N.C. State Exam Practice

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  • 1/32 Questions

    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.
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About This Quiz


This test is focused on COMMERCIAL INSURANCE and is designed to provide practice for the state exam.
Some of the questions are designed to trick you, so READ VERY CAREFULLY.
There are questions which require arithmetic. Take your time.
There are 32 questions in the total bank. Each time you take it you'll pull 10 random questions from the bank.
You'll get a final score at the end.

N.C. State Exam Practice - Quiz

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  • 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

    Correct Answer
    A. True
    Explanation
    Yep. Coverage B includes personal injuries. PAGE 47.

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  • 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

    Correct Answer
    A. Extra Expense Form
    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.

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  • 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

    Correct Answer
    A. The Industrial Commission
    Explanation
    PAGE 50

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  • 5. 

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

    • Medical Expenses

    • Disability Expenses

    • Rehabilitation Benefits

    • Personal Injury Benefits

    Correct Answer
    A. Personal Injury Benefits
    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.

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  • 6. 

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

    • True

    • False

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

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  • 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.

    Correct Answer
    A. Covers all employees, but its limits are expressed on a per employee basis.
    Explanation
    If you see the word "Position", remember it's on a "per employee" basis because employees hold positions. PAGE 55

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  • 8. 

    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

    Correct Answer
    A. $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

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  • 9. 

    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

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

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  • 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

    Correct Answer
    A. Installation Floaters
    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

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  • 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.

    Correct Answer
    A. Is attached to the policy and describes the perils covered.
    Explanation
    PAGE 43

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  • 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

    Correct Answer
    A. $0
    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

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  • 13. 

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

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Job classifications and manual rates. PAGE 50

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  • 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

    Correct Answer
    A. Elevator Maintenance
    Explanation
    A business with an elevator is required to maintain it through a contract. Page 47

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  • 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

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

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  • 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

    Correct Answer
    A. True
    Explanation
    Sales must be below $1 million to be eligible for the Business Owners Policy. PAGE 52.

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  • 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.

    Correct Answer
    A. Nothing.
    Explanation
    All Medical Payments must be reported within 1 year of the accident. PAGE 47

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  • 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.

    Correct Answer
    A. On an excess basis only.
    Explanation
    The word "supplemental" should tip you off to the fact that it is in Excess (Supplemental to) any other policy. PAGE 49.

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  • 19. 

    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.

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

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  • 20. 

    The CPP specifially covers all of the following except:

    • Business Auto

    • Commercial Inland Marine

    • Boiler and Machinery

    • Motor Truck Cargo

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

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  • 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

    Correct Answer
    A. Household Personal Property (Contents)
    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

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  • 22. 

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

    • Reporting Form

    • Coverage Form

    • Occurrence Form

    • Assigned Risk Form

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

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  • 23. 

    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

    Correct Answer
    A. Products
    Explanation
    The finished product at the customer's location caused the damage. PAGE 47

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  • 24. 

    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

    Correct Answer
    A. $40,000
    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

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  • 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

    Correct Answer
    A. $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

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  • 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

    Correct Answer
    A. $0
    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

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  • 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.

    Correct Answer
    A. The purchaser goes bankrupt.
    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.

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  • 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.

    Correct Answer
    A. The claims made coverage could apply, but only on an excess basis.
    Explanation
    With no retroactive date established, both policies would apply, but the claims made would only apply in excess. PAGE 48-49

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  • 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

    Correct Answer
    A. More than $50,000 but less than $90,000
    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

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  • 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

    Correct Answer
    A. $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.

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  • 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

    Correct Answer
    A. Less than $25,000
    Explanation
    Woah! Bummer. The weight of snow is not covered on the Basic Form. They collect nothing. PAGE 43

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  • 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.

    Correct Answer
    A. $150,000
    Explanation
    The Agreed Value of $150,000. PAGE 45

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