Business Quiz: Miscellaneous Commercial Insurance

1. The insured knows that it might take several months for his damaged turbine to be fully repaired, so he authorizes $500 for temporary repairs so that production can resume. This expenditure would be covered under which coverage in the Equipment Breakdown Protection coverage form?

Spoilage

Errors or omissions

Expediting expense

Contingent business income

C is correct. This coverage extension covers the reasonable cost of temporary repairs and expedition (speeding up) of permanent repairs.

Explanation

C is correct. This coverage extension covers the reasonable cost of temporary repairs and expedition (speeding up) of permanent repairs.

2. Commercial insureds who need more Liability coverage than provided by a certain policy or want coverage for losses excluded by a certain policy should purchase which of the following?

Difference in Conditions policy

Commercial Umbrella policy

Surety bond

Fidelity bond

B is correct. Commercial Umbrella policies provide catastrophic Liability coverage for business risks. Because the Umbrella is not designed to handle usual or everyday exposures, the insured must have underlying Liability coverage before an Umbrella will be issued. The Umbrella can cover certain losses that are excluded by the underlying insurance.

Explanation

B is correct. Commercial Umbrella policies provide catastrophic Liability coverage for business risks. Because the Umbrella is not designed to handle usual or everyday exposures, the insured must have underlying Liability coverage before an Umbrella will be issued. The Umbrella can cover certain losses that are excluded by the underlying insurance.

3. Which one of the following answer choices lists all of the parties to a Surety bond?

Principal and obligee

Principal, obligee, surety

Surety and obligee

Principal and surety

B is correct. There are three parties to a Surety bond: the principal, the obligee, and the surety.

Explanation

B is correct. There are three parties to a Surety bond: the principal, the obligee, and the surety.

4. A breakdown of equipment covered under the Equipment Breakdown Protection coverage form results in the simultaneous breakdown of three other pieces of covered equipment. According to the form, how many "breakdowns" occurred in this loss?

One

Two

Three

Four

A is correct. One breakdown means that if an initial breakdown causes other breakdowns, all are considered a single breakdown. All breakdowns at any one premises that manifest themselves at the same time and are the direct result of the same cause are considered "one breakdown."

Explanation

A is correct. One breakdown means that if an initial breakdown causes other breakdowns, all are considered a single breakdown. All breakdowns at any one premises that manifest themselves at the same time and are the direct result of the same cause are considered "one breakdown."

5. Under the terms of the Suspension provision in the Equipment Breakdown Protection coverage form, coverage on dangerous equipment can be suspended when?

On 30 days' advance notice to the insured

At the end of the policy period

Immediately on delivery of written notice to the insured

On 15 days' advance notice when sent by certified mail

C is correct. The insurer can immediately suspend coverage whenever covered equipment is found to be in or exposed to a dangerous condition. Suspension applies only to that particular object and takes effect as soon as written notice is delivered to the insured.

Explanation

C is correct. The insurer can immediately suspend coverage whenever covered equipment is found to be in or exposed to a dangerous condition. Suspension applies only to that particular object and takes effect as soon as written notice is delivered to the insured.

6. How do deductibles apply in the Equipment Breakdown Protection coverage form?

Deductibles apply separately for each applicable coverage unless the deductibles are shown as "combined" for any two or more coverages.

A single deductible applies to all applicable coverages.

Deductibles are always stated as a specific dollar amount.

There are no deductibles under this coverage.

A is correct. Deductibles apply separately for each applicable coverage unless the deductibles are shown as "combined" for any two or more coverages. Depending on the coverage, the deductible might be expressed as a dollar amount, a time limit, a percentage of loss, or a multiple of daily value.

Explanation

A is correct. Deductibles apply separately for each applicable coverage unless the deductibles are shown as "combined" for any two or more coverages. Depending on the coverage, the deductible might be expressed as a dollar amount, a time limit, a percentage of loss, or a multiple of daily value.

7. Under the Equipment Breakdown Protection coverage form, which of the following causes of damage to covered equipment would not be a covered "breakdown"?

Electrical failure, including arcing

Leakage at any valve, fitting, shaft seal, gland packing, joint, or connection

Failure of pressure or vacuum equipment

Mechanical failure, including rupture or bursting caused by centrifugal force

B is correct. Under the Equipment Breakdown Protection coverage form, breakdown means the following types of direct physical loss that cause damage to covered equipment and necessitates its repair or replacement: failure of pressure or vacuum equipment, mechanical failure, including rupture or bursting caused by centrifugal force, and electrical failure, including arcing. Choice B is specifically excluded under this definition.

Explanation

B is correct. Under the Equipment Breakdown Protection coverage form, breakdown means the following types of direct physical loss that cause damage to covered equipment and necessitates its repair or replacement: failure of pressure or vacuum equipment, mechanical failure, including rupture or bursting caused by centrifugal force, and electrical failure, including arcing. Choice B is specifically excluded under this definition.

8. A business that wants coverage for its liability for employment-related acts can obtain it by purchasing which of the following?

CGL insurance

Workers Compensation and Employers Liability insurance

Employment Practices Liability insurance

Any of the above

C is correct. This coverage is provided by Employment Practices Liability insurance. The other policies listed specifically exclude losses arising out of employment-related practices.

Explanation

C is correct. This coverage is provided by Employment Practices Liability insurance. The other policies listed specifically exclude losses arising out of employment-related practices.

9. Which of the following statements apply to Professional Liability policies?

They cover the insured's liability arising out of rendering or failing to render services of a professional nature.

They duplicate the coverage provided by the CGL policy.

They are tailored to fit specific occupational needs.

They cover most general liability and automobile liability losses.

A and C are correct. Liability arising out of rendering or failing to render services of a professional nature is excluded under CGL policies. Special Professional Liability policies have been developed for many professionals, such as physicians, lawyers, and insurance agents. Each policy is tailored to fit a specific occupational need.

Explanation

A and C are correct. Liability arising out of rendering or failing to render services of a professional nature is excluded under CGL policies. Special Professional Liability policies have been developed for many professionals, such as physicians, lawyers, and insurance agents. Each policy is tailored to fit a specific occupational need.

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10. All of the following types of losses may be covered by the Equipment Breakdown Protection coverage form except which of the following?

Business income losses and/or extra expenses

Expediting expenses

Losses because of spoilage damage

Damage caused by fire or combustion explosion

D is correct. Business income and/or extra expense losses, expediting expenses, and spoilage damage are all coverage options in the Equipment Breakdown Protection coverage form. Damage caused by fire or combustion explosion is excluded because it is covered under Commercial Property insurance.

Explanation

D is correct. Business income and/or extra expense losses, expediting expenses, and spoilage damage are all coverage options in the Equipment Breakdown Protection coverage form. Damage caused by fire or combustion explosion is excluded because it is covered under Commercial Property insurance.

11. Which of the following may be covered under a Farm coverage part?

Farm buildings, equipment, and livestock

Liability arising out of farm operations

Growing crops

Farm dwelling and its personal property

A, B, and D are correct. Growing crops are not covered under a Farm coverage part.

Explanation

A, B, and D are correct. Growing crops are not covered under a Farm coverage part.

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12. Which of these statements regarding Difference in Conditions insurance are correct?

It excludes coverage for basic perils such as fire, lightning, and windstorm.

It is written in conjunction with policies that cover basic perils.

It does not have a deductible requirement.

It covers property and liability exposures.

A and B are correct. Difference in Conditions insurance is written to exclude the basic fire and extended coverage perils, but to include most other insurable perils that are not covered under Commercial Property coverage. Consequently, it is written in conjunction with policies providing the basic coverage excluded by the DIC policy. DIC policies are usually written on large risks with a high deductible.

Explanation

A and B are correct. Difference in Conditions insurance is written to exclude the basic fire and extended coverage perils, but to include most other insurable perils that are not covered under Commercial Property coverage. Consequently, it is written in conjunction with policies providing the basic coverage excluded by the DIC policy. DIC policies are usually written on large risks with a high deductible.

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