Principles of Risk Management and Insurance: Principles of Risk Management and Insurance - Chapter 23 Flashcards

All of the following persons are insured for personal liability under the homeowners policy EXCEPT

1. A) children of the named insured under age 24 who are attending college full time and temporarily residing elsewhere.
2. B) foster children under the age of 21 who reside with the named insured.
3. C) nonresident employees of the named insured.
4. D) the spouse of the named insured if a resident of the same household.

Persons insured for personal liability under the homeowners policy include which of the following?

1. Relatives while visiting the named insured.
2. Overnight guests who are not relatives of the named insured.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following statements about the personal liability coverage (Coverage E) of an unendorsed homeowners policy is true?

1. A) Coverage is written on an accident basis.
2. B) Coverage is provided for bodily injury liability.
3. C) Coverage is provided for business and professional liability.
4. D) Coverage is provided for personal injury liability.

Which of the following statements about the insurer's obligation to provide a legal defense under the personal liability coverage (Coverage E) of the homeowners policy is (are) true?

1. The insurer agrees to defend the insured only if the suit is not groundless, false, or fraudulent.
2. The insurer's obligation to defend the insured ceases after the amount paid for damages from an occurrence equals the policy limit.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following statements about the coverage for medical payments to others (Coverage F) under the homeowners policy is true?

1. A) Medical payments may be made for any resident of the named insured's household.
2. B) Medical expenses incurred within 3 years of an accident are covered.
3. C) Medical payments are made only if the insured is not legally liable.
4. D) Covered medical expenses are limited to emergency room charges.

Which of the following persons is (are) eligible for benefits under medical payments to others (Coverage F) of the homeowners policy?

1. A friend who slips and falls on a wet patio while visiting the named insured
2. A neighborhood child who is severely scratched by a cat in the care of the named insured
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

All of the following are considered insured locations for medical payments to others (Coverage F) under a homeowners policy EXCEPT

1. A) a new vacation home purchased by an insured during the policy period.
2. B) a motel room where an insured is temporarily residing.
3. C) a hall rented by the insured for her daughter's graduation party.
4. D) farmland owned by the insured.

Section II of the homeowners policy has exclusions applying to all of the following EXCEPT

1. A) activities of the named insured's minor children.
2. B) business activities.
3. C) transmission of a communicable disease.
4. D) intentional injuries.

All of the following situations are excluded from coverage under Section II of the homeowners policy EXCEPT

1. A) the rental of a spare bedroom which is used by the tenant as an office.
2. B) the use of a rented airplane to take a vacation.
3. C) the ownership of a ten-unit apartment house as an investment.
4. D) the performance of professional services by the insured at the residence premises.

Which of the following situations is covered under Section II of an unendorsed homeowners policy?

1. A) injuries which occur at a park resulting from a motorcycle owned by the insured
2. B) injuries resulting from an auto not subject to registration because it is in dead storage
3. C) injuries resulting from an auto rented by the insured while on a vacation
4. D) injuries resulting from a trailer being pulled by the insured's auto

Which of the following statements regarding watercraft liability under Section II of an unendorsed HO-3 policy is (are) true?

1. No coverage is available for watercraft liability.
2. Liability arising out of the use of watercraft that are under certain length and horsepower limits is covered.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following situations would be covered under Section II of a homeowners policy?

1. The insured is sued by his girlfriend because he infected her with the AIDS virus.
2. The insured's son is sued after a friend suffered serious injury as a result of using illegal drugs sold to him by the son.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

For which of the following situations would there be personal liability coverage under the homeowners policy?

1. The named insured accidentally injures her husband with a hammer.
2. The named insured breaks his wife's valuable vase while practicing his golf swing.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

All of the following are exclusions in the homeowners policy that apply to medical payments to others (Coverage F) EXCEPT

1. A) bodily injury resulting from nuclear radiation.
2. B) bodily injury to persons who are social guests at the insured location.
3. C) bodily injury to persons eligible to receive workers compensation benefits.
4. D) bodily injury to residents of the household who are in the care of an insured.

Which of the following statements about the additional coverages included in Section II of the homeowners policy is true?

1. A) Damage to property of others is covered only if the insured is legally liable.
2. B) Damage to property arising out of a business engaged in by the insured is covered.
3. C) Interest that accrues on a judgment after the judgment is awarded but before the judgment is paid is covered under claims expenses.
4. D) First aid expenses incurred by the insured for a bodily injury covered under the policy are not covered.

Which of the following statements about the additional coverage for damage to property of others in Section II of the homeowners policy is true?

1. A) The maximum amount of coverage is $25,000 per occurrence.
2. B) Payments are made on the basis of the replacement cost of the damaged property.
3. C) There is coverage for property damage arising out of a business engaged in on a full-time basis by an insured.
4. D) There is coverage for intentional property damage by any insured who is a teenager.

Liability arising out of which of the following is covered under the personal injury endorsement to the homeowners policy?

1. A) bodily injury
2. B) property damage
3. C) slander
4. D) professional liability

Liability arising out of which of the following is covered under the personal injury endorsement to the homeowners policy?

1. A) property damage liability
2. B) false arrest
3. C) bodily injury
4. D) business liability

Factors that affect the cost of homeowners insurance include which of the following?

1. Construction material
2. Deductible amount
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following statements about endorsements to the homeowners policy is (are) true?

1. The purpose of the inflation guard endorsement is to help prevent home owners from being under-insured.
2. The purpose of the watercraft endorsement is to provide coverage for watercraft when they are used outside the United States.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following statements about buying homeowners insurance is true?

1. A) There is no reason to carry insurance for more than 80 percent of a dwelling's replacement cost.
2. B) The deduction for depreciation will be increased if a personal property replacement cost endorsement is purchased.
3. C) Premiums often can be reduced substantially by selecting a higher deductible.
4. D) There is little reason to compare cost since the lack of competition results in little price variation among companies.

Which of the following statements about an earthquake endorsement for a homeowners policy is (are) true?

1. The endorsement also covers landslides and volcanic eruptions.
2. The coverage for earthquakes is written without a deductible.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following statements about the personal property replacement cost endorsement used with the homeowners policy is (are) true?

1. The damaged or destroyed property must be repaired or replaced, no matter the size of the loss.
2. It is designed primarily for antiques and fine art.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following statements about the scheduled personal property endorsement to the homeowners policy is (are) true?

1. It provides named-perils coverage on scheduled items.
2. It can be used to insure valuable items such as jewelry, silverware, and coin collections.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following losses would be covered under Section II of an unendorsed Homeowners 3 policy?

1. A) The homeowner accidentally dropped a bowling ball, injuring another bowler's foot.
2. B) The homeowner's nanny was injured on her day off while hiking at a state park.
3. C) The insured slandered a city council member at a city council meeting.
4. D) The homeowner's dog bit the homeowner's daughter.

Tom is planning to build a home. He is weighing many factors, including construction materials, location, and other considerations. Which of the following statements is true with regard to homeowners insurance and Tom's new home?

1. A) The higher the construction costs are in the area, the lower Tom's homeowners insurance premiums will be.
2. B) The lower the homeowners deductible selected, the lower the premium will be.
3. C) Older homes cost more to insure than newer homes.
4. D) A wood frame home costs less to insure than a brick home.

Robert purchased an unendorsed Homeowners 3 policy. He is concerned that if his personal property is destroyed, the insurer will take depreciation into consideration when determining the loss settlement and will pay him less than the amount needed to purchase new property. Which endorsement can Robert add to his Homeowners 3 policy to address this concern?

1. A) inflation guard endorsement
2. B) personal injury endorsement
3. C) personal property replacement cost endorsement
4. D) earthquake endorsement

Gail lives near a fault line. She added an earthquake endorsement to her Homeowners 3 policy. All of the following statements about the endorsement are true EXCEPT

1. A) The deductible is expressed as a percentage of the coverage limit rather than as a dollar amount.
2. B) The endorsement also covers landslides and volcanic eruptions.
3. C) Aftershocks occurring within 72 hours of an earthquake are considered part of the same occurrence.
4. D) The endorsement also covers flood losses.

Jane would like to save money on her homeowners premium. All of the following steps will help her to reduce her homeowners premium EXCEPT

1. A) raising the deductible in the homeowners policy to a higher amount.
2. B) shopping around a homeowners policy.
3. C) installing burglar alarms, smoke detectors, and dead-bolt locks.
4. D) adding a personal property replacement cost endorsement.

All of the following are endorsements that can be added to an ISO Homeowners 3 policy EXCEPT:

1. A) personal property replacement cost endorsement.
2. B) scheduled personal property endorsement.
3. C) earthquake endorsement.
4. D) personal liability endorsement.

All of the following losses are excluded from coverage under Section II of an unendorsed Homeowners 3 policy EXCEPT

1. A) Phyllis, a medical technician, misread a lab test and the patient is suing her.
2. B) While using his canoe, Bert hit another canoe. The other canoe sank. Bert is being sued.
3. C) Violet runs a for-profit daycare service in her home. The parents of a child injured while in Violet's care are suing Violet.
4. D) The homeowner's son was injured when he fell off a swing in the homeowner's yard.

Which of the following losses would be covered under the medical payments coverage of the Homeowners 3 policy?

1. A) injuries to another person arising out of the insured's negligent operation of an automobile
2. B) medical payments resulting from the transmission of a communicable disease
3. C) injury to a resident employee at the insured's home
4. D) workers compensation medical payments

Which of the following losses would be covered under the personal liability coverage (Coverage E) of an unendorsed Homeowners 3 policy?

1. A) liability arising out of the manufacture and sale of illegal narcotics
2. B) liability arising out of damage to a neighbor's property that occurred over time
3. C) liability arising out of a business operated in the home.
4. D) liability arising out of bodily injury to an insured

Tom and Tammy Evans were ready to purchase a home. The home was to serve as collateral for their mortgage loan. Two insurers declined to insure the home, citing "an adverse CLUE report." Why would an insurer reject a homeowners insurance application because of an adverse CLUE report?

1. A) because the previous owner had defaulted on the mortgage loan
2. B) because the home is located in an area where the zoning law had been changed
3. C) because there had been property insurance claims filed on the home’s previous owner
4. D) because the home is located in an area that does not have a certified fire department

Which of the following statements is (are) true concerning the use of an individual's credit history as an insurance rating factor?

1. Individuals with poor credit histories, as a group, generally file fewer homeowners claims than do individuals with good credit histories.
2. A poor credit history can be improved over time, allowing for the purchase of homeowners insurance at a lower premium.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

A credit-based score that is highly predictive of future claims cost is an individual's

1. A) CLUE score.
2. B) insurance score.
3. C) motor vehicle record score.
4. D) underwriting score.

Which of the following statements is (are) true concerning the home business insurance coverage endorsement?

1. It increases the coverage on business personal property at the insured residence from $2,500 to the Coverage C limit.
2. It excludes coverage for liability arising out of the home business.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

One of the "Tips for Buying a Homeowners Policy" is to consider purchasing a personal umbrella policy. What coverage is provided by a personal umbrella policy?

1. A) blanket property coverage for any damage caused by water
2. B) excess liability coverage and coverage for some liability claims excluded by underlying policies
3. C) all-risk, replacement cost, property coverage
4. D) coverage for business and professional liability

Which of the following statements is true regarding the Homeowners 3 policy and identity theft?

1. A) Identity theft is covered under Coverage D—Loss of Use.
2. B) Identity theft is covered under Coverage C—Personal Property.
3. C) Identity theft is covered under Coverage E—Personal Liability.
4. D) Identity theft is covered by adding an endorsement.

Which of the following statements concerning the scheduled personal property endorsement with agreed value loss settlement is (are) true?

1. The endorsement provides open-perils ("all-risks") coverage on the scheduled property.
2. Losses under the endorsement are settled on an actual cash value basis.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

John purchased an unendorsed Homeowners 3 policy. The coverage will expire next month. Which of the following changes will lower the premium that John will pay?

1. A) reducing the deductible
2. B) adding a replacement cost endorsement for personal property
3. C) switching to an HO-2 policy
4. D) adding a personal injury endorsement

Liability arising out of which of the following is covered under Coverage E of an unendorsed Homeowners 3 policy?

1. A) use of the insured's auto on a public road
2. B) use of the insured's golf cart at a golf course
3. C) use of the insured's motorcycle on a highway
4. D) use of the insured's 40-foot boat with a 200 horsepower engine

Which of the following statements regarding the Coverage E limit in the homeowners policy is true?

1. A) It is an aggregate limit, and once the amount paid for one or more claims reaches the limit, no additional coverage is provided.
2. B) The limit applies only if a court orders the insured to pay—there is no coverage for settlements reached out-of-court.
3. C) Any legal defense costs incurred by the insurer are counted against the limit of liability.
4. D) The limit applies on a per-occurrence basis to bodily injury and property damage liability.

Which of the following statements regarding Section II conditions under the homeowners policy is true?

1. A) Other insurance is handled on a pro rata basis.
2. B) Under no circumstances may the insured bring a lawsuit against the insurer.
3. C) The liability limit is the same regardless of the number of persons injured in a covered occurrence.
4. D) There is no requirement for the insured to submit written notification of a possible claim to the insurer.

Which of the following statements regarding Section II coverage under the Homeowners 3 policy is true?

1. A) Medical payments to others are covered regardless of whether the insured is legally liable.
2. B) Legal defense costs incurred by the insurer to defend the insured reduce the per-occurrence limit of liability available.
3. C) The insurer is not required to defend the insured against a groundless, false, or fraudulent lawsuit.
4. D) Any amount paid under medical payments coverage reduces the personal liability limit available for the same claim.

Which statement regarding Section II of an unendoresed homeowners 3 policy is true?

1. A) Liability arising from intentional property damage caused by the insured’s teenager is covered.
2. B) Liability arising out of a home business is not covered.
3. C) Medical expenses for the insured’s injured child are covered.
4. D) First-aid expenses for injuries suffered by guest at the home are not covered.

Which of the following statements about Coverage E: Personal Liability under the homeowners 3 policy is true?

1. A) Losses attributable to personal injury are covered.
2. B) The liability limit stated in the policy is an aggregate limit for the policy period.
3. C) The insured must be legally liable for insurer to pay damages.
4. D) Bodily injury liability only applies to injuries that occur at the insured dwelling.

Polly purchased a Homeowners 3 policy. She has a swing set in the backyard of her home. While her son and the neighbor’s child were using the swing set, it collapsed. Both of the children required medical care. Which of the following statements is true?

1. A) The medical expenses Polly’s son are covered under the policy.
2. B) The medical expenses of the neighbor’s child are covered under the policy.
3. C) If Polly’s son sues Polly and wins, the insurer will pay the damage award.
4. D) If the neighbor sues Polly, Polly must pay for the lawyer who defends the suit.