricultural

Worker Protection Act and other federal laws awarding damages for violation of laws or regulations.

Endorsements (Coverage for certain types of benefits or certain classes of employees may only be provided by endorsement.):

o Federal Longshore And Harbor Workers Compensation Act (Some workers are required to be covered under this act which takes precedence over any state law that may cover the same workers. Under this act, specified benefits must be paid to maritime employees injured while working on navigable waters or shore-site areas of the United States and its territories. Employers whose workers are subject to this act can provide coverage by attaching the Longshore And Harbor Workers Compensation Act Coverage endorsement to the policy.)

o Voluntary Compensation Endorsement (Some types of workers are not covered under a state’s workers compensation laws, such as domestic employees and farm workers. An employer can provide coverage for excluded workers by adding the Voluntary Compensation endorsement to the policy.)

Workers Compensation Laws – Federal: o Federal Employers Liability Act (Awards provided under Federal

Employers Liability Act [FELA] are often more substantial than those provided under state Workers Compensation laws because FELA does not limit an injured employee’s remedies to scheduled benefits.) FELA allows the injured worker or a representative of a deceased worker to sue the employer for negligence and eliminates two of the common types of defenses:

contributory negligence. assumption of risk.

o Jones Act (The Jones Act is a federal law that allows members of ships’ crews to sue their employer/shipowner at common law for injuries caused by the employer/shipowner negligence.)

o Outer Continental Shelf Lands Act (offshore oil rig worker)



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Chapter 19: Boiler and Machinery Boiler and Machinery (also known as Equipment Breakdown coverage) (loss prevention insurance -- Boiler And Machinery insurance can be written as part of a Commercial Package policy or as a stand-alone policy.) Equipment Breakdown Losses (paid on a Replacement Cost basis with the company maintaining the option to repair or replace with like kind and quality). Available Coverages (the businessowner can select the coverages appropriate to his particular business, these will be listed on the policy Dec Sheet. The following coverages have specified limits defined in the policy.) Coverage choices include the following:

Property Damage (for property within the business premises owned by the insured or in his care, custody or control. The Minimum deductible is $250.)

Expediting Expenses (reasonable costs to expedite the repair or replacement of insured property following a covered loss. Typical inside limit of $25,000.)

Business Income and Extra Expense (similar to Commercial Property, however the benefit is triggered by only one peril; equipment breakdown. The deductible is either based upon the loss of time [48 or 72 hours], or it may be a specific dollar amount.)

Spoilage Damage (coverage for damage due by lack of power, light, heat, steam or refrigeration.)

Utility Interruption (if the cause of the loss is due to the breakdown of equipment owned by the utility company this extends business income, extra expense and spoilage coverage.)

Newly Acquired Property (provides automatic coverage for property located in a newly acquired premise for up to 90 days following the acquisition.)

Ordinance or Law (after a loss caused by equipment breakdown this coverage addresses any increased costs of repair or construction required to meet local law or ordinance.)

Brands and Labels (provides coverage for losses related to leased equipment like postage meters or copiers.)



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Conditions Unique to Equipment Breakdown

One Breakdown (if the initial breakdown triggers subsequent breakdowns all breakdowns will be considered as one loss and with only one deductible.)

Suspension (if any covered object is found to be in an unsafe condition, the company can immediately suspend coverage on the equipment in question. Notice must be in writting, but the notice can literally be delivered by the engineer/inspector to the businessowner at the time of the inspection. Reinstatement is contingent upon correction of the condition by the insured, re-inspection by the insurance company and the issuance of an endorsement.)

Defense (the company will either settle the claim directly with the claimant or defend the insured in the lawsuit if a suit is brought against the insured for property in his care, custody or control that is damaged in a loss covered by this policy. Defense costs are paid in addition to any policy limits.)

Boiler And Machinery coverage part (Small Business Boiler And Machinery coverage forms are written for the specific needs of small businesses and do not provide as much coverage as the standard Boiler And Machinery coverage form.) consists of the Common Policy Declarations and the Common Policy Conditions, as well as:

Boiler And Machinery Declarations (identifies the insured and the property to be covered. It contains a schedule that is very important to the definition of coverage. It lists covered objects by the section of the Object Definitions form under which they fall and the applicable coverage. There are also spaces to list the location of covered objects.)

Breakdown includes: o Explosion (other than combustion explosions of steam boilers,

engines or turbines) o Malfunction of pressure or vacuum equipment o Electrical malfunction (including arcing) o Mechanical malfunction (including rupture and bursting)

One or more Boiler And Machinery coverage forms:

o Three coverage forms:

Boiler And Machinery coverage form:

Coverage (pays for direct damage to covered property caused by a covered cause of loss. A covered cause of loss is an accident to an object shown in the Declarations. Coverage applies only while an insured object is actually at the location



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specified in the policy and in use or connected and ready to be used.)

Coverage Extensions The Boiler And Machinery coverage form provides three coverage extensions:

o Expediting Expense (covers the reasonable cost of temporary repairs and expedition, or speeding up, of permanent repairs. This includes the costs of expediting permanent replacement.)

o Automatic Coverage (provides coverage at newly acquired locations for objects of the same type covered under the policy that are in use or connected for use. Coverage is available for 90 days, provided the insured asks the insurance company to cover these objects within the 90 days.)

o Supplementary Payments (provides coverage similar to that found in most Liability contracts for supplementary items such as prejudgment interest and expenses the insured incurs at the insurer’s request.)

Accident Defined (means the sudden and accidental breakdown of an object or a part of the object, resulting in physical damage to the object that necessitates repair or replacement. If an accident causes other accidents, all related accidents will be treated as one accident. All accidents occurring at a single location at the same time by the same cause will be considered to be one accident.) It does not include:

o Depletion, deterioration, corrosion, or erosion o Wear and tear o Leakage at valves, joints, connections, or

fittings o Breakdown of any vacuum tube, gas tube or

brush o Breakdown of any computer or electronic data

processing equipment o Breakdown of any structure or foundation

supporting the object or any of its parts o The functioning of any safety or protective

device



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o Failure as a consequence of cleaning or adjustment

Suspension Provisions (The insurer or any representative of the insurer may immediately suspend coverage whenever an object is found to be in or exposed to a dangerous condition. Suspension applies only to that particular object. The suspension takes effect as soon as written notice is delivered to the insured; once in effect, coverage can only be reinstated by adding an endorsement for that object.)

Exclusions (The exclusions in the Boiler And Machinery coverage form are extensions to those found in other Commercial Property insurance. Loss by fire, explosion and lightning are covered, but only to the extent that they are excluded under other contracts. For instance, other Commercial Property forms exclude explosion of steam boilers, while the Boiler And Machinery coverage form specifically covers this type of explosion.) Other excluded losses include losses caused by:

o Wear and tear o Explosions external to the covered object o Ordinance or law except as may be provided

by the policy o War or nuclear reaction o Lack of power, light, heat, steam, or

refrigeration o Delay in or interruption of business o Indirect losses o Flood o Damage caused by water or other methods

used to extinguish fires o Earthquake o Accidents to objects being tested

Note: Except as may be provided by the policy

o Policy Limits (liability and payment for losses) In

addition to an overall limit of insurance that applies per accident, there are also $25,000 sub limits for these types of expenses or losses:

Expenses:



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Expediting Expense (This coverage was described earlier in the Coverage Extensions section. The sub limit applies only to the extent that the amount of insurance has not been exhausted by payment of loss to covered property.)

Hazardous Substance (Cleanup, repair, replacement, or disposal of property damaged or polluted by a covered loss.)

Ammonia Contamination (Property contaminated by ammonia.)

Water Damage (Water damage as a result of a covered accident to a refrigeration or air conditioning system.)

Covered losses: (The insured can obtain actual cash value coverage, rather than replacement cost coverage, by endorsement, otherwise.) the policy will pay the lesser of:

The limit of insurance The cost to replace The cost to repair The amount actually spent to repair

or replace o Endorsements the following endorsements may

be added:

Extra Expense endorsement (covers the additional expenses incurred by the business to continue operations after a direct loss by a covered peril, including time element coverage.)

Consequential Damage endorsement (covers against loss due to spoilage from lack of power, light, heat, steam, or refrigeration caused by a covered accident, including time element coverage.)

Business Interruption—Actual Loss Sustained endorsement (covers business income losses resulting from an accident to a covered object. Extra expenses incurred



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to reduce or prevent the interruption are also covered.)

Business Interruption—Valued Coverage endorsement (similar to Actual Loss Sustained, except it pays a specified amount for each day that the business interruption continues.)

Small Business Boiler And Machinery coverage form: o Coverage Extensions (Many of the provisions

found on the Small Business Boiler And Machinery coverage form are the same as those found on the general Boiler And Machinery form. The differences are found in the coverage extensions, limits of insurance and object definitions. The Small Business form has the same type of coverage for covered property and the same coverage extensions for expediting expenses, defense of suits and supplementary payments as the general form.) There are two differences in the coverage extensions:

It does not include the Automatic Coverage extension for newly acquired locations.

It always includes Business Interruption and Extra Expense coverage for boilers and pressure vessels. These coverages also apply to air conditioning and air compressing units, but only if this coverage is indicated in the Declarations. (Business Interruption and Extra Expense coverage may be added to the general form by endorsement.) Because Business Interruption and Extra Expense coverage is automatically provided, the Small Business form contains additional exclusions to limit coverage:

Interruption of business that could not or would not have been carried on if the accident had not occurred.

Failure to make reasonable efforts to resume business operations.

Loss resulting from cancellation or suspension of a contract that results



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in business being suspended beyond the time it would have resumed if the contract had remained in force.

o Limits Of Liability (The Small Business Boiler And Machinery coverage form provides a single limit of coverage per accident. Within this limit, it provides up to $25,000 of average for expediting expenses and up to $25,000 of coverage for water damage, just as we found on the general Boiler And Machinery coverage form. Coverage for Business Interruption and Extra Expense insurance is equal to 25% of the limit of insurance. This is provided as an additional amount of insurance.)

o Object Definitions (The Small Business Boiler And Machinery coverage form does not require attachment of an Object Definitions form because the definitions of covered objects are included in the form. In the Small Business Boiler And Machinery coverage form, there are two categories of objects—boiler and pressure vessels and air conditioning units.)

Small Business Boiler And Machinery Broad form:

o Coverage Extensions (This form is similar to the other Small Business form, except that it provides broader coverages and some additional coverages. Many of the provisions are the same as those found on the general form or the other Small Business form. There are differences in the areas of coverage extensions, limits of insurance and object definitions.)

o Optional Coverage for Spoilage (Business Interruption and Extra Expense coverage includes an optional coverage for spoilage of perishable goods following a covered accident. It applies when the spoilage results from lack of power, light, heat, steam or refrigeration caused by an accident to an insured object or to a transformer or electrical apparatus located on or within 500 feet of the location, and owned by a public utility company that uses it to supply power to that location.)

o Limit (The Small Business Broad form provides a single limit of coverage per accident. Within this



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limit, it provides the same four sublimits for miscellaneous coverages that apply in the general Boiler And Machinery form.)

o Object Definitions included in the Broad form. Additional objects that may be insured include:

Boilers Fired or unfired vessels subject to vacuum

or internal pressure other than weight of contents.

Refrigerating or air conditioning systems Piping and accessory equipment. Compressors, pumps, engines, turbines,

motors, generators, gear sets, fans, or blowers, including shafts and items on the shaft.

Transformers or electrical distribution. Production machinery used in

manufacturing. Mechanical or electrical equipment used to

maintain or service the premises, but not used for processing or manufacturing.

o One or more Object Definitions Forms from following list:

Object Definitions Forms (forms define the items insured under the Boiler And Machinery policy. Each of these forms contain precise definitions as to what the object means and what it does not mean. Note: The object definitions are written into the Small Business Boiler and Machinery coverage forms, so they do not require a separate Object Definitions form.) One or more of these forms must be attached to the Boiler And Machinery coverage form to complete the contract:

Pressure And Refrigeration Objects form (Includes boilers, fired vessels, electric steam generators, steam piping and valves, unfired vessels, refrigerating and air conditioning vessels and piping, small compressing and refrigerating units, and air conditioning units.)

Mechanical Objects form (Includes engines, pumps, compressors, fans, blowers, gear wheels, enclosed gear sets, wheels and shafting, and deep well pumps.)

Electrical Objects form (Includes rotating electrical machines, transformers, and induction feeder regulators.)

Turbine Objects form (Includes turbines and other parts of a gas turbine unit, components on any shaft of a



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driving turbine, and mechanical or hydraulic governing mechanisms.)

Comprehensive Coverage-Excluding Production Machinery (Defines all boiler and machinery objects that can be covered, except for production machinery.)

Comprehensive Coverage-Including Production Machinery (Defines all boiler and machinery objects that can be covered, including production machinery.)

o Optional endorsements

Actual Cash Value (used to diminish the settlement value from Replacement Costs to ACV [thus reducing the premium] by this endorsement.)

Business Income-Report of Value (this endorsement is used to report actual [for the last 12 months] and projected earnings for the next 12 months for insurance purposes.)



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Chapter 20 : Misc. Commercial Miscellaneous Commercial Insurance

Farmers (Ranch) Insurance (Farmers’ businesses and homes are often at the same location, so they need insurance that will cover both their personal and business exposures to loss. The Farm coverage part, which can be written as a mono-line policy or included in the CPP, includes several Farm Property coverage forms that cover both the personal and business property of the farmer and a Farm Liability coverage form for the personal and business liability exposures of the farmer. Covers both scheduled and unscheduled personal property.):

o Farm Property Coverage Forms (The Farm Property coverage forms cover direct physical loss to a variety of properties. The insured can select any combination of three separate forms: The Farm Dwellings, Appurtenant Structures And Household Personal Property coverage form are similar to Section I of the Homeowners policy. Property insured under the Farm Property and Farm Structures forms are also covered for collision that results in: Damage to covered farm machinery or other farm personal property; and Death of covered livestock.) It contains the following coverages:

Coverage A—Dwellings (a coverage extension for Coverages A, B and C allows limited coverage for trees, plants, shrubs, or lawns within 250 feet of the covered residence, but only against loss by specified perils.)

Coverage B—Other Private Structures Appurtenant To Dwellings (a coverage extension for Coverages A, B and C allows limited coverage for trees, plants, shrubs, or lawns within 250 feet of the covered residence, but only against loss by specified perils.)

Coverage C—Household Personal Property (a coverage extension for Coverages A, B and C allows limited coverage for trees, plants, shrubs, or lawns within 250 feet of the covered residence, but only against loss by specified perils.)

Coverage D—Loss Of Use (includes additional living expenses and fair rental value -- a limit of $250 per occurrence for loss or damage to outdoor radio and TV



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antennas and satellite dishes – growing crops, plants, shrubs and lawns are excluded.)

Coverage E—Scheduled Farm Personal Property (covers property for the limit shown in the Declarations. Examples of property that can be covered under Coverage E include grain, farm products, poultry, livestock, machinery, and vehicles and equipment incidental to farm use.) Some 18 classes of farm personal property can be insured on a scheduled basis under Coverage E. Some of the more important include:

• hay • grain • vehicles • equipment and supplies • farm products and machinery • livestock and poultry • portable structures and buildings

Coverage F—Unscheduled Farm Personal Property (covers farm personal property on a blanket basis both on and off the insured premises. The Barns, Outbuildings And Other Farm Structures coverage form covers barns, silos, fences, radio equipment, and other farm buildings and structures that are not dwellings.)

Coverage G ----Farm Buildings and Structures (covers farm buildings and structures (other than dwellings under a single blanket limit –may be written as either ACV or replacement cost basis)

Cause of Loss o The Farm Property—Causes Of Loss form (a separate document

that lists the perils property is insured against. The Declarations indicates what level of coverage the insured has selected for each form. The insured may obtain coverage against earthquake by Causes Of Loss form.) This form offers three separate levels of coverage within the same form:

Covered Causes Of Loss—Basic section Perils covered under this form include:

Fire Lightning Windstorm or hail Explosion Riot or civil commotion Aircraft Earthquake or flood loss to livestock



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Vehicles Smoke Vandalism Theft Volcanic action Sinkhole collapse

Broad The Covered Causes Of Loss—Broad section (adds additional perils.) Some that are unique to the farm risk include:

Electrocution of covered livestock. Attacks on covered livestock by dogs or wild animals. Drowning of covered livestock. Accidents involving loading or unloading. Accidental shooting of covered livestock.

Covered Causes Of Loss—Special section (provides open peril coverage.) Among the excluded losses are:

Dishonest or criminal acts. Pollutants or contaminants. Transfer of property due to unauthorized instructions. Voluntary parting with property. Failure to save and preserve property from loss.

o Definitions, Conditions And Additional Coverages (applicable to the three Property forms are contained in a separate form. They are essentially the same as those you studied in connection with other Property insurance policies.) Additional Coverages built into the Farm Property Coverage form:

Debris removal Reasonable repairs Removal to protect from a covered peril Fire Department Service charge Removal of fallen trees Credit cards and fund transfer cards Forgery and counterfeit money Lost information in farm business records (limit $2000) Pollutant clean-up and removal (limit $10,000)

o Optional Coverages (Most of the options available under the Homeowners program are available to the Farm Property Coverage owner. On the farm business portion of the coverage, there is a form of business income and extra expense coverage known as Disruption of Farming Operations coverage.)



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o Additional Forms (actually covered under Inland Marine) (specialized coverage forms outside of the Farm Property coverage part are available.):

Mobile Agricultural Machinery And Equipment coverage (covers mobile agricultural equipment and machinery separately from other property.)

Livestock coverage (used to insure livestock separately)

Farm Liability coverage form provides the following coverages for liability arising out of farming operations or personal activities:

o Coverage H—Bodily Injury And Property Damage Liability o Coverage I—Personal And Advertising Injury Liability o Coverage J—Medical Payments o Exclusions (similar to those found in other Liability policies.) There is

no coverage for losses arising out of: Pollutants Injury to farm employees. Motor vehicles, except as specifically described in the policy. The insured’s performance of or failure to perform custom

farming operations for others. The insured’s own products. Aircraft spraying.

o Definitions, Conditions And Additional Coverages (They are essentially the same as those you studied in connection with other Property insurance policies.)

Aviation Insurance (Insurance coverages for aircraft are similar to those available for automobile exposures. The most significant differences between aircraft and automobile insurance are the higher dollar exposure to loss and the high degree of care required by the operator of the aircraft.):

Coverages -- The two basic Aviation coverages: o Aviation Physical Damage coverage,(also called Hull insurance, is

similar to Comprehensive and Collision coverages provided by auto insurance.) It covers the complete aircraft, including its airframe, engines, controls, and electronic navigation and communications equipment. (The Declarations indicate what coverage applies and any special restrictions or deductibles.) It does not cover personal effects. Either a fixed dollar or a “percentage of the loss” deductible usually applies. Coverage can be provided while the aircraft is: In the air or on the ground. On the ground only. Not in motion under its own power.

o Aviation Liability insurance for owners of aircraft includes coverage for: Bodily injury liability to persons other than passengers.



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Bodily injury to passengers. Property damage liability. Medical payments (payable for injuries to passengers,

regardless of whether the insured is liable for their injuries.) Bonds

Parties to a Bond Insurance contracts include two parties—the insured and the insurance company while Bonds are contracts between three parties:

o Principal (The party who promises to do [or not do] a specific thing. This is the person or company bonded.)

o Surety (The party [often the insurance company] who agrees to be responsible for loss that may result if the principal does not keep his or her promise.)

o Obligee (Party to whom the principal makes the promise, and for whose protection the bond is being written.)

Types of Bonds:

o Fidelity Bonds (A bond is a guarantee that a specific duty will be discharged, a certain performance maintained or a specific obligation fulfilled. Fidelity bonds guarantee an employee’s honest discharge of duty and are written to protect an insured from dishonest acts by employees. The Employee Dishonesty coverage we discussed earlier provides coverage comparable to that provided by Fidelity bonds. Fidelity bonds are continuous and do not have expiration dates, although they may be terminated by the parties to the bond. Like Commercial Crime forms, Fidelity bonds provide a discovery or cut-off period for losses that occurred during the term of the bond, but were not discovered until after its termination.)

Types of Fidelity Bonds:

Name Schedule bonds (cover each employee named on the policy schedule for the amount listed in the schedule. The limit of liability may be different for different employees on the list.)

Position Schedule bonds (list positions in the company that are covered, rather than the individuals who fill these positions. A new employee hired in a scheduled position is automatically covered.)

Commercial Blanket bonds (cover losses arising from the dishonesty of one or more employees acting separately or together [in collusion]. Neither the employees nor their positions are specifically named. The bond’s limit of liability applies separately to each loss, regardless of the number of employees involved in a single loss.)

Blanket Position bonds (similar to Commercial Blanket bonds in that employees or positions are not specifically listed. However, the bond’s limit applies separately to each employee involved in a loss.)



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o Surety bonds (also called Commercial Bonds) (major differences between Fidelity and Surety bonding lies in the face that, in Fidelity bonding, it is the obligee (the employer) who seeks and pays for the bond. The principal (the employee) often does not even know the bond exists. With Surety bonds, on the other hand, the principal is always the party that both arranges and pays for the bond for the benefit of the obligee.):

Guarantees that:

someone will faithfully perform whatever he or she agrees to do, or;

someone will make a payment as agreed upon by that person and another party.

Indemnity Agreement (submitted with the principal’s application. The indemnity agreement indemnifies the surety for any loss sustained prior to a bond being issued by the principal. In the case where the principal default the surety company will indemnify the obligee and then attempt to collect from the principal.)

Collateral Security (in some cases the surety may require that the principal deposit money, called collateral security, to protect the surety against possible loss.)

Other names of these types of bonds include: Mortgage Broker Bonds, Auto Dealer (MVD) Bonds, Medicare (DMEPOS) Bonds, Contractor License Bonds, Sales Tax Bonds to name but a few, there are hundreds of different types of commercial surety bonds.

o Contract Bonds (guarantee the fulfillment of contractual obligations.) Common types of Contract bonds are:

Bid bonds (Guarantee that if a contractor’s bid is accepted, the contractor will enter into a contract and provide the required Performance bond.)

Performance bonds (Guarantee that jobs will be completed by the contractor according to contract specifications.)

Payment bonds (Guarantee that bills for labor and materials will be paid by the contractor as they are due. These are sometimes called Labor And Materials bonds, and are frequently included as part of a Performance bond.)

Supply bonds (Guarantee that a supplier will furnish supplies, products or equipment at an agreed-upon price and time.)

Completion bonds (Guarantee that when contractors borrow money to fund construction projects, the project will be carried out and the work will be delivered free and clear of liens or encumbrances.) Site Improvement Bond: Ensures that a contractor makes proper improvements to existing structures, as per existing building codes. These bonds also guarantee that public property will receive improvements in accordance with applicable governmental regulation.

Subdivision Bond: These bonds ensure that improvements to a subdivision property are completed as specified in a contract. Local authorities typically mandate these bonds. They are similar



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to site improvement bonds, except that subdivision bonds are for new structures, while site improvement bonds govern existing structures.

o Judicial Bonds (guarantee that the principal will fulfill certain obligator set forth by law.) There are two classes of judicial bonds:

Fiduciary bonds (also known as Probate Bonds or Executor Bonds) (commonly used to bond guardians, administrators, trustees, and executors, all of whom are fiduciaries, or persons appointed by a court of law to manage the property of others.)

Court bonds (used to settle legal arguments that do not involve monetary damages. Their primary purpose is to protect obligees against loss in case principals are not able to prove that they are legally entitled to the legal remedy they sought against the obligees.) (includes Appeal Bonds and Guardianship Bonds or Custodian Bonds)

o Miscellaneous Types of Bonds:

Public Official bonds ([required by law] guarantee that public officials will handle public money correctly and otherwise perform their duties faithfully and honestly.)

License And Permit bonds (sometimes required in connection with the issuance of licenses by government agencies. They guarantee that the person who posts the bond will comply with all applicable laws pertaining to their activities.)



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Chapter 21 : Alabama Law

Agent (producer): May be a person, firm or corporation that holds a valid “resident producer license” for one or more lines of insurance in the state of Alabama. An agent may be further classified as one of the following:

Captive Agent: works only for the company and represents the “company's best interest” (must be licensed)

Broker: Represents the “customer’s best interest” and is appointed to sell for many insurance companies (must be licensed)

Solicitor: finds prospects for agents/brokers, but does not sell insurance (must be licensed)

Consultant: Advises prospects of insurance products and charges fees (may or may not be licensed)

Producer License Requirements:

Temporary Producer License : Temporary insurance license may be issued for a period of 6 months if individual meets one of the following circumstances:

o Company Sponsored: the Insurance Commissioner will allow a temporary license to be given to an individual as long as:

individual meets all the requirements to obtain a resident license with the exception of taking the state exam

the individual is “training under” (“job shadowing”) an actively licensed producer/insurance company.

o Death, disability or military service: the Insurance Commissioner may issue a temporary license to the individual’s spouse, personal representative, or a designee to maintain the business/provide service to clients.

Resident Producer License: Must pay all required fees and meet CE training requirements every 2 years and:

o New Producer Requirements include:

Must be at least 18 years old



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Not have committed a felony (a felony may be grounds for denial, suspension or revocation of a license)

Complete a state approved 40-hour pre-licensing course (online or classroom instruction)

Pass the required state exam (If an individual fails 2 attempts on a given pre-license exam, they must wait at least 3 months to attempt the test again…follow the instructions on page 4 and you will pass the state exam on your first attempt!!!!!!!!!)

o Non- Resident Producer License (to sell across the state line) must: Prove that their current license in their home state is in

good standing Submit a Uniform Application and be approved by the

Alabama Department of Insurance.

o Producers Transferring to Alabama must:

Prove that their current license in their home state is in good standing

Surrender their home state license and apply to become a resident producer in Alabama within 90 days

Note:

1. If a transferring agent fails to apply within 90 days, he may be required to take the Alabama State Exam or the Pre-Licensing Course AND the State Exam

2. An applicant who fails two examinations for the same line of authority must wait 3 months to take another examination for that line of authority.

Producer License is for Life (Unless revoked or suspended): Once licensed; will remain in effect as long as all required fees are paid and the continuing education requirements are met. Continuing Education Requirements: An agent (producer) must complete a minimum of 24 hours (including 3 hours of Ethics) of approved continuing education courses every two years for license renewal. A maximum of 24 CE credits may be carried over to next renewal period. Note:

1. Agents that are at least 60 years old and have been a licensed agent in the state of Alabama continuously for 15 years are exempt from these CE Requirements.

2. If the Commissioner denies a request for an extension to comply with the continuing education requirements, the licensee must complete the continuing education requirements within 30 days after being notified of the denial.



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Forbidden Practices (If you take part in one or more of the following activities you may be fined and/or have your producer license revoked, suspended, or denied)

Control business - prohibited from selling only to friends, family & business associates – must sell insurance to general public.

Split Commissions - prohibited from splitting commissions with non-licensed people.

Rebating - prohibited from paying customer a part of commission. Twisting - prohibited from replacing a policy with a lower grade policy.

(Making misleading or incomplete comparisons to induce a policyholder to exchange an insurance policy).

Churning - prohibited from replacing a policy with “like policy” just to generate a commission.

Legal Compliance (miscellaneous) o Not complying with a child support order o Not paying state income taxes o Violating the insurance laws, rules, regulations o Committing unfair trade practices o Committing a felony o Misrepresentation – including, but not limited to:

An agent must know their products in order to sell them. Lying on an application Intentionally misrepresenting the terms and conditions of a

insurance policy

o Fraud – including, but not limited to:

Receive a license through fraud Misuse of funds Forgery Cheating on a state exam

Note: If an agent has an administrative action taken against him by another state’s Insurance Department or is being criminally prosecuted in any jurisdiction, the agent must report this to the Commissioner within 30 days of the initial retrial hearing. Keeping Records: Any and all records pertaining to insurance must be kept for at least three years. Status Changes: If an agent changes any personal information (legal name, alias, assumed name, change of address), it must be reported to the Insurance Commissioner within 30 days of the change or the agent will be required to pay a penalty of $50.



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Insurance Commissioner

Appointed by the Governor and serves a term of office concurrent with the Governor

May not hold any other public office May not be a member of any political committee Powers of the Commissioner

o Enforces the provisions of the insurance law. o Conducts examinations of insurance companies. (this includes

approval of insurance products and insurance companies) o Supervises and administers the insurance department.

Investigations and Hearings o The Commissioner may examine/investigate all documents pertaining

to the insurance business of any of the following: Persons involved in promoting and/or forming a domestic

company Persons with contracts giving them the right to control an

insurance company Persons acting as producing agents

o If any person/party is distressed by the Insurance Commissioner’s actions or rulings they may make a written demand for a hearing to address the issue(s). The hearing on the complaint is required within 30 days of the complaint.

Binders: A binder is not valid beyond the issuance of the policy for which it was given or beyond 90 days, whichever is shorter. Adjusters:

An adjuster is the person who investigates and negotiates the settlement of claims arising under insurance contracts.

To be licensed as an adjuster, an applicant must be 19 years old when making the application.

An adjuster must keep the usual and customary records pertaining to transactions under the license for at least one year.

A surplus line broker must file a bond in the amount of $50,000. The Insurance Guaranty Association is obligated to pay any covered claim that is over $100 and less than $150,000.



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Workers Compensation:

The workers compensation laws are mandatory for employers who employ five or more covered employees in any one business.

For an injury producing temporary total disability, the workers compensation benefit is 66 2/3% of the employee’s average weekly earnings at the time of the injury.

Workers compensation benefits for temporary partial disability will be paid for a maximum of 300 weeks.

If an employee dies as a result of a work-related accident or occupational disease, the employer must pay burial expenses of up to $3,000.

Industrial Fire:

The face amount of insurance provided by an industrial fire policy covering buildings under the same ownership may not exceed $7,500 for a weekly policy.

For a monthly industrial fire policy, the maximum face amount covering a building or dwelling is $40,000.

For a monthly industrial fire policy, the maximum face amount covering contents is $20,000

Premiums for an industrial fire policy may be collected for no more than 12 months in advance.

Weekly or monthly premium payment basis may be used with an industrial fire policy.

A notice of cancellation of an automobile insurance policy for nonpayment of premium must be mailed or delivered to the named insured at least 10 days before the effective date of cancellation. Uninsured/underinsured motorist coverage is not required, but will be automatically included unless the insured rejects it in writing. The required coverage limits under Alabama’s mandatory automobile liability insurance law are $25,000/$50,000/$25,000. Operating a motor vehicle that is not covered by a liability insurance policy as required by law is a Class C misdemeanor. A premium reduction for an insured who is 55 or older and who completes an approved motor vehicle accident prevention course is effective for 3 years after the insured completes the course.



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Bail/bonds:

A defendant cannot be admitted to bail if they are charged with an offense punishable by death and the court believes he or she is guilty.

If the offense charged in the indictment is a misdemeanor, the defendant must be discharged on giving sufficient bail, but the amount of bail must be at least $50.

Every person engaged in the business of making and charging bail bonds (other than in Cullman County) must furnish a bond in the amount of $25,000.

The essence of all undertakings of bail is the appearance of the defendant at court.

An order granting authorization to become a professional surety on bail must be reissued annually by the presiding circuit judge of the county in which the company desires to execute bail or appearance bonds.

Miscellaneous:

When an accident results in an employee’s death within three years of the accident and the employee has one dependent, that dependant will receive compensation equal to 50% of the deceased’s average weekly earnings during dependency.

An injured employee must give the employer written notice of an accident within 5 Days.

Licensed producers are allowed to collect a collection fee on unpaid balances for premiums up to 1 ½% per month on unpaid balance.

The discount for premiums paid 12 months in advance for an industrial fire policy cannot exceed 10%.

The workers compensation laws are not mandatory for an employer who is a:

o farm laborer. o person whose employment is casual and not in the usual course of

the employer’s business. o domestic employee.

P&C Part 1

© Copyright 2002-2011.

- Bradley Enterprises, 2608 Newby Rd., Huntsville, AL 35805 - Visit us at www.beagent.us or www.aaonlineclasses.com

P&C 1 - Page 1

1. A hazard is A. the chance of loss B. the uncertainty about whether or not a loss might occur C. anything that increases in the possibility that a loss might occur D. the cause of loss

2. Insurance is used to A. eliminate risk by accumulating funds from enough individuals so the risk of loss no

longer exists. B. reduce risk by transferring funds from individuals posing little moral, morale or

physical hazard to those who pose greater hazards. C. retain risk through the law of large numbers. D. transfer risk from a person, business or organization to an insurance company that

agrees to pay for losses in exchange for a premium. 3. What type of insurance company considers the policyholder as an owner, with the rights

to vote and share in company profits? A. stock company. B. reciprocal company. C. Lloyd’s Association. D. mutual company.

4. Sue Smith’s home is insured by ABC Insurance Company. Last year she made the final

mortgage payment to XYZ Mortgage Company. Sue is considering selling her home to her niece, Dee. Which of the following has an insurable interest in the home? A. ABC Insurance Company B. Sue Smith C. XYZ Mortgage Company D. Dee Smith

5. Which of the following is NOT an element of insurability?

A. Loss must be calculable B. Risk of loss is a speculative risk C. Risk of loss must represent a financial hardship D. Cost of insurance must be affordable

6. The principle that states that an insured should be restored to the same financial position

after a loss as before is known as A. insurability. B. adhesion. C. subrogation. D. indemnity.

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7. What section of an insurance policy personalizes the policy as to who and what are

insured? A. Insuring Agreements B. Conditions

C. Declarations D. Exclusions

8. An insurance policy is prepared by the insurance company, with little or no input from the

insured. This is an example of a/an A. unilateral contract. B. personal contract.

C. adhesion contract. D. contract of utmost good faith. 9. An individual who owns and lives in a condominium can obtain broad coverage for

personal property under which Homeowners form? A. HO-2 B. HO-3 C. HO-4 D. HO-6

10. The purpose of Fair Credit Reporting Act is

A. to allow the use of installment payments for insurance premiums B. to limit the number of outside sources an underwriter may use when evaluating a risk C. to give the consumer recourse if insurance is denied on the basis of a credit report D. to prevent insurers from using credit reports to evaluate risks

11. Of the following which is a liability loss?

A. A fire destroys the insured’s building. B. As a result of a fire, the insured’s business is closed while rebuilding takes place. The

insured loses three months’ of income. C. A fire damages the insured’s building. While firefighters managed to save part of the

inventory from the fire, some of it was damaged by the chemicals used to extinguish the flames.

D. A fire that was caused by the insured’s negligence burns a neighboring building. The owner of the building sues the insured.

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12. Which of the following methods involves modifying the premium based on the insured’s loss experience over a specified period of time? A. Merit rating B. Experience rating C. Manual rating D. Judgment rating

13. Flood insurance coverage is primarily provided by A. private insurance companies. B. state-run programs. C. surplus lines insurers. D. a federal government program. 14. Which of the following businesses operations would be eligible for a Businessowners

policy? A. Big Time Bank & Trust B. Kids ‘R’ Us Amusement Park

C. Trader Vic’s Bar And Grill D. Spry Funeral Home

15. Which of the following types of benefits is generally not provided by a state’s workers

compensation law? A. Rehabilitation B. Disability C. Medical D. Pain and suffering

16. Which of the following describes an insurance company that is doing business in a state

in addition to the one where it is incorporated? A. Domestic B. Foreign C. Alien D. Non admitted

17. The main purpose of a binder is to A. guarantee that an insurance policy will be issued provided the insured has made no

misrepresentations on the application. B. provide temporary protection for the insured between the time the application is made

and the policy is issued or the binder expires. C. provide the insurance company with the information about the insured required to

decide whether or not to issue the policy. D. eliminate the need for the policy to be countersigned when it is issued.

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18. Agent Bradley is under contract with the ABC Insurance Company to represent and sell

insurance only for ABC. This is an example of what type of agency system? A. Direct writer B. Independent C. Direct response D. Exclusive/captive

19. The type of insurance policy that insures against all risks of loss that are not specifically

excluded by the policy is a/an A. named peril policy B. specified peril policy C. open peril policy D. Binder policy 20. In a particular state, if an insurance company must file policy forms and rates with the

state insurance department and wait for official approval before using the new forms and rates, the state would be referred to as: A. use and file state B. prior approval state C. file and use state D. open competition state

21. Based on the Nationwide Definition, imports and exports are

A. eligible for Personal Inland Marine insurance. B. eligible for Commercial Inland Marine insurance. C. not eligible for Marine insurance. D. eligible for Ocean Marine insurance.

22. Which of the following Surety bonds guarantees that bills for labor and materials will be

paid by the contractor as they are due? A. Supply bond B. Bid bond C. Performance bond D. Payment bond

23. Which of the following statements describes actual cash value?

A. Market value minus depreciation B. Replacement cost minus depreciation C. Agreed amount D. Cost to repair or replace

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24. The condition that provides a means to settle the amount of a loss when the insured and

the insurance company cannot agree is the A. discovery period condition. B. appraisal condition. C. assignment condition. D. subrogation condition.

25. An insured purchased new furniture for $5,000. At the time of a fire loss, it had

depreciated $1,000. The same furniture will cost $6,000 to replace. What is the actual cash value of the destroyed furniture? A. $5,000 B. $6,000 C. $7,000 D. $8,000

26. Of the following which can be insured under an unendorsed Homeowners policy? A. Farm B. Mobile home C. Private residence in which the owner-occupant also maintains an office for her

accounting business D. Dwelling that the owner rents to his cousin 27. The main purpose of the Business Income coverage forms is to reimburse the insured for A. damage to accounts receivable records. B. loss of income resulting from property damage at the insured’s property. C. the costs of debris removal following loss from a covered peril. D. loss due to employees’ work-related injuries. 28. Coverage for sums an employer becomes legally obligated to pay under common law as

a result of a work-related injury is provided by A. Part One—Workers Compensation section of the Workers Comp policy. B. Part Two—Employers Liability section of the Workers Comp policy. C. the Commercial General Liability policy. D. the Businessowners policy. 29. Of the following which Homeowners form provides open peril coverage on the dwelling

and broad coverage on personal property is the A. HO-2. B. HO-3. C. HO-4. D. HO-6.

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30. Which one of the following coverage extensions is available in the Building And Personal

Property coverage form? A. Monthly limit of indemnity B. Business personal property C. Property off-premises D. Animals 31. Of the following which losses to cover equipment would be covered under the Equipment

Breakdown Protection coverage form?

A. Damage that occurs while the equipment is undergoing a pressure test B. Damage from an explosion caused by the centrifugal force of moving parts C. Damage caused by fire D. Damage resulting from a windstorm

32. In a PURE contributory negligence state, when an individual is found to have contributed

to their own loss in any way, the other party A. may be held liable only in the case of vicarious liability. B. may not be held liable. C. may be held liable, but to a reduced extent. D. may be held liable for full damages despite the other party’s negligence. 33. Which of the following would NOT generally be included in the Supplementary Payments

portion of a Liability policy? A. Loss of earnings B. First aid to others at the time of an accident C. Expenses the insured incurs at the company’s request as part of an investigation or

defense D. Damage to property owned by the insured 34. According to the cancellation condition in the Common Policy Conditions form, if the

insurance company is canceling a Commercial Package policy for nonpayment of premium, the insured must be given at least _______ days’ notice of cancellation.

A. 10 B. 14 C. 30 D. 60

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35. Which of the following coverages is not included in an unendorsed Dwelling policy? A. Dwelling B. Liability C. Other Structures D. Personal Property 36. Of the following coverages which includes Trailer Interchange coverage? A. Business Auto coverage form. B. Garage coverage form. C. Truckers coverage form and Motor Carrier coverage form. D. Personal Auto policy. 37. Open peril coverage for either the dwelling or personal property is provided by the A. HO-2 B. HO-3 C. HO-4 D. HO-5 38. Commercial General Liability policy includes a separate Aggregate Limit which applies to

the A. owners and contractors protective hazard B. products-completed operations hazard C. premises and operations hazard D. contractual liability hazard 39. Under the Personal Inland Marine form which of the following is used to provide open

peril coverage on a blanket basis for personal property? A. Floater form B. Personal Effects form C. Personal Property form D. Personal Articles form 40. The insured’s home is covered by a DP-3. Two years ago, the insured bought the home

for $68,000. Today, its replacement value is $70,000. How much Coverage A does the insured need to qualify for replacement cost coverage? A. $70,000 B. $52,400 C. $56,000 D. $59,100

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41. Which of the following coverages is excluded by a Dwelling policy? A. Coin collection B. Improvements, alterations or additions made by an insured at his or her own expense C. Detached garage on the insured’s premises D. Rent an insured was unable to collect because rental property was damaged 42. Of the following lines of insurance which CANNOT be included in the Commercial

Package policy? A. Crime B. Boiler And Machinery C. Ocean Marine D. Inland Marine 43. Which one of these Commercial Inland Marine forms CANNOT be included in the

Commercial Inland Marine coverage part of the Commercial Package policy? A. Commercial Articles coverage form B. Valuable Papers And Records coverage form C. Signs coverage form D. Parcel Post policy 44. Coverage provided by the Extra Expense coverage form is A. additional money to pay for property damage losses at a covered location. B. coverage that will permit the insured to continue in business without interruption

following a property damage loss. C. payment for unforeseen expenses an insured may incur while the business is shut

down following a property loss. D. extra money for an insured whose accounts receivable records have been damaged. 45. Regarding the Businessowners policy, the policy A. gives the insured great flexibility in picking coverages that can be included in the

policy. B. provides only property coverage C. can be written for almost any commercial insured. D. provides a prepackaged policy property and liability coverage for certain types of

small businesses 46. Glass damage and theft of money and securities are Optional coverages for employee

dishonesty included in A. the Special Businessowners Property form. B. the Standard Businessowners Property form. C. both Businessowners Property forms. D. neither of the Businessowners Property forms

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47. The type of Ocean Marine insurance which provides physical damage coverage for the ship while it is in transit?

A. Cargo B. Hull C. Freight D. Protection And Indemnity 48. The party to a Surety bond who promises to do or not do a specific thing is the A. obligee B. surety C. custodian D. principal 49. Of the following perils which is covered by the HO-2 and HO-3? A. Loss due to power interruption that occurs off the premises B. Sudden and accidental rupture of a heating system C. Flood D. War 50. Liability assumed under the Commercial General Liability coverage form is A. always excluded. B. covered, except for contracts specifically defined as insured. C. covered, except for property leases. D. excluded, except for contracts specifically defined as insured. 51. Identify the individual that would be considered an insured for Liability coverage under

the Personal Auto policy? A. The named insured’s neighbor while taking the named insured for a drive in the

neighbor’s new car B. The named insured’s cousin who, while visiting from another state, drives a car the

named insured borrows from a neighbor C. The named insured’s son, who lives with the insured, while driving a neighbor’s car D. The named insured’s neighbor, who borrows the named insured’s car without

permission 52. With a pure no-fault plan each party to an auto accident A. has the right to seek pain and suffering compensation. B. is reimbursed by his or her own insurance company, but could seek additional

compensation if damages were higher than a certain amount. C. is reimbursed by his or her own insurance company. D. is reimbursed by the other party’s insurance company

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53. If the insured’s property insurance policy has a deductible clause, the clause means that A. the insured must deduct a claim payment from the policy limit. B. the insured deducts any claim payment received from the next insurance premium. C. any losses paid to a third party are deducted from the policy limit. D. the insured must pay a certain amount for each loss incurred under the policy. 54. Of the following which coverages is not included in the Commercial Crime insuring

agreements but can be added by endorsement? A. Theft of money and securities B. Employee Dishonesty C. Computer Fraud D. Extortion 55. Additional losses that results from a direct loss to property are called a/an A. proximate loss B. indirect/consequential loss C. liability loss D. punitive loss 56. Of the following which is NOT one of the components of a Commercial Package policy? A. Coverage parts B. Object Definitions form C. Common Policy Conditions D. Common Policy Declarations 57. Under the Commercial Crime forms, new employees and additional premises obtained

through a consolidation or merger A. are automatically covered until the end of the policy period. B. are automatically covered for 90 days. C. are only covered if the insured provides immediate notification to the insurer. D. cannot be covered under the current policy but can be added at the next policy

effective date. 58. With the claims-made Commercial General Liability coverage form, the first date that a

loss may occur and still be covered under the policy is the A. policy expiration date. B. extended reporting period inception date. C. retroactive date. D. policy inception date. 59. If the following items were stolen from the insured’s home which one of these losses

would be fully covered under Coverage C of the Homeowners policy, assuming the loss was for the full value of the property described?

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A. An antique gun valued at $5,000 B. A $3,000 mink stole C. A $2,000 laptop computer the insured uses for her in-home accounting business D. A $1,500 ruby and diamond ring 60. The insured, Trader Vic’s Bar, wants coverage for liability arising out of selling and

serving alcoholic beverages. Such coverage can be provided by purchasing A. an unendorsed Commercial General Liability coverage form. B. a Commercial General Liability coverage form with the Amendment Of Liquor Liability

Exclusion endorsement attached. C. a Liquor Liability coverage form. D. a Businessowners policy. 61. Both the contents and the structure of mobile homes can be insured by purchasing A. an unendorsed HO-3. B. a Businessowners policy C. either a Mobile Home package policy or an HO-2 or HO-3 with the Mobile

Homeowners endorsement. D. an unendorsed DP-3. 62. Of the following losses which one would be paid under Part D of the Personal Auto

policy? A. An awning attached to the insured’s camper trailer was destroyed by hail. B. The insured’s pickup truck was contaminated by radioactive materials and had to be

destroyed. C. A permanently installed tape player was damaged when thieves attempted to remove

it from the car. D. The insured collided with a telephone pole while he was using the car as a taxi to

earn extra money. 63. Professional liability protection for insurance agents can be obtain by purchasing A. an unendorsed Commercial General Liability coverage form. B. an Errors And Omissions insurance policy. C. an unendorsed Homeowners policy. D. an unendorsed Dwelling policy

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64. The difference between the loss sustained and discovery versions of the Commercial

Crime coverage forms is A. Property covered B. Coverage trigger C. Eligibility D. Perils covered 65. In ALL states, an UNENDORSED Personal Auto policy’s Uninsured Motorists coverage

applies to what type of loss caused by an uninsured motorist? A. Property damage B. Personal injury C. Bodily injury D. Comprehensive 66. Which is of the following is not a primary coverage provided under the Commercial

General Liability policy A. Bodily Injury And Property Damage Liability B. Personal And Advertising Injury. C. Pollution Liability D. Medical Payments. 67. Who may cancel the policy in writing and make changes to the policy with the consent of

the insurer under the Commercial Package policy? A. Last named insured B. Any named insured C. Any insured D. First named insured 68. Which part of the Workers Compensation And Employers Liability policy pays all

compensation and other benefits required by the state’s Workers Compensation law? A. Part One—Workers Compensation B. Part Two—Employers Liability C. Part Four—Your Duties If Injury Occurs D. Either Part One or Part Two, depending on the type of loss

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69. Of the following accidents which one would NOT be covered under the Uninsured Motorists coverage of the Personal Auto policy?

A. An accident in which a hit-and-run driver hits the insured’s covered auto B. An accident with a driver who carries the minimum liability limits required by law, but

whose insurance is not adequate to cover the damages C. An accident with a motorist who has less Liability insurance than required by the

state’s financial responsibility law D. An accident with an at-fault driver whose insurance company declines coverage 70. Under the Business Auto coverage form, employers that want to cover employees’ use of

their own cars in the employer’s business should opt to have Liability coverage apply to which of the following groups of autos?

A. Hired B. Nonowned C. Miscellaneous D. Owned 71. Personal Auto policy’s Medical Payments coverage would provide protection for all of the

following except? A. The insured B. Occupants of a car that was struck by the insured C. Passengers in the insured’s car D. The insured’s family members 72. The authority specifically given to an agent, either orally or in writing, by the principal is

called A. apparent authority. B. compensated authority. C. implied authority. D. express authority. 73. Of the following which is responsible for the licensing of insurance agents? A. Individual State Insurance Departments B. American Council Of Insurers C. Interstate Commerce Commission D. Federal Trade Commission 74. Of the following which one covers a carrier for liability for loss to cargo while it is being

transported in a truck? A. Truckers coverage form B. Motor Truck Cargo policy C. Motor Carrier coverage form D. Trip Transit policy

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75. For monopolistic states, an employer purchases Workers Compensation insurance from A. a private insurance company. B. either a state fund or a private insurance company C. a state fund. D. the federal government. 76. The insured has a property covered by two separate Dwelling policies: Policy A for

$50,000 and Policy B for $100,000. The insured has a $21,000 loss. If both policies use the pro rata method to handle other insurance, how much will Policy B pay for this loss?

A. $21,000 B. $-0- C. $10,500 D. $14,000 77. Of the following which lists all the required elements for establishing a charge of

negligence? A. Legal duty owed, deliberate attempt to cause harm, damages B. Breach of reasonable person rule and proximate degree of care C. Legal duty owed, proximate cause, intervening cause, damages D. Legal duty owed, breach of legal duty owed, proximate cause, damages 78. Under Liability policies, Supplementary Payments are A. payable in addition to the policy limit of liability. B. subject to the overall policy limit of liability. C. only available by endorsement. D. subject to a flat limit of 10% of the overall policy limit. 79. Bradley’s home sustains $50,000 damage in an electrical fire. The home is insured under

a Homeowners policy for $75,000, with the home’s replacement cost at the time of the loss of $125,000. How much will Bradley’s Homeowners policy pay for this loss?

A. $75,000 B. $37,500 C. $50,000 D. $125,000 80. Of these Homeowners endorsements which one is used to schedule separate coverage

for one or more of nine categories of personal property? A. Scheduled Personal Property B. Personal Property C. Personal Articles D. Personal Effects

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81. The insured has a $1,000,000 Personal Umbrella policy with a retention limit of $1,000. The insured suffers a $20,000 loss that is excluded by the underlying policy, but not the Umbrella. How much of this loss would be paid under the umbrella?

A. $-0- B. $19,000 C. $20,000 D. $21,000 82. Of the following which would be covered under the building coverage of the Building And

Personal Property coverage form? A. Land B. Fixtures C. Indoor furniture D. Inventory 83. Under CGL all of the following reduce the general aggregate limit EXCEPT the A. medical expense limit. B. products-completed operations limit. C. personal and advertising injury limit. D. per occurrence limit. 84. Under Personal Auto policy the Physical Damage section excludes A. mechanical breakdown. B. theft of the entire auto. C. earthquake. D. flood. 85. Vic has a Personal Auto policy with all cars insured by one company. Vic sells one of the

cars and buys a new one to replace it. Must the he take any action for the Liability portion of his current policy to apply to the replacement vehicle?

A. Yes, the insured must notify the company within 30 days to have Liability coverage

apply to the replacement vehicle. B. Yes, the insured must contact his agent to have a new policy issued. C. Yes, the insured must sign a notarized form proving he is still insurable. D. No, the insured does not have to do anything; Liability coverage for a replacement

vehicle is automatic.

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86. With the Business Auto coverage form, the insured’s liability arising out of which of the following situations would be covered?

A. Bodily injury due to the insured’s operation of mobile equipment B. Bodily injury resulting from loading or unloading a covered auto C. Damage to property in the insured’s custody D. Injury to an employee of the insured while the employee is working for the insured 87. With the Commercial Property coverage part, the Causes Of Loss—Broad form insures

against A. all risks of direct physical loss unless specifically excluded. B. the perils in the Causes Of Loss—Basic form and additional perils.

C. a list of basic named perils only. D. earthquake only. 88. Coinsurance is best defined as A. Two or more policies that apply to the same property B. Two or more buildings that are covered under a single policy C. A requirement that the insured carry insurance equal to a specified percentage of the

property’s value to qualify for replacement cost coverage under the policy D. A condition that allows the insurer to take action against a third party for

reimbursement of loss settlements made with the insured 89. All of the following about Farm coverage part is correct EXCEPT? A. It provides both property and liability insurance B. It covers the farmer’s growing crops C. It covers the farmer’s business and personal loss exposures D. It can be included in the Commercial Package policy 90. Which Commercial Property coverage form covers damage to the property of others in

the insured’s care, custody or control for which the insured is legally liable? A. Legal Liability coverage form

B. Builders Risk coverage form C. Extra Expense coverage form D. All Commercial Property coverage forms provide this type of coverage 91. Of the following losses which would be paid under the Business Auto coverage form’s

Comprehensive coverage? A. The grillwork on a covered auto gradually corroded due to continuous exposure to

salt air. B. A covered auto was damaged when it was hit by a car that ran a stop sign. C. A covered auto was stolen and never recovered. D. A covered auto skidded on icy pavement and overturned.

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92. The owners of a parking lot want coverage for their liability for damage to vehicles left in their custody. They need

A. Garagekeepers coverage. B. Business Auto coverage. C. Garage Liability coverage. D. both Garage Liability and Garagekeepers coverage. 93. The Causes Of Loss—Special form of the Commercial Property coverage part insures

against which of the following? A. a list of basic named perils only. B. earthquake only C. all risks of direct physical loss unless specifically excluded. D. all risks of loss to the insured building and specified causes of loss to business

personal property 94. Wanda has a Personal Auto policy with limits of 20/40/20 for Liability coverage. She

causes an accident that results in $22,000 bodily injury damages to the other driver and $7,000 in property damage to the other driver’s car. How much would Wanda’s policy pay for both the BI and PD losses?

A. $13,000 B. $27,000 C. $29,000 D. $7,000 95. With the Workers Compensation system, who is responsible for the expenses resulting

from work-related injuries and occupational diseases? A. The employee B. The employer, but only if it was at fault for the injury or disease C. The employee and employer in equal shares D. The employer, regardless of whether it was at fault for the injury or disease 96. Concerning the claims-made CGL, the supplemental extended reporting period A. automatically extends coverage to include claims made within 5 years of policy

expiration, provided the losses occurred during the policy period. B. provides an unlimited extension for making claims for losses that occurred during the

policy period, but the insured must pay an additional premium. C. automatically provides an unlimited extension for losses that occurred during the

policy period but for which a claim is not made until after policy expiration. D. automatically extends coverage for losses that occurred during the policy period and

are claimed within 60 days following policy expiration.

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97. Basic Dwelling policies automatically provide coverage against fire, lightning and A. windstorm. B. falling objects. C. riot. D. internal explosion. 98. Coverage for medical instruments while they are on and off the premises could obtain it

by purchasing the A. Malpractice policy. B. Personal Effects form.

C. Physicians And Surgeons Equipment coverage form. D. Commercial General Liability coverage form. 99. Bradley Enterprises wants property insurance for a new warehouse it is building. Bradley

Enterprises also wants the policy’s limit of insurance to gradually increase as the value of the building under construction increases. Which of the following Commercial forms does Bradley Enterprises need?

A. Building And Personal Property coverage form B. Business Income coverage form C. Businessowners coverage form D. Builders Risk Reporting form 100. When applying for Homeowners insurance, Mr. Liealot tells his agent that the home is

used strictly as a residence. Actually, he manufactures fireworks in the basement of the home. What will happen if the insurance company discovers Mr. Liealot’s misrepresentation after the policy is issued?

A. It must wait until the policy’s expiration date to cancel the coverage. B. Nothing. Mr. Liealot did not misrepresent a material fact. C. It will void the policy because Mr. Liealot misrepresented a material fact. D. Nothing. A policy cannot be voided on the basis of a misrepresentation of a material

fact.

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1. All of the following are included in an insurance contract EXCEPT A. Insuring Agreement. B. Conditions. C. Exclusions. D. floater. 2. The Dwelling Special form provides A. open peril coverage on the dwelling and personal property. B. open peril coverage on the building and named peril coverage on personal property. C. open peril coverage on personal property. D. named peril coverage on the dwelling and personal property. 3. Of the following which would you have an insurable interest? A. The house you own but have rented to a tenant B. The car on which you are still paying C. Neither A nor B D. Both A and B 4. During a liability loss, the person the insured caused damage to is referred to as the A. first party. B. second party. C. third party. D. fourth party. 5. Of the following which is NOT a possible defense against negligence? A. Statute of limitations B. Intervening cause C. Comparative negligence D. Doctrine of reasonable expectations 6. Of the following which provides coverage against an indirect loss under Section I of the

Homeowners policy? A. Coverage C - Personal Property B. Coverage A -Dwelling C. Coverage D - Loss Of Use D. Coverage B - Other Structures

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7. Of the following losses which would be covered under the Personal Auto policy’s Liability coverage?

A. Wanda breaks a rented carpet cleaning machine while trying to get it out of the back

seat of her car. B. Vic falls asleep at the wheel of his car and strikes and injures a pedestrian. C. Teresa rides her all-terrain vehicle through her neighbor’s yard and damages the

yard. D. In a fit of temper, Bill throws his golf clubs through the windshield of his neighbor’s

car. 8. The insurance contract is considered to be a contract of indemnity because A. an insured may collect no more than the limit of liability stated in the Declarations. B. an insured may collect up to 10% more than his or her insurable interest. C. an insured may collect no more than the amount required to restore him or her to the

same financial condition that existed prior to the loss. D. in cases of total loss, an insured can collect the appraised value of the property. 9. The Builders Risk Reporting form insures a building under construction for A. its completed value. B. 10% of its completed value during the entire construction period. C. its completed value, but at a reduced rate. D. an amount that increases at intervals to correspond with the increasing value of the

building. 10. If a homeowner wants the maximum protection for home and contents, which form should

be purchased? A. HO-2 B. HO-4 C. HO-5 D. HO-8 11. Insurance is a means of A. eliminating risk. B. transferring risk. C. avoiding risk. D. retaining risk. 12. The Commercial Inland Marine transportation form used to insure a carrier’s liability for

damage to transport cargo is the A. Trip Transit policy. B. Annual Transit policy. C. Motor Truck Cargo policy. D. Motor Carrier coverage form.

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13. The Commercial General Liability coverage part can be used to insure against all of the following exposures EXCEPT

A. Premises liability. B. Products liability. C. Auto liability. D. Completed Operations liability. 14. Of the following which is NOT one of the required elements of a legal contract? A. Offer and acceptance B. Written instrument C. Competent parties D. Legal purpose 15. The DP-1 form covers personal property off premises (with the exception of rowboats and

canoes and property belonging to guests or servants) A. only while it is in the United States. B. for up to the full amount of coverage that applies to personal property on the

premises. C. anywhere in the world for up to 10% of the Coverage C amount. D. as described in both A and B. 16. Concerning the Business Auto coverage form, the nonowned auto category represents A. customers’ autos. B. autos hired by the insured. C. autos owned by the insured but furnished to the employee. D. autos owned by employees but driven in the insured’s business. 17. What category of bonds would bid bonds, payments bonds and performance bonds fall

under? A. Fiduciary bonds. B. Labor bonds. C. Contract bonds. D. Judicial bonds. 18. Where states that have competitive Workers Compensation funds, A. the employer must purchase insurance from a private insurer. B. the employer must purchase insurance from the state. C. the employer may purchase insurance from either the state or a private insurer. D. the employer is expected to self insure.

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19. Of the following which is an insurable risk? A. Wear and tear on a valuable oriental rug B. Hail damage to the roof of a car C. Theft of a paperback book D. All of the above 20. The action that produces a loss is known as the A. proximal causation. B. proximate cause. C. primal causation. D. approximate cause. 21. Concerning Personal Inland Marine form which of the following provides open peril

coverage on a blanket basis for most kinds of property found in a typical home? A. Personal Articles floater B. Scheduled Personal Property endorsement C. Personal Effects floater D. Personal Property floater 22. Of the following which loss would be covered under the Personal Auto policy’s Physical

Damage coverage? A. State officials confiscated the insured’s auto after it failed to meet the state’s auto

emissions standards. B. An awning attached to the insured’s camper trailer was ruined in a windstorm. C. Vandals damaged a custom mural painted on the insured’s van. D. The on-board computer system used to monitor the operation of the insured auto was

destroyed in a fire. 23. Concerning a legal contract which of the following represents an insurance premium

payment? A. Acceptance B. Legal instrument C. Offer D. Consideration 24. Concerning the Commercial General Liability claims-made coverage form and a

retroactive date. The retroactive date is the date A. the policy takes effect. B. before which the Commercial General Liability claims-made form will not cover a

claim. C. the policy expires. D. by which a claim must be made to be covered.

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25. Workers Compensation laws in most states are A. elective. B. monopolistic. C. competitive. D. compulsory. 26. Coverage for loss of income due to a covered loss to a boiler or other defined object A. is included in the Boiler And Machinery coverage form. B. is covered under the Commercial Property coverage form. C. is available under a Business Interruption endorsement to the Boiler And Machinery

coverage form. D. is available only in conjunction with the Difference In Conditions form. 27. A peril is defined as A. the uncertainty of loss. B. something that increases the chance of loss. C. the result of a loss.

D. the cause of loss. 28. Nonexclusive agent is defined as individual who

A. represents only direct writers. B. works for a solicitor. C. is a captive agent. D. represents more than one insurance company. 29. Of the following losses which would NOT be recoverable under the Liability coverage of

the Homeowners policy? A. A delivery man trips over a toy left on the porch of the insured’s dwelling. B. The named insured’s dog damages the front screen door of a neighbor’s house. C. The named insured’s son damages the family’s garage with his car. D. The named insured’s small daughter hits a friend with a stick, severely injuring the

other party’s eye. 30. Of the following policies which is specifically designed to cover business property? A. Dwelling policy B. Extended Coverage endorsement C. Vandalism And Malicious Mischief endorsement

D. Commercial Property coverage part 31. Of the following all are time element coverages EXCEPT A. Business Income coverage form. B. Valuable Papers coverage form. C. Business Income From Dependent Properties form. D. Extra Expense coverage form.

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32. Binder is defined as A. is always a written agreement. B. guarantees that a policy will be issued. C. may only be issued by the insurance company. D. None of the above 33. Glass Or Safety Glazing Material other coverage is included in which Dwelling form(s)? A. DP-1 B. DP-3 only C. DP-1 and DP-2 D. DP-2 and DP-3 34. Ocean Marine Protection And Indemnity insurance provides A. physical damage coverage for the ship’s hull. B. property coverage for goods in transit over water. C. marine liability coverage. D. protection against the loss of shipping costs. 35. The Workers Compensation policy provides coverage for A. amounts the employer is required to pay under state Workers Comp laws. B. amounts for which the employer becomes legally obligated to pay for an employee’s

work-related injuries. C. Neither A nor B D. Both A and B 36. The tendency for people with a greater-than-average exposure to loss to want to purchase

insurance to cover their risk is called A. the law of large numbers. B. adverse selection. C. subrogation. D. a morale hazard. 37. It will cost Vic $5,000 to put a new roof on his home to replace a roof destroyed in a

winter storm. Assume that the original roof, which Vic paid $3,500 for 10 years ago, depreciated $300 per year. What was the actual cash value of the roof that was destroyed?

A. $5,000 B. $3,500 C. $2,500 D. $2,000

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38. Flood insurance is A. available through any insurance company. B. purchased directly from the federal government. C. not available.

D. available from the federal government or private companies who are reimbursed for losses by the government.

39. For states that require prior approval, the rates and policy forms insurance companies

use must be approved by A. a rating bureau. B. the federal government. C. the Better Business Bureau. D. the insurance department of the state where they will be used. 40. The Fair Credit Reporting Act applies to applicants who are rejected for insurance

coverage on the basis of A. a police report. B. a tax audit. C. a credit report. D. All of the above 41. Of the following which is NOT a category of the Nationwide Definition? A. Exports B. Instrumentalities of transportation C. Commercial Property floater risks D. Excess liability 42. Workers Compensation policy Medical benefits are A. subject to a $100,000 limit per injury. B. paid for up to three years after the injury occurred. C. not paid unless the employer was liable for the employee’s injury. D. not subject to time or dollar limits unless they are specified in the state law. 43. Negligence is defined as A. a criminal act. B. an intentional tort, C. an unintentional tort. D. a proximate cause.

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44. If a home owner insures his home equal to at least 80% of the replacement cost of the dwelling, then what is the rule of indemnification that applies if the home is destroyed?

A. The insured will be indemnified 80% of the replacement cost. B. The insured is indemnified for the actual cash value of the loss. C. The insured is indemnified for 80% of the actual cash value of the loss. D. The insured may be indemnified for the replacement value of the property, up to the

policy limits. 45. Which Commercial Crime insuring agreement includes coverage for defense costs? A. Computer Fraud B. Forgery Or Alteration C. All Crime coverages D. None of the Crime coverages 46. The Inside The Premises-Robbery Or Safe Burglary insuring agreement in the

Commercial Crime policy covers A. loss of money from robbery of a custodian. B. loss of money from safe burglary. C. loss of other property from robbery of a custodian. D. All of the above 47. Which of the following is not a way of funding Workers Compensation benefits? A. private insurance. B. a monopolistic or competitive state fund. C. self insurance. D. an employee tax. 48. The type of bond that individuals who are appointed by the court to manage the property

of another might require is called a A. License And Permit bond B. Fiduciary bond C. Court bond D. Performance bond 49. Businesses can obtain coverage for their liability arising out of discrimination and sexual

harassment by purchasing A. Commercial General Liability insurance. B. Difference In Conditions insurance. C. Employment Practices Liability insurance. D. Workers Compensation insurance.

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50. Under the Dwelling Basic form automatically provides coverage against fire, lightning and A. hail. B. smoke. C. windstorm. D. internal explosion. 51. Of the following which is not an Extended Coverage perils A. aircraft. B. fire. C. riot. D. hail. 52. Under the Broad and Special Dwelling forms the Additional Living Expense coverage that

is included protects the insured against A. depreciation on the house. B. smoke damage to personal property. C. extra living costs incurred when the home becomes uninhabitable due to damage by

a peril insured against. D. loss of rental income that occurs when rental property becomes uninhabitable

because of damage caused by a peril insured against. 53. Assigned Risk Plans for Auto insurance do which of’ the following? A. Provides free auto insurance to those who cannot afford it B. Makes insurance available to drivers who are unable to obtain it through normal

channels C. Both A and B D. Neither A nor B 54. Comprehensive Physical Damage coverage under the Personal Auto policies covers

which of the following? A. Damage caused by hitting an animal B. Flood C. Theft D. All of the above 55. A Commercial Package policy must include A. Commercial Causes Of Loss form and Common Policy Conditions. B. Common Policy Conditions and Commercial Property coverage part. C. Common Policy Declarations, Common Policy Conditions, two or more coverage

forms. D. Common Policy Declarations, Common Policy Conditions, Special Commercial

Conditions.

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56. If a hardware store is insured under a Business Income coverage form with the Special Causes Of Loss form. Which of the following lose would be covered?

A. Income lost when another hardware store opens down the street B. Income lost when the store closes for a week while the owner is in the hospital C. Income lost when the store closes for a week to repair damage caused by an

earthquake D. Income lost when the store closes for a week while damage from a burst water pipe

is repaired 57. Garagekeepers coverage insures against A. physical damage to the insured’s own autos. B. liability for bodily injury to customers while on the premises. C. medical expenses. D. liability for damage to autos of others that are in the care, custody or control of the

insured. 58. Under the Commercial Crime policy what type of property loss is covered under The

Employee Theft insuring agreement? A. Money B. Securities C. Property other than money and securities D. All of the above 59. For Fidelity bonds, the party to whom the promise is made and for whose protection the

bond is written is the A. surety. B. principal. C. obligee. D. bonder. 60. The insured has $20,000 insurance with Company A and $40,000 with Company B.

Assume both policies contain an “other insurance clause” specifying pro rata. What would Company A pay if there was a $24,000 loss?

A. $-0- B. $8,000 C. $12,000 D. $20,000 61. An insured’s home is covered by the DP-3 form. The policy provides $20,000 in coverage

on a $50,000 home. When high winds destroy the roof, it is determined it will cost the insured $3,000 to replace it. Assuming the actual cash value of the roof is $750, how much would the insured collect for this loss?

A. $800 B. $1,500 C. $1,800 D. $3,000

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62. Which of the following is not an area of law under which a person can be found liable for

injury or damage to another? A. absolute liability. B. negligence. C. assumption of risk. D. vicarious liability. 63. The right to request an appraisal belongs to A. the insured. B. the insurance company. C. Neither A nor B

D. Both A and B 64. Of the following which Personal Auto coverage reimburses the insured without regard to

fault, regardless of whether or not the state is subject to no-fault laws? A. Property Damage Liability coverage B. Bodily Injury Liability coverage C. Medical Payments coverage D. Both A and B 65. All of the following must be included in a Commercial Property policy written under the

Commercial Package policy program with the exception being A. Causes Of Loss form. B. one or more Commercial Property coverage forms. C. Commercial Property Conditions form. D. Value Reporting form. 66. When a building insured under the Building And Personal Property coverage form is

vacant for three months, A. there would be no coverage for either a vandalism loss or a fire loss. B. a vandalism loss would not be covered; a fire loss would be covered, subject to a

15% penalty. C. both vandalism and fire losses would be covered, subject to a 15% penalty. D. a vandalism loss would be covered subject to a 15% penalty; a fire loss would be

covered in full. 67. Coverage for products and completed operations is provided under which of the following

contracts? A. Occurrence CGL B. Claims-made CGL C. Neither A nor B D. Both A and B

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68. Assume there are no endorsements attached to the policy, of the following which type of company would have coverage for liquor liability losses under the Commercial General Liability policy?

A. A convenience store that sells beer and wine

B. An advertising agency that serves liquor at a holiday party C. Both A and B D. Neither A nor B 69. With Surety bonding, which party seeks and pays for the bond? A. Obligee B. Surety C. Principal D. Fiduciary 70. A Surety bond is A. a two-party contract. B. a three-party contract. C. a four-party contract. D. not considered a contract. 71. For insurance agents who need insurance for their professional liability exposure they

should purchase a/an A. CGL with a Professional Liability endorsement. B. Employment Practices Liability policy. C. Errors And Omissions policy. D. standard CGL, which includes coverage for professional liability. 72. On what basis are losses to dwellings and other structures paid under either DP-2 and

DP-3? A. Actual cash value B. Stated value C. Replacement cost D. Valued policy 73. The insured has a $1 million Personal Umbrella policy with a $5,000 deductible. For a

$7,000 loss not covered by an underlying contract but covered under the Umbrella, the insurance company would pay

A. $2,000. B. $5,000. C. $7,000. D. nothing.

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74. For Ocean Marine insurance, a general average loss is A. any loss that is not total. B. a partial loss arising from a sacrifice of cargo to save remaining property. C. a loss in which the property is not completely destroyed, but the cost of salvage or

repair would exceed the value of the property. D. a partial loss that does not arise from jettison. 75. A company that frequently rents autos and trucks for business use should include which

symbol in the Business Auto policy Declarations? A. 8 B. 2 C. 9 D. 5 76. The Owners And Contractors Protective form covers the insured for liability A. arising out of products or completed operations. B. arising out of the operations of independent contractors or subcontractors. C. arising out of the insured’s premises. D. arising out of contractual liability. 77. In Crime insurance, the taking of property by stealth is included in the definition of A. burglary. B. theft. C. robbery. D. forgery. 78. Of the following all can be covered under the Farm coverage part of the Commercial

Package policy EXCEPT A. crops. B. farm buildings. C. personal liability. D. household personal property. 79. Of the following which coverages are included in the Dwelling policy? Assume there are

no endorsements attached to the policy. A. Property coverage for homes, other structures and personal property B. Fair rental value coverage C. Both A and B D. Liability coverage 80. Who of the following is an insured for Liability coverage Under the Personal Auto policy? A. The named insured and family members for the use of any auto B. Anyone who uses the insured’s covered auto with the named insured’s permission C. Both A and B D. Anyone who is riding with the insured at the time of the accident

P&C Part 2



P&C 2 - Page 14

81. Which of the following losses would be paid under the Commercial General Liability

policy’s Medical Payments coverage? A. A mannequin tips over and injures the store owner. B. A mannequin tips over and injures a customer. C. A mannequin tips over and injures a store employee. D. All of the above 82. Vic needs Liability, Property and Medical Payments coverage for his 30-foot speedboat

with a 75 hp engine. This boat could be covered under a A. Boatowners or Watercraft package policy.

B. Homeowners policy with no endorsements. C. Homeowners policy that includes the Watercraft endorsement. D. Personal Inland Marine form. 83. Of the following who would have a need for the Personal Inland Marine Personal

Property form? A. A condominium or apartment dweller who cannot obtain open peril coverage for

personal property under the H0-4 or R0-6 B. An insured who needs additional insurance for valuable personal property C. An insured who needs to insure her personal belongings while traveling D. An insured who owns a small boat that cannot be covered under the Homeowners

policy 84. Mutual insurance companies are owned by A. their stockholders. B. the insurance department in the state where it is incorporated. C. the federal government. D. their policyholders. 85. An insurance policy is considered a unilateral contract since A. the policy does not provide any benefit to the insured unless a claim is paid. B. the insured must comply with certain conditions in the policy for a claim to be paid. C. the insurance company is the only party that is legally obligated to perform under the

insurance contract. D. the insurance company writes the policy provisions, with little or no input from the

insured. 86. An insurance policy has a $35,000 per occurrence limit. If the insured has a $5,000

covered loss during the policy period, how much coverage is available for other covered losses that occur during the remainder of the policy period?

A. $30,000

B. $35,000 C. $20,000 D. $5,000

P&C Part 2



P&C 2 - Page 15

87. Several valuable trees on the insured’s property are destroyed by lightning. This loss is A. excluded in all Homeowners forms. B. covered in the HO-3 only for up to 5% of the Coverage A limit or a maximum of $500

per tree. C. covered in all Homeowners forms, with no limit on the amount of coverage provided. D. covered for up to 5% of the Coverage A limit in the HO-2, HO-3 and HO-8 and up to

10% of the Coverage C limit in the HO-4 and HO-6, with a maximum of $500 per tree.

88. Of the following who would be covered under the Medical Expenses coverage of the

Businessowners policy?

A. A tenant of the insured who fell off the roof of the rented building B. A customer who was injured while shopping in the insured’s store C. An employee of the insured who was injured in a fall off a stepladder in the insured’s

store D. A marathon runner who was injured while running past the insured’s premises

89. For the CGL, the products-completed operations hazard is subject to A. a products-completed operations aggregate limit. B. a per occurrence limit. C. Both A and B D. the general aggregate limit. 90. A morale hazard A. is the tendency for people with a higher-than-average risk of loss to seek insurance

coverage. B. is the tendency to create a loss on purpose to collect from the insurance company C. arises through an individual’s carelessness or irresponsible actions. D. arises from the condition, occupancy or use of the property itself. 91. Of the following losses which would be covered by a Flood policy? A. Water backs up through a sewer system and floods the insured’s bathroom. B. Heavy rains cause a lake to overflow and flood the basement and first floor of a

house. C. A tornado blows out all the windows in the insured’s home, and the house is flooded

when it rains the next day D. The insured incurs additional living expenses when flooding forces her to evacuate

her home.

P&C Part 2



P&C 2 - Page 16

92. FAIR Plans prohibit the insurance company from A. charging higher rates due to environmental hazards. B. requiring the insured to make improvements to the property

C. rejecting a risk solely because of environmental hazards. D. All of the above 93. When comparing a Commercial Package policy and a Businessowners policy, what is the

primary difference? A. The eligibility requirements for a Business-owners policy are less stringent than the

CPP’s. B. With a CPP, the insured can pick and choose the coverages included in the policy. C. The CPP is specifically designed for smallbusinesses. D. There are fewer coverage options in the CPP. 94. Furniture inside a building that burns down is an example of what kind of loss A. Direct B. Indirect C. Consequential D. Residual 95. Of the following business occupancies each would be permitted in a dwelling insured

under a Dwelling form EXCEPT A. a photographic studio.

B. a small shop carrying merchandise for sale. C. a beauty shop run by the insured and her daughter. D. a professional office providing services to clients. 96. What constitutes an agreement to enter into a valid contract? A. An exchange of consideration B. An unconditional and unilateral promise to perform a duty C. A specific offer by one party and acceptance by the other D. An exercise of utmost good faith in disclosing all pertinent information 97. The Business Income coverage form applies to loss of A. income as the result of destruction of accounts receivable records. B. cash receipts because of burglary or robbery C. loss of revenue while operations are suspended due to property damage. D. money because of employee dishonesty

P&C Part 2



P&C 2 - Page 17

98. Under the Building and Personal Property coverage form, what obligation, if any does an insurer have to a mortgagee in the event of policy cancellation? A. The company has no obligation B. The company must give the mortgagee 10 days written notice for cancellation due to

non payment of premium and 30 days notice in the case of a cancellation C. The company must give the mortgagee 10 days written notice of cancellation in all

cases. D. The company must notify the insured, who then is responsible for informing the

mortgagee 99. Under the Business Auto coverage form, which of the following is not considered to be

mobile equipment?

A. Forklift B. Self-propelled snow plow C. Farm machinery D. Bulldozer

100. Of the following kinds of property each may be covered under a Building And Personal

Property coverage form EXCEPT A. permanently installed fixtures and machinery B. account records and evidences of debt. C. the insured’s stock held for sale. D. an insured tenant’s use interest in improvements and betterments.

P&C Law Exam

© Copyright 2002-2011. - Bradley Enterprises, 2608 Newby Rd., Huntsville, AL 35805 -

Visit us at www.beagent.us or www.aaonlineclasses.com P&C 3 - Page 1

1. In the state of Alabama, the Commissioner of Insurance is A. voted into office by general election. B. appointed for a two-year term by the secretary of state. C. selected by the state senate. D. appointed by the governor.

2. The Insurance Commissioner can/may do all of the following EXCEPT

A. change insurance laws for the good of the general public. B. supervise and administer the insurance department. C. enforce the provisions of the insurance law. D. conduct examinations of insurance companies.

3. Upon the receipt of a written complaint the Insurance Commissioner must hold a hearing within

A. 10 days after receipt of the demand. B. 14 days after receipt of the demand. C. 20 days after receipt of the demand. D. 30 days after receipt of the demand.

4. The minimum capital required to form and organize a new domestic stock life insurance company

in the state of Alabama is A. $100,000. B. $500,000 C. $750,000. D. $1,000,000.

5. To be licensed as a resident insurance producer in Alabama an applicant must be at least

A. 21 years old B. 16 years old. C. 19 years old. D. 18 years old.

6. An applicant for a resident insurance producer license must complete a ____ hour prelicensing

course or equivalent individual instruction. A. 10 B. 20 C. 40 D. 80

7. An applicant who fails two examinations for the same line of insurance must wait

________________ to take another examination for that line of insurance. A. 3 months B. 6 months C. 9 months D. one year

P&C Law Exam



8. A temporary insurance producer license may be issued for up to A. 3 months. B. 6 months. C. 9 months. D. one year.

9. An insurance producer license will remain in effect for ______, unless revoked or suspended, A. one year. B. 2 years. C. 5 years. D. as long as the license renewal fee is paid and the continuing education requirements are met.

10. A producer must keep records pertaining to insurance sells for at least

A. 1 year. B. 3 years. C. 4 years D. 5 years.

11. A producer must inform the Alabama Department of Insurance of a change in legal name or

address within ______ days. A. 30 B. 60 C. 90 D. 120

12. The continuing education requirements do not apply to a producer who has been licensed in

Alabama for at least 15 years and who is a minimum of ______ years old. A. 45

B. 50 C. 55 D. 60

13. A producer who is subject to the continuing education requirements must complete ____

classroom hours per renewal period. A. 6 B. 24 C. 18 D. 30

P&C Law Exam



14. The licensee must complete the continuing education requirements within ______after being

notified of the denial of an extension. A. 10 days B. 15 days C. 30 days D. 60 days

15. Offering to give a prospect anything of value not specified in the contract to persuade the

prospect to purchase the insurance is known as A. twisting. B. embezzlement. C. coercion. D. rebating.

16. A binder is not valid beyond the issuance of the policy for which it was given or beyond _____

days, whichever is shorter. A. 30 B. 45 C. 60 D. 90

17. A person who for compensation investigates and negotiates settlement of claims arising under

insurance contracts on behalf of an insurer is a/an A. consultant. B. service claims representative. C. financial planner. D. adjuster.

18. To be licensed as an adjuster, an applicant must be at least _______ years old.

A. 18 B. 19 C. 21 D. 26

19. An adjuster must keep the usual and customary records pertaining to transactions under his/her

license for at least A. one year. B. two years. C. three years. D. five years.

P&C Law Exam



20. A surplus line broker must file a bond in the minimum amount of A. $10,000. B. $15,000 C. $25,000. D. $50,000.

21. The Insurance Guaranty Association is obligated to pay any covered claim that is over $100 and

less than ___________. A. $150,000. B. $250,000. C. $500,000. D. $1,000,000.

22. The workers compensation laws are mandatory for employers in an industry other than

construction who employ ____ or more covered employees in any one business. A. 4 B. 5 C. 8 D. 10

23. For an injury producing temporary total disability, the workers compensation benefit is ________

of the employee’s average weekly earnings at the time of the injury. A. 50% B. 66 2/3% C. 75% D. 100%

24. Workers compensation benefits for temporary partial disability will be paid for up to a maximum of

___________. A. 52 weeks. B. 300 weeks. C. 3 years. D. 7 years.

25. If an employee dies as a result of a work-related accident or occupational disease, the employer

must pay burial expenses of up to ___________. A. $1,000 B. $2,000. C. $3,000. D. $4,000.

P&C Law Exam



26. The face amount of insurance provided by an industrial fire policy covering buildings under the same ownership may not exceed ________ for a weekly policy. A. $1,500 B. $2,500 C. $5,000 D. $7,500

27. For a monthly industrial fire policy, the maximum face amount covering a building or dwelling is

A. $10,000 B. $40,000. C. $50,000. D. $60,000.

28. The maximum face amount covering contents is _______ for a monthly industrial fire policy?

A. $5,000 B. $10,000. C. $20,000. D. $30,000.

29. Premiums for an industrial fire policy may be collected for no more than ______________ months

in advance. A. 3 B. 6 C. 8 D. 12

30. What kind of premium payment basis may be used with an industrial fire policy?

A. Weekly or monthly B. Weekly only C. Monthly only D. None of the above

31. The notice of cancellation of an automobile insurance policy for nonpayment of premium must be

mailed or delivered to the named insured at least ______days before the effective date of cancellation. A. 10 B. 15 C. 30 D. 90

P&C Law Exam



32. Which of the following statements concerning uninsured/underinsured motorist coverage is true? A. This coverage is not required, but will be automatically included unless the insured rejects it in

writing. B. This coverage is not available in Alabama. C. This coverage is required in Alabama. D. This coverage will be included only if the insured specifically requests it in writing.

33. The required coverage limits under Alabama’s mandatory automobile liability insurance law are

A. $10,000/$20,000/$5,000 B. $20,000/$40,000/$l0,000. C. $30,000/$60,000/$10,000. D. $25,000/$50,000/$25,000.

34. Operating a motor vehicle that is not covered by a liability insurance policy as required by law is a

A. Class A felony. B. Class A misdemeanor. C. Class B misdemeanor. D. Class C misdemeanor.

35. A premium reduction for 55 or older and who completes an approved motor vehicle accident

prevention course is effective for _____ years after the insured completes the course. A. 1 B. 2 C. 3 D. 4

36. A defendant cannot be admitted to bail if

A. they are charged with a misdemeanor. B. they are charged with an offense punishable by death and the court believes they are guilty. C. they are charged with any felony. D. All of the above

37. If the offense charged in the indictment is a misdemeanor, the defendant must be discharged on

giving sufficient bail, but the amount of bail must be at least A. $50. B. $100. C. $500. D. $700.

P&C Law Exam



38. Every person engaged in the business of making and charging bail bonds (other than in Cullman

County) must furnish a bond in the amount of A. $ 2,000 B. $ 5,000. C. $15,000. D. $ 25,000.

39. The intention of bail is

A. the enhancement of state revenues. B. the appearance of the defendant in court. C. the payment of the defendant’s fine. D. None of the above

40. The order granting authorization to become a professional surety on bail must be reissued

annually by the A. Sheriff of any county in Alabama. B. Department of Insurance. C. Supreme Court of Alabama. D. presiding circuit judge of the county in which the company desires to execute bail or

appearance bonds.

41. Sending in your license renewal fee 2 months after the due date will result in:

A. License being revoked B. Being put on probationary status C. Being required to take the Pre-license course D. Being charged a penalty in the amount of double the renewal fee

42. How many hours of continuing education can be carried over to the next year?

A. Up to 12 B. Up to 24 C. Up to 6 D. Up to 18

43. The purpose of the Insurance Guaranty Association is all of the below EXCEPT: A. Assist in the detection and prevention of insurer insolvencies

B. Avoid excessive delays in payments C. Suspend or revoke the insurers right to conduct business in the state D. Avoid financial loss to claimants or policy holders because of the insolvency of an insurer

P&C Law Exam



44. When an accident results in an employee’s death within three years of the accident and the employee has one dependent, that dependant will receive compensation as follows:

A. 66 2/3 % of the deceased’s average weekly earnings during dependency B. A lump sum of $7,500 C. 50% of the deceased’s average weekly earnings during dependency D. 33 1/3% of the deceased’s average weekly earnings during dependency

45. An injured employee must give the employer written notice of an accident within:

A. 5 Days B. 2 Weeks C. 10 Days D. 120 Days

46. An insurer issuing an industrial fire policy must use the following words in the caption EXCEPT:

A. Home Service B. Weekly Premium C. The Standard Fire Policy D. Monthly

47. Making misleading or incomplete comparisons to induce a policyholder to exchange an insurance policy is called:

A. Misrepresenting B. Forfeiting a commission C. Twisting D. Coercion

48. Licensed producers are allowed to collect a collection fee on unpaid balances for premiums up to:

A. 2% per month on unpaid balance B. Never C. 1% per month on unpaid balance D. 1 ½% per month on unpaid balance

49. The discount for premiums paid 12 months in advance for an industrial fire policy cannot exceed:

A. 5% B. 10% C. 12% D. 7%

50. The workers compensation laws are not mandatory for an employer of all the following EXCEPT:

A. Farm laborer B. Person whose employment is casual and not in the usual course of the employer’s business

C. Domestic Employee D. Part time employees

P&C Part 1 (Study/Answer Sheets)



P&C 1 S/A - Page 1

1. A hazard is A. the chance of loss B. the uncertainty about whether or not a loss might occur C. anything that increases in the possibility that a loss might occur D. the cause of loss

2. Insurance is used to A. eliminate risk by accumulating funds from enough individuals so the risk of loss no

longer exists. B. reduce risk by transferring funds from individuals posing little moral, morale or

physical hazard to those who pose greater hazards. C. retain risk through the law of large numbers. D. transfer risk from a person, business or organization to an insurance company

that agrees to pay for losses in exchange for a premium. 3. What type of insurance company considers the policyholder as an owner, with the rights

to vote and share in company profits? A. stock company. B. reciprocal company. C. Lloyd’s Association. D. mutual company.

4. Sue Smith’s home is insured by ABC Insurance Company. Last year she made the final

mortgage payment to XYZ Mortgage Company. Sue is considering selling her home to her niece, Dee. Which of the following has an insurable interest in the home? A. ABC Insurance Company B. Sue Smith C. XYZ Mortgage Company D. Dee Smith

5. Which of the following is NOT an element of insurability?

A. Loss must be calculable B. Risk of loss is a speculative risk C. Risk of loss must represent a financial hardship D. Cost of insurance must be affordable

6. The principle that states that an insured should be restored to the same financial position

after a loss as before is known as A. insurability. B. adhesion. C. subrogation. D. indemnity.




P&C 1 S/A - Page 2

7. What section of an insurance policy personalizes the policy as to who and what are

insured? A. Insuring Agreements B. Conditions

C. Declarations D. Exclusions

8. An insurance policy is prepared by the insurance company, with little or no input from the

insured. This is an example of a/an A. unilateral contract. B. personal contract.

C. adhesion contract. D. contract of utmost good faith. 9. An individual who owns and lives in a condominium can obtain broad coverage for

personal property under which Homeowners form? A. HO-2 B. HO-3 C. HO-4 D. HO-6

10. The purpose of Fair Credit Reporting Act is

A. to allow the use of installment payments for insurance premiums B. to limit the number of outside sources an underwriter may use when evaluating a risk C. to give the consumer recourse if insurance is denied on the basis of a credit

report D. to prevent insurers from using credit reports to evaluate risks

11. Of the following which is a liability loss?

A. A fire destroys the insured’s building. B. As a result of a fire, the insured’s business is closed while rebuilding takes place. The

insured loses three months’ of income. C. A fire damages the insured’s building. While firefighters managed to save part of the

inventory from the fire, some of it was damaged by the chemicals used to extinguish the flames.

D. A fire that was caused by the insured’s negligence burns a neighboring building. The owner of the building sues the insured.




P&C 1 S/A - Page 3

12. Which of the following methods involves modifying the premium based on the insured’s loss experience over a specified period of time? A. Merit rating B. Experience rating C. Manual rating D. Judgment rating

13. Flood insurance coverage is primarily provided by A. private insurance companies. B. state-run programs. C. surplus lines insurers. D. a federal government program. 14. Which of the following businesses operations would be eligible for a Businessowners

policy? A. Big Time Bank & Trust B. Kids ‘R’ Us Amusement Park

C. Trader Vic’s Bar And Grill D. Spry Funeral Home

15. Which of the following types of benefits is generally not provided by a state’s workers

compensation law? A. Rehabilitation B. Disability C. Medical D. Pain and suffering

16. Which of the following describes an insurance company that is doing business in a state

in addition to the one where it is incorporated? A. Domestic B. Foreign C. Alien D. Non admitted

17. The main purpose of a binder is to A. guarantee that an insurance policy will be issued provided the insured has made no

misrepresentations on the application. B. provide temporary protection for the insured between the time the application

is made and the policy is issued or the binder expires. C. provide the insurance company with the information about the insured required to

decide whether or not to issue the policy. D. eliminate the need for the policy to be countersigned when it is issued.




P&C 1 S/A - Page 4

18. Agent Bradley is under contract with the ABC Insurance Company to represent and sell

insurance only for ABC. This is an example of what type of agency system? A. Direct writer B. Independent C. Direct response D. Exclusive/captive

19. The type of insurance policy that insures against all risks of loss that are not specifically

excluded by the policy is a/an A. named peril policy B. specified peril policy C. open peril policy D. Binder policy 20. In a particular state, if an insurance company must file policy forms and rates with the

state insurance department and wait for official approval before using the new forms and rates, the state would be referred to as: A. use and file state B. prior approval state C. file and use state D. open competition state

21. Based on the Nationwide Definition, imports and exports are

A. eligible for Personal Inland Marine insurance. B. eligible for Commercial Inland Marine insurance. C. not eligible for Marine insurance. D. eligible for Ocean Marine insurance.

22. Which of the following Surety bonds guarantees that bills for labor and materials will be

paid by the contractor as they are due? A. Supply bond B. Bid bond C. Performance bond D. Payment bond

23. Which of the following statements describes actual cash value?

A. Market value minus depreciation B. Replacement cost minus depreciation C. Agreed amount D. Cost to repair or replace




P&C 1 S/A - Page 5

24. The condition that provides a means to settle the amount of a loss when the insured and

the insurance company cannot agree is the A. discovery period condition. B. appraisal condition. C. assignment condition. D. subrogation condition.

25. An insured purchased new furniture for $5,000. At the time of a fire loss, it had

depreciated $1,000. The same furniture will cost $6,000 to replace. What is the actual cash value of the destroyed furniture? A. $5,000 B. $6,000 C. $7,000 D. $8,000

26. Of the following which can be insured under an unendorsed Homeowners policy? A. Farm B. Mobile home C. Private residence in which the owner-occupant also maintains an office for her

accounting business D. Dwelling that the owner rents to his cousin 27. The main purpose of the Business Income coverage forms is to reimburse the insured for A. damage to accounts receivable records. B. loss of income resulting from property damage at the insured’s property. C. the costs of debris removal following loss from a covered peril. D. loss due to employees’ work-related injuries. 28. Coverage for sums an employer becomes legally obligated to pay under common law as

a result of a work-related injury is provided by A. Part One—Workers Compensation section of the Workers Comp policy. B. Part Two—Employers Liability section of the Workers Comp policy. C. the Commercial General Liability policy. D. the Businessowners policy. 29. Of the following which Homeowners form provides open peril coverage on the dwelling

and broad coverage on personal property is the A. HO-2. B. HO-3. C. HO-4. D. HO-6.




P&C 1 S/A - Page 6

30. Which one of the following coverage extensions is available in the Building And Personal

Property coverage form? A. Monthly limit of indemnity B. Business personal property C. Property off-premises D. Animals 31. Of the following which losses to cover equipment would be covered under the Equipment

Breakdown Protection coverage form?

A. Damage that occurs while the equipment is undergoing a pressure test B. Damage from an explosion caused by the centrifugal force of moving parts C. Damage caused by fire D. Damage resulting from a windstorm

32. In a PURE contributory negligence state, when an individual is found to have contributed

to their own loss in any way, the other party A. may be held liable only in the case of vicarious liability. B. may not be held liable. C. may be held liable, but to a reduced extent. D. may be held liable for full damages despite the other party’s negligence. 33. Which of the following would NOT generally be included in the Supplementary Payments

portion of a Liability policy? A. Loss of earnings B. First aid to others at the time of an accident C. Expenses the insured incurs at the company’s request as part of an investigation or

defense D. Damage to property owned by the insured 34. According to the cancellation condition in the Common Policy Conditions form, if the

insurance company is canceling a Commercial Package policy for nonpayment of premium, the insured must be given at least _______ days’ notice of cancellation.

A. 10 B. 14 C. 30 D. 60




P&C 1 S/A - Page 7

35. Which of the following coverages is not included in an unendorsed Dwelling policy? A. Dwelling B. Liability C. Other Structures D. Personal Property 36. Of the following coverages which includes Trailer Interchange coverage? A. Business Auto coverage form. B. Garage coverage form. C. Truckers coverage form and Motor Carrier coverage form. D. Personal Auto policy. 37. Open peril coverage for either the dwelling or personal property is provided by the A. HO-2 B. HO-3 C. HO-4 D. HO-5 38. Commercial General Liability policy includes a separate Aggregate Limit which applies to

the A. owners and contractors protective hazard B. products-completed operations hazard C. premises and operations hazard D. contractual liability hazard 39. Under the Personal Inland Marine form which of the following is used to provide open

peril coverage on a blanket basis for personal property? A. Floater form B. Personal Effects form C. Personal Property form D. Personal Articles form 40. The insured’s home is covered by a DP-3. Two years ago, the insured bought the home

for $68,000. Today, its replacement value is $70,000. How much Coverage A does the insured need to qualify for replacement cost coverage? A. $70,000 B. $52,400 C. $56,000 D. $59,100




P&C 1 S/A - Page 8

41. Which of the following coverages is excluded by a Dwelling policy? A. Coin collection B. Improvements, alterations or additions made by an insured at his or her own expense C. Detached garage on the insured’s premises D. Rent an insured was unable to collect because rental property was damaged 42. Of the following lines of insurance which CANNOT be included in the Commercial

Package policy? A. Crime B. Boiler And Machinery C. Ocean Marine D. Inland Marine 43. Which one of these Commercial Inland Marine forms CANNOT be included in the

Commercial Inland Marine coverage part of the Commercial Package policy? A. Commercial Articles coverage form B. Valuable Papers And Records coverage form C. Signs coverage form D. Parcel Post policy 44. Coverage provided by the Extra Expense coverage form is A. additional money to pay for property damage losses at a covered location. B. coverage that will permit the insured to continue in business without

interruption following a property damage loss. C. payment for unforeseen expenses an insured may incur while the business is shut

down following a property loss. D. extra money for an insured whose accounts receivable records have been damaged. 45. Regarding the Businessowners policy, the policy A. gives the insured great flexibility in picking coverages that can be included in the

policy. B. provides only property coverage C. can be written for almost any commercial insured. D. provides a prepackaged policy property and liability coverage for certain types

of small businesses 46. Glass damage and theft of money and securities are Optional coverages for employee

dishonesty included in A. the Special Businessowners Property form. B. the Standard Businessowners Property form. C. both Businessowners Property forms. D. neither of the Businessowners Property forms




P&C 1 S/A - Page 9

47. The type of Ocean Marine insurance which provides physical damage coverage for the ship while it is in transit?

A. Cargo B. Hull C. Freight D. Protection And Indemnity 48. The party to a Surety bond who promises to do or not do a specific thing is the A. obligee B. surety C. custodian D. principal 49. Of the following perils which is covered by the HO-2 and HO-3? A. Loss due to power interruption that occurs off the premises B. Sudden and accidental rupture of a heating system C. Flood D. War 50. Liability assumed under the Commercial General Liability coverage form is A. always excluded. B. covered, except for contracts specifically defined as insured. C. covered, except for property leases. D. excluded, except for contracts specifically defined as insured. 51. Identify the individual that would be considered an insured for Liability coverage under

the Personal Auto policy? A. The named insured’s neighbor while taking the named insured for a drive in the

neighbor’s new car B. The named insured’s cousin who, while visiting from another state, drives a car the

named insured borrows from a neighbor C. The named insured’s son, who lives with the insured, while driving a

neighbor’s car D. The named insured’s neighbor, who borrows the named insured’s car without

permission 52. With a pure no-fault plan each party to an auto accident A. has the right to seek pain and suffering compensation. B. is reimbursed by his or her own insurance company, but could seek additional

compensation if damages were higher than a certain amount. C. is reimbursed by his or her own insurance company. D. is reimbursed by the other party’s insurance company




P&C 1 S/A - Page 10

53. If the insured’s property insurance policy has a deductible clause, the clause means that A. the insured must deduct a claim payment from the policy limit. B. the insured deducts any claim payment received from the next insurance premium. C. any losses paid to a third party are deducted from the policy limit. D. the insured must pay a certain amount for each loss incurred under the policy. 54. Of the following which coverages is not included in the Commercial Crime insuring

agreements but can be added by endorsement? A. Theft of money and securities B. Employee Dishonesty C. Computer Fraud D. Extortion 55. Additional losses that results from a direct loss to property are called a/an A. proximate loss B. indirect/consequential loss C. liability loss D. punitive loss 56. Of the following which is NOT one of the components of a Commercial Package policy? A. Coverage parts B. Object Definitions form C. Common Policy Conditions D. Common Policy Declarations 57. Under the Commercial Crime forms, new employees and additional premises obtained

through a consolidation or merger A. are automatically covered until the end of the policy period. B. are automatically covered for 90 days. C. are only covered if the insured provides immediate notification to the insurer. D. cannot be covered under the current policy but can be added at the next policy

effective date. 58. With the claims-made Commercial General Liability coverage form, the first date that a

loss may occur and still be covered under the policy is the A. policy expiration date. B. extended reporting period inception date. C. retroactive date. D. policy inception date.




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59. If the following items were stolen from the insured’s home which one of these losses would be fully covered under Coverage C of the Homeowners policy, assuming the loss was for the full value of the property described?

A. An antique gun valued at $5,000 B. A $3,000 mink stole C. A $2,000 laptop computer the insured uses for her in-home accounting

business D. A $1,500 ruby and diamond ring 60. The insured, Trader Vic’s Bar, wants coverage for liability arising out of selling and

serving alcoholic beverages. Such coverage can be provided by purchasing A. an unendorsed Commercial General Liability coverage form. B. a Commercial General Liability coverage form with the Amendment Of Liquor Liability

Exclusion endorsement attached. C. a Liquor Liability coverage form. D. a Businessowners policy. 61. Both the contents and the structure of mobile homes can be insured by purchasing A. an unendorsed HO-3. B. a Businessowners policy C. either a Mobile Home package policy or an HO-2 or HO-3 with the Mobile

Homeowners endorsement. D. an unendorsed DP-3. 62. Of the following losses which one would be paid under Part D of the Personal Auto

policy? A. An awning attached to the insured’s camper trailer was destroyed by hail. B. The insured’s pickup truck was contaminated by radioactive materials and had to be

destroyed. C. A permanently installed tape player was damaged when thieves attempted to

remove it from the car. D. The insured collided with a telephone pole while he was using the car as a taxi to

earn extra money. 63. Professional liability protection for insurance agents can be obtain by purchasing A. an unendorsed Commercial General Liability coverage form. B. an Errors And Omissions insurance policy. C. an unendorsed Homeowners policy. D. an unendorsed Dwelling policy




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64. The difference between the loss sustained and discovery versions of the Commercial

Crime coverage forms is A. Property covered B. Coverage trigger C. Eligibility D. Perils covered 65. In ALL states, an UNENDORSED Personal Auto policy’s Uninsured Motorists coverage

applies to what type of loss caused by an uninsured motorist? A. Property damage B. Personal injury C. Bodily injury D. Comprehensive 66. Which is of the following is not a primary coverage provided under the Commercial

General Liability policy A. Bodily Injury And Property Damage Liability B. Personal And Advertising Injury. C. Pollution Liability D. Medical Payments. 67. Who may cancel the policy in writing and make changes to the policy with the consent of

the insurer under the Commercial Package policy? A. Last named insured B. Any named insured C. Any insured D. First named insured 68. Which part of the Workers Compensation And Employers Liability policy pays all

compensation and other benefits required by the state’s Workers Compensation law? A. Part One—Workers Compensation B. Part Two—Employers Liability C. Part Four—Your Duties If Injury Occurs D. Either Part One or Part Two, depending on the type of loss




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69. Of the following accidents which one would NOT be covered under the Uninsured Motorists coverage of the Personal Auto policy?

A. An accident in which a hit-and-run driver hits the insured’s covered auto B. An accident with a driver who carries the minimum liability limits required by

law, but whose insurance is not adequate to cover the damages C. An accident with a motorist who has less Liability insurance than required by the

state’s financial responsibility law D. An accident with an at-fault driver whose insurance company declines coverage 70. Under the Business Auto coverage form, employers that want to cover employees’ use of

their own cars in the employer’s business should opt to have Liability coverage apply to which of the following groups of autos?

A. Hired B. Nonowned C. Miscellaneous D. Owned 71. Personal Auto policy’s Medical Payments coverage would provide protection for all of the

following except? A. The insured B. Occupants of a car that was struck by the insured C. Passengers in the insured’s car D. The insured’s family members 72. The authority specifically given to an agent, either orally or in writing, by the principal is

called A. apparent authority. B. compensated authority. C. implied authority. D. express authority. 73. Of the following which is responsible for the licensing of insurance agents? A. Individual State Insurance Departments B. American Council Of Insurers C. Interstate Commerce Commission D. Federal Trade Commission 74. Of the following which one covers a carrier for liability for loss to cargo while it is being

transported in a truck? A. Truckers coverage form B. Motor Truck Cargo policy C. Motor Carrier coverage form D. Trip Transit policy




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75. For monopolistic states, an employer purchases Workers Compensation insurance from A. a private insurance company. B. either a state fund or a private insurance company C. a state fund. D. the federal government. 76. The insured has a property covered by two separate Dwelling policies: Policy A for

$50,000 and Policy B for $100,000. The insured has a $21,000 loss. If both policies use the pro rata method to handle other insurance, how much will Policy B pay for this loss?

A. $21,000 B. $-0- C. $10,500 D. $14,000 77. Of the following which lists all the required elements for establishing a charge of

negligence? A. Legal duty owed, deliberate attempt to cause harm, damages B. Breach of reasonable person rule and proximate degree of care C. Legal duty owed, proximate cause, intervening cause, damages D. Legal duty owed, breach of legal duty owed, proximate cause, damages 78. Under Liability policies, Supplementary Payments are A. payable in addition to the policy limit of liability. B. subject to the overall policy limit of liability. C. only available by endorsement. D. subject to a flat limit of 10% of the overall policy limit. 79. Bradley’s home sustains $50,000 damage in an electrical fire. The home is insured under

a Homeowners policy for $75,000, with the home’s replacement cost at the time of the loss of $125,000. How much will Bradley’s Homeowners policy pay for this loss?

A. $75,000 B. $37,500 C. $50,000 D. $125,000 80. Of these Homeowners endorsements which one is used to schedule separate coverage

for one or more of nine categories of personal property? A. Scheduled Personal Property B. Personal Property C. Personal Articles D. Personal Effects




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81. The insured has a $1,000,000 Personal Umbrella policy with a retention limit of $1,000. The insured suffers a $20,000 loss that is excluded by the underlying policy, but not the Umbrella. How much of this loss would be paid under the umbrella?

A. $-0- B. $19,000 C. $20,000 D. $21,000 82. Of the following which would be covered under the building coverage of the Building And

Personal Property coverage form? A. Land B. Fixtures C. Indoor furniture D. Inventory 83. Under CGL all of the following reduce the general aggregate limit EXCEPT the A. medical expense limit. B. products-completed operations limit. C. personal and advertising injury limit. D. per occurrence limit. 84. Under Personal Auto policy the Physical Damage section excludes A. mechanical breakdown. B. theft of the entire auto. C. earthquake. D. flood. 85. Vic has a Personal Auto policy with all cars insured by one company. Vic sells one of the

cars and buys a new one to replace it. Must the he take any action for the Liability portion of his current policy to apply to the replacement vehicle?

A. Yes, the insured must notify the company within 30 days to have Liability coverage

apply to the replacement vehicle. B. Yes, the insured must contact his agent to have a new policy issued. C. Yes, the insured must sign a notarized form proving he is still insurable. D. No, the insured does not have to do anything; Liability coverage for a

replacement vehicle is automatic.




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86. With the Business Auto coverage form, the insured’s liability arising out of which of the following situations would be covered?

A. Bodily injury due to the insured’s operation of mobile equipment B. Bodily injury resulting from loading or unloading a covered auto C. Damage to property in the insured’s custody D. Injury to an employee of the insured while the employee is working for the insured 87. With the Commercial Property coverage part, the Causes Of Loss—Broad form insures

against A. all risks of direct physical loss unless specifically excluded. B. the perils in the Causes Of Loss—Basic form and additional perils.

C. a list of basic named perils only. D. earthquake only. 88. Coinsurance is best defined as A. Two or more policies that apply to the same property B. Two or more buildings that are covered under a single policy C. A requirement that the insured carry insurance equal to a specified percentage

of the property’s value to qualify for replacement cost coverage under the policy

D. A condition that allows the insurer to take action against a third party for reimbursement of loss settlements made with the insured

89. All of the following about Farm coverage part is correct EXCEPT? A. It provides both property and liability insurance B. It covers the farmer’s growing crops C. It covers the farmer’s business and personal loss exposures D. It can be included in the Commercial Package policy 90. Which Commercial Property coverage form covers damage to the property of others in

the insured’s care, custody or control for which the insured is legally liable? A. Legal Liability coverage form

B. Builders Risk coverage form C. Extra Expense coverage form D. All Commercial Property coverage forms provide this type of coverage 91. Of the following losses which would be paid under the Business Auto coverage form’s

Comprehensive coverage? A. The grillwork on a covered auto gradually corroded due to continuous exposure to

salt air. B. A covered auto was damaged when it was hit by a car that ran a stop sign. C. A covered auto was stolen and never recovered. D. A covered auto skidded on icy pavement and overturned.




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92. The owners of a parking lot want coverage for their liability for damage to vehicles left in their custody. They need

A. Garagekeepers coverage. B. Business Auto coverage. C. Garage Liability coverage. D. both Garage Liability and Garagekeepers coverage. 93. The Causes Of Loss—Special form of the Commercial Property coverage part insures

against which of the following? A. a list of basic named perils only. B. earthquake only C. all risks of direct physical loss unless specifically excluded. D. all risks of loss to the insured building and specified causes of loss to business

personal property 94. Wanda has a Personal Auto policy with limits of 20/40/20 for Liability coverage. She

causes an accident that results in $22,000 bodily injury damages to the other driver and $7,000 in property damage to the other driver’s car. How much would Wanda’s policy pay for both the BI and PD losses?

A. $13,000 B. $27,000 C. $29,000 D. $7,000 95. With the Workers Compensation system, who is responsible for the expenses resulting

from work-related injuries and occupational diseases? A. The employee B. The employer, but only if it was at fault for the injury or disease C. The employee and employer in equal shares D. The employer, regardless of whether it was at fault for the injury or disease 96. Concerning the claims-made CGL, the supplemental extended reporting period A. automatically extends coverage to include claims made within 5 years of policy

expiration, provided the losses occurred during the policy period. B. provides an unlimited extension for making claims for losses that occurred

during the policy period, but the insured must pay an additional premium. C. automatically provides an unlimited extension for losses that occurred during the

policy period but for which a claim is not made until after policy expiration. D. automatically extends coverage for losses that occurred during the policy period and

are claimed within 60 days following policy expiration.




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97. Basic Dwelling policies automatically provide coverage against fire, lightning and A. windstorm. B. falling objects. C. riot. D. internal explosion. 98. Coverage for medical instruments while they are on and off the premises could obtain it

by purchasing the A. Malpractice policy. B. Personal Effects form.

C. Physicians And Surgeons Equipment coverage form. D. Commercial General Liability coverage form. 99. Bradley Enterprises wants property insurance for a new warehouse it is building. Bradley

Enterprises also wants the policy’s limit of insurance to gradually increase as the value of the building under construction increases. Which of the following Commercial forms does Bradley Enterprises need?

A. Building And Personal Property coverage form B. Business Income coverage form C. Businessowners coverage form D. Builders Risk Reporting form 100. When applying for Homeowners insurance, Mr. Liealot tells his agent that the home is

used strictly as a residence. Actually, he manufactures fireworks in the basement of the home. What will happen if the insurance company discovers Mr. Liealot’s misrepresentation after the policy is issued?

A. It must wait until the policy’s expiration date to cancel the coverage. B. Nothing. Mr. Liealot did not misrepresent a material fact. C. It will void the policy because Mr. Liealot misrepresented a material fact. D. Nothing. A policy cannot be voided on the basis of a misrepresentation of a material

fact.




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1. All of the following are included in an insurance contract EXCEPT A. Insuring Agreement. B. Conditions. C. Exclusions. D. floater. 2. The Dwelling Special form provides A. open peril coverage on the dwelling and personal property. B. open peril coverage on the building and named peril coverage on personal

property. C. open peril coverage on personal property. D. named peril coverage on the dwelling and personal property. 3. Of the following which would you have an insurable interest? A. The house you own but have rented to a tenant B. The car on which you are still paying C. Neither A nor B D. Both A and B 4. During a liability loss, the person the insured caused damage to is referred to as the A. first party. B. second party. C. third party. D. fourth party. 5. Of the following which is NOT a possible defense against negligence? A. Statute of limitations B. Intervening cause C. Comparative negligence D. Doctrine of reasonable expectations 6. Of the following which provides coverage against an indirect loss under Section I of the

Homeowners policy? A. Coverage C - Personal Property B. Coverage A -Dwelling C. Coverage D - Loss Of Use D. Coverage B - Other Structures




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7. Of the following losses which would be covered under the Personal Auto policy’s Liability coverage?

A. Wanda breaks a rented carpet cleaning machine while trying to get it out of the back

seat of her car. B. Vic falls asleep at the wheel of his car and strikes and injures a pedestrian. C. Teresa rides her all-terrain vehicle through her neighbor’s yard and damages the

yard. D. In a fit of temper, Bill throws his golf clubs through the windshield of his neighbor’s

car. 8. The insurance contract is considered to be a contract of indemnity because A. an insured may collect no more than the limit of liability stated in the Declarations. B. an insured may collect up to 10% more than his or her insurable interest. C. an insured may collect no more than the amount required to restore him or her

to the same financial condition that existed prior to the loss. D. in cases of total loss, an insured can collect the appraised value of the property. 9. The Builders Risk Reporting form insures a building under construction for A. its completed value. B. 10% of its completed value during the entire construction period. C. its completed value, but at a reduced rate. D. an amount that increases at intervals to correspond with the increasing value

of the building. 10. If a homeowner wants the maximum protection for home and contents, which form should

be purchased? A. HO-2 B. HO-4 C. HO-5 D. HO-8 11. Insurance is a means of A. eliminating risk. B. transferring risk. C. avoiding risk. D. retaining risk. 12. The Commercial Inland Marine transportation form used to insure a carrier’s liability for

damage to transport cargo is the A. Trip Transit policy. B. Annual Transit policy. C. Motor Truck Cargo policy. D. Motor Carrier coverage form.




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13. The Commercial General Liability coverage part can be used to insure against all of the following exposures EXCEPT

A. Premises liability. B. Products liability. C. Auto liability. D. Completed Operations liability. 14. Of the following which is NOT one of the required elements of a legal contract? A. Offer and acceptance B. Written instrument C. Competent parties D. Legal purpose 15. The DP-1 form covers personal property off premises (with the exception of rowboats and

canoes and property belonging to guests or servants) A. only while it is in the United States. B. for up to the full amount of coverage that applies to personal property on the

premises. C. anywhere in the world for up to 10% of the Coverage C amount. D. as described in both A and B. 16. Concerning the Business Auto coverage form, the nonowned auto category represents A. customers’ autos. B. autos hired by the insured. C. autos owned by the insured but furnished to the employee. D. autos owned by employees but driven in the insured’s business. 17. What category of bonds would bid bonds, payments bonds and performance bonds fall

under? A. Fiduciary bonds. B. Labor bonds. C. Contract bonds. D. Judicial bonds. 18. Where states that have competitive Workers Compensation funds, A. the employer must purchase insurance from a private insurer. B. the employer must purchase insurance from the state. C. the employer may purchase insurance from either the state or a private insurer. D. the employer is expected to self insure.




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19. Of the following which is an insurable risk? A. Wear and tear on a valuable oriental rug B. Hail damage to the roof of a car C. Theft of a paperback book D. All of the above 20. The action that produces a loss is known as the A. proximal causation. B. proximate cause. C. primal causation. D. approximate cause. 21. Concerning Personal Inland Marine form which of the following provides open peril

coverage on a blanket basis for most kinds of property found in a typical home? A. Personal Articles floater B. Scheduled Personal Property endorsement C. Personal Effects floater D. Personal Property floater 22. Of the following which loss would be covered under the Personal Auto policy’s Physical

Damage coverage? A. State officials confiscated the insured’s auto after it failed to meet the state’s auto

emissions standards. B. An awning attached to the insured’s camper trailer was ruined in a windstorm. C. Vandals damaged a custom mural painted on the insured’s van. D. The on-board computer system used to monitor the operation of the insured

auto was destroyed in a fire. 23. Concerning a legal contract which of the following represents an insurance premium

payment? A. Acceptance B. Legal instrument C. Offer D. Consideration 24. Concerning the Commercial General Liability claims-made coverage form and a

retroactive date. The retroactive date is the date A. the policy takes effect. B. before which the Commercial General Liability claims-made form will not cover

a claim. C. the policy expires. D. by which a claim must be made to be covered.




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25. Workers Compensation laws in most states are A. elective. B. monopolistic. C. competitive. D. compulsory. 26. Coverage for loss of income due to a covered loss to a boiler or other defined object A. is included in the Boiler And Machinery coverage form. B. is covered under the Commercial Property coverage form. C. is available under a Business Interruption endorsement to the Boiler And

Machinery coverage form. D. is available only in conjunction with the Difference In Conditions form. 27. A peril is defined as A. the uncertainty of loss. B. something that increases the chance of loss. C. the result of a loss.

D. the cause of loss. 28. Nonexclusive agent is defined as individual who

A. represents only direct writers. B. works for a solicitor. C. is a captive agent. D. represents more than one insurance company. 29. Of the following losses which would NOT be recoverable under the Liability coverage of

the Homeowners policy? A. A delivery man trips over a toy left on the porch of the insured’s dwelling. B. The named insured’s dog damages the front screen door of a neighbor’s house. C. The named insured’s son damages the family’s garage with his car. D. The named insured’s small daughter hits a friend with a stick, severely injuring the

other party’s eye. 30. Of the following policies which is specifically designed to cover business property? A. Dwelling policy B. Extended Coverage endorsement C. Vandalism And Malicious Mischief endorsement

D. Commercial Property coverage part 31. Of the following all are time element coverages EXCEPT A. Business Income coverage form. B. Valuable Papers coverage form. C. Business Income From Dependent Properties form. D. Extra Expense coverage form.




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32. Binder is defined as A. is always a written agreement. B. guarantees that a policy will be issued. C. may only be issued by the insurance company. D. None of the above 33. Glass Or Safety Glazing Material other coverage is included in which Dwelling form(s)? A. DP-1 B. DP-3 only C. DP-1 and DP-2 D. DP-2 and DP-3 34. Ocean Marine Protection And Indemnity insurance provides A. physical damage coverage for the ship’s hull. B. property coverage for goods in transit over water. C. marine liability coverage. D. protection against the loss of shipping costs. 35. The Workers Compensation policy provides coverage for A. amounts the employer is required to pay under state Workers Comp laws. B. amounts for which the employer becomes legally obligated to pay for an employee’s

work-related injuries. C. Neither A nor B D. Both A and B 36. The tendency for people with a greater-than-average exposure to loss to want to purchase

insurance to cover their risk is called A. the law of large numbers. B. adverse selection. C. subrogation. D. a morale hazard. 37. It will cost Vic $5,000 to put a new roof on his home to replace a roof destroyed in a

winter storm. Assume that the original roof, which Vic paid $3,500 for 10 years ago, depreciated $300 per year. What was the actual cash value of the roof that was destroyed?

A. $5,000 B. $3,500 C. $2,500 D. $2,000




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38. Flood insurance is A. available through any insurance company. B. purchased directly from the federal government. C. not available.

D. available from the federal government or private companies who are reimbursed for losses by the government.

39. For states that require prior approval, the rates and policy forms insurance companies

use must be approved by A. a rating bureau. B. the federal government. C. the Better Business Bureau. D. the insurance department of the state where they will be used. 40. The Fair Credit Reporting Act applies to applicants who are rejected for insurance

coverage on the basis of A. a police report. B. a tax audit. C. a credit report. D. All of the above 41. Of the following which is NOT a category of the Nationwide Definition? A. Exports B. Instrumentalities of transportation C. Commercial Property floater risks D. Excess liability 42. Workers Compensation policy Medical benefits are A. subject to a $100,000 limit per injury. B. paid for up to three years after the injury occurred. C. not paid unless the employer was liable for the employee’s injury. D. not subject to time or dollar limits unless they are specified in the state law. 43. Negligence is defined as A. a criminal act. B. an intentional tort, C. an unintentional tort. D. a proximate cause.




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44. If a home owner insures his home equal to at least 80% of the replacement cost of the dwelling, then what is the rule of indemnification that applies if the home is destroyed?

A. The insured will be indemnified 80% of the replacement cost. B. The insured is indemnified for the actual cash value of the loss. C. The insured is indemnified for 80% of the actual cash value of the loss. D. The insured may be indemnified for the replacement value of the property, up

to the policy limits. 45. Which Commercial Crime insuring agreement includes coverage for defense costs? A. Computer Fraud B. Forgery Or Alteration C. All Crime coverages D. None of the Crime coverages 46. The Inside The Premises-Robbery Or Safe Burglary insuring agreement in the

Commercial Crime policy covers A. loss of money from robbery of a custodian. B. loss of money from safe burglary. C. loss of other property from robbery of a custodian. D. All of the above 47. Which of the following is not a way of funding Workers Compensation benefits? A. private insurance. B. a monopolistic or competitive state fund. C. self insurance. D. an employee tax. 48. The type of bond that individuals who are appointed by the court to manage the property

of another might require is called a A. License And Permit bond B. Fiduciary bond C. Court bond D. Performance bond 49. Businesses can obtain coverage for their liability arising out of discrimination and sexual

harassment by purchasing A. Commercial General Liability insurance. B. Difference In Conditions insurance. C. Employment Practices Liability insurance. D. Workers Compensation insurance.




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50. Under the Dwelling Basic form automatically provides coverage against fire, lightning and A. hail. B. smoke. C. windstorm. D. internal explosion. 51. Of the following which is not an Extended Coverage perils A. aircraft. B. fire. C. riot. D. hail. 52. Under the Broad and Special Dwelling forms the Additional Living Expense coverage that

is included protects the insured against A. depreciation on the house. B. smoke damage to personal property. C. extra living costs incurred when the home becomes uninhabitable due to

damage by a peril insured against. D. loss of rental income that occurs when rental property becomes uninhabitable

because of damage caused by a peril insured against. 53. Assigned Risk Plans for Auto insurance do which of’ the following? A. Provides free auto insurance to those who cannot afford it B. Makes insurance available to drivers who are unable to obtain it through

normal channels C. Both A and B D. Neither A nor B 54. Comprehensive Physical Damage coverage under the Personal Auto policies covers

which of the following? A. Damage caused by hitting an animal B. Flood C. Theft D. All of the above 55. A Commercial Package policy must include A. Commercial Causes Of Loss form and Common Policy Conditions. B. Common Policy Conditions and Commercial Property coverage part. C. Common Policy Declarations, Common Policy Conditions, two or more

coverage forms. D. Common Policy Declarations, Common Policy Conditions, Special Commercial

Conditions.




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56. If a hardware store is insured under a Business Income coverage form with the Special Causes Of Loss form. Which of the following lose would be covered?

A. Income lost when another hardware store opens down the street B. Income lost when the store closes for a week while the owner is in the hospital C. Income lost when the store closes for a week to repair damage caused by an

earthquake D. Income lost when the store closes for a week while damage from a burst water

pipe is repaired 57. Garagekeepers coverage insures against A. physical damage to the insured’s own autos. B. liability for bodily injury to customers while on the premises. C. medical expenses. D. liability for damage to autos of others that are in the care, custody or control of

the insured. 58. Under the Commercial Crime policy what type of property loss is covered under The

Employee Theft insuring agreement? A. Money B. Securities C. Property other than money and securities D. All of the above 59. For Fidelity bonds, the party to whom the promise is made and for whose protection the

bond is written is the A. surety. B. principal. C. obligee. D. bonder. 60. The insured has $20,000 insurance with Company A and $40,000 with Company B.

Assume both policies contain an “other insurance clause” specifying pro rata. What would Company A pay if there was a $24,000 loss?

A. $-0- B. $8,000 C. $12,000 D. $20,000 61. An insured’s home is covered by the DP-3 form. The policy provides $20,000 in coverage

on a $50,000 home. When high winds destroy the roof, it is determined it will cost the insured $3,000 to replace it. Assuming the actual cash value of the roof is $750, how much would the insured collect for this loss?

A. $800 B. $1,500 C. $1,800 D. $3,000




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62. Which of the following is not an area of law under which a person can be found liable for

injury or damage to another? A. absolute liability. B. negligence. C. assumption of risk. D. vicarious liability. 63. The right to request an appraisal belongs to A. the insured. B. the insurance company. C. Neither A nor B

D. Both A and B 64. Of the following which Personal Auto coverage reimburses the insured without regard to

fault, regardless of whether or not the state is subject to no-fault laws? A. Property Damage Liability coverage B. Bodily Injury Liability coverage C. Medical Payments coverage D. Both A and B 65. All of the following must be included in a Commercial Property policy written under the

Commercial Package policy program with the exception being A. Causes Of Loss form. B. one or more Commercial Property coverage forms. C. Commercial Property Conditions form. D. Value Reporting form. 66. When a building insured under the Building And Personal Property coverage form is

vacant for three months, A. there would be no coverage for either a vandalism loss or a fire loss. B. a vandalism loss would not be covered; a fire loss would be covered, subject

to a 15% penalty. C. both vandalism and fire losses would be covered, subject to a 15% penalty. D. a vandalism loss would be covered subject to a 15% penalty; a fire loss would be

covered in full. 67. Coverage for products and completed operations is provided under which of the following

contracts? A. Occurrence CGL B. Claims-made CGL C. Neither A nor B D. Both A and B




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68. Assume there are no endorsements attached to the policy, of the following which type of company would have coverage for liquor liability losses under the Commercial General Liability policy?

A. A convenience store that sells beer and wine

B. An advertising agency that serves liquor at a holiday party C. Both A and B D. Neither A nor B 69. With Surety bonding, which party seeks and pays for the bond? A. Obligee B. Surety C. Principal D. Fiduciary 70. A Surety bond is A. a two-party contract. B. a three-party contract. C. a four-party contract. D. not considered a contract. 71. For insurance agents who need insurance for their professional liability exposure they

should purchase a/an A. CGL with a Professional Liability endorsement. B. Employment Practices Liability policy. C. Errors And Omissions policy. D. standard CGL, which includes coverage for professional liability. 72. On what basis are losses to dwellings and other structures paid under either DP-2 and

DP-3? A. Actual cash value B. Stated value C. Replacement cost D. Valued policy 73. The insured has a $1 million Personal Umbrella policy with a $5,000 deductible. For a

$7,000 loss not covered by an underlying contract but covered under the Umbrella, the insurance company would pay

A. $2,000. B. $5,000. C. $7,000. D. nothing.




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74. For Ocean Marine insurance, a general average loss is A. any loss that is not total. B. a partial loss arising from a sacrifice of cargo to save remaining property. C. a loss in which the property is not completely destroyed, but the cost of salvage or

repair would exceed the value of the property. D. a partial loss that does not arise from jettison. 75. A company that frequently rents autos and trucks for business use should include which

symbol in the Business Auto policy Declarations? A. 8 B. 2 C. 9 D. 5 76. The Owners And Contractors Protective form covers the insured for liability A. arising out of products or completed operations. B. arising out of the operations of independent contractors or subcontractors. C. arising out of the insured’s premises. D. arising out of contractual liability. 77. In Crime insurance, the taking of property by stealth is included in the definition of A. burglary. B. theft. C. robbery. D. forgery. 78. Of the following all can be covered under the Farm coverage part of the Commercial

Package policy EXCEPT A. crops. B. farm buildings. C. personal liability. D. household personal property. 79. Of the following which coverages are included in the Dwelling policy? Assume there are

no endorsements attached to the policy. A. Property coverage for homes, other structures and personal property B. Fair rental value coverage C. Both A and B D. Liability coverage 80. Who of the following is an insured for Liability coverage Under the Personal Auto policy? A. The named insured and family members for the use of any auto B. Anyone who uses the insured’s covered auto with the named insured’s permission C. Both A and B D. Anyone who is riding with the insured at the time of the accident




P&C 2 S/A - Page 14

81. Which of the following losses would be paid under the Commercial General Liability

policy’s Medical Payments coverage? A. A mannequin tips over and injures the store owner. B. A mannequin tips over and injures a customer. C. A mannequin tips over and injures a store employee. D. All of the above 82. Vic needs Liability, Property and Medical Payments coverage for his 30-foot speedboat

with a 75 hp engine. This boat could be covered under a A. Boatowners or Watercraft package policy.

B. Homeowners policy with no endorsements. C. Homeowners policy that includes the Watercraft endorsement. D. Personal Inland Marine form. 83. Of the following who would have a need for the Personal Inland Marine Personal

Property form? A. A condominium or apartment dweller who cannot obtain open peril coverage

for personal property under the H0-4 or R0-6 B. An insured who needs additional insurance for valuable personal property C. An insured who needs to insure her personal belongings while traveling D. An insured who owns a small boat that cannot be covered under the Homeowners

policy 84. Mutual insurance companies are owned by A. their stockholders. B. the insurance department in the state where it is incorporated. C. the federal government. D. their policyholders. 85. An insurance policy is considered a unilateral contract since A. the policy does not provide any benefit to the insured unless a claim is paid. B. the insured must comply with certain conditions in the policy for a claim to be paid. C. the insurance company is the only party that is legally obligated to perform

under the insurance contract. D. the insurance company writes the policy provisions, with little or no input from the

insured. 86. An insurance policy has a $35,000 per occurrence limit. If the insured has a $5,000

covered loss during the policy period, how much coverage is available for other covered losses that occur during the remainder of the policy period?

A. $30,000

B. $35,000 C. $20,000 D. $5,000




P&C 2 S/A - Page 15

87. Several valuable trees on the insured’s property are destroyed by lightning. This loss is A. excluded in all Homeowners forms. B. covered in the HO-3 only for up to 5% of the Coverage A limit or a maximum of $500

per tree. C. covered in all Homeowners forms, with no limit on the amount of coverage provided. D. covered for up to 5% of the Coverage A limit in the HO-2, HO-3 and HO-8 and

up to 10% of the Coverage C limit in the HO-4 and HO-6, with a maximum of $500 per tree.

88. Of the following who would be covered under the Medical Expenses coverage of the

Businessowners policy?

A. A tenant of the insured who fell off the roof of the rented building B. A customer who was injured while shopping in the insured’s store C. An employee of the insured who was injured in a fall off a stepladder in the insured’s

store D. A marathon runner who was injured while running past the insured’s premises

89. For the CGL, the products-completed operations hazard is subject to A. a products-completed operations aggregate limit. B. a per occurrence limit. C. Both A and B D. the general aggregate limit. 90. A morale hazard A. is the tendency for people with a higher-than-average risk of loss to seek insurance

coverage. B. is the tendency to create a loss on purpose to collect from the insurance company C. arises through an individual’s carelessness or irresponsible actions. D. arises from the condition, occupancy or use of the property itself. 91. Of the following losses which would be covered by a Flood policy? A. Water backs up through a sewer system and floods the insured’s bathroom. B. Heavy rains cause a lake to overflow and flood the basement and first floor of a

house. C. A tornado blows out all the windows in the insured’s home, and the house is flooded

when it rains the next day D. The insured incurs additional living expenses when flooding forces her to evacuate

her home.




P&C 2 S/A - Page 16

92. FAIR Plans prohibit the insurance company from A. charging higher rates due to environmental hazards. B. requiring the insured to make improvements to the property

C. rejecting a risk solely because of environmental hazards. D. All of the above 93. When comparing a Commercial Package policy and a Businessowners policy, what is the

primary difference? A. The eligibility requirements for a Business-owners policy are less stringent than the

CPP’s. B. With a CPP, the insured can pick and choose the coverages included in the

policy. C. The CPP is specifically designed for smallbusinesses. D. There are fewer coverage options in the CPP. 94. Furniture inside a building that burns down is an example of what kind of loss A. Direct B. Indirect C. Consequential D. Residual 95. Of the following business occupancies each would be permitted in a dwelling insured

under a Dwelling form EXCEPT A. a photographic studio.

B. a small shop carrying merchandise for sale. C. a beauty shop run by the insured and her daughter. D. a professional office providing services to clients. 96. What constitutes an agreement to enter into a valid contract? A. An exchange of consideration B. An unconditional and unilateral promise to perform a duty C. A specific offer by one party and acceptance by the other D. An exercise of utmost good faith in disclosing all pertinent information 97. The Business Income coverage form applies to loss of A. income as the result of destruction of accounts receivable records. B. cash receipts because of burglary or robbery C. loss of revenue while operations are suspended due to property damage. D. money because of employee dishonesty




P&C 2 S/A - Page 17

98. Under the Building and Personal Property coverage form, what obligation, if any does an insurer have to a mortgagee in the event of policy cancellation? A. The company has no obligation B. The company must give the mortgagee 10 days written notice for cancellation

due to non payment of premium and 30 days notice in the case of a cancellation

C. The company must give the mortgagee 10 days written notice of cancellation in all cases.

D. The company must notify the insured, who then is responsible for informing the mortgagee

99. Under the Business Auto coverage form, which of the following is not considered to be

mobile equipment?

A. Forklift B. Self-propelled snow plow C. Farm machinery D. Bulldozer

100. Of the following kinds of property each may be covered under a Building And Personal

Property coverage form EXCEPT A. permanently installed fixtures and machinery B. account records and evidences of debt. C. the insured’s stock held for sale. D. an insured tenant’s use interest in improvements and betterments.

P&C Law Exam (Study/Answer Sheets)


Visit us at www.beagent.us or www.aaonlineclasses.com P&C 3 S/A - Page 1

1. In the state of Alabama, the Commissioner of Insurance is A. voted into office by general election. B. appointed for a two-year term by the secretary of state. C. selected by the state senate. D. appointed by the governor.

2. The Insurance Commissioner can/may do all of the following EXCEPT

A. change insurance laws for the good of the general public. B. supervise and administer the insurance department. C. enforce the provisions of the insurance law. D. conduct examinations of insurance companies.

3. Upon the receipt of a written complaint the Insurance Commissioner must hold a hearing within

A. 10 days after receipt of the demand. B. 14 days after receipt of the demand. C. 20 days after receipt of the demand. D. 30 days after receipt of the demand.

4. The minimum capital required to form and organize a new domestic stock life insurance company

in the state of Alabama is A. $100,000. B. $500,000 C. $750,000. D. $1,000,000.

5. To be licensed as a resident insurance producer in Alabama an applicant must be at least

A. 21 years old B. 16 years old. C. 19 years old. D. 18 years old.

6. An applicant for a resident insurance producer license must complete a ____ hour prelicensing

course or equivalent individual instruction. A. 10 B. 20 C. 40 D. 80

7. An applicant who fails two examinations for the same line of insurance must wait

________________ to take another examination for that line of insurance. A. 3 months B. 6 months C. 9 months D. one year




8. A temporary insurance producer license may be issued for up to

A. 3 months. B. 6 months. C. 9 months. D. one year.

9. An insurance producer license will remain in effect for ______, unless revoked or suspended, A. one year. B. 2 years. C. 5 years. D. as long as the license renewal fee is paid and the continuing education requirements

are met. 10. A producer must keep records pertaining to insurance sells for at least

A. 1 year. B. 3 years. C. 4 years D. 5 years.

11. A producer must inform the Alabama Department of Insurance of a change in legal name or

address within ______ days. A. 30 B. 60 C. 90 D. 120

12. The continuing education requirements do not apply to a producer who has been licensed in

Alabama for at least 15 years and who is a minimum of ______ years old. A. 45

B. 50 C. 55 D. 60

13. A producer who is subject to the continuing education requirements must complete ____

classroom hours per renewal period. A. 6 B. 24 C. 18 D. 30




14. The licensee must complete the continuing education requirements within ______after being

notified of the denial of an extension. A. 10 days B. 15 days C. 30 days D. 60 days

15. Offering to give a prospect anything of value not specified in the contract to persuade the

prospect to purchase the insurance is known as A. twisting. B. embezzlement. C. coercion. D. rebating.

16. A binder is not valid beyond the issuance of the policy for which it was given or beyond _____

days, whichever is shorter. A. 30 B. 45 C. 60 D. 90

17. A person who for compensation investigates and negotiates settlement of claims arising under

insurance contracts on behalf of an insurer is a/an A. consultant. B. service claims representative. C. financial planner. D. adjuster.

18. To be licensed as an adjuster, an applicant must be at least _______ years old.

A. 18 B. 19 C. 21 D. 26

19. An adjuster must keep the usual and customary records pertaining to transactions under his/her

license for at least A. one year. B. two years. C. three years. D. five years.




20. A surplus line broker must file a bond in the minimum amount of A. $10,000. B. $15,000 C. $25,000. D. $50,000.

21. The Insurance Guaranty Association is obligated to pay any covered claim that is over $100 and

less than ___________. A. $150,000. B. $250,000. C. $500,000. D. $1,000,000.

22. The workers compensation laws are mandatory for employers in an industry other than

construction who employ ____ or more covered employees in any one business. A. 4 B. 5 C. 8 D. 10

23. For an injury producing temporary total disability, the workers compensation benefit is ________

of the employee’s average weekly earnings at the time of the injury. A. 50% B. 66 2/3% C. 75% D. 100%

24. Workers compensation benefits for temporary partial disability will be paid for up to a maximum of

___________. A. 52 weeks. B. 300 weeks. C. 3 years. D. 7 years.

25. If an employee dies as a result of a work-related accident or occupational disease, the employer

must pay burial expenses of up to ___________. A. $1,000 B. $2,000. C. $3,000. D. $4,000.




26. The face amount of insurance provided by an industrial fire policy covering buildings under the same ownership may not exceed ________ for a weekly policy. A. $1,500 B. $2,500 C. $5,000 D. $7,500

27. For a monthly industrial fire policy, the maximum face amount covering a building or dwelling is

A. $10,000 B. $40,000. C. $50,000. D. $60,000.

28. The maximum face amount covering contents is _______ for a monthly industrial fire policy?

A. $5,000 B. $10,000. C. $20,000. D. $30,000.

29. Premiums for an industrial fire policy may be collected for no more than ______________ months

in advance. A. 3 B. 6 C. 8 D. 12

30. What kind of premium payment basis may be used with an industrial fire policy?

A. Weekly or monthly B. Weekly only C. Monthly only D. None of the above

31. The notice of cancellation of an automobile insurance policy for nonpayment of premium must be

mailed or delivered to the named insured at least ______days before the effective date of cancellation. A. 10 B. 15 C. 30 D. 90




32. Which of the following statements concerning uninsured/underinsured motorist coverage is true? A. This coverage is not required, but will be automatically included unless the insured

rejects it in writing. B. This coverage is not available in Alabama. C. This coverage is required in Alabama. D. This coverage will be included only if the insured specifically requests it in writing.

33. The required coverage limits under Alabama’s mandatory automobile liability insurance law are

A. $10,000/$20,000/$5,000 B. $20,000/$40,000/$l0,000. C. $30,000/$60,000/$10,000. D. $25,000/$50,000/$25,000.

34. Operating a motor vehicle that is not covered by a liability insurance policy as required by law is a

A. Class A felony. B. Class A misdemeanor. C. Class B misdemeanor. D. Class C misdemeanor.

35. A premium reduction for 55 or older and who completes an approved motor vehicle accident

prevention course is effective for _____ years after the insured completes the course. A. 1 B. 2 C. 3 D. 4

36. A defendant cannot be admitted to bail if

A. they are charged with a misdemeanor. B. they are charged with an offense punishable by death and the court believes they are

guilty. C. they are charged with any felony. D. All of the above

37. If the offense charged in the indictment is a misdemeanor, the defendant must be discharged on

giving sufficient bail, but the amount of bail must be at least A. $50. B. $100. C. $500. D. $700.




38. Every person engaged in the business of making and charging bail bonds (other than in Cullman

County) must furnish a bond in the amount of A. $ 2,000 B. $ 5,000. C. $15,000. D. $ 25,000.

39. The intention of bail is

A. the enhancement of state revenues. B. the appearance of the defendant in court. C. the payment of the defendant’s fine. D. None of the above

40. The order granting authorization to become a professional surety on bail must be reissued

annually by the A. Sheriff of any county in Alabama. B. Department of Insurance. C. Supreme Court of Alabama. D. presiding circuit judge of the county in which the company desires to execute bail or

appearance bonds.

41. Sending in your license renewal fee 2 months after the due date will result in:

A. License being revoked B. Being put on probationary status C. Being required to take the Pre-license course D. Being charged a penalty in the amount of double the renewal fee

42. How many hours of continuing education can be carried over to the next year?

A. Up to 12 B. Up to 24 C. Up to 6 D. Up to 18

43. The purpose of the Insurance Guaranty Association is all of the below EXCEPT: A. Assist in the detection and prevention of insurer insolvencies

B. Avoid excessive delays in payments C. Suspend or revoke the insurers right to conduct business in the state D. Avoid financial loss to claimants or policy holders because of the insolvency of an insurer




44. When an accident results in an employee’s death within three years of the accident and the employee has one dependent, that dependant will receive compensation as follows:

A. 66 2/3 % of the deceased’s average weekly earnings during dependency B. A lump sum of $7,500 C. 50% of the deceased’s average weekly earnings during dependency D. 33 1/3% of the deceased’s average weekly earnings during dependency

45. An injured employee must give the employer written notice of an accident within:

A. 5 Days B. 2 Weeks C. 10 Days D. 120 Days

46. An insurer issuing an industrial fire policy must use the following words in the caption EXCEPT:

A. Home Service B. Weekly Premium C. The Standard Fire Policy D. Monthly

47. Making misleading or incomplete comparisons to induce a policyholder to exchange an insurance policy is called:

A. Misrepresenting B. Forfeiting a commission C. Twisting D. Coercion

48. Licensed producers are allowed to collect a collection fee on unpaid balances for premiums up to:

A. 2% per month on unpaid balance B. Never C. 1% per month on unpaid balance D. 1 ½% per month on unpaid balance

49. The discount for premiums paid 12 months in advance for an industrial fire policy cannot exceed:

A. 5% B. 10% C. 12% D. 7%

50. The workers compensation laws are not mandatory for an employer of all the following EXCEPT:

A. Farm laborer B. Person whose employment is casual and not in the usual course of the employer’s business

C. Domestic Employee D. Part time employees

Bonus State Exam Prep Questions


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All of the following are true: An insurance policy that pays only after primary coverage has been exhausted is said to

be excess. A deductible is a specified amount of loss that is retained by the insured. An application is a document that provides information for underwriting purposes. A spark that jumps from a fireplace and ignites a nearby area rug would be deemed a

hostile fire. A peril is the specific cause of loss. The purpose of coinsurance is to encourage one to carry insurance to value. Named peril policies cover only stated perils. Open peril policies cover all perils, except those excluded. A direct loss is a loss resulting directly from an insured against peril. An indirect loss is the same as a consequential loss. Water damage done by firefighters is considered a direct loss.

A binder specifies the perils covered. A binder specifies the effective date of coverage and amount of coverage. A binder specifies the insurer providing the coverage. When one accepts a larger deductible, the premium may be reduced. Fire is considered to be a peril. A hostile fire is one that is uncontained or breaks out of its containment An insured's rate is reduced by the coinsurance clause. Coinsurance applies only in the event of a partial loss. Market value in the loss valuation method used to insure goods and commodities whose

value fluctuates with market conditions such as agricultural products. The Declarations contain statements made by the insured on the application. The insuring agreement describes the perils that are covered under the policy. An indirect loss is an additional loss that results from a direct loss. The conditions describe the responsibilities and obligations of the insured and the

insurer. The Declarations personalize the policy as to who and what are insured. A deductible is a specified amount that an insured must bear. The insurer may cancel a policy, to be effective upon meeting statutory requirements of

notice. The owner of clothing to be cleaned would be a bailor; the dry cleaner cleaning the clothes

is a bailee. A property that has neither occupants nor personal property is deemed vacant. A binder is a temporary proof of insurance. Fire damage to an insured residence is considered a direct loss.




In Property and Casualty Insurance, when a form is attached to further define certain policy provisions or conditions, it is known as________________________ .

an endorsement The Subrogation Clause found in many policies_____________________.

helps prevent insured from collecting twice for the same loss Fine arts and antiques are classes of property insured on a ____________________. agreed value basis Actual cash value may be defined as ____________________________________ .

today's cost to replace or repair, minus depreciation. Bob, purchased a property 10 years ago for $100,000 has a replacement value today of $200,000. It is depreciated 3% each year. What is today's actual cash value? $140,000 Note: Current replacement cost of $200,000 minus 30% depreciation = $140,000. All of the following are requirements for recovery of a loss under the replacement cost extension:

The value of the property is determined at the time of loss. The property must be rebuilt on the same premises. Coverage must equal 80% of the cost of replacement.

The Bradley's own a building that is insured for $200,000 with an 80% Coinsurance Clause. A loss of $12,000 occurs and the actual cash value of the property at the time of loss is $300,000. How much will be recovered?

$10,000 Note: First, determine the amount of coverage there should have been ($300,000 x .8 = $240,000). Divide what was insured by what should have been ($200,000/240,000 = 5/6) times the amount of loss ($12,000) = $10,000.




In addition to the named insured in a Property Policy, coverage is automatically provided for ____________ .

Persons who are legal representatives of the insured All of the following are included in the Declarations of a Property Policy:

The terms of the policy. The perils not covered are in the Exclusions. The amount of coverage. The amount of premium.

Regarding a property claim procedure, the insured is required to do all of the following:

Give notice of loss as soon as possible. Cooperate with the insurance company. Separate the damaged and undamaged property.

With a Property Policy ________________________ is in the insuring agreement.

a list of the named perils All of the following are insured's duties after a loss under a Property Policy:

Furnish inventory of damaged and undamaged goods and amount of loss claimed. Submit to examination by insurer. Give notice to loss as soon as possible. The insured cannot abandon property to the insurer

The following is correct where there are two property policies on the same property:

They will share proportionately according to the total insurance. Note: The Other Insurance clause generally states that two policies covering the same loss will pay proportionally (Pro Rata). Vic has three policies on the property. Policy A is for $80,000; Policy B is for $100,000; and Policy C is for $20,000. In the event of a loss for $120,000, how much will policy A pay?

$48,000 Note: Policy A's coverage is 40% of the total of all coverages, so they will pay 40% of the loss. $80,000 / $200,000 (80,000 + 100,000 + 20,000) = .4 (40%). .4 x $120,000 = $48,000




When the insured and the insurer fail to agree on the amount to be paid for a property loss, the procedure is specified in the ____________________ Clause.

Appraisal All of the following are true of subrogation:

Subrogation is a legal process against a third party. Gives the insurance company whatever rights the insured possessed against responsible

third parties. Allows the insurer to attempt collection when paying an insured for a loss. Prevents the insured from collecting twice for the same loss.

All of the following concerning exclusions are true:

They describe situations that are not covered under the policy. They restrict the Insuring Agreement. They describe property not covered. The Exclusions are found under their own heading in the policy structure.

The insured is required to do all of the following:

The insured may chose who will make the repairs. Pay the premium. Give notice of loss as soon as possible. Protect the property from any more damage.

The insuring clause (agreement) section of a policy describes ____________________.

Perils that are covered The following is correct about the right of salvage:

The insurer has the right to take possession of damaged property after payment of a loss. All of the following are methods of writing property insurance limits:

Specific coverage Scheduled coverage Blanket coverage

The section of an insurance policy lists the rules and procedures to be followed is ______________ . Conditions




The following describes actual cash value:

Replacement cost less depreciation. The following may broaden the coverage found in an insurance policy:

Endorsements The term that describes coverage that applies only to loss by the perils stated in a policy is:

Named peril Vic applied the coinsurance provision to the following covered loss: property value = $200,000; policy limit = $140,000; coinsurance = 80%; amount of loss = $100,000; deductible = $250. Vic discovered that the policy would pay _________________________ .

$87,250 Note: Insured should have had $160,000 (200,000 x .80), but only had $140,000. The policy will pay $87,500 minus deductible. (140,000/160,000=.875; $100,000 x .875 = $87,500; $87,500 - $250 = $87,250) All of the following are methods of loss valuation:

Actual cash value Replacement cost Stated amount

The term _________________ describes the situation that occurs when two policies covering the same property contain different coverages.

Nonconcurrency

All of the following are true of the Dwelling Broad Form Policy:

The dwelling and contents are covered for the broad form perils.

Losses to the dwelling are paid on a replacement cost basis.

It automatically includes incidental business occupancies.

Dwellings located on farms are not eligible for the Dwelling program




All of the following are true of Dwelling Special Forms:

Only the dwelling is covered on an open peril basis

Losses to the dwelling are paid on a replacement cost basis.

Mobile homes are not eligible.

The dwelling must be used principally for dwelling purposes.

Contents are covered on an actual cash value basis.

The Special Form covers the dwelling for the open perils and the contents for the broad form perils.

If an insured dies, coverage continues for the insured's legal representatives.

All of the following are true of Dwelling Forms:

Coverage A includes materials on premises intended for repair.

Mobile homes are only eligible on the basic form.

Antennas and awnings are not covered for the peril of wind.

The Broad Form Policy will cover water damage caused by overflow of a bathtub.

The Basic Form covers the perils of fire, lightning and internal explosion. Other perils are optional.

The following is true regarding dwelling policies:

At the insured's option, property of guests and servants is covered under Coverage C.

All the following statements are correct:

A Special Dwelling Form will cover damage to the building from a vehicle.

The Basic Dwelling Form does not cover damage to the property done by the insured's auto.

Normally property insurance policies will cover loss of property away from premises subject to

sublimits.

The Dwelling Broad Form will cover trees, shrubs and plants up to $500 each.

Under Coverage C of the Special Dwelling Form, all of the following are included:

Household and personal property.

Property of others that is in the care, custody and control of the insured.

At the insured's option, property of guests and servants.

All of the following are true of dwelling policies:

Mobile homes are eligible if written on a DP‐1.

Farm dwellings are not eligible.

Incidental business occupancies are permitted, but they must provide service rather than sales.

The limit for trees, shrubs and plants is $500 for any 1 item or 5% of Coverage A.




The Dwelling Broad Form (DP‐2) includes coverage for all of the following:

Breakage of glass that is a part of a building, storm door or window.

Damage caused by burglars (but not property taken by burglars).

Accidental discharge or overflow of water or steam from a heating or air conditioning system or

household appliance.

There is no flood coverage in a dwelling policy.

All of the following are covered perils under the Extended Coverage Endorsement to the DP‐1:

Vehicles

Windstorm

Volcanic eruption

All of the following may be eligible for coverage under the Dwelling Program:

A duplex

A house in the suburbs

A mobile home

Note: A farmhouse does not fit the eligibility requirements of the Dwelling Program.

All the following statements are correct of Homeowners policies:

The HO‐2 covers the dwelling and contents for the broad form perils.

The HO‐2 covers losses to the dwelling that are caused by the insured's own vehicle.

The HO‐2 pays for losses to the contents on an actual cash value basis.

The HO‐2 will pay the water damage, but not the cost to repair the pipe.

The HO‐4 is sometimes called a Tenants Form.

There is no coverage for the dwelling under a HO‐4, contents coverage only.

The HO‐3 covers the dwelling on an open peril basis.

The HO‐3 covers the contents for the broad form perils.

Coverage C covers property owned or used by the insured, including property owned by others.

All the following statements are correct:

Coverage C of a Homeowners Policy provides coverage for machinery used in maintenance of the

premises.

Coverage C of a Homeowners Policy has a $1,500 limit on trailers not used with watercraft.

The Homeowners policy specifically excludes property of roomers and boarders.

Coverage C of a Homeowners Policy provides an amount equal to 50% of Coverage A.




All of the following are true:

Coverage D of a Homeowners Policy covers additional living expenses.

Coverage D does not cover loss of income from an incidental business.

A private school would be permitted under a Homeowners Policy.

A Homeowners Policy will not cover theft of a boat away from premises.

Which statement is false regarding a Homeowners Policy?

The HO‐2 provides broad form coverage on both the dwelling and contents.

The policy excludes coverage for other structures that are used in whole or in part for business.

Contents are covered 100% worldwide.

Section II of all Homeowners Policies are exactly alike.

All of the following are true of a Homeowners Policy:

Earth movement is excluded from all Homeowners policies.

Theft of a dwelling under construction in not included.

Trees, shrubs and plants are covered up to $500 each.

Coverage C allows coverage for loss due to theft of jewelry up to $1,500.

All the following statements are correct under a Homeowners Policy:

The personal property replacement cost endorsement may be added to cover the contents on a

replacement cost basis.

The scheduled personal property endorsement provides open peril coverage.

Theft of silverware is covered up to $2,500.

Money is covered up to $200 per occurrence.

Homeowners policies:

Cover theft of furs and jewelry up to $1,500.

Which statement is true concerning Homeowners policies?

The Section I deductible does not apply to property covered under the Scheduled Personal Property

Endorsement. The Scheduled Personal Property Endorsement has no deductible.


Dwellings under construction are eligible.

The HO‐2 covers the dwelling and contents on a Broad Form Named Peril basis.

The HO‐4 form is also called the Tenants Form.

Personal property of an insured's daughter while at college would be covered.




All of these statements about a Homeowners Policy are true:

Personal property owned and used by the insured in a vacation home would be covered.

Property that has been borrowed meets the definition of contents.

Coverage D provides coverage for additional living expense.

There is no coverage for pets in a Homeowners Policy

All the following statements are correct regarding boats under a Homeowners Policy:

Wind damage only applies if the boat is in a fully enclosed building.

Theft of the boat applies only when the boat is at the insured's residence.

A $1,500 limit applies to the boat including all equipment and trailer.

Hail damage only applies if the boat is in a fully enclosed building.

All the following statements are correct about a Homeowners Policy:

It will cover theft from a safe deposit box.

The limit for trailers not used with watercraft is $1,500.

The replacement clause eliminates the deduction for depreciation.

It will cover property that has been borrowed.

The following statement is true of Section I of a Homeowners Policy:

$1,500 limit applies to a boat including the motor, trailer and equipment.

All of the following are covered under a Homeowners Policy:

A garage that is rented to a neighbor for private garage purposes.

The policy does not cover all expenses, only the necessary increase in living expenses.

Property of guests and servants.

Equipment that is used to maintain the property.

All of the following are true of the HO‐2:

The HO‐2 covers the broad form perils.

The HO‐2 covers owner‐occupied dwellings.

The HO‐2 pays for losses to the dwelling on a replacement cost basis.

The HO‐2 pays all losses on a broad form named peril basis.

The type of coverage provided by the HO‐3 under the additional coverage of property removed is

__________________ .

Open peril coverage for 30 days




All of the following are common policy conditions:

Cancellations

Changes

Examinations of books and records

There is Transfer of Rights and Duties, but no Transfer of Rights of Recovery.

Inspection and surveys

Premiums

All of the following statements are correct:

Named peril policies cover only perils that are stated in the insuring agreement.

Open peril policies cover all perils that are not specifically excluded.

Coinsurance results in a reduced rate.

An extension is coverage that is included beyond the face amount.

Changes in the terms of the policy can be made only by endorsement issued by the insurer.

The insurer has the right, but not the obligation to inspect the property.

The insurer may examine or audit the insured’s books any time during the policy period, or within 3

years after the policy ends.

The first named insured is the payee of any return premiums.

The insurer's inspection of the property does not create a warranty that conditions are safe or

healthful.

The first named insured is responsible for the payment of all premiums.

The insured's right and duties cannot be transferred without the written consent of the insurer.

The first named insured may cancel the policy by mailing advance written notice of the cancellation.

When the first named insured cancels, the insurer may cancel the policy short rate.

If the insurer cancels the policy, the return premium will be on a pro rata basis.

For nonpayment of premium, the company may cancel the policy by mailing to the first named insured

written notice of cancellation at least 10 days before the cancellation date.

For any reason other than nonpayment of premium, the company must give at least 30 days written

notice to the first named insured.

The company will mail a cancellation notice to the first named insured's last mailing address.

Every cancellation notice must show the cancellation date.

The first named insured shown in the Declarations is responsible for all premium payments and will be

paid any return premiums.

Terms in the policy can be changed or waived only by endorsement issued by the insurer and attached

to the policy.




All of the following are correct regarding changes in the common policy conditions:

Any agreement must be in writing in order to become a part of the policy.

Any changes to the policy must be by written endorsement to the policy.

The policy may be amended only by an endorsement issued by the insurer.

The first named insured is authorized to make changes in the terms of the policy with the insurer's

consent.

The common policy declarations for commercial insurance contain all of the following:

Name and address of the named insured.

The policy period.

List of all forms included.

The following is found in the Common Policy Declarations:

The premium amount that is payable at inception.

The statement “this policy contains the following coverage parts for which a premium is indicated” is located in the

_______________________.

Declarations

The Common Policy Conditions of the Commercial Package Policy give the insurer the right to do all of the

following:

Inspect the insured property.

Give reports to the insured regarding the condition of the insured property.

Examine the insured's records at any time up to 3 years after the policy expiration.

Recommend changes to the insured regarding the insured property.

All of the following are true in regard to the Causes of Loss forms:

The Basic Cause of Loss Form covers only the above ground action of a volcano.

Vacancy coverage is limited to 60 days in the basic cause of loss form.

The Broad Form Cause of Loss Form does not include settling, cracking, bulging or expansion.

The Special Cause of Loss Form covers open perils of direct loss except those specifically excluded.





The Broad Form Cause of Loss Form includes damage from ice, snow or sleet.

Rain damage to the interior after windows are broken by large hail is covered by either the Basic, Broad

or Special Cause of Loss Form.

Another Cause of Loss Form must accompany the Earthquake Cause of Loss Form

Under the Broad Form Cause of Loss Form, after 60 days of vacancy, coverage is suspended.

All of the following are true of the Building and Personal Property Coverage Form:

Personal property owned and used to service the building is included in the building coverage.

Tenants Improvements & Betterments are covered under Business Personal Property, not Personal

Property of Others Coverage.

Building Coverage includes the building structure, completed additions, permanently installed fixtures,

machinery and equipment.

Personal property of others that is in the insured's care, custody, and control is automatically included

up to $2,500 under coverage extensions.

All of the following are true regarding the Building and Personal Property Coverage Form:

Under coverage extensions, newly acquired or constructed property is automatically included for 30

days, not exceeding $250,000 for each building.

Business personal property includes property that is either in the building or within 100 feet of the

building.

Autos for sale and those licensed for road use are excluded.

Trees, shrubs and plants are covered up to $1,000 with a sublimit of $250 for any one tree, shrub or

plant.

All of the following are additional coverages under the Building and Personal Property Coverage Form:

Peak Season is an available coverage that has to be added by endorsement.

Fire department service charge

Preservation of property

Debris removal

All of the following are true regarding the Building and Personal Property Coverage Form:

The standard deductible is $250.

Loss conditions state that if either the insurer or the insured submits a written demand for appraisal,

each will choose and pay for his or her own appraiser.

Coverage does not apply to money or securities.

The Peak Season Endorsement can be provided for a specified increase for a certain period.




All of the following are true of the Building and Personal Property Coverage Form:

Under optional coverages the agreed amount coverage removes the coinsurance clause.

The inflation guard optional coverage automatically increases the face of the policy by a predetermined

percentage.

Under Preservation of Property Coverage, there is open peril coverage for a maximum of 30 days.

There is no coverage for automobiles that are held for sale.

Vic’s building valued at $200,000 is insured for $150,000; and coverage is written with an 80% coinsurance

requirement and a $1,000 deductible. The building is totally destroyed and the debris removal expenses amount to

$10,000. The Building and Personal Property Coverage Form will pay _________________ .

$159,000

Note: After a total loss, the policy will pay the face amount less the deductible plus up to $10,000 for debris

removal.

The following is covered under a Building and Personal Property Coverage Form:

Hay and grain inside a building.

All the following statements are correct concerning Builders Risk Coverage:

It is written equivalent of 100% coinsurance.

Coverage continues during construction and terminates 90 days after completion.

It is not designed to cover abandoned property, nor completed or occupied buildings.

There is no liability coverage under a Builders Risk Policy.

All of the following are true of Builders Risk forms:

Coverage does not apply to outside radio and television antennas.

Coverage terminates when the policy expires or it is cancelled.

Coverage may be written with any of the Cause of Loss Forms (Basic, Broad, or Special).

There is no vacancy provision.

Which statement is true:

Loss of rent due to a fire in a building would be considered a consequential loss or indirect loss.




Under the Building and Personal Property Coverage Form, coverage applies to all of the following:

Materials that are within 75 feet of the premises.

Tenant's interest in a built‐in wall cabinet.

Outdoor signs not attached to the building are excluded except for limited coverage under Outdoor

Property, which does not cover wind losses.

Personal property used to service and maintain the building.


Time element losses are indirect losses, not direct losses.

The Condominium Association Form will cover refrigerators, air conditioners and cooking ranges that

are owned by the named insured.

The Builder's Risk Reporting Form insures a building under construction for an amount that increases at

intervals to correspond with the increasing value of the building.

An example of a time element loss would be the loss of commissions due to interruptions of a

manufacturing business.

All of the following are true of Consequential Loss Coverage Forms:

Loss of business income includes loss of net profit plus continuing normal expenses.

Business Income includes continuing payroll and rents.

Business income is the pre‐tax net profit minus any payroll or rent.

Extra expense forms cover expenses above normal costs after a direct loss.

All of the following statements are true of the Value Reporting Form, except:

A Value Reporting Form Endorsement may not be attached to the Builders Risk Coverage Form.

The insured pays an advance premium at the beginning of the policy period.

The Value Reporting Form and The Full Value Reporting Form are the same.

The insured is required to report 100% of values.

Under Loss Conditions of the Commercial Property Coverage Part, all of the following statements are true:

Each party will pay its chosen appraiser and bear the umpire expenses equally.

The insured must sign a sworn statement of loss within 60 days after the insurer's request.

The insurer will pay for the covered loss within 30 days after they receive the sworn statement of loss.

If a property has been vacant for more than 60 days, coverage is suspended for certain perils, such as

vandalism.




All of the following are true in regard to commercial property coverage:

The Basic Cause of Loss Form does not cover water damage.

Vandalism coverage is limited to 60 days if the property is vacant.

The Causes of Loss ‐ Broad Form does not include settling, cracking, bulging or expansion.

The Causes of Loss ‐ Special Form covers open peril of direct loss except those specifically excluded.

The Replacement Cost Optional Coverage of the Building and Personal Property Coverage Form applies to all of the

following types of property:

The building listed in the Declarations.

The insured's business personal property.

Stock held for sale that is shown on the Declarations.

Property of others is valued on an Actual Cash Value basis, unless otherwise specified.

All of the following are coverage extensions under the Building and Personal Property Coverage Form:

Newly acquired or constructed property

Personal effects and property of others

Inflation Guard is an optional coverage.

Outdoor property

All of the following are true of the Commercial Builders Risk Coverage Form:

Coverage is written with 100% coinsurance requirements.

There is no liability coverage in a Builders Risk policy

Coverage is excluded for lawns, trees and plants.

Covered perils are specified by attaching a separate causes of loss form.

The Jewelers Block Policy covers all of the following:

The insured's stock in trade.

Stock that is sold but not yet delivered.

Property of others that is in the care, custody and control of the insured.

Property being worn by a salesperson of the insured or in a showcase away from premises is not

covered.

Under Marine Policies, the term controlled means:

Those forms that are filed with the State Insurance Department by insurers

Note: Controlled Forms approved by the Division or Department of Insurance are usually developed by rating

organizations and used by many insurers, rather than forms developed by the individual insurers.




Under Marine Policies, the term uncontrolled means:

Forms that are not standardized by any rating bureau: consequently the forms will normally differ from

insurer to insurer.

Note: The Uncontrolled forms are developed by individual companies to meet the needs of the company and its

target market.

The following statement is true regarding the Accounts Receivable Coverage Form:

It covers the insured's uncollectibles from customers due to a direct physical loss of records of accounts

receivable.

The Nationwide Marine Definition specifies risks that may be written under Marine Insurance. All of the following

may be insured under marine policies:

Domestic Shipments

Bridges or Tunnels

Imports and Exports

Inland Marine Policies are primarily designed to insure ____________________________.

property that is mobile in nature and may be away from insured's premises

_____________________________ adopted the Nationwide Marine Definition.

The National Association of Insurance Commissioners (NAIC)

Note: The Nationwide Marine Definition is a document that specifies the property that is eligible for Inland Marine

Insurance. All other property must be written in the Commercial Property or Dwelling Programs.

Inland Marine Policies are generally written on___________________________ basis.

Open Peril, but may be written as Named Peril

The standard approach to valuing property that is written under Inland Marine Policies is _______________ .

Agreed Value or Stated Amount




Note: However, some Inland Marine policies are written for Actual Cash Value, and occasionally on a Replacement

Cost basis.

The following statement is true regarding the Nationwide Marine Definition:

It defines the types of property that may be covered by marine insurance.

All of the following are eligible for marine insurance:

Imports, exports and domestic shipments.

Bridges, tunnels, docks and transmission lines.

Coverage is written on property that is mobile in nature.

Personal property and commercial personal property.

The following statement is true regarding inland marine insurance:

Policies are written open peril, but may be written named peril.

The standard approach to valuation is typically agreed value, or stated amount.

Policy forms came from fire, burglary and ocean marine policies.

Controlled or uncontrolled forms are written.

The following form is designed to insure a single shipment of goods:

Trip Transit Policy

When someone owns his own truck and hauls his own goods, he should purchase __________________________.

The Motor Truck Cargo Owners Form

The following statement is true regarding inland marine policies:

The Accounts Receivable Coverage Form is a controlled or standardized form.

The Bailees' Customers Form does not cover any property owned by the insured.

The Contractor Equipment Floater Form is usually written on an open peril basis.

The Installation Floater Policy provides coverage while the property is in transit and during installation.

The causes of loss covered under inland marine insurance are:

Collapse

Flood

Overturn of conveyance




Note: Inherent Vice is not covered. Inherent Vice is a condition of property that causes it to damage or destroy

itself.

All of the following are examples of non‐filed commercial property floaters:

Installation Floater

Bailees' Customers Policy

Contractors Equipment Floater

All of the following are true of the Equipment Breakdown Protection Coverage Form:

Property is insured on a replacement cost basis, unless the Actual Cash Value Endorsement is chosen.

The definition of breakdown does not include leakage at any valve.

Coverage is included for property of others that is in the insured's care, custody and control, and for

which he or she is legally liable.

Coverage is automatic, at newly acquired premises for a period of time as specified in the Declarations.

Spoilage damage due to lack or excess of power, light, heat, steam, or refrigeration is covered.

Breakdown caused by windstorm or hail is specifically excluded.

Loss resulting from earth movement is excluded.

Expediting Expenses include extra costs to expedite permanent or replacement parts.

Covered equipment does not include catalysts, insulating, or refractory material.

If an initial breakdown causes other breakdowns, all will be considered one breakdown.

The period of restoration ends five consecutive days after the date the damaged property is repaired or

replaced.

Deductibles ordinarily apply separately to each applicable coverage.

The form automatically includes Business Income and Extra Expense Coverage.

Covered equipment under the Equipment Breakdown Protection Coverage Form, includes _________________ .

Electrical and mechanical equipment used in the utilization of energy

Under Boiler and Machinery Insurance, the following describes one breakdown:

All breakdowns at any one premises that manifest themselves at the same time and are the direct

result of the same cause.

Note: All breakdowns are covered as one breakdown if (1.) they occur at any one premises, (2.) they manifest

themselves at the same time, and (3.) they are the result of the same cause.




All the following statements are correct regarding a Farm Property Coverage Form:

Exclusions include earth movement and intentional loss.

Losses from nuclear damage are not covered.

Coverage D includes loss of use.

Coverage F includes unscheduled farm personal property.

All the following statements are correct regarding the Livestock Coverage Form?

All property is insured at actual cash value.

Livestock are not covered when being transported by common carrier.

Does not include theft by mysterious disappearance.

Coverage does not apply to loss of livestock from freezing or smothering from snowstorms.

The Mobile Agricultural Machinery and Equipment Coverage Form includes coverage for all of the following:

Irrigation equipment is excluded from the Mobile Agricultural Machinery & Equipment Form.

Combines and cotton pickers that are specifically described with a limit of insurance for each.

Farm tractors

Hay balers

All the following statements are correct regarding the Livestock Coverage Form:

Limits of insurance apply per animal or with a limit per class of livestock.

The class of livestock insured must be shown in the Declarations.

Each horse, mule or head of cattle under 1 year of age will be counted as one‐half head.

The Livestock Coverage Form is a named peril form.

All of the following are true of the Livestock Coverage Form:

A complete contract is formed when this coverage form is attached to the Declarations page and the

Common Policy Conditions.

Coverage is provided for losses to covered property from covered perils.

There is no coverage for loss caused by earth movement, government action, international loss, nuclear

hazard, flood, war or military action.

The conditions in a Livestock Form include abandonment, appraisal and duties in event of a loss,

insurance under two or more coverage, loss payment, and other insurance.

All the following statements are correct regarding the Farm Coverage Part:

Separate declarations pages are used for the Property and Liability Coverage Forms.

The Livestock Coverage Form is a named peril form.

The Mobile Agricultural Machinery and Equipment Coverage Form contains an 80% coinsurance clause.

The Farm Property Coverage Form provides coverage for household personal property.




The following is covered by Coverage E of the Farm Property Coverage Part:

Scheduled farm personal property

All of the following are covered perils under the Livestock Coverage Form:

Fire

Lightning

Riot

Note: Freezing is excluded.

The following statement is true regarding when coverage ceases under a Crop Hail Insurance Policy:

Coverage ceases when the crop is harvested.

Note: Coverage ceases under a Crop Hail Policy when the crop is harvested. Coverage is written per growing season

(not on an annual basis).

All of the following are true regarding Multi‐Peril Crop Insurance (MPIC):

Covered causes of loss include adverse weather conditions, fire, insects, plant disease, wildlife,

earthquake, and volcanic eruption.

Coverage is written by private insurers and is reinsured by the Federal Crop Insurance Corporation

(FCIC).

Corn and maize, cereal grains, soybeans, tobacco, and cotton account for 90% of the liability assumed

under the program.

Note: This Program is a federally reinsured Program.

By definition under Multi‐Peril Crop Insurance (MPIC), Small Grains include all of the following:

Wheat

Oats

Rye and flax

Note: By definition, Small Grains include wheat, barley, oats, rye and flax. Soybeans, grain sorghum, and corn are

considered Coarse Grains and NOT covered under the Program.




Section III of the Businessowners Coverage Form includes:

Common Policy Conditions

Under the Businessowner Policy the following is correct concerning the payment of premium:

The First Named Insured shown in the Declarations is responsible for the payment of all premiums.

Under Cancellation of the Businessowners Coverage Form Section III ‐ Common Policy Conditions, the following is

correct:

If the policy covers several locations and the insured violates a policy provision at one, the insurer may

suspend coverage at that one location.

Note: This provision allows the insured and insurer to continue the policy on eligible locations until the violation at a

particular location can be resolved.

Under the Businessowners Policy if there is other insurance covering the same loss or damage, the insurer will:

pay only for the amount of covered loss or damage in excess of the amount due from that other

insurance.

Note: Other insurance applying to the same loss covered by the Businessowners Policy, it is considered excess

insurance.

The following statement is true regarding Inspections and Surveys of the Businessowners Policy:

The insurer has the right but is not obligated to make inspections and surveys at any time.

Note: Inspections and surveys are underwriting tools of the insurer; therefore, they may be made whenever

necessary in the judgment of the insurer.

Business Income and Extra Expense coverage is automatically included in the Businessowners Policy. There is no

limit of liability, no coinsurance clause, and a 12‐month benefit period. The following is true regarding the

Restoration Period:

It begins 72 hours after the time of the direct physical loss and ends when repairs are completed or

when business resumes at a new physical location.




Note: Business Income and Extra Expense coverages apply to business income loss and extra expenses incurred

during the Restoration Period.

Under the Businessowners Coverage Form Section III ‐ Common Policy Conditions, _________________ is allowed

to make changes:

The First Named Insured shown in the Declarations with insurer consent.

Under the Businessowners Coverage Form Section III ‐ Common Policy Conditions, the following is correct

regarding Examination of Your Books and Records:

The insurer may examine and audit the books and records at any time during the policy period and up

to 3 years afterward.

Note: The insurer has the right to examine the insured's records because the information therein may be necessary

to properly rate some exposures and to determine eligibility for the Businessowners Policy.

The Businessowners Coverage Form to the Businessowners Policy provides coverage on the following basis:

Open Peril

Note: The Businessowners Coverage Form as written, provides open peril coverage. Named perils coverage is

available by endorsement.

The following statement is true regarding the Businessowners Policy:

Coverage for the building and contents is for replacement cost with no coinsurance clause.

Note: In the Businessowners Policy, coverage on both building and contents is replacement cost coverage and there

is no coinsurance clause.

The limit of insurance for the building under the Businessowners Policy will automatically increase by an annual

percentage shown in the Declarations. The following is true regarding that amount:

That amount of the increase will be since the beginning of the current policy year divided by 365.

Note: The annual percentage increase applies during the policy year, prorated on a daily basis.




The following statement is true regarding the Businessowners Policy:

If content coverage equals 100% of the average monthly values for the preceding 12 months, an

automatic 25% increase in content coverage is provided to offset seasonal variations in stock values.

Note: The Businessowners Policy includes an automatic seasonal increase in contents coverage if the insured

maintains insurance equal to 100% of the average monthly values for the preceding 12 months.

All of the following are included in Section I ‐ Property, of the Businessowners Coverage Form:

An automatic increase in the limit of insurance for the building.

An automatic increase in Business Personal Property Coverage to offset seasonal variations in stock.

Business income and Extra Expense coverages.

All of the following are eligible for a Businessowners Policy:

A residential condominium association.

An office building that has no more than 100,000 square feet.

A mercantile risk that has no more than 25,000 square feet.

An eligible service risk that has a total of (no more than) 25,000 square feet.

All of the following are correct regarding the Businessowners Policy:

Losses are generally settled on a replacement cost basis.

A motel up to 3 stories in height is eligible.

Money and securities coverage may be purchased only on the Special Form.

Employee dishonesty coverage is available as an optional coverage.

A carpet cleaning contractor's payroll may not exceed $500,000 to be eligible for coverage.

Debris Removal Coverage is included as an Additional Coverage up to $10,000.

Fire department service charges are covered as an Additional Coverage up to $1,000.

The Valuable Papers and records extension does not cover money or securities

The loss of business income and extra expense coverage will pay for a period of up to 12 months.

Named peril coverage is available by endorsement.

Self‐storage facilities up to 2 stories are eligible.

Watercraft and associated equipment while afloat are not covered.

Pollution clean up and removal are covered as an Additional Coverage.

Section III of the coverage form contains the Common Policy Conditions.

The most the insurer will pay for loss or damage arising out of any occurrence is the limit of insurance

shown in the Declarations.

Land, including land on which the property is located, is not covered.




Optional Coverages under the Businessowners Policy include all of the following:

Outdoor signs

Employee dishonesty

Money and securities

All of the following are automatically included in the Businessowners Policy:

Personal property of others that is in insured's care.

Outdoor fixtures.

Business personal property located in the building or within 100 feet of the premises.

All of the following are found in the Declarations of a Businessowners Policy:

The policy number, the name of the insurer and the name and address of the insured.

The policy period and location of the described premises.

Limits of insurance for optional coverages.

All of the following are included in the Building Coverage of a Businessowners Policy:

Permanently installed fixtures.

Personal property of the insured used to service and maintain the building.

Permanently installed machinery and equipment.

All of the following are eligible for a Businessowners Policy:

Funeral homes and chapels

Printers

Pharmacies

All of the following are major advantages of a Businessowners Policy:

Extra expense coverage for 12 months.

Business income is covered up to 12 months.

Automatic peak season coverage.

Replacement cost coverage automatically provided.

Additional Coverages in the Businessowners Coverage Form include all of the following:

Increased cost of construction ($10,000)

Business income and extra expense

Pollutant clean up and removal

The coverage provided by the Preservation of Property additional coverage of the Businessowners Policy:

Open peril coverage for 30 days.




All of the following are true of Ocean Marine Insurance:

Coverage can become void if certain implied warranties are violated.

General average refers to a partial loss where the loss is shared.

Ocean Marine policies are generally unregulated and there is no 'standard' policy.

Policies are written full value.

The following are implied warranties under an Ocean Marine Policy:

Legality

Seaworthiness

Change in voyage

A General Average loss is a _____________________________ .

partial loss that arises from an attempt to save remaining cargo

Note: General Average refers to a loss where part of the cargo is jettisoned to enable the ship to ride out a storm.

The following statements are correct regarding a Difference in Conditions Policy:

There is no standard form.

There is no coinsurance clause.

There is no pro rata clause.

Generally, will have a deductible in the range of $10,000.

It usually has a deductible of $10,000 or higher.


It is considered an open peril policy with certain exclusions.

There is no Standard Form.


Coverage under a Difference In Conditions policy is open peril with exclusions.

When written as excess insurance, there is usually a high deductible.

Note: A Difference In Conditions policy is written in conjunction with a named peril policy and the Difference In

Conditions policy excludes the perils of the named peril policy.

The National Flood Policy covers all of the following losses:

Overflow of inland or tidal waters.

Underground leakage is not considered a flood.

Unusual and rapid accumulation or runoff of surface water.

Mudslide caused by accumulation of water.




All of the following are true of Aircraft Hull Insurance:

Hull insurance covers damage to the aircraft itself.

There are two deductibles that apply, an in‐motion deductible and a not‐in‐motion deductible.

An aircraft is in flight from the time it moves forward for takeoff until it completes its landing run.

The policy must name the pilots, or types of pilots that can fly the aircraft, to have coverage apply.

There is no coverage if a pilot who is not listed on the Declarations operates the aircraft.

There is no coverage if the aircraft is operating in violation of the civil air regulations.

Coverage may be provided while the aircraft is on the ground and while it is in flight.

Coverage will not apply if the aircraft is not listed with the Federal Aviation Administration.

All the statements are correct regarding Flood Insurance:

Money and securities are excluded.

Coverage for growing crops is excluded.

Coverage is not provided for indirect loss.

Only designated areas are eligible for flood insurance.

It is administered by the Federal Insurance Administration.

For contents to be covered, they must be inside a fully enclosed building.

There are maximum limits for both the Regular and Emergency programs.

It will not provide coverage on buildings that are in, on, or over water.

In order to qualify for a federal loan, the property owner must purchase Flood Insurance if located in a

flood area.

To be covered, personal property (contents) must be in an enclosed building.

Under a Flood Policy, protection is provided to property that is on normally dry land.

The federal government is the reinsurer.

It covers direct loss from mudslides caused by the accumulation of water.

There is a deductible on the building and a separate deductible on the contents.

The federal government administers the program.

It covers direct loss from overflow of inland or tidal waters.

All of the following are true regarding Ocean Marine Insurance:

Rates for Ocean Marine coverages are not regulated.

There is no Standard Ocean Marine Form.

Breach of certain implied warranties may cause the contract to become void.

Cargo coverage is generally written on a valued basis.

The following is correct of the Musical Instrument Floater:

Playing for pay requires an endorsement and additional premium.




All of the following are an implied warranty in relation to Ocean Marine Insurance:

No deviation in voyage

Seaworthiness

Legality

All of the following are true of a Mobile Homeowners Policy:

Coverage C (Personal Property) is generally written at 40% of Coverage A.

The policy includes both property and liability coverages.

An endorsement may be added to cover collision and upset while the mobile home is being moved.

The Mobile Homeowners Policy may be written on an open peril basis, with losses settled on a

replacement cost basis.

All of the following are true of the Personal Articles Floater, except:

It is written on an itemized or scheduled basis.

It is used to insure individual personal property.

Losses are settled on an Actual Cash Value or Valued basis.

It covers losses on an open peril basis.

All of the following are true of the Personal Jewelry Floater, except:

It can be written on a valued basis.

It has a Pair and Sets Clause.

Appraisal is usually mandatory.

Automatic Coverage under the Personal Jewelry Floater is 30 days.

All of the following are true of the Fine Arts Floater, except:

Coverage is written on a “valued” basis.

It has a 90‐day automatic coverage for newly acquired items.

Coverage applies only to scheduled items.

It covers such items as paintings, rare manuscripts and antiques.

All of the following are true of the Camera Floater:

Coverage is worldwide.

It covers newly acquired items for 30 days, up to 25% of the policy amount.

It covers such items as shades and filters on a blanket basis.

Cameras must be scheduled. Miscellaneous items like shades, filters etc. are covered on a blanket basis.





The Pair and Sets Clause allows the company to pay for a loss in proportion to the actual loss.

For newly acquired jewelry, furs, cameras and musical instruments, the insured must report the objects

within 30 days and pay the additional premium.

Fine arts are insured on a valued basis.

Cameras are insured on an Actual Cash Value basis.


A Fine Arts Floater may be written on an antique lamp.

A Fine Arts Floater covers etchings, rare manuscripts and art glass windows.

Theft and burglary are both covered under an open peril Inland Marine Policy.

Under a Personal Articles Floater, a loss to part of a pair or set will NOT be considered the loss of the

whole

All of the following are true of a Yacht Policy:

Lay up warranties are permitted.

Includes both property and liability coverage.

Coverage is generally on an open peril basis.

Is written on an Ocean Marine form.

All of the following are true statements, except:

Yacht policies are normally written on inboard boats, sailboats and large pleasure boats.

Yacht policies have navigational limits that describe the area where the yacht is allowed to operate.

Outboard motorboat policies are written on an Actual Cash Value basis.

Outboard Motorboat policies are written on an Inland Marine form.

All of the following types of property may be covered by a Personal Articles Floater:

Jewelry

Stamps

Golf equipment

The Personal Articles Floater is similar to __________________________________.

The Scheduled Personal Property Endorsement

Note: The Personal Articles Floater and the Scheduled Personal Property Endorsement to the Homeowners Policy

are nearly identical. Some companies do not write the endorsement.




__________________ policy would provide the best coverage for a 50‐foot houseboat.

A Yacht Policy

Note: A Yacht Policy would be best because of the length and size of the boat.

All the following statements are correct regarding the National Flood Insurance Program (NFIP):

Coverage becomes effective on the 30th calendar day after the applicant completes the application and

pays the premium. This is to avoid insuring property that might already be in imminent or existing

flooding conditions.

Property moved to another location to protect it from flood at the insured location is covered for 45

days at the other location.

Damage originating due to flood water from a source on the insured's property would not be covered

unless the flood is displaced over at least 2 acres of the premises.

The loss deductible applies separately to the building and personal property, including any appurtenant

structures and debris removal expense.

The Regular Program allows coverage on a single family dwelling up to $250,000 due to flooding.

The Emergency Program applies after a community has agreed to, but has not yet completed, the

process to adopt flood control measures.

It provides coverage up to a stipulated amount to apply to the increased cost of compliance with flood

plain management ordinances or laws that regulate the repair of a building damaged by flood.

The National Flood Insurance Program does not provide any indirect financial loss coverage. It covers

direct loss only to the insured property from those conditions that constitute the definition of flood

under the Program.

The following may be insured on a replacement cost basis Under the National Flood Insurance Program (NFIP)?

Residential condominiums

Note: Under the National Flood Insurance Program, property is insured on an actual cash value basis, except one‐to

four‐family residences and residential condominiums may be insured on a replacement cost basis.

Under a Mobile Homeowners Policy, if the mobile home is insured under Coverage A for $80,000, how much

coverage would ordinarily apply to personal property under Coverage C?

$32,000

Note: Under the Mobile Homeowners Policy, Coverage C (Personal Property) is generally written at 40% of

Coverage A, instead of 50% under the Homeowners Policy. 40% of $80,000 = $32,000.




An owner‐occupied mobile home, under Insurance Services Office (ISO) rules may be covered by endorsement to

the following Homeowners forms:

HO‐2 or HO‐3

Note: An owner‐occupied mobile home may be covered under a HO‐2 or HO‐3 by adding the Mobile Home

Endorsement. The endorsement changes or extends the definition of Coverage A (Dwelling) to be inclusive of a

mobile home.

The following are all essential in determining the tort of negligence:

There has been injury or damage.

There was a failure to act in a reasonable and prudent manner.

The proximate cause was negligence.

Negligence is the commission of a civil or private wrong, not a criminal wrong.

All of the following are true of negligence:

It is the failure to act in a reasonable and prudent manner.

It is a type of a tort.

It is usually reprimanded by a monetary penalty.

If a loss occurs, the injured party must show that the negligence of another was the cause.

All of the following are true of torts:

They are injuries or wrongs committed against an individual.

They are the basis of liability insurance.

They are usually reprimanded by a monetary penalty.

Torts can be intentional or unintentional.

The property owner has an obligation to warn all of the following of a hidden danger:

Invitee

Social guest

Licensee


A property owner must warn an invitee of any hidden danger.

A person on the premises with the owner's knowledge and tolerance, who may be there for no benefit

of the owner, is a licensee.

Specific damages include actual medical expenses.




A damage award that is reduced in proportion to the amount of negligence is called _____________________.

Comparative negligence

A disrupted chain of events, thus freeing the defendant from liability, defines ____________________.

Intervening cause

In liability exposure ____________________________.

the amount of the loss is virtually unlimited


Under vicarious liability, the negligence of one person makes another person liable.

Specific damages compensate the injured party for actual damages.

General damages compensate the injured party for pain and suffering.

Medical Payments pays for Bodily Injury without regard as to fault by the insured.

Proximate cause means that there must have been an unbroken chain of events beginning with the

negligence leading to the injury or damage.

Supplementary payments are paid in addition to the liability limits of the policy.

Punitive damages are intended as a form of punishment of the negligent party.

General damages include pain and suffering.

Bodily Injury does not include personal injury.

Property damage includes physical injury to tangible property, including loss of use of that property.

Loss of consortium means the loss of companionship of a husband or wife.

Personal injury includes libel, slander and false arrest.

The courts may punish a negligent party by ordering payment of:

Specific damages

Punitive damages are awarded to punish a negligent party for extremely objectionable conduct.

General damages

Special damages

The following is true concerning medical payments:

Payments up to the limit are made without regard to fault.




All of the following are true of liability policies:

They will pay sums that the insured becomes legally liable to pay.

They do not cover medical expenses incurred by the insured.

They will cover damage to property of a third party.

They are designed to cover third party injuries or damages.

_________________ prevents recovery for injuries if the claimant was also considered negligent.

Contributory negligence

Note: The doctrine of Contributory Negligence prevents the claimant from recovering damages if the claimant was

in any way also at fault


In the case of negligence, the prudent person standard is used.

Normally, the burden of proof is on the injured party to prove that the other party was negligent.

Liability policies pay the cost to defend the insured against suits by third parties

A characteristic of occurrence is that the loss may take place over a period.

When the insured and a third party cannot agree on legal liability, the final decision is made by

__________________ .

the court

In liability policies, Supplementary Payments or Coverage _________________________ .

are payable in addition to the policy limit of liability

In liability policies, an aggregate limit _____________________________ .

applies to loss from all occurrences within a specified policy period

All of the following are found in the Declarations of a liability policy:

Policy period

Amount of advance premium

Policy limits




All of the following make up a liability policy structure:

Exclusions

Conditions

Insuring agreement

All of the following are correct:

Primary coverage pays first with respect to other policies.

An excess coverage policy pays only after a primary policy has been exhausted.

Pro rata is the distribution of liability among insurers that have policies on the same risk.

The occurrence limit is the most that will be paid for any one occurrence.

The Conditions part of the policy contains the general rules and duties under the policy.

The Exclusions explain the areas (or perils) not covered.

The Declarations include the insured's name, policy period, policy limits and the amount of premium.

A deductible is a specified amount of loss that is retained by the insured.

When a liability policy is written with aggregate limits, the aggregate limit is the most the policy will

pay for all claims within the policy term.

When a liability policy is written with split limits, it means that the amount of insurance available for

losses is divided between bodily injury and property damage.

The per person limit in a liability policy is the most the policy will pay to any one person regardless of

overall policy limits.

A primary policy pays first with respect to other policies.

The part of an insurance contract that varies with each individual policy, but is still a mandatory part of the policy,

is the _______________________________.

Declarations

The defense that prevents recovery for injuries caused by a negligent party if the claimant was also negligent is

called ______________________________.

contributory negligence

Pain and suffering, disfigurement, mental anguish and other similar types of losses are classified as

_____________.

General damages




The Pro Rata Provision reinforces _____________________.

the principle of indemnity

Proximate cause may best be defined as _____________________________.

an unbroken chain of events beginning with the negligence leading to the injury or damage.

On a Commercial General Liability policy, the per occurrence limit is best described as ______________.

the most the policy will pay for a loss arising out of a single occurrence

When the amount of damage awarded is reduced in proportion to the degree of negligence, this is called

___________________________.

Comparative Negligence

Note: Under Comparative Negligence, the award is reduced by the amount of negligence on the part of the injured

party.

Vic takes his son Bill to a baseball game. In the third inning, a foul ball strikes Vic in the face, fracturing his jaw.

What legal defense will the ballpark use to avoid liability?

Assumption of risk

Note: When a person participates in an activity where a certain type of injury may occur, the person assumes that

risk.

The courts impose legal liability when it has been established that all of the following are present:

Negligence (fault)

Damages

Proximate cause

_______________ term describes the maximum amount payable for loss from all occurrences within a policy

period.

Aggregate limit




All of the following are common law defenses against negligence:

Assumption of risk

Intervening cause

Contributory negligence

_____________ term describes the equal sharing of a loss by two or more insurers until the loss is paid, or until

each insurer has exhausted its limits of insurance, whichever comes first.

Contribution by Equal Shares

Note: Under Contribution by Equal Shares, each insurer pays an equal amount to the loss settlement until the loss is

paid, or until each insurer has exhausted its limits of insurance, whichever comes first.

All the following coverages are provided under Section II of a Homeowners Policy:

Damage to property of others.

Medical expense of a guest.

Third party property damage for which the insured is legally liable.

An injury of a friend.

Medical payments under a Homeowners Policy will cover funeral expenses.

Wanda falls in Vic's house and she is injured in an amount of $1,000. How much will Vic's Homeowners Policy pay

regardless of fault?

$1,000

Note: The policy will pay the actual amount of medical expenses up to the policy limit of Coverage F.

All of the following under a Comprehensive Personal Liability Policy (Homeowners Policy Section II) apply to the

additional coverage Damage to Property of Others:

The Damage to Property of Others coverage is limited to $1,000 and cannot be increased.

Coverage is provided whether the insured is legally liable or not.

Coverage is provided for property that is damaged by an insured and the insured feels morally

obligated.

Coverage does not include any property that is covered under Section I.

All of the following are considered insured locations under a Homeowners Policy:

Premises where named insured maintains a residence.

A vacant lot that is owned by the named insured.

Premises where the named insured is temporarily residing.




All of the following are considered to be persons insured under a Homeowners Policy:

A son or daughter while away at college, who is 23.

A 79‐year‐old father‐in‐law who is living with an insured.

A 25‐year‐old relative who is living with an insured.

A friend's 14‐year‐old daughter who is living with an insured.

Note: The definition of insured does not include anyone over the age of 21 that is not a relative.

Section II of a Homeowners Policy provides coverage for all of the following:

Liability from a golf cart while being used for golfing.

Liability from a sailboat that is less than 26 feet in length.

A 25 horsepower outboard boat.

All of the following are true of Section II of a Homeowners Policy:

Medical payments coverage would apply if the family dog were to bite someone 3 blocks from home.

First aid expenses are automatically included.

Loss assessment charges against the insured by a property owner's association are covered up to

$1,000.

Medical payments include guests.

Under additional coverages, Damage to Property of Others, coverage is provided if an insured feels

morally obligated, but is not necessarily legally liable.

Payment of a medical payment is not an admission of legal liability.

Bankruptcy of an insured does not relieve the insurer of its obligations.

It protects the insured against third party claims.

Under Damage to Property of Others, intentional damages that are caused by any insured who is at

least 13 years of age are not covered.

No coverage applies to property owned by the named insured.

Under Coverage E, coverage does not apply to bodily injury of the named insured or any relative or

minor who resides in the same household.

Liability arising out of the sale, use, manufacture, delivery, or possession of a controlled substance is

excluded.

In the event of the death of the insureds, coverage continues for the insured's legal representative.

At its own expense, the insurer will provide a legal defense against claims.

Insurer obligations end when it pays damages equal to the policy limit for any one occurrence.

The watercraft endorsement extends liability coverage to watercraft described in the endorsement.

Sailing vessels of less than 26 feet in length are automatically included.

Occurrences that are expected or intended by an insured are not included.

Damages caused by a golf cart while being used for golf would be included.




Note: Damage to Property of Others pays up to $1,000 regardless of whether the insured is liable or not.

The Personal Injury Endorsement would cover a/an ____________________________.

Liability arising from oral or written publication of material that violates a person's right of privacy.

______________________ is eligible to receive medical payments under Section II of a Homeowners Policy.

A residence employee.


Section II is the same in all Homeowners Policies.

The Personal Liability Coverage in Section II is written on a single limit basis.


Total liability coverage resulting from any one occurrence may not exceed the Coverage E limit that is

stated in the policy.

Obligations of an insurer end when it pays damages equal to the policy limit for any one occurrence.

Insurer investigation expenses are in addition to the limits stated in Coverage E.


Under Coverage F, a covered accident may occur during the policy period.

Under Coverage F, coverage does not apply to injuries of the named insured or any regular resident of

the insured's household.

Under Coverage F, coverage applies to persons that are on the insured location with permission.

Coverage F will pay for expenses incurred up to three years after the accident.

All of the following definitions are true of a Homeowners Policy:

Bodily injury ‐ bodily harm, sickness or disease, including required care, loss of services and death that

results.

Occurrence ‐ an accident, including exposure to conditions that result during the policy period in bodily

injury or property damage.

Residence employee ‐ an employee of an insured whose duties are related to the maintenance or use of

the residence premises.





Under Section II, coverage applies only to bodily injury or property damage that occurs during the

policy period.

The policy will not provide coverage for an insured that has intentionally concealed or misrepresented

any material fact or circumstance.

Subrogation does not apply to payments made under Section II, Medical Payments to Others, or

Damage to the Property of Others.

All of the following are true of a Comprehensive Personal Liability Policy:

It has additional coverage for Damage to Property of Others.

The Medical Payments Coverage will cover medical expenses that are incurred within 3 years.

It essentially has the same coverages as Section II of a Homeowners Policy.

All of the following are part of the insured location under a Homeowners Policy:

A vacant lot that is owned by the named insured.

A cabin at a lake that is rented by an insured for a vacation.

A secondary residence acquired during the policy period.

Vic and Wanda have purchased a Homeowners Policy. All the following are considered an insured:

Their daughter while away at college.

Frank's uncle who is living with them.

A friend's 16‐year‐old daughter who is staying with them while going to school.

All of the following are covered under Section II of a Homeowners Policy:

Damage to property of others.

Medical expenses of a guest.

$250 a day for the insured's assistance in the investigation or defense of a claim or suit as actual loss of

earnings.

Third‐party bodily injury for which the insured is legally liable.

Under the Homeowners Policy Business Pursuits Endorsement:

The definition of bodily injury is amended.

The coverage is excess over any other collectible insurance.

The name or type of business must be named in the endorsement to be covered.

The business must be owned by the insured.

The following is eligible to receive medical payments under Section II of a Homeowners Policy:

A guest of the insured on the residence premises.




Note: A guest, but not the insured or regular residents, would be eligible for medical payments.

All the following statements are true regarding a Homeowners Policy:

First aid expenses are unlimited.

Payments under Damage to Property of Others are limited to $1,000.

The insurer will reimburse the insured for time off work to testify at a trial covered by the policy.

Damage to Property of Others will not pay for intentional damages done by an insured who is 13 years

or older.

The Homeowners Policy provides coverage for all of the following:

A riding lawn mower pulling a two‐wheel garden trailer.

A motorized wheelchair.

An ATV on the insured's premises.

The following would be covered under the Damage to Property of Others additional coverage of the Homeowners

Policy:

Intentional damage by a child under age 13 is covered.

All of the following are defined as insured locations in the Homeowners Policy:

A non‐owned premises where the insured is temporarily residing.

Cemetery plots.

Any premises named in the Declarations.

Note: Farmland owned by the insured is not covered.

All of the following are true of the Personal Auto Policy:

Limits of liability may be either split or single.

It provides no‐fault in states that require it.

It provides no coverage for personal effects in the vehicle.

It is written in simplified terminology.

All of the following are true of automobile liability coverage:

It may be written either split or single limit.

It protects the insured for losses when the insured is legally liable.

It provides third party protection.




All of the following are true of automobile physical damage:

It covers damage to the insured auto regardless of liability.

Automobile physical damage does not cover any damage to a vehicle hit by the insured

Collision coverage usually is written with a deductible.

Damage to the insured auto that is caused by colliding with a deer would be covered under Other Than

Collision coverage.

Vic, the insured, in backing from his driveway, backs into the neighbor's son on his bike. The son is hospitalized and

there is damage to the bike. Which section of Vic’s policy pays?

The liability coverage would pay for the bodily injury (son) and property damage (bike).

All the following are correct regarding the Personal Auto Policy:

It provides no‐fault in states that require it.

It provides medical payments for up to 3 years.

Auto collision coverage will cover damage to the insured vehicle regardless of liability.

Auto physical damage coverage is normally written _____________________________.

On an actual cash value basis.

Note: Physical damage will pay the cost to repair or replace the vehicle, or the actual cash value of the vehicle,

whichever is less.

All of the following are true of supplementary payments under Part A of the Personal Auto Policy:

It pays up to $250 for the cost of bail bonds.

It pays up to $200 a day for lost earnings.

It will pay other reasonable expenses incurred at the insurer's request.

Supplementary payments are in addition to the policy's limit of liability.

If a bird hits a windshield and breaks it, under a Personal Auto Policy the loss would be paid _________________ .

under the Other Than Collision coverage part

All the following statements are correct regarding medical payments under a Personal Auto Policy:

The named insured and family members are covered if injured while occupying any auto.

The named insured and family members are covered if injured as pedestrians.

Persons other than the named insured and family members must be occupying the insured auto.

Auto medical payments coverage has a per person limit.




All the following statements are correct regarding uninsured motorist coverage under a Personal Auto Policy:

Coverage does not apply when a person is using the vehicle without permission

A covered person means the named insured, family members and any other person occupying the

covered auto.

Coverage does not apply to any vehicle being used to carry property or persons for a fee.

Coverage does not apply to a vehicle used primarily for use off public roads.

Under a policy with limits of $25,000 bodily injury per person, $50,000 bodily injury per accident and $10,000

property damage per accident; what would be the insurer's liability arising out of a single accident where claimant

X has injuries in the amount of $25,500; claimant Y, $20,500; and claimant Z $4,000?

$49,500

Note: The policy would pay up to the BI limit of $25,000 for X; $20,500 for Y; and $4,000 for Z. $25,000 + $20,500 +

$4,000 = $49,500.

The definition of a covered auto in the Personal Auto Policy includes all of the following:

Automatic coverage for newly acquired vehicles is 14 days.

An auto used by the insured while his/hers is being repaired.

An auto leased by the insured for at least 6 months.

The automobile that is described in the Declarations.

All the following statements are correct regarding a newly acquired additional vehicle:

It is covered as soon as the insured becomes its owner.

Coverage is as broad as the broadest coverage for any vehicle now insured by the insurer.

It may be a pickup truck with a GVW of 9500 lbs.

A newly acquired vehicle must be reported to the insurer within 14 days in order to be covered from

the date of acquisition.

Automobile collision insurance under the Personal Auto Policy provides payment for losses

_____________________.

to your car, regardless of liability

All the following are included under Other Than Collision coverage:

Damage caused by a painter who, while working on a building, sprayed paint on an insured vehicle.

A car that is stranded in a creek and damaged by rising water.

Damage caused by students standing on the hood during a football game.




Vic hit a deer with his truck. He had a $250 deductible collision coverage and $50 deductible Other Than Collision

coverage. The damage to his truck was only $450. How much will he be paid?

$400

Note: Damage $450, minus $50 deductible for Other Than Collision, leaves $400.

Wanda carries only Other Than Collision coverage on her car. In the event of a collision doing $1400 damage to her

car, including glass breakage totaling $50, how much will she receive?

$50

Note: Glass breakage can be covered by Collision or Other Than Collision at insured's option.

All of the following are considered in rating private passenger automobiles for liability coverage:

Age and sex of the driver.

Territory of garage.

Vehicle use and annual mileage.

Under the Personal Auto Policy physical damage loss such as _____________________ is covered.

malicious mischief to the tires

Note: This is covered under Other Than Collision.

The Personal Auto Policy may be used to insure all of the following:

A conversion van

A farm pickup

A station wagon

The definition of an uninsured motorist vehicle under the Personal Auto Policy includes all of the following:

A vehicle insured by an insolvent company.

A vehicle for which there is no liability policy.

A hit and run vehicle that cannot be identified.




Under a Personal Auto Policy, liability for bodily injury resulting from the insured's use of a non‐owned auto is

__________________________ .

provided on an excess basis

All the following are eligible for a Personal Auto Policy:

A farm pickup truck used only for farming.

A van that is not used to deliver cargo.

A 9‐passenger station wagon.

In automobile insurance, medical payments apply_____________________________.

Per person, per accident

The Personal Auto Policy applies____________________________.

only in the U.S., its territories, Canada, and Puerto Rico

When an auto has two auto policies with the same insurer, the insurer's liability would not

exceed________________.

the highest limit of the two

The following statement is true of medical payments in a Personal Auto Policy:

It pays reasonable expenses incurred for necessary medical and funeral services sustained by the

insured.

All the following are covered under Uninsured Motorist Coverage:

Family members

A friend occupying the insured auto

Passengers

Supplementary payments under Part A of the Personal Auto Policy will pay _____________________.

$250 for bail bonds.




All of the following are exclusions for the liability coverage in the Personal Auto Policy:

Intentional damage done by the insured.

Damage caused by a vehicle designed mainly for off road use.

Use of a non‐owned vehicle used without permission.

_______________________ is covered under coverage for damage to your auto:

Flood damage to a convertible when the top is left down

Note: Flood damage is covered under Other Than Collision coverage.

Coverage for recreational vehicles can be added to the Personal Auto Policy by the___________________.

Miscellaneous Type Vehicle Endorsement

The Miscellaneous Type Vehicle Endorsement attached to a Personal Auto Policy allows eligibility of a motorcycle

by____________________________.

providing a new definition of covered auto

All of the following are true of medical payments under the Personal Auto Policy:

Medical expenses of the insured and family members are included.

The coverage limit applies per person, per accident.

Coverage applies only for medical expenses incurred within 3 year of the accident.

Persons other than the insured and family members must be occupying the insured auto for coverage

to apply.

Note: Medical Payments coverage includes medical expenses incurred within 3 years from the accident.

All the following statements are correct regarding automobile physical damage:

It covers damage to the insured auto regardless of liability.

Collision coverage usually is written with a deductible.

Damage to the insured auto that is caused by colliding with a deer would be covered under Other Than

Collision Coverage.




All the following statements are correct regarding Damage to Your Auto:

Coverage includes the cost to repair previous damage if required to fix new damage.

The limit of liability is the higher of the vehicles actual cash value or the cost to repair.

The sales tax on a replacement vehicle is not covered.

All of the following are true about a newly acquired additional vehicle:

Must be reported to the insurer within the specified period.

Coverage will be as broad as the broadest coverage on any vehicle in the household insured by the

insurer.

May be used on a farm.

All of the following are insureds under a Personal Auto Policy:

A spouse living in the same household.

The teenage son of the insured who drives the vehicle without a license.

A foreign exchange student living with the insured for the school year.

All of the following would be covered under uninsured motorists’ coverage:

Someone who has auto liability insurance but the insurer is insolvent.

An insured injured by hit and run driver.

Someone who is underinsured.

____________________ endorsement would cover the named insured and family members who use a company

vehicle that is furnished for the named insured's regular use.

Extended Non‐owned Coverage for Named Individual


When a Commercial Auto Policy is written monoline, the Common Policy Declarations page is not

needed.

When written as a package policy, the Business Auto Coverage Form Declarations includes the named

insured, the policy number and the form of business, (corporation, partnership, etc.) and does not

duplicate information found in the Common Policy Declarations.

When written as a monoline policy, the Business Auto Declaration is used.




All of the following are eligible for a Business Auto Coverage Form:

A private passenger auto that is used in the business.

A van that is used by a delivery firm.

A trailer that is used to carry a backhoe.

All of the following are considered when rating liability coverages on a Business Auto Coverage Form:

The age of the driver.

The radius of operation.

The weight of the vehicle.

A Business Auto Coverage Form will provide coverage in all of the following territories:

Canada

Puerto Rico

While being transported between any places included in the coverage territory.

Physical damage coverage under a Business Auto Coverage Form includes all of the following:

Collision Coverage

Specified Causes of Loss

Comprehensive Coverage

A Trucker Coverage Form may be used for all of the following:

A truck that is owned by an insured.

A non‐owned unit that is operated over routes for which the licensee is licensed.

A trailer that is owned by an insured.

All of the following are true to the Business Auto Coverage Form:

Coverage may be written on owned private passenger autos.

Medical payments coverage may be added by endorsement.

Coverage is primary on owned autos and excess on non‐owned autos.

All of the following are true to the Business Auto Coverage Form:

Specified causes of loss include certain named perils.

Rating includes radius of operation.

Comprehensive coverage includes theft of a covered auto.

The Garage Coverage Form may be written for all of the following firms:

ABC's car dealership

XYZ's service station

XXX's public parking garage




Section II (Liability) of the Garage Coverage Form cover:

Completed operations liability.

Premise and operations liability.

Products liability.

A firm that transports goods of others, rather than their own goods, should purchase a______________.

Trucker's Coverage Form

An employee of a service station failed to tighten the oil filter. The leaking oil ruined the engine, causing $4000

damage. Section II of a Garage Coverage Form will pay ____________________________ .

$4000 less the $100 mandatory deductible.


The Business Auto Coverage Form will cover liability from mobile equipment while being carried or

towed.

The form most frequently used for insuring automobiles of a commercial business is the Business Auto

Coverage Form.

The Garage Coverage Form ‐ Section II does cover completed operations.

A Garage Coverage Form ‐ Section II does not provide physical damage coverage to a customer's car.

A Garage Coverage Form will cover legal liability from completed operations.

Under the Endorsement for Motor Carrier Policies of Insurance for Public Liability, if the insurer is

required to pay an excluded loss, it may seek reimbursement from the insured.

Specified Peril Coverage provides coverage only for certain named perils such as fire.

Garagekeepers Insurance provides coverage for damage to a customer's car.

Section III (Trailer Interchange Coverage) of the Truckers Coverage Form provides legal liability coverage

for loss or damage to non‐owned trailers.

Section IV (Physical Damage Coverage) of the Truckers Coverage Form provides almost identical

physical damage coverage as the Business Auto Coverage Form.

Medical payments is optional by endorsement in the Garage Coverage Form.

Section V (Garage Conditions) of the Garage Policy establishes boundaries of coverage that are in

addition to the common policy conditions.

Section III of the Garage Coverage Form covers_____________________.

physical damage to a customer's car that is in the care and custody of an insured

Note: Garagekeepers Coverage pays for damage to customer's cars in the care and custody of the insured.




All of the following are considered uninsured motor vehicles:

A hit and run vehicle.

A vehicle to which no liability policy applies.

A vehicle to which the insuring company becomes insolvent.

All of the following are basic sections provided in the Garage Coverage Form:

Liability Insurance

Physical Damage Insurance

Garagekeepers Insurance

Section II (Garage Liability) of the Garage Coverage Form covers___________________________.

property damage for which the insured is legally responsible

All of the following are true of the Business Auto Coverage Form:

Provides no‐fault in states that require it.

Covers liability from mobile equipment while being towed.

Does not include contractual liability.

Legal liability of a common carrier for damage or loss to goods in its custody makes a carrier

liable_________________.

For all losses except those caused by certain specified perils

All of the following are true of the Motor Carrier Act of 1980:

Insurer's liability is considered absolute.

If the insurer is required to pay an excluded loss, it may seek reimbursement from the insured.

Common carriers carry a higher degree of care to their passengers than other operators of motor

vehicles do to their passengers.

The most common approach to satisfying financial responsibility is insurance.

When an insured carries two auto policies with the same insurer on one auto, the insurer liability would not

exceed____________________________.

the highest limit of the two




An individual who uses a truck to carry his own cargo would receive auto coverage under which of the following

coverage forms:

Business Auto Coverage Form

Note: This individual would be a private carrier and the Business Auto Coverage Form would apply.

Medical payments under the Business Auto Coverage Form include _______________________ .

Reasonable, necessary, medical and funeral expense because of bodily injury that is caused by an

accident that is sustained by an insured.

Vic had a Business Auto Coverage Form with liability limits of 100/300/50. In an accident for which Vic was liable,

there were BI claims in the amounts of $80,000; $105,000; $115,000; and PD claims of $20,000 and $35,000. How

much will his policy pay?

$280,000 BI and $50,000 PD.

Note: BI = $80,000+100,000+100,000 = 280,000; P. D. = maximum of $50,000.

All of the following are covered under a Business Auto Coverage Form:

Trailer with load capacity under 2,000 lbs.

Self‐propelled vehicle with a permanently installed cherry picker.

Mobile equipment being towed by a covered auto.

The broadest basis for the Garagekeepers Coverage is _______________________.

Direct Primary

Section III ‐ Garagekeepers Coverage of the Garage Coverage Form covers ______________.

physical damage to a customer's car that is in the care and custody of an insured

A sole proprietor has his personal auto insured under the Business Auto Coverage Form and wants to rent an auto

under his/her own name, the following is correct:

Drive Other Car Coverage naming the owner must be attached to the Business Auto Coverage Form.

Note: Drive Other Car Coverage extends the Business Auto Coverage Form to cover borrowed or rented vehicles.




All of the following are true of the Endorsement for Motor Carrier Policies of Insurance for Public Liability (Form

MCS‐90):

Coverage is in effect until terminated (continuous).

An insurer must give notice at least 35 days in advance of cancellation.

The insurer's liability is absolute.

The endorsement provides evidence of financial responsibility, on behalf of the motor carrier, to the

Interstate Commerce Commission.


Premises and operation exposures pertain to a building owner or tenant who may be held legally liable

in the event of bodily injury or property damage arising out of conditions on or away from premises.

Contractual liability policies cover liability assumed under designated contracts.

Products and completed operations coverage under the Commercial General Liability Coverage Forms

covers liability arising from its use.

Product liability may be based either on negligence or on a warranty.

Under a liability policy, pays for bodily injury and property damage for which the insured is legally

responsible.

After a claim has been paid under a policy, any recovery rights belong to the insurance company.

Liability assumed under a written agreement may be covered under a contractual liability policy.

In liability policies, insureds include other persons while acting as agents for the insured.

All of the following are true of the Occurrence Form:

The injury or damage must occur during the policy period.

As long as the injury or damage occurred during the policy period, the claim date is immaterial.

Supplementary payments are automatically included.

All of the following are true of the Claims‐Made Form:

For coverage to apply, the injury or damage must have occurred after the retroactive date or during the

policy period.

Supplemental payments are automatically included.

The mini tail allows 60 days after the end of the policy period for reporting a claim.

A claim arising from an occurrence taking place before the retroactive date would not be covered by

the current policy.


The extended reporting period does not increase the policy limits.

Under the mini tail, the insurer must be notified of a claim within 60 days after the end of the policy

period.




Under the supplemental tail, the insured must request coverage within 60 days after the end of the

policy term.

The supplemental reporting period has a one‐time premium.

________________________ is included in Section I of an Occurrence Form.

Coverage A is Bodily Injury and Property Damage Liability


The sistership exclusion in the Commercial General Liability Coverage Forms does not cover recall or

withdrawal of other products because of known defects.

The pollution exclusion in the Commercial General Liability Coverage Forms excludes bodily injury and

property damage arising from a pollutant as well as the costs of clean up.

The Pollution Extension Endorsement includes both sudden and non‐sudden pollution events and does

not cover clean up costs.

The Supplemental Extended Reporting Period Endorsement may not be cancelled after the premium

has been paid.

All the following are correct regarding Supplementary Payments under the Commercial General Liability Coverage

Forms:

Insurer claim related expenses are included.

The cost of bail bonds is included up to $250.

Any payments made under this section will not reduce the limits of the policy.

Coverage only applies to Coverages A and B.

________________________ is included under Medical Payments of the Commercial General Liability Coverage

Forms.

Bodily injury of any customer

All of the following are included under Section II (Who is an Insured) of the Commercial General Liability Coverage

Forms that is written on an occurrence basis:

Any individual, partnership, joint venture or corporation that is named in the Declarations.

A real estate manager.

A partner of an insured partnership while on a business trip.

An operator of a forklift.





Section III of the Commercial General Liability Coverage Forms describes the limits of insurance.

The general aggregate limit is the most the company will pay for all damages under Coverage A,

Coverage B, and medical payments under Coverage C, except for products and completed operations

claims.

The each occurrence limit is the most the company will pay for damages under Coverage A and

Coverage C, arising out of any one occurrence.

The limits of the policy that are stated in the Declarations are applied separately to each consecutive

annual period.


Under Section II (Who is an Insured) of the Commercial General Liability Coverage Forms, newly

acquired organizations are automatically included for a maximum of 90 days or until expiration of the

policy, whichever comes first.

Medical payments under a CGL Policy do not cover injuries resulting from liquor liability.

Medical payments under a CGL Policy include funeral expenses.

If the named insured cancels a policy, the refund will be sent to the first named insured.

There would be no coverage under the Commercial General Liability Coverage Forms for an insured that

is a subsidiary company that is not listed in the Declarations

All of the following are true of the Commercial General Liability Conditions (Section IV) under the Claims‐Made

Form:

The insured must maintain records necessary so the insurer may compute the premium.

Insolvency of the insured does not relieve the insurer of its duties under the policy.

Insurance applies as if each named insured were the only named insured, and separately to each

insured against whom the claim is brought.

The insured cannot sue the insurer until all terms of the policy have been fully complied with.


Under a Commercial General Liability Coverage Part, the insurer inspection does not constitute a

warranty.

Under a Commercial General Liability Coverage Part, it is the first named insured that must mail or

deliver notice of cancellation to the insurer.

Under a Commercial General Liability Coverage Part, if an insured dies, the rights and duties are

transferred to a legal representative.

Under a Commercial General Liability Coverage Part, in the event of a loss, the insured must subrogate

all rights to the insurer.





Dram Shop Liability applies to the seller of liquor by the drink (a bar, etc.)

Contingent Liability Policies are also called Owners and Contractors Protective Liability.

The insurer may examine the insured's books anytime during the policy period, or within 3 years after

the policy ends.

The insurer's written consent is required for any transfer of rights and duties to another person.


Changes to a Commercial General Liability Coverage Part may be made only by endorsement issued by

the insurer.

Products & Completed Operations claims have their own aggregate limit and these claims do not

reduce the General Aggregate.

Under the Commercial General Liability Coverage Part, the General Aggregate Limit will be reduced by a

medical payment.

Under the insuring agreement of the Commercial General Liability Coverage Part, a bodily injury claim

must be caused by an occurrence and it must have taken place in covered territory.

An insured contract under the Premise and Operations Exposure includes all of the following:

A lease of premises.

A side track agreement.

An elevator maintenance agreement.

All of the following are true of the Supplemental Extended Reporting Period Endorsement associated with the

claims made form of the Commercial General Liability Coverage Part:

The one time premium may not exceed 200% of the annual premium for the coverage part.

The insurer may cancel it after the premium has been paid by the insured.

It is an optional extended reporting period of unlimited duration.

Once the premium has been paid, the Supplemental Extended Reporting Period Endorsement cannot be

cancelled.

Under bodily injury and property damage liability of the Commercial General Liability Coverage Part of the CPP, all

of the following are excluded from coverage:

Discrimination

Transportation of mobile equipment

Damage to insured's work

Product recall




All of the following are true of Supplementary Payments under the Commercial General Liability Coverage Forms:

They are the costs of the defense and investigation incurred by the insurer.

They apply to bodily injury and property damage liability as well as personal injury and advertising

injury liability.

Supplementary Payments do not reduce the limits of insurance.

They include the cost of bail bonds up to $250.

The Mini Tail, when written with the Claims‐Made Form under the Commercial General Liability Part, provides

___________________________.

an additional 60 days after the end of the policy to report claims

Medical payments coverage under the Commercial General Liability Coverage Forms includes reasonable medical

expenses if they are incurred and reported within a maximum of _____ year(s) from the date of the accident.

1


The extended reporting period does not increase the policy limits.

Under the Mini Tail, the insurer must be notified of a claim within 60 days after the end of the policy

period.

Under the Supplemental Tail, the insured must request coverage within 60 days after the end of the

policy.

The Supplemental Tail can be purchased up to 60 days after the end of the policy term.

All of the following are true of Supplementary Payments under the Commercial General Liability Coverage Forms:

Included are the insurer's claim‐related expenses.

The cost of bail bonds is included up to $250.

Supplementary Payments only apply to Coverages A and B.

They do not reduce the limit of liability.

All of the following are true of medical payments under the Commercial General Liability Coverage Forms:

Coverage applies to expenses that are incurred and reported to the insurer within 1 year of the

accident.

Coverage applies to injuries that occur on the premises that the insured owns or rents.

Coverage applies to injuries that occur because of the insured's operations.




______________________________ would be covered under Personal Injury.

False arrest

__________________ would not reduce the General Aggregate Limit under a Commercial General Liability

Coverage Form?

The insurer pays a claimant injured by a product made by the insured

Note: A products claim has its own aggregate, and products losses do not reduce the General Aggregate.

All of the following are correct:

The definition of burglary includes forcible entry into locked premises after business hours.

Employee Dishonesty Coverage Form A covers money and securities, and property other than money

and securities.

Employee Dishonesty Blanket Coverage Form A will cover new employees automatically.

A watch person is any person retained to have care and custody of property inside the premises, and

has no other duties.

Theft includes any act of stealing, including burglary and robbery.

A Burglary Policy includes__________________________________________.

the taking of property from inside the premises by a person who hid inside a storeroom during the day

and broke a window to get out at night

Note: Burglary must include forcible entry or exit. An unlocked window does not constitute forced entry.

________________________ under the Crime Coverage Part to the Commercial Package Policy is the broadest and

most inclusive definition of a crime.

Theft

Note: Theft is the broadest definition of a crime and includes robbery and burglary.




All of the following are correct regarding Crime Insurance:

Coverage Form D (Robbery and Safe Burglary) covers property other than money and securities.

Coverage Form H (Premise Theft/Outside Robbery) covers property other than money and securities

against theft and outside robbery.

Coverage Form H (Premise Theft/Outside Robbery) covers loss of covered property by theft inside the

premises.

Coverage Form H does not include acts of employees, directors, trustees or representatives of the

insured.

Coverage Form H (Premise Theft/Outside Robbery) covers loss of covered property by actual or

attempted robbery of a messenger outside the premises.

Coverage Form E (Premise Burglary) covers loss of covered property by actual or attempted burglary, or

robbery of a watchperson.

Coverage Form E does not cover fire or vandalism losses or criminal acts of employees.

Coverage Form D (Robbery and Safe Burglary) covers loss from damage to a locked safe or vault inside

the premises.

Employee Dishonesty Coverage Form A may be written on a blanket basis or a scheduled basis.

Employee Dishonesty Coverage Form A includes money and securities as well as property other than

money and securities.

Theft, Disappearance and Destruction Form C includes damage to the premises.

Premises Burglary Form E covers property other than money and securities.

Coverage Form C (Theft, Disappearance, or Destruction) includes loss to cash containers in the

premises, and money and securities outside the premises while in the custody of an armored vehicle

company.

Coverage Form B (Forgery or Alteration ) protects the insured against losses resulting from forgery or

alteration of outgoing checks, drafts, promissory notes and similar instruments drawn on the insured's

accounts.

Coverage Form B (Forgery or Alteration) does not cover incoming checks that have been forged.

The term Messenger is used to describe a person who has custody of property outside the premises.

All of the following are correct regarding Crime Insurance:

Coverage Form B covers only outgoing checks that have been forged or altered.

Coverage Form D ‐ (Robbery and Safe Burglary) covers property other than money and securities.

Coverage Form E ‐ (Premises Burglary) covers loss of property other than money and securities caused

by robbery of a watchperson.

Coverage Form F ‐ Computer Fraud and Fund Transfer Fraud

Coverage Form H ‐ (Premises Theft / Outside Robbery) covers property other than money and securities

against theft and outside robbery.




All of the following are true regarding a Businessowners Policy:

Businessowners Policy is a package policy.

It is a self‐contained complete package policy.

It is designed for small to medium‐sized businesses.

Medical expenses must occur within 1 year of the accident.

Medical expenses incurred within 1 year of the accident are covered.

Medical expenses provide coverage without regard to negligence.

Any person or organization acting as the insured's real estate manager is considered an insured.

There is no limit on Supplementary Payments.

Hired and non‐owned autos may be included by endorsement.

Supplementary Payments do not affect the policy limits.

Auto dealers, banks and places of amusement are not eligible.

The BI/PD limit is written on a per occurrence basis.

The personal injury limit is written on a per person or organization basis.

Medical expense limit is written on a per person basis.

Damage to Premises Rented to You is written on a per fire basis

Legal action against the insurer cannot be taken until all terms of the policy have been complied with.

In the event of an occurrence, claim or suit, the insured must notify the insurer.

Bankruptcy of the named insured will not relieve the insurer of any obligations.

Medical Expense payments are made regardless of fault

A toy manufactured contains a faulty part that injures the customer is sold to a new owner. Under a

Businessowners Policy ____________________________.

the injury is an occurrence and the policy in force when the occurrence took place is liable

The Damage to Premises Rented to You limit under the Businessowners Policy is subject to ___________________.

the per fire limit

Under the Businessowners Policy, _______________________ provides coverage when the bodily injury or

property damage occurs away from the premises?

Products and Completed Operations

Personal injury in a Businessowners Policy includes the following torts:

Libel and slander

False arrest

Invasion of privacy




Under the Businessowners Liability Coverage, after a claim has been paid, any recovery rights________________.

belong to the insurer

__________________ of product liability under the Businessowners Policy.

Supplementary payments reduce the limit of liability

Medical expenses under a Businessowners Policy _____________________________ .

provides coverage without regard to negligence

All the following are correct regarding the Businessowners Coverage Form ‐ Section II:

The definition of insured product does not include vending machines used to distribute the product.

Medical Expenses payments do not apply to persons hired to work, or an insured.

Medical expenses incurred within 1 year of the accident are covered.

Bodily injury or property damage expected or intended by the insured is excluded.

Employees are insured with respect to their activities as employees, and any person or organization

acting as the insured's real estate manager, or having custody of the insured's property, or operating

mobile equipment with permission of insured, but only with respect to their exposure in that capacity.

Under personal injury, the offense must be committed in the coverage territory during the policy

period.

Under bodily injury or property damage, coverage does not apply to rendering or failure to render

professional services.

Property damage liability includes physical injury to tangible property, including loss of use of that

property.

Negligence is a type of tort.

Occurrence means an accident, including continuous or repeated exposure to the same general harmful

conditions.

Under the Businessowners Coverage Form ‐ Section II, medical payments covers all of the following:

An accident that takes place in the covered territory and during the policy period.

Expenses that are incurred and reported to the insurer within 1 year of the accident.

First aid at the time of an accident.

_____________________Is type of loss does not reduce the aggregate limit of the Businessowners Coverage Form

‐ Section II?

Damage to Premises Rented to You




All the following are exclusion in the Businessowners Coverage Form ‐ Section II:

Employers Liability.

Professional Liability.

Watercraft Liability.

All of the following are true about the Limits of Insurance Section of the Businessowners Coverage Form ‐ Section

II:

The Medical Expense limit is a per person limit.

The Damage to Premises Rented to You limit applies only to premises rented to the insured.

The Liability and Medical Expense limit applies per person or organization for personal injury claims.

The Products and Completed Operations aggregate limit is twice the Liability and Medical Expense limit.

Workers' Compensation covers all of the following:

Disability income benefits

Medical expenses

Death

Rehabilitation benefits

The Workers' Compensation disability when the employee is unable to work and no possibility of improvement

exists, is called________________________.

Permanent Total

Temporary Total Disability may be defined as _________________________.

the inability to return to any employment while recovering

A worker is entitled to benefits under Workers' Compensation for injuries arising out of or during employment

___________________________.

regardless of negligence by the employee or employer

All the following statements are correct regarding Workers' Compensation:

Payment is made without regard to negligence.

It pays medical expenses, loss of time benefits and death benefits.

It covers investigation and defense costs.

The cost of the Workers' Compensation program is paid by the employer.

Workers' Compensation will not cover pain and suffering.




The following statement is true regarding the Employers Liability Insurance Part of Workers' Compensation:

It applies to a suit that is brought against an employer by an employee or someone else because of an injury

to the employee.

Note: Employers Liability covers suits for injuries and their consequences that are not covered by Workers'

Compensation.

Employments generally exempted from Workers' Compensation laws include all of the following:

Farm laborers

Casual workers

Independent contractors

_____________________ is the primary objective of Workers' Compensation:

To provide a payment of benefits to employees for injuries that arise out of their employment

Part II ‐ Employers Liability Insurance is designed to do all of the following:

Cover claims that are not subject to compensation laws.

Protect the employer against common law claims.

Fill in gaps of compensation coverage.

Bodily injury to an employee is excluded in Commercial General Liability Insurance because

___________________.

coverage is provided under Workers' Compensation

Under most states' Workers' Compensation laws, medical benefits are ____________________.

generally, unlimited

Workers that load, unload, build and repair ships are subject to _____________________

The U.S. Longshoremen and Harbor Workers' Compensation Act

The liability that is imposed upon employers by the Workers' Compensation laws is ________________________.

Absolute; no exceptions if the injury is work related




All the following are elements of Temporary Total Disability:

The length of the disability must exceed the waiting period.

Retroactive benefits will be paid if disability exceeds the waiting period.

The employee is expected to return to work.

_______________ under Workers' Compensation benefits do not have a limit.

Medical benefits

All of the following are true about Temporary Partial Disability benefits:

The employee is able to do some work.

The employee's wages, while disabled, are less than before the injury.

The benefits are calculated as a percentage of the difference in the wages.

It is expected that the employee will return to the same job after recovery.

All of the following are true regarding Workers' Compensation?

Workers' Compensation is the sole remedy for work related injuries; the employee cannot elect not to

be covered.

The injury must occur while the employee is at work or working.

Some types of work are not covered.

The injury must be reasonably related to employment.

Employers Liability insurance (Stop Gap Coverage)_______________________________.

covers actions brought against the insured in a capacity other than as an employee

Note: Employers Liability covers actions brought against the insured in a capacity other than as an employee such

as loss of consortium, consequential bodily injury, etc.

Vic had suffered a prior work‐related back injury when ABC Corporation hired him. While working for ABC

Corporation, Vic fell down a flight of stairs and re‐injured his back. ___________________________.

The Second Injury Fund will pay compensation to the extent Vic's prior disabling injury contributed to

the claim.

Note: The Second Injury Fund pays that portion of the loss attributed to the prior disabling injury.




All of the following are methods of complying with Workers' Compensation laws:

Self‐insurance

Private insurers

Assigned Risk Plans


Part Three of a Workers' Compensation Policy includes Other States Insurance.

Part Two of a Workers' Compensation policy (Employers Liability) has limits for bodily injury by accident

or disease.

Under a Workers' Compensation Policy, a partial disability affects earning capacity but does not mean a

total inability to work.

Under the Workers' Compensation Policy, survivor income benefits are a percentage of the deceased

worker's wages.

All of the following are true of an Umbrella Liability Policy:

After underlying coverage is exhausted, coverage is excess.

Specific minimum limits for underlying coverage are required.

Certain losses excluded by the primary policy are covered.

Umbrella policies contain a Care, Custody and Control exclusion.

Policies are usually written in increments of one million.

Coverage is worldwide.


Umbrella policies pay as soon as the primary policy is exhausted. There is no deductible (retention) unless

the umbrella is dropping down to cover a loss that the primary policy did not cover.

________________________ to cover liability arising out of ownership, maintenance or use of an aircraft.

An Aircraft Liability Policy would need to be purchased

All of the following are true of Aviation Liability Insurance:

For medical payments to apply, the injury must be sustained while in, entering, or alighting from the

aircraft.

Hangerkeepers Legal Liability covers physical damage to non‐owned aircraft that is in the insured's care

and control.

An owner of an aircraft needs an Aircraft Liability Policy.

An Airport Liability Policy includes premise liability coverage.




All of the following are true of Protection and Indemnity:

It covers cargo if lost or damaged through negligence.

It covers damage to fixed objects.

It does cover injuries to seamen.

It covers injuries caused by negligence.

In bonding, the surety is also known as the _______________________.

Guarantor

Under a surety bond, the person whose responsibility it is to fulfill the obligation is the ______________.

Principal

All of the following are true of Personal Umbrella Liability Policies:

Policies are written in increments of one million.

Policies generally cover third‐party claims.

If the Umbrella Policy provides broader coverage than the underlying policy, the umbrella will cover the

entire loss, less a retention.


A bond that covers an employee in a position of private trust and that protects an employer against loss caused by

the employee's dishonesty is called a _____________________.

Fidelity bond

Regarding surety bonds, the party for whose benefit the bond is written is the_________________.

Obligee

All of the following are types of Professional Liability Insurance:

Errors and omissions insurance

Physicians, surgeons and dentists liability insurance

Fiduciary liability insurance

When the coverage in a Personal Umbrella Policy is broader than the underlying policy, the umbrella will drop

down and cover the entire loss, less a:

Retention (A retention is similar to a deductible and is the amount not paid by the insurer.)




_____________________ is a coverage in the Farm Liability Coverage Form.

Coverage H‐Bodily injury and property damage liability

All of the following are true of the Farm Personal Injury and Advertising Injury Coverage:

Coverage applies to written, printed material and oral statements.

Insurer is required to defend claims.

An offense must have caused the injury.

Specific to Farm Personal Injury: the offense must be related to the farming business.

On the Farm Liability Coverage Form, if an individual is the named insured, all of the following are insureds:

An employee of the named insured.

The spouse of the named insured.

A real estate manager of the named insured.

Medical expenses of the Farm Liability Coverage Form provide coverage if the accident is reported within

_______________________.

3 years

All of the following are true of the Farm Liability Coverage Form:

Medical expenses incurred and reported to the insurer within 3 years are covered.

Funeral expenses are included under medical payments.

Coverage is provided for Damage to Property of Others up to $500.

Supplementary payments apply only to coverages H and I.

Supplementary payments include insurer defense costs.

Supplementary payments are in addition to policy limits.

Under medical payments, coverage applies only to a person who is not an insured.

An individual injured on an insured's premises must have been there with permission for medical

payments coverage to apply.

Personal injury includes such things as damages arising out of false arrest, malicious prosecution, libel

and slander.

Medical payments cover injuries even if the insured is not liable. (A neighbor with whom the insured is

exchanging help, without remuneration, would be covered under medical payments.)

Medical payments provide coverage for a neighbor who is exchanging help in working the insured's

livestock.

Medical payments do not provide coverage for anyone eligible for Workers' Compensation.




All of the following are true regarding bodily injury/property damage of a Farm Liability Coverage Form:

Liability arising from business pursuits other than farming is excluded.

Coverage does not apply to injury or damage that is expected or intended.

The BI or PD must occur during the policy period.

Coverage includes product liability from the sale of farm products.

Under the Farm Liability Coverage Form, medical payments apply to all of the following that are injured on insured

premises:

A residence employee

Children visiting on a field trip.

An insurance salesman who was asked to assess coverage needs.

Bodily injury and property damage coverage under the Farm Liability Coverage Form applies to

________________.

product liability from the sale of farm products

The Farm Liability Coverage Form provides all of the following coverages:

Bodily injury

Property damage

Advertising injury

Coverage H (Bodily Injury and Property Damage Liability) of the Farm Liability Coverage Form will provide coverage

for _________________ if annual receipts from that exposure do not exceed $2,000?

Custom Farming

A contract that allows an insured to be restored to the same financial condition as prior to the loss is considered

______________________.

a contract of indemnity

_________________ is used to determine a loss ratio.

Dividing losses plus loss reserves by total earned premiums

Note: The loss ratio is determined by dividing paid losses plus loss reserves by total earned premiums.




If an individual faces the risk of economic loss in the event of property damage, this represents the principle of

_______________.

insurable interest

All of the following are restricted persons concerning the formulation of an insurance contract:

Mentally incompetent persons

People under the influence of drugs or alcohol

Minors

A contract in which both parties bargain in good faith is an example of the ____________.

Concept of utmost good faith

______________ describes a contract prepared by one party and submitted to the other party on a take it or leave

it basis, without negotiations?

Adhesion

When an insured fails to disclose known facts in an application for insurance, he/she may be guilty of

________________.

concealment

The following are correct:

A nonrenewal is when the insurer terminates a policy on or after the expiration date.

Under a unilateral contract, only one party is legally bound to future performance.

Reserves are accounting measurements of insurer's future obligations to the policyholder.

Proximate cause is the immediate or actual cause of a loss.

Representations are statements made by the insured that are true to the best of the insured's

knowledge, but not guaranteed.

A cancellation is the termination of a contract by the insured or the insurer in accordance with

provisions in the policy.

When parties to a contract exchange unequal amounts of money, this is said to be an aleatory contract.

The insurance contract is interpreted in favor of the insured because it is a contract of adhesion.

Expense ratio is dividing an insurer's total operating expenses by total earned premiums.

Risk is defined as uncertainty or chance of loss.




A condition in an insurance policy or application to which the policyholder is bound under penalty of voiding the

policy is called_______________________.

a warranty

Self‐insurance is an example of which of _______________________.

retaining the risk

The shifting of risk of loss to a larger homogeneous group is known as _____________________.

risk transfer

All of the following are reactions to risk:

Avoiding the risk

Transferring the risk

Retaining the risk

Elements of an insurable risk include all the following:

The ability to set a value on it.

Accidental loss.

Large number of homogenous units.

Loss cannot be catastrophic in nature

Of the insurance mechanism, the following are all true:

The risk is transferred to the insurer.

The insured may retain part of the risk through deductibles.

A large uncertain loss is exchanged for a small certain loss.

Insurance is not designed to cover intentional losses.

All of the following are true of insurance:

Protects against uncertainty

Means sharing of loss

Transfers risk

The following statement is true of insurable interest in property insurance:

May not be required at the time the policy is written, but is necessary at the time of loss.




All of the following are true of the law of large numbers:

It relates to the determination of the probability of loss.

There is a decreased degree of error in predicting losses of large groups.

The prediction of group loss is based upon past experience.

As the number of insured units increases, predictability improves.

_______________ constitutes the acceptance of an offer.

When an insurer issues a binder

All of the following are considered part of the consideration of an insurance contract:

The insurer's promise to indemnify in the event of loss.

Payment of the first premium.

Statements made in the application by the insured.

All of the following are true of a Reciprocal Insurance Company:

Each subscriber assumes part of the risk of all other subscribers.

If funds are insufficient to pay claims, the subscribers can be assessed for additional premium.

It is managed by an attorney‐in‐fact.

The following statement is true of Lloyd's of London:

It provides a meeting place and clerical services to its members who actually transact the business of

insurance.

An agent has authority to do all of the following:

Solicit applications on insurer's behalf.

Countersign insurance contracts.

Appoint a solicitor as his or her representative.

An agent represents an insurer

Note: A broker represents the insured.

Each underwriter of Lloyd's of London:

Exposes his or her entire fortune to guarantee payment of risks assumed.




Note: No limitation of liability is permitted, so each underwriter exposes their entire fortune to guarantee payment

of losses.

The following statement is true of the National Association of Insurance Commissioners:

Each commissioner may accept or not accept the recommendations that concern his or her state.

Note: The N.A.I.C. is only an advisory group and members do not have to accept their recommendations.

________________ normally market for direct writing companies.

Salaried employees

All of the following are true of the Fair Credit Reporting Act:

The consumer has the right to obtain the substance of the information in the reporting agency file.

It protects the rights of the individual from overly intrusive information collection practices.

If a consumer says that certain information is incorrect, the reporting agency must reinvestigate the

facts and make changes as necessary

The consumer who was investigated must be informed whenever credit or insurance was denied

because of an adverse report.

All of the following are true of insurers:

Statutes require annual financial statements.

A.M. Best publishes a guide that compares written premium to surplus.

Reserves are an insurer's estimate of their future obligations to policyholders.

Statutes help establish initial financial requirements.

All of the following are characteristics of a Mutual Insurance Company:

A policyholder votes on the Board of Directors.

Profits are returned as dividends.

They provide insurance to members.

The following are all correct:

A physical hazard includes location.

A moral hazard includes dishonesty.

Flammable material near a furnace would be considered a physical hazard.

A physical hazard is a physical condition that increases the likelihood of loss

A morale hazard is an attitude of indifference to loss.




All of the following are types of insurers:

Stock insurers

Mutual insurers

Reciprocal insurers

When both parties to a contract must perform certain duties in order to make the contract enforceable, this is

known as a ____________________.

conditional contract

Paul Williams insured his house under a Homeowners Policy. Paul has just finished painting the inside and has

some leftover paint that he stores in the basement. The kind of hazard the stored paint present is a

______________ hazard.

physical

All of the following are risk management techniques:

Retention

Avoidance

Transfer

____________ describes the probability of loss.

Risk

The type of risk involve the possibility of loss or gain is ___________________.

insurable

All the following are examples of an unfair trade practice:

Misrepresenting the benefits of an insurance policy.

Giving something of nominal value that is not specified in the contract.

Discriminating between persons of the same class that have essentially the same hazard.

The following statement is true of auto assigned risk plans:

The auto assigned risk plan is for drivers who cannot find coverage in the ordinary market.




Producers may split commissions if_______________________________.

both producers are licensed for the same line of insurance being written.

An example of an unfair trade practice in insurance is__________________.

The returning of premiums that are not specified in the contract.

An article that includes false statements about the financial condition of an insurer is an example

of______________.

Defamation

Note: Defamation is a maliciously critical statement about an insurance company's financial condition.

When a producer makes an agreement that unreasonably restrains the potential insured, he/she may have

violated regulations against______________________.

Boycott, coercion, and intimidation

A producer may be guilty of misrepresentation if he/she __________________.

Did not disclose exclusions of the policy.

Note: Failure to disclose pertinent facts about a policy is called misrepresentation.

All the following are unfair trade practices:

Illegal inducement to purchase

False advertising

Misrepresentation

When a producer persuades a prospect to purchase a policy by promising to return a portion of the commission,

the producer is probably guilty of_________________.

Rebating

An employee of an agency must be licensed as a producer if he/she____________________.

solicits applications and receives commissions




All of the following would cause a producer to be subject to suspension or revocation of his or her producer

license:

Promising through advertising, to perform services not licensed for.

Conviction of a felony.

Trying to obtain an insurance license by fraud.

All of the following are unfair claims settlement practice:

Misrepresentation of policy provisions.

Unreasonable delay in claim payment.

Not giving a reasonable explanation when denying a claim.

Funds controlled by the Property and Liability Insurance Guaranty Association are used to__________________.

Pay claims of insolvent insurers.

All the following statements are true about FAIR plans:

They are state supervised plans run by the insurance industry.

Fair Plans can reject unacceptable risks

Their purpose is to provide property insurance in high‐risk areas.

The perils covered are generally limited to fire, lightning and extended coverage.

When an applicant applies for insurance, a ______________ is obtained by an insurance company to determine

the financial and moral status of the applicant.

credit report

The purpose of a Certificate of Authority is to__________________________.

permit an insurance company to transact business

When a producer offers a prospective insured a portable TV as a bonus for purchasing a policy he/ she could be

guilty of__________________________.

Rebating

Generally the Insurance Guarantee Association is funded by___________________________.

assessment of member insurance companies




The Insurance Commissioner may examine the records of an insurer in order to_____________.

determine the insurer's solvency

The following definitions and questions are provided for study purposes to be used for State test preparation.

Risk: The chance of loss Insurance: A means of transferring the risk of loss Peril: The cause of loss Hazard: Increases the chance of loss

An example of pure risks:

Wanda’s dog is temperamental. She’s afraid it will bite a neighbor someday, and she will be held responsible.

The law of large numbers

states that the more examples used to develop a statistic, the more reliable the statistic will be.

Betty purchases a house from Vic. She borrows $75,000 from First Commercial Bank which, along with her $25,000 down payment, equals the $100,000 purchase price of the home. Who has an insurable interest in this home? Betty and the Bank Insurable risk includes:

Insurable interest Pure risk, not speculative loss must not happen to a large number of insureds at the same time risk of loss must be definite; loss would cause financial hardship cost of loss is calculable cost of insurance covering the risk is affordable large number of persons with similar potential for loss.

XYZ Industries has an automatic sprinkler system installed in its office building. This is an example of which risk management method? Reduction XYZ Pharmaceuticals decides not to manufacture a new drug after determining that it has serious potential side effects. This is an example of which risk management method? Avoidance




A mutual insurance company

is owned by its insureds. XYZ Insurers writes Homeowners, Auto and Liability insurance for individuals and families.

XYZ is a (mono/multi) line company that specializes in (personal/commercial) lines. A non exclusive agent

is an independent businessperson. Solicitors may not

issue or countersign policies. At XYZ Insurance Company, agents are employees of the company who are paid a salary plus commissions. This is an example of what type of insurance marketing system?

Direct writer An agent has many responsibilities to applicants and insureds. Of the following which is NOT one of those responsibilities?

Preparing quotations for prospects Countersigning policies Reviewing insureds’ coverage on a regular basis Representing the insured in the insurance transaction

The Actuarial department

collects and analyzes data to determine the rates to be charged for insurance. Which insurance company department is responsible for accepting and rejecting applications based on company standards?

Underwriting

Which insurance company department is responsible for paying insureds covered losses?

Claims Who is responsible for licensing insurance agents?

State insurance department




Agent Bradley is offering a free television to every applicant who agrees to buy insurance through his agency. In most states, this is an illegal practice known as

rebating.

State insurance departments are responsible for approving or rejecting

A. rates. B. policy forms. C. Both A and B D. Neither A, B, nor C

XYZ Industries does not have a group health insurance plan for its employees. Instead, it pays employees’ medical expenses out of a fund specifically created for this purpose. This is an example of

self-insurance.

Of the following statements concerning regulation of the insurance industry which is correct?

The state insurance department is responsible for controlling insurance matters within the state.

Of the following statements concerning binders which is correct?

They expire on the effective date of the policy to which they apply, or on the expiration date of the binder if the policy is not issued.

Judgment rating is based on

an evaluation of the characteristics of the individual risk. Of all rating methods which rating method makes modifications to manual rates to reflect the unique characteristics of each risk?

Merit In order to void a policy due to misrepresentation or concealment the misrepresentation or concealment must

concern material facts. An agreement between the insured and the insurer that certain conditions will be met is a/an

warranty. When an insured decides to cancel an insurance policy prior to the expiration date, the unearned premium is returned on a

short rate basis.




A certificate of insurance provides

proof that a policy has been written. An agent tells an insured that a loss caused by flood damage is covered under her Homeowners policy. Actually, the policy specifically excludes such losses. The insurance company

would be estopped from denying coverage because the agent stated that the loss is covered.

The insured’s policy is nearing the expiration date. The insurance company doesn’t want to continue the insured’s coverage, so it sends the insured a notice that the policy will not continue beyond the expiration date of the policy. This is an example of

nonrenewal. Betty’s home is destroyed in a fire caused by a neighbor careless use of fireworks. Betty’s insurance company pays her for the damage, then files suit against the neighbor to recover the amount it paid for the loss. This is an example of the application of what policy condition?

Subrogation Vic sells his car to his friend, Wanda, but does not notify his insurance company Assuming that Vic’s policy will transfer to her automatically, Wanda doesn’t buy insurance for the car. When the car is wrecked, Wanda files a claim with Vic’s former insurer. The insurer denies the claim. This is an example of the application of what policy condition?

Assignment A heavy rain causes the roof over Betty’s living room to collapse. The insurance company asks her to move her belongings out of the living room to protect them from further damage and put a tarp over the roof until it can be repaired. It also asks her to complete a proof of loss form listing the items that were damaged. This is an example of the application of what policy condition?

Duties after loss The policy period in an insurance policy

A. specifies the date and time coverage begins and ends. B. may be set by state law C. Both A and B D. Neither A nor B

An indirect loss is

a type of loss that results from a direct loss.




Betty’s Homeowners policy has an 80% Coinsurance condition. Her home’s value is $125,000. What is the MINIMUM amount of coverage she must carry to be indemnified for losses up to the policy limit?

$100,000 Failure to use the care that is required to protect others from the unreasonable chance of harm is

negligence. Of the following all must be present to establish negligence EXCEPT

A. proximate cause. B. legal duty owed and breach of duty. C. damages. D. willful action.

An action that, in a natural and continuous sequence, produces a loss is the

proximate cause. The type of liability that is imposed as a matter of law without regard to negligence is

absolute liability. The type of liability that an insured incurs because of the actions of others, such a employees, is

vicarious liability. Liability losses are general known as

third party losses.

Supplementary payments are

paid in addition to the policy’s liability limit. An aggregate limit is the most a company will pay

over the policy year

Wanda, a spectator at a baseball game, is injured when an errant ball hits her in the head. She sues the stadium owners for negligence. Of the following defenses against negligence which would the owners probably use?

Assumption of risk




The following illustrates the concept of contributory negligence

Vic turns a corner too fast and strikes Kerry’s car, which was illegally parked in a fire lane. Bill sues Betty for injuries sustained in an auto accident. During the trial, it is determined that Bill’s negligence contributed to the loss. Under comparative negligence laws,

Bill’s damages will be reduced to the extent of his own liability for the loss. The type of compensatory damages reimburse the injured party for direct, specific expenses involved in the loss is

Special The type of damages that are awarded to punish the defendant and deter others from behaving the same way are called

punitive damages. An insured is found liable for $100,000 in damages as a result of a car accident. Her insurance company incurred $25,000 in expenses defending the insured against the suit. The insured’s auto policy limit is $100,000. How much will the insurance company pay for this loss?

$100,000

Under the DP-1, the insured may choose to have property covered against

fire, lightning and internal explosion. (these are perils) all of the perils described in above plus the Extended Coverage perils. all of the perils described in above plus the Extended Coverage perils and vandalism and

malicious mischief. Any of the above

The DP-2 insures against fire, lightning,

the Extended Coverage perils, V&MM and additional perils. The DP-3 provides

open peril coverage for the dwelling and broad coverage for personal property. Under which of the Dwelling forms may the insured be reimbursed for the replacement cost when the dwelling is destroyed?

DP-2 and DP-3




The insured has a Dwelling form DP-3 covering a home that has a replacement value of $100,000. The insured carries $60,000 of insurance. Following a loss, it is determined that it would cost $12,000 to replace the damaged portion of the home. How much could the insured collect, assuming the ACV of the loss is $6,000?

$9,000 (note: insured was not insured for 80% of home value) Dwelling form ____________ pay losses to dwellings and other structures on an actual cash value basis. DP-1 Damage to covered property caused by glass breakage is

covered in the DP2 and DP3, but not the DP1 Betty has a Dwelling policy with Broad Theft coverage for on and off her premises Which of the following theft losses would be covered?

A $400 handgun taken from a bureau in her home A $9,000 fur coat taken from the cleaners where she had stored it for the summer Two credit cards taken from her desk in her home A tape player removed from the dashboard of her car that was parked in her garage

A homeowner who wants the maximum protection for her home and personal property should purchase the

HO-5. An individual lives in an apartment. Which Homeowners form should purchase to cover his personal property?

HO-4 Which Homeowners form provides broad coverage for both the dwe1ling and its contents?

HO-2 The Collapse Additional Coverage is included in which Homeowners forms? All forms except HO-8 Bill loses control of his car and hits a parked car. Which coverage of Bill’s Personal Auto policy will pay for the damage to the parked car?

Part A—Liability Coverage




Betty was injured when she lost control of her car and hit an embankment. Which part of her Personal Auto policy will cover her medical expenses?

Part B—Medical Payments Coverage Mary was injured when she was struck by a car while walking across the street. The driver, who cannot be identified, left the scene of the accident. Would this loss be covered under Mary’s Personal Auto policy? Yes, it would be covered under Part C—Uninsured Motorists Coverage. During a windstorm, a tree limb fell on Bob’s car and broke the windshield. Which coverage of his Personal Auto policy will cover the damage to his car?

Other Than Collision Coverage of Part D—Coverage For Damage To Your Auto Kerry’s auto was damaged when it was struck by another car whose driver ran a stop sign. Which part of Kerry’s Personal Auto policy will cover the damage to her car?

Collision Coverage of Part D—Coverage For Damage To Your Auto If the named insured acquires a new car that does not replace a previously insured auto, what must the insured do to obtain liability coverage for the auto under her Personal Auto policy?

Notify the company of the new car within 14 days of the purchase Which of the following could be covered under the Liability section of named insured’s Personal Auto policy?

Injuries to a person struck by the named insured’s auto Medical Payments coverage provides protection for all of the following EXCEPT

the insured. the insured’s family. passengers in the insured’s vehicle. occupants of a vehicle that is struck by the insured’s vehicle.

Of the following losses select the one that could be paid under Uninsured Motorists coverage? (Assume there are no endorsements attached to the policy.)

Brad, the insured, drives the wrong way down a one-way street and collides with another car. Brad is seriously injured. The driver of the other car has no Liability insurance.

Emmett, the insured, is hit by a drunk driver who is uninsured. Emmett is not injured, but his car is totaled.

Kerry, the insured, is injured when she is struck by a car that runs a red light. The driver has no Liability insurance.




Victor, the insured, is on his way to work when his vehicle is rear-ended by a car that was following too closely. Victor suffers a back injury. The driver of the other car carries the minimum amount of insurance required in the state.

Of the following losses which would be paid under the Other Than Collision coverage of the Personal Auto policy?

A radiator develops a leak after the car has 100,000 miles on it. The insured’s car is stolen and never recovered. The insured’s auto skids on icy pavement and flips over. The insured’s auto is damaged when it is hit by another car that runs a red light.

Under a no-fault plan,

an insurance company reimburses its insured for auto losses, regardless of who was at fault for the loss.

An Assigned Risk Plan covers

insureds who are uninsurable in the standard market. Kerry’s Personal Auto policy has a $20,000 Part A limit, which meets her state’s financial responsibility requirement. While driving in another state, she causes an accident that results in $25,000 of bodily injury and property damage. That state’s financial responsibility law requires drives to carry $25,000 in Liability coverage. How much will Lisa’s insurance company pay for her loss?

$25,000 Wanda is critically injured by a hit-and-run driver while she is driving her car on a work-related errand. Her medical expenses, which total $50,000, are paid in full by her employer’s Workers Compensation policy. Her injuries are also covered under her Personal Auto policy’s Uninsured Motorists coverage. Assuming she carried a $100,000 limit for Uninsured Motorists coverage, how much would Wanda be paid under the Personal Auto policy?

Nothing What is the standard deductible under the regular program of the National Flood Insurance Program?

$ 500 Which Flood insurance coverage has a deductible?

Both building and contents Who administers the NFIP?

Federal government




What is the maximum amount of coverage that may be purchased under the emergency Flood insurance program?

$35,000 for buildings and $10,000 for contents Adequate coverage for large, powerful boats is provided by

specialized personal watercraft policies, such as Outboard Motor And Boat, Boatowners or Personal Yacht policies.

Which of the following coverages are provided by a typical Outboard Motor And Boat policy?

Liability Medical Payments Physical Damage All of the above

Losses to which of the following could be paid on a replacement cost basis under the NFIP policy?

Personal property Single family homes Mobile homes

Unless an exception applies, coverage under an NFIP policy begins

30 days after the date of application. The insured’s stamp collection, which is insured under a Personal Articles floater for $5,000, is destroyed in a fire. The actual cash value of the stamps at the time of the loss is $4,000. How much will the insured receive for this loss, assuming that the stamps cannot be repaired or replaced? $4.000 Of the following losses which are excluded under most Yacht policies?

Injury suffered by a passenger in a water skiing accident Collision damage to another boat for which the insured is liable

The largest office building risk that may be eligible for a Businessowners policy is

six stories and 100,000 square feet. In addition to maximum floor space, the Businessowners eligibility rule limit eligible risks to a maximum of

$3 million in annual sales. Under the additional coverages of the Businessowners property coverage, property removed to protect it from loss will be covered at another location for up to

30 days.




The standard deductible for the BOP property coverage is

$500. Mechanical Breakdown coverage is an optional BOP coverage that is activated by an entry in the Declarations. The following coverages is NOT included in the Businessowners policy:

Professional Liability Of the following losses which would be excluded under the property coverage of the BOP?

An angry employee vandalized an insured’s building. Termites damaged an insured’s building. Pianos in an insured’s warehouse were damaged by dryness during an extremely cold winter. An error in the design specifications for an insured’s building resulted in the building’s collapse six

months after construction was completed. All of the above

Under the Earthquake And Volcanic Eruption endorsement, all earthquake shocks or volcanic eruptions that occur within a certain number of hours constitute a single earthquake or volcanic eruption. What is that time period?

168 hours Which Causes Of Loss form provides open peril coverage?

Special The insured’s business sustains $25,000 damage in a fire. The fire department that was called to the scene billed the insured $1,000. The business is insured under the Building And Personal Property coverage form for $500,000 with a $5,000 deductible. How much will the insurance company pay for this loss?

$21,000

The insured buys an office building that is next door to her insured business. Is the new building covered under her existing Building And Personal Property coverage form?

Yes, up to $250,000 coverage is available under the Newly: Acquired Or Constructed Property coverage extension.

For a loss to be covered under the Personal Effects And Property Of Others coverage extension in the Building And Personal Property coverage form, the insured must

meet the coinsurance requirement.




According to the Loss Payment condition in the Building And Personal Property coverage form, if the insured has complied with all of the terms of the coverage part and has reached agreement with the company on the amount of the loss, the insurer will pay the loss

within 30 days after it receives the sworn statement of loss.

When are losses under the Building And Personal Property coverage form paid at replacement or repair cost?

If the insured meets the coinsurance requirements and costs $2,500 or less Of the following which is covered under the Builders Risk coverage form?

Building under construction Foundation of the building under construction Fixtures, machinery and equipment used to service the building if they will become a permanent

part of the building and are located within 100 feet of the building All of the above

A voluntary action to rid the ship of cargo to prevent further damage is called

jettison. General average losses are

shared by all property owners, including the owners of the ship. The Motor Truck Cargo policy

insures a truck carrier for liability arising out of the transportation of cargo. A Bailee’s Customer policy covers

the bailee for loss to customers’ property, regardless of liability. If the insurance company requests a proof of loss on a Commercial Inland Marine claim, the insured must submit it within

60 days. A loss is covered under a Commercial Inland Marine form and another policy. Both policies are written on the same basis. The Commercial Inland Marine form will

pay on a pro rata basis.




The insured removes accounting records from her business to protect them from loss. Are the records covered under the Accounts Receivable coverage form while away from the premises?

Yes, if the insured notifies the insurer within 10 days The Jewelers Block coverage form would cover a jeweler’s stock in trade while it is

in transit by registered mail. Under the Jewelers Block coverage form, the insured is required to

take a physical inventory at least once every 12 months.

- AND - maintain business records for three years after the policy expires.

How often is the insured required to submit reports of values under the Floor Plan coverage form?

Monthly The following loss would be covered under the Camera And Musical Instrument Dealers coverage form:

A clerk drops a camera when arranging digital cameras in a show window. The lens shatters.

Coverage under an occurrence CGL form is triggered

by BI or PD that occurs during the policy period. What is the purpose of a retroactive date in the claims-made form?

Stipulate a date as the first date on which an event may occur and be covered by the policy if a claim is filed

Of the following which is a personal and advertising injury?

Broken leg Death Calling a client a cheat and a fraud Dog bite

Coverage under a claims-made CGL is triggered

When the claim is first made against the insured during the policy period




All of the following reduce the CGL’s General Aggregate Limit EXCEPT the

Medical Payments sublimit. Personal And Advertising Injury limit. Fire Damage limit. Products-Completed Operations limit.

In the CGL, who is considered an insured under the policy depends is primary and other primary insurance applies to the same loss?

how the named insured is designated in the CGL Declarations A woman is injured when she breaks a tooth on a rock that mysteriously found its way into a box of cereal. This is an example of the

products-completed operations exposure. Which one of the following is NOT required in a CGL coverage part? Cause of Loss form If an event occurred and was reported during the policy period of a claims-made CGL, and a claim is first made 30 days after the policy expires, which basic extended reporting period applies?

60-day Suppose the insured first reports an occurrence to the insurer 15 days after a claims-made CGL expires. No claim has been made yet. Which basic extended reporting period applies?

Five-year Of the following which are excluded under Coverage A of the CGL?

Damage the insured causes intentionally Pollution losses caused by the insured Liquor liability for those in the business of serving liquor All of the above

The CGL’s pollution exclusion applies to

Both Coverage A and Coverage B. If an insurer decides to not renew the CGL policy, how many days notice of non renewal must be provided to the first named insured?

30 days




Which portion of the Garage coverage form covers liability for damage to property of others in the insured’s care, custody or control?

Garagekeepers Of the following which can be covered under a Motor Carrier coverage form?

Truckers Motor carriers Both of the above

Which Commercial Auto endorsement extends Personal Auto-type coverage to immediate family members of the named insured?

Individual Named Insured Medical Payments, Uninsured Motorists and Underinsured Motorists coverage

can be added by endorsement to any of the Commercial Auto coverage forms. Of the following which losses would be paid under the Business Auto coverage form’s Comprehensive coverage?

Gradual corrosion of the grillwork on a covered auto due to continuous exposure to salt air Overturn of a covered auto Collision damage to a covered auto Theft of a covered auto

Emmitt Phillips is employed by XYZ Appliances as a shipping clerk. As he is stacking TVs in the storage room, he is surprised by two men, both carrying guns. They proceed to empty the warehouse of TVs. This is an example of

robbery Coverage for defense costs is included in

Forgery Or Alteration coverage. In a Crime insurance policy, certificates of deposit are considered

securities. What type of property is protected under Computer Fraud coverage?

Money Securities Other property All of the above




An insured must file a proof of loss within how many days after a

120 days When other insurance applies to a loss, the Crime policy will pay on an excess basis. The insured sends an employee to England for two months to oversee the opening of a new branch office. While on assignment, the employee embezzles over $5,000 from the company. Would this loss be covered under the insured’s Employee Theft coverage?

Yes, because the employee was temporarily outside the coverage territory for less than 90 days.

Of the following injuries which one would qualify as a compensable injury under Workers Compensation laws?

A factory worker fractures her arm while working overtime on the assembly line A hotel maid falls down the stairs while cleaning her own home A secretary accidentally swallows his gum while in the company lunchroom and chokes when it

gets lodged in his windpipe In a competitive state, an employer may obtain Workers Compensation insurance from

a private insurance company. a state fund. Either of the above

In most states, Workers Compensation laws apply

to most workers except those specifically excluded by law. The Farm coverage part insures a farmer’s

personal loss exposures. commercial loss exposures. Both of the above

The Farm coverage part provides

Both Property and Liability coverage.




A breakdown of equipment covered under the Equipment Breakdown Protection coverage form results in the simultaneous breakdown of two other pieces of covered equipment. According to the form, how many “breakdowns” occurred in this loss?

One Under the Equipment Breakdown Protection Coverage Form, which of the following causes of damage to covered equipment would not be a covered “breakdown”?

Electrical failure, including arcing Leakage at any valve, fitting, shaft seal, gland packing, joint or connection Failure of pressure or vacuum equipment Mechanical failure, including rupture or bursting caused by centrifugal force

A business that wants coverage for its liability for employment-related acts can obtain it by purchasing

Employment Practices Liability insurance. Commercial insureds who need more Liability coverage than that provided by a certain policy or want coverage for losses that are exclude certain policy should purchase a

Commercial Umbrella policy. What is the difference between a Fidelity bond and a Surety bond? A~OTES

A Fidelity bond guarantees that certain acts will not be committed; a Surety bond emphasizes that certain things will happen.

The following lists all of the parties to a Surety bond?

Principal, obligee, surety All of the following types of losses may be covered by the Equipment Breakdown Protection Coverage Form except:

damage caused by fire or combustion explosion. How do deductibles apply in the Equipment Breakdown Protection coverage form?

Deductibles apply separately for each applicable coverage unless the deductibles are shown as “combined” for any two or more coverages.

Under the terms of the Suspension provision in the Equipment Breakdown Protection coverage form, coverage on dangerous equipment can be suspended

immediately upon delivery of written notice to the insured.




An insured professional who wants full coverage against liability exposures arising from business should purchase

both a CGL and the appropriate Professional Liability policy The Farm coverage part insures a farmer’s

personal loss exposures. commercial loss exposures. Both of the above

The Farm coverage part provides

Both Property and Liability coverage. A breakdown of equipment covered under the Equipment Breakdown Protection coverage form results in the simultaneous breakdown of two other pieces of covered equipment. According to the form, how many “breakdowns” occurred in this loss?

One The insured knows it may take several months for his damaged turbine to be fully repaired, so he authorizes $500 for temporary repairs so production can resume. This expenditure would be covered under which coverage in the Equipment Breakdown Protection Coverage form?

Expediting Expense NOTE: TEST WORLD ONLY! Questionable Questions and Questionable Answers (taken from the Alabama Department of Insurance’s test bank) There is a possibility that these questions may have made it to the exam test bank. These questions maybe incorrect for real world application, but if you see these on your state exam you should answer them as follows: When a company cancels an auto policy during the middle of the term, the refund will be made on a

Pro rata basis The term used to describe terminating the insurance relationship at the end of the policy period is

Nonrenewal An example of an indirect loss would be

Loss of use




Which is a two party contract?

Property Insurance contracts offset

Pure risk Which is a third party contract?

Casualty Risk is defined as

Chance of loss Being subject to a loss is the definition for

Exposure The ranking insured in a Personal Lines contract is the

Named insured When must an insurable interest exist to be paid a claim under a P&C contract

At the time of loss This type of company is run for the benefit of the policyowners

Mutual Washington Casualty is doing regular business in Oregon. Within the state of Oregon, Washington Casualty would be considered a(an)

Foreign company Washington Casualty is doing regular business in Oregon. Within the state of Oregon, Washington Casualty would be considered a(an)

Admitted company A company chartered in Guam or Puerto Rico doing regular business in California would be considered by Californians to be a(n)

Foreign company




With regard to insurance, the term consideration means

the premium and the statements on the application Which of the following terms indicates that an insurance contract contains the legally enforceable promises of only one party?

Unilateral In purchasing an insurance contract, the applicant must accept the contract as written. This type of contract is referred to as a(n)

contract of adhesion. Which of the following principles states that in forming an insurance contract, both parties have a responsibility to the other?

Doctrine of Utmost Good Faith An incorrect statement made intentionally on an Auto insurance application is a

Misrepresentation A binder is a(n)

Interim insuring agreement Which of the following is NOT true regarding consideration in a P&C policy?

Part of the company’s consideration is the payment of a claim. Any ambiguities in a P&C policy will be resolved in favor of the policyowner because the policy is a

Contract of adhesion A person who has responsibility for the financial wellbeing of another is a(n)

Fiduciary A binder can expire on all of the following EXCEPT:

Date of application A box of dynamite is a(n)

Physical hazard




All of the following is true regarding hazards and perils

Perils are active and hazards are inactive Hazards can be physical, moral and morale Perils come in three groups Basic, Broad and Special

If you look to be covered by everything which is not excluded, you should buy

Special cause of loss All of the following statements concerning valuation in a property policy are true

Under Agreed Value, the insured and the company establish the value before the loss occurs.

Under Stated Amount, the insured does not know what will be paid on a loss until the loss occurs.

Functional Replacement is also known as Repair Cost. Benjamin has two property policies with identical peril power covering his property. The first has a limit of $75,000 and the second has a limit of $25,000. If Benjamin suffers a $4000 covered loss, how will the two policies pay?

The first will pay $3000 and the second will pay $1000 The policy provision which allows policyowners to enjoy enhancements made by the company to the policy form they have in force without waiting until a policy renewal date is known as

Liberalization The insured’s home is destroyed by a plumber with an out of control blowtorch. The company pays for the loss and then sues the plumber. This process is known as

Subrogation Under the Broad Form Cause of Loss, the burden of proof following a claim is on the

Insured In P&C policies, the part of the policy which names the insured, the property to be covered and the limits of the policy is known as the

Declarations Which of the following does NOT follow the concept of indemnification?

Punitive damages




Which is true about Umbrella Liability policies?

They are written for excessive amounts. A demolition company is using dynamite to destroy an old downtown building. Which of the following applies?

Strict liability The liability term used to describe damage to an individual’s mental state is

Personal injury. Which of the following is true concerning the Medical Payments section of a Liability contract?

It has rather low dollar limits. You are hit by a Greyhound bus. This incident is

Both an accident and an occurrence. Which of the following is NOT negligence?

Intentional act Which of the following is true concerning defense costs in a liability contract?

They pay in addition to the limits of the policy. Assume that Cal’s Commercial Liability policy has an occurrence limit of $100,000 and an aggregate limit of $500,000. Further assume that so far this year, his insurer has paid claims of $420,000. When an injured shopper is awarded $90,000, how much will Cal’s company pay?

$80,000 Fire Legal Liability is most important to

A tenant. Which of the following coverages can be found in all Homeowners forms but in no unendorsed Dwelling policies?

Theft Which of the following is Coverage D in a Dwelling policy?

Fair Rental Value




An attached garage would be covered as

Coverage A If your $5000 gold watch is stolen, how would your Homeowners policy respond?

The loss would be limited in coverage. How would an HO-8 respond to a loss due to weight of ice and snow?

The loss is not due to a covered peril. Based upon the number of perils covered, which Homeowners form is the most limited?

HO-8 Based upon the number of perils covered, which Homeowners form is the most generous?

HO-S What is the maximum that the Fire Department service charge can pay in a Homeowners policy?

$500 What is the standard deductible in an HO-3?

$250 What is the maximum horsepower allowed for a boat that you own to be covered under the Personal Liability section of a Homeowners policy?

25 You are driving your car with your son and the neighbor’s kid to soccer practice when you run a red light and hit Calvin and his family in their car. Under what part of your Personal Auto policy would Calvin’s injuries be covered?

Part A You run a stop sign, hitting Calvin and Clara’s car. Cal’s injuries are in the amount of $30,000 and Clara’s total $12,000. Their car is damaged in the amount of $11,000. Your liability limits are 25/50/10. How much will your company pay for Cal and Clara’s bodily injury and property damage?

$47,000

All of the following are true concerning Auto policy Med Pay EXCEPT:

Med Pay coverage is triggered by negligence.




What is the equivalent Single Limit of 100/300/100?

$400,000 Cal is driving the family car with his wife, Clara, Cal Jr. and their daughter, Katie. He has Med Pay limits of $25,000. If Cal is in a wreck, and he and all of his passengers are injured, what is the maximum that his Personal Auto policy will pay?

$100,000 You have Underinsured limits of 100/300/50 when an underinsured motorist runs a stop sign causing you bodily injury of $75,000. His limits are 25/50/10. How much will you be paid by the two companies?

$75,000 You and your company cannot agree on the value of the car you totaled. What method is used to settle the dispute?

Appraisal A Homeowners policy provides how much liability coverage for a 22 foot, 200 horsepower ski boat?

$0 A Boatowners policy is usually written on what basis?

Replacement Cost Which of the following would a Boatowners policy NOT cover?

Fishing equipment If the owner of a Yacht policy warrants that his vessel will be in storage through May 1, and is actually sailing his boat on April 10 when the company discovers his actions, what will happen?

His coverage will be cancelled. Under the National Flood Program, which of the following is true?

The minimum deductible is $500 Which of the following could a farmer NOT cover under an NFIP policy?

Growing crop




The Commercial Package policy may contain a maximum of how many coverage modules?

7

The ranking insured in the Commercial Package Policy is

First Named Insured A policy written to provide only Equipment Breakdown coverage is a

Monoline policy The CPP goes into effect at what time of day?

12:01 am Which of the following is not a coverage module choice in the CPP?

Garagekeepers Which of the following options is NOT available in the Commercial Property policy?

Fair Market Value Which of the following losses would NOT be covered by the Basic Cause of Loss form?

Collapse What is the standard deductible in a Commercial Property policy?

$500 What is the maximum that the Fire Department Service charge will pay in a Commercial Property policy?

$1000 A vacant building can lose coverage altogether after how many days?

60 In a Business Income coverage, the time elapsed from the loss until the building is fully repaired is known as the

Period of restoration




Who certifies an act of terrorism?

Secretary of Treasury The earthquake endorsement to a Commercial Property policy treats all shocks within what period of time as a single occurrence?

168 hours What other peril besides earthquake does the Earthquake endorsement cover?

Volcanic eruption When a dry cleaners accepts a customer’s suit for cleaning, the dry cleaners becomes a

Bailee Which of the following is not covered by the CGL?

Pollution liability For which of the following would Med Pay provide coverage?

A carpenter at your house drops a hammer on your foot For which of the following would a CGL provide coverage for a Law Firm?

Host Liquor liability Which of the following pays only if you are legally liable?

Bodily Injury Liability Which CGL coverages does the National Enquirer get?

A&C Commercial Med Pay will make medical payments for up to how long after a loss?

1 year A policyowner is charged a self-insured retention with his Umbrella when

His underlying policy does not provide coverage Which of the following is covered under the CGL?

Independent Contractors liability




Which of the following is not listed in the CGL as a contract covered under Contractual liability?

Employment agreement Medical Payment limits are expressed as

Per person limits If Carl is assigned to drive a cash deposit to the bank, Carl is acting as a

Messenger. Which of the following is NOT money?

Securities A thief finds the door to an appliance store has been left unlocked. He enters and takes several big screen TVs. The thief has committed

Theft. Robbery of a watchperson is considered to be a(n)

Burglary. Fidelity Bonds are used in connection with

Employee theft. To cover all employees on one Fidelity Bond, you would use a(n)

Blanket bond. The Commercial Crime policy pays for losses on what basis?

ACV

All of the following are covered under a Commercial Crime policy?

Theft Forgery Computer Fraud

Forgery and Alteration covers Commercial Crime losses involving

outgoing instruments.




Insuring Agreement #3—Inside the Premises—Theft of Money and Securities covers all of the following

Money destroyed in a fire. Money that disappears. Money that is taken in a robbery.

The boiler at ABC Manufacturing is destroyed in a factory fire. The boiler loss is covered under

ABC’s Commercial Property coverage. ABC Manufacturing’s boiler explodes, setting the factory on fire and causing extensive smoke damage. Significant water damage is done by the firemen extinguishing the blaze. All are true about ABC’s coverage:

The boiler is covered by XYZ’s Equipment Breakdown coverage. The water damage is covered by XYZ’s Commercial Property

coverage. The smoke damage is covered by XYZ’s Commercial Property

coverage. All of the following would be covered by Equipment Break-down coverage:

Steam boilers Refrigeration equipment Computers

Equipment Breakdown coverage losses are settled on what basis?

Replacement Cost The insurance company may suspend coverage on any unsafe insured object by giving written notice how many days in advance?

The suspension is immediate. How many vehicles are required to qualify for fleet rates?

5 or more A company which provides private passenger vehicles for each of its 10 sales reps would likely purchase the

Business Auto Coverage form




A business concerned with its liability when employees use their own vehicles on company business needs

Employers Nonownership Liability A Car Wash concerned about its responsibility for customer’s cars should buy

Garagekeepers Coverage form The Motor Carrier Act of 1980 requires minimum liability limits of_____ when transporting specified hazardous materials such as explosives.

$5,000,000 To determine which autos are covered autos in a Business Auto Coverage form, you should refer to the

Declarations Page Which is not true about Ocean Marine policies?

They must be filed and approved before use Inland Marine policies are frequently used to cover all of the following:

Property held by a bailee Off premises business personal property Off premises mobile equipment

The Nationwide Marine Definition does which of the following?

Generally distinguishes Marine risks from Property risks Which of the following appears in the Nationwide Marine Definition?

Commercial Property floater risks The property coverages under a BOP protect against losses due to

Open perils. The Additional coverages and the Extensions of coverage under a BOP

Are provided automatically. Liability coverage under a BOP is

Occurrence triggered.




Minimum liability limits under a BOP are

$300,000 per occurrence. The Fire Legal limit under a BOP is

$50,000. The basic deductible under a BOP is

$500. A building insured under a BOP loses vandalism coverage after it has been vacant for ___ days.

60 Business personal property moved to a new location to protect it from a covered peril is covered by the BOP for up to ___ days.

30 All of the following would be eligible for a BOP:

Funeral parlor Florists shop Bakery

Which type of business would be eligible for a BOP?

Fast food restaurant Prior to the enactment of Workers Comp laws, employers regularly used all of the following defenses against negligence suits brought by injured employees:

Fellow Servant Assumption of Risk Contributory Negligence

Which is a factor in Workers Compensation?

Occupation-related All of the following are regular sources for Workers Comp coverage:

Private companies Monopolistic state funds Self-insurance




All of the following are benefits of Workers Comp Part One:

Medical Expenses Long Term Care Rehabilitation

The following is a level of disability recognized by most state Work Comp statutes:

Temporary total Part Two—Employers Liability has which of the following occupational accident limits?

$100,000/accident Part Two—Employers Liability has which of the following occupational sickness limits?

$100,000/person Which of the following has the greatest impact on Workers Comp rates?

Frequency of claims Which Federal Workers Comp Law covers seamen?

Jones Act Which Federal Workers Comp Law covers postal workers?

Federal Employer Liability Act Replacement cost less depreciation defines

actual cash value. A building owner purchases a property policy in the amount of $60,000 on his $100,000 building. The contract contains an 80% coinsurance clause. If he suffers a covered loss of$ 10,000 he will receive a settlement in the amount of ____disregarding the deductible.

$7,500 Insurance binders are

interim insuring agreements. A consequential loss can also be called a(n)_____

Indirect loss.




Which statements must represent the absolute truth?

Warranties Knowingly withholding material information on an application is____

concealment Which type of insurance company is designed to pay dividends to policyowners?

Mutual A company domiciled in this state is best described as a company.

domestic An insurance company’s promise to pay a loss can be found in which policy section?

Insuring agreement The rules which govern the actions of the company and the policyowner within an insurance contract can be found in the policy_____

Conditions A short-term proof of insurance coverage provided to an insured until a policy can be delivered is known as a(n)______

binder All of the following are considered insurable losses:

Income losses due to a business’ inability to remain open following a covered loss Fire losses following a lightning strike Medical costs following a woman’s fall on a wet Drugstore floor

Which of the following best defines risk?

Uncertainty of loss Property policies provide coverage only if there is insurable interest at the

time of loss. An unforeseen and unintended event that happens at a known time in a known place is defined as a(n) ________

accident




A family that regularly leaves their house unlocked would be considered to be a

Morale hazard. In an insurance contract, consideration is best defined as

something of value All of the following are common methods of settling P&C losses:

Agreed value Actual Cash value Replacement cost

Which of the following is a peril?

Hail If an HO-3 has a coverage limit of $100,000 on the dwelling, how much coverage would automatically apply to cover the insured’s personal property in Coverage C?

$50,000 All of the following are true about the Personal Liability coverage of a Homeowners contract:

It is generally written as a single, occurrence limit. It covers an insured’s legal liability arising from nonbusiness activities. The basic limit of coverage is $100,000.

Which Additional Coverage is found in the Homeowners Broad Form HO-2?

Collapse What is the primary objective of the Med Pay to Others coverage in Section II of a Homeowners policy?

To avoid negligence claims Which Homeowners coverage provides for indirect loss coverage?

Coverage D—Loss of Use A home is covered under a Homeowners Comprehensive form HO-S for $150,000. The cost of replacing the home is $200,000. Following a total loss, the insured would receive settlement of______ disregarding any deductible.

up to the Actual Cash Value




In a Homeowners policy, wall-to-wall carpeting would be covered as

Building Which of the following is true concerning a Special Form Homeowners HO-3 without endorsement?

It will pay the Actual Cash Value of personal property losses. A Dwelling policy sold without endorsement will cover

property A woman has scheduled her tanzanite ring for $2000 on an Inland Marine endorsement to her Homeowner’s policy. In the event of a covered loss, how will the claim be paid disregarding any deductible?

$2000 from Inland Marine

A house insured under a Homeowners Special Form HO-3 suffers damage to the house and the personal property inside by a Kodiak bear. What property is covered under the HO-3 contract?

Both the house and the personal property For which of the following losses would you have coverage under a DP-3?

Ice blocks your gutters and water seeps into your home. Which of the following would NOT be covered by Section I of an HO-3 contract?

The insured $2000 cocker spaniel Under a Personal Articles floater, a pair of antique bookends is scheduled for $1000. When one of the bookends is destroyed by a covered peril, the remaining bookend is worth only $25. Assuming that the destroyed bookend cannot be replaced and disregarding any deductible, how much will the insured receive for the loss?

$750 Uninsured Motorists coverage provides coverage for which of the following?

Bodily injury to an insured Tom is driving with auto limits of 100/300/100 when he causes an accident injuring two people in the amounts of $60,000 and $125,000. What is the maximum his policy will pay for the accident?

$160,000




A Personal Auto policy will provide Supplementary Payments to cover all of the following:

Costs of investigating the accident The premium for a bail bond The premium for an appeal bond

Personal Auto policy Collision coverage will NOT pay in which situation?

A thief steals the car and then wrecks it All of the following are covered under a Personal Auto policy:

The insured’s trailer A Temporary Substitute auto A new auto acquired 3 days ago

The Collision coverage of a Personal Auto policy pays claims on what basis?

Actual Cash Value What is the equivalent Single Limit of liability to Split Limits of 50/100/50?

$150,000 Your Personal Auto Med Pay would cover wall of the following:

Injuries suffered by a pedestrian whom you bump with your car while he is crossing the street

Which vehicle is excluded from coverage under your Personal Auto policy?

A company vehicle provided for your regular use Personal Auto Med Pay coverage will pay medical bills for

Up to 3 years from the date of the accident Which is covered by a Personal Auto policy? Carpooling All of the following are reasons to purchase Med Pay limits higher than the minimum:

Your Medical Expense coverage may exclude auto accident injuries Your passengers may not have adequate Med Pay coverage of their own Minimum Med Pay limits are extremely low




Alex borrows Brian’s car and has an at-fault accident injuring Carlos. Both Alex and Brian have a Personal Auto policy. How is the claim paid?

Brian’s policy is primary and Alex’s policy is excess. If minimum auto limits of liability are 25/50/10, a driver with limits of 15/30/10 is considered to be a(n)

Uninsured Motorist.

Rationales for P&C Part 1



Rationales 1 - Page 1

1. Hazard = anything that increases the chance of loss. [Three type of hazards: Physical hazard (hazard that arises from condition or occupancy of property), Morale hazard (careless or irresponsible behavior), Moral hazard (person might intentionally create a situation that would cause a loss)].

2. Managing Risk: Avoid, Control (Loss prevention: Curtail loss frequency and Risk prevention: Limit loss

severity), Retain risk (not insured) and Transfer risk (insured). (Insurance is a way of transferring risk.) 3. Mutual insurance companies (owned by policy holders – cash building policies receive dividends). 4. Insurable interest: You must have an insurable interest! (You can insure your home or business, but

not your neighbor’s.) 5. Insurance can only be used to cover Pure Risk (someone may steal something). Insurance cannot be

used to cover Speculative Risk (losses in the stock market). 6. Insurance contracts are contracts of indemnity (putting the customer back where they were financially

before the loss, within the limits of the contract). 7. Declarations (first page of policy, name of insured, address, amount of coverage, description of

property, and perils insured against). 8. Contract adhesion (the policy is developed by the insurance company and offered on a take it or leave it

basis). 9. The HO-6 (HO 00 06) (is the Condominium form, it provides broad coverage similar to HO-2 on the

personal property of condominium owners with very limited dwelling coverage.) 10. Fair Credit Reporting Act (credit standing, personal character, reputation, habits, and lifestyles. This

gives the consumer recourse if insurance is denied on the basis of a credit report. 11. This is an example of a “liability loss.” 12. Three Rating Methods: Judgment Rating (oldest way, also known as Experience Rating – involves pure

judgment based on experience), Manual Rating (or class rating – based on manuals – Rate per unit X number of units = premium), and Merit Rating (includes both judgment and manual rating methods).

13. Flood Insurance (the National Flood Insurance Program [NFIP] was created by congress in 1968 to

make Flood insurance available to eligible communities through federal subsidization. This program is operated under the Federal Emergency Management Agency [FEMA] and is managed by the FEMA branch: the Federal Insurance Administration [FIA]).

14. This is an example of an eligible business for the businessowners policy. 15. Workers compensation covers rehabilitation, disability, and medical. 16. The location of the home office affects designation of company: Domestic (insurance company’s home

office is located within the state), Foreign (insurance company’s home office is located in another state), or Alien (insurance company’s home office is located in another country).

17. Binders (oral or written statements made by an agent for immediate protection that is valid for a specific

time and provides temporary coverage. A binder does not guarantee that a policy will be issued). 18. Insurance Marketing Systems: Exclusive agency system (or captive agency system – sell for only one

company), Direct writer system (agents are employees of an insurance company), Direct response system (have no agents – sold only through mail or over the phone), and Independent agency system (independent, sell for many companies, and can bind coverage).





19. Open peril (sometimes called all risk or special coverage) this is the type of insurance policy that insures against all risks of loss that are not specifically excluded by the policy.

20. Prior approval state: in a particular state, if an insurance company is required to file policy forms and

rates with the state insurance department and wait for official approval before using the new forms and rates, the state is a “prior approval state.”

21. The Nationwide Definition states that imports and exports are eligible for Ocean Marine insurance. 22. Payment bonds (Guarantees that bills for labor and materials will be paid by the contractor as they are

due. These are sometimes called Labor and Materials bonds, and are frequently included as part of a Performance bond.)

23. Actual Cash Value (ACV) (ACV=Replacement Costs – Depreciation) (common method of determining

value of loss.) 24. Appraisal Condition (either party may demand an appraisal on the item in question – if both parties

choose a separate appraiser the appraisers choose an umpire to settle any differences in the appraisals results – insured pays for his own appraiser fees and half of the fees for the umpire).

25. Appraisal Condition (either party may demand an appraisal on the item in question – if both parties

choose a separate appraiser the appraisers choose an umpire to settle any differences in the appraisals results – insured pays for his own appraiser fees and half of the fees for the umpire).

26. Home owners policies (provides both property and liability coverages; unendorsed Dwelling policies

provide property coverage only). 27. Business Income: Pays loss of income that the insured sustains due to a direct physical loss from a

covered peril that forces the insured to suspend business operations. Coverage is provided until the business is repaired, rebuilt or replaced.

28. Part Two-Employers Liability (provides coverage to the insured for sums the insured becomes legally

obligated to pay under common law because of a work-related injury or occupational disease. A minimum limit of $100,000 per accident applies. There is also a per employee limit for disease and an overall limit for additional claims.)

29. The HO-3 (HO 00 03) (is the Special form and provides open peril coverage for loss to the dwelling and

other structures, unless specifically excluded in the policy. It provides broad named peril coverage for personal property, which is identical to the HO-2’s coverage of personal property. See manual for exclusions.

30. Property Off-Premises extends up to $10,000 in coverage for property temporarily off the premises. 31. Equipment Breakdown Protection coverage form covers damage from an explosion caused by the

centrifugal force of moving parts. 32. Defenses against Negligence: Contributory (PURE contributory negligence: in some states if a person

contributes to their own damages in any way, another party can not be held liable). 33. Supplementary Payments (paid in excess of policy limits) include: Defense cost, Claim investigation

expenses, Bond premiums (exp. Bail bonds, appeal bonds, release of attachment bonds), First aid to others at time of accident, Expenses for investigation or defense of claim (if requested by insurance company), Loss earnings, Prejudgment interest (not included as part of damages), and Post judgment interest (interest accruing on the judgment after an award, but prior to payment by the insurance company).





34. Termination of policy: Insured: must give advanced notice in writing, send in the policy and specific date to end policy, and the Insurer: must provide advance notice of cancellation (or renewal – requires a minimum of 20 days notice) – 10 days advanced notice for nonpayment during the first 60 days of a new policy --- 20 days in all other cases.

35. Dwelling 89 policy (issued by Insurance Services Office (ISO)) or Basic form (also known as DP-1 or

DP 00 01) coverages: Coverage A – Dwelling (covers dwelling and other attached structures, materials, supplies used for construction or repair and outdoor equipment used to service premises), Coverage B – Other Structures (other structure on premises connected only by fences, utility line or similar connection – separate structure may not be used for commercial, manufacturing or farming purposes) and Coverage C – Personal Property (personal property usually at the dwelling place and dwelling occupancy.)

36. Truckers coverage form and Motor Carrier coverage form includes Trailer Interchange coverage. 37. The HO-5 (HO 00 05) (Covers both dwelling and property on open peril basis for both Dwelling and

Personal Property – covers anything not specifically excluded in the policy.) 38. General Aggregate Limit is the maximum that will be paid for the sum of losses under Coverages A, B

and C, except for damages arising out of the products-completed operations hazard. (This limit is subject to modification by endorsement so that it applies separately to each of the insured’s locations or projects.)

39. Personal Property form (coverage for 9 optional classes with automatic coverage-- newly acquired

items identified by [A] if category is already insured: jewelry[A], furs, cameras[A], musical instruments[A], silverware, golf equipment, fine arts[A], stamps, and coins).

40. Special form (DP-3, DP 00 03) (provides open peril coverage on the dwelling and other structures,

insuring against all risks of direct physical loss that are not specifically excluded in the policy. Personal property is covered on a named peril basis—the same perils listed in the DP-2.)

41. Exclusions include: Personal property owned by guests or servants, Money, securities, manuscripts,

bullion, currency, accounts, deeds, and evidences of debt. Bank notes, coins, gold other than gold ware, letters of credit, medals, personal records, platinum, silver other than silverware, ticket, and stamps. Books of accounting, drawings and other paper records, electronic data processing tapes, wires, records, discs or other software media (does not apply to blank recording or storage media or prerecord media), Credit cards and fund transfer cards, Aircraft, Motor vehicles; other than motorized equipment used to maintain the premises, and Boats; other than rowboats and canoes.

42. Commercial Package policies cover: crime, boiler and machine, and inland marine. 43. Parcel Post policies cannot be covered under Commercial Inland Marine. 44. Extra Expense endorsement (covers the additional expenses incurred by the business to continue

operations after a direct loss by a covered peril, including time element coverage.) 45. Business owners policy may be summarized as: a prepackaged policy addressing property and liability

coverage for certain types of small businesses. 46. The Special Business owners Property form Optional Coverages are usually preprinted in the policy, but

apply only if they are designated in the Declarations and normally require additional premium. They include: Interior Glass: Covers loss to glass items that are permanently attached to walls, floors or ceilings. Each item to be covered must be described in the Declarations. When this optional coverage is selected, policy limitations that apply to interior glass do not apply. ([Included in Standard form only] Included in policy limit), see manual for details on other coverages included.





47. Hull insurance (provides Physical Damage coverage for the ship itself while in transit on oceans, rivers and lakes. Coverage may be obtained for a single vessel or an entire fleet. Limited Liability insurance may also be included through the Running Down clause, which protects the owner if he or she is held liable for the negligent operation of the vessel in damaging another ship.)

48. Parties to a Bond Insurance contract include two parties—the insured and the insurance company while

Bonds are contracts between three parties: Principal (The party who promises to do [or not do] a specific thing. This is the person or company bonded.), Surety (The party [often the insurance company] who agrees to be responsible for loss that may result if the principal does not keep his or her promise.), and Obligee (Party to whom the principal makes the promise, and for whose protection the bond is being written.)

49. Sudden and accidental rupture of a heating system are covered under HO-2 and HO-3, the others listed

are not. 50. Liability assumed under the Commercial General Liability coverage form is excluded, except for

contracts specifically defined as insured. 51. Extended Non-owned Coverage for Named Individuals (expands coverage of the Personal Auto policy

concerning the driving of other individual’s vehicles). 52. No-Fault Insurance (under these laws the insured is reimbursed by their own insurance company for

medical expenses and/or loss of wages related to an accident regardless of who caused the accident). 53. Deductibles (amount of loss that the insured must pay out-of-pocket before the insurance company will

cover the rest of the loss). 54. Commercial Crime Endorsements: Funds Transfer Fraud (covers losses resulting from fraudulent

instructions to a financial institution to pay money from an insured’s transfer account. A transfer account is an account maintained at a financial institution that allows money to be transferred electronically, either by phone or in writing. Fraudulent instructions are instructions by someone who is impersonating an insured or an employee to transfer money without the insured’s knowledge or consent.), and The Extortion—Commercial Entities (pays for loss of money, securities and other property resulting from extortion. Extortion means the surrender of property away from the premises as the result of a threat communicated to the insured to do bodily harm to the insured, an employee or a relative of either who is being held captive.)

55. Additional losses that result from a direct loss to property are called indirect/consequential losses. 56. Object Definitions form is not included as a component of a Commercial Package policy. 57. Consolidation or Merger: (New employees and additional premises obtained through a consolidation or

merger are automatically covered for 90 days. However, the insured is required to provide written notice to the insurer and pay any additional premium required. This condition does not appear in Crime forms written for government entities.)

58. Retroactive Date (provides some measure of protection against previous losses that may have occurred

before the claims-made form was written. The retroactive date is listed in the CGL Declarations.) The insured has three options for the retroactive date: Use the same date as the policy effective date, Use an earlier date than the policy effective date, and Use no retroactive date.

59. An example of an item covered under Coverage C. 60. Liquor Liability Coverage Form covers insureds that are in the liquor business. It covers liability for

contributing to a person’s intoxication or for providing liquor in violation of the law for businesses engaged in the liquor business. The standard forms exclude this liability, which is sometimes called dram shop liability. Coverage can be purchased on either a claims-made occurrence basis.





61. Mobile homes are covered under a Mobile Home package policy or an HO-2 or HO-3 with the Mobile Homeowners endorsement.

62. This is an example of Part D’s coverage. (Collision and Other Than Collision [physical damage] -- may

be written alone or with Liability coverages.) 63. Errors and Omissions insurance is one of the types of Personal liability insurance. 64. Just a fun fact you must know for the state exam. 65. Just a fun fact you must know for the state exam. 66. Pollution Liability Coverage Extension endorsement overrides the Coverage A exclusion for BI or PD

claims arising out of pollution losses. It does not provide coverage for clean-up costs associated with pollution losses.

67. Certain responsibilities and obligations are assigned to the First Named Insured (First Named Insured is

the only individual that can make changes to the policy with the responsibility for premium payment being the First Named Insured’s– policies may have any number or individuals listed on the policy, however only one First Named Insured.)

68. Workmen Compensation (Workers Compensation laws [provide a fair means of handling work-related

injuries, including occupational diseases.] gives employees the right to collect from their employers for injury, disability or death that occurs in the course of employment regardless of who is at fault. Exclusive Remedy: Employees cannot sue their employers in court to obtain additional compensation.) The part of a Workers Compensation and Employers Liability policy specific to this question is Part One—Workers Compensation.

69. The driver in this accident is “insured.”

70. Hired And Nonowned Auto Liability endorsement provides coverage for hired or nonowned autos used by the business if the insured does not have Commercial Auto insurance.

71. Personal Auto policy’s Medical Payments coverage would provide protection for all of the following: the

insured, passengers in the insured’s car and the insured’s family members. 72. This is the definition of expressed authority. 73. The individual State Insurance Departments are responsible for the licensing of insurance agents. 74. MCS-90 Endorsement (This endorsement provides public liability coverage for bodily injury, property

damage and environmental restoration.) This endorsement is the most common method to obtain adequate Truckers coverage to cover the automobile exposure, as well as Commercial Inland Marine Motor Truck Cargo insurance to cover the liability for cargo being hauled.

75. Competitive State Funds (Other states have created competitive state funds that give employers a

choice between purchasing Workers Compensation insurance from a state fund or a private insurance company. Thus, the state fund competes with private insurance.)

76. Pro Rata Method (most common method resolution when other insurance companies are involved in a

given claim. Example: $10,000 loss --- one insurance policy coverage is $50,000 [we will call this policy A]; the other insurance company policy coverage is for $100,000 [we will call this policy B]: liability limit of policy A / (liability limit of policy A + liability limit of policy B) X amount of loss = amount to be paid policy A.

77. Four factors required to establish negligence: legal duty owed, breach of legal duty owed, proximate

cause, and damages.





78. Supplementary Payments (pays in addition to policy liability limit). 79. 80% coinsurance condition (means the property must be covered by a least 80% of full value – if not

insured for at least 80%, partial loss payouts may be reduced proportionally. This is called coinsurance penalty.)

80. Section I Endorsements: Special Personal Coverage (Scheduled Personal Property), Jewelry, Furs and

fur-trimmed garments, etc. 81. With a retention limit of $1,000 and losses of $20,000 the total that would be paid would be $19,000. 82. Building coverage -- in addition to the building itself the policy also includes: Completed additions,

Fixtures (including outdoor fixtures), etc. 83. Aggregate Limit (is applicable to all injury or damage during the policy period, except injury or damage

falling within the Fire Legal Liability limit or Products-Completed Operations limit [which applies to legal liability arising out of the use of products manufactured by the insured]. This aggregate is twice the Liability and Medical Expenses limit. In addition, there is a separate Products-Completed Operations Aggregate limit.)

84. Mechanical breakdown is excluded from coverage under a Personal Auto policy, in the Physical

Damage section. 85. This is a fun fact you must know for the state exam. 86. See Business Auto Coverage Form in your manual for details. 87. See Cause of Loss in your manual for details. 88. This is the definition for “coinsurance.” 89. Farm coverage part does not cover crops. 90. Legal Liability form (Liability coverage form also covers damage to property of others while in the

insured’s control, but only if the insured is legally liable for the damage.) 91. This is by definition for Business Auto coverage form’s Comprehensive coverage. 92. Garage keepers coverage (covers the insured’s liability for damage to customers’ property that the

insured has for servicing, repair, parking, or storage. The insured also has the option of purchasing Direct Damage Garage keepers insurance, which pays for physical damage to customers’ property in the insured’s custody, whether or not the insured is liable. Direct Damage Garage keepers insurance can be provided on either a primary or excess basis; the causes of loss that can be covered include Comprehensive or Specified Causes.)

93. This is the definition for the Causes Of Loss—Special form of the Commercial Property coverage part. 94. Add the losses (up to the policy limit) for BI to the losses (up to the policy limit) for PD; the result is the

amount the policy will pay for a give accident. 95. This is by definition for Workers Compensation system. 96. Just a fun fact you will have to know for the state test. 97. Dwelling – open peril (risk of loss not otherwise excluded are covered), personal property: fire, lighting,

windstorm, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism & malicious mischief, theft, volcanic eruption, falling objects, weight of ice & snow or sleet, discharge of water or steam, freezing of plumbing & related systems, and artificially generated electric current.





98. Physicians and Surgeons Equipment (covers medical and dental instruments on and off the premises,

as well as furniture and fixtures at the office and the insured’s interest in improvements and betterments. Medical and dental equipment of others used by the insured is also covered at the insured’s option. Radium is not covered.)

99. This is an example of the application of Builders Risk Reporting form. 100. Material fact: (information which the insurance company will use to base the policy on).





1. Parts of the insurance contract: Declarations, Insuring agreement, Conditions, Exclusions, and Definitions.

2. Special form (DP-3, DP 00 03) (provides open peril coverage on the dwelling and other structures,

insuring against all risks of direct physical loss that are not specifically excluded in the policy. Personal property is covered on a named peril basis—the same perils listed in the DP-2.)

3. Insurable interest: You must have an insurable interest! (you can insure your home or business, but not

your neighbor’s). 4. Liability losses (also known as third party losses; losses that occur from actions toward other people or

their property). 5. Defenses against Negligence: Contributory (in some states if a person contributes to their own

damages in any way, another party can not be held liable), Comparative (in other states if both parties contribute to a loss, awards are based on the extent to which each party was negligent), and Assumption of Risk (in some states if a person knowingly exposes themselves to danger or injury they may not be able collect damages. Exp: spectators injured at racing events).

6. Coverage D (fair rental value - if structure is uninhabitable and insured can not collect normal rent on

property due to damage – losses are limited to 10% of dwelling coverage and further limited to two weeks if civil authority prevents use of undamaged property due to damage of other properties near by).

7. This is an example of Personal Auto policy’s Liability coverage. 8. Insurance contracts are contracts of indemnity (putting the customer back where they were financially

before the loss, within the limits of the contract). 9. The Builders Risk Reporting form is a contract of indemnity (putting the customer back where they were

financially before the loss, within the limits of the contract). See Builders Risk form in your manual. 10. The HO-5 (HO 00 05) (Covers both dwelling and property on open peril basis for both Dwelling and

Personal Property – covers anything not specifically excluded in the policy). 11. This is based on the definition of insurance. 12. This is the definition of a Motor Truck Cargo policy. 13. Exposure Covered by Commercial General Liability Insurance: Work-related injuries to employees,

Pollution, Contractual agreements in which the insured assumes liability, Ownership, maintenance or use of autos, watercraft and aircraft, Premises and Operations, Products-Completed Operations, and Indirect/Contingent Liability. Auto liability is covered under a separate policy.

14. Elements of a valid contract: Competent parties, Legal purpose, Offer and acceptance, and

Consideration. 15. This is part of the definition for DP-1.





16. Nonowned auto category includes: Autos used in the insured’s business that are not leased, hired, rented, or borrowed. Includes autos owned by employees but used in the insured’s business or personal affairs and has Liability coverage only.

17. Contract Bonds (guarantee the fulfillment of contractual obligations.) Common types of Contract bonds

are: Bid bonds, Performance bonds, Payment bonds, Supply bonds, and Completion bonds. 18. Competitive State Funds: (Some states have created competitive state funds that give employers a

choice between purchasing Workers Compensation insurance from a state fund or a private insurance company. Thus, the state fund competes with private insurance.)

19. Insurance can only be used to cover Pure Risk. Insurance cannot be used to cover Speculative Risk.

Ware and tear is not insurable. 20. Proximate cause (the action(s) that caused the loss). 21. Personal Property floater (open peril coverage designed for apartment or condo dwellers who cannot

obtain coverage under HO-4 or HO-6). 22. Physical Damage coverage (Comprehensive or Specified Causes of Loss and Collision -- Uninsured

Motorists, Medical Payments and Underinsured Motorists coverage can be added by endorsement.) 23. This is the definition of consideration. 24. Retroactive Date (provides some measure of protection against previous losses that may have occurred

before the claims-made form was written. The retroactive date is listed in the CGL Declarations.) The insured has three options for the retroactive date: Use the same date as the policy effective date, Use an earlier date than the policy effective date, and Use no retroactive date.

25. This is a fun fact you must know of the state exam. 26. Coverage for loss of income due to a covered loss to a boiler or other defined object is available under

a Business Interruption endorsement to the Boiler and Machinery coverage form. 27. This is the definition of peril. 28. This the definition of a nonexclusive agent (independent or broker). 29. Exclusions include losses controllable by the insured (excluded because lost is controllable when extra

care is used). 30. Commercial Property coverage part is specifically designed to cover business property. 31. Business Income coverage forms (also known as time element coverage) (pays for loss of income that

the insured sustains due to a direct physical loss from a peril insured against that forces the insured to suspend operations during the period of restoration. Period of restoration begins on the date of the direct physical loss and ends on the date on which the property can be repaired, rebuilt or replaced with reasonable speed).

32. Binders (oral or written statements made by an agent for immediate protection that is valid for a specific

time and provides temporary coverage. A binder does not guarantee that a policy will be issued). 33. This is by definition for DP-2 and DP-3. 34. Ocean Marine Protection and Indemnity insurance provides marine liability coverage.





35. The Workers Compensation policy provides coverage for amounts the employer is required to pay under state Workers Comp laws and amounts for which the employer becomes legally obligated to pay for an employee’s work-related injuries.

36. Adverse Selection (underwriters do not want to insure people/property that have an extremely high risk,

they want to avoid adverse selection). 37. Replacement cost – depreciation = actual cash value (exp. 10 years X 300 per year depreciation = $

3000 depreciation, Replacement cost of $5,000 – depreciation of 3,000 = $2,000 actual cash value.) 38. Flood insurance is available from the federal government or private companies who are reimbursed for

losses by the government. 39. Insurance company approval or ratification (policies forms, endorsements, and rates used doing

business in the state. Some states are file and use states in which the insurance company only has to file forms, endorsements and rates then use them. Some states are Open Competition states where the only requirement is the products must be adequate, rates can not be excessive and the company must practice non discrimination).

40. Just a fun fact you must know for the state exam. 41. Risk - Nationwide Definition. The Definition lists six categories of eligible Marine risks: Imports (covered

by Ocean Marine), Exports (covered by Ocean Marine), Domestic shipments (covered by Inland Marine), Instrumentalities of transportation or communication (covered by Inland Marine) (includes forms that cover property related to transportation or communication, such as bridges, pipelines and television towers), and Personal property floater risks (covered by Personal Inland Marine insurance).

42. This is a fact concerning Workers Compensation. 43. Negligence (lack of reasonable care that is required to protect others from the unreasonable chance of

harm). 44. Replacement Cost Coverage (unique with DP-2 and DP-3) (losses of personal property are settled at

actual cash value. Losses to dwelling and other structures are settled at replacement cost [no deduction for deprecation as long as insured carries insurance equal to 80% or more of the full replacement cost of the building at the time of loss.] If the insured does not carry enough insurance to qualify for replacement cost coverage, they will be paid: The actual cash value, or A portion of the replacement cost--- whichever is larger).

45. Forgery and Alteration: Covers loss from forgery or alteration of checks, drafts and similar items made

or drawn by or on the insured or the insured’s agent. 46. Inside The Premises—Robbery Or Safe Burglary Of Other Property (If the insured owns the premises or

is liable for damage to it, it also covers damage to the interior or exterior of the premises that results from actual or attempted robbery or safe burglary. Damage to a locked safe or vault that is inside the premises is also covered when the damage results from actual or attempted robbery or safe burglary.) Have two primary coverages: Loss of other property (not money or securities) while inside the premises from actual or attempted robbery of a custodian, and Loss of other property from a safe or vault inside the premises from actual or attempted safe burglary.

47. Fund for Workers Compensation insurance: five basic methods for funding benefits. Each state requires

that employers provide security through at least one of the following methods: Insurance Purchased from a Private Insurer, Monopolistic State Funds, Competitive State Funds, Self-Insurance, Individual Employers to Form Groups.

48. Judicial Bonds (guarantees that the principal will fulfill certain obligations set forth by law.) There are

two classes of judicial bonds: Fiduciary bonds (commonly used to bond guardians, administrators, trustees, and executors, all of whom are fiduciaries, or persons appointed by a court of law to manage





the property of others.), and Court bonds (used to settle legal arguments that do not involve monetary damages. Their primary purpose is to protect obligees against loss in case principals are not able to prove that they are legally entitled to the legal remedy they sought against the obligees.)

49. Employment Practices Liability (EPL) insurance (CGL and Workers Compensation And Employers

Liability policies exclude losses arising out of wrongful termination, discrimination, sexual harassment, and other employment-related practices. May be issued as an endorsement to a Directors And Officers Liability policy or as a separate policy. Although standard ISO forms are available, many companies issue their own policies. Policy provisions differ greatly among insurers, particularly those regarding the types of wrongful employment acts covered. Most policies cover wrongful acts committed by the employer and its employees.

50. Dwelling Basic form “automatically” covers perils which include: Fire, Lightning, and Internal explosion. 51. Dwelling Basic form “automatically” covers perils which include: Fire, Lightning, and Internal explosion. 52. Additional Living Expenses (unique with DP-2 and DP-3) (pays for additional living expenses the

insured incurs after a covered loss, including reasonable motel, dining, laundry, and transportation. 53. Assigned Risk Plans or Automobile Insurance Plans (voluntary agreements between insurance

companies licensed in a given state. These companies agree to share the poor risks among themselves. Each company accepts its share of assigned risk drivers according to the size of the individual insurance company).

54. This is the definition for Comprehensive Physical Damage coverage. 55. A Commercial Package policy must include Common Policy Declarations, Common Policy Conditions,

and two or more coverage forms. 56. This is an example of a loss covered by the Business Income coverage form with the Special Causes

Of Loss form. 57. Garage keepers coverage (covers the insured’s liability for damage to customers’ property that the

insured has for servicing, repair, parking, or storage. The insured also has the option of purchasing Direct Damage Garage keepers insurance, which pays for physical damage to customers’ property in the insured’s custody, whether or not the insured is liable. Direct Damage Garage keepers insurance can be provided on either a primary or excess basis; the causes of loss that can be covered include Comprehensive or Specified Causes).

58. Employee Theft (coverage pays for loss of or damage to money, securities and other property resulting

from theft committed by an employee, either acting alone or in collusion with others.) 59. Obligee (Party to whom the principal makes the promise, and for whose protection the bond is being

written.) 60. 1/3 of the $24,000 loss is $8,000. 61. This is an example of the payment coverage for losses under DP-3. 62. Assumption of Risk (Assumption of risk allowes the employer to deny liability on the basis that the

employee knew what the situation was like before he or she was employed and, therefore, assumed all of the risk of injury himself or herself.)

63. Just a fun fact you need to know for the state exam. 64. Medical Payments Coverages – reimburses the insured without regard to fault, regardless of whether or

not the state is subject to no-fault laws.





65. Just a fun fact you must know for the state exam. 66. Vacancy condition states that if a building has been vacant for more than 60 consecutive days before

the loss, the insurer will not pay for loss due to vandalism, water damage, theft or attempted theft, building glass breakage, or sprinkler leakage (unless the system has been protected against freezing). In addition, any amount that would otherwise be paid for a covered loss will be reduced 15%. Note that buildings under construction are not considered vacant.

67. Coverage is provided under both. 68. Liquor Liability Coverage Form covers insured that are in the liquor business. It covers liability for

contributing to a person’s intoxication or for providing liquor in violation of the law for businesses engaged in the liquor business.

69. Parties to a Bond Insurance contracts include two parties—the insured and the insurance company

while Bonds are contracts between three parties: Principal (The party who promises to do [or not do] a specific thing. This is the person or company bonded.), Surety (The party [often the insurance company] who agrees to be responsible for loss that may result if the principal does not keep his or her promise.), and Obligee (Party to whom the principal makes the promise, and for whose protection the bond is being written.)

70. Surety bonds (major differences between Fidelity and Surety bonding lies in the face that, in Fidelity

bonding, it is the obligee (the employer) that seeks and pays for the bond. The principal (the employee) often does not even know the bond exists. With Surety bonds, on the other hand, the principal is always the party that both arranges and pays for the bond for the benefit of the obligee.)

71. Errors And Omissions (E&O) insurance (broad term that refers to Professional Liability policies written

for professionals, such as insurance agents, accountants, architects, stockbrokers, engineers, consultants, and attorneys.)

72. Replacement Cost Coverage (unique with DP-2 and DP-3) (losses of personal property are settled at

actual cash value. Losses to dwelling and other structures are settled at replacement cost [no deduction for deprecation as long as insured carries insurance equal to 80% or more of the full replacement cost of the building at time of loss.] If the insured does not carry enough insurance to qualify for replacement cost coverage, they will be paid: The actual cash value, or A portion of the replacement cost--- whichever is larger).

73. $7,000 loss – $5,000 deductible = $2,000 payout 74. General Average Loss (partial losses resulting from a sacrifice of cargo to save remaining property will

be shared by all other property owners, including the owners of the ship. Each owner shares in the general average loss in proportion to his or her total property interests regardless of which owner’s property was actually jettisoned.)

75. Symbol 8: Hired autos only --- Designates Liability and/or Physical Damage coverage only; Only used

for autos the insured has leased, hired, rented, or borrowed; Does not include autos rented or borrowed from employees or members of their households.





76. Owners And Contractors Protective Liability (OCP) coverage form is specifically designed to provide liability for operations of independent contractors. It is purchased by someone other than the named insured to protect the insured against liability arising out of work performed for the insured by an independent contractor. It is most frequently used to protect an owner for liability arising out of operations being performed by a general contractor. Coverage applies only to the specific location and contractor named in the Declarations and is written on an occurrence basis.

77. This is by definition under Crime insurance. 78. Farmers Insurance (Farmers’ businesses and homes are often at the same location, so they need

insurance that will cover both their personal and business exposures to loss. The Farm coverage part, which can be written as a mono-line policy or included in the CPP, includes several Farm Property coverage forms that cover both the personal and business property of the farmer and a Farm Liability coverage form for the personal and business liability exposures of the farmer. This covers both scheduled and unscheduled personal property).

79. Just a fun fact you need to know for the state exam. 80. Just a fun fact you need to know for the state exam. 81. This is an example of the coverage under the Commercial General Liability policy. 82. This is an example of the coverage under the Boat owners or Watercraft package policy. 83. This is an example of the use for a Personal Inland Marine Personal Property form. 84. Mutual insurance company (owned by policy holders – cash building policies receive dividends). 85. Unilateral Aspect of Insurance: (Only the insurance company is bound to performance by the insurance

contract. The insured may chose to pay or not pay the premiums at anytime.) 86. An insurance policy has a $35,000 per occurrence limit; therefore there is a limit of $35,000 for each

occurrence of loss. 87. Trees, Shrubs, and Other Plants (unique with DP-2 and DP-3) (pays up to 5% of the Coverage A limit

for damage to trees, shrubs, plants, or lawns caused by a specified list of perils. This is limited to $500.00 maximum per tree, shrub or plant. [In the HO-4 and HO-6, the limit is 10% of the Coverage C limit or a maximum of $500 for any one tree, shrub or plant.][Coverage D’s limit is $1,000 and also covers the removal of fallen trees that block access to driveways or handicapped ramps at the insured’s residence]).

88. This is an example of the coverage under the Medical Expenses coverage of the Business owner’s

policy. 89. This is a fun fact you will need to know for the state exam. 90. Moral hazard (person might intentionally create a situation that would cause a loss). 91. This is an example of coverage under a Flood policy. 92. Fair Access to Insurance Requirements Plans (FAIR Plans) (state developed insurance plans used to

insure inner city property at reasonable rates). 93. This is the difference between a Commercial Package policy and a Business owner’s policy. 94. Direct (financial loss directly related to the loss of property).





95. Dwelling policies may include small businesses (may include incidental business and professional occupancy – must involve service as opposed to sales and involve no more than two people working on the premises at any one time. For exp: includes beauty parlor, photography studios and professional offices.)

96. Elements of valid contract: Competent parties (parties must be of legal age and can not be nuts), Legal

purpose (you can not enforce a contract for the sell of illegal drugs), Offer and acceptance (agreement), and Consideration (monies).

97. Business Income coverage forms (also known as time element coverage) (pays for loss of income that

the insured sustains due to a direct physical loss from a peril insured against that forces the insured to suspend operations during the period of restoration. Period of restoration begins on the date of the direct physical loss and ends on the date that the property can be repaired, rebuilt or replaced with reasonable speed).

98. Mortgage holders condition promises to pay losses to any mortgage holders named in the Declarations

as their interest may appear. This condition protects the interest of mortgage holders by promising advance notice of cancellation. The insurer must provide 10 days’ written notice if it cancels for nonpayment of premium and 30 days’ notice if it cancels for any other reason allowed by the policy. If the insurer decides not to renew, it must give the mortgage holder at least 10 days’ advance written notice.

99. The following self-propelled vehicles are considered autos (not mobile equipment): Self-propelled

vehicles with permanently attached equipment designed primarily for snow removal, road maintenance (other than construction or resurfacing) or street cleaning, Cherry pickers and similar devices that are mounted on automobile or truck chassis and used to raise or lower workers, and Self-propelled vehicles with attached air compressors, pumps or generators.

100. Building and Personal Property (What is insured? The building itself, the insured’s business personal

property and the personal property of others located at the business premises within the limits defined in the Declarations Section of the policy). Money, accounts, food stamps, notes, securities and related properties are excluded. (Lottery tickets held for sale are not securities and are covered.)

Rationales for P&C Law Exam


Visit us at www.beagent.us or www.aaonlineclasses.com Rationales 3 - Page 1

1. Just a fun fact that you will have to know for the state exam. 2. Just a fun fact that you will have to know for the state exam. 3. Just a fun fact that you will have to know for the state exam. 4. Just a fun fact that you will have to know for the state exam. 5. Just a fun fact that you will have to know for the state exam. 6. Just a fun fact that you will have to know for the state exam. 7. Just a fun fact that you will have to know for the state exam. 8. Just a fun fact that you will have to know for the state exam. 9. Just a fun fact that you will have to know for the state exam. 10. Just a fun fact that you will have to know for the state exam. 11. Just a fun fact that you will have to know for the state exam. 12. Just a fun fact that you will have to know for the state exam. 13. Just a fun fact that you will have to know for the state exam. 14. Just a fun fact that you will have to know for the state exam. 15. This is the definition of “rebating.” 16. Just a fun fact that you will have to know for the state exam. 17. This is the definition for an adjuster. 18. Just a fun fact that you will have to know for the state exam. 19. Just a fun fact that you will have to know for the state exam. 20. Just a fun fact that you will have to know for the state exam. 21. Just a fun fact that you will have to know for the state exam. 22. Just a fun fact that you will have to know for the state exam. 23. Just a fun fact that you will have to know for the state exam. 24. Just a fun fact that you will have to know for the state exam. 25. Just a fun fact that you will have to know for the state exam. 26. Just a fun fact that you will have to know for the state exam. 27. This is based on the definition for industrial fire. 28. This is based on the definition for industrial fire. 29. This is based on the definition for industrial fire. 30. This is based on the definition for industrial fire. 31. This is part of the definition related to automobile insurance policies.

Rationales for P&C Law Exam


Visit us at www.beagent.us or www.aaonlineclasses.com Rationales 3 - Page 2

32. This is based on state law related to uninsured/underinsured motorist coverage. 33. This is based on state law related to Alabama’s mandatory automobile liability insurance. 34. Just a fun fact that you will have to know for the state exam. 35. Just a fun fact that you will have to know for the state exam. 36. Just a fun fact that you will have to know for the state exam. 37. Just a fun fact that you will have to know for the state exam. 38. Just a fun fact that you will have to know for the state exam. 39. Just a fun fact that you will have to know for the state exam. 40. Just a fun fact that you will have to know for the state exam. 41. Just a fun fact that you will have to know for the state exam. 42. Just a fun fact that you will have to know for the state exam. 43. This is based on the definition of the Insurance Guaranty Association. 44. Just a fun fact that you will have to know for the state exam. 45. Just a fun fact that you will have to know for the state exam. 46. This is based on state law concerning industrial fire policies. 47. Twisting (it is illegal to replace a policy with one of lesser quality). 48. Just a fun fact that you will have to know for the state exam. 49. Just a fun fact that you will have to know for the state exam. 50. Just a fun fact that you will have to know for the state exam.

Property and Casualty -- Glossary of Terms



Glossary - Page 1

"A" (or Judgment) Rates - Rates that are based on the judgment of the underwriter on an individual risk basis and not supported by loss experience. Abandonment - A term that applies to property and signifies both a relinquishing of it and the letting go of all legal rights to it, as well, with the intent to claim a total loss. Abandonment of property to an insurance company is something insureds are expressly prohibited from doing in most property polices. Abandonment Clause - A property policy provision that stipulates that the insurer need not accept any damaged property that the insured chooses to relinquish. Absolute Liability - The performance of an act so dangerous as to be sufficient to trigger liability regardless of the degree of negligence. Triggering explosives is often used as an example. Sending workers aloft for construction or repair at elevated heights is another. "Strict liability'' is another term that is sometimes used.

Accident - An unforeseen, unintended, and unexpected event, which occurs suddenly and at a definite place. See Occurrence. Accident Frequency - The rate of occurrence of accidents. Along with accident severity, it is taken into account in rate making. Accident Severity - The measure of the seriousness of a claim, measured in, for example, dollars. Along with frequency, it is taken into account in rate making. Accident Year Experience - Measures premiums and losses relating to accidents which occurred during a 12-month period. Accommodation Line - Normally unacceptable risks that are written as an "accommodation'' to an agent or broker who has an overall profitable relationship with the insurer. For example: a personal auto risk with a teenage driver of a sports car might be written if the other lines of insurance which it carries for the customer were profitable; or if the agency has had a good and profitable relationship with the insurer. Account Current - A monthly statement provided by an insurer detailing an agent's premiums, commissions, cancellations, and endorsements. Account Selling - Account selling is trying to handle all of a client's insurance needs, rather than providing for only a portion of those needs. Accounts Receivable Insurance - Pays for the cost of reconstructing accounts receivable records that have been damaged or destroyed by a covered peril. Even more important, it covers any payments that cannot be collected because records cannot be reconstructed. Acquisition Cost - The expense undertaken to acquire new business. The concept applies to both agents and companies. The largest portion of an insurer's acquisition cost is agent's or sales representative's commission or bonus.




Glossary - Page 2

Act of God - Acts of Nature - the term was once widely used to distinguish between man-made events, i.e., fire, collision, and nature's rampages in wind and flood. Active Malfunction - In products insurance, a defect or malfunction in a product that damages the property of the user. Actual Cash Value (ACV) - A method for placing value on property as of the time of its loss or damage. ACV may be determined as replacement cost, new, less depreciation. The market value of an item may be used to help determine actual cash value. Contrast with replacement cost. Actual Cash Value Appraisal - An appraisal to determine the actual cash value of a building and related personal property. Actuary - A person highly trained in mathematics and statistics who calculates rates and dividends, and provides other statistical information for an insurance company. Additional Insured - One who qualifies as "insured'' under the terms of a policy even though not named as insured. Officers of a corporation may be included as insureds under the terms of a policy written in the name of the corporation. Additional Living Expense Insurance - This coverage, found in homeowners forms, provides payment for extra expenses made necessary by the insured's inability to reside in the insured dwelling because of a covered loss -- for example, restaurant meals and hotel bills. The amount payable is the difference between normal household expenses and the increase. Adhesion Contract - A standardized set of agreements offered by one (usually the stronger) party to another on a "take it or leave it'' basis. An insurance policy is an example of such a contract. The insurer offers a personal auto policy, for example, that an individual may "adhere to'' (or not) but in any case the individual may not change any of its terms. Because it has the stronger position, the insurance company has the burden to spell out its terms precisely. Such contracts are interpreted strictly a gainst the author of the contract. Not to be confused with aleatory contract. Adjuster - A person who may act either on behalf of the insurance company or the insured in settling a claim. Employee adjusters work for an insurer; independent adjusters represent the insurance company on a fee basis; and public adjusters represent the insured on a fee basis. Admitted Assets - The highly liquid assets of an insurer permitted by the state to be taken into account when reporting financial condition. Admitted Company - An insurance company that is licensed (admitted) to conduct business within a given state. Admitted Market - The range of insurance available through admitted companies. Advance Premium - Also called "deposit premium,'' an advance premium is a down payment on what will be the final premium, in policies where the final premium is subject to audit.




Glossary - Page 3

Adverse Selection - The tendency of poorer than average risks to buy and maintain insurance. Adverse selection occurs when insureds select only those coverages that are most likely to have losses. Adverse Underwriting Decision - Any decision made by an underwriter that is not favorable to the insured. Such decisions involve termination, declination, higher rates, or reduction in coverage. Another example is the placing of a risk in a residual market or with an unauthorized insurer. Advertising Injury - Claim arising out of slander, libel, copyright infringement, or misappropriation of advertising ideas. Coverage is provided as part of coverage B of the commercial general liability policy. Affinity Marketing - Targeting marketing efforts toward one group or category of client. Examples include: grocery stores; all the employees of one company; or employees in one industry. Group business is a type of affinity marketing. Agency Company - An insurance company that produces business through an agency network. See direct writer. Agency Contract - The legal agreement between an insurance agency and the insurer detailing the terms of representation. Agency Plant - The total force of agents representing an insurer. Agent - One who solicits, negotiates or effects contracts of insurance on behalf of an insurer. His right to exercise various functions, his authority, and his obligations and the obligations of the insurer to the agent are subject to the terms of the agency contract with the insurer, to statutory law, and to common law. Agent’s Appointment - The act by an insurer that grants an agent the authority to act as an agent for the insurer. In most states, agents must be licensed and appointed, prior to being allowed to sell insurance. Agent’s Authority - The authority of an insurance agent to act on behalf of the insurer he or she represents. There are several types including: express authority (authority to act on specific instructions only); implied authority (actions taken in accordance with prevailing custom); or apparent authority (actions based on appearances created by the agent and acquiesced to by the principal). Agents Errors and Omissions Insurance - Insurance obtained by the insurance agent to guard against loss caused by an unintentional failure to properly insure (or recommend insurance to) a client. Agent’s License - A certificate of authority from the state that permits the agent to conduct business. Aggregate Deductible - A deductible provision in some property insurance contracts where all covered losses during a year are figured together and an insurer pays only when the aggregate deductible amount is exceeded.




Glossary - Page 4

Aggregate Excess Reinsurance - A type of excess reinsurance treaty that sometimes is called stop loss or excess of loss ratio reinsurance. The retention in this type of agreement is calculated based on all losses over the period of time that is stated in the treaty. The reinsurer is responsible for the amount of losses between the retention and the limit on the treaty. Aggregate Limit - The maximum amount an insurer will pay under a policy in any one policy period. Agreed Amount Clause - An agreement between underwriter and insured whereby, in exchange for the purchase of coverage in an amount specified by the underwriter, the insured is protected from a coinsurance penalty. Agreed value clause - Though rare, some policies cover for a value agreed upon at the time of writing; if the property is lost because of an insured peril, the amount stated in the policy will be paid. Fine arts insured under a personal articles floater or homeowners scheduled personal property endorsement are examples. Aircraft Coverages - Though aircraft have long been an important element in the lives of most Americans, insurance of aircraft exposures has remained outside the mainstream of property and liability insurance markets. Aircraft hull and liability insurance is the counterpart of personal or commercial auto policies coverage. Aircraft products insurance is the counterpart of products liability coverage. Air cargo insurance is mirrored in motor truck cargo. Hangarkeepers liability is akin to garagekeepers coverage. As with any specialty line of insurance, the absence of standardized forms limits practice to specialists in the line. Alcoholic Beverage Control (ABC) laws, see Dram shop laws. Aleatory Contract - A contract in which the number of dollars to be given up by each party is not equal. Insurance contracts are of this type, as the policyholder pays a premium and may collect nothing from the insurer or may collect a great deal more than the amount of the premium if a loss occurs. Not to be confused with contract of adhesion. Alien Insurer - An insurance company formed under the laws of a country other than the one it is doing business in. Alienated Premises - Property that has been sold by an insured. All Risks - A property policy expression now out of fashion. It was used to designate contracts that promised coverage against "all risks of direct physical loss" in contrast to forms that covered for specific, named perils. The word "all" came to be perceived as open to broader interpretation than insurers intended and it was dropped in favor of the promise to cover "risks of physical loss." See Named perils and also Open perils. Allied Lines - Lines of insurance that cover for perils other than fire, that are usually sold with fire insurance, e.g., "fire and allied lines." Alternative Dispute Resolution (ADR) - Methods other than lawsuits that are designed to resolve legal disputes. Examples are arbitration and mediation.




Glossary - Page 5

Ambiguity - A standard policy provision that proves to be ambiguous may be interpreted in the light most favorable to the insured. American Agency System - The system of selling insurance through agents who receive omissions in lieu of salary. American Association of Insurance Services (AAIS) - An association of insurance companies providing filing and various technical services on behalf of its member companies. Americans with Disabilities Act (ADA) - Passed by Congress in 1990, this act requires that "reasonable accommodation" be made in public accommodations, including the workplace, for those with physical or mental disability. American College, The - An educational institute conferring the Chartered Life Underwriter (CLU) designation. American Lloyds - Unincorporated associations of individual underwriters who assume specified portions of liability under each policy issued. There is no connection with Lloyd’s of London. Anniversary Date - The anniversary of the original date of issue of a policy as shown in the declarations. Annual Aggregate Deductible - A deductible applied annually to the total amount paid in claims during a policy period. Claims are generally subject to a per-occurrence deductible; the aggregate is the limit beyond which no further deductibles are applied. Anti-Coercion Laws - Usually contained in a section of the state code entitled "Unfair Trade Practices," these provisions define the use of coercion as an unfair practice and, hence, a violation of the state law. Anti-rebating Laws - Laws found in all but two states which prohibit an agent’s refunding part of a commission to an applicant as an inducement for placing insurance through the agent. California and Florida allow rebating of commissions on a limited basis. Apparent Authority - The perceived ability of an agent to bind an insurance contract to an insurance company. If an agent or agency holds themselves out as representing a particular company it is reasonable for the public to assume that such authority is established contractually, even if it is not. Apportionment - The method of dividing a loss between multiple insurers that cover the same loss.

Appraisal - A determination of the value of property for the purposes of determining the proper amount of insurance to be bought or in adjusting a loss. Appurtenant Structure - Another structure on the same premises as the principal structure. A detached garage on a dwelling premises is "appurtenant" to the dwelling. Older homeowners forms refer to the "other structures" protected under the HO Coverage B as "appurtenant structures."




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Arbitration Clause - The clause in an insurance policy that spells out how disagreements over a claim are settled. Arson - The intentional setting afire of property. Assigned Risk - A risk not be generally acceptable to any insurance company but for which the law says that insurance must be acquired. Personal auto liability is one such necessary coverage. Insurance companies doing personal auto business in a state can be required to accept assignment of a portion of the state’s unacceptable drivers as insureds. Assigned Risk Plan, see Auto insurance plan. Association Captive - A captive insurer owned by the members of a sponsoring organization or group, such as a trade association. Assumed Liability - Liability assumed under contract or agreement. More commonly known as contractual liability. Assured - A party who is a potential beneficiary of an insurance contract. The synonym "insured" is more commonly used. Attorney-In-Fact - An individual who is given authority to execute legal documents, including bonds; or the manager of a reciprocal exchange, which is an insurance arrangement whereby risk is transferred to other members. The attorney-in-fact need not be a lawyer. Attractive Nuisance - Condition that can attract and injure children. The occupants of land on which such a condition exists are liable for injuries to children. Examples of attractive nuisance: swimming pools; earth moving equipment; playground equipment. Audit - Some policies (such as workers compensation) are written subject to an audit. Since workers compensation premium is based on the insured’s payroll, the insurer is entitled to audit the insured’s records at the end of the policy to verify that it has collected an adequate premium for the amount of payroll to which it was exposed. Authorized Insurer - An insurer granted permission by a state to sell specific lines of insurance within that state.

Auto insurance plan - Program set up by various states to ensure that everyone with a valid driver’s license will be able to purchase auto insurance. All auto insurers operating within a state are assigned insureds in proportion to the amount of auto premium written. Automobile Liability Insurance - Insurance in which the insurer agrees to pay all sums for which the insured is legally obligated because of bodily injury or property damage arising from the ownership, maintenance, or use of an auto.




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Automobile Medical Payments - Insurance applying to the medical, hospital, or funeral expenses of anyone injured while on or in an insured automobile. The coverage is not dependent on liability, being triggered simply by an accident. It may be included in either the Business Auto Policy or the Personal Auto Policy. See also Premises medical payments. Auto Physical Damage Insurance - Insurance on the vehicle, itself. This usually is broken down into collision and other than collision coverages. Automobile Shared Market - A program in which all automobile insurers in each state make coverage available to car owners who are unable to obtain auto insurance in the voluntary market.

Bailee - One who has is charged with the care of the property of another. For example, a garage is bailee of a customer’s ("bailor’s") car (the "bailment") and a jeweler is a bailee of customers’ jewelry while in for repair or appraisal. Bailees Customers’ Insurance - Insurance designed to reimburse a bailee’s customers for loss without regard to liability. Bailees Floater - An inland marine form that covers — on an open perils basis — a bailee’s interest in personal property of others. Bailees Liability Insurance - Insurance covering damage negligently caused by a bailee or employee to goods left in their care. Bailment - The act of delivering property in trust to another for a limited time and specific purpose. Bailor - The person delivering property to another in trust. Bankers Blanket Bond - A bond designed to indemnify for loss of money, securities, etc., caused by: dishonesty of employees; robbery or theft from the premises; or robbery or theft while the insured property is in transit. Basic Causes of Loss - The perils of fire, lightning, and removal of property from premises endangered by those perils as shown in the standard 1943 New York fire policy. Basic Named Perils - Covered perils in a property insurance contract: fire, lightning, windstorm, civil commotion, smoke, hail, aircraft, vehicles, explosion and riot. Beach Plans - Sometimes known as windstorm plans or pools, these are plans devised by coastal states to insure the windstorm exposure of coastal properties. The plans operate in a manner similar to a joint underwriting association, with participation by all insurers operating within a state. Bench Error - A mistake in the production process of a product that causes a loss. Such losses are usually covered.




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Betterment - A term used to express the difference in the value of property before loss and after restoration. If a 20-year roof is damaged by an insured peril and it has to be replaced in its 15th year and the restoration renews the 20-year life expectancy, the owner has obtained a 15-year betterment in the roof. Without replacement cost insurance on the roof, the owner is expected to reimburse the insurance company for the "betterment" entailed in the restoration. Also see Improvements and betterments. BI - A shorthand expression for "bodily injury." Bid Bond - Guarantees an owner, the "obligee," that the accepted contractor will actually undertake the work and that the contractor will furnish performance, payment, and, perhaps, maintenance bonds — or that the contractor will pay the owner the difference between the amount of the contractor’s accepted bid and the bid of another contractor who has to be called in to complete the project. Binder - An insurer’s agreement, by way of an agent, to provide non-life insurance on the spot, pending issuance of the policy contract. Binding Authority - The authority extended to an agent by an insurer to provide insurance, usually on a temporary basis, until a policy can be written. Blanket Bond - An employee dishonesty or fidelity bond covering all persons of a group or class; as opposed to bonds naming specific individuals (name schedule) or positions (position schedule). Blanket Coverage - A means of insuring various items of property under one limit of liability. Blanket Insurance - Insurance covering multiple items of property as a group. Covered property may be at one location or several. Bobtailing - A trucking term that means the driving of the tractor portion of a semi after the trailer has been delivered and removed. A special trucking endorsement, Truckers Insurance for Non-Trucking Use, may be necessary when bobtailing. Bodily Injury - A term that refers to physical injury, sickness, or disease, or death resulting therefrom. In some jurisdictions "bodily injury" includes emotional injury. Bodily Injury Liability - Legal obligation that flows from the injury or death of another person. This insurance is commonly limited to bodily injury liability derived by way of negligence, but coverage of liability by way of contract (holding another harmless) is also possible. Boiler & Machinery Insurance - Fired vessels, steam generators, mechanical and or electrical objects and turbines, are all examples of "objects" that might be listed for coverage under a boiler and machinery policy. Coverage is for damage to covered property caused by an accident to an object identified in the policy’s schedule. Coverage includes extra expense, automatic 90-day coverage at new locations, defense against liability claims, and supplementary payments like those provided under public liability policies.




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Bond - A document for expressing surety. A bond engages three entities; the "surety" (bonding company) sells the bond to the "principal" for the purpose of paying the amount the principal will owe to the "obligee" upon failure of the "principal" to perform some act or provide some service under agreed terms. Bond, Fidelity - A bond that guarantees the principals honesty. Bond, Surety - A surety bond is the financial assumption of responsibility by one or more persons for fulfilling another’s obligations. Book of Business - The accounts written by an agent or company. It can be ex-pressed in a number of ways such as "total book" of business, "book of auto business," "homeowners business," etc. BOP (Business Owners Policy), see Business Owners Policy. Bordereau - A written schedule of insureds, premiums, and losses submitted to reinsurers under certain types of reinsurance agreements. Boycott - Another practice defined as "unfair" under most states’ codes. Such a practice which occurs when someone in the insurance business refuses to do business with someone else until that person complies with certain conditions or concessions. Broad Form Perils - A property insurance designation for coverage that extends beyond the basic named perils. Broad Form Property Damage Endorsement - A commercial general liability endorsement that removes the care, custody, or control exclusion relating to the property of others and replaces it with a less stringent one. Broker - One who represents the insured in arranging insurance. A broker may also serve as the agent of an insurance company. Typically, a broker does not have binding authority. Builders Risk Insurance - A variation of property coverage specifically applicable to construction projects. It is commonly written in an amount to cover the value of the structure when completed. The premium charged takes into account that values at risk increase gradually over the term of the policy. Bumbershoot - A form of coverage similar to an umbrella, having to do with ocean marine risks. Business Auto Policy (BAP) - A standardized contract for writing liability and property coverage on commercial autos. Business Income Coverage - Insurance protecting the income derived from an insured’s business activities when curtailed by a covered peril. Coverage includes reasonable extra expense the insured undertakes to expedite return to business operations.




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Business Income, Dependent Properties - Covering loss to an insured when the operations of a key supplier, customer, or "leader property" on which the insured’s operations are dependent, is shut down by a covered peril. Also referred to as "contingent business income." Business Personal Property - A term relating to "contents" of a commercial enterprise. It may include furniture, fixtures, machinery and equipment as well as stock, all other chattels owned by the insured, and even use interest in building improvements and betterments. Business Owners Policy (BOP) - A package of property and liability insurance for small and medium size businesses, the BOP owes its origin to the success of the homeowners policy. "Buy-Back" Deductible - A deductible that may be eliminated for an additional premium in order to provide "first-dollar" coverage.

Calendar Year Experience - Underwriting result based on earned premiums and booked incurred losses for the same calendar year reporting period, regardless of the dates of the loss events. Booked incurred losses include paid losses, beginning of year to end of year changes in case reserves, and IBNR. Cancellation; Flat, Pro Rata, or Short Rate - In a flat cancellation the full premium is returned to the insured. A pro rata cancellation means the insurer has charged for the time the coverage was in force. Short rate cancellation entails a penalty in excess of pro rata for early termination. Capacity - An insurer’s (or reinsurer’s) top limit on the amount of coverage it has available. The term may also refer to the total available in the respective insurance or reinsurance market. Captive Agent - A representative of a single insurer. In the case of captive agents, the insurer owns and controls expiration dates and policy records. A captive agent is a member of what may be called an exclusive agency system. Captive Insurer - An enterprise with all the authority to perform as an insurance company, but is organized by a parent company for the express purpose of providing the parent company’s insurance. Care, Custody, or Control - An expression common to liability insurance contracts. It refers to an exclusion in the policy eliminating coverage for damage to property of others that is in the insured’s "care, custody, or control." The insured has a bailee relationship to the property, in other words, making the insured liable for the care of the property beyond damage caused by negligence. A bailees floater is often used to cover the insured’s obligation for the care of such property. Cargo Insurance - An inland marine or ocean marine policy covering cargo in the care, custody, or control of the carrier. Cash-Flow Underwriting - Name given to an insurer’s practice of "nonselectively" writing business in order to generate greater amounts of cash for in-vestment purposes.




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Casualty Insurance - The type of insurance concerned with legal liability for losses caused by bodily injury to others or physical damage to property of others. Catastrophe (Excess) Cover - Another term for catastrophe reinsurance, wherein the ceding company is indemnified by the reinsurer after a specified loss amount is reached, for losses caused by catastrophes. Causes of Loss Forms - The reference is commonly to property insurance con-tracts and the form in question details those perils to which the coverage will respond. Though any property insurance contract must name the perils it intends to cover, e.g., crop hail, earthquake, perils of transit, and so on, the most commonly used general forms are the basic and broad named perils forms and the special form. In contrast to the named perils forms, that list specific perils for coverage, the special form contract covers simply risk of direct physical loss, relying on exclusions to delimit and define the coverage. Cede - The transfer of all or part of a risk written by an insurer to a reinsurer. Cedant - A ceding insurer or reinsurer. Ceding means to contractually transfer a portion of a risk or risks to a reinsurer. Ceding Commission - The cedant’s acquisition costs and overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits, which often is expressed as a percentage of the gross reinsurance premium. CERCLA, see Superfund. Certificate of Insurance - A written description of insurance in effect as of the date and time of the certificate. The certificate does not ordinarily confer any rights on the holder, i.e., the issuing insurer does not promise to inform the holder of change in or cancellation of coverage. CGL (Commercial General Liability), see Commercial general liability. CIC - Certified Insurance Counselor. CLU - A designation — Chartered Life Underwriter — conferred upon successful completers of a series of studies of life insurance and related disciplines designed by The American College. CPCU - A designation — Chartered Property Casualty Underwriter — conferred upon successful completion of a series of 10 exams on insurance and related disciplines designed by the American Institute of Chartered Property Casualty Underwriters. Civil Commotion - One of the extended coverage perils, paired with the peril "riot," which refers to a less widespread or generalized event than "riot" might be thought to encompass. Claim Expense - The expense of adjusting a claim, such as investigation and attorneys’ fees. It does not include the cost of the claim itself.




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Claims-Made Coverage - A type of public liability insurance that responds only to claims for injury or damage that are brought (to the insurer) during the policy period (or during a designated extended reporting period beyond expiration). This development was in response to "long tail" claims, such as those related to asbestosis injury, carrying over many years and multiple layers of coverage limits. However, most public liability policies are written on an "occurrence" basis, covering injury or damage occurring during the policy period even if a claim is brought months or even years later. Clash Cover - A type of catastrophe reinsurance for casualty insurance. The retention is equal to the highest limit of any one insurance policy covered by the agreement. Clash cover is written to cover all losses from one source, such as a construction site. Class Rates - When property or people share a certain number of characteristics relevant to the cost of providing them with insurance (such as a male driver under the age of 25 without an accident) underwriters can develop insurance rates that reflec t the exposures represented by the "class" and offer insurance based on a class rate rather than by computing individual rates for each member. Clause - A provision or condition affecting the terms of a contract. Coinsurance, cancellation, and subrogation clauses are typical insurance contract clauses. Clean-Up Costs - Generally, those costs associated with the clean up of pollution. Close or Closely Held Corporation - A corporation that is owned by a small number of individuals who are related. A close corporation fills its own vacancies. Coercion - Another act defined by most states as an "unfair trade practice." This one occurs when someone in the insurance business uses physical or mental force to persuade another to transact insurance.

Coinsurance Clause - "Coinsurance" refers to the bargain between commercial property owners and the insurance industry. This clause in property policies encourages the property owner to gauge coverage needs by possible, not probable, maximum loss. With $1 million at risk but a probable maximum loss of $100,000, for example, the property owner would probably buy $100,000 insurance and bank on avoiding the larger disaster. The bargain offered by the insurance industry is a reduced rate per $100 of coverage if the owner agrees to buy coverage at a specified relation (80% commonly) to value (to possible maximum loss in other words). If the insured accepts the bargain but events prove the amount of insurance is inadequate to the stated coinsurance percentage, the insured becomes "coinsurer" in the same ratio as the amount of insurance bears to the amount that should have been carried. Collapse - A property insurance peril, subject to its own specific agreement in property policies, which otherwise insure on an open perils basis. Collision Damage Waiver - When paired with an auto rental agreement, the rental car company agrees to waive the renter’s responsibility for any physical damage to the rental car in exchange for an additional payment. Sometimes called a "loss damage waiver." Collision Insurance - A type of physical damage insurance available for automobiles. Coverage is triggered when damage is caused by striking against another object.




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Combined Ratio - The sum of an insurance company’s loss ratio and expense ratio; used as an indicator of profitability for insurance companies. Combined Single Limit (CSL) - Liability policies commonly offer separate limits that apply to bodily injury claims and to claims for property damage. "50/100/25" is shorthand under such a policy for $50,000 per person/$100,000 per accident for bodily injury claims and $25,000 for property damage. A combined single limits policy might cover for $100,000 per covered occurrence whether bodily injury or property damage, one person or many. Commercial Blanket Bond - A bond that covers the named insured against employee dishonesty. A single coverage amount applies to any one loss, regardless o f the number of employees involved. Commercial General Liability (CGL) - The CGL policy is an ISO form, widely used to provide commercial enterprises with premises and operations liability coverage, products and completed operations insurance and personal injury coverage. Premises medical payments coverage is often included as well. Commercial Lines - A distinction marking property and liability coverage writ-ten for business or entrepreneurial interests as opposed to personal lines. Commissioner of Insurance - The official in a state (or territory) responsible for administering insurance regulation; sometimes called the Superintendent or Director of Insurance.

Common Area - The part of a building or premises either owned by or used by all tenants or tenant-owners of the building (e.g. the swimming pool at a condominium). Comparative Negligence - A variation of contributory negligence, in which the comparative degree of negligence for each party to an accident is taken into account when awarding damages. Compensatory Damages - The award, usually monetary, that is intended to compensate the claimant for injury sustained. Completed Operations Insurance, see Products and completed operations. Completion Bond - A bond that guarantees a lending institution or other mortgagee that a building or other construction that they have lent money on will be completed on time so it can used as collateral on the loan. Comprehensive Personal Liability Insurance - Provides individuals and family members with protection from legal liability for most accidents caused by them in their personal lives. Note that any legal liability claims submitted while in the course of business activities are not covered.




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Comprehensive Physical Damage (Automobile) - Traditional name for physical damage coverage for losses by fire, theft, vandalism, falling objects, and various other perils. On Personal Auto Policies, this is now called "other than collision" coverage. On commercial forms, it continues to be called "comprehensive" coverage. Concurrent Causation - When two perils contribute concurrently to a property loss, one excluded and the other not, the effect of the exclusion tends to be voided in a policy covering on an open perils basis. A concurrent causation exclusion is found in current forms. Condition - One of the obligations of either the insured or the insurer imposed in the insurance contract. Condominium - Type of dwelling where the structure is owned jointly while spaces within the structure are owned individually. Special property and liability forms cover the interests of the condominium association and of unit owners. Condominium Association Coverage - A policy that provides coverage for the building, elements of the building, and liability needs for those who collectively own a piece of property. Condominium Unit Owners Form - A policy that provides coverage for the personal property, owned elements of a unit, and liability for the individual unit owner. Consequential Loss - An indirect consequence of direct loss to property. Business income may be lost when a store burns down, or frozen goods may spoil when windstorm causes an interruption of power. Consequential or indirect loss is not generally insured by policies covering direct damage (i.e., by fire or wind as in these examples), but insurance is readily obtainable separately for most such consequential exposures — (business income coverage, most common.) Construction Bond - A bond that guarantees the owner of a building under construction that it will be completed. If the contractor cannot finish the work, the insurer is obligated to see that the work is performed. Constructive Total Loss - This condition is said to exist when the cost of repairs exceeds the actual cash value of damaged property. Contingent Business Income, see Business income, dependent properties. Contingent Liability - Liability imposed on a business entity (individual, partnership, or corporation) for acts of a third party for which the business entity is responsible. Contract of Adhesion, see Adhesion contract. Contractors Equipment Floater - Coverage designed for the special needs of contractors to insure their machinery and other equipment. Contractual Liability - Liability that does not arise by way of negligence but by assumption under contract. For example, in certain leases, a tenant may assume a landlord’s liability to others for unsafe conditions on the premises. Some such assumptions are covered automatically under the Commercial General Liability form.




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Contributory Negligence - A defense to a negligence action in which it is asserted that the claimant failed to meet the standard required for his or her own protection, and that that failure contributed to the loss. Controlled Business - The amount of insurance countersigned, issued or sold by a producer covering that producer’s interests, immediate family, or employees. Many states limit the amount of controlled business that may be written, by placing a maximum percentage of all business that may be "controlled." Convention (or Statement) Blank - The uniform annual financial statement that must be filed by all insurers, as prescribed by the National Association of Insurance Commissioners. The convention blank must be filed annually in an insurer’s home state and every state in which it is licensed to do business. Corporation - A business whose articles of incorporation have been approved in some state. For insurance purposes, the type of business structure helps to determine who is insured on the policy. Countersignature - An authorized signature of agent or company representative on an insurance policy. Usually pertains to policies sold by an agent of the insurer located in another state. Court Bonds, see Judicial bonds.

Coverage Trigger - In liability insurance, the "trigger" is the event that brings coverage into play. It may be either an occurrence of bodily injury or property damage; or, in a form with a claims-made trigger, the formal making of a claim. Covered Loss - An accident, including accidental damage by forces of nature, that brings a contract of insurance into play. Credit Card Forgery - A criminal act involving the illegitimate use of credit cards to obtain goods or money. Limited coverage for such losses is automatically provided in most homeowners policies. Crime Insurance - A broad category covering loss of property through criminal activity — from employee dishonesty to burglary and robbery, computer fraud, and forgery. Crop Insurance - Insurance covering growing crops against hail, wind, and fire. Protection against a broader range of perils can often be arranged as well.

Daily - The document—now more commonly found in electronic than in paper form — that provides insurer and agent with a quick reference to all pertinent information relative to a contract of insurance: insured’s identification, location, coverage, term, premium, and so on. Sometimes referred to as a "daily report." Data Processing Insurance - Coverage for electronic media, computers, and other electronic data processing equipment.




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Deadheading - A trucking term that means the driving of a tractor-trailer that is empty, usually on the return trip from delivering goods. A special trucking endorsement, Truckers Insurance for Non-Trucking Use, may be necessary when deadheading. Debris Removal Clause - A consequential coverage commonly included in direct loss policies. For example, fire policies provide limited recovery for the insured’s cost of removing the debris after a covered fire. Not to be confused with removal. Declarations page - That part of a property or liability insurance policy that discloses information pertinent to the coverage promised including names, addresses, limits, locations, term, premium, forms, and so on. The same information, perhaps in a shorthand version, is contained as well in the daily. Deductible - The part of the loss that is to be borne by the insured. Demolition Insurance - When a building is damaged beyond a certain point, say 50% destroyed, local building codes may direct that the structure be razed. Insurance to cover this exposure (and the lost value of the undamaged but newly razed part) can and clearly should be arranged whenever it exists. Increased cost of construction coverage to meet current building codes should be provided as well. Dependent Properties, see Business Income, Dependent Properties. Deposit Premium - When the price of insurance is tied to fluctuating values or costs that cannot be known until the end of the policy period, inventory or payroll are two common examples, a deposit or provisional premium or estimated premium may be charged at the outset of a policy with final adjustment to come at the end of the term. Depositor’s Forgery Insurance - Coverage against loss due to forged checks, notes, etc. Limited coverage is automatically included in homeowners contracts. Commercial establishments can purchase crime coverage with this feature. Depreciation - As property ages and becomes worn it often loses value. That loss of value must be taken into account in any adjustment of property insurance that covers loss of actual cash value. Difference In Conditions (DIC) - Property insurance obtained through the excess and surplus lines market to supplement and expand on the property coverage available through admitted markets. DIC has been called the "property umbrella" policy. Direct Damage - Physical damage caused to property by a peril such as fire or lightning. Direct Loss - The immediate consequence of the action of an insured peril. A fire-damaged structure is a "direct loss" by fire. In contrast, see Consequential loss. Direct Premiums - Premiums collected from policyholders before premiums for reinsurance are paid. Direct Writer - An insurer that sells coverage directly via its own employees. Contrast with independent agent.




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Directors and Officers Liability Insurance - A form of errors and omissions insurance covering the directors and officers of corporations against suits alleging they committed wrongful act(s). Discovery Period - The period of time, commonly one year, after the termination of a surety bond during which covered loss may be discovered, reported, and covered. Dishonesty, Disappearance, and Destruction ("3-D") Policy - The name once applied to a form used for comprehensive crime coverage. Now known as ISO Form C. Dram Shop Laws - State laws pertaining to selling and serving alcoholic beverages and the public liability these activities may entail. Also called alcoholic beverage control (ABC) laws. Dram Shop Liability Insurance, see Liquor Liability Insurance. Drive Other Car (DOC) Endorsement - A business auto or garage policy endorsement providing coverage for named individuals while driving non-owned autos in situations unrelated to the business of the insured.

Druggists Liability Insurance - A form of professional liability insurance for druggists. Duty to Defend - Part of the insuring agreement of many policies. The insurer has the duty to defend the insured in event of a covered loss. Dwelling Forms - Forms for coverage of dwellings and personal property that are not eligible for homeowners coverage. Tenant occupied rental properties are commonly insured under these forms.

e-Business - The transaction of business by way of electronic media, such as telephones, fax machines, computers, and video-teleconferencing equipment. This generally is broader than e-commerce although some may view e-business and e-commerce as interchangeable terms. e-Commerce - The buying and selling of goods by way of electronic media, such as telephones, fax machines, computers, and video-teleconferencing equipment. Earned Premium - Portion of a premium for which the insurer has already provided protection. Earnings Insurance - A simplified form of insurance covering business income loss, limited to a set percentage of the policy’s total amount for recovery of proved loss for each 30-day period. Earth Movement - Subject to an exclusion in property policies, this peril includes earthquake, landslide, mudflow, etc. Effective Date - The date shown in the declarations of a policy upon which coverage is to take effect.




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Employee Dishonesty Coverage - Insurance protecting employers from loss due to theft by their employees. Employers Liability Insurance - A feature of standard workers compensation policies, this coverage applies to liability that may be imposed on an employer outside the provisions of a workers compensation law. Employers Non-Ownership Liability - Employers who buy commercial auto coverage on a basis other than "any auto" have this exposure whenever an employee uses his or her own auto on the employer’s behalf. Employment Practices Liability Insurance - Coverage against allegations of illegal or discriminatory hiring and firing practices, sexual harassment of employees, and so on. Endorsement - An amendment to a policy form.

Enterprise-Wide Risk Management - An effort to categorize, measure, and treat all types of risk that may adversely affect a business. It includes both traditional hazard risks and other business risks, such as risks posed by competitors, by economic developments, and natural conditions the business cannot control, and by general operations. Environmental Impairment Liability Insurance, see Pollution Liability Insurance. Equipment Floater, see Floater. ERISA - An acronym standing for the 1974 Employee Retirement Income Security Act which regulates certain employee benefit plans. Errors and Omissions Coverage - A type of professional liability insurance, protecting the insured against claims alleging bodily injury or property damage caused by the professional or technical incompetence of the insured. Estimated Premium, see Deposit Premium. Estoppel - The legal doctrine that a party may be precluded from denying that certain rights exist if, by behavior or implication that such rights did, in fact, exist, another party has acted upon this information to his or her detriment. Exgratia Payment - A payment by an insurer to an insured for which there is no contractual liability. Such payments are sometimes made as a goodwill gesture if there is the possibility of a misunderstanding or a mistake. Examination Under Oath - Found in the conditions section of many insurance policies, the insurer’s right to examine an insured under oath following a loss. Excess Insurance - Coverage that applies on top of underlying insurance that is primary, i.e., that pays until its coverage limit is exhausted at which point the excess coverage takes over.




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Excess or Surplus Lines Market - The range of insurance available through non-admitted insurers, i.e., insurance companies that are not licensed in a particular state or territory. Specific provisions of state or territorial law control placements. Exclusive Agency System, see Captive Agent. Expense Ratio - The dollar amount that represents acquisition and service costs, expressed as a percentage of written premium. Experience - A record of losses. Experience Modification - The raising or lowering of premiums under terms of an experience-rating plan. Experience Rating - A method of rating that uses past experience to establish current rates. Explosion - An extended coverage peril and currently a covered peril in nearly every policy of property insurance. The peril remains distinct from steam boiler explosion, which is covered by boiler & machinery insurance. Extended Coverage - An early and indivisible "package" of property insurance perils said to have been devised to make possible the spread of windstorm insurance beyond the highly exposed coastal and plains states. For those whose exposure to windstorm was less, "extended coverage" also encompassed smoke damage, hail, riot and civil commotion, aircraft and vehicle damage, and explosion insurance. Included here for historic purposes only since the term, "extended coverage," is no longer in general use. Extended Non-Owner Liability - A personal auto policy endorsement that provides broader liability coverage for specifically named individuals. When attached, it covers: (1) non-owned autos furnished for the regular use of an insured; (2) use of vehicles to carry persons or property for a fee; and (3) broader coverage for business use of vehicles. Extended Period of Indemnity - A time for recovery of proved business income loss after physical property is restored and business reopened. The 30-day extension included in many business income forms may be extended by endorsement. Extended Recovery Period, see Extended Period of Indemnity. Extended Reporting Period, see Claims-Made Coverage. Extra Expense Insurance - Depending on an insured’s requirements, this coverage may be purchased as a supplement to business income insurance, applying to expediting expenses that aid in quickly restoring the insured’s operations after a covered loss; or it can be the primary coverage sustaining the extra cost of continuing doing business for those insureds who would find it extremely damaging to fail to meet customer commitments, e.g., newspapers, dairies, etc.




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Factory Mutual - A mutual insurance company insuring only properties that meet high underwriting standards. The typical risk is fire-resistive construction with a central station alarm. Facultative Reinsurance - A separate reinsurance agreement that is negotiated for a particular risk or insurance policy. Fair Credit Reporting Act - Public Law 91-508 requires that an insurer tell an applicant if a consumer report may be requested. The applicant must also be told the scope of the possible investigation. Should the application be declined because of information contained in that report, the applicant must be given the name and address of the reporting agency. The insurer may not reveal the contents of the report. Only the agency that compiled the report may release its contents.

FAIR Plan - An acronym for Fair Access to Insurance Requirements, these plans have been established in many states to make fire and extended coverage (and homeowners in some states) available in areas otherwise not addressed by the voluntary market. Fair Rental Value - An amount payable to an insured homeowner for loss of rental income due to damage that makes the premises uninhabitable. Farmowners-Ranchowners Policy - A "homeowners" type package policy adapted to include farm and ranch exposures. FEMA - Federal Emergency Management Agency. This agency administers the National Flood Insurance Program. Fidelity Bond, see Employee Dishonesty Coverage. Fiduciary - A generic term for persons or legal entities such as executors, trustees, and guardians appointed by the court, under a will, or by a trust to manage, control, or dispose of the property of others. Fiduciary Bonds, see Judicial Bonds. Fiduciary Liability Insurance - This insurance covers claims arising from: (1) a breach of the responsibilities or duties imposed on a benefit plan administrator; or (2) a negligent act, error, or omission of the administrator. File and Use Rating Laws - State laws that permit the use of new rates by an insurance company without first obtaining the approval of that state’s insurance department. Financial Responsibility Clause - The clause in an auto policy stating that, when the policy is certified as future proof of financial responsibility, then the policy will comply with the financial responsibility laws to the extent required. Financial Responsibility Law - When applied to automobile operations, this term signifies the minimum statutory limits of an operators responsibility for bodily injury and property damage caused by negligent operation of the vehicle. Fine Arts Floater, see Floater.




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Fire - Combustion evidenced by a flame or glow. Insurance distinguishes between a "hostile" fire (one out of bounds) and "friendly" fire (such as that contained within the firebox of a stove). Fire Department Service Charge - A fee that may be imposed by a fire department for responding to a call. Most fire coverage agreements include indemnification provisions for such eventualities.

Fire Legal Liability - Public liability policies routinely exclude coverage for damage to property in an insured’s care, custody, or control. This leaves a big gap in a tenant’s coverage, a gap partially filled by an exception in the commercial general liability policy that restores limited coverage for fire damage to the landlord’s building. Perhaps the best benefit of the exception is to call attention to the exposure so arrangements can be made for broader coverage at appropriate limits. Fire Mark - An insignia, attached to the outside of a house, that represented the insurer of the house. First Named Insured - An insurance policy may have more than one party named as insured. In such cases, the first named insured attends to policy "housekeeping," i.e., pays premiums, initiates (or receive notice of) cancellation, or calls for interim changes in the contract. This is spelled out in commercial policies in the "common policy conditions." Fixtures - Generally, something tangible that is fixed or attached, as to a building, so that it becomes an appendage or structural part. Flat Cancellation, see Cancellation. Fleet Policy - Written for a risk that has five or more vehicles. Flesch Test - A method to determine the degree of ease or difficulty for reading material. It counts not only the number of words in a sentence, but also the number of syllables in each word. Some states require that insurance con-tracts be written so that they have a certain readability level (often, 8th grade). Floater - An inland marine form covering movable property wherever located within territorial limits. Flood - A general and temporary condition of partial or complete inundation of dry land caused by the overflow of the natural boundaries of a body of water or the unusual and rapid accumulation of surface water runoff. Some insurance policies that include flood as a covered peril only insure against damage caused by overflow of the natural boundaries of a body of water, but other policies also may insure against surface water losses. Flood Insurance - Flood insurance, like earthquake coverage, is usually only of interest to those relatively few whose property is exposed. Consequently, losses among this small group will be high and premiums can be prohibitive. However, in 1968 the Federal government stepped in to help property owners in designated "flood plains" with the National Flood Insurance Act of 1968. Coverage is not only available, but may even be required to obtain financing for exposed properties.




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Flood Insurance Rate Map (FIRM) - Provided by FEMA (Federal Emergency Management Agency), this map delineates base flood elevations and flood risk zones, and is used for rating purposes for flood insurance.

Forgery or Alteration Coverage - This type of insurance covers loss sustained through forgery or alteration of outgoing negotiable instruments made or drawn by the insured; drawn on the insured’s account(s); or made or drawn by someone acting as the insured’s agent. This includes loss caused by any of the following: (1) Checks or drafts made or drawn in the insured’s name, payable to a fictitious entity; (2) Checks or drafts, including payroll checks, executed through forged endorsements; and (3) Alteration of the amount of a check or draft. Form - The central document or documents of an insurance contract. Forms may be altered by endorsement. Fraud - The intentional perversion of the truth in order to mislead someone into parting with something of value. Friendly Fire, See Fire. Fronting - The practice, in reinsurance, of the ceding company retaining only a small portion of a risk and ceding the remainder to a reinsurer. Functional Replacement Cost - The cost to repair or replace damaged property with materials that are functionally the equivalent of the damaged or destroyed property. For example: replacing a solid mahogany banister with a pine banister. Fur Floater, see Floater. Furriers Customers Insurance, see Bailees floater. Gap Coverage - Insurance for a lessee designed to cover the difference in selling price between a vehicle’s actual cash value, and the payout left on a lease. Garage Policy - One of the early package policies, it is written for automobile dealers and may include liability insurance for garage operations, automobile operations, physical damage coverage on garage owned autos, bailees coverage on customers cars, and auto and premises medical payments coverage. Garagekeepers Liability - A bailee coverage applying to automobiles. Commonly included in garage policies, it may be written to provide coverage for limited perils or for comprehensive physical damage, with or without collision damage coverage. Coverage may be expressed as covering the legal liability of the garagekeeper or amended to cover on a direct basis, as primary insurance or excess. General Liability Insurance, see Commercial general liability. Glass Insurance - Commercial property form that covers plate glass, glass signs, lettering, etc. Gross Earnings Coverage - An outdated term for business income coverage.




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Guarantee Funds - State mandated funds collected from licensed insurers and maintained as backup protection for policyholders of bankrupt insurers. Guiding Principles - Suggested procedures for establishing primacy of coverage in s ituations involving loss under a variety of coverage forms and, perhaps, more than one interested party. Last promulgated in the 1960s, the spirit of the principles survives because insurers apparently find that the prescribed procedures commonly lead to equitable settlements for all parties.

Hangarkeepers Legal Liability - A bailee coverage for those charged with the care of aircraft owned by their customers. Hard Market - A condition of the insurance marketplace in which insurance is difficult to obtain, and relatively expensive. Hazard - Generally, a condition that increases the possibility of loss. Hazardous Waste - Term generally used to refer to pollutants or contaminant’s which result from industrial processing and must be disposed. Highly Protected Risk (HPR)- A building meeting certain standards of fire protection, which is therefore eligible for a reduced rate. Hired Auto - A non-owned auto that may be borrowed as well as rented or leased by the insured. Personal auto policy insureds are covered automatically for hired autos, but business auto policy insureds may not be. Hold Harmless Agreement - A contractual assumption by one party of the liability exposure of another. Lease agreements, for example, commonly require the tenant to hold the landlord harmless for bodily injury or property damage experienced by others on the premises. Hole-In-One Insurance - Coverage designed for amateur golf tournaments in which there is a substantial cash prize for anyone making a hole-in-one. Holistic risk management - See Enterprise-wide risk management. Homeowners Insurance - An early and hugely successful example of "packaged" property and liability insurance. A mid-twentieth century insurance development was introduction of the so-called "multi-line era" in which insurers became empowered to write both property and liability forms of insurance, making way for the first packaging of these coverages within a single policy. Host Liquor Liability - Part of the CGL, this covers the incidental serving of alcohol by an insured who is not in the business of serving alcohol. Hostile Fire, see Fire. HPR - See Highly protected risk. Housekeeping - A generalized term that refers to the overall care, cleanliness, and maintenance of an insured’s property.




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Hull Insurance - Ocean marine insurance covering physical damage to the ship or vessel insured. Usually, written on an "all-risks" basis. Impaired Property - A liability exclusion relating to the insured’s faulty products or work that results in an "impairment" to the property to which it is attached assuming the insured can salvage the situation by replacing the property or redoing the work. Improvements and Betterments - Anything that adds to the value of property. Commonly used to describe a tenant’s use interest in fixtures added to the landlord’s building. May also refer to permanent changes made by a condominium unit-owner to his/her unit, such as the addition of new kitchen cabinets. Increased Cost of Construction - A damaged building may have to be upgraded to be repaired under building codes in force at the time of reconstruction. Building owners in such situations need guidance in buying insurance to cover this added exposure. Incurred Losses - The value of claim payments plus reserves. Indemnity - A fundamental concept governing insurance: compensation for loss or injury sustained. Independent Adjuster - An individual or member of a firm who contracts with insurers to investigate claims and suggest appropriate settlements. Contrast with Public adjuster. Independent Agent - A "retailer" of insurance who, by contractual arrangement with a number of insurance companies, sells and services property and liability insurance. The independent agent "owns" the policy information and expiration dates of his client’s coverage and thus controls renewals and their placement. Independent Insurance Agents of America (IIAA) - An association of insurance agents who are independent contractors, and represent one or more insurers. Sometimes referred to as the "Big I." Indirect Damage - Sometimes referred to as indirect loss, this is loss resulting from a peril, but not directly caused by that peril. An example is fire damaging a freezer (direct damage), with resultant food spoilage (indirect damage). Inflation Guard Endorsement - An endorsement attached to an insurance policy whereby the limits of liability on a piece of property are increased on a regular basis by a certain percentage in order to offset increasing building costs associated with inflation. Inherent Vice - A flaw in an item of property that will, in time, reveal itself and show the property as damaged. Property insurance does not normally cover such damage. Inland Marine Insurance - Property insurance signaling broad coverage of properties exposed to the transportation peril and those subject to being used or kept at a location other than the insured’s customary premises. Eligible property is identified in the Nationwide Definition of Marine Insurance. Innkeepers Legal Liability - A bailee coverage purchased by innkeepers to cover the property of their guests.




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Insolvency Fund - See Guarantee Funds. Inspection Report - A report prepared for an insurer by an outside organization. It provides information about an applicant’s or insured’s physical, financial, and moral attributes. Insurable Interest - The potential for financial loss associated with damage or destruction of property. Insurable Risk - The exposure to significant, measurable accidental loss from identifiable perils. The exposure, while not catastrophic, must be shared by a sufficient number of potential insureds so that the cost of loss for one can be measured and affordably shared throughout the market. Insurance - A mechanism whereby risk of financial loss is transferred from an individual, company, organization, or other entity to an insurance company. Insurance Contract - A legal document defining circumstances under which the insurer will pay, and the amount to be paid. Also see Insurance policy. Insurance Exchange - See Reciprocal Exchange. Insurance Institute for Highway Safety - A not-for-profit research organization, well known for its auto "crash tests." Insurance Policy - The document containing the contract between the insured and the insurer which defines the rights and duties of the contracting parties. Insurance Services Office (ISO) - An organization providing statistical information, actuarial analysis, policy language, and related services for the insurance industry. Insurance to Value - The concept of purchasing sufficient insurance coverage so as to closely approximate the value of the property being insured. Insured - The party or parties whose interests are covered in a non-life insurance contract. The less common term Assured is sometimes used synonymously. Insuring Agreement - In an insurance contract, the insurer’s promise to pay. Integrated Risk Financing - A type of risk financing designed to provide integrated protection against catastrophic losses. It may incorporate both traditional and non-traditional types of exposures, or it may include only traditional property and casualty risks. Interline Endorsements - Commercial endorsements that apply, or could apply, to more than one coverage as part of a package policy.

Jacket - The cover of an insurance policy; it usually contains the name of the insurer, its address, etc. Jettison - Act of throwing overboard part of a vessels cargo or hull in hopes of saving a ship from sinking.




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Jewelers block insurance - A policy especially designed for jewelers, it offers a combination of coverages protecting against risks of physical loss to property at the jeweler’s premises, property in transit, or customers’ property in the insured’s care. Jewelry Floater, see Floater. Joint and Several Liability - A legal doctrine whereby a creditor or claimant may demand payment or sue one or more of the parties separately, or all of them together. Joint Underwriting Association (JUA) - These are insurance pools representing all insurers in a state. A few "servicing carriers" act on behalf of all the insurers, issuing policies, receiving fees, and handling claims. They are reimbursed for losses, and receive fees from the JUA to cover operating costs. Joint Venture - A venture in which two businesses join together to share risk or expertise on a specific project or group of projects. Jones Act - The Federal act through which maritime workers are provided workers compensation coverage (which ordinarily responds to the mandates of particular states). Judicial Bonds - Two types of bonds available to guarantee faithful performance of court appointed duties. Fiduciary bonds guarantee the faithful performance of persons entrusted by the courts in the management, conservation, and disposition of property. Litigation bonds (or "court bonds") are required in court actions. Bail bonds and appeals bonds are litigation bonds; where the bond amount is forfeited if the bonded person disappears or the appeal is lost. Jumbo Risk - A policy of insurance written with exceptionally high limits

Keeton-O’Connell, see No fault Auto Insurance. Key Employee Insurance - Life insurance written on the life of an organization’s officer or other key employee, the loss of whom would cause the organization financial hardship. Kidnap-Ransom Insurance - A specialty coverage offered in the surplus and excess lines markets that responds to ransom demands for recovery of kidnap victims.

Lapse - Termination of a policy because of failure to pay the premium. Larceny - The unlawful taking of personal property of another. Latent Defect - A hidden flaw that will, in time, cause property damage that is uninsurable. Such damage is uninsurable because the element of chance is no longer present. Law of Large Numbers - An underlying principle of insurance; the larger the number of participants in a given arrangement, the more accurate the rate is to the exposure. Leased Worker - A worker leased from another organization on a long-term basis.




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Leasehold Interest Insurance - The insurable interest is that of a tenant who has some years remaining under a favorable lease that is subject to termination upon significant damage to the leased property. Legal Liability - Liability imposed by law; this includes liability based on negligence, strict liability, or contractual liability. Libel - Written defamation of another’s reputation. Liberalization Clause - A feature of property policies that promises that any future change in the company’s form that would broaden coverage with no change in premium will automatically apply under the policy currently in force. License and Permit Bonds - Suretyship guaranteeing that the principal will abide by the rules and obligations imposed by licensing laws or ordinances. For example, an electrician may have to post such a bond guaranteeing compliance with building codes before being licensed by a municipality. Limited Partnership - A form of partnership that consists of one or more general partners, who actively engage in the business, and one of more special partners, who are not liable for the debts of the partnership beyond their initial financial contribution. Commercial insurance policies usually differentiate in the "Who Is Insured" section between corporations, partnerships, and other business models. Therefore, the type of model being insured is important. Liquor liability insurance - Liability coverage for owners and operators of establishments selling or serving alcoholic beverages. Litigation bonds, see Judicial bonds. Livery Use - An exclusion in automobile liability policies applying to the use of autos to carry persons for hire as in a taxi service. A share-the-ride car pool is not "livery use." Livestock Insurance - Life insurance on livestock covering death by named perils. Lloyd’s of London - An association of individuals, called "names," or groups of individuals who write insurance for their own accounts. Lloyd’s had its be-ginning in 17th century London in Edward Lloyd’s coffee house. Loading and Unloading Exclusion - A feature of commercial general liability (CGL) policies intended to separate that coverage from the automobile exposure. The CGL coverage ends at the point where an item is picked up for loading onto an auto and resumes at the point where the item is deposited upon unloading. Longshore and Harbor Worker’s Act - A Federal law that specifies compensation amounts for injured longshore and harbor workers. Formerly referred to as the Longshoremen’s and Harbor Workers Act. Loss - An unintentional decline or disappearance in value arising from an event.




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Loss Adjustment Expenses - Payments by an insurer for the investigation and settling of claims. They include the cost of defending a lawsuit in court. Loss assessment coverage - Insurance responding to property or liability loss of a property owners association that are not covered by the associations master policy. Loss Control - Actions to reduce the frequency or severity of losses. Installing locks, burglar or fire alarms and sprinkler systems are loss control techniques. Loss Costs - Loss data that has been modified by insurance advisory organizations by necessary loss development, trending, and credibility processes in order to arrive at the statistical cost of losses to be used in establishing a premium rate. Loss Development - An actuarial method to detect and correct for consistent errors in estimating the amount of future loss payments or the procedure for adjusting incurred losses to reflect their future development and ultimate value. Loss development factors are developed actuarially and applied to cur-rent losses in order to predict what the ultimate cost of losses will be when the claims are closed. Loss Expectancy - The underwriter’s calculation of probable maximum loss. Loss Experience - What the loss history has been on a particular line or book of business. Loss Exposure - A set of circumstances presenting the possibility of loss, whether or not the loss actually occurs. Loss Frequency - How often a loss occurs over a given space of time. Loss Limit - Commonly used in financial institution bonds, a loss limit is the aggregate amount that will be paid out under the coverage during the policy term. Loss limits also may be used when insuring large property risks where the exposures are spread out geographically. In this type of situation, it is unlikely that all property would be damaged by a single occurrence. Therefore, the amount of insurance may be set at a "loss limit" per each covered occurrence. Loss of Use Insurance - See Additional Living Expense Insurance. Loss Payable Clause - A property policy provision that, at the request of the named insured, stipulates that claims tied to losses of certain property will be paid to both the named insured and the party named in the subject clause. Loss Prevention - Refers to engineering or inspection activities carried out to prevent losses in the workplace.

Loss Ratio - The ratio of incurred losses including loss adjustment expenses to earned premiums. Loss Payout Pattern - Losses often are paid over a period of years, especially in casualty lines of insurance. The payout pattern illustrates the way that claims are paid out from the time they are filed until they are closed.




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Loss Trending - A method to modify developed losses for changes that will occur in the future. Trend factors are used by rate makers to adjust past losses to more accurately reflect the loss experience expected to develop while the rates are being used. Loss Triangle - Used to show how losses develop, a loss triangle is a chart that lists losses by line and by year. It shows the value of each set of annual losses at the end of subsequent 12-month periods. Lost Policy Release - A means whereby an insured may cancel a policy by signing a statement to the effect that, since his or her policy has been lost, he cannot return it to the insurer to effect cancellation, but still wishes to cancel the policy.

MCS-90 - This is the "Endorsement for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980." The endorsement assures that the trucker is using insurance to comply with the financial responsibility requirements of the act. Maintenance Bond - Guarantees that faulty work or defective materials charged to the bond principals will be corrected or replaced. A maintenance bond may be included among the terms of a performance bond. Malicious Mischief, see Vandalism. Malpractice, see Professional Liability. Managing General Agent (MGA) - An agent standing between an insurer and other agents. The MGA sells to retail agents, who then sell to the consumer. MGAs often are said to have the "pen" because they are given the authority to accept, underwrite, and price submissions received from retail agents. Manufacturers and Contractors Liability (M&C) - The premises and operations liability exposures of manufacturers and contractors covering third parties for bodily injury or property damage negligently inflicted in the course of daily activities. Manufacturers Output Policy (MOP) - Policy originally designed to cover property of a manufacturer being processed at another company; it covers personal property away from the premises on an open perils basis. Manufacturers Selling Price Clause - Clause stating that finished goods are valued for insurance purposes at their selling price rather than their cost of manufacture. Manuscript Policy - An insurance policy covering property or liability exposures (or both) that is uniquely assembled from standard or specially created forms to suit the needs of an insured. Marine Insurance - Insurance primarily concerned with transportation exposures and property that is commonly moved around from place to place. In America, the field is divided between Inland marine and Ocean marine.




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Maritime Coverage - Crew members of vessels are subject to Admiralty Law and may sue their employers for work-related injuries because state workers compensation laws do not apply to them. Therefore, special coverage must be purchased for this exposure. Market Value - The price at which insured property could have been sold just prior to its loss or damage. Along with "cost new minus use deprecation," market value is but another gauge used to determine the loss settlement to which an insured is entitled. The insured may choose the gauge that produces the most favorable outcome. Market Value Appraisal - An appraisal to determine the market value of a building and related personal property. McCarran-Ferguson Act - Passed by Congress in 1945, this act states that regulation and taxation of insurance by the states is in the public interest, and that congressional silence should not be construed as a barrier to state regulation. Medical Malpractice - Type of insurance protecting physicians, surgeons, nurses, and other medical practitioners against claims alleging failure to perform. Medical Payments Insurance - A coverage found in auto and liability policies that pays medical expenses to injured persons without regard to liability. Merit Rating - A form of auto rating in which an insured’s past experience as well as anticipated experience is taken into account when arriving at a rate. Minimum Premium - An insurer’s lowest charge for an insurance policy. Misrepresentation - Generally, misstatement of facts made on an application for insurance. May also be misstatement of coverage made by an agent to an insured. Mobile Equipment - Included for coverage under the commercial general liability form, this term relates to land vehicles used in ways that take them out of an explicit "automobile liability" exposure (e.g., vehicles used only on the insured premises, to carry certain permanently attached equipment, that are not required to be registered, or are designed for solely for off-road use). Model Bill - A bill drawn up for insurance regulatory purposes by the National Association of Insurance Commissioners, with the recommendation that it be implemented by the states. Monoline Policy - An insurance policy covering one subject of insurance, as opposed to a combination or multiline policy. Monopolistic State Fund - Five states have their own system for providing reparations to injured employees eligible under the state’s workers compensation act. Private insurance companies may not compete. The states are North Dakota, Ohio, Washington, West Virginia, and Wyoming.




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Moral Hazard - As "physical hazard" relates to susceptibility to fire or wind, the term "moral hazard" relates to susceptibility to loss through moral lapse of the owner (e.g., "Burn the house down and collect from the insurance company before losing it in a foreclosure to the finance company."). Morale Hazard - The term "morale hazard" addresses the issue of an apathetic insured (e.g., "It’s insured, let it burn.") Mortgage Holders Clause - A standard property policy provision that creates elements of a separate contract between a mortgage company and an insurance company. Any loss to building or structures will be paid to the mortgage company and insured jointly and any act of the insured voiding coverage will not affect the mortgage holder without it first being given an opportunity to com-ply with the insurer’s needs. Motor Carrier Act of 1980 - A federal law that de-regulated the United States trucking industry and transferred the enforcement of financial responsibility requirements for truckers to the Bureau of Motor Carrier Safety, U.S. Department of Transportation. Insurance is one method of complying with the financial responsibility requirements. Motor Truck Cargo Policy - Two forms of inland marine coverage are associated with this title, one for carriers and one for owners. As a carrier, the insured is protected for legal liability relating to property of others in the course of transport. As an owner, the insured is protected for in-transit damage to its own property. Motor Vehicle Record (MVR) - An official record of a driver’s accidents and traffic violations kept by the licensing state(s). Often used to determine eligibility and/or premiums for auto insurance. Multi-Line Era - During the first half of the twentieth century, insurers were licensed to write property insurance or liability insurance but not both. Two insurers were needed to write automobile liability and physical damage insurance, for example, in a contrivance called a "combination policy." Not long after World War II, states began licensing insurers to write both forms of insurance introducing what was then called the "multi-line era." Mutual Insurance Company - A cooperative insurance company organized and owned by its insureds. Mysterious Disappearance - A named peril in some forms. Either theft or unexplained disappearance of covered property from a known location may activate coverage.

Named Insured - The party or parties specifically named as insured in the insurance contract. Others may have claim on the coverage of a policy by way of internal provisions, but any such right is by way of the agreement between the named insured and the insurance company. Named Non-Owner Policy - Issued to someone who does not own an automobile, but who drives borrowed or rented autos. Named Perils - A formal and specific listing of perils covered in a policy providing property insurance. A policy covering for damage by fire is said to cover for "the named peril" of fire.




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National Association of Insurance Commissioners (NAIC) - An association of insurance commissioners and superintendents formed to share information and develop common laws and procedures for insurance regulatory purposes. National Association of Insurance Women (NAIW) - An association of women (and men) in the insurance industry who have achieved the designation of Certified Professional Insurance Woman (CPIW) or CPIM. National Association of Professional Surplus Lines Offices (NAPSLO) - Trade association of and providing services to surplus and excess lines agents and brokers. National Council on Compensation Insurance (NCCI) - National association that collects, tabulates, and provides data used in formulating rates for workers compensation insurance. National Flood Insurance Program (NFIP) - A federal program through which per-sons with property located in predefined flood plains can obtain flood coverage. See Flood insurance. Nationwide Definition of Marine Insurance - A document published by the National Association of Insurance Commissioners that was rooted in an older (1933) definition of "...Insuring Powers of Marine and Transportation Underwriters". In general, the "definition" specifies property that may be insured under marine contracts such as property in inland transport and property regularly or routinely in transit, e.g., contractors equipment. Negligence - Action or failure to act that is outside the realm of what would be considered appropriate by ordinary, reasonably prudent persons. Net Loss - The amount of a loss, after deductions for salvage, other insurance, and any subrogation that an insurer is responsible for. Net Premium - Premium less expense, such as commission. New York Standard Fire Policy - Once the benchmark of property policies, it was adopted for use in all but a handful of states. The familiar provisions of its 165-Numbered-Lines, e.g., cancellation, mortgagee, appraisal clauses, etc., survive in Insurance Service Office property policies as well as in independently produced forms. No Benefit To Bailee - A clause in inland marine forms that prevents a person in the possession of property of others from benefiting from any insurance the owner has on the property . No-Fault Auto Insurance - A few states have laws that partially exempt drivers from legal liability for auto accidents. In these "no fault" states car owners buy insurance to protect themselves and their passengers from the economic and medical effects of auto accidents in addition to liability insurance at whatever limit the statute decrees. Professors Robert Keeton and Jeffrey O’Connell gave the "no fault" notion impetus with the 1967 publication of their study "After Cars Crash."




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NOC - Underwriter’s shorthand derived from general liability and workers compensation rating tables that stands for "not otherwise classified" meaning no more specific classification is available — as in "Clerical Office Employees NOC." Nonadmitted Insurers, see Excess or Surplus Lines Market. Non-Owned Auto - This term signifies an auto that is neither owned, hired, nor borrowed by the insured under a commercial auto policy. Employees’ cars used in company business are commonly classified this way. The employer’s auto liability cover for use of non-owned autos is covered by entry of symbol 1 ("any auto") or symbol 9 ("non-owned autos") on the declarations page. Nonresident Agent - An agent who does not reside in the state in which he or she is licensed. Nose Coverage - This is the opposite of Tail coverage, although it fulfills the same need. Nose coverage most commonly provides prior acts coverage for insureds who are moving from a claims-made coverage form to an occurrence coverage form. It is provided by the replacement policy. Notice of Loss - Notice the insured provides to the insurer that a loss has occurred. Nuclear Energy Insurance Pools - Any of the insurance pools designed to pro-vide property and/or liability coverage for organizations that handle substantial quantities of nuclear material. Nuisance Value - The amount for which an insurance company will settle a claim - not because it is a valid claim but, because the company considers.

Object, see Boiler & Machinery Insurance. Obligee - A term used in surety bonds to refer to the individual or firm that is to benefit from the bonds protection. A performance bond, for example, provides the obligee property owner with recourse if the bonded contractor, the principal, fails to perform. Obligor - A term used in surety bonds to refer to the individual or firm bound by an obligation. Also known as the "principal." Occupancy - In general, a condition affecting the desirability of property policies. Occupational Safety and Health Act (OSHA) - Passed in 1970, this law promulgated strict work-safety regulations, and set up the mechanism to enforce these rules through fines for violations, and closure of unsafe plants. Occurrence - In general, an event that triggers coverage under any policy. Specifically, an event that triggers coverage under an occurrence-based liability policy. Such a policy covers injury or damage that occurs during the policy period even if claim is brought months or even years after the policy has expired - see Claims-made for the alternate arrangement. Also see Accident.




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Ocean Marine - Insurance coverage for vessels and property in ocean shipping. "River marine" is the term referring coverage for inland shipments on water. "Motor truck cargo" refers to coverage for property transported over highways. Off Premises Cover - Commercial property policies commonly establish a small coverage limit that applies to property temporarily away from the insured’s place of business. Omnibus Clause - An agreement in most automobile liability policies and some others that extends the definition to include to others without the needing to name them. An example would be a policy that covers the named insured and "those residing with him." Open Perils - Property coverage that applies to risks of loss on a general basis, in contrast with policies that cover for specifically identified perils — see Named perils. The old term for open perils was "all risks." Open Rating - A state rating system that allows the insurer to use rates without prior approval. Also referred to as "open competition." Operating Ratio - The sum of the combined ratio plus investment income. Ordinance or Law Coverage - This insurance responds to property loss or damage necessitating repair, demolition, or rebuilding in accordance with current building codes. Ordinary Payroll - Payroll allotted to employees whose services could be curtailed in event of a long-term shutdown of a business without a harmful effect on reopening. This figure is important in calculating business income insurance exposures. Other than Collision Insurance (Automobile), see Comprehensive Physical Damage (Automobile). Other Insurance - When two or more policies cover the same interests for the same exposures, each policy is said to represent "other insurance" to the other. Most insurance policies contain clauses that specify how or if claims will be paid if other insurance exists for the same exposures. Outer Continental Shelf Lands Act - This act makes the Longshore and Harbor Workers Compensation Act apply to work involving the development of the natural resources of the outer continental shelf. A special endorsement, the Outer Continental Shelf Lands Act Coverage Endorsement, amends workers compensation policies to provide coverage for this exposure. Owners and Contractors Protective (OCP) Liability Coverage Form - Provides coverage for the liability of an owner of land on which a building is being constructed for the acts of the contractor handling the construction. Owners, Landlords, and Tenants legal liability (OL&T), see Premises and operations liability. Ownership of Expirations - Refers to the ability of an independent agent to place a risk with any of the companies that he or she represents. Unless that customer goes to another agent, the current agent "owns" the policy and the right to place it as he/she sees fit.




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Package Policy - Any combination of insuring agreements that combines property and casualty coverages. Homeowners, business owners, and garage policies are examples. Paid Losses - The losses that have been paid for a claim. Pair and Set Clause - Clause that stipulates that partial loss to a pair or set of items will be valued in terms of the lost item, not on the basis of reduced value of the pair or set. Partial Loss - A property loss that is less than a total loss. See Constructive Total Loss. Partnership - A business model in which two or more individuals join together to conduct business and share profit and losses. Commercial insurance policies usually differentiate in the "Who Is Insured" section between corporations, partnerships, and other business models. Therefore, the type of model being insured is important. Pay-at-the-Pump - A device for making sure all motorists are insured; the theory being that premiums for basic liability coverage could be collected through "taxes" at the gasoline pump in a relatively painless manner, thus eliminating the uninsured motorist. Payment Bond - Sometimes also called a "labor and materials bond," this bond guarantees that bills owed by the contractor will be paid as they come due. The agreement may be incorporated into the performance bond. PD - A shorthand expression for "property damage." Peak Season Endorsement - Instead of buying insurance amounts reflecting values at the height of inventory, some enterprises are able to forecast times when values will be at their peak and use this endorsement to increase the amount of insurance during that specific interval. "Pen," The, see Managing General Agent (MGA). Per Occurrence/Per Loss Excess Reinsurance Treaty - An agreement under which losses above a certain dollar amount are ceded to the reinsurer, who is responsible for all losses from any one exposure above this amount up to the reinsurance limit. The retention is expressed as an amount incurred per occurrence. An occurrence may be one hurricane, one flood, or one accident that results in injuries to multiple people. Per Risk Excess Reinsurance Treaty - Similar to a per occurrence/per loss excess treaty except in the matter of the retention. The retention applies separately to each subject of insurance. Performance Bond - A bond that guarantees the property owner (the "obligee") that the contractor with the winning bid on a job will perform as promised and on time. Peril - A potential cause of loss. Perils of the Sea - Somewhat akin to open perils on land, the term refers to any




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potential cause of loss derived from shipment on a seagoing vessel. Period of Restoration - The period of time following a loss that is necessary to restore a business or organization to a pre-loss condition. Personal Articles Floater - Before the advent of packaged forms and broad coverages, households commonly had fire insurance on dwelling and personal property with the possible addition of extended coverage. The personal articles floater is an inland marine form that was used by the affluent for scheduling open perils coverage for various articles and classes of valuable personal property. A homeowners endorsement accomplishes the same thing today and the personal articles floater is no longer widely written. Personal Auto Policy - The form currently promulgated by Insurance Services Office (ISO) for coverage of personal auto liability and physical damage exposures. Personal Injury - Distinguished from "bodily injury," this term relates to injury inflicted by way of false arrest, invasion of privacy, malicious prosecution, and so on. It is written as Coverage B of the commercial general liability forms and as homeowners Coverage E. Personal Injury Protection (PIP) - The section of an auto policy in a no-fault state that responds to physical injury, loss of income, etc., of the insured regardless of fault. Personal Liability Insurance - Insurance for individuals or members of a household offering protection against claims by third parties (outsiders) alleging bodily injury or property damage due to negligence. See also Premises medical payments. Personal Lines - Insurance covering the liability and property damage exposures of private individuals and their households. Contrast with Commercial lines. Personal Property - Term used in insurance to distinguish chattels from real property. Physical Hazard - A hazard that arises from the material, structural, or operational features of the risk itself apart from the persons owning or managing it. Physicians and Surgeons Professional Liability Insurance, see Professional Liability. Plate Glass Coverage - Provides "special" protection, except for the perils of war, nuclear reaction, and fire. (Fire is covered under the building policy.) This coverage is for full replacement cost and covers the expense of repairing frames, installing temporary plates, or boarding up openings. Policy Year - Unique to the insurance business, this is a means of cost accumulation in which the aggregate transactions of all policies becoming effective in a given year determine the financial performance of those policies. Policyholder, see Insured. Policyholders’ Surplus - The amount of money available to an insurer to meet its obligations to its policyholders, after subtracting liabilities.




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Pollution Liability Insurance - Coverage for bodily injury or property damage caused by a "pollution incident." Insurance Services Office has two forms, one limited to on-site clean up of pollution spills. Pool - An organization in which insurers cover certain types of risks as a group and share premiums, expenses and losses. Pools are often used to underwrite larger risks. Portfolio - All of an insurer’s in-force policies and outstanding losses, respecting described segments of its business. Power-of-Attorney - Commonly used in bonding, this document conveys authority for the individual(s) named on it to execute bonds and other legal documents. Premises - Generally, a piece of land with a building or buildings upon it. Premises and Operations Liability - Once known as owners, landlords, and tenants legal liability, or as manufacturers and contractors liability, depending on the business’s activity, the term refers to the liability exposure of business entities to third parties (customers, guests, and passers by) who may become injured or have property damaged through the negligent acts of the business persons, their agents, or employees. Coverage of this exposure is by way of the commercial general liability policy. Contrast with Products and completed operations liability.

Premises and Operations Medical Payments - Bodily injury rather than liability is the trigger for this coverage. Sometimes referred to as "customer good will insurance, " it is a relatively inexpensive addition to the commercial general liability policy and an automatic feature of personal liability protection. Since it responds to injury of customers or guests without regard to fault, it is sometimes effective in heading off a potentially much more serious liability claim against the owner or tenant of the business premises or private residence. Premium - Term for the amount of money the insured pays the insurer to purchase insurance. Pressure Vessel - In boiler and machinery insurance, a type of container designed to hold liquids or gasses under pressure. Types are categorized as fired (such as a boiler) and unfired (such as an oxygen or hydrogen tank). Price-Anderson Act of 1957 - Federal law that requires evidence of financial responsibility for all privately owned nuclear reactors, spent fuel reprocessing plants, and for fuel fabrication plants licensed to process five or more kilograms of plutonium. Primary Insurance - The first policy or coverage to apply. Contrast with Excess Insurance. Principal - Used in suretyship, it refers to the individual whose performance is guaranteed.




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Prior Approval - Indicates that an insurer must have rate or form changes formally approved by the state insurance department before it can use them Private Passenger Automobile - A four wheeled motor vehicle, subject to state registration laws, designed to carry passengers (such as a car, station wagon, SUV, or van) on public roads. Pro Rata Cancellation, see Cancellation. Producer - A term identifying the insurance agent, field rep, or other employee who sells insurance. Product Recall Insurance - Coverage for the costs of recalling a product known, or suspected to be, defective. Products and Completed Operations Liability - The liability exposure of the manufacturer whose malfunctioning products may cause injury or property damage or of the contractor whose failed structures or projects may do the same. Coverage of the exposure is a feature of the commercial general liability policy. The insurance does no t in any way constitute a guarantee of either the insured’s product or work. Contrast with Premesis and operations liability. Professional Insurance Agents (PIA) - Trade association of insurance agents.

Professional Liability - A form of errors and omissions insurance, (sometimes called "malpractice" coverage for errors alleged against those in the healing and legal professions). Arbitrarily it seems, "errors and omissions" is the term applied most often to insurance covering liability for mistakes in matters affecting property, i.e., coverage for "Insurance Agents E&O," "Architects E&O" while "professional liability" is used in reference to coverages such as "Druggists Professional Liability," "Physicians and Surgeons Professional Liability," and "Lawyers Professional Liability." Promulgate - To develop, file, publish, and put into effect insurance rates or forms. Proof of loss - Following a loss, a formal statement given by an insured to the insurer that includes details of the loss such as the original cost of damaged or destroyed property. Pro-Rata or Proportional Reinsurance - A certain portion of every risk is ceded under a proportional agreement. The insurer and reinsurer agree to share a portion of all insurance, premium, and losses in the same amount. The insurer is paid a commission for ceding the risk portion and premium to the reinsurer. Prospect - A potential buyer of an insurance policy or program. Protection and Indemnity (P&I) insurance - The nautical equivalent of bodily injury and property damage liability. Proximate Cause - That event which, in an unbroken sequence, results in direct physical loss under an insurance policy. For example, wind is the proximate cause of loss when a windstorm blows out a window that in turn topples a lit candle that sets fire to a structure and burns it down.




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Public Adjuster - An individual or member of a firm who contracts with private parties to aid with the preparation of loss statements and presentation to insurers. Contrast with Independent adjuster. Public Liability Insurance - General term for any liability coverage for claims brought against the insured by a third party or member of the public. Public Official Bond - A "performance bond" for holders of public office. Punitive Damages - An award for damages above and beyond the requirements for compensating third parties for injury or damage. As the word implies the award is meant to punish the offender. Most states and territories permit punitive damages awards to be covered by liability insurance. Pure Risk - The only consideration is the possibility of loss or no loss, but not making a profit. Contrast with Speculative risk.

Quota Share Reinsurance - A type of pro-rata or proportional reinsurance agreement under which the insurer and reinsurer agree to share a pre-determined portion of all insurance, premium, and losses. The primary insurer’s retention in a quota share agreement is expressed as a percentage of the amount insured.

Railroad Protective Liability - Liability coverage designed to protect a railroad from liability claims arising out of the operations of others on or adjacent to railroad property. Rain Insurance - A weather coverage that indemnifies a promoter or organizer against loss of income because of the cancellation of an outdoor event due to rainfall that exceeds a specified amount during a specified time period. Rate Filing - Documentation filed by an insurer with the state requesting a change in the existing rates. Rating Bureau - A private organization that classifies and promulgates manual rates (or loss costs). Real Property - Land, buildings, and other structures (such as a swimming pool or tool shed). Rebate - In insurance, a portion of an agent’s commission returned to a customer as an inducement to place the insurance through the agent. This practice is illegal in all but two states as against public policy. Reciprocal Exchange - A type of insurance managed by an attorney-in-fact in which members pay premiums, and share in losses equally. Membership is required for insurance. Redlining - Unfair discrimination based not on the risks characteristics but on its location. The term is commonly associated with an insurer’s refusal to consider insuring any home or business within a specific area marked by a line drawn on a map.




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Reinsurance - The business of insuring insurance companies. By "ceding" a portion of its business to a reinsurance company, an insurer spreads the risk of exposure to catastrophic loss. Reinsurer, see Reinsurance. Removal - "Removal" was a provision of the New York Standard Fire Policy in which the insurer agreed to cover the cost of removing covered property from the path of a fire. Presently, property policies express the agreement in terms of "preservation of property" from imminent danger of damage from any covered peril. Not to be confused with Debris removal. Renewal - The extension of the term of coverage of an expired policy, commonly by replacement with another policy effective on the date of expiration of the previous policy. Rent-a-Captive - A specialized form of captive insurance company operation designed for businesses that do not want to own a captive but want to obtain some of the advantages offered by captives. A rent-a-captive is formed by a group of investors and operated as an income-producing business. Insureds who wish to participate "rent" space in the captive instead of setting up and capitalizing their own captive insurance company. Rent Insurance - A form of business interruption insurance for a landlord. It protects building owners against loss of income when the building cannot be rented because of damage from any of the insured perils. It provides income while an insured’s building is untenantable. Rental Value Insurance - Refers to protection of either a landlord’s rental income or an owner occupant’s economic stake in use of the subject structure. Either interested party can obtain coverage by way of an Insurance Services Office business income form. Renters Insurance - Term for insurance for the non-owner occupant of a dwelling or apartment. Replacement Cost, see Actual Cash Value. Replacement Cost Appraisal - An appraisal that determines the amount required to replace an existing structure and related personal property. Replacement Cost Insurance - Covers property — both building and contents — on the basis of full replacement cost without deduction for depreciation on any loss sustained, subject to the terms of the co-insurance clause. Reporting Form - A device for insuring values subject to extensive fluctuation that keeps the premium in line with the actual exposure. A maximum limit is set at policy inception and the insured is charged a "deposit premium." Actual values are then reported, usually on a monthly basis, and earned premium is figured on the basis of those reports and laid off against the deposit premium.




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Reservation of Rights - An arrangement in which an insurer agrees to proceed with the defense of a case without commitment to provide coverage, in the event that the facts disclosed during the trial reveal that the occurrence is not covered. Reserves or Reserved Losses - The value of losses that have been estimated and set up for future payment. Resident Agent - A licensed agent who resides in and is licensed in the state in which business is being written. Residual Markets - Insurance markets established outside the normal insurance marketing channels to cover unusually large or poor risks. Such markets include assigned risk plans, aircraft pools, nuclear pools, and certain government insurance programs. Respondent Superior - A legal term referring to the fact that, under specific circumstances, an employer (or principal) is legally liable for the actions of his or her employees while in the course of their employment.

Retention - Usually used in reinsurance, this is the amount of liability retained by an insurer, and not ceded to a reinsurer. Retroactive Date - The date that defines the extent of coverage in time under claims-made liability policies. Claims resulting from occurrences prior to the policy’s stated retroactive date are excluded. Retrocessionnaire - A reinsurer that contractually accepts a portion of the cedant’s reinsurance risk. The transfer is called a retrocession. Retrospective rating - A rating arrangement in which the final premium for insurance coverage is not determined until all claims are closed. The final premium is determined by the insured’s actual loss experience during the policy period. Rider - Another term for an endorsement attached to a policy that modifies the coverage. Riot - One of the extended coverage perils, related to, but broader than, civil commotion. Risk - Risk is uncertainty concerning loss. Sometimes also used to refer to a piece of business or a submission to an insurer. Risk and Insurance Management Society, Inc. (RIMS) - Trade association of risk managers and insurance buyers. Risk Management - The process of handling pure risk by way of reduction, elimination, or transfer of risk, with the latter commonly achieved through insurance. Risk Manager - The individual in an organization responsible for evaluation of the organization’s exposures, and controlling these exposures through such means as avoidance or transference, as to an insurance company.




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Risk Retention Group - An insurance company chartered under the laws of a state or other U.S. jurisdiction, composed of members whose business activities are similar, and controlled by its members. Rolling Store - A vehicle out of which goods are sold. An example would be a mobile snack bar at a construction site. Insurance policies may contain wording that may restrict or define available coverage for this type of operation. Safe Driver Plan - Merit rating of automobile insurance. In most states drivers are charged with "points" for (moving) traffic violations and auto accidents. These points translate to surcharges on the drivers’ insurance rates. Salvage - When an insurer makes a payment for lost or damaged property, the insurer is entitled to the salvage of that property. Schedule - List of items on a policy declaration, sometimes also showing descriptions and values. Seasonal Risk - A risk that is present only during certain parts of the year. For example: seasonal dwellings such as cottages used for vacations. Self-Insurance - An insurance-like strategy for handling one’s own exposures to loss supported by the financial wherewithal to meet expected losses. Not to be confused with a decision to forego insurance. Self-Insured Retention (SIR) - That portion of pure risk an insured undertakes to handle on his or her own. A deductible is a form of self-insured retention. Selling Price Clause - Applicable to the value of goods which have been damaged or destroyed by an insured peril. This clause insures the profit that would have been earned if the goods had been sold. It sets the insurable value of the property that has been sold, but not delivered, at the amount at which it was sold, less any charges not incurred. Severability - A provision that insurance applies separately to each insured under the policy. Shock Loss - Name given to any large loss that impacts an otherwise profitable book of business. Short Rate Cancellation, see Cancellation. Short Tail - Additional coverage that may be purchased under a claims-made policy that responds to losses that may have occurred during a policy period, but are not reported until after the end of the policy period. Usually available for no longer than a year. Sidetrack Agreement - The contract between a business and a railroad wherein a railroad builds a track onto the business’s property to facilitate shipping, and the business agrees to release the railroad from liability. Sine Qua Non Rule - A legal rule stating that a person’s conduct cannot be held to be the cause of a loss if the loss would have occurred anyway.




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Single Interest Policy - A policy that insures the interest of only one party in property where there are a number of parties having an insurable interest. Sinkhole Peril - Risk of loss by collapse of a "sinkhole." This is now covered as a basic cause of loss in commercial property policies. Sistership Exclusion - An exclusion in products insurance that eliminates coverage for the withdrawal or recall of products.

Sliding Scale Dividend Plan - Often used with workers compensation insurance, dividend plans are established as a means of returning a portion of the premium to the policyholder if losses are better than expected and the insurance company board of directors declares a dividend. In a sliding scale plan, the amount of the potential dividend slides up or down according to the loss experience. Dividends cannot be guaranteed; they are paid upon declaration by the insurer’s board of directors. Slip - At Lloyd’s of London, a document that identifies which syndicates are participating on a risk and for what percentage. Smoke Damage - An Extended Coverage Peril. Society of Chartered Property & Casualty Underwriters - Professional society of those having attained the CPCU designation. (See CPCU.) Soft Costs and Rents - Related to builders risk insurance, these are the necessary expenses that are incurred because a building project is delayed as the result of a covered property loss. Included are expenses such as increases in architectural fees, loss of rents because the project completion date is later than planned, increased interest expense, etc. Soft Market - A term given to a condition in which insurance is relatively inexpensive and easy to obtain. Solicitor - An employee of an insurance agent or agency who is empowered to sell insurance on behalf of a licensed agent, generally using only those insurers that the agency represents. A solicitor usually does not have binding authority, and the business that is generated by a solicitor usually is owned by the agent, not the solicitor. Solvency - Insurers must have sufficient assets (capital, surplus, reserves) in order to satisfy statutory financial requirements (investments, annual reports, examinations) and to meet liabilities. Special Agent - An insurer’s representative in a territory. He or she serves as a liaison between the insurer and the agent. The special agent is responsible for the volume and quality of the business written in that territory. Some states require a special license of special agents. Special form - In contrast to the named perils forms in property insurance, those forms that list specific perils for coverage, the special form contract covers simply risk of direct physical loss, relying on exclusions to limit and define the protection intended. See Open Perils. Specific Excess Reinsurance - Another term for per occurrence/per loss excess reinsurance.




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Specific Insurance - An insurance policy that covers only property specifically described in the policy, as opposed to blanket insurance, which usually covers all property at specified locations. Specimen Policy Form - Specimen policy forms often are requested when non- standard coverage forms are being used. The specimen form may be reviewed to determine the actual policy provisions before coverage is bound.

Speculative Risk - Risk which entails a chance of gain as well as a chance of loss. Contrast with Pure risk. Split Limits - As in auto insurance, where rather than one liability amount applying on a per-accident basis, separate amounts apply to bodily injury and property damage liability. Sprinkler Leakage Insurance - Insurance that covers damage due to the accidental discharge from an automatic sprinkler system. Stacking of Limits - The application of the limits of one or more insurance policies to a claim or loss. Standard Fire Policy, see New York Standard Fire Policy. Stated Amount - Amends the valuation clause on a policy to include an amount that is "stated" as the value of the item(s) being insured. Usually, these policies pay the lesser of the ACV of the damaged property, the cost of repairing or replacing the property, or the stated amount. Statutory Accounting Principles (SAP) - Statutorily mandated accounting principles and practices that must be followed when an insurance company submits its annual financial statement to the department of insurance. In contrast to Generally Accepted Accounting Principles (GAAP) which are followed by most other businesses. Steam Boiler Explosion, see Boiler & Machinery Insurance. Stop Loss - A provision in an insurance policy that cuts off an insurer’s losses at a given point. In effect, a stop loss agreement guarantees the loss ratio of the insurer. Strict Liability - Liability ascribed to a manufacturer or seller of a defective or dangerous product regardless of any fault or negligence. Subrogation - The right of one party who has paid for the loss of a second party to obtain recompense from the third party who is responsible for the loss. For example, an insurance company becomes "subrogated" to the rights of its insured to the extent of the insurer’s payment for collision damage caused by the negligence of the other driver. Subsidence - A form of earth movement, excluded in most property policies. Substandard Risk - A risk falling outside normal underwriting standards. If written at all, it is usually with a substantial premium surcharge.




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Sue and Labor Clause - A marine insurance clause comparable to removal in property insurance.

Superintendent of Insurance - In some states the Commissioner of Insurance is known as the Superintendent. Supplemental Extended Reporting Period - An optional reporting period that allows coverage for liability claims made after the policy period. Surety, see Bond. Surety Association of America (SAA) - A voluntary, non-profit, unincorporated association that is licensed as a rating or advisory organization for surety and fidelity insurance in all states, D.C., and Puerto Rico. The SAA handles statistical information, filings, publications, and surety and fidelity bonds. Surface Water - Commonly known as water on the surface of the ground usually created by rain or snow, which is of a casual or vagrant character, following no definite course and having no substantial or permanent existence. Some insurance policy may include surface water as a covered peril but exclude "flood" when defined as the overflowing of water from its natural boundaries, such as a lake or river. Surplus - The amount by which an insurer’s assets exceed its liabilities. Surplus Lines, see Excess & Surplus Lines Market. Surplus Share Reinsurance - A type of pro-rata or proportional reinsurance agreement under which the insurer and reinsurer agree to share a pre-determined portion of all insurance, premium, and losses. The primary insurer’s retention in a surplus share agreement is stated as a dollar amount of the amount insured. Syndicate - An association of insurers that work together to insure an especially large or hazardous risk. Also see Pool.

TPA (Third party administrator). A TPA is a contractor that adjusts and ad-ministers insurance claims. Tail Coverage - Coverage for claims made after a claims-made liability policy has terminated; the extended reporting or discovery period. See Nose Coverage. Temporary Worker - An employee hired on a short term, often seasonal, basis. Tenants Improvements and Betterments, see Improvements and Betterments. Third Party - An outsider; a business or personal invitee or a party with absolutely no connection to an insured who may become a claimant under a form of public liability coverage because of injury or property damage alleged to have been caused by the negligence of the insured.




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Threshold Level - The point at which an injured person may bring tort action under a modified No-Fault Auto Plan. Many no-fault plans only allow tort action for pain and suffering after medical bills exceed some figure, like $1,000; or if disfigurement or death occurs. Tight Market, see Hard Market. Time Element Coverage - Insurance in which the element of time has heavy bearing on the extent of loss. Business income insurance covers loss of income for the unknown duration of the insured’s business interruption. Title Insurance - Insurance that indemnifies the owner of real estate in the event that someone challenges his or her ownership of property, due to the discovery faults in the title. Tort - A wrong for which a civil (as opposed to criminal) action can be brought. Many tort claims arise from negligence. Trailer Interchange Agreement - An arrangement among truckers whereby trailers may be moved along by the tractors of one or more parties to the agreement. Transfer of Risk - A basic underlying principle of insurance, whereby the risk of financial loss is transferred from one party to another. Treaty Reinsurance - An agreement in which the ceding company agrees in advance to cede certain classes of business or types of insurance to a reinsurance company. The reinsurer agrees to accept all risks or losses that fall within the terms of the agreement. Twisting - The practice of inducing by misrepresentation, or inaccurate or in-complete comparison, a policyholder in one company to lapse, forfeit or surrender his insurance for the purpose of taking out a policy in another company.

Umbrella Liability - A liability contract with high limits covering over top of primary liability coverages and, subject to a self-insured retention (deductible), covering exposures otherwise uninsured. Underground Storage Tank (UST) - Tanks sunk in the ground that are used to store or dispose of gasoline or other fuels, hazardous chemicals, or other pollutants or contaminant’s. Underinsured Motorists Coverage - Coverage for the insured and passengers whenever the at-fault driver in an accident has auto liability insurance with lesser limits than the insured’s. This coverage lies atop "uninsured motorists coverage" or atop the at-fault driver’s low limit automobile liability insurance and provides the insured and passengers with protection equal (usually) to the insured’s own automobile liability cover. Underlying Insurance Policy - The policy providing initial coverage for a claim until its limit of liability is reached and an umbrella or excess policy’s coverage is triggered.




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Underlying Limits - The limits of liability of the policy(ies) underlying an umbrella or excess policy. Underwriter - One who researches and then accepts, rejects, or limits prospective risks for an insurance company. Underwriters Laboratories, Inc. (UL) - Originally begun as a cooperative of western fire insurers to test materials, the UL is now an independent organization testing virtually every fabricated device and material. Items are permitted to bear the UL seal of approval only after they have passed stringent testing for safety. Unearned Premium - That portion of an insurance premium that would have to be returned to the insured if the policy were cancelled. Unilateral Contract - A contract such as an insurance policy in which only one party to the contract, the insurer, makes any enforceable promise. The insured does not make a promise but pays a premium, which constitutes his part of the consideration. Uninsurable Risk - An uninsurable risk is one that is literally uninsurable because loss is certain rather than possible. Uninsured Motorists Coverage - Coverage for the insured and passengers whenever the at-fault driver in an accident has no auto liability insurance. Coverage is usually to the extent of limits required by state auto financial responsibility laws. United States Longshore and Harbor Workers Compensation Act (USL&H) - A compulsory law administered by the Department of Labor that covers injuries to employees on vessels or drydocks. Unsatisifed Judgment Fund (UJF) - In some states a person who is injured in an automobile accident and who cannot collect from the person responsible, may collect from a special fund (UJF).

Vacant Property - Once defined as devoid of occupants or contents, a stricter definition is being applied as more and more communities find older buildings of three and four stories that are only one quarter occupied. Property policies impose limitations on coverage of "vacant" buildings so the (changing) definition of vacant property is quite important. Valuable Papers Coverage - Provides "all risk" coverage on "valuable papers," such as: written, printed, or otherwise inscribed documents and records, including books, maps, films, drawings, abstracts, deeds, mortgages, and manuscripts. It covers the cost of research to reconstruct damaged records, as well as the cost of new paper and transcription. Valuation - To estimate the value of a piece of property usually by considering its replacement cost or its actual cash value. Factored into the estimate is any depreciation or wear and tear. Valued policy, see Agreed amount clause.




Glossary - Page 48

Valued Policy Law - Law that exists in some states which applies primarily to buildings. The laws differ but, in general, they state that in case of a total loss the amount of insurance is the agreed amount of loss. Vandalism and Malicious Mischief - Once treated as a separate peril to be added to a property policy or not, current property forms routinely include the protection. Verbal Threshold - Term in no-fault auto insurance, applicable in some states, which states that victims are allowed to sue in tort only if their injuries meet certain verbal descriptions of the types of injuries that render one eligible to recover for pain and suffering. Vested Commissions - Commissions on renewal business which are paid to the agent whether or not he or she still works for the insurance company with which the business is placed. Vicarious Liability - The condition arising where one person is responsible for the actions of another, as a parent is often held responsible for the vandalism damage a minor child does to a school.

Waiver of Subrogation - An insurer has the right of subrogation; however, it may waive that right through this method. Wear and Tear Exclusion - A common heading for an "all risks" exclusion relating to a group of events that do not represent risk at all. Property will become worn out and torn; it will rust, settle, become rotted, infested, marred, scratched, etc. It is easy to distinguish however between the marring that occurs over time (excluded) and marring that occurs when a concrete block is dropped onto a fine wooden table. Whole Dollar Premium - The practice of many insurers to round premiums to the nearest dollar, rather than carrying them out to the nearest cent. An amount of 51 cents or more is usually rounded up to the next dollar, and any cents amount less than that is dropped. Workers Compensation Insurance - Coverage that conforms to the workers compensation laws of the states in which it written. See also Employers liability insurance. Wrap Up - A liability coverage specialty focused on contracting risks, at-tempting to manage in a single contract the broad interplay of exposures and interests among owners, general contractors, and subcontractors. XCU - Short for explosion, collapse, and underground, this acronym is used to denote that certain construction projects carry this hazard. Y2K - An abbreviation for Year 2000. The Y2K problem resulted from the use of two-digit year fields in computer software codes and silicon chip technology. Because of this, the software or chip cannot recognize "00" as the year 2000 instead of 1900 or doesn’t recognize it at all.




Glossary - Page 49

Zone System - Developed by the NAIC for the triennial examination of insurers. Under the system, teams of examiners are formed from the staffs of several states in each of the geographical zones. The results of their examinations are then accepted by all states in which an insurer is licensed, without the necessity of each state having to conduct its own examinations.



State Exam Content Outline ‐ Page 1

Alabama Department of Insurance Producer Examination Content Outline Property and Casualty Examinations

Page references are to Bradley Enterprises P&C manual

Part 1 Property & Casualty Fundamentals Property & Casualty Vocabulary 1.1 Key Terms 9 1.2 Insurance Company Structures 10 1.3 Domestic, Foreign, Alien, Admitted, Nonadmitted 13 1.4 Law of Agency 11 Contract Law 2.1 Introduction to the Law of Contracts 9 2.2 Other Contractual Terms and Concerns 6-7 2.3 Underwriting 15 2.4 Policy & Rate Filings, Premium Calculation, Loss Ratio 15,16 Basics of Property Insurance 3.1 Key Terms 9 3.2 What's Covered? 17 3.3 Claims Payment Choices 17-22 3.4 Cost Containment Mechanisms 7 3.5 Common Definitions, Provisions and Conditions 18-23 3.6 Duties Following a Loss 19 3.7 Cause of Loss Forms 99-100 Basics of Liability 4.1 Key Terms 9 4.2 Negligence 23 4.3 "No Fault" Benefits 56 4.4 Additional Liability Issues 24-25 Part 2 Personal Lines Homeowners & Dwelling Policies 5.1 Dwelling Policies 26-34 5.2 Homeowner's Policies 36-48 5.3 Section I, Coverages 36 5.4 Perils Covered; Loss Payment Choice 38-39 5.5 DICE: Declarations, Insuring Clause, Conditions, Exclusions 6 5.6 Additional Coverages, Exclusions & Conditions 38 5.7 HO forms 45-48 5.8 Section II, Liability 43,48 5.9 Medical Payments to Others 32,33,42 5.10 Section II additional coverages & exclusions 42 5.11 Mobilehomes & other Endorsements 45 Personal Auto Policy 6.1 Coverage Overview 49 6.2 Definitions 49-50 6.3 Policy-wide Exclusions 51 6.4 Primary-Excess Rule 49 6.5 Coverage A, Liability 50 6.6 Coverage B, Medical Payments 51-52 6.7 Coverage C, UM & UIM 52 6.8 Coverage D, Damage to Your Auto 53-55 6.9 Part E (Duties) & Part F (General Provisions) 55 6.10 Auto Endorsements 56 Watercraft and Flood Policies 7.1 Watercraft 59 7.2 Boatowner's & Yacht Policies 59 7.3 Flood Insurance 57 Total for Part 2 - Personal Lines Part 3 Commercial Lines The Commerical Package Policy 8.1 Commercial Package Policy Structure 60-62 8.2 Common Elements (Declarations & Conditions) 60-62 Commerical Property 9.1 Commercial Property (in General) 82



State Exam Content Outline ‐ Page 2

9.2 Coverage Additions & Extensions 83-88 9.3 Limits, Mortgage Holder, Optional Coverages 83,86,88 9.4 Loss of Use Coverage 8 9.5 Perils: Basic, Broad, and Special Forms 94-97 9.6 Other Coverage Forms 18 Commercial General Liability 10.1 Commercial Liability (in General) 110 10.2 Section I, Coverages A, B & C 114-116 10.3 Sections II (Who), III (Limits), IV (Conditions 116-119 10.4 Occurrence vs. Claims-Made Policies 117 10.5 Other Commercial Liability Policies 120-121 10.6 Surety Bonds 164 Crime and Fidelity Bonds 11.1 Key Terms 164 11.2 Fidelity Bonds 164 11.3 Commerical Crime; Government Crime 164-166 11.4 Selected Endorsements 164-166 Equipment Breakdown Coverage 12.1 Basics of Equipment Breakdown 151 12.2 Coverages Available 151 12.3 Conditions 151 12.4 Exclusions, Limitations, Endorsements 154-159 Other Commerical Policies 13.1 Commerical Auto, general 123 13.2 Business Auto Coverage Form 123 13.3 Truckers & Motor Carriers Coverage Forms 131 13.4 Garage & Garagekeepers Coverage Forms 129 13.5 Selected Auto Endorsements 134 13.6 Marine Policies (in General) 99 13.7 Ocean Marine Policies 99 13.8 Inland Marine Policies 101 13.9 Farm (Ranch) Coverage 160-163 Businessowners Policy 14.1 BOP, general 63 14.2 BOP Property Coverages 63 14.3 Coverage Extensions; Optional Coverages 68-72 14.4 BOP Liability Coverage; Selected Endorsements 68-72 Workers Comp and Employers Liability 15.1 Basics Rules, Exempt Occupations 145-150 15.2 What's Covered? What's not Covered? 145-150 15.3 Coverage Sources; Levels of Disability 145-150 15.4 Policy Framework 145-150 Part 4 Alabama Law Topic 1 All Licensing Candidates 16.1 Overview, Insurance Commissioner 170 16.2 Obtaining a Producer License 167-168 16.3 Maintaining a Producer License 171 16.4 Continuing Education 171 16.5 Producer Appointment and Termination 167-170 16.6 Prohibited Actions 169 Topic 2 Property & Casualty Candidates 17.1 General (Binders, Adjusters, Surplus Line) 170 17.2 Alabama Insurance Guaranty Association 170 17.3 Workers Compensation 171 Topic 3 Industrial Fire Candidates 171 Topic 4 Automobile Candidates 19.1 Financial Responsibility, Evidence of Insurance 171 19.2 Uninsured Motorist Coverage 171 19.3 Cancellation 171

Please follow the instructions on page 4 of your Bradley Enterprises’ P&C manual to ensure exam success!!!

Answer Sheets – (Please make additional blank copies)

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