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CAIB 3 Practice Exam With 100% Correct Answers 2023-2024 What is the name given to the collection of written decisions? - Correct Answer-Case Law Explain the concept of the Rule of Precedent. - Correct Answer-Current court decisions must follow those made in cases having similar circumstances, which allows the development of a logical body of general principles against which specific cases to be compared. Explain the meaning of the term "damages". - Correct Answer-Compensation in money for the loss or damage suffered. Compensatory damages for bodily injury are an amalgamation of general and special damages, and based on a number of factors which the courts take into account. State four factors that influence the determination of compensatory damages. - Correct Answer-1. extent of financial support provided by the
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What is the name given to the collection of written decisions? - Correct Answer-Case Law Explain the concept of the Rule of Precedent. - Correct Answer-Current court decisions must follow those made in cases having similar circumstances, which allows the development of a logical body of general principles against which specific cases to be compared. Explain the meaning of the term "damages". - Correct Answer-Compensation in money for the loss or damage suffered. Compensatory damages for bodily injury are an amalgamation of general and special damages, and based on a number of factors which the courts take into account. State four factors that influence the determination of compensatory damages. - Correct Answer-1. extent of financial support provided by the injured party to his or her family
The Sale of Goods Act sets out the contractual responsibilities of sellers for their products. This Statute Law contains a number of implied warranties that form part of every contract for the sale of goods. Identify one implied warranty which is of significance to sellers of products. - Correct Answer-fitness of a business's product(s) for a particular purpose The Sale of Goods Act also addresses a buyer's responsibility to exercise care as to the suitability and quality of the products purchased. State the exception to this general rule. - Correct Answer-When a buyer makes known the particular purpose for which the goods are required, and relies on the seller's skill or judgment, there is an implied condition that the goods will be reasonably fit for such purpose. If they are not, the seller will be liable for damages should injury or property damage result from their use. Your client, the proprietor of pub, is insured under the Commercial General Liability Policy. Indicate whether or not the policy would respond in the following instances. State COVERED or NOT COVERED The insured entered a claim for the recovery of a $1,000 payment made as a goodwill gesture to a customer, a well-known entertainer, who injured himself during a fall from a bar stool - Correct Answer-NOT COVERED - REFERENCE: Ch. 2, pg. 4 Your client, the proprietor of pub, is insured under the Commercial General Liability Policy. Indicate whether or not the policy would respond in the following instances. State COVERED or NOT COVERED The insured had to cancel the booking of the pub for a large private event because a ruptured pipe had caused serious water damage to the premises and the restoration would not be completed in time. The insured was sued for breach of contract by the band that was hired to perform at this event. - Correct Answer-NOT COVERED - REFERENCE: Ch. 2, pg. 10 Your client, the proprietor of pub, is insured under the Commercial General Liability Policy. Indicate whether or not the policy would respond in the following instances. State COVERED or NOT COVERED The insured received a $3,000 bill for a dental procedure from a customer who broke a tooth when she bit on a piece of bone in the pizza she had consumed at the pub. The customer had informed the server of the incident - Correct Answer-COVERED - REFERENCE: Ch. 2, pg. 3, 5 The Commercial General Liability Policy does not respond to claims against the insured for bodily injuries sustained by employees while performing the duties of their job.
State the underlying reason for this exclusion. - Correct Answer-Because most employees are covered under the provincial Workers' Compensation Plan. Coverage is provided on a no fault basis. What options are available to the insured to cover this exposure? - Correct Answer-To purchase Employer's Liability coverage or voluntarily enrol all employees under the provincial Workers' Compensation Plan. The insured hired a roofing contractor to replace the old tar and gravel roof on the insured's building, which is flanked by two other buildings not owned by the insured. The insured agreed to assume the contractor's liability, which resulted in the reduction of the contract price for the insured. During the work a spark from the fire that heated the tar ignited setting the roof on fire which spread within minutes to one of the adjacent buildings causing serious damage to it. The court held the insured liable for the damage. State COVERED or NOT COVERED - Correct Answer-COVERED One winter day a pedestrian slipped and fell on the icy sidewalk right in front of the insured's business premises located at a small strip mall and fractured a leg. The mall owner maintained the premises and cleared the entire sidewalk of snow and ice during the winter months. The insured had signed a lease agreement which contained a clause that held the landlord harmless for bodily injury or property damage. State COVERED or NOT COVERED - Correct Answer-COVERED The insured's friend, an electrician, was installing new light fixtures in the insured's beauty salon. During the installation a glass lamp shade shattered and a falling piece cut a customer who required medical attention. It turned out that the electrician did not have liability insurance. As friends often help each other out, the insured agreed to take the blame for the injury to the customer. State COVERED or NOT COVERED - Correct Answer-NOT COVERED The Commercial General Liability policy includes Coverage C. Medical Payments for expenses incurred by a third party. Explain the reasons why this coverage is provided on a "no fault" basis. - Correct Answer-Reasons for providing this coverage is on a "no fault" basis include: a) The chances of a permanent disability to the injured party are greatly reduced when immediate medical attention is obtained. b) Potential for claims alleging negligence is reduced. c) A legal confrontation with the injured party over such expenses is avoided. Your client is an architectural firm owned by two partners that employs six architects and ten additional staff. Their liability is covered under the Commercial General Liability Policy (Claims Made Form) IBC 2200. The policy has been in effect with the same insurer since August 31, 2008. a) Last month your client learned that a former client has filed a law suit in which they are named as a co-defendant alleging improper construction and design of a
commercial building erected in 2006. Damages are claimed in the amount of 10 Million Dollars. Explain whether or not the policy would respond to pay in the event of the firm being held legally liable for the damages. - Correct Answer-There is no coverage because the policy responds only to occurrences during the policy term starting August 31, 2008 which is the retroactive date. Any occurrences before that date are not covered by the policy. b) The current insurer has advised you and your client that they are pulling out of the market which leaves you with no choice but to place the insurance with another insurer. What implication does this move have for your client should a claim be made against them for an occurrence that happened during the policy term but is not entered while the policy is in force, and how you would have dealt with this potential risk? - Correct Answer-For any claim against the Insured to be covered it must also be reported to the Insurer before the expiration of the policy. As there would be no coverage under the new policy I would have attached the Extended Reporting Period Endorsement to the current policy to ensure that the expired policy would still cover a claim for an occurrence that took place during the policy term. The Malpractice and Errors and Omissions Liability policies are specifically designed to insure the exposures of the two groups of professionals, those that provide health care and other medical services, and those that occupied in other fields, such as law, architecture and others. A claim for damages can be in the form of a tort action or an action for breach of contract. The professional liability policy will respond to pay damages awarded for breach of contract. Indicate how the courts measure the level of performance by the professional, and which of these would result in a judgment against the professional. - Correct Answer- There are three levels of performance:
b) If the Umbrella Liability Policy insures exposures excluded under the primary policy coverage is subject to a Self-Insured Retention. What purposes does the Self-Insured Retention serve? - Correct Answer-Has the same function as a deductible for losses not anticipated by the insurer. It encourages the Insured to purchase coverage against obvious liability exposures included under the primary policy. The S.P.F. No. 1 Owner's Form does not cover automobiles which are rented or leased to another. For insureds whose are in the business of renting or leasing vehicles to others the policy must be endorsed to cover their lessor's exposures. Explain the purpose of and any provisions applicable to the following endorsements. a) S.E.F. No. 5c Permission to Rent or Lease Endorsement. - Correct Answer-extends coverages to lessor when insured automobiles are rented or leased to unspecified lessees for periods not in excess of 30 days. b) S.E.F. No. 5 Permission to Rent or Lease Endorsement - Correct Answer-provides permission for the lessor to rent or lease automobiles on a long term basis to specified lessees where a separate S.P.F. No. 1 Owner's Form is issued to each lessee. c) S.E.F. No. 5d Conversion Coverage Endorsement - Correct Answer-covers losses caused by the dishonest acts of the lessee which result in the loss of the automobile to the lessor. This endorsement can be used when automobiles are leased on either a short or long term basis. Motor vehicles that are used in the Insured's business, other than employees' own vehicles, which are owned or leased long term, can be insured either individually or on a fleet basis. a) Indicate the minimum number of vehicles under common ownership or control that would qualify the Insured for coverage under a fleet policy - Correct Answer-To qualify for a fleet policy four or more vehicles must be owned or controlled by the Insured. b) What are the options available for insuring fleet vehicles? - Correct Answer-Vehicles can be insured either on a Scheduled or Blanket Basis. c) Explain the method of retrospective rating and the main factor upon which this rating is based - Correct Answer-Before the policy is issued both the Insurer and the Insured agree that the final premium charged will fall within an established minimum and maximum range. The Insured's loss ratio is the main factor that determines the premium to be charged. Nearly all businesses have a non-owned automobile liability exposure.
a) Identify the two ways in which this exposure can be insured. - Correct Answer-Can be insured under the S.P.F. No. 6 Standard Non-Owned Automobile Policy, or under an endorsement to the Commercial General Liability Policy. b) Which of these is the most common? - Correct Answer-Most commonly, this exposure is covered in the form of an endorsement to the Commercial General Liability Policy. c) Identify the vehicles that would fall under the classification of non-owned automobiles
a) Your client feels secure that the guarantee of payment provides the necessary protection and sees no need for insuring the cargo. Explain how you would counter your client's argument against purchasing insurance. - Correct Answer-Even if the seller obtains insurance for the buyer sellers cannot rely on this insurance to protect their interest; nor should the seller rely on the guarantee for payment. If the goods are lost or damaged during transportation there may be little incentive for the buyer to pay for the goods. b) A Draft is only one of the methods of payment for goods in international trade. i. Explain when Cash in Advance would be used by the seller, and at what point the seller's interest in the goods ceases. ii. Indicate how a buyer would pay for goods under an Open Account and why a seller might agree to this method of payment. - Correct Answer-i. Cash in Advance is used when the buyer is not well known to the seller or when the products are custom manufactured or of a type for which no ready market exists. With this method of payment the seller's insurable interest ceases from the moment the payment has been made. ii. Open Account is a charge account, where the buyer arranges settlement at regular intervals, usually monthly or quarterly, as agreed upon by the seller. This arrangement is made for very reliable customers and, as a general rule only in connection with goods that have a ready market. Unlike establishing the amount of a payment for loss to building, stock or equipment the settlement of ocean marine cargo losses requires a different set of determinations. For this reason the Ocean Marine Cargo Insurance policies contain the "Valuation Clause" which limits the amount of insurance that can be purchase. a) Indicate the values which determine the amount of insurance. - Correct Answer-The values that are typically insured include the value of the cargo based on invoice cost; shipping costs or freight; other expenses, such as export packing, inland freight, insurance premiums, and miscellaneous expenses; duties and taxes; plus ten percent. b) How does the Insurer measure the loss under ocean marine cargo insurance? - Correct Answer-The loss is measured in terms of Percentage of Insured Value Lost. Your client, an importer/exporter, insures all shipments under an open ocean marine cargo policy, Institute Cargo Clauses (A) - All Risks coverage. Indicate whether the following claims would be covered under this policy and qualify your answer by referring to the policy wording.
a) Your client had received word approximately two weeks ago that the vessel transporting the insured cargo had serious engine problems and had to make an unscheduled stop in another port; all cargo was unloaded from the vessel. Unfortunately, the insured's cargo was badly damaged in extreme weather while it sat on the dock awaiting the arrival of another cargo ship to complete the voyage - Correct Answer-The policy would not cover this loss due to the Termination of Contract or Carriage Clause, which has the effect that coverage is also terminated when the contract of carriage is terminated at a port or place other than the destination named in the policy; or transit is otherwise terminated before delivery of the goods under the conditions provided in the Transit Clause. b) The policy insures total losses with provision to cover partial losses caused by perils of the sea when they exceed a certain percentage of the insured value. The insured value is $200,000 with a 5% franchise. The damage to the cargo is $15,000 which occurred during a storm when sea water entered the container that was stowed on deck of the vessel - Correct Answer-The policy responds to pay the entire loss as the amount exceeds the 5% franchise, which is $10,000. Losses that are within that amount must be born by the insured. Commercial property as well as liability policies specifically excludes all aviation risks. Aviation Insurance must be purchased for coverage of the aircraft (hull), liabilities arising out of the ownership, use or operation, as well as cargo being transported by aircraft. a) One of the critical exclusions pertains to Unapproved Pilot. Explain the intent of this exclusion and exceptions to it - Correct Answer-No payment for losses will be made when a pilot, other than an approved pilot shown on the policy, is in command of the aircraft. This exclusion does not apply when
a) Describe the meaning of Suretyship - Correct Answer-a guarantee of performance made by one person or entity for another. b) Identify the two classes of bonds that Corporate Suretyship includes and provide a brief explanation of each - Correct Answer-Fidelity Bonds and Surety Bonds. Fidelity Bonds serve to protect employers for the dishonest acts of employees. Surety Bond is an undertaking by one party (the surety) to become accountable to another party (the obligee) for the performance of an obligation or undertaking by a third party (the principal). It is a promise to provide credit, if and when needed, to ensure the faithful performance of the obligation. The Surety would not offer a guarantee on behalf of the Principal, unless the Principal has successfully stood the scrutiny of the surety underwriter in respect to character, capacity and capital. a) Although, surety underwriters apply the "three C's" in the process of qualifying the principal, for certain types of bonds one "C" is of greater importance than others. Give an example when "character" would be the main factor in qualifying the principal. - Correct Answer-Character would be the main factor when the principal holds a position of trust, as in the case of an application for a real estate bond. b) Explain the benefits of suretyship gained by both the principal and the obligee - Correct Answer-Principal gain confidence by the fact that the surety is satisfied with their ability to carry out the required task. The guarantee of performance by the surety gives the obligee the necessary confidence to undertake various projects. Large construction projects are often planned years in advance. Whether government or privately funded the owners need to feel sure, certain and secure that their projects will go ahead and be successfully completed. Projects will be advertised inviting interested parties to enter their bids along with a deposit as confirmation that the contractor has sufficient confidence in the bid and is willing to enter into a contract if awarded. This deposit may be made in the form of a Bid Bond or a Certified Cheque. a) Who is the recipient of the Bid Bond and when is it in force? - Correct Answer-The Bid bond is furnished to the project owner (the obligee) and is not in force until the contractor's tender has been accepted. b) What are the guarantees provided by the Bid Bond? - Correct Answer-The surety guarantees that the principal can and will enter into a contract to perform the work at the
tendered price; and will provide whatever security is specified to ensure performance of the contract. c) Indicate how long the Bid Bond is valid compared to a Certified Cheque - Correct Answer-The Bid Bond specifically provides that unless a contract is entered into within 60 days after the deadline for tenders has passed, it is null and void. A Certified Cheque can be cashed at any time within six months from the date of issue. The ability to take on a new project rests with the financial condition of a contractor which also determines the amount of bonding the surety is willing to provide. One key item of financial information is the extent of working capital available to commence the work. a) Indicate the types of assets that influence the amount of working capital as well as the bond limit - Correct Answer-For bonding purposes, assets must be reasonably liquid, or immediately available for conversion to cash, if required. In addition to cash, liquid assets include redeemable investments such as good quality stocks, bonds, treasury bills and accounts receivable less than 60 days old. Aged accounts receivable over 60 days are not considered as asset. Also undeveloped land may not be easily converted to cash to meet payrolls or to pay suppliers. b) Identify three factors that affect the working capital. - Correct Answer-the labour and material ratio, subcontracts, and customer paying habits. Key to an organization's survival and profitability lies in its effectiveness to manage the exposures to both predictable and unpredictable losses. a) Explain the purpose of risk management - Correct Answer-The purpose of risk management is to minimize the adverse effects of accidental losses upon an organization. b) Identify and briefly explain the two dimensions of the risk management process. - Correct Answer-1. Decision making process This is a five-step process which attempts to arrive at the most cost effective means available to the organization in dealing with its loss exposures.
The effectiveness of a risk management program is largely based on making informed decisions and managing them effectively. It begins with the process of identifying and analyzing loss exposures throughout the entire operation, as well as classifying the loss exposures. a) An organization must focus on the type of value exposed to loss. Briefly outline the four values that must be analyzed in order to assess the risk associated with them - Correct Answer-1. property values, both tangible and intangible;