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III IC-74 practice questions

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Question 1Liability Insurance

Under a standard commercial general liability (CGL) occurrence-form policy, which loss trigger requires that the bodily injury or property damage occur during the policy period, regardless of when the claim is later reported?

  1. Claims-made trigger
  2. Extended reporting trigger
  3. Occurrence trigger Correct answer.
  4. Reported-and-known trigger

Explanation

The occurrence form responds to injury or damage that takes place during the policy period, even if the claim surfaces years later. Reporting delay generally does not defeat coverage as long as the occurrence falls inside the period and notice conditions are met.

Question 2Liability Insurance

A claims-made liability policy has a retroactive date of 1 January 2023. A wrongful act was committed in November 2022 and the claim is first made in 2024 during the policy period. How does the retroactive date affect coverage?

  1. The claim is covered only if an extended reporting period is purchased
  2. The claim is excluded because the wrongful act predates the retroactive date Correct answer.
  3. The claim is automatically covered under the prior acts extension
  4. The claim is covered because it was first made during the policy period

Explanation

A retroactive date bars coverage for wrongful acts committed before that date, even when the claim is first made during the current policy period. Because the 2022 act precedes the 1 January 2023 retroactive date, the claim falls outside coverage.

Question 3Liability Insurance

Which coverage part of a CGL policy responds to sums the insured becomes legally obligated to pay as damages because of bodily injury or property damage caused by an occurrence?

  1. Coverage A - Bodily Injury and Property Damage Liability Correct answer.
  2. Coverage B - Personal and Advertising Injury Liability
  3. Coverage C - Medical Payments
  4. Coverage D - Damage to Premises Rented to You

Explanation

Coverage A is the core liability grant for bodily injury and property damage caused by an occurrence. The other coverage parts address different exposures such as offenses like libel, no-fault medical payments, and fire damage to rented premises.

Question 4Liability Insurance

An insured's employee is injured on the job and the injury is compensable under the workers compensation statute. How does the CGL employers liability exclusion typically treat a subsequent tort claim by the employee against the employer?

  1. It is covered because the employee is not an insured
  2. It is excluded only if the employer has no workers compensation policy
  3. It is covered up to the medical payments limit
  4. It is excluded for bodily injury to an employee arising out of and in the course of employment Correct answer.

Explanation

The employers liability exclusion removes coverage for bodily injury to an employee arising out of and in the course of employment. This avoids duplicating the workers compensation system, which is the intended source of recovery for such injuries.

Question 5Liability Insurance

In liability insurance, what does the term 'occurrence' generally mean under an occurrence-based CGL form?

  1. An accident, including continuous or repeated exposure to substantially the same general harmful conditions Correct answer.
  2. A written demand received during the policy period
  3. A deliberate act by the insured that causes foreseeable harm
  4. Any single claim presented by a third party

Explanation

The CGL definition of occurrence centers on an accident and expressly includes continuous or repeated exposure to substantially the same general harmful conditions. This allows progressive damage, such as long-term exposure, to be treated as an occurrence.

Question 6Liability Insurance

An additional insured endorsement on a CGL policy most commonly serves which purpose?

  1. It extends coverage to another party for liability arising out of the named insured's operations or premises Correct answer.
  2. It removes the requirement to provide notice of claims
  3. It increases the aggregate limit available to the named insured
  4. It converts an occurrence policy into a claims-made policy

Explanation

Additional insured endorsements extend protected status to parties such as landlords, clients, or general contractors for liability connected to the named insured's work or premises. The endorsement usually limits that protection to vicarious or operations-related exposure rather than the additional insured's own independent negligence.

Question 7Liability Insurance

A products-completed operations hazard under a CGL policy is designed to respond to which exposure?

  1. Liability assumed under an architect's professional contract
  2. Damage to the insured's own product while in inventory
  3. Bodily injury or property damage arising out of the insured's product or completed work away from the premises Correct answer.
  4. Injury to employees during manufacturing on the insured's premises

Explanation

The products-completed operations hazard covers BI or PD occurring away from the insured's premises and arising out of products or completed work. It is typically subject to its own aggregate limit separate from the general aggregate.

Question 8Liability Insurance

How does a self-insured retention (SIR) in a liability policy generally differ from a deductible?

  1. An SIR is paid by the insurer and reimbursed later, while a deductible is paid by the insured upfront
  2. An SIR applies only to claims-made policies, while a deductible applies only to occurrence policies
  3. An SIR typically requires the insured to fund losses and often defense costs before the insurer responds, while a deductible usually reduces the amount paid per claim Correct answer.
  4. An SIR and a deductible are functionally identical in every liability policy

Explanation

An SIR obligates the insured to absorb losses (and often defense) up to the retention before the insurer pays, functioning like self-insurance. A deductible more commonly reduces the insurer's payment by a fixed amount per claim, and the insurer may handle defense from the outset.

Question 9Liability Insurance

Which limit in a CGL policy caps the total amount payable for all claims during the policy period, apart from the products-completed operations aggregate?

  1. General aggregate limit Correct answer.
  2. Each occurrence limit
  3. Personal and advertising injury limit
  4. Damage to premises rented to you limit

Explanation

The general aggregate limit caps total payments for covered claims in the policy period, excluding those subject to the separate products-completed operations aggregate. The occurrence limit caps each single occurrence instead.

Question 10Liability Insurance

An insured receives a written demand for damages and delays notifying the insurer for several months without excuse. Under a claims-made policy, what is the most likely consequence?

  1. The retroactive date is reset to the date of notice
  2. Coverage is automatically doubled to compensate the claimant
  3. The insurer may deny coverage if late notice prejudiced its position and the policy conditions require prompt notice Correct answer.
  4. Coverage is unaffected because notice is a courtesy

Explanation

Claims-made policies condition coverage on notice being given during the policy period or any applicable extended reporting period. Unjustified late notice that prejudices the insurer can support a denial, especially where the claim is first made outside the reporting window.

Question 11Liability Insurance

The 'your work' exclusion in a CGL policy primarily bars coverage for which situation?

  1. Personal injury from a libelous statement by the insured
  2. Property damage to the insured's completed work performed by or on behalf of the insured Correct answer.
  3. Medical expenses for a visitor injured on the insured's premises
  4. Bodily injury to a customer caused by the insured's product

Explanation

The your work exclusion removes coverage for damage to the insured's own work, since repairing or replacing faulty workmanship is a business risk rather than third-party liability. It does not eliminate coverage for resulting bodily injury or damage to other property in many circumstances.

Question 12Liability Insurance

Which of the following best describes an umbrella liability policy relative to underlying primary liability policies?

  1. It applies solely to automobile liability
  2. It provides excess limits above underlying limits and may drop down for some exposures not covered by the underlying Correct answer.
  3. It only covers professional liability exposures
  4. It replaces the underlying policies entirely

Explanation

Umbrellas sit above scheduled underlying policies and pay excess limits once those are exhausted. They may also drop down to cover certain exposures the underlying policies exclude, subject to a self-insured retention.

Question 13Liability Insurance

A professional liability policy written on a claims-made basis typically covers which type of loss?

  1. Bodily injury to a visitor from a slip and fall
  2. Economic loss from negligent advice or professional error Correct answer.
  3. Damage to the insured's own office building
  4. Employee injury covered by workers compensation

Explanation

Professional liability (errors and omissions) responds to claims arising from the rendering or failure to render professional services, usually involving financial loss rather than physical injury. General liability forms typically exclude professional services.

Question 14Liability Insurance

Under a CGL policy, the 'care, custody, or control' exclusion most directly bars coverage for which loss?

  1. Bodily injury to a bystander from the insured's operations
  2. Damage to a third party's building caused by the insured's separate negligence
  3. Damage to a customer's property that is in the insured's care for repair Correct answer.
  4. Personal injury from an offense committed by the insured

Explanation

The care, custody, or control exclusion removes coverage for damage to personal property in the insured's charge, such as goods being repaired or stored. The rationale is that the insured is better positioned to protect property it controls and should insure it under property coverage.

Question 15Liability Insurance

Which statement correctly distinguishes a claims-made policy's extended reporting period (ERP) from a reinstated policy period?

  1. An ERP provides new coverage for future wrongful acts, while a reinstated period only extends reporting time
  2. An ERP extends the time to report claims already first made during the policy period, while a reinstated policy period provides new coverage for future claims Correct answer.
  3. Both terms describe identical coverage with no functional difference
  4. An ERP eliminates the retroactive date

Explanation

An extended reporting period gives the insured additional time to report claims that are first made after the policy expires but arise from acts during the policy period. A reinstated or new policy period provides fresh coverage for future claims, subject to its own terms and retroactive date.

Question 16Liability Insurance

The supplementary payments provision in a CGL policy typically covers which of the following in addition to the limits of liability?

  1. Defense costs and certain expenses such as premiums on appeal bonds Correct answer.
  2. Punitive damages awarded against the insured
  3. Fines imposed for statutory violations
  4. The insured's lost business income

Explanation

Supplementary payments cover defense costs and related expenses, such as appeal bond premiums, in addition to the limits of liability. This means defense spending generally does not erode the liability limits.

Question 17Liability Insurance

An insured contractor's faulty workmanship causes damage only to the project it was hired to build, with no damage to other property. How does the your work exclusion typically apply?

  1. It converts the claim into a professional liability claim
  2. It bars coverage for the cost of repairing or replacing the defective work itself Correct answer.
  3. It bars coverage only if a third party is injured
  4. It has no effect because faulty workmanship is always an occurrence

Explanation

The your work exclusion is aimed at the cost of correcting the insured's own defective workmanship, which is treated as a business risk. Damage to other property or resulting bodily injury may still be covered depending on the form and jurisdiction.

Question 18Liability Insurance

Which of these is a typical exclusion found in a commercial general liability policy?

  1. Liability arising from the insured's advertising that infringes copyright in some forms Correct answer.
  2. Liability for bodily injury caused by the insured's premises
  3. Medical payments to a visitor injured on the premises
  4. Liability for property damage caused by the insured's operations

Explanation

CGL forms commonly exclude certain intellectual property offenses, such as copyright and patent infringement, from personal and advertising injury coverage. Premises and operations liability and medical payments are core grants rather than exclusions.

Question 19Liability Insurance

A vendor's endorsement on a CGL policy is intended to provide coverage to which party?

  1. A subcontractor working on the named insured's site
  2. A distributor or retailer selling the named insured's products Correct answer.
  3. The named insured's landlord
  4. The named insured's employees

Explanation

Vendor's endorsements extend products liability protection to distributors or retailers who sell the named insured's products. This supports the distribution chain without requiring each vendor to obtain its own products coverage.

Question 20Liability Insurance

In a claims-made liability policy, the 'prior and pending litigation' exclusion generally bars coverage for which claim?

  1. A claim first made during the policy period involving litigation that began before the policy's inception Correct answer.
  2. A claim reported during an extended reporting period
  3. A claim for a wrongful act after the retroactive date
  4. A claim first made after the policy period for an act during the policy period

Explanation

The prior and pending litigation exclusion prevents insureds from obtaining coverage for litigation already underway when the policy begins. It protects insurers from adverse selection by parties who know a claim already exists.

Question 21Liability Insurance

What is the primary purpose of a liability policy's 'duty to defend' provision?

  1. To require the insured to hire its own attorney at all times
  2. To require the insurer to provide a legal defense for covered claims, often even for groundless suits Correct answer.
  3. To transfer defense obligations to the claimant
  4. To limit defense costs to a fixed percentage of the claim

Explanation

The duty to defend obligates the insurer to defend covered claims, and it is generally broader than the duty to indemnify, extending even to groundless or false suits. Defense costs are usually paid in addition to limits under supplementary payments.

Question 22Liability Insurance

An insured operates a fleet of delivery vehicles. Which policy is most appropriate to cover liability for bodily injury and property damage caused by those vehicles?

  1. Professional liability policy
  2. Commercial auto liability policy Correct answer.
  3. Workers compensation policy
  4. Commercial general liability policy

Explanation

Commercial auto liability covers liability arising from the ownership, maintenance, or use of covered autos. The CGL policy typically excludes auto liability, so a separate commercial auto policy is needed.

Question 23Liability Insurance

Which of the following correctly describes the relationship between the each occurrence limit and the general aggregate limit in a CGL policy?

  1. The general aggregate applies per claim and the occurrence limit caps total payments
  2. The occurrence limit is always higher than the aggregate limit
  3. Both limits apply only to products-completed operations
  4. The each occurrence limit applies per claim and the general aggregate caps total payments for the policy period Correct answer.

Explanation

The each occurrence limit caps what the insurer pays for any one occurrence, while the general aggregate caps total payments for all covered claims in the policy period. Once the aggregate is exhausted, no further payments are made for the period.

Question 24Liability Insurance

A liability policy includes a 'per person' and 'per occurrence' limit structure. A single accident injures three people. How do the limits typically respond?

  1. The per person limit applies to each injured person, subject to the per occurrence limit for the accident Correct answer.
  2. Only the per person limit applies with no overall cap
  3. Only the per occurrence limit applies and the per person limit is ignored
  4. Each injured person receives the full per occurrence limit

Explanation

In a per person/per occurrence structure, each injured person's damages are subject to the per person limit, and the total for the accident is capped by the per occurrence limit. This prevents total payouts from exceeding the occurrence cap even with multiple claimants.

Question 25Liability Insurance

An insured knowingly continues an activity after receiving a warning that harm is substantially certain to result. How does the 'expected or intended injury' exclusion typically apply to the resulting harm?

  1. Coverage is barred because the harm was expected or intended from the insured's standpoint Correct answer.
  2. Coverage applies because intent is irrelevant in liability insurance
  3. Coverage applies because the act itself was not specifically aimed at the victim
  4. Coverage applies only if the victim was a stranger

Explanation

The expected or intended injury exclusion bars coverage when the insured expected or intended the resulting harm, even without specific intent to injure a particular person. Substantial certainty of harm can satisfy the exclusion in many jurisdictions.

Question 26Liability Insurance

Under the standard CGL coverage form, what is the function of the 'medical payments' coverage part?

  1. It pays reasonable medical expenses for bodily injury on the insured's premises or arising from its operations, without regard to fault Correct answer.
  2. It pays only after the insured has been found legally liable by a court
  3. It reimburses the insured for medical costs of its own employees injured on the job
  4. It provides first-party health insurance to the insured's customers

Explanation

Medical payments coverage under a CGL form responds to bodily injury of third parties on a no-fault basis, paying reasonable and necessary medical expenses within a stated limit and time period. Because fault is not required, it avoids the need to establish negligence before making a payment.

Question 27Liability Insurance

In liability insurance terminology, what does 'occurrence' generally mean in a CGL policy?

  1. Any event that results in injury or damage, including continuous or repeated exposure to substantially the same harmful conditions Correct answer.
  2. A claim first made in writing against the insured during the policy period
  3. A scheduled inspection performed by the insurer's risk control staff
  4. Only a sudden, accidental event that happens at a single identifiable moment

Explanation

The CGL definition of occurrence is broad: an accident, including continuous or repeated exposure to substantially the same general harmful conditions, that results in bodily injury or property damage. This wording is what allows progressive damage such as long-term exposure to a harmful substance to be treated as one occurrence.

Question 28Liability Insurance

An insured's employee is injured while operating machinery at the insured's plant. How does the standard CGL policy treat this loss?

  1. It is excluded, because the policy does not cover bodily injury to an employee arising out of and in the course of employment Correct answer.
  2. It is covered as a supplementary payment outside the limits
  3. It is covered, but only after the employer's deductible is satisfied
  4. It is covered as an occurrence because the injury happened on the insured's premises

Explanation

The employer's liability exclusion removes bodily injury to employees arising out of and in the course of employment from CGL coverage. That exposure belongs to the workers compensation and employers liability policy, which is why the CGL exclusion also addresses related indemnity obligations.

Question 29Liability Insurance

What is the role of the 'general aggregate' limit in a CGL policy?

  1. It caps total payments for all covered losses other than products-completed operations during the policy period Correct answer.
  2. It limits the amount payable for damage to rented premises
  3. It caps the amount payable for any single occurrence of bodily injury
  4. It sets the maximum defense cost the insurer will spend on one claim

Explanation

The general aggregate applies to the sum of all covered losses under the policy period except those subject to the products-completed operations aggregate. Once the general aggregate is exhausted, no further amounts are payable for the remaining coverages it governs.

Question 30Liability Insurance

A general contractor is added as an additional insured to a subcontractor's CGL policy. Which statement best describes the effect of that status?

  1. The subcontractor's coverage is transferred entirely to the contractor
  2. The contractor gains protection for liability arising from the subcontractor's ongoing operations, subject to the endorsement's terms Correct answer.
  3. The contractor becomes the named insured and controls the policy's limits
  4. The contractor's own employees become covered under the subcontractor's policy

Explanation

An additional insured endorsement extends the policy's protection to another party for liability connected to the named insured's operations or premises, as defined by the endorsement. It does not change who owns or controls the policy, and its scope depends on the endorsement's precise wording.

Question 31Liability Insurance

An insured's defense counsel is appointed by the insurer, but the insured prefers a different firm. What is the insurer's general position under the duty to defend?

  1. The insurer has the right to select and control defense counsel when it assumes the defense Correct answer.
  2. The insurer must pay for both firms to avoid a conflict
  3. The insurer's duty ends if the insured disagrees with counsel selection
  4. The insured may always choose counsel at the insurer's expense

Explanation

When an insurer accepts the duty to defend, it generally controls the defense, including selection of counsel, because it is paying for and directing the litigation. The insured may request different counsel but cannot ordinarily compel the insurer to fund its own choice absent a conflict or a policy provision to the contrary.

Question 32Liability Insurance

A liability policy contains a 'per person' limit of $100,000 and a 'per occurrence' limit of $300,000. One accident injures four claimants. Assuming each claim is worth more than $100,000, what is the maximum payable?

  1. $100,000, because the per person limit applies once to the accident
  2. $300,000, because the per occurrence limit caps the total for the accident Correct answer.
  3. $400,000, because each injured person is entitled to a full per person limit
  4. $700,000, because the per person and per occurrence limits are added together

Explanation

In a per person and per occurrence structure, the per person limit caps each individual's recovery, but the per occurrence limit caps the total for all injury arising from one accident. Here four claims at the per person limit would total $400,000, so the $300,000 per occurrence limit controls.

Question 33Liability Insurance

Which statement best describes the difference between a claims-made and an occurrence liability policy?

  1. A claims-made policy has no retroactive date, while an occurrence policy always does
  2. A claims-made policy covers only intentional acts, while an occurrence policy covers negligence
  3. A claims-made policy provides only defense coverage and never pays damages
  4. A claims-made policy responds when a claim is made during the policy period, while an occurrence policy responds when the injury or damage occurs Correct answer.

Explanation

The trigger of coverage differs: a claims-made policy responds to claims first made during its period, subject to any retroactive date, while an occurrence policy responds to injury or damage that takes place during its period regardless of when the claim is filed. This distinction affects which policy responds when injury and claim are separated in time.

Question 34Liability Insurance

An insured becomes aware of a circumstance that may later give rise to a claim and reports it to its claims-made insurer during the policy period. What is the effect of that notice?

  1. The reported circumstance is generally treated as a claim made during the current policy period Correct answer.
  2. The report automatically extends coverage indefinitely without an ERP
  3. The report transfers the claim to the prior year's occurrence policy
  4. The report has no effect until an actual lawsuit is filed

Explanation

Claims-made forms commonly allow the insured to report circumstances that could give rise to a claim, and that report is treated as a claim first made during the current period. This protects the insured against the claim later being attributed to a period after the policy has expired.

Question 35Liability Insurance

How does a claims-made policy's retroactive date affect coverage?

  1. It is the date the insurer must begin paying defense costs
  2. Injury or damage occurring before that date is not covered, even if the claim is first made during the policy period Correct answer.
  3. Claims filed before that date are covered but claims filed after are not
  4. It sets the maximum age of a claimant who may bring suit

Explanation

The retroactive date establishes the earliest point at which the injury or damage giving rise to a claim may have occurred for coverage to apply. Acts or omissions before the retroactive date are excluded, which is why insureds generally resist moving the date forward when renewing.

Question 36Liability Insurance

An insured is named in a lawsuit alleging a breach of professional duty. Which coverage feature most directly determines whether the insurer must pay for the cost of defending the suit?

  1. The deductible amount stated on the declarations page
  2. The policy's defense provisions and whether defense costs are inside or outside the limit of liability Correct answer.
  3. The policy's cancellation provision
  4. The premium audit clause

Explanation

Whether defense costs erode the limit or are paid in addition to it materially changes the protection available, so the defense provisions and limit structure are the controlling features. Deductibles, cancellation, and audit clauses do not determine the scope of the defense obligation.

Question 37Liability Insurance

A commercial auto liability policy and a CGL policy both potentially respond to a loss. Which principle determines how the CGL policy responds when the loss arises from use of an auto?

  1. The CGL policy responds only if the auto policy is exhausted by other claims
  2. The CGL policy pays first and the auto policy pays excess
  3. Both policies share the loss equally under contribution
  4. The auto exclusion in the CGL policy removes the loss, leaving the auto policy to respond Correct answer.

Explanation

The CGL policy contains an auto exclusion that removes bodily injury or property damage arising out of the ownership, maintenance, or use of an auto. The commercial auto policy is therefore the intended source of coverage, and the CGL does not share the loss.

Question 38Liability Insurance

What does a 'per occurrence' limit in a liability policy represent?

  1. The maximum defense cost for a single lawsuit
  2. The most the insurer will pay for all damages arising out of a single occurrence Correct answer.
  3. The maximum number of claims the insurer will handle in a year
  4. The most the insurer will pay for all occurrences during the policy period

Explanation

The per occurrence limit applies to the total of covered damages arising from one occurrence, regardless of how many claimants are involved. It operates alongside the aggregate limit, which caps the total for the policy period.

Question 39Liability Insurance

An insured leases office space and the lease requires it to insure the landlord for liability arising from the leased premises. Which endorsement addresses this need?

  1. A waiver of subrogation endorsement in favor of the landlord
  2. An additional insured endorsement naming the landlord Correct answer.
  3. A primary and noncontributory endorsement
  4. A designated premises endorsement

Explanation

Naming the landlord as an additional insured extends the policy's protection to the landlord for liability connected to the leased premises, which is what the lease requires. The other endorsements modify different aspects of the relationship, such as recovery rights or priority of coverage.

Question 40Liability Insurance

Which of the following best describes the purpose of a liability policy's 'personal and advertising injury' coverage?

  1. It covers bodily injury sustained by the insured's customers on the premises
  2. It provides coverage for employee injuries during advertising work
  3. It reimburses the insured for damage to its own advertising materials
  4. It responds to offenses such as libel, slander, and wrongful eviction that cause injury other than bodily injury or property damage Correct answer.

Explanation

Personal and advertising injury coverage addresses enumerated offenses such as false arrest, libel, slander, and wrongful eviction that injure a person's rights rather than their body or property. It fills a gap left by the bodily injury and property damage coverage grants.

Question 41Liability Insurance

An insured receives a claim that falls within a policy exclusion, but the complaint also alleges facts potentially covered by the policy. How does the insurer generally respond?

  1. It pays the claim up to the deductible and closes the file
  2. It transfers the matter to the insured without any further involvement
  3. It denies the claim outright because any excluded allegation defeats coverage
  4. It defends the entire suit under a reservation of rights while it resolves the coverage question Correct answer.

Explanation

When a complaint contains both covered and excluded allegations, the insurer typically provides a defense under a reservation of rights so it can investigate and later assert coverage defenses without waiving them. Denying outright risks a bad faith exposure if any allegation is potentially covered.

Question 42Liability Insurance

What is the purpose of a 'cross liability' or 'severability of interests' clause in a liability policy?

  1. It allows the insurer to cancel coverage for one insured without affecting the others
  2. It combines the limits of all insureds into a single shared limit
  3. It treats each insured as if it were the only insured for purposes of applying the exclusions Correct answer.
  4. It requires each insured to pay a separate deductible

Explanation

Severability of interests means that exclusions are applied separately to each insured, so the wrongful conduct of one insured does not automatically bar coverage for another insured under the same policy. This is important when an additional insured seeks coverage for a loss caused by the named insured.

Question 43Liability Insurance

An insured's product causes bodily injury years after it was sold. Under an occurrence-based CGL policy, which policy period generally responds?

  1. The policy in force when the bodily injury occurred, subject to any applicable occurrence-based wording Correct answer.
  2. The policy in force when the product was manufactured in every case
  3. The policy in force when the claim is first reported to the insurer
  4. The most recent policy the insured purchased, regardless of when injury occurred

Explanation

Occurrence policies respond based on when the injury or damage takes place, not when the claim is made or the product was made. For latent injury, this can mean a policy from a much earlier year responds, which is why occurrence coverage is valued for long-tail exposure.

Question 44Liability Insurance

Which statement best describes the function of a deductible in a liability policy?

  1. It is the maximum amount the insurer will pay for any one occurrence
  2. It is the amount the insured pays toward each covered loss before the insurer pays its share Correct answer.
  3. It is the amount set aside for defense costs
  4. It is a premium discount applied when the policy is renewed

Explanation

A liability deductible represents the insured's retained portion of each covered loss, with the insurer paying amounts above that threshold subject to the limits. It reduces premium by shifting small losses to the insured.

Question 45Liability Insurance

An insured operates a business from a location it does not own and wants coverage for liability arising from the premises it occupies. What does the CGL policy provide for this exposure?

  1. No coverage, because only owned premises are covered
  2. Coverage limited to fire damage to the rented structure
  3. Coverage only if the landlord is named as an additional insured
  4. Coverage for liability arising from the premises the insured rents or occupies, subject to the policy's terms Correct answer.

Explanation

The CGL covers liability arising out of the premises the insured occupies, whether owned or rented, along with the insured's operations. A separate limit applies to damage to premises rented to the insured, but that does not eliminate general liability coverage for the occupancy.

Question 46Liability Insurance

What is the primary purpose of a 'waiver of subrogation' endorsement in a liability policy?

  1. It waives the insured's obligation to pay premiums during a claim
  2. It waives the policy's exclusion for intentional acts
  3. It gives up the insurer's right to recover from a specified party after paying a loss Correct answer.
  4. It waives the insurer's duty to defend the insured

Explanation

A waiver of subrogation prevents the insurer from pursuing recovery against the party named in the endorsement after it pays a claim. Insureds often must obtain these waivers to satisfy lease or construction contract requirements.

Question 47Liability Insurance

An insured's employee drives a company-owned truck on errands and causes an accident. Which policy is designed to respond to the resulting liability?

  1. The workers compensation policy, because the driver was at work
  2. The commercial auto liability policy covering the vehicle Correct answer.
  3. The professional liability policy, because the errand was business-related
  4. The CGL policy, because the driver was an employee

Explanation

Liability arising from use of a covered auto is addressed by commercial auto liability coverage, and the CGL excludes auto-related injury and damage. The fact that the driver was an employee does not move the loss to the CGL or workers compensation.

Question 48Liability Insurance

A CGL policy includes a 'damage to property' exclusion for property the insured owns or occupies. What is the rationale for this exclusion?

  1. The exclusion is intended to bar coverage for completed operations
  2. The exclusion prevents coverage for any property damage claim by a third party
  3. The insured's own property is expected to be insured under first-party property coverage, not liability coverage Correct answer.
  4. The exclusion applies only to rented premises

Explanation

Liability insurance is meant to respond to the insured's legal liability to others, so damage to property the insured already owns or occupies is left to first-party property insurance. The exclusion keeps the liability policy from duplicating property coverage for the insured's own assets.

Question 49Liability Insurance

An insured is sued for a loss that occurred during a prior policy period, but the claim is first made after that policy expired and while a new claims-made policy is in force. What determines whether the current policy responds?

  1. Whether the claim was first made during the current policy period and whether the injury occurred on or after the retroactive date Correct answer.
  2. Whether the insured reported the claim to the prior insurer at any time
  3. Whether the insured paid the current premium on time
  4. Whether the prior policy was written on an occurrence basis

Explanation

For a claims-made policy, coverage depends on the claim being first made during the policy period and the underlying injury occurring on or after the retroactive date. Reporting to a prior insurer or the prior policy's form does not by itself determine the current policy's response.

Question 50Liability Insurance

Which of the following best describes the purpose of a 'supplementary payments' provision in a liability policy?

  1. It reimburses the insured for fines and penalties imposed by regulators
  2. It provides coverage for the insured's own bodily injury
  3. It pays the insured's ordinary business operating expenses during a claim
  4. It covers items such as defense costs, bail bonds, and loss of earnings for attendance at trial, generally outside the limits of liability Correct answer.

Explanation

Supplementary payments cover costs associated with defending and resolving a claim, such as defense expenses, premiums on appeal bonds, and reasonable expenses incurred at the insurer's request. These amounts are typically paid in addition to the limits of liability.