CPCU 551 EXAM QUESTIONS WITH 100% CORRECT DETAILED ANWERS SCORED A+, Exams of Commercial Law

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CPCU 551 EXAM QUESTIONS WITH

100% CORRECT DETAILED ANWERS

SCORED A+

A building had been vacant for 60 days, and the insurer didn't know about it, when it sustained 100K, 5K, and 1K losses due to windstorm, theft, and sprinkler leakage, respectively. What amount is covered under CPP? - ANSWER85K, 0, and 0. If a building is vacant for 60 or more consecutive days before the loss, they won't pay for any loss caused by vandalism, sprinkler leakage, building glass breakage, water damage, theft, or attempted theft... otherwise you'll only get 85% Various building design features can help prevent the spread of a hostile fire. For example, a solid piece of material that is inserted between wall studs to delay the flow of heat or fire through this open space is a - ANSWERFire stop. Pete insures his motorcycle rental property for $100,000 on an actual cash value (ACV) basis. The ACV of the property is $150,000 and his Commercial Insurance Policy (CIP) has a 90 percent coinsurance clause. A fire caused $50,000 of damage to the building structure. How much will Pete recoup under his insurance policy? - ANSWER$37, A manufacturing company has business personal property valued at $1,500,000. The risk manager is considering insuring the business personal property with 80 percent coinsurance at a $0.40 rate per $100 of coverage. The 100 percent rate is $0.35 per $100 of coverage. if the business personal property is insured with an 80 percent coinsurance, how much premium will be saved? - ANSWERThe savings will be $5, − $4,800 = $ When (if) can an insurer examine their insured's books and records? - ANSWERAnytime during the policy period and up to 3 years after. The final premium is established after the policy period expires. Premiums are estimated at its formation. Can an insured transfer duties under common policy conditions? - ANSWEROnly with the insurer's written consent. Can an insurer cancel a policy verbally? How many days notice? To whom is it communicated? - ANSWERNo, it must be in writing. 10 days notice for nonpayment. 30 days for all other reasons. To the First Named Insured. Who develops a standard form? Who does a non-standard form typically favor? - ANSWERThe ISO, ASIS, or other insurance advisory organization. Non-standard forms typically favor insureds.

If the improvements and betterments sustained a loss sometime during a business's lease and if the building owner repairs the rental space, but the company (lessee) does not replace the improvements and betterments once the space is repaired, what valuation method is used under the lessee's BPP policy? - ANSWERPro-rata based on the length of the lease, the time expired since the improvements and betterments were installed, and the original cost A building is insured for $200,000 under an agreed value policy. The policy has a $10,000 deductible and the agreed value of the building is $250,000. After suffering a $43,000 loss, the insurer will pay (rounded to the nearest $100) - ANSWER24, The risk manager for a painting company has purchased an outdoor property extension policy to cover their trees, shrubs and signs not attached to the building. Which of the following would not be considered a covered cause of loss? Civil Commotion, lightning, explosion, windstorm? - ANSWERWindstorm. A landlord leases a portion of a strip mall to a dry cleaning business. When the tenant moved into the building, the tenant installed dry cleaning equipment for the business. It also installed new carpeting and tile throughout the building. Under the landlord's BPP - are the improvements considered part of building coverage or personal property of others? - ANSWERBuilding Coverage. The owners' use interest in improvements and betterments are covered as the 'owner's property' What is the payment under BPP if the insured does not meet the coinsurance requirement? - ANSWERDid/shouldxloss-deductible (should = value of covered property x coinsurance %) A small business owner purchased an unendorsed Building and Personal Property Coverage Form (BPP). The limit on the policy is $500,000 which meets the coinsurance requirements. The deductible is $1,000. The total value of the insured property is $525,000. The insured suffered a $510,000 covered loss to the property. What will the insurer pay? - ANSWER500K. The deductible comes off the loss not the limit of insurance. How much coverage does the Causes of Loss—Special Form provide under its Additional Coverages and Extensions for Property in Transit? - ANSWERIt provides $5,000 of additional insurance for the insured's property in a motor vehicle. A disgruntled employee of the insured returned to his employer's store late at night and broke into the locked registers, taking the minimal morning cash set up. The employee also damaged the lock boxes and took some store merchandise. Which types of property in this scenario would be covered under the Causes of Loss—Special Form? - ANSWERThe damaged registers and lock boxes would be covered as items stolen by employees are not covered.

What condition must be met in order for the 6 BPP coverage extensions to apply? - ANSWER80% or higher coinsurance or value reporting applies as additional insurance, no coinsurance. Whatever the **** that means. Name the 10 special form exclusions - ANSWERmaintenance, employee dishonesty, voluntary parting, unauthorized instructions, inventory shortage, unexplained disappearance, concurrent causation (weather, acts/decisions, faulty planning), pollutants, production errors. Whats the difference between basic/broad form vs. special form? - ANSWERBasic/Broad forms are "named peril" forms whereas Special form provides "all risk" coverage. What are the main things that special form covers that broad form does not cover? - ANSWERtheft, friendly fire, vehicle damage, and water damage caused by ice dams What are the four basic things covered under board form? - ANSWERfalling objects, weight of snow, ice, or sleet, water damage (w/ exclusions) additional coverage- collapse what is the coinsurance requirement for blanket insurance? - ANSWER90% When does the coverage period begin for the bPP limited international coverage endorsement? - ANSWERWhen the property LEAVES the insured's premises. Ordinance or Law Coverage Endorsement... a? b? c? - ANSWERa - covers loss to undamaged portion that is not permitted to be used. b - covers cost to demolish undamaged portion/debris. c - covers increased cost to repair up to standards (within 2 yrs) SCF Company manufactures candy and has been in business for over 80 years in the same building. Because of the change in building materials and building codes, an endorsement the owner should consider for replacing the building in the event of a loss is - ANSWERFunctional Valuation method, which also includes ordinance and law coverage True or False: Blanket Insurance covers additional debris removal if the loss only occurs at one location. - ANSWERTrue True or False: Under the Ordinance or Law Coverage Endorsement, a replacement building may be on the same premises or elsewhere, but it must be intended for occupancy similar to the damaged premises. - ANSWERTrue

What does CGL stand for? - ANSWERComprehensive General Liability Who has a "fee simple" title to their unit? - ANSWERPlanned Unit Development Homeowners. What do the unit owners (tenants) own in a cooperative corporation? - ANSWERStock. Whereas it is the Cooperative Corporations own the real property. Condominium unit owners may wish to limit the insurance coverage on their units... - ANSWERTo avoid duplicating coverage maintained by the association. What is the distinguishing characteristic of a Standard Property Policy (SPP)? - ANSWERit is self contained Who owns the common elements of a condominium? - ANSWERThey're owned jointly by all condo owners. Loss assessment coverage can be added by endorsement to the ISO Condominium Commercial Unit-Owners Coverage. With this endorsement attached the insurer will pay... - ANSWERThe unit owner's share of an assessed loss charged to all unit owners by the association. Name a situation where an SPP would be used - ANSWERWhen a building would be too risky to insure in the standard market, so they have to resort to a FAIR plan. How do rates from legal liability coverage forms compare to typical rates for direct property insurance? - ANSWERLegal Liability Coverage rates are typically lower. A building under construction is insured on an unendorsed Builders Risk Basic Form policy for $100,000. During the course of construction, defective materials caused the main floor to collapse, resulting in a $10,000 loss. The actual cash value of the building at the time of loss was determined to be $110,000. Assuming a $1,000 deductible, the amount payable to the insured is - ANSWER0 as collapse is not a covered peril under the basic form. Which of the following, if any, are covered under the NFIP's General Property Policy? Pollution damage, debris removal, loss avoidance measures, or earthquake/volcanic eruption? - ANSWERthe first 3 are covered How is the deductible applied to building and contents under NFIP? - ANSWERseparately How many ad's off-premise coverage are provided under NFIP? - ANSWER Can NFIP do LOU, blanket, coinsurance, or replacement cost? - ANSWERNo, no, no, and no.

What does the ensuing loss provision do? - ANSWERPrevents insured from stacking regular policy limit What are coverage parts A, B, C, and D under NFIP? To which do deductibles apply? - ANSWERA - building, B - personal property, C - debris/loss avoidance measures/pollution, D - increased cost of compliance. Deductibles apply separately to A and B only. Are limits higher under emergency NFIP program or regular NFIP program? - ANSWERregular Is NFIP available from FEMA or private insurers? - ANSWERBoth Does a residential condo billing association policy pay on an ACV or a replacement cost basis, or both? - ANSWERReplacement cost What's the difference between a DIC and a DIC endorsement? Why would someone choose one over the other? - ANSWERthe DIC endorsement usually doesn't provide open peril coverage, carry a lower limit than other covered property, and usually have higher deductibles, but they avoid minimum premiums and are part of one policy. Name a disadvantage of Difference in Conditions (DIC)-type endorsements compared to separate DIC policies. - ANSWERThe coverage is often not as broad as that of a separate DIC policy. A national telecommunications company is in the midst of constant change. They frequently are opening new locations in various cities. Once they establish themselves in a sector, they will close some of their locations initially intended for the acquisition and set-up of new accounts. The type of policy that would best suit this type of business is... - ANSWERAn output policy because it provides "all-risks" coverage for property at fixed locations AND property away from insured's premises T/F An output policy can carry automobile coverage. - ANSWERTrue. A business purchased an Earthquake and Volcanic Eruption Endorsement (Sub-Limit Form) to attach to a Building and Personal Property Coverage Form (BPP). The insured building has an insurable value of $3,000,000. The endorsement is subject to a 10 percent deductible and a sublimit of $2,000,000. In the event of a covered $450, loss, the amount payable is - ANSWER$150,000. $450,000 − ($3,000,000 X .10) = $150, the 10% deductible applies to the insurable value, NOT the loss. Furthermore, in this coverage, the deductible is always applied as a percentage.

What is the difference between the BIC (w/extra expense) and the separate extra expense coverage? - ANSWERThe separate extra expense coverage form limits the amount of extra expenses covered per month. When should blanket BIC coverage be used? - ANSWERfor interdependent (or independent) operations in multiple locations. What is the maximum payable loss under the Newly Acquired Location (BIC) coverage?

• ANSWER$100, True or False.. There does not have to be damage to the property for Acts of Civil Authority (BIC) coverage to apply. - ANSWERFalse. there has to be damage for the coverage to apply. Where's the starting point in determining an organization's EML? - ANSWERThe coinsurance basis Why would an insured choose the No Coinsurance option (BIC)? - ANSWERIf their EML is a small percent of the amount of needed to satisfy the coinsurance requirement. How to calculate the limit of insurance to buy - ANSWERFirst calculate the coinsurance percentage (estimated MPL/Coinsurance Basis), round to nearest tenth. Then multiply the coinsurance percentage by the coinsurance basis. If a business is covered by a BI/EEC written on a no coinsurance basis, can it be covered by a Newly Acquired Location coverage extension? - ANSWERNope. Newly Acquired Locations have a condition where 50% coinsurance or higher must be shown (on BIC) Would payroll taxes continue if employees were laid off due to a loss? - ANSWERNope. When would a business add the ordinary payroll limitation or exclusion endorsement and why? - ANSWERwhen employees represent a high proportion of total expenses and can be easily replaced and the shutdown can last over 6th months. This decreases the amount of insurance needed to comply with the coinsurance requirement by excluding some or all of the ordinary payroll from gross earnings. Basically, the company will fire these employees if shit hits the fan. When does the Extended Business Income Coverage NOT apply. (it usually applies for 30 days beyond the time the damaged property is repaired and normal operations resume) - ANSWERIf the loss of income is a result of consequences of the covered loss in the area where the described premises are located. For example, if power was out in many areas surrounding the building damaged in the loss.

To whom is the 'invoice value' valuation alternative appropriate? (Inland Marine Coverage) - ANSWERBuyers and Sellers Is a consignee a seller, a buyer, or a transporter? - ANSWERbuyer What's the main difference between a contract carrier and a common carrier? - ANSWERCommon carriers offer themselves to public for hire but contact carriers do NOT. So the latter's liability is stipulated in the written bill of lading and is not absolute like, like the former's. What's the liability limit per package under COGSA? - ANSWER$ What determines liability for common carriers for water shipments and is there a package limit? - ANSWERThe Harter Act, no What determines liability for contract carriers for water shipments? - ANSWERThe charter what determines liability for air carriers? - ANSWERwarsaw convention if a loss was caused by pilot error, is the carrier liable? - ANSWERNo! If your plane crashes, blame it on the pilot whats the average carrier liability rate? - ANSWER$9/lb What are the 3 factors that affect transportation exposures? - ANSWERnumber of parties involved, ownership of goods, carrier liability What is jettison? - ANSWERthrowing cargo overboard to lighten ship What's another name for a warranty (open cargo policy, all-risk coverage) and what are the 3 warranties? - ANSWERexclusion. Strikes, riots, civil commotion; free of capture/seizure; the delay clause. What's the inchmaree clause? - ANSWERa clause of open cargo-named perils coverage which adds coverage for damage from propulsion machinery, boilers, latent defect of vessel, and negligence of master and mariners. What is covered under named perils coverage that isn't covered under all risk coverage (open cargo policy) - ANSWERjettison, pirates What are the differences between CP Builders Risk Coverage and IM Builders Risk Coverage - ANSWERCP is named perils, IM is all risk and covers property in transit and away from the job site, includes property of others. CP covers collapse, boiler explosion, theft, flood and earthquake, and sets value at RC... IM doesn't.

What are the coverage limits of employee theft insuring agreement? (not a number, instead on what basis is it covered and how is the limit measured) - ANSWERcoverage is blanket and limited to a stated amount per occurrence what is the courage territory for forgery and alteration insuring agreement? - ANSWERworldwide If an employee, director, or trustee causes a loss by forgery or alteration, is the loss covered under forgery or alteration insuring agreement? - ANSWERNope, loses caused by these folks are excluded Who has the burden of proof under inside the premises-theft of money or securities insuring agreement? - ANSWERthe insured must prove destruction What are the two coverage extensions for both inside the premises-theft of money or securities coverage form and inside the premises-robbery or safe burglary insuring agreement? - ANSWERdamage to premises, containers Define robbery - ANSWERthe unlawful taking of property from a custodian by one who has threatened bodily harm to the custodian or committed an unlawful act seen by the custodian (robbery requires the presence of another person) is a watchman or janitor considered a custodian with respect to robbery? - ANSWERNO are losses to money and securities caused by theft, disappearance, or destruction covered under the outside the premises insuring agreement? - ANSWERYes, and so is other property caused by actual or attempted robbery IF the property is outside the premises AND in the care and custody of a messenger or an armored vehicle company. is computer fraud covered when the property is transferred from outside the premises? - ANSWERNo, it has to be from inside the premises. is computer fraud covered if the culprit isa partner, employee, director, trustee, or authorized representative? - ANSWERNo if there is overlapping coverage for a computer-related cause of loss, which insuring agreement takes precedent, computer fraud or funds transfer fraud? - ANSWERcomputer fraud is money orders and counterfeit money insuring agreement covered in canada? - ANSWERYes, along w/ US and Puerto Rico, like w/ employee theft Which crime policy insuring agreements have a $5000 per occurrence limit - ANSWERinside the premises - robbery/other property, outside the premises, and computer fraud

Let's say a company learned about an employee theft prior to the policy period, is this covered? - ANSWERnope is fire covered under inside and outside the premises crime insurance? - ANSWERONLY for money and securities are scams involving exchanges or purchases covered under crime insurance inside/outside premises? - ANSWERno, excluded are credit card transactions covered under computer fraud? - ANSWERno, excluded whats the difference between loss sustained and discovery crime forms? - ANSWERloss sustained form losses must have occurred during and were discovered during the policy period, but discovery form losses only need to be discovered during the policy period, but could have occurred before the policy period. If an employer learns that an employee commits a dishonest act, but does not terminate them, and then the employee steals something, is the loss covered under employee theft? - ANSWERNope because of the Termination as to any employee condition must the insured notify the police for theft and/or forgery or alteration losses? - ANSWERNo, theft and forgery/alteration are the only exceptions to the insured's duty to notify the police does crime insurance apply as primary or excess of other insurance that covers the same loss, up to the policy limits? - ANSWERexcess what are boilers made of and what do they do? - ANSWERcast iron or steel, they heat water by combustion to form hot water or steam what heats fired pressure vessels and what could happen to them if shit hit the fan? - ANSWERheated by burning fuel, they're prone to explosion are telephone system's covered under equipment breakdown? - ANSWERYes, office equipment is a covered loss exposure Name the 5 equipment breakdown loss exposures - ANSWERboilers/pressure vessels, electrical, mechanical, cooling, office when is the only time commercial property (CPP) forms cover electrical breakdown of motors? - ANSWERwhen the loss is caused by lighting, otherwise you need an equipment breakdown policy

how can small businesses eliminate the waiting period caused by a usual 72 hr wait prior to start of period of restoration under BOP? - ANSWERthis can be eliminated by endorsement. this condition doesn't bode well for small businesses. what is BCF? - ANSWERBusiness-owners coverage form (BOP) What is included under building coverage under BOP that is not included under BPP? - ANSWERproperty in common areas and the landlord insured's personal property in apartments and rooms furnished by the insured as landlord. How does personal property of others coverage differ between BPP and and BOP? - ANSWERBPP only covers property of others that the insured has leased and is contactually obligated to insure, the BOP covered others' property under the SAME LIMIT! What's the difference in business income limits between BCF and Business income coverage? - ANSWERBOP has a one-year limit, not a dollar limit (ordinary payroll is only covered for 60 days, however Which has a higher limit for both electronic data and interruption of computer operations, BPP or BOP? - ANSWERBOP ($10K for both) compared to $2.5K for BPP Which has higher limits for outdoor property, BPP or BOP? - ANSWERBOP ($2.5K/$500 per item) compared to $1K/250 per item for BPP What's the BOP deductible? - ANSWER$ Does the BOP use replacement cost or ACV? - ANSWERreplacement cost by default, but with ACV option. however, the following are ACV: art, property of others, household contents, used merchandise, manuscripts What does the insured collect if less than 80% coinsurance? (BOP) - ANSWERthe GREATER of ACV or [(cost to repair or replace - 500 deductible) x policy limit/(.8 x replacement cost)]..... if it was above 80% then it would just be replacement cost What is the aggregate limit for products-completed operations liability? - ANSWERtwice the per-occurence limit or 3-times the per-occurence limit by endorsement. Is a loss caused by a computer virus excluded under computer fraud? - ANSWERsee 17, don't think so On January 21, the manager at a large banking operation informs the risk manager that there has been an employee theft of $1,500,000 at the bank. The theft occurred in October 2, the previous year when the bank was insured with the same carrier under an ISO loss sustained commercial crime policy. There was no gap between the two

policies. Considering the time lapse, the bank manager asks the risk manager if they are covered by insurance. Which one of the following is the correct answer from the risk manager? - ANSWERYes. The Loss Sustained During Prior Insurance issued by Us or Any Affiliate condition provides coverage Which endorsement to an ISO Commercial Crime Coverage Form that would cover a hotel owner for its legal liability for property of persons to whom it rents rooms? - ANSWERGuests' Property endorsement (21) If an insurer wishes to cancel employee theft coverage because of a certain employee of the insured's, are they able to do so? - ANSWERYEs, but they have to give 30 days notice. What is the most common exclusion for commercial crime policies aside from the employee theft coverage form? - ANSWERloss caused by an employeee The Accounting or Arithmetical Errors or Omissions exclusion applies to which one of the following ISO Commercial Crime Coverage Form insuring agreements? - ANSWEROutside the premise Which coverage form excludes fraudulent warehouse receipts? - ANSWEREmployee theft What is the difference of employee theft limits between ISO Commercial Crime Policies and ISO Government Crime Policies? - ANSWERISO Government crime policies allow a per employee limit or per occurrence limit whereas the ISO Commercial Crime Policies are limited to a stated amount per occurrence, regardless of the numbers of employees. Company A's business was booming and they hired six additional employees during the first three months of the current policy period of its ISO Commercial Crime Coverage Form. They also had an opportunity to purchase company B and acquire the organization's assets and liabilities but not any of its employees. Company A did not inform their insurance agent of either of these activities. Six months after the acquisition of Company B, Company A submits a commercial crime claim when they discover an employee theft by one of the six new employees they had hired. Which one of the following statements describes whether their insurer will cover this loss? - ANSWERThere is coverage because of the policy condition that applies to additional employees. An employee at an accounting firm uses a third-party vendor's accounting software on a daily basis. During the course of employment at the firm, it is discovered that the employee published a copy of the accounting software on an open-source software site. As a result, the accounting firm must pay damages of $150,000 for the unauthorized reproduction of the software. The accounting firm has an ISO Commercial Crime

In an equipment breakdown policy, explosion caused by excessive internal pressure of steam is a breakdown loss that can occur to a _____? - ANSWERBoiler Ignoring business income what should determine the equipment breakdown limit when a policy covers a single location? A. Coinsurance requirements B. Catastrophic exposure C. Covered property value D. Jurisdictional inspections - ANSWERCovered Property Value An insured should set the limit for equipment breakdown business income coverage on the basis of which one of the following? - ANSWERThe estimated maximum loss of business income or the amount needed to comply with the Coinsurance condition, whichever is greater. What does the utility interruption insurance agreement (part of EBP) cover? - ANSWERIt extends business income coverage provided by the policy to include loss resulting from the breakdown of equipment owned by a local utility. Under equipment breakdown coverage, which one of the following meets the definition of a "breakdown?" A. Failure of vacuum equipment B. Failure of a safety device C. Damage to a vacuum tube D. Malfunction because of improper calibration - ANSWERFailure of vacuum equipment What is the main advantage for the insured under a BOP? - ANSWERit encompasses most property and liability needs of the insured. Is property in furnished rooms covered by an unendorsed or endorsed businessowners Coverage Form? - ANSWERUnendorsed The Completed Operations Aggregate Limit of the BOP may be increased by endorsement to ______ times the liability and medical expense limit. - ANSWERthree Which one of the following exposures is not included in a standard BOP, but can be purchased as an optional coverage? A. Forgery B. Electronic data C. Employee dishonesty D. Interruption of computer operations - ANSWEREmployee dishonesty Cindy owns an unendorsed Businessowners policy (BOP) on her cafe. Recently, a minor earthquake caused the cafe to suffer several damages. The glass windows in the front of the store were shattered and the outdoor seating was destroyed. Additionally,

the cafe's fire extinguisher was depleted and must be re-filled. Which of those losses would be covered? - ANSWERNone, because the BOP does not cover an earthquake as a cause of loss What are two coverages that are unique to the BOP and not included in BPP? - ANSWERGlass Expenses and Fire Extinguisher Recharge Expense. The Liability and Medical Expenses Limit in the Businessowners Policy is the equivalent of what limit or limits in the Commercial General Liability Policy? - ANSWERC. Both the Each Occurrence Limit and the Personal and Advertising Injury Limit Damage to excavations, foundations, underground pipes and flues are covered under which one of the following policies? A. Business Income Coverage Form B. Businessowners Coverage Form C. Business Contingent Coverage Form D. Business and Personal Property Coverage Form - ANSWERB. BCF An A&E Accounting Company (A&E) operates a bookkeeping business insured with an unendorsed Businessowners Policy (BOP). On rare occasions an A&E assistant will use a personal auto to drop off completed tax returns at the local post office on the way home from work. Recently, the assistant was involved in an at-fault accident en route to the post office. Which one of the following best describes how the BOP will handle this loss? - ANSWERThere will be no coverage because there isn't a Hired and NonOwned Auto endorsement on the policy. The businessowners policy (BOP) can be endorsed to provide professional liability for which one of the following types of professionals? A. Physicians B. Beauticians C. Lawyers D. Politicians - ANSWERBeauticians What are the 4 coverages (A, B, C, D) of the Farm Dwellings form? - ANSWERA - dwellings, B-other private striations appurtenant to dwellings, C-household personal property, D-loss of use What does the Farm Dwellings form exclude? - ANSWERfarm structures (barns, silos), farm personal property (feed, livestock, machinery) What are coverages E and F under a Farmowners policy? - ANSWERE-scheduled farm personal property F-unscheduled farm personal property What is the difference between scheduled classes and scheduled items under Scheduled Farm Personal Property Coverage (E) in terms of their limits when they are