N.C. State Exam Practice

1. R is the obligee in a construction contract for building. This best means:

They are the owner for whom the building is being constructed.

They are the contractor constructing the building.

They are neither the owner nor the contractor.

They will have to pay a bond.

The obligee is the individual for whom the performance is being done.

The obligor is the individual on the hook to perform. In this case the builder/contractor.

PAGE 55

Explanation

The obligee is the individual for whom the performance is being done.

The obligor is the individual on the hook to perform. In this case the builder/contractor.

PAGE 55

2. L Corporation, a retailer buys a Commecial General Liability policy. 45 days later they are sued by a customer because the customer was yelled at and called names by one of L's employees in the store. L is protected by Coverage B of the CGL.

True

False

Yep. Coverage B includes personal injuries. PAGE 47.

Explanation

Yep. Coverage B includes personal injuries. PAGE 47.

3. Company X is a manufacturer of hand-made wooden barrels and operates out of a leased building Their wooden barrels are valuable and indispensable to the local cheese industry so they must operate 24 hours a day, 7 days a week. Which of the following is the most likely kind of insurance Company X would hold?

Extra Expense Form

Assigned Risk Form

Completed Value Form

Installation Form

Since Company X does not own the building, they don't need to insure it under a commercial property policy. However, since they'll have to keep operating to keep the cheese industry supplied even if the building suffers a loss, Company X will want any extra expenses covered. PAGE 45.

Explanation

Since Company X does not own the building, they don't need to insure it under a commercial property policy. However, since they'll have to keep operating to keep the cheese industry supplied even if the building suffers a loss, Company X will want any extra expenses covered. PAGE 45.

4. All disputes concerning Workers Compensation issues are referred to:

The North Carolina Rate Bureau

The Industrial Commission

The North Carolina Commissioner of Insurance

The North Carolina Underwriting Association

PAGE 50

Explanation

PAGE 50

5. All of the following are Part I Benefits of Worker's Compensation except:

Medical Expenses

Disability Expenses

Rehabilitation Benefits

Personal Injury Benefits

Worker's compensation is a form of insurance that provides benefits to employees who are injured or become ill as a result of their job. Medical expenses, disability expenses, and rehabilitation benefits are all part of the benefits provided by worker's compensation. However, personal injury benefits are not typically included in worker's compensation coverage. Personal injury benefits typically refer to compensation received through a personal injury lawsuit, which is separate from worker's compensation.

Explanation

Worker's compensation is a form of insurance that provides benefits to employees who are injured or become ill as a result of their job. Medical expenses, disability expenses, and rehabilitation benefits are all part of the benefits provided by worker's compensation. However, personal injury benefits are not typically included in worker's compensation coverage. Personal injury benefits typically refer to compensation received through a personal injury lawsuit, which is separate from worker's compensation.

6. For a potential liability under a CGL policy, a civil tort need not be alleged.

True

False

Someone's got to file suit (allege a civil tort), generally for negligence, libel, slander, breach of contract etc. PAGE 46

Explanation

Someone's got to file suit (allege a civil tort), generally for negligence, libel, slander, breach of contract etc. PAGE 46

7. A Blanket Position Fidelity Bond:

Covers all employees, but its limits are expressed on a per employee basis.

Covers multiple employees, but lists them by job title rather than name.

Covers all employees and its limits are expressed on a per loss basis.

Covers several named employees.

If you see the word "Position", remember it's on a "per employee" basis because employees hold positions. PAGE 55

Explanation

If you see the word "Position", remember it's on a "per employee" basis because employees hold positions. PAGE 55

8. In the BAP, designation is done by a numerical system on the declaration page. Those listed as #8 are:

Hired autos only

Non-owned autos only

Owned autos only

Trucks only

#8 lists Hired autos only including leased, hired, rented or borrowed. PAGE 52

Explanation

#8 lists Hired autos only including leased, hired, rented or borrowed. PAGE 52

9. Quick and Dirty Paper Company has a fire which partially destroys their paper mill valued at $200,000. The loss was valued at $100,000. They held a Building and Personal Property Coverage Form on the property with a limit of $90,000 and a co-insurance requirement of 90%. They only have coverage through the Basic Form perils. If the deductible is $20,000 how much will their insurer pay?

$0

$20,000

$30,000

$45,000

Their "Did" = $90,000
Their "Should" = $200,000 x 90% = $180,000
So their Did/Should = 90,000/180,000 = 0.50 or 1/2
Therefor they'll collect: 50% (or 1/2) of the loss =(0.5 x $100,000) - deductible of $20,000 = $30,000

Explanation

Their "Did" = $90,000
Their "Should" = $200,000 x 90% = $180,000
So their Did/Should = 90,000/180,000 = 0.50 or 1/2
Therefor they'll collect: 50% (or 1/2) of the loss =(0.5 x $100,000) - deductible of $20,000 = $30,000

10. Shaky Structures Inc., a building contractor, needs to protect property such as electrical equipment and air conditioning units at a construction site. Which is the best choice of the following to provide such protection?

Installation Floaters

Builders Risks

Bailees Policy

BOP

Installation Floaters covers items which will be installed in a building (not building materials) like heating and air conditioning units, elevators etc. PAGE 54

Explanation

Installation Floaters covers items which will be installed in a building (not building materials) like heating and air conditioning units, elevators etc. PAGE 54

11. The Cause of Loss Form:

Is used for providing evidence of a loss.

Is provided by the insured to report a possible liability claim.

Protects a contractor's off-premises equipment only.

Is attached to the policy and describes the perils covered.

PAGE 43

Explanation

PAGE 43

12. Smeary Pens Incorporated has Building and Personal Property Coverage written under the Basic Cause of Loss Form with a $250,000 limit, co-insurance of 80% and a deductible of $5,000. During Halloween, a group of kids with slingshots shot out 5 windows each containing 2 glass panes. What's the maximum Smeary's insurer will pay for the damage.

$0

$500

$5,000

$1,000

The Basic Cause of Loss Form does not cover glass breakage due to vandalism.

If they had the Broad Form they'd have received payment of $500 (the per occurrence limit) PAGE 43

Explanation

The Basic Cause of Loss Form does not cover glass breakage due to vandalism.

If they had the Broad Form they'd have received payment of $500 (the per occurrence limit) PAGE 43

13. Basic rates for workers compensation insurance are based upon a system of job classifications and geographic locations.

True

False

Job classifications and manual rates. PAGE 50

Explanation

Job classifications and manual rates. PAGE 50

14. Contractual Liability protects against liability assumed under a contract. Which of the following is a common situation where a business is almost forced to assume liability?

Elevator Maintenance

Boiler Maintenance

A Surety Bond

Supplementary Maintenance

A business with an elevator is required to maintain it through a contract. Page 47

Explanation

A business with an elevator is required to maintain it through a contract. Page 47

15. Which of the following is not an optional coverage altering the valuation of a loss?

Agreed Value

Inflation Guard

Replacement Cost

Maximum Period of Indemnity

Maximum Period of Indemnity is an optional coverage under Business Income, not valuation of tangible losses.
PAGE 44, 45

Explanation

Maximum Period of Indemnity is an optional coverage under Business Income, not valuation of tangible losses.
PAGE 44, 45

16. The Shelac Shack is a high-end nail salon catering to Charlotte-based celebrities. Business has been very good and has grown to over $2 million in sales. At this level of sales they are not eligible for BOP.

True

False

Sales must be below $1 million to be eligible for the Business Owners Policy. PAGE 52.

Explanation

Sales must be below $1 million to be eligible for the Business Owners Policy. PAGE 52.

17. A supplier is visiting the Soggy Tater Chips Company and while walking through the plant slips on a potato peel, falling and injuring herself. She goes to the hospital and is charged $700 for a nurse to put a bandaid on the her elbow. Exactly 400 days later, she remembers to send the bill to the Soggy Tater Chip Company. How much will she collect?

All $700

Nothing.

Not enough information given to figure it out.

Somewhere between $0 and $700 depending on the deductible.

All Medical Payments must be reported within 1 year of the accident. PAGE 47

Explanation

All Medical Payments must be reported within 1 year of the accident. PAGE 47

18. A Supplememental ERP provides coverage:

Of a limited duration.

On an excess basis only.

Requires purchase within 60 days of the end of the policy period.

Covers only damage done to tangible items.

The word "supplemental" should tip you off to the fact that it is in Excess (Supplemental to) any other policy. PAGE 49.

Explanation

The word "supplemental" should tip you off to the fact that it is in Excess (Supplemental to) any other policy. PAGE 49.

19. The CPP specifially covers all of the following except:

Business Auto

Commercial Inland Marine

Boiler and Machinery

Motor Truck Cargo

CPP = Commercial Package Policies. Motor Truck Cargo is covered under Inland Marine Insurance. PAGE 54, 55

Explanation

CPP = Commercial Package Policies. Motor Truck Cargo is covered under Inland Marine Insurance. PAGE 54, 55

20. Which of the following is not true about the BOP?

Part B is regarding Business Personal Property.

Settlement for Part B is on a replacement part basis.

There is no value limit placed on Loss of Income.

Any losses will be paid on an Actual Cash Value basis.

The statement "Any losses will be paid on an Actual Cash Value basis" is not true about the BOP. The BOP, or Business Owners Policy, typically provides coverage for business personal property, loss of income, and other liabilities. However, the BOP usually pays for losses on a replacement cost basis, not on an actual cash value basis. This means that the insurance company will reimburse the policyholder for the cost of replacing the damaged or stolen property, rather than its depreciated value.

Explanation

The statement "Any losses will be paid on an Actual Cash Value basis" is not true about the BOP. The BOP, or Business Owners Policy, typically provides coverage for business personal property, loss of income, and other liabilities. However, the BOP usually pays for losses on a replacement cost basis, not on an actual cash value basis. This means that the insurance company will reimburse the policyholder for the cost of replacing the damaged or stolen property, rather than its depreciated value.

21. Under Farmowners/Ranchowners policies, Coverage B includes:

Other structures, including barns and other out-buildings

Loss of Use

Household Personal Property (Contents)

Blanket Farm Personal Property

Under homeowners Coverage B is for other structures. However in this case it's for Household Personal Property. Coverage F is for barns, buildings, structures and granaries. PAGE 53

Explanation

Under homeowners Coverage B is for other structures. However in this case it's for Household Personal Property. Coverage F is for barns, buildings, structures and granaries. PAGE 53

22. L bought a fountain pen from Leaky Pen Company and set it on her desk. That night, it leaked down an electrical cord and into an electric outlet causing a fire which damaged L's home. Which portion of the CGL sublines most applies?

Completed Operations

Products

Property Damage

Premises

The finished product at the customer's location caused the damage. PAGE 47

Explanation

The finished product at the customer's location caused the damage. PAGE 47

23. The fire marshal declared the factory of Broken Tooth Gears unsafe for use due to a violation of the fire code by a neighboring business. BTG has Extra Expense Coverage for $100,000. They have been operating out of a temporary location for 6 weeks. What's the maximum their insurer will pay?

Nothing. It's not a direct covered peril.

$40,000 less a deductible

$80,000 less a deductible

$40,000

Civil authority losses are limited to 3 weeks (21 days). This means the maximum the insurer will pay is 40% of the policy limit = 100,000 x 0.40 = $40,000. There's never a deductible on indirect losses. PAGE 46

Explanation

Civil authority losses are limited to 3 weeks (21 days). This means the maximum the insurer will pay is 40% of the policy limit = 100,000 x 0.40 = $40,000. There's never a deductible on indirect losses. PAGE 46

24. Which of the following is a form in which Builders Risk is written?

Reporting Form

Coverage Form

Occurrence Form

Assigned Risk Form

Builders Risk is written in one of two forms: Completed Value Form or the Reporting Form. Page 51

Explanation

Builders Risk is written in one of two forms: Completed Value Form or the Reporting Form. Page 51

25. D had been temporarily disabled for 28 days. While working D's average weekly earnings were $600 per week. How much in Workers Compensation disability benefits will D collect?

$600

$1600

$2400

$1200

D will collect 28 days worth (4 weeks) at a rate of 2/3 his weekly average earnings of $600.

2/3 of $600 = $400

$400 x 4 weeks = $1600

Explanation

D will collect 28 days worth (4 weeks) at a rate of 2/3 his weekly average earnings of $600.

2/3 of $600 = $400

$400 x 4 weeks = $1600

26. Bent and Broken Auto Repair fixes minor body damage to Mercedes Benz automobiles. They carried $1,000,000 in Garage Liability. On the night of July 4th, fireworks lands on the roof of the business and it burns to the ground, also destroying 3 cars all together valued at $120,000. The building and equipment was worth $800,000 and there was a 80% co-insurance requirement and a $10,000 deductible. What will Bent and Broken be paid by their insurer?

$0

$900,000

$910,000

$1,000,000

Garage Liability will pay nothing for property damage. If they had Garage KEEPERS Liability they'd have at least been covered for the loss of the autos in their care, custody and control. PAGE 52

Explanation

Garage Liability will pay nothing for property damage. If they had Garage KEEPERS Liability they'd have at least been covered for the loss of the autos in their care, custody and control. PAGE 52

27. All of the following cease Builders Risk coverage except:

The purchaser goes bankrupt.

The purchaser places a receptionist just inside the main entry to the building.

The builder's interest in the property ceases.

90 days have passed after construction is completed.

Just because the purchaser of the building has gone bankrupt does not cause the Builder's Risk coverage to cease. For the list, see PAGE 51.

Explanation

Just because the purchaser of the building has gone bankrupt does not cause the Builder's Risk coverage to cease. For the list, see PAGE 51.

28. Tacky Ink Incorporated sells only ink products at retail for ink jet printers, fountain pens and tattoo artists. They have a CGL policy witten on an Occurance Basis. On September 1, 2011 S slipped in a small puddle of yellow ink which had leaked from a faulty package. On September 30, 2011 Tacky Ink changed insurers of their CGL and switched to a Claims Made basis. There is no retroactive date. Which of the following is true?

The claims made coverage could apply, but only on an excess basis.

The claims made coverage never would apply.

The occurrence claims coverage would never apply.

The occurrence claims coverage could apply but only on an excess basis.

With no retroactive date established, both policies would apply, but the claims made would only apply in excess. PAGE 48-49

Explanation

With no retroactive date established, both policies would apply, but the claims made would only apply in excess. PAGE 48-49

29. Smeary Pen Company makes roller ball pens which each cost $2 to make, and they each sell for $10. They have orders for 5,000 pens when the factory is partially destroyed in a lightning strike. They own the factory (valued at $400,000) and the building loss is $50,000. 1,000 pens are destroyed. The company carries a Building and Personal Property Special Coverage Form with a limit of $300,000 a $5,000 deductible and a 70% co-insurance requirement. How much will the Smeary Pen Company recover for their loss of pens and the building?

More than $50,000 but less than $90,000

$90,000 or more

More than $25,000 but less than $50,000

Less than $25,000

Woah! Bummer. Lightning. But they're covered because lightning is covered on all 3 forms.

They're insured beyond their co-insurance requirement: 300,000/400,000 = 3/4 = 75%

So they collect on the loss of the building $50,000 - deductible of $5,000 = $45,000

They also collect on the pens already sold which are destroyed = 1,000 pens x $10 (selling price) = $10,000

So they collect a total of $55,000 on the loss.

PAGE 43

Explanation

Woah! Bummer. Lightning. But they're covered because lightning is covered on all 3 forms.

They're insured beyond their co-insurance requirement: 300,000/400,000 = 3/4 = 75%

So they collect on the loss of the building $50,000 - deductible of $5,000 = $45,000

They also collect on the pens already sold which are destroyed = 1,000 pens x $10 (selling price) = $10,000

So they collect a total of $55,000 on the loss.

PAGE 43

30. Leaky Pens Company has suffered a judgement $3 million against it in a liability case. Fortunately they have sufficient CGL coverage with Insurer C with a liability limit of $7 million. They also have concurrent coverage with Insurer S with a limit of $2.5 million. How much will Insurer S be responsible to pay?

$3 million

$1.5 million

Nothing

$2.5 million

Each will pay a contribution by equal shares so Insurer S will pay out $1.5 million while Insurer C also pays out $1.5 million.

Explanation

Each will pay a contribution by equal shares so Insurer S will pay out $1.5 million while Insurer C also pays out $1.5 million.

31. Leaky Pen Company makes fountain pens which each cost $1 to make, and they each sell for $10. They have orders for 10,000 pens when the factory roof collapses under the weight of snow. They own the factory and the building loss is $50,000. 5,000 pens are destroyed. The company carries a Building and Personal Property Basic Coverage Form with a limit of $100,000 a $10,000 deductible and and no co-insurance requirement. How much will the Leaky Pen Company recover for their loss of pens and the building?

More than $50,000 but less than $90,000

$90,000 or more

More than $25,000 but less than $50,000

Less than $25,000

Woah! Bummer. The weight of snow is not covered on the Basic Form. They collect nothing. PAGE 43

Explanation

Woah! Bummer. The weight of snow is not covered on the Basic Form. They collect nothing. PAGE 43

32. Quick and Dirty Paper Company has Business Income Coverage. Their $200,000 paper mill burned down from a spark from what they believe was an employee's cigarette causing them to lose income of $10,000 every 30 days. They've lost 90 days of business so far. Under additional Business Income coverage they have Agreed Value coverage worth $150,000. What's the maximum their insurer will pay for Business Income Coverage?

$30,000

$150,000

$120,000

Nothing.

The Agreed Value of $150,000. PAGE 45

Explanation

The Agreed Value of $150,000. PAGE 45