Deck 15: Multirisk Management Contracts: Business

Question 1

Normal operating expenses are those costs associated with the activity of the business, not the materials that may be consumed by the business.

Answer 1

True

Question 2

In a building and personal property policy, the coinsurance policy can be overridden with an agreed value option.

Answer 2

True

Question 3

The water damage peril in the broad causes of loss form in an ISO commercial property policy covers floods and similar types of catastrophic water damage.

Answer 3

False

Question 4

The business income coverage policy protects against business interruption, but not against extra expense losses.

Question 5

In a building and personal property policy, the basic causes of loss form is an open-perils option of the commercial property policy.

Question 6

The commercial general liability policy provides open-perils coverage for the insured's liabilities due to bodily injury or property damage experienced by others.

Question 7

An organization with stable earnings and expectations of a short period of restoration would find the maximum period of indemnity option worthwhile.

Question 8

The commercial general liability policy replaced the liability coverage previously available through the comprehensive general liability policy.

Question 9

In a commercial general liability policy, 'Coverage C' refers to 'Personal and Advertising Injury Liability.'

Question 10

The property portion of the business owners program covers both direct and consequential losses.

Question 11

In a business owner's policy, seasonal fluctuation permits recovery of lost personal property up to 125 percent of the declared limit, as long as the average value of the personal property over the prior twelve months is not greater than the limit.

Question 12

In a commercial general liability policy, claims for injuries that occurred thirty years ago can be covered if coverage is available on a claims-made basis.

Question 13

In a commercial general liability policy, the medical payments coverage is intended to provide health insurance to the insured and to any employees of the insured.

Question 14

The umbrella policy excludes medical expense coverages.

Question 15

The agreed value option does not ensure that the policyholder will have sufficient limits of insurance to cover a total loss, especially in times of high inflation.

Question 16

The extended coverages in building and personal property coverage form primarily offer protection for properties included in the definition of covered buildings and personal property.

Question 17

If the insured chooses replacement cost new basis of property insurance payment in building and personal property coverage form, then the provision 7 valuation of section E, loss conditions, applies.

Question 18

The insurer has the general right to settle any suit against injuries as it deems appropriate.

Question 19

Instead of listing those perils that are covered, the special causes of loss form provides protection for all causes of loss not specifically excluded.

Question 20

In a commercial general liability policy, the occurrence policy may lessen the insurer's uncertainty about likely future payments because the time lag between premium payments and loss payments generally is smaller with occurrence than with claims-made.

Question 21

Injury arising out of strikes and lockouts are not covered by the employment-related practices liability program.

Question 22

For most insureds, there is a choice to override the coinsurance clause with an option, found in section G of optional coverages of the building and personal property coverage form.This option requires the policyholder to buy insurance equal to 100 percent of the value of the property, as determined at the start of the policy.If the insured does so, then the coinsurance provision does not apply and all losses are paid in full, up to the limit of insurance.Identify this option.

A)Agreed value option
B)Deductible option
C)Estoppel
D)Waiver
E)Inflation guard option

Question 23

The insured can purchase this option found in section G, optional coverages to ward off unwanted retention of loss values above the limit of insurance.This option provides for automatic periodic increases in insurance limits and ensures that the policyholder will have sufficient limits of insurance to cover a total loss.Identify this option.

A)Agreed value option
B)Deductible option
C)Inflation guard option
D)Waiver
E)Estoppel

Question 24

If the value of the property is $500,000, the coinsurance percentage for the property is 80%, the limit of insurance for the property is $250,000, and the deductible is $3500.Calculate the amount paid by the insurer if the amount of loss of property is $90,000.

A)$90,000
B)$52,750
C)$56,250
D)$250,000
E)$86,500

Question 25

Which of the following statements is true about a business income coverage form?

A)This policy protects the insured against business interruption losses, but not against extra expense losses.
B)This policy covers all lost revenues because those revenues generally cover expenses.
C)The policy's intention is to maintain the insured's same financial position with or without a loss.
D)Under this policy, businesses that sustained losses because of the economic backlash and fear after September 11, 2001, were covered for their loss of income.
E)Extra expenses incurred by businesses following property damage are not covered by this policy.

Question 26

These provisions of the commercial property policy form of the CPP identify the covered location, property values (and limits), premiums, deductibles, and other specific aspects of the coverage.These pages make the insurance unique for a given policyholder by identifying that policyholder's specific exposures.Identify this provision.

A)Property declarations and conditions
B)The building and personal property coverage form
C)One of three causes of loss forms for the building and personal property coverage
D)Business income coverage form
E)Endorsements

Question 27

In a business income coverage policy, coinsurance applies to:

A)net income plus continuing operating expenses.
B)gross profit plus depreciation.
C)net loss plus continuing operating expenses.
D)net sales plus all operating expenses.
E)net income plus all operating expenses.

Question 28

This is a provision that specifies the conditions under which protection for cleanup costs are paid by the insurer.Because of large potential liabilities, coverage is narrowly defined as those situations caused by a covered loss, and only for losses at the described premises.The amount of available protection is also limited.Identify this additional coverage in building and personal property coverage form.

A)Debris removal and cleanup
B)Removal of unwanted waste
C)Waste removal
D)Waste and debris cleanup
E)Pollutant cleanup and removal

Question 29

Identify the provision that is found under section F, additional conditions of the building and personal property coverage form.

A)Pollutant cleanup and removal provision
B)Valuation provision
C)Estoppel provision
D)Coinsurance provision
E)Waiver provision

Question 30

Identify the peril that is covered in the basic causes of loss form of an ISO commercial property policy.

A)Water damage
B)Breaking of glass
C)Falling objects
D)Windstorm
E)Weight of snow

Question 31

The basic causes of loss form is a named-perils option of the commercial property policy that covers _____ named perils.

A)eight
B)eleven
C)fifteen
D)eighteen
E)twenty

Question 32

Loss of property that appears to have been stolen but for which there is no physical evidence of theft is called:

A)accidental disappearance.
B)coincidental theft.
C)virtual disappearance.
D)nonfortuitous theft.
E)mysterious disappearance.

Question 33

If the insured chooses this basis of property insurance payment in building and personal property coverage form, this optional coverage must be designated in the declarations and the insured must actually repair or replace the covered property.Identify this basis of payment.

A)Forecasted cash value
B)Replacement cost new
C)Extended replacement cost
D)Actual cash value
E)Virtual replacement cost

Question 34

If the value of the property is $250,000, the coinsurance percentage for the property is 80%, the limit of insurance for the property is $100,000, and the deductible is $250.Calculate the amount paid by the insurer if the amount of loss of property is $40,000.

A)$38,750
B)$40,000
C)$98,750
D)$100,000
E)$19,750

Question 35

Which of the following perils is covered only if you have taken additional coverage in the broad causes of loss form?

A)Breakage of glass
B)Falling objects
C)Weight of snow, ice, or sleet
D)Use of defective materials in construction
E)Riot or civil commotion

Question 36

If the business is a proprietorship and the all the vehicles used are private passenger automobiles, a personal auto policy does not cover the automobile exposure and other forms of automobile insurance must be purchased if the exposure is to be insured.

Question 37

Identify the peril that is covered in the broad causes of loss form of an ISO commercial property policy, but not in the basic causes of loss form.

A)Vandalism
B)Lightning
C)Sinkhole collapse
D)Volcanic action
E)Breakage of glass

Question 38

A business is likely to experience some negative consequences of being unable to use the damaged or lost property.Those negative consequences typically involve reduced revenues or increased expenses, both of which reduce net income (profit).The commercial property policy provides coverage for net income losses through:

A)basic causes of loss coverage form.
B)business income coverage form.
C)special causes of loss coverage form.
D)building and personal property coverage form.
E)broad causes of loss coverage form.

Question 39

This type of causes of loss form is an open perils or all risk coverage option for the commercial property policy, that is, it provides protection for all causes of loss not specifically excluded.Most of the additional exclusions found in this form relate either to catastrophic potentials or to nonfortuitous events.Identify this type of causes of loss form.

A)Special causes of loss form
B)Basic causes of loss form
C)Extended causes of loss form
D)Broad causes of loss form
E)Exclusive causes of loss form

Question 40

If the insured chooses this basis of property insurance payment in building and personal property coverage form, then the provision 7 valuation of section E, loss conditions, applies.Identify this basis of payment.

A)Replacement cost new
B)Virtual replacement cost
C)Actual cash value
D)Forecasted cash value
E)Extended replacement cost

Question 41

Explain inland marine insurance coverage.

Question 42

If the commercial general liability policy is a(n) _____ policy, it will cover liability for events that take place within the policy period, regardless of when the plaintiff makes a claim.

A)actual cash
B)claims-made
C)extended replacement
D)occurrence
E)replacement

Question 43

Describe the different types of causes of loss form in a commercial package policy.

Question 44

This insurance policy provides businesses coverage on a blanket, replacement-cost basis without a coinsurance provision to sufficiently large accounts.The program also provides options to value property at actual cash value, agreed value, or (for buildings) functional replacement cost.Under the program, "Business income and extra expense coverages are written into the form and can be activated by entries on the policy declaration page." Identify this insurance policy.

A)Inland marine insurance
B)Business owners program
C)Oceans marine insurance
D)Capital asset program
E)Commercial aviation program

Question 45

In addition to covering an insured's liability due to bodily injury or property damage, the insurer promises to defend against suits claiming such injuries.The insurer's obligation to defend against liability ends when:

A)the claims are filed after the retroactive date.
B)a number of exclusions are intended to standardize the risk and/or to limit duplicate coverage.
C)it has paid out its limits for any of the coverages in settlements or judgments.
D)the claims are filed after the extended reporting period.
E)the time lag between premium payments and loss payments is smaller.

Question 46

Identify the correct statement about payroll endorsements in a business income coverage policy.

A)This option negates the coinsurance provision of business income coverage.
B)An organization with stable earnings and expectations of a short period of restoration would find this option worthwhile.
C)This option limits the duration of coverage to 120 days or until the limit is reached, whichever comes first.
D)This option allows the insured to deduct some or all payroll expenses from the value of operating expenses before calculating the coinsurance requirement.
E)This option includes payroll from covered expenses.

Question 47

Which of the following is a guarantee provided to employers by each employee promising loyalty and faithfulness and stipulating a mechanism for financial recovery should the promise be broken?

A)Fidelity bond
B)Performance bond
C)Surety bond
D)Bid bond
E)Recovery bond

Question 48

Identify exclusion (f) in bodily injury and property damage liability in a commercial general liability policy.

A)Nonfortuitous liability
B)Contractually assumed liability
C)Liquor liability
D)Pollution liability
E)Workers' compensation liability

Question 49

Write a note on the pollution cleanup and removal coverage in a building and personal property coverage.

Question 50

In a commercial general liability policy, claims for injuries that occurred thirty years ago cannot be covered if coverage is available on this basis.The claim needs to be filed during the coverage period for injuries that occur during the same period or the designated retroactive time.This limitation is the result of insurers having to pay for asbestos injuries that occurred years before knowledge of the exposure outcome was discovered.Identify this program in a commercial general liability policy.

A)Actual cash value basis
B)Claims-made basis
C)Extended replacement cost basis
D)Occurrence basis
E)Replacement cost new basis

Question 51

Describe umbrella liability policy.

Question 52

The intent of this insurance policy was to provide a comprehensive policy that would omit the need for small businesses to make numerous decisions, while also incorporating coverage on exposures often overlooked.Identify this insurance policy.

A)Inland marine insurance
B)Business owners policy
C)Oceans marine insurance
D)Capital asset program
E)Commercial aviation policy

Question 53

Many businesses move property from one location to another or have specialized personal property that requires insurance coverage not intended by the building and personal property coverage.These needs are often met by this insurance coverage that covers nonwater forms of transportation such as rails and trucking.Identify this insurance coverage.

A)Commercial aviation insurance
B)Ocean marine insurance
C)Inland marine insurance
D)Automobile insurance
E)Boiler and machinery insurance

Question 54

In a commercial general liability policy, claims for injuries that occurred thirty years ago can be covered if coverage is available on a(n):

A)occurrence basis.
B)claims-made basis.
C)replacement basis.
D)actual cash basis.
E)extended replacement basis.

Question 55

Which of the following statements is true about inland marine insurance?

A)It is an outgrowth of automobile insurance.
B)It is often on an open-perils basis.
C)It is generally for actual cash value.
D)It is often on a named-perils basis.
E)It includes wear and tear and intentionally caused loss.

Question 56

The commercial package policy program was started by the _____ in 1986.

Question 57

Which of the following statements is true about a business owners policy?

A)It is an outgrowth of the capital asset program.
B)It provides coverage for inland transportation and specialized equipment.
C)It provides options to value property at actual cash value, agreed value, or (for buildings) functional replacement cost.
D)In this policy, the bulk of the premium goes toward costs of inspection and loss control.
E)It can be purchased either on a named-perils or an open-risk basis.

Question 58

Ambiguities in insurance contracts are read in the manner most favorable to the insured because insurance is:

A)an indemnity contract.
B)a contract of utmost good faith.
C)a contract of subrogation.
D)a unilateral contract.
E)a contract of adhesion.

Question 59

This ISO's liability program, available to all ISO-participating insurance companies, was filed with state insurance regulators for approval effective April 1, 1998.It was the newest line introduced in more than twenty years.Because of an increase in the number of lawsuits filed for sexual harassment and similar liability suits, the coverage became imperative to most businesses.Identify this insurance coverage.

A)Employment practices liability program
B)Capital asset liability program
C)Professional liability program
D)Inland marine liability program
E)Business owners liability policy

Question 60

Which of the following is excluded in the employment practices liability program?

A)Discrimination that results in refusal to hire
B)Retaliatory actions taken against whistleblowers
C)Failure to promote
D)Coercion of an employee to perform an unlawful act
E)Defamation

Question 61

The ISO _____ is a manufacturer's output type policy that enables insurers to provide large and medium commercial accounts superior coverage and pricing flexibility for buildings and business personal property.

Question 62

_____ is defined as physical injury to tangible property, including all resulting loss of use of that property, or loss of use of tangible property that is not physically injured.

Question 63

In a commercial property policy, the _____ form protects against both business interruption and extra expense losses.

Question 64

The _____ period applies if a claims-made policy is canceled and provides coverage for claims brought after the policy period has expired for events that occurred between the retroactive date and the end of the policy period.

Question 65

In a business income coverage policy, the _____ option negates the coinsurance provision.This option limits the duration of coverage to 120 days or until the limit is reached, whichever comes first.

Question 66

If the commercial general liability policy is a claims-made policy, the event causing liability must take place after a designated _____ date.

Question 67

The _____ causes of loss form is a named-perils option of the commercial property policy that covers fifteen named perils.

Question 68

Inland marine insurance is an outgrowth of _____ insurance, which is coverage for property while being transported by water including coverage for the vessels doing the transporting.

Question 69

The _____ liability program covers insureds' liability for claims arising out of an injury to an employee because of an employment-related offense, as well as providing legal defense for the insured.

Question 70

_____ insurance protects against loss that results from property damage to the insured's own property and to nonowned property caused by explosions or other sudden breakdowns of boilers and machinery.

Question 71

The _____ causes of loss form is an open perils or all risk coverage option for the commercial property policy.

Question 72

The _____ policy provides excess coverage over underlying insurance.

Question 73

The _____ coverage form provides coverage for direct physical loss to buildings and/or contents as described in commercial property policies.

Question 74

The _____ provision of the business income coverage is one of the more confusing parts of any insurance policy.Its purpose is to maintain equity in pricing.