PGI Advanced General Insurance Principles 1 — Questions and Answers
Question 1: What is the difference between 'occurrence-based' and 'claims-made' liability policies?
- There is no practical difference between the two
- Occurrence-based covers incidents happening during the policy period regardless of when claimed; claims-made covers claims first made during the policy period (Correct answer)
- Claims-made policies are cheaper but provide less coverage
- Occurrence-based applies only to property insurance
Correct answer: Occurrence-based covers incidents happening during the policy period regardless of when claimed; claims-made covers claims first made during the policy period
An occurrence-based policy covers losses arising from incidents that happen during the policy period, regardless of when the claim is made. A claims-made policy only covers claims first notified during the policy period, regardless of when the incident occurred.
Question 2: What is 'contingent liability' in commercial general liability insurance?
- Liability that is certain to occur
- Liability that arises from the actions of independent contractors or subsidiaries rather than the insured directly (Correct answer)
- Liability that exceeds the policy limit
- Liability for environmental pollution
Correct answer: Liability that arises from the actions of independent contractors or subsidiaries rather than the insured directly
Contingent liability arises when the insured is held legally responsible for the acts or omissions of another party (e.g., independent contractors, subsidiaries) over whom they have some degree of control or responsibility.
Question 3: What does 'retroactive date' mean in a claims-made liability policy?
- The date the policy is renewed
- The earliest date from which incidents will be covered under the claims-made policy (Correct answer)
- The date the previous insurer's coverage ended
- The date the insured first became liable
Correct answer: The earliest date from which incidents will be covered under the claims-made policy
The retroactive date in a claims-made policy is the earliest date from which an incident must have occurred for the resulting claim to be covered. Claims arising from incidents before this date are excluded.
Question 4: What is 'extended reporting period' (tail coverage) in a claims-made policy?
- An extension of the policy period for new incidents
- A period after policy expiry during which claims can be reported for incidents that occurred during the policy period (Correct answer)
- An automatic renewal of the policy for a shorter period
- Coverage for incidents during the extended period only
Correct answer: A period after policy expiry during which claims can be reported for incidents that occurred during the policy period
Extended reporting period allows the insured, after policy expiry, to report claims for incidents that occurred during the policy period. This is critical when switching from claims-made to occurrence coverage or when a business closes.
Question 5: What is 'products completed operations' coverage and when does it apply?
- Coverage during the manufacturing process only
- Coverage for bodily injury or property damage arising from completed products or finished operations away from the insured's premises (Correct answer)
- Coverage for raw materials before they become products
- Coverage only while products are in transit
Correct answer: Coverage for bodily injury or property damage arising from completed products or finished operations away from the insured's premises
Products completed operations coverage applies after a product has been sold and delivered, or an operation has been completed. It covers liability for injury or damage caused by the product or completed work away from the insured's premises.
Question 6: What is 'professional indemnity' (PI) insurance and what gap does it fill?
- PI covers physical injury to professionals at work
- PI covers financial loss caused to clients due to negligent professional advice or services, a gap not covered by standard liability policies (Correct answer)
- PI covers the professional's own legal fees only
- PI is identical to general liability insurance
Correct answer: PI covers financial loss caused to clients due to negligent professional advice or services, a gap not covered by standard liability policies
Professional indemnity insurance covers the insured professional's legal liability for financial loss caused to clients due to negligent advice, errors, or omissions in providing professional services — a specific gap that general liability policies typically exclude.
PGI Advanced General Insurance Principles 1
What is the difference between 'occurrence-based' and 'claims-made' liability policies?