P&C General Practice 2 — Questions and Answers
Question 1: Which of the following best describes the principle of indemnity in property and casualty insurance?
- The insured is restored to the same financial position as before the loss (Correct answer)
- The insured receives more than the actual loss to provide an incentive to prevent losses
- The insurer pays a fixed benefit regardless of the actual loss amount
- The insured must pay a deductible equal to the full value of the loss
Correct answer: The insured is restored to the same financial position as before the loss
The principle of indemnity states that insurance should restore the insured to the same financial position they were in before the loss, no better and no worse.
Question 2: A homeowner's policy excludes flood damage. After a storm, the insured's home suffers both wind and flood damage. What doctrine determines how losses are settled when a covered and excluded peril combine?
- Doctrine of concurrent causation (Correct answer)
- Principle of subrogation
- Doctrine of reasonable expectations
- Rule of contribution
Correct answer: Doctrine of concurrent causation
The doctrine of concurrent causation addresses how insurers handle losses caused by a combination of covered and excluded perils occurring simultaneously.
Question 3: Under a standard commercial general liability (CGL) policy, which coverage part pays for property damage caused by the insured's operations that occurs away from the insured's premises?
- Products and completed operations coverage
- Premises and operations coverage (Correct answer)
- Personal and advertising injury coverage
- Medical payments coverage
Correct answer: Premises and operations coverage
Premises and operations coverage under the CGL protects against bodily injury or property damage arising from the insured's ongoing operations, whether on or off the insured's premises.
Question 4: An insured purchases a $500,000 liability policy with a $1,000 per-occurrence deductible. A covered claim results in a $250,000 judgment. How much does the insurer pay?
- $249,000 (Correct answer)
- $250,000
- $499,000
- $500,000
Correct answer: $249,000
With a per-occurrence deductible, the insurer pays the claim amount minus the deductible: $250,000 − $1,000 = $249,000.
Question 5: Which of the following is NOT a component typically found in a standard insurance policy?
- Declarations page
- Insuring agreement
- Arbitration tribunal ruling (Correct answer)
- Exclusions section
Correct answer: Arbitration tribunal ruling
A standard insurance policy consists of the declarations, insuring agreement, conditions, exclusions, and definitions — an arbitration tribunal ruling is not a policy component.
Question 6: A business owner's policy (BOP) combines which two primary coverages?
- Commercial property and commercial general liability (Correct answer)
- Workers' compensation and employers' liability
- Commercial auto and inland marine
- Directors and officers liability and errors and omissions
Correct answer: Commercial property and commercial general liability
A BOP packages commercial property insurance and commercial general liability insurance into a single policy designed for small to mid-sized businesses.
Question 7: What is the purpose of a 'sunset clause' in a claims-made liability policy?
- It limits the time period after policy expiration during which claims can still be reported (Correct answer)
- It sets the maximum aggregate limit that can be paid during the policy period
- It requires the insurer to notify the insured 60 days before cancellation
- It extends the reporting period indefinitely for acts before the retroactive date
Correct answer: It limits the time period after policy expiration during which claims can still be reported
A sunset clause (also called an extended reporting period tail) limits how long after the policy expires the insured may report claims arising from covered acts during the policy period.
P&C General Practice 2
Which of the following best describes the principle of indemnity in property and casualty insurance?