CPCU 551 Chapter 6 Exam: Flood Insurance, NFIP, and Related Coverages, Exams of Commercial Law

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CPCU 551 - CHAPTER 6 EXAM 2025

QUESTIONS WITH CORRECT ANSWERS

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"write your own" - ANSWERa program allowing private insurers to write flood insurance under the national flood insurance program emergency program - ANSWERinitial phase of a community's participation in the National Flood Insurance Program in which property owners in flood areas can purchase limited amounts of insurance at subsidized rates regular program - ANSWERsecond phase of the NFIP in which the community agrees to adopt flood-control and land-use restrictions and in which property owners purchase higher amounts of flood insurance than under the emergency program general property form - ANSWERthe version of the NFIP Standard Flood Insurance Policy that is used for insuring commercial buildings and contents residential condominium building association policy - ANSWERa version of the national flood insurance program standard insurance policy that is used for insuring residential condominium buildings, as well as contents that are owned either by the unit owners in common or by the condominium association solely coinsurance - ANSWERan insurance-to-value provision in many property insurance policies providing that if the property is underinsured, the amount that an insurer will pay for a covered loss is reduced difference in conditions policy or DIC insurance - ANSWERpolicy that covers on an Special form ("all-risks") basis to fill gaps in the insured's commercial property coverage, especially gaps in flood and earthquake coverage output policy - ANSWERa policy that combines, in one form and associated endorsements, all or most of the commercial property coverages that the insured organization needs, and uses a flexible rating plan highly protected risk - ANSWERa large property whose construction meets high standards of risk mitigation and control characteristics and whose management maintains best practices loss control and risk mitigation techniques for the specific occupancy layered property coverage - ANSWERtwo or more property policies arranged in levels of coverage; the policies in the second or higher levels provide coverage only when the loss exceeds the coverage afforded by the lower-level policies attachment point - ANSWERthe dollar amount above which the reinsurer responds to losses

General Property form Coverage-B covers - ANSWERPersonal property and covers either:

1. Household personal property - property usual to a living quarters
2. Other than household personal property - furniture and fixtures, machinery and equipment, stock and other property Unlike standard commercial property form, - ANSWERcoverage is not provided for property owned by others General Property form Coverage-D Increased cost of compliance - ANSWERcovers costs related to floodplain management for qualifying structures General Property form Coverage-D Increased cost of compliance pays up to $_________ for activities necessary to comply with sales or local laws - ANSWER$30, General Property form Coverage D is only available in policies with Coverage _________ _______________ coverage - ANSWERCoverage-A Building Residential condominium building association policy - _____% of floor area must be occupied for residential purposes - ANSWER75% Coverage is similar to the General Property form Residential condominium building association policy maximum building coverage is only $____________________ because unit owners are expected to purchase their own coverage - ANSWER$100, General Property Form Coverage-C covers - ANSWER1) Debris removal - removal of debris of other property, not just covered property
3. Loss Avoidance - pays for measures to protect property from imminent flood damage, up to $1,000. With a separate $1,000 limit that applies to move property away for imminent flood.
4. Pollution Damage - pays up to $10,000 for damage caused by pollutants due to flood With the NFIP, residential condominium associations can purchase building coverage up to how much? - ANSWER$250,000 multiplied by the number of units

With the NFIP, residential condominium associations can purchase contents coverage up to how much? - ANSWER$100,000 because unit owners are expected to purchase their own coverage Unlike the NFIP, flood coverage endorsement can: - ANSWER1) Provide coverage for more property

2. Offer business income coverage
3. Be written subject to replacement cost or functional valuation options True or False: the flood endorsement is not subject to a separate limit of insurance than the commercial property policy - ANSWERTrue *Limit may be lower than regular policy If insured's policy has a Flood endorsement and also has NFIP coverage, the flodd endorsement is ______________ coverage - ANSWERExcess If a fire results from flood, most insurers will pay is ____________ - ANSWERFire limit If fire damage resulting from flood is more than the flood limit, payment for flood loss will be limited to amount of ___________________________________ - ANSWERFlood insurance The deductible for Flood Coverage endorsement may be based on ______________________ where property is located - ANSWERFlood zone *Insurer will not pay sum of fire and flood limits Flood Coverage Endt. - For properties not located in hazard zones, insurers may set deductible as low as $______________ or $_________________ - ANSWER$10, $25, *Properties in special hazard zones, flood coverage has a higher deductible Current trend is to require insured to carry the max available under the NFIP as _______________________ coverage - ANSWERPrimary _______________ exclusion that conflicts with Flood Coverage endorsement does not apply to endorsement - ANSWERFlood Flood Coverage endorsement generally does not apply to property that is ______________________ - ANSWERin the open In order for the Flood Coverage endorsement to apply, flood must begin more than ________ hours after the inception of the endorsement - ANSWER72 hours

CP 10 40 Earthquake loss limit - ANSWERMay insurer for lower limit CP 10 40 Annual Aggregate limit - ANSWERNO CP 10 45 Annual Aggregate Limit - ANSWERYes (1-2 times occurrence limit) CP 10 40 Deductible - ANSWER% of policy limit (amount of ins.) CP 10 45 Deductible - ANSWER% of value affected property CP 10 40 Coinsurance - ANSWERApplies unless suspended by Agreed Value option CP 10 45 Coinsurance - ANSWERN/A CP 10 40 Stacking - ANSWERNot needed. Limit of insurance is most that will be paid CP 10 45 Stacking - ANSWERYes, Payment is limited to highest limit for either covered peril Both ISO earthquake endorsements are subject to these standard exclusions - ANSWEROrdinance or law, governmental action, nuclear hazard, utility services, and war. Also, loss caused by landslide, mine subsidence, tidal wave, tsunami, flood, mudslide, or mud flow is also excluded. *Excluded even if cause by earthquake or volcano The ISO earthquake endorsements contain a _______ deductible - ANSWERPercentage The CP 10 45 (Sublimit form) contains an Ensuing Loss Provision that....... - ANSWERPrevents the stacking of limits and earthquake limit when an earthquake results in fire In the event of ensuing loss, the most the policy will pay for the entire loss is the limit for _______________________ - ANSWERCovered peril Property Covered by a DIC policy - ANSWERGenerally the same as the insured's other policies: buildings and business personal property. Most of the exclusions are the same, too. However, the list of property not covered in DIC policies is generally shorter than in standard commercial property policies. (For example, DIC policies often do not exclude foundations and underground piping.) A main reason for buying a DIC policy is to obtain either primary or excess coverage for _______________ and _______________ losses - ANSWEREarthquake and flood

Earthquake coverage may be provided under an "all risks" DIC policy simply by omitting any exclusion of _____________________ - ANSWEREarthquake *Earthquake coverage may also be provided under a DIC policy on a named-perils basis Many DIC policies provide broad coverage for this particular loss exposure - ANSWERWater damage Classifying DIC policies as nonfiled inland marine can often permit ______________ and __________________ flexibility - ANSWERRate and Form For a DIC policy to be considered and filed as an Inland Marine policy, the policy must exclude - ANSWERfire and extended coverage perils DIC policies commonly exclude loss caused by ________________ or ___________________ or electrical breakdown. - ANSWERSteam boiler explosion or mechanical With DIC applying as an excess policy, conflict often arises and is settled through negotiation. Courts may require the parties share the loss on a _______________ basis

• ANSWERPro-rata basis Advantages of a DIC policy - ANSWER1) Cost-effective method of obtaining flood and earthquake coverage.

2. Usually do not require coinsurance
3. Are often easier to modify to meet the insured's particular needs (because they're nonfiled)
4. May offer broader coverage for some perils
5. Some exclusions may be less restrictive True or False: For some insureds, a principal reason for choosing a DIC policy is to cover small theft exposures. - ANSWERFALSE. For some insureds, a principal reason for choosing a DIC policy is to cover significant theft exposures that are not covered under the insured's commercial property policy. To fill the gap, the insured can obtain a DIC policy that specifically covers theft or provides open perils coverage without a theft exclusion DIC policies generally cover property located within __________________ and __________________________ - ANSWERUnited States and Canada *Worldwide coverage can usually be provided when needed. Principal exposure is normally at the insured's premises

With the Output Policy coverage often extends to _______________ and _______________ within _____________ feet - ANSWERMaterials and Equipment 1,000 (not 100 feet) True or False: with the Output policy coverage for Personal Property is limited to the policy territory as long as the location is listed - ANSWERFalse. Personal Property can be covered anywhere in the policy territory without listing the location *Important for insureds with locations that frequently change during the year With layered property insurance coverage, deductibles for the first layer are usually ___________ than those used in standard policies - ANSWERHigher Deductibles are not used in the second and higher levels Four main advantages of layered property insurance - ANSWER Obtaining adequate and flexible limits - no coinsurance clause

• Pricing considerations - combined premium of layered policies is often lower than premium for a single policy that is subject to coinsurance
• Availability of broader coverages
• Accessing additional markets Four disadvantages of layered property insurance - ANSWER* Conflicts in wording and interpretation among layers can result in coverage disputes *Insurers may not want to participate
• The market for layered property coverage can shrink rapidly, making it difficult and expensive to find coverage
• Cost of layered coverage could wind up being higher than the cost of a standard policy Attributes needed for HPR insurance: - ANSWER1) Insured committed to control property losses

2. Insurer able to implement a complete protection plan for the insured's property Characteristics of property insured under Highly Protected Risk: - ANSWER1) Fire- resistive, masonry noncombustible, or heavy timber (mill) construction
3. Automatic sprinkler systems and other loss prevention equipment
4. Adequate water supply and water pressure
5. Adequate public or private fire protection Most HPR policies provide ______________ perils coverage - ANSWEROpen-perils

Most HPR policies cover: - ANSWER1) Collapse even if it occurs after construction or renovation is completed

2. Backup of water through sewers or drains, as well as seepage
3. Damage caused by artificial generated electric current