State: Michigan | Category: Property and Casualty Insurance | All tests in this Category:
Practice Test 1 Practice Test 21. Bodily Injury (BI) liability coverage in an auto policy primarily pays for injuries to which of the following?
BI liability pays for injuries or death suffered by others in an accident for which the insured is legally responsible, not for the insured's own injuries.
2. The exclusive remedy rule in workers' compensation means:
In most systems, workers' compensation is the exclusive remedy for work-related injuries, barring most civil lawsuits against the employer for the same injury.
3. Which form provides open peril coverage for the dwelling and other structures, while personal property is insured on a named-peril basis?
The Special Form (HO-3) provides open peril coverage for the dwelling and other structures, while personal property (Coverage C) is insured on a named-peril basis.
4. Which of the following is NOT typically covered as part of covered injuries & benefits?
Injuries off premises that are unrelated to work are generally not covered, whereas occupational diseases, work-related injuries, and related medical treatment are covered.
5. What is tail coverage in relation to claims-made professional liability policies?
Tail coverage, or an extended reporting period, allows claims that arise during the policy period to be reported after the policy ends, preserving coverage for events that occurred earlier.
6. Disputes about the amount of loss are typically resolved through which mechanism?
The appraisal process is designed to resolve disagreements about loss amounts via appraisers and an umpire.
7. What does a 'prior acts' endorsement address in a claims-made policy?
A 'prior acts' endorsement aligns with the retroactive date. It ensures coverage for acts occurring after that date that are first claimed during the policy period, preventing gaps when switching carriers.
8. Which statement best describes the indemnity principle in property & casualty insurance?
Indemnity aims to restore the insured to the financial position they had before the loss. It should not allow profit or windfalls beyond the actual loss.
9. What does a Combined Single Limit (CSL) mean in auto liability?
CSL sets one single limit per accident for both bodily injury and property damage, rather than separate BI and PD limits.
10. Property Damage (PD) liability coverage pays for damage to:
PD liability covers damage to third-party property caused by an at-fault insured, not damage to the insured's own property or personal belongings.
11. If a building has an 80% coinsurance requirement and replacement cost is $200,000, but the insured carries $120,000, a loss of $20,000 occurs. How much will be paid under coinsurance?
Required amount = 0.80 × 200,000 = 160,000. Payout = (120,000 / 160,000) × 20,000 = 0.75 × 20,000 = 15,000.
12. Money and securities are typically:
Money and securities are generally excluded from standard property coverage and require a separate endorsement or form to be covered.
13. Vocational rehabilitation benefits are designed to:
Vocational rehabilitation assists an injured worker in returning to suitable employment, often through retraining or job placement.
14. A policy shows BI limits of 50/100 and a PD limit of 50,000. What does the middle number (100) represent?
In a split limit notation, the first number is BI per person, the second is BI per accident (total for all injured in the accident), and the third (if present) is PD per accident.
15. A supersedeas bond is used to:
A supersedeas bond allows the enforcement of a judgment to be postponed during an appeal, protecting the appellant from immediate execution of the judgment.
16. Under Institute Cargo Clauses, which statement best describes the difference between Clause A (All Risks) and Clause B (Named Perils)?
Clause A provides broad coverage for all risks unless specifically excluded; Clause B covers only perils that are named in the policy.
17. Products-Completed Operations Hazard provides coverage for claims arising from which of the following?
This hazard covers injuries or damages arising from products or completed work after the product has been sold or work completed.
18. The Commissioner can issue cease-and-desist orders to stop prohibited activities by insurers, producers, or other persons.
Cease-and-desist authority is a key enforcement tool to halt unlawful activities without immediate court action.
19. Insurable interest in property insurance must exist at what time for a valid claim?
For property insurance, insurable interest must exist at the time of loss to establish a valid claim and ensure the interest is genuine.
20. Who is considered an insured under CGL?
An insured includes the named insured and other persons or organizations described in the declarations and endorsements.
21. In a hull policy with a 80% coinsurance requirement and a loss of 40 on a hull valued at 100, how much does the insurer pay?
Under coinsurance, payout = loss × (amount of insurance carried / value). Here, 40 × (80/100) = 32.
22. The peril described as 'weight of ice, snow, or sleet' is typically included as a covered peril for which property under most homeowners forms?
Weight of ice, snow, or sleet on roofs is a peril commonly listed for the dwelling as part of many homeowners forms.
23. Who bears the burden of proving the amount of loss in a typical property claim?
The insured generally has the primary burden to prove the loss amount with documentation, while the insurer investigates and assesses liability.
24. Supplementary Payments under CGL typically include which of the following?
Supplementary Payments cover defense costs and certain bonds; they are paid in addition to the policy limits.
25. Which statement about insurable interest is correct?
For property insurance, insurable interest must generally exist at the time of loss. For life insurance, insurable interest must exist at policy inception. This prevents wagering on losses.