Property & Casualty Insurance Practice Exam

1. How does a surety bond differ structurally from an insurance policy?

• A. A surety bond involves three parties and the surety expects to recover from the principal after paying a loss
• B. A surety bond involves two parties with losses absorbed by the surety
• C. A surety bond covers fortuitous loss like any other insurance
• D. A surety bond is purchased by the party it protects

2. Extra expense coverage differs from business income coverage in what respect?

• A. It pays additional costs incurred to continue operating rather than replacing income lost while shut down
• B. It pays for damage to the building itself
• C. It applies only after business income limits are exhausted
• D. It covers the insured's liability to customers for delayed delivery

3. What is the function of reinsurance from a primary insurer's perspective?

• A. It insures the policyholder directly against the insurer's insolvency
• B. It provides coverage to the insurer's employees
• C. It replaces the need for the insurer to hold reserves
• D. It transfers part of the insurer's assumed risk to another insurer, stabilizing results and increasing capacity to write business

4. A commercial auto policy uses symbol 1 for liability. What does that designate?

• A. Any auto, the broadest designation covering owned, hired and non-owned vehicles
• B. Owned private passenger autos only
• C. Hired autos only
• D. Trailers only

5. What does an inland marine policy typically cover?

• A. Ocean-going vessels and their cargo
• B. Property in transit, movable property and instrumentalities of transportation and communication such as bridges and radio towers
• C. Buildings at a fixed location only
• D. Employee dishonesty losses

6. An equipment breakdown policy covers a boiler explosion. What does it add beyond a standard commercial property form?

• A. Coverage for fire damage to the building
• B. Liability for injuries to employees
• C. Coverage for loss from mechanical or electrical breakdown and pressure equipment accidents that property forms exclude, often with inspection services included
• D. Coverage for theft of equipment

7. What does a businessowners policy combine that a commercial package policy assembles separately?

• A. Property and liability coverage in a preassembled form designed for small to medium businesses with limited eligibility
• B. Workers compensation and commercial auto
• C. Only property coverages, with liability written separately
• D. Surety and fidelity bonds

8. An insured signs a statement of values and the insurer attaches an agreed value provision to the commercial property policy. What is the effect at claim time?

• A. The coinsurance percentage is raised to 100 percent
• B. The coinsurance condition is suspended, so a partial loss is paid in full up to the limit without any recovery-ratio penalty
• C. The insurer must rebuild regardless of the policy limit
• D. The deductible is waived on all partial losses

9. Business income coverage responds to a covered property loss. What does it pay?

• A. The cost to repair the damaged property
• B. Net income that would have been earned plus continuing normal operating expenses during the period of restoration
• C. The market value of the business as a going concern
• D. Gross revenue for the entire policy year

10. What does hired and non-owned auto liability coverage protect a business against?

• A. Physical damage to employees' personal vehicles
• B. Vicarious liability arising when employees use rented vehicles or their own cars on company business
• C. Liability arising from vehicles the business owns and schedules
• D. The employee's personal liability for their own accidents

11. A workers compensation experience modification factor of 0.85 is applied to an employer's manual premium. What does it indicate?

• A. Better than average loss experience for the class, producing a 15 percent credit to manual premium
• B. Worse than average loss experience, producing a surcharge
• C. That the employer has no employees
• D. That the state has capped the employer's premium

12. How does treaty reinsurance differ from facultative reinsurance?

• A. Treaty reinsurance covers an entire class of business automatically, while facultative is negotiated risk by risk
• B. Treaty reinsurance is negotiated for each individual policy
• C. Facultative reinsurance is mandatory for all insurers
• D. The two differ only in the commission paid

13. A crime policy insures against employee dishonesty. How does this differ from a fidelity bond's traditional structure?

• A. Modern commercial crime coverage is written as insurance covering the employer's own loss, whereas traditional fidelity bonding guaranteed an employee's honesty to a third party
• B. Employee dishonesty is covered by the general liability policy
• C. Crime coverage protects the employee against accusations
• D. Fidelity coverage applies only to losses caused by outsiders

14. A commercial insured is offered a large deductible program instead of a guaranteed cost policy. What is the practical effect?

• A. The insured retains a substantial portion of each loss, lowering premium but requiring collateral and stronger cash flow
• B. The insurer retains all losses and the insured pays a fixed premium
• C. The insured's total cost becomes fixed and predictable
• D. The insured no longer needs claims handling services

15. A commercial building has stood empty for more than sixty consecutive days when a vandalism loss occurs. How does the vacancy provision affect the claim?

• A. Vandalism is among the perils excluded once the vacancy period is exceeded, and other covered losses are paid at a reduced percentage
• B. The entire policy is void from the start of the vacancy
• C. The claim is paid in full, since vacancy affects only rating
• D. Coverage continues unchanged if the insured intends to re-let the building

16. Shareholders sue a corporation's board members personally, alleging that a poor business decision breached their fiduciary duties and caused financial harm to the company. Which type of policy is designed to protect the individual directors and officers in this situation?

• A. Employment practices liability insurance
• B. Directors and officers (D&O) liability insurance
• C. Commercial general liability insurance
• D. Fidelity bond

17. A candidate wants to know the minimum percentage of questions they must answer correctly to pass the licensing exam. What is the passing score?

• A. 60%
• B. 65%
• C. 70%
• D. 75%

18. Two exam attributes are the fee to register and the passing-score percentage. Which pairing correctly matches each attribute to its value?

• A. Fee = $130; Passing score = 150%
• B. Fee = $70; Passing score = 49%
• C. Fee = $49; Passing score = 70%
• D. Fee = $49; Passing score = 49%

19. After paying a covered claim, an insurer pursues the negligent third party who caused the damage in order to recover the amount it paid. Which policy condition permits this?

• A. Pro rata other insurance
• B. Subrogation
• C. Coinsurance
• D. Proof of loss

20. Under a named perils policy, who bears the burden of proof after a loss, and how does that change under an open perils policy?

• A. The insured must prove the loss was caused by a covered peril under named perils; under open perils, the insurer must demonstrate that an exclusion applies.
• B. The burden of proof always rests with the insured under both forms.
• C. The burden of proof always rests with the insurer under both forms.
• D. The insurer must prove coverage under named perils; the insured must prove an exclusion under open perils.

21. A policyholder stops locking the back door of her insured home, reasoning that her insurance will pay if anything is stolen. This attitude BEST illustrates which concept?

• A. Moral hazard
• B. Morale hazard
• C. Physical peril
• D. Proximate cause

22. The principle of indemnity is designed to accomplish which of the following?

• A. Allow the insurer to recover claim payments from a responsible third party
• B. Guarantee the insured a profit whenever a covered loss occurs
• C. Require the insured to pay a portion of every claim out of pocket
• D. Limit recovery to the actual amount of the loss so the insured cannot profit from a loss

23. For a property insurance claim to be payable, when must the insured's insurable interest exist?

• A. Insurable interest is never required in property insurance
• B. Only when the claim payment is issued
• C. Only when the policy is first purchased
• D. At the time of loss

24. Which statement BEST describes the purpose of a deductible in an insurance policy?

• A. It is the maximum amount the insurer will ever pay for a single claim.
• B. It is the amount the insured pays out of pocket before the insurer pays, which reduces small claims and lowers premiums.
• C. It is a penalty applied only when the insured fails to carry adequate limits.
• D. It is the portion of every claim the insurer recovers from a third party.

25. An insured's property is covered by two policies when a single covered loss occurs. Under the other insurance condition with a pro rata provision, how is the loss handled?

• A. The policy with the earlier effective date pays the entire loss.
• B. Each insurer pays the full loss, allowing the insured to recover twice.
• C. The loss is divided among the insurers in proportion to their limits.
• D. The insured chooses one insurer to pay the entire loss.

26. A commercial building has a replacement value of $100,000 and the policy contains an 80 percent coinsurance clause, so the insured is required to carry $80,000 of coverage. The insured carries only $60,000. A covered loss of $20,000 occurs, and the policy has a $1,000 deductible. Applying the coinsurance formula, how much will the insurer pay?

• A. $14,000
• B. $15,000
• C. $19,000
• D. $20,000

27. Which of the following BEST defines proximate cause in property insurance?

• A. Any condition that makes a loss more severe once it has begun
• B. The final event in a series of events that damages the property
• C. The primary event that sets in motion an unbroken chain of events leading to the loss
• D. A cause of loss that is specifically excluded from the policy

28. An insurance producer is explaining loss-related terminology to a new client. Which statement correctly distinguishes a peril from a hazard?

• A. A peril is the actual cause of loss, while a hazard is a condition that increases the likelihood or severity of a loss.
• B. A peril is a condition that increases the chance of loss, while a hazard is the event that directly causes the loss.
• C. Perils and hazards are interchangeable terms for any event that damages covered property.
• D. A peril applies only to liability insurance, while a hazard applies only to property insurance.

29. An insurer's actuaries explain that predictions about aggregate losses become more accurate as the number of similar, independent exposure units in a pool increases. This is an application of:

• A. The principle of indemnity
• B. Adverse selection
• C. Subrogation
• D. The law of large numbers

30. A risk manager estimates that under a worst-case combination of failures, a building could be completely destroyed, but under normal firefighting and sprinkler response, the realistic largest loss expected is far smaller. The larger, worst-case estimate is best described as the:

• A. Probable maximum loss
• B. Actual cash value
• C. Coinsurance requirement
• D. Maximum possible loss

31. Only individuals who believe they have a high likelihood of loss tend to seek out insurance at standard rates, while lower-risk individuals decline coverage. This tendency is known as:

• A. Risk pooling
• B. Reinsurance
• C. Adverse selection
• D. Moral hazard

32. An applicant states on an insurance application that the building has a monitored fire alarm, and this statement is later found to be false at the time it was made. Under contract law principles applied to insurance, how is this statement most likely classified, and what follows?

• A. As a covenant, so only monetary damages are available to the insurer
• B. As a condition precedent, so the policy pays only after the statement is corrected
• C. As a warranty, so the policy is automatically void regardless of materiality
• D. As a representation, so the insurer may void the contract only if the false statement was material to the risk

33. A candidate wants to know the minimum percentage of correct answers needed to pass the licensing examination. What is the required passing score?

• A. 60%
• B. 65%
• C. 70%
• D. 75%

34. A warehouse is covered by two property policies: Policy 1 with a $200,000 limit and Policy 2 with a $100,000 limit. A $60,000 covered loss occurs. Under the pro rata other insurance condition, how is the loss divided?

• A. Policy 1 pays $40,000 and Policy 2 pays $20,000
• B. Each policy pays $30,000
• C. Policy 1 pays the entire $60,000 because it has the higher limit
• D. Policy 2 pays first and Policy 1 pays only the excess

35. An insured's personal property is written on a named perils basis, while a neighbor's is written on an open perils basis. After each suffers a loss, who bears the burden of proof, and for what?

• A. The open perils insured must show the loss was caused by a listed peril; the named perils insurer must prove an exclusion
• B. Both insurers must prove the cause of loss before denying any claim
• C. The named perils insured must show the loss was caused by a covered peril; under the open perils form, the insurer must demonstrate an exclusion applies
• D. Both insureds must prove an exclusion does not apply

36. A commercial building valued at $500,000 is insured for $300,000 under a policy with an 80 percent coinsurance clause and a $1,000 deductible. A covered loss of $40,000 occurs. Using the coinsurance formula, how much will the insurer pay?

• A. $40,000
• B. $39,000
• C. $30,000
• D. $29,000

37. Which statement best describes the purpose of the principle of indemnity in a property policy?

• A. It guarantees the insured receives the full policy limit for any covered loss
• B. It divides a loss among multiple insurers in proportion to their limits
• C. It restores the insured to the same financial position as before the loss, preventing profit from a loss
• D. It requires the insured to carry a stated percentage of the property's value

38. An agent explains to a client why her policy includes a deductible. Which explanation is accurate?

• A. It is the amount the insurer pays before the insured's obligation begins
• B. It is the amount the insured pays out of pocket before the insurer pays, which reduces small claims and lowers premiums
• C. It is a penalty applied only when the insured underinsures the property
• D. It is the portion of the loss transferred to a third party through subrogation

39. A windstorm damages an insured's roof. Under the policy conditions describing the insured's duties after a loss, all of the following are required of the insured EXCEPT:

• A. Giving prompt notice of the loss
• B. Protecting the property from further damage
• C. Submitting a signed proof of loss
• D. Determining which third party was legally at fault for the loss

40. Dana sells her house in March but forgets to cancel the homeowners policy. In June, the house burns down while owned by the new buyer. Why would Dana's claim under the old policy fail?

• A. She no longer has an insurable interest, which in property insurance must exist at the time of loss
• B. She failed to submit a signed proof of loss within the policy period
• C. Fire is an excluded peril once a property changes ownership
• D. The insurer's right of subrogation was impaired by the sale

41. A manufacturer's CGL policy is written on an occurrence form. A customer is injured by the manufacturer's product during the policy period but does not file a claim until three years after the policy expires. How does the occurrence form respond?

• A. The claim is covered because the injury occurred during the policy period, regardless of when the claim is filed
• B. The claim is denied because it was not first made during the policy period
• C. The claim is covered only if it falls after the policy's retroactive date
• D. The claim is denied unless an extended reporting period was purchased

42. A homeowner insured under an open perils dwelling form asks which causes of loss could still be denied. Which of the following is commonly excluded even under an open perils form?

• A. Flood
• B. Fire
• C. Windstorm
• D. Lightning

43. After paying a covered fire claim, Meridian Insurance discovers the fire was caused by a negligent contractor and sues the contractor to recover the amount it paid its insured. Which policy provision permits this action?

• A. Salvage
• B. Abandonment
• C. Appraisal
• D. Subrogation

44. A commercial policy names a lender as loss payee under a basic loss payable clause rather than a standard mortgage clause. If the insured's own fraud voids the policy, how is the lender's interest affected?

• A. The lender's payment is unaffected because loss payable clauses always survive the insured's misconduct
• B. The lender's interest is voided along with the insured's coverage because a basic loss payable clause does not create a separate contract with the lender
• C. The lender automatically becomes the named insured
• D. The lender must independently insure the property regardless of the clause used

45. A building damaged by a covered fire must, under current building codes, be demolished and rebuilt to updated code standards rather than simply repaired, at a cost well above the basic property coverage. Which type of coverage is designed to address this additional cost?

• A. Ordinance or law coverage
• B. Extra expense coverage
• C. Debris removal coverage
• D. Business income coverage

46. An insurer and insured agree that a covered loss occurred but disagree sharply on the dollar amount of the loss. Neither wants to go to court. Which policy condition allows each side to select a competent appraiser to resolve the value dispute?

• A. The other insurance condition
• B. The subrogation condition
• C. The appraisal condition
• D. The arbitration condition

47. After a covered fire loss, the insured is required to submit a signed, sworn statement itemizing damaged property and its value. This requirement is generally imposed under which policy duty?

• A. The proof of loss requirement
• B. The other insurance condition
• C. The appraisal condition
• D. The subrogation condition

48. A business switches from a claims-made liability carrier to a new insurer and buys a supplemental extended reporting period from the departing carrier. What does that purchase accomplish?

• A. It preserves the right to report claims arising from pre-expiration occurrences for an extended time, closing the gap the new policy's retroactive date creates
• B. It extends the expiring policy's coverage to new occurrences after expiration
• C. It increases the expiring policy's limits for the reporting period
• D. It transfers the expiring policy's claims to the new insurer

49. A commercial general liability policy excludes damage to property in the insured's care, custody or control. Why?

• A. Because that exposure belongs to bailee or inland marine coverage, where it can be rated on the values actually handled
• B. Because such damage is never insurable
• C. Because the property owner's policy always responds instead
• D. Because the exposure is too small to warrant coverage

50. An insurer receives a lawsuit against its commercial insured alleging both a covered negligence claim and an excluded intentional act. What is the insurer's obligation?

• A. It must defend the entire suit if any allegation potentially falls within coverage, though it may indemnify only the covered portion
• B. It may refuse to defend because one allegation is excluded
• C. It must indemnify every allegation once it agrees to defend
• D. It must wait for a verdict before deciding whether to defend

51. Workers compensation insurance is described as an exclusive remedy. What does that mean for an injured employee?

• A. Statutory benefits are provided without proving employer fault, and in exchange the employee generally cannot sue the employer in tort
• B. The employer may deny benefits if the employee was careless
• C. The employee may collect benefits and also sue the employer for the same injury
• D. The employee must prove employer negligence to receive benefits

52. A commercial general liability policy has a $1,000,000 each occurrence limit and a $2,000,000 general aggregate. Three unrelated claims are paid at $800,000, $700,000 and $900,000 in one policy year. What is paid?

• A. $2,000,000, because the general aggregate exhausts before the third claim is fully paid
• B. $2,400,000, the sum of all three claims
• C. $1,000,000, the each occurrence limit
• D. $3,000,000, three times the each occurrence limit

53. What does the products-completed operations hazard in a commercial general liability policy cover?

• A. Damage to the insured's own product when it fails
• B. Injury or damage arising away from the insured's premises from the insured's product or from work already completed
• C. Injury occurring on the insured's premises during operations
• D. The cost of recalling a defective product

54. What does an additional insured endorsement on a contractor's general liability policy provide to the project owner?

• A. Status as an insured under the contractor's policy for liability arising from the contractor's work, subject to the endorsement's wording
• B. A certificate confirming the contractor carries insurance
• C. Coverage for the owner's own independent negligence in all cases
• D. The right to receive the contractor's premium refunds

55. Beyond providing excess limits, what else can an umbrella policy do?

• A. Drop down to cover some claims the underlying policies exclude, subject to a self-insured retention
• B. Reduce the premium on underlying policies
• C. Replace the need for underlying coverage entirely
• D. Cover intentional acts of the insured

56. A commercial umbrella policy sits above a $1,000,000 general liability limit. A covered claim of $2,500,000 is settled. How does the umbrella respond?

• A. It pays the $1,500,000 above the underlying limit, provided the underlying insurance was maintained as required
• B. It pays the full $2,500,000 and seeks reimbursement from the primary insurer
• C. It pays nothing, since the primary limit was not exhausted by a single claim
• D. It pays half the claim alongside the primary insurer

57. In a state that applies a pure comparative negligence rule, a plaintiff is found 40 percent at fault for an accident and the defendant 60 percent at fault, with total damages of $100,000. How much can the plaintiff recover?

• A. $60,000, reduced by the plaintiff's own percentage of fault
• B. The full $100,000 regardless of fault
• C. $40,000, equal to the plaintiff's percentage of fault
• D. Nothing, because the plaintiff was partly at fault

58. A third-party manufacturer sued by an injured employee, in turn, sues the employer for contribution, alleging the employer's own negligence contributed to the injury. This kind of action against an employer, arising out of a workers compensation claim, is generally known as a:

• A. Subrogation claim
• B. Third-party-over action
• C. Coinsurance claim
• D. Contractual liability claim

59. A lawsuit against an insured alleges both a covered claim and a claim that is clearly excluded by the policy. Even though the insurer may ultimately owe no indemnity if only the excluded claim is proven, why is the insurer still generally obligated to defend the entire suit?

• A. Because defense costs are always excluded from CGL policies regardless of allegations
• B. Because the duty to defend is broader than the duty to indemnify and is triggered by the potential for coverage in the allegations
• C. Because the duty to defend only applies once liability is finally determined
• D. Because the insured must first pay defense costs and seek reimbursement afterward

60. A delivery employee negligently causes an accident while making deliveries within the scope of employment. Under what legal doctrine can the employer also be held liable for the employee's negligence?

• A. Vicarious liability (respondeat superior)
• B. Strict liability
• C. Assumption of risk
• D. Comparative negligence

61. A company that manufactures and stores explosives is held liable for damage caused by an explosion even though it exercised extreme care in its operations. This liability standard, applied to certain inherently dangerous activities, is known as:

• A. Vicarious liability
• B. Negligence per se
• C. Strict liability
• D. Comparative liability

62. A skier voluntarily participates in a sport with inherent, obvious risks of injury from falls and collisions with other skiers. If injured by one of these ordinary, inherent risks, the skier's lawsuit against the resort may be barred by which defense?

• A. Contributory negligence
• B. Vicarious liability
• C. Assumption of risk
• D. Strict liability

63. To pass the Texas general property licensing exam, a candidate typically must achieve a score of at least:

• A. 70 percent
• B. 80 percent
• C. 90 percent
• D. 100 percent

64. An employee brings a lawsuit against an employer for a work-related injury that falls outside the scope of the state workers compensation statute. Which part of the workers compensation policy is designed to respond?

• A. The commercial general liability policy's products coverage
• B. The businessowners policy's property section
• C. Part Two, employers liability
• D. Part One, the statutory workers compensation benefits

65. Under the exclusive remedy arrangement in state workers compensation systems, what does an injured employee generally give up in exchange for guaranteed statutory benefits?

• A. The right to sue the employer for the work-related injury
• B. The right to rehabilitation benefits
• C. The right to any portion of lost wages
• D. The right to receive medical expense benefits

66. To satisfy state financial responsibility laws, most states require drivers to carry which of the following?

• A. Medical payments coverage for all passengers
• B. Collision coverage on every registered vehicle
• C. Comprehensive (other than collision) coverage
• D. At least minimum liability limits

67. State workers compensation statutes provide several categories of benefits on a no-fault basis for job-related injuries. Which of the following is NOT among those statutory benefits?

• A. Medical expenses
• B. A portion of lost wages
• C. Punitive damages against the employer
• D. Death benefits

68. Workers compensation benefit levels and coverage requirements are primarily established by:

• A. Each state's statutes
• B. A single uniform federal statute
• C. Each insurer's underwriting guidelines
• D. Private agreements between employers and employees

69. A driver with a poor accident history is turned down by every standard auto insurer he applies to, yet the state requires him to carry liability coverage. What mechanism exists to ensure he can still obtain the required coverage?

• A. A retrospective rating plan
• B. A reinsurance treaty
• C. An assigned risk plan
• D. A guaranty association

70. A producer reasonably suspects that a client has submitted a fraudulent claim involving staged property damage. Under most state insurance codes, what is the producer generally expected to do?

• A. Ignore the suspicion unless directly asked about it by the insurer
• B. Independently investigate and adjudicate the claim before the insurer does
• C. Advise the client on how to avoid detection
• D. Report the suspected fraud to the appropriate authority, such as the insurer's fraud unit or the state fraud bureau

71. An insurer decides to terminate its appointment of a producer to sell its products. Insurance regulations in most states require the insurer to take which action regarding this termination?

• A. Automatically revoke the producer's license
• B. Obtain the producer's written consent before terminating
• C. Notify the state insurance department of the termination
• D. Refund all commissions the producer ever earned

72. A state insurance department reviews an insurer's claims handling, underwriting practices, and advertising materials to determine whether the company is treating policyholders fairly and complying with state law. This type of regulatory review is called a:

• A. Market conduct examination
• B. Financial examination
• C. Rate hearing
• D. Guaranty fund assessment

73. A licensed insurance producer must complete a set number of approved course hours periodically to keep the license active. What is the primary regulatory purpose of this continuing education requirement?

• A. To help ensure producers remain current on products, laws, and ethical obligations
• B. To generate additional licensing fee revenue only
• C. To replace the need for an initial licensing examination
• D. To qualify producers to act as claims adjusters

74. A property owner in a high-crime urban area is repeatedly declined coverage by standard-market insurers. What type of state-supported mechanism exists in many states specifically to provide basic property coverage to such otherwise hard-to-place risks?

• A. A FAIR plan
• B. A guaranty association
• C. A reciprocal exchange
• D. A risk retention group

75. In one state, an insurer must submit new rates to the department of insurance and receive approval before using them. In another state, the insurer may begin using new rates immediately upon filing, subject to later regulatory review. These two approaches to rate regulation are known respectively as:

• A. Prior approval and file-and-use
• B. Community rating and experience rating
• C. Admitted and non-admitted
• D. Retrospective and prospective rating

76. A representation on an application later proves untrue. What determines whether the insurer may rescind?

• A. Whether the misstatement was material, meaning it would have affected the insurer's decision to accept the risk or the terms offered
• B. Whether the statement was made in writing
• C. Whether the insured benefited financially from the misstatement
• D. Any untrue statement permits rescission regardless of significance

77. Two liability policies both respond to the same claim, and each contains wording stating it applies only as excess over any other collectible insurance. How do courts commonly resolve the conflict?

• A. The mutually repugnant clauses are disregarded and the loss is shared, since giving both effect would leave the insured with no primary coverage
• B. Neither policy responds, since each is excess over the other
• C. The older policy is always primary
• D. The insured must elect one policy and forfeit the other

78. An insurer accepts a late premium without objection for three consecutive years, then denies a claim because that year's premium was late. What doctrine may prevent the denial?

• A. Subrogation
• B. Coinsurance
• C. Abandonment
• D. Waiver and estoppel, since the insurer's consistent conduct led the insured to rely on the practice

79. An insurance policy is a contract of adhesion. What consequence follows when a term is genuinely ambiguous?

• A. It is construed against the insurer, which drafted the wording
• B. The parties must renegotiate the term
• C. The entire policy is void
• D. It is construed against the insured, who accepted it

80. An insurer pays a property claim and then pursues the party who caused the damage. What principle permits this?

• A. Contribution, which apportions loss among insurers
• B. Subrogation, which transfers the insured's recovery rights to the insurer up to the amount paid
• C. Novation, which substitutes a new party to a contract
• D. Estoppel, which prevents denial of a represented fact

81. An insurer's own inspector identifies a specific building deficiency at the time a commercial property policy is first issued, yet the insurer renews the policy for several years afterward without ever raising the issue or requiring repairs. After a loss connected to that same deficiency, the insurer attempts to deny the claim based on it. Which doctrine may prevent the denial due to the insurer's own prior knowledge and conduct?

• A. Reformation
• B. Indemnity
• C. Subrogation
• D. Estoppel

82. Once an insured pays the premium, only the insurer has continuing enforceable duties to perform, such as paying covered claims, while the insured makes no further enforceable promise beyond having paid. This characteristic makes an insurance policy what type of contract?

• A. A bilateral contract
• B. An adhesion contract
• C. A unilateral contract
• D. An executory contract

83. An insured attempts to transfer, or assign, an existing property policy to a new buyer of the insured property without the insurer's consent. Why does the personal nature of an insurance contract generally make this assignment ineffective?

• A. Because the insurer originally underwrote the specific individual insured's risk characteristics, so it must consent before the contract can be transferred to a different party
• B. Because assignment is only restricted for liability policies, never for property policies
• C. Because the buyer automatically becomes a third-party beneficiary regardless of consent
• D. Because insurance contracts are always freely assignable regardless of consent

84. An insurer's claims representative, who has authority to do so, tells an insured in writing that a particular policy exclusion will not be applied to a specific pending claim. Later, another employee tries to deny the claim based on that same exclusion. What concept describes the representative's earlier action of voluntarily giving up the insurer's known right to enforce that exclusion?

• A. Concealment
• B. Waiver
• C. Subrogation
• D. Estoppel

85. An insurance policy is described as an aleatory contract. What does this characteristic mean in the context of the exchange between insurer and insured?

• A. The terms of the contract can be freely negotiated by both parties
• B. The contract can be freely reassigned to any third party
• C. Only the insurer has any obligations under the contract
• D. The values exchanged by each party are unequal, since the insured pays a small premium while the insurer may pay a much larger claim, or nothing at all

86. An insurance applicant makes an offer by submitting a completed application and initial premium, and the insurer's underwriter reviews and approves it, issuing the policy. Which additional element must also be present for this to form a legally valid, enforceable contract?

• A. A notarized signature from both parties on every page
• B. Approval from the state insurance department for each individual policy
• C. A written waiver of the parol evidence rule
• D. Consideration exchanged between both competent parties for a legal purpose

87. A hurricane drives storm surge into a building whose roof the same wind had already torn open. The property form excludes flood using anti-concurrent causation wording. How does that wording operate?

• A. Loss caused directly or indirectly by the excluded peril is barred regardless of any other cause contributing concurrently or in sequence
• B. The loss is apportioned between the covered wind cause and the excluded flood cause
• C. Coverage applies in full because a covered peril contributed to the loss
• D. The exclusion applies only if flood was the sole cause

88. What distinguishes a named perils property form from an open perils form?

• A. A named perils form covers only listed causes with the burden on the insured to show the loss falls within one, while an open perils form covers all causes except those excluded, shifting the burden to the insurer
• B. An open perils form covers only listed causes
• C. A named perils form has no exclusions
• D. The two forms differ only in premium, not in coverage scope

89. A roof with a replacement cost of $20,000 is fifteen years into a twenty-year useful life when it is destroyed. What is the actual cash value settlement before any deductible?

• A. $5,000, being replacement cost less depreciation for the fifteen years consumed
• B. $20,000, the full replacement cost
• C. $15,000, being replacement cost less the five remaining years
• D. $10,000, being half the replacement cost

90. A fire forces a homeowner to live in a rental apartment for two months while the covered dwelling is repaired. Which homeowners policy coverage reimburses the increased cost of living during that displacement?

• A. Coverage C - Personal Property
• B. Coverage E - Personal Liability
• C. Coverage D - Loss of Use
• D. Coverage A - Dwelling

91. After a covered windstorm, an insured incurs costs to clear fallen trees and damaged building materials from the property before rebuilding can begin. Which coverage typically pays for this cleanup, and how does it interact with the policy limit?

• A. Extra expense coverage, paid without any limit
• B. Debris removal coverage, typically paid in addition to the limit up to a stated percentage or amount
• C. Ordinance or law coverage, replacing the need for a separate limit
• D. Coverage D, loss of use

92. A homeowner's stolen jewelry collection is worth far more than the standard homeowners policy's special limit of liability for theft of jewelry. What is the best way for the homeowner to ensure full coverage for the collection?

• A. Schedule the jewelry with a personal articles floater or scheduled endorsement
• B. Rely on Coverage C's standard limit, since jewelry is unrestricted
• C. Increase only the Coverage A dwelling limit
• D. Purchase an umbrella liability policy

93. A homeowner's detached garage, which is not attached to the main dwelling, is damaged in a covered windstorm. Under a standard homeowners policy, which coverage section responds to this loss?

• A. Coverage B - Other Structures
• B. Coverage A - Dwelling
• C. Coverage D - Loss of Use
• D. Coverage C - Personal Property

94. A landlord insures a rental dwelling under a policy that covers direct physical loss to the dwelling from any cause not specifically excluded, rather than only from a list of named perils. Which type of dwelling policy form is this?

• A. DP-3 (special form)
• B. DP-1 (basic form)
• C. A named perils endorsement
• D. A monoline liability form

95. An insurer wishes to cancel a commercial property policy mid-term for nonpayment. What is generally required?

• A. The insured's written consent
• B. Written notice to the insured within the timeframe state law prescribes, which is typically shorter for nonpayment than for other reasons
• C. Approval from the state insurance department
• D. No notice, since nonpayment terminates coverage automatically

96. A risk cannot be placed in the admitted market and is written by a surplus lines insurer. What does the insured give up?

• A. Access to guaranty association protection and to rate and form filing oversight, since surplus lines insurers are not admitted in the state
• B. The right to sue the insurer for breach of contract
• C. The ability to purchase liability limits above a set amount
• D. Nothing, since surplus lines insurers are regulated identically

97. What is the function of a state insurance guaranty association?

• A. To pay covered claims of an insolvent insurer up to statutory limits, funded by assessments on solvent insurers
• B. To guarantee that insurers pay all claims regardless of solvency
• C. To set the rates insurers may charge
• D. To license insurance producers

98. A producer offers to give a prospective client part of the producer's own commission as an inducement to purchase a policy, a practice not permitted under an exception in the client's state. This practice is generally known as:

• A. Rebating
• B. Twisting
• C. Churning
• D. Unfair discrimination

99. An insurer charges different premium rates to applicants within the same risk classification based solely on a factor unrelated to risk, such as an applicant's religion. This practice most directly violates state law prohibiting:

• A. Churning
• B. Twisting
• C. Unfair discrimination
• D. Rebating

100. A producer collects premium payments from clients but temporarily uses those funds to cover unrelated personal business expenses before remitting them to the insurer. This conduct most directly violates which principle governing a producer's handling of client premiums?

• A. The doctrine of utmost good faith between insurer and insured
• B. The principle of indemnity
• C. The fiduciary duty to hold premium funds in trust and not commingle them with personal funds
• D. The coinsurance requirement