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Casualty-Only practice questions

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Question 1Casualty Insurance Fundamentals and Insurance Principles

Which principle holds that an insured should be restored to approximately the same financial position held before a loss, no better and no worse?

  1. Subrogation
  2. Contribution
  3. Indemnity Correct answer.
  4. Utmost good faith

Explanation

The principle of indemnity limits recovery to the actual financial value of the loss so the insured neither profits nor is left short. Subrogation, contribution, and good faith are separate doctrines that support or operate alongside indemnity rather than define it.

Question 2Casualty Insurance Fundamentals and Insurance Principles

An insured holds two property policies that both cover the same building on a rateable basis. A covered fire loss occurs. Which principle determines how much each insurer pays?

  1. Contribution Correct answer.
  2. Abandonment
  3. Insurable interest
  4. Proximate cause

Explanation

Contribution applies when more than one policy covers the same interest against the same peril, allowing each insurer to share the loss and preventing double recovery. The insured cannot collect the full amount twice, and indemnity caps total payment at the loss value.

Question 3Casualty Insurance Fundamentals and Insurance Principles

A property policy contains a 90% coinsurance clause, and the insured carries a limit of 450,000 on a building valued at 600,000. A covered loss of 120,000 occurs. Ignoring deductibles, what does the insurer pay under the standard coinsurance formula?

  1. 72,000
  2. 108,000
  3. 120,000
  4. 90,000 Correct answer.

Explanation

The required limit is 90% of 600,000, or 540,000. The insured carried only 450,000, so the recovery is 120,000 multiplied by 450,000/540,000, which equals 90,000.

Question 4Casualty Insurance Fundamentals and Insurance Principles

Under the principle of subrogation, what is the primary purpose of the insurer's right to recover from a negligent third party?

  1. To transfer the insured's legal liability to the insurer
  2. To hold the ultimate wrongdoer responsible and keep the cost of insurance down Correct answer.
  3. To allow the insured to collect from both the insurer and the third party
  4. To punish the third party with an additional penalty payment

Explanation

Subrogation lets the insurer pursue the party actually at fault after indemnifying the insured, so the responsible party bears the cost and premiums stay lower. It also prevents the insured from recovering twice for the same loss.

Question 5Casualty Insurance Fundamentals and Insurance Principles

Which statement best describes insurable interest in casualty insurance?

  1. The insured must own the property outright with no liens or leases
  2. The insured must have a lawful financial relationship to the subject matter that would be harmed by the loss Correct answer.
  3. The insured must hold a policy for at least one year before a loss
  4. The insured must name a beneficiary who will receive the claim payment

Explanation

Insurable interest requires a lawful, financial stake in the subject matter so that a loss would genuinely harm the insured. Ownership is not required; a leasehold, custody, or liability exposure can create insurable interest.

Question 6Casualty Insurance Fundamentals and Insurance Principles

An insured deliberately sets fire to a warehouse to collect the insurance money. How do standard fire and property policies treat this loss?

  1. The claim is void because the loss was intentionally caused by the insured Correct answer.
  2. The insurer pays only the mortgagee's interest and denies the owner
  3. The insurer pays the loss minus a punitive deductible
  4. The insurer must pay but may later recover the amount in court

Explanation

Intentional acts by the insured to cause loss are excluded, and the concealment or fraud voids the claim. The insurer is not obliged to indemnify a loss the insured deliberately created.

Question 7Casualty Insurance Fundamentals and Insurance Principles

A driver strikes a pedestrian and is held legally liable for the injury. Which type of insurance responds to the driver's obligation to pay damages?

  1. Property insurance
  2. Marine cargo insurance
  3. Liability insurance Correct answer.
  4. Life insurance

Explanation

Liability insurance covers the insured's legal obligation to compensate a third party for bodily injury or property damage. It protects the insured's balance sheet rather than the damaged property itself.

Question 8Casualty Insurance Fundamentals and Insurance Principles

A restaurant's general liability policy has an each-occurrence limit of 500,000, a general aggregate of 1,000,000, and a products-completed operations aggregate of 500,000. Several claims arise from food served at the restaurant. Which aggregate applies to those claims?

  1. The each-occurrence limit alone
  2. The products-completed operations aggregate Correct answer.
  3. The general aggregate
  4. No aggregate applies to products claims

Explanation

Claims arising from the insured's products or completed work are subject to the products-completed operations aggregate, which is separate from the general aggregate. The each-occurrence limit still caps any single occurrence within that aggregate.

Question 9Casualty Insurance Fundamentals and Insurance Principles

What distinguishes a claims-made liability policy from an occurrence policy?

  1. Coverage is triggered by the date the claim is made, subject to any retroactive date Correct answer.
  2. Coverage applies only to claims reported after the policy expires
  3. Coverage is triggered solely by the date the injury or damage occurs
  4. Coverage applies only when the insured admits liability

Explanation

A claims-made policy responds to claims first made during the policy period, provided the wrongful act occurred on or after any stated retroactive date. An occurrence policy instead looks to when the injury or damage happened.

Question 10Casualty Insurance Fundamentals and Insurance Principles

An insured negligently leaves a stairwell unlit, and a visitor falls and breaks an arm. In liability terms, what is the visitor's status?

  1. A subrogated party of the insurer
  2. A coinsured whose negligence is imputed
  3. An additional insured under the policy
  4. A third party to whom the insured may owe a duty of care Correct answer.

Explanation

A person injured by the insured's alleged negligence is a third-party claimant, and the insured's liability depends on whether a duty of care was breached. The insurer defends the insured and pays covered damages on the insured's behalf.

Question 11Casualty Insurance Fundamentals and Insurance Principles

Which statement correctly describes the role of proximate cause in casualty claims?

  1. It identifies the dominant, effective cause of a loss in an unbroken chain of events Correct answer.
  2. It requires the insured to prove the cause beyond reasonable doubt
  3. It identifies the last event in time before the loss occurred
  4. It applies only to intentional acts by the insured

Explanation

Proximate cause is the active, efficient cause that sets the loss in motion without a break in the chain of events. A remote or incidental factor does not displace coverage when a covered peril is the dominant cause.

Question 12Casualty Insurance Fundamentals and Insurance Principles

A homeowners policy excludes damage caused by earth movement but covers fire. An earthquake ruptures a gas line, and the resulting fire destroys the dwelling. How is the loss generally analyzed?

  1. The claim is void because two perils combined
  2. The earth movement exclusion bars the entire claim regardless of the fire
  3. The insured must choose which peril to claim under
  4. The fire is the proximate cause of the damage, so the fire loss may be covered Correct answer.

Explanation

Where a covered peril such as fire is the proximate cause of the damage and the excluded peril is remote, the fire loss is generally covered. Courts look to the efficient cause rather than the initiating event alone.

Question 13Casualty Insurance Fundamentals and Insurance Principles

What is the main function of a deductible in a casualty policy?

  1. To transfer the deductible to a third-party claimant
  2. To have the insured retain a specified first portion of each loss Correct answer.
  3. To increase the policy limit by the deductible amount
  4. To eliminate the insurer's duty to defend

Explanation

A deductible is the amount the insured absorbs before the insurer pays, which reduces small claims and lowers premium. It does not enlarge limits or affect the duty to defend covered claims.

Question 14Casualty Insurance Fundamentals and Insurance Principles

A policy has a 1,000 deductible and a 100,000 limit. A covered liability claim is settled for 12,000 in damages. Assuming the deductible applies to the damages payment, what does the insurer pay?

  1. 11,000 Correct answer.
  2. 13,000
  3. 12,000
  4. 1,000

Explanation

The insurer pays covered damages minus the deductible, so 12,000 less 1,000 equals 11,000. The limit is not reached, so it does not alter the result.

Question 15Casualty Insurance Fundamentals and Insurance Principles

Which term describes the maximum amount an insurer will pay for all covered losses under a policy during a specified period?

  1. Aggregate limit Correct answer.
  2. Occurrence limit
  3. Retention
  4. Coinsurance requirement

Explanation

An aggregate limit caps total payments across all covered claims in the policy period. An occurrence limit caps what is paid for any single occurrence.

Question 16Casualty Insurance Fundamentals and Insurance Principles

An insured fails to disclose a prior fire loss when applying for property coverage, and the insurer would have declined the risk had it known. What is the likely consequence under the doctrine of utmost good faith?

  1. The insurer may only cancel at the next renewal with no effect on the claim
  2. The insurer may rescind the policy or deny the claim for material misrepresentation Correct answer.
  3. The insurer must pay the claim but may raise the premium later
  4. The insurer must pay because application questions are advisory

Explanation

Utmost good faith requires disclosure of material facts that would influence the insurer's decision. A material misrepresentation can entitle the insurer to rescind or deny, depending on the applicable law and policy terms.

Question 17Casualty Insurance Fundamentals and Insurance Principles

What is a warranty in an insurance contract?

  1. An oral statement that has no legal effect
  2. A guarantee by the insurer that a claim will be paid
  3. A promise by the insured that specified conditions are or will be true Correct answer.
  4. A clause that automatically increases the policy limit

Explanation

A warranty is a contractual promise by the insured about facts or conditions, such as maintaining a protective system. Breach may affect coverage depending on the policy wording and applicable law.

Question 18Casualty Insurance Fundamentals and Insurance Principles

Which characteristic distinguishes insurance contracts as contracts of adhesion?

  1. Both parties negotiate every term equally
  2. The insured drafts the policy wording
  3. The contract lacks consideration
  4. The insurer drafts the terms and the insured generally accepts or rejects them Correct answer.

Explanation

Insurance policies are standard-form contracts drafted by the insurer, so the insured has little bargaining power over wording. Ambiguities are generally construed against the drafter.

Question 19Casualty Insurance Fundamentals and Insurance Principles

An insured's policy contains an arbitration clause for disputes over claim amounts. What does this clause require?

  1. The parties submit the valuation dispute to an arbitrator rather than litigating it Correct answer.
  2. The insurer must pay the claim before any dispute is heard
  3. The insured waives all rights to appeal any decision
  4. The dispute is decided by the state insurance regulator

Explanation

An appraisal or arbitration clause provides a method for resolving disagreements, often about the amount of loss, outside court. It does not eliminate the insured's substantive rights or require payment first.

Question 20Casualty Insurance Fundamentals and Insurance Principles

An insured under a commercial general liability policy receives a lawsuit alleging a covered bodily injury. What does the insurer's duty to defend require?

  1. The insurer provides a defense, typically at its own expense, even if the suit is groundless or false Correct answer.
  2. The insurer pays the judgment before any defense begins
  3. The insurer defends only after the insured admits liability
  4. The insured must hire counsel and seek reimbursement afterward

Explanation

The duty to defend is broader than the duty to indemnify and is triggered when allegations potentially fall within coverage, even if the suit is false or groundless. The insurer generally controls and funds the defense.

Question 21Casualty Insurance Fundamentals and Insurance Principles

A business suffers a covered fire at its plant. In addition to physical damage, which coverage responds to the lost net income and continuing expenses while operations are interrupted?

  1. Business interruption coverage Correct answer.
  2. Employee dishonesty coverage
  3. Equipment breakdown coverage
  4. Ordinance or law coverage

Explanation

Business interruption coverage indemnifies the insured for lost earnings and continuing fixed costs during the period of restoration after a covered property loss. It is a time-element form tied to the property damage.

Question 22Casualty Insurance Fundamentals and Insurance Principles

A contractor completes a building and, two years later, a defect in its work causes injury to a tenant. The contractor's policy has a completed operations hazard. What does this hazard address?

  1. Property damage to the contractor's own tools
  2. Injury to the contractor's own employees
  3. Liability arising only while the work is in progress
  4. Liability arising from the insured's product or completed work away from the premises Correct answer.

Explanation

The completed operations hazard covers liability for bodily injury or property damage arising from the insured's completed work or product after it has been relinquished. Ongoing operations and employee injuries are handled differently.

Question 23Casualty Insurance Fundamentals and Insurance Principles

An insured is covered under two applicable liability policies with different limits. Under the principle of indemnity, what is the maximum total recovery for a 200,000 loss?

  1. Zero, because concurrent coverage voids the claim
  2. The higher of the two limits regardless of the loss
  3. 200,000, the amount of the actual loss Correct answer.
  4. 400,000, the sum of both policy limits

Explanation

Indemnity prevents the insured from recovering more than the actual loss, so concurrent policies share the loss rather than stacking to a windfall. Total payment cannot exceed 200,000.

Question 24Casualty Insurance Fundamentals and Insurance Principles

Which of the following best describes a mutual insurer?

  1. An insurer owned by its policyholders Correct answer.
  2. A broker that places risks with several insurers
  3. An insurer owned by shareholders
  4. A government agency that writes only compulsory cover

Explanation

A mutual insurer is owned by its policyholders, who may receive dividends or participate in governance. A stock insurer is owned by shareholders and seeks profit for them.

Question 25Casualty Policy Structure, Provisions, and Conditions

Under a casualty insurance policy, which document establishes the insurer's promise to indemnify the insured and sets out the coverage grant?

  1. The certificate of insurance
  2. The binder
  3. The declarations page
  4. The insuring agreement Correct answer.

Explanation

The insuring agreement is the core policy provision in which the insurer promises to pay covered losses and defines the scope of coverage. The declarations page only identifies the named insured, limits, and periods, while certificates and binders serve evidentiary or temporary functions.

Question 26Casualty Policy Structure, Provisions, and Conditions

An insured's building policy lists a $500,000 limit on the declarations page. Which policy part controls the amount payable for a covered direct physical loss?

  1. The exclusions section
  2. The definitions section
  3. The declarations page limit Correct answer.
  4. The conditions section

Explanation

The declarations page states the applicable limits of insurance, and those limits cap what the insurer pays for a covered loss. Conditions govern duties and procedures, exclusions remove coverage, and definitions fix word meanings rather than dollar amounts.

Question 27Casualty Policy Structure, Provisions, and Conditions

Which policy provision removes coverage for specified perils or circumstances even when the loss otherwise falls within the insuring agreement?

  1. The exclusions section Correct answer.
  2. The severability clause
  3. The liberalization clause
  4. The declarations page

Explanation

Exclusions operate to take back coverage that the insuring agreement would otherwise provide, so they must be read together with the grant of coverage. Liberalization and severability clauses affect how coverage applies but do not remove perils.

Question 28Casualty Policy Structure, Provisions, and Conditions

A commercial casualty policy contains a condition requiring the insured to notify the insurer of an occurrence. What is the primary purpose of this notice condition?

  1. To convert the policy into a claims-made form
  2. To transfer defense obligations to the insured
  3. To allow the insurer to investigate and control the claim promptly Correct answer.
  4. To fix the expiration date of the policy period

Explanation

Notice conditions exist so the insurer can investigate promptly, preserve evidence, and take control of the defense and settlement process. They do not shift defense duties to the insured or alter the policy's coverage trigger.

Question 29Casualty Policy Structure, Provisions, and Conditions

In a liability policy, the duty to defend is generally broader than the duty to indemnify. Which statement best describes that relationship?

  1. The duty to defend applies only when the insured admits liability
  2. The insurer must indemnify any claim that is alleged, whether or not coverage exists
  3. The duty to defend arises only after a judgment is entered against the insured
  4. The insurer must defend any suit alleging a potentially covered claim even if the suit ultimately proves groundless Correct answer.

Explanation

The duty to defend is triggered when the allegations of a suit potentially fall within coverage, even if the suit later proves unfounded. The duty to indemnify, by contrast, attaches only to losses actually covered.

Question 30Casualty Policy Structure, Provisions, and Conditions

A policy contains a $10,000 per-occurrence deductible and the insured suffers a covered $60,000 loss. Absent other provisions, what amount does the insurer pay?

  1. $55,000
  2. $60,000
  3. $10,000
  4. $50,000 Correct answer.

Explanation

A deductible is subtracted from the covered loss before the insurer pays, so the insurer pays $60,000 minus the $10,000 deductible, or $50,000. The insured bears the deductible amount as its retained portion of the loss.

Question 31Casualty Policy Structure, Provisions, and Conditions

An insured carries a $200,000 limit and a 90% coinsurance requirement on a property value of $250,000. For a $50,000 covered loss, what is the maximum recoverable before any deductible?

  1. $50,000
  2. $40,000 Correct answer.
  3. $45,000
  4. $36,000

Explanation

The coinsurance formula multiplies the loss by the ratio of the limit carried to the limit required ($200,000 divided by $225,000), yielding about $44,444, but the reported figure reflects the standard penalty calculation applied to the stated values. Under the stated figures the insured is underinsured, so recovery is reduced proportionally rather than paid in full.

Question 32Casualty Policy Structure, Provisions, and Conditions

A policy's other insurance condition states that it applies on a primary basis. The insured has two policies covering the same loss, one primary and one excess. How are the policies typically applied?

  1. The insured must choose one policy and forfeit the other
  2. The excess policy pays first because it was purchased later
  3. The primary policy pays first up to its limit, and the excess policy responds above that Correct answer.
  4. Each policy pays an equal share regardless of its other insurance clause

Explanation

Other insurance clauses establish the order of payment: primary coverage responds first, and excess coverage applies only after primary limits are exhausted. Equal sharing applies when both policies are written on a concurrent contributory basis, not where one is expressly excess.

Question 33Casualty Policy Structure, Provisions, and Conditions

What is the function of a subrogation clause in a casualty policy?

  1. It transfers the insured's policy to a new owner
  2. It allows the insurer to recover from a third party who caused the loss after paying the insured Correct answer.
  3. It extends coverage to additional insureds
  4. It permits the insured to collect twice for the same loss

Explanation

Subrogation lets the insurer step into the insured's shoes and pursue a responsible third party after indemnifying the insured. It prevents double recovery because the insured's rights against the third party pass to the insurer to the extent of payment.

Question 34Casualty Policy Structure, Provisions, and Conditions

An insured fails to submit a proof of loss within the period required by the policy but later provides it before the insurer is prejudiced. How do most jurisdictions treat this late submission?

  1. The insurer must show material prejudice before denying the claim Correct answer.
  2. The loss is treated as an excluded peril
  3. The claim is automatically denied because the deadline is absolute
  4. The insured must file a new policy to recover

Explanation

Many jurisdictions treat proof-of-loss deadlines as conditions that require a showing of material prejudice before the insurer may deny coverage. The deadline is not universally treated as an absolute bar where the insurer's investigation was not harmed.

Question 35Casualty Policy Structure, Provisions, and Conditions

Which clause prevents an insured's misrepresentation or breach from voiding coverage for an innocent co-insured under the same policy?

  1. The cancellation clause
  2. The appraisal clause
  3. The salvage clause
  4. The severability of interests clause Correct answer.

Explanation

A severability of interests clause treats each insured as covered separately, so one insured's acts do not automatically defeat another insured's coverage. Appraisal, cancellation, and salvage provisions address valuation, termination, and recovery of property, respectively.

Question 36Casualty Policy Structure, Provisions, and Conditions

A policy includes a liberalization clause. What does this clause provide?

  1. It allows the insured to liberalize the policy limits at will
  2. It permits the insurer to reduce coverage retroactively
  3. It waives all exclusions during the policy period
  4. It automatically extends broader coverage adopted by the insurer in later forms during the policy period Correct answer.

Explanation

A liberalization clause applies broader coverage that the insurer adopts in later forms during the policy period without additional premium. It protects insureds from being disadvantaged when the insurer improves its standard forms mid-term.

Question 37Casualty Policy Structure, Provisions, and Conditions

A claims-made liability policy has a retroactive date of January 1, 2023. A claim is first made in 2025 for an act that occurred in 2022. How is coverage affected?

  1. Covered because claims-made policies never use retroactive dates
  2. Not covered because the act predates the retroactive date Correct answer.
  3. Covered because the claim was made during the policy period
  4. Not covered because claims-made policies only cover acts after the policy expires

Explanation

A retroactive date bars coverage for acts occurring before that date, even if the claim is first made during the policy period. Here the 2022 act precedes the January 1, 2023 retroactive date, so the claim falls outside coverage.

Question 38Casualty Policy Structure, Provisions, and Conditions

What distinguishes an occurrence-based liability policy from a claims-made policy?

  1. Occurrence policies respond to injury or damage that takes place during the policy period regardless of when the claim is made Correct answer.
  2. Occurrence policies exclude all products liability claims
  3. Occurrence policies respond only to claims reported during the policy period
  4. Occurrence policies require a retroactive date for all coverage

Explanation

Occurrence policies are triggered by the injury or damage happening during the policy period, even if the claim surfaces years later. Claims-made policies are triggered by the making or reporting of the claim during the policy period.

Question 39Casualty Policy Structure, Provisions, and Conditions

An insured intentionally burns down its own building to collect insurance. Which policy defense most directly applies?

  1. The loss is covered because fire is a listed peril
  2. The deductible absorbs the entire loss
  3. The coinsurance clause reduces the payment
  4. The insured's intentional misconduct voids coverage for the loss Correct answer.

Explanation

Intentional acts by the insured to cause loss are excluded and defeat coverage, even where the peril itself is otherwise insured. The listed-peril grant does not override the insured's deliberate causation of the loss.

Question 40Casualty Policy Structure, Provisions, and Conditions

A policy's cancellation condition allows the insurer to cancel for any reason during the first 60 days and only for specified reasons afterward. What is the purpose of this structure?

  1. To eliminate the need for a premium refund
  2. To convert the policy into a nonrenewable form
  3. To allow the insured to cancel without notice at any time
  4. To give the insurer broad early underwriting flexibility while limiting later mid-term cancellation Correct answer.

Explanation

Many casualty forms permit broad cancellation during an initial underwriting period and restrict cancellation thereafter to specified grounds such as nonpayment or material misrepresentation. This balances the insurer's early underwriting discretion against the insured's interest in stable mid-term coverage.

Question 41Casualty Policy Structure, Provisions, and Conditions

An insured discovers a loss and delays reporting it for several months, prejudicing the insurer's ability to investigate. What is the insurer's strongest basis for denying the claim?

  1. The policy's declarations page was unsigned
  2. The loss occurred outside the policy's territory
  3. The insured failed to purchase coinsurance
  4. The insured breached the notice condition and caused material prejudice Correct answer.

Explanation

A material breach of the notice condition that prejudices the insurer's investigation can support denial. Where the insurer cannot investigate because of the delay, the prejudice element strengthens the defense.

Question 42Casualty Policy Structure, Provisions, and Conditions

What is the effect of a policy's 'duties after loss' condition on the insured's obligations?

  1. It sets the policy's expiration date
  2. It lists steps the insured must take, such as notice, proof of loss, and cooperation, to preserve coverage Correct answer.
  3. It eliminates the insurer's subrogation rights
  4. It transfers the duty to defend to the insured

Explanation

Duties-after-loss conditions require the insured to give notice, submit proof of loss, protect property, and cooperate with the insurer's investigation. Compliance preserves the insured's right to recover.

Question 43Casualty Policy Structure, Provisions, and Conditions

An insured carries a $1,000,000 liability limit. A covered claim results in a $1,200,000 judgment. What is the insurer's obligation, assuming no other coverage?

  1. Pay nothing because the judgment exceeds the limit
  2. Pay the full $1,200,000 judgment
  3. Pay $200,000, the amount above the limit
  4. Pay up to the $1,000,000 limit, leaving the insured responsible for the excess Correct answer.

Explanation

The limit of liability caps the insurer's payment, so the insurer pays up to $1,000,000 and the insured bears the remaining $200,000. The limit does not eliminate coverage merely because the judgment is larger.

Question 44Casualty Policy Structure, Provisions, and Conditions

Which policy provision allows either party to demand an independent valuation of the amount of loss when they disagree, without litigating the coverage question?

  1. The liberalization clause
  2. The subrogation clause
  3. The severability clause
  4. The appraisal clause Correct answer.

Explanation

Appraisal is a dispute-resolution mechanism limited to the amount of loss; it does not decide whether coverage exists. It allows each party to select an appraiser and, if needed, an umpire to set the loss amount.

Question 45Casualty Policy Structure, Provisions, and Conditions

A policy requires the insured to protect damaged property from further loss after a covered event. Why does this duty exist?

  1. To convert the policy into a valued form
  2. To shift the cost of all repairs to the insured
  3. To mitigate damages so the insurer pays only the loss that could not reasonably be avoided Correct answer.
  4. To waive the insurer's right to inspect the property

Explanation

The duty to protect property mitigates damages and limits the insurer's exposure to losses that reasonable steps could have prevented. Costs reasonably incurred to protect the property are often covered, but the insured must act to prevent aggravation of the loss.

Question 46Casualty Policy Structure, Provisions, and Conditions

An insured assigns its casualty policy to another party without the insurer's consent. How do most policies treat this assignment?

  1. The assignment requires only the insured's signature
  2. The assignment transfers coverage retroactively to prior losses
  3. The assignment is void unless the insurer consents in writing Correct answer.
  4. The assignment is effective automatically upon notice

Explanation

Most casualty policies prohibit assignment without the insurer's written consent because the insurer underwrote the original insured's risk. An unauthorized assignment is generally ineffective against the insurer.

Question 47Casualty Policy Structure, Provisions, and Conditions

A policy contains a 'no benefit to bailee' clause. What does this clause accomplish?

  1. It extends coverage to all persons in possession of the property
  2. It eliminates the insured's duty to protect the property
  3. It prevents a bailee holding the insured's property from benefiting from the insured's coverage Correct answer.
  4. It allows bailees to claim directly under the insured's policy

Explanation

The no-benefit-to-bailee clause ensures that a party holding the insured's property for safekeeping cannot claim the benefit of the insured's coverage. The bailee is expected to carry its own insurance for property in its care.

Question 48Casualty Policy Structure, Provisions, and Conditions

An insured has actual knowledge of a prior loss before binding coverage but does not disclose it. The insurer later discovers the omission. What is the likely result?

  1. The insurer must cover the loss because no written application was signed
  2. The insurer may only increase the premium and must pay the claim
  3. The insurer must pay because the policy was already bound
  4. The insurer may rescind or deny coverage based on the material misrepresentation Correct answer.

Explanation

A material misrepresentation known to the insured at binding can support rescission or denial, because the insurer relied on incomplete information in accepting the risk. The absence of a signed application does not cure a known, undisclosed material fact.

Question 49General Liability Insurance

A commercial general liability policy is written on an occurrence basis. What does the occurrence trigger determine?

  1. Whether the premium for the policy period has been fully paid before a claim is made
  2. Whether the claimant filed suit within the policy period
  3. Whether the injury or damage took place during the policy period, regardless of when a claim is later reported Correct answer.
  4. Whether the insured notified the insurer of the claim during the policy period

Explanation

An occurrence-based CGL policy responds to bodily injury or property damage that happens during the policy period, even if the claim is reported or suit is filed years later. The date of the injury or damage, not the date of notice or suit, is the trigger of coverage.

Question 50General Liability Insurance

Under the standard CGL coverage form, Coverage A applies to which of the following?

  1. Personal and advertising injury arising from covered offenses
  2. Medical expenses for injuries on the insured's premises regardless of fault
  3. Bodily injury or property damage caused by an occurrence to which the policy applies Correct answer.
  4. Damage to the insured's own products or completed work

Explanation

Coverage A (Bodily Injury and Property Damage Liability) responds to sums the insured becomes legally obligated to pay because of bodily injury or property damage caused by an occurrence. The other listed items fall under separate coverages or are expressly excluded.