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ND Property & Casualty practice questions

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Question 1Insurance Regulation and Licensing

In North Dakota, how is the head of the Insurance Department placed in office?

  1. The attorney general appoints the commissioner.
  2. The governor appoints the commissioner. Correct answer.
  3. The legislature chooses the commissioner each session.
  4. Voters elect the commissioner by statewide ballot.

Explanation

North Dakota's commissioner of insurance is an appointed official rather than an elected one. The governor appoints the commissioner to head the Insurance Department, which administers and enforces the state's insurance laws.

Question 2Insurance Regulation and Licensing

Before an insurer may transact insurance business in North Dakota, it must first obtain what from the Insurance Department?

  1. An approved reinsurance treaty
  2. A surety bond filed with the county
  3. A producer appointment
  4. A certificate of authority Correct answer.

Explanation

An insurer must be authorized by the Insurance Department, and the document evidencing that authorization is the certificate of authority. Transacting insurance without one makes the insurer unauthorized and subjects it to enforcement action.

Question 3Insurance Regulation and Licensing

An insurer that is organized under the laws of North Dakota is classified as what type of insurer?

  1. A foreign insurer
  2. An unauthorized insurer
  3. An alien insurer
  4. A domestic insurer Correct answer.

Explanation

Insurer classification depends on the jurisdiction of organization relative to the state in question. An insurer formed under North Dakota law is domestic in North Dakota, while an insurer formed in another state is foreign and one formed outside the United States is alien.

Question 4Insurance Regulation and Licensing

A North Dakota producer offers a $50 gift card to each prospect who buys an auto policy through her. Under state insurance law, this offer is best described as:

  1. An illegal rebate Correct answer.
  2. An allowable commission split
  3. A lawful inducement if disclosed
  4. A permissible marketing expense

Explanation

Rebating is the giving of anything of value not specified in the policy as an inducement to purchase insurance. Offering a gift card contingent on buying a policy is an unlawful rebate even if it is disclosed.

Question 5Insurance Regulation and Licensing

How often must a North Dakota insurance producer license be renewed?

  1. Every two years Correct answer.
  2. Every four years
  3. Every three years
  4. Every year

Explanation

North Dakota issues producer licenses on a two-year cycle, and continuing education requirements must be satisfied by the time each renewal is filed. A producer who misses renewal deadlines may face a lapsed license and must reapply.

Question 6Insurance Regulation and Licensing

A North Dakota driver purchases the minimum auto liability limits the law allows. Which set of limits satisfies the requirement?

  1. 50/100/50
  2. 25/50/25 Correct answer.
  3. 30/60/20
  4. 20/40/15

Explanation

North Dakota's financial responsibility law sets minimum liability limits of $25,000 per person and $50,000 per accident for bodily injury, plus $25,000 for property damage. A policy written at lower limits would not satisfy the requirement.

Question 7Insurance Regulation and Licensing

Which statement accurately describes workers compensation coverage for most North Dakota employers?

  1. Coverage is available only from surplus lines carriers.
  2. Coverage is obtained through the state-run Workforce Safety and Insurance fund. Correct answer.
  3. Coverage is optional for all private employers in the state.
  4. Coverage may be bought from any admitted property and casualty insurer.

Explanation

North Dakota operates a state-owned workers compensation system administered by Workforce Safety and Insurance, which is unique among the states. Most employers obtain their coverage through that fund rather than through private insurers.

Question 8Insurance Regulation and Licensing

North Dakota's continuing education requirement for licensed producers includes which of the following?

  1. 12 hours every two years, all in the license line
  2. 24 hours biennially, 3 of them in ethics Correct answer.
  3. No continuing education after ten years of licensure
  4. 40 hours each year with no ethics component

Explanation

Producers must complete 24 credit hours of approved continuing education during each two-year license term, and a portion of that total must be in ethics. Coursework must be approved and reported to the Department.

Question 9Insurance Regulation and Licensing

A producer collects premiums from clients, deposits them in her personal checking account, and pays refunds from that same account. Her conduct is:

  1. Lawful, since the account earns interest for clients
  2. Permitted, because producers own premiums once collected
  3. A fiduciary breach; premiums must be held in trust Correct answer.
  4. Acceptable, because the funds stay available to clients

Explanation

Premiums collected on behalf of insurers are held in a fiduciary capacity and must be kept in a separate trust or premium account. Using those funds for personal purposes or commingling them with personal money is prohibited.

Question 10Insurance Regulation and Licensing

When an insurer ends a producer's appointment in North Dakota, the insurer generally must:

  1. Notify the commissioner of the termination and its cause Correct answer.
  2. Wait for the producer's license to lapse before ending the appointment
  3. Publish notice in a newspaper of general circulation
  4. Obtain the commissioner's prior written approval

Explanation

Insurers must report appointment terminations to the Insurance Department, and terminations made for cause must include the reason. This reporting lets the Department track conduct that may affect the producer's license.

Question 11Insurance Regulation and Licensing

Which insurer action constitutes an unfair claim settlement practice in North Dakota?

  1. Ignoring a claim for months with no explanation Correct answer.
  2. Denying a claim after a good-faith investigation
  3. Assigning an independent adjuster to inspect damage
  4. Requesting written proof of loss within a reasonable time

Explanation

Insurers must acknowledge and act on claims within reasonable timeframes and must give a reasonable explanation when a claim is denied. Failing to respond to a claim for an extended period without justification is a prohibited settlement practice.

Question 12Insurance Regulation and Licensing

A producer persuades a client to surrender an existing policy by misrepresenting the terms of the replacement coverage. This conduct is known as:

  1. Coercion
  2. Commingling
  3. Defamation
  4. Twisting Correct answer.

Explanation

Twisting is inducing a policyholder to lapse or surrender coverage through misrepresentation or incomplete comparison of policies. It is prohibited because it relies on misleading the insured about the relative merits of the policies.

Question 13Insurance Regulation and Licensing

A producer cannot place a commercial property risk with any admitted insurer in North Dakota. To place it with a nonadmitted insurer, the producer must generally:

  1. Charge a rate lower than the admitted market rate
  2. Use only insurers domiciled in North Dakota
  3. Document a diligent search of admitted markets first Correct answer.
  4. Obtain the commissioner's written approval for each policy

Explanation

A surplus lines placement requires that coverage be sought from admitted insurers first and that the search be documented. The risk must then be placed with an eligible unauthorized insurer that meets the state's standards.

Question 14Insurance Regulation and Licensing

If a property and casualty insurer writing business in North Dakota becomes insolvent, the state guaranty association generally pays covered claims up to:

  1. The full policy limit with no cap
  2. $100,000
  3. $500,000
  4. $300,000 Correct answer.

Explanation

The North Dakota guaranty association responds to covered claims against insolvent insurers, subject to a per-claim cap of $300,000. Amounts above the cap, and claims excluded by statute, remain the responsibility of the claimant or other parties.

Question 15Insurance Regulation and Licensing

A licensed North Dakota producer relocates her business to a new address. She must:

  1. File a new license application and pay the full fee
  2. Report the change only to the insurers that appointed her
  3. Notify the commissioner within 30 days of the change Correct answer.
  4. Wait until the next license renewal to report it

Explanation

Producers must keep their licensing record current and report a change of address to the Insurance Department within the time allowed, commonly 30 days. Failure to do so can result in administrative action or missed Department communications.

Question 16Insurance Regulation and Licensing

After a hearing, the commissioner finds that a producer violated the insurance code. Which remedy may the commissioner impose?

  1. Refer the matter to a jury for a verdict
  2. Impose a criminal jail sentence
  3. Suspend or revoke the license and fine the producer Correct answer.
  4. Order the producer to personally pay the claimant's damages

Explanation

The commissioner's administrative authority includes suspending or revoking a license, imposing monetary penalties, and issuing cease and desist orders. Criminal penalties and private damage awards are decided by courts, not by the commissioner.

Question 17General Insurance Principles

An insured buys a homeowners policy on a house she does not own and in which she has no financial stake. The policy would be unenforceable because she lacks:

  1. Insurable interest Correct answer.
  2. An indemnity clause
  3. A coinsurance requirement
  4. A deductible

Explanation

Insurable interest is the legal right to insure, and it exists only when the insured would suffer a genuine financial loss from damage to the property. Without it, the arrangement looks like a wager rather than insurance, so the contract is not enforceable.

Question 18General Insurance Principles

The principle of indemnity means a property loss payment is intended to:

  1. Punish the party whose negligence caused the loss
  2. Reward the insured for premiums paid over time
  3. Pay the full policy limit for every covered loss
  4. Make the insured whole again, no better Correct answer.

Explanation

Indemnity restores the insured to roughly the financial position held before the loss, so the payment reflects the actual loss rather than the policy limit. It is the reason insurers apply valuation methods and deductibles rather than paying a flat sum.

Question 19General Insurance Principles

Statements made by an applicant on an insurance application that the applicant believes to be true to the best of their knowledge are called:

  1. Warranties
  2. Conditions
  3. Endorsements
  4. Representations Correct answer.

Explanation

Representations are the applicant's answers and statements of fact on the application, and they are judged by whether they are true to the best of the applicant's knowledge. A material misrepresentation can give the insurer grounds to rescind the policy.

Question 20General Insurance Principles

Which type of risk involves only the possibility of loss or no loss, with no chance of gain?

  1. Pure risk Correct answer.
  2. Speculative risk
  3. Dynamic risk
  4. Financial risk

Explanation

Pure risk presents only the chance of loss or no change in position, and it is the type of risk insurance is designed to handle. Speculative risk, by contrast, involves the chance of gain as well as loss and is generally uninsurable.

Question 21General Insurance Principles

In insurance terminology, a condition that increases the likelihood or severity of a loss is called a:

  1. Hazard Correct answer.
  2. Exposure
  3. Risk
  4. Peril

Explanation

A hazard is a condition that makes a loss more likely or more severe, such as a frayed electrical cord or icy steps. It is distinguished from the peril, which is the actual cause of the loss, such as fire.

Question 22General Insurance Principles

The primary purpose of a deductible in a property policy is to:

  1. Reduce the coinsurance percentage required
  2. Increase the policy limit
  3. Share small losses with the insured Correct answer.
  4. Broaden the covered perils

Explanation

A deductible keeps the insured responsible for a stated amount of each loss, which eliminates small claims and the administrative cost of handling them. It also gives the insured a financial incentive to prevent losses, which lowers the overall cost of insurance.

Question 23General Insurance Principles

After paying a covered auto claim caused by another driver's negligence, an insurer pursues the at-fault driver for reimbursement. This right is called:

  1. Salvage
  2. Subrogation Correct answer.
  3. Contribution
  4. Abandonment

Explanation

Subrogation lets the insurer step into the insured's shoes after paying a loss and recover from the party legally responsible for it. This supports the indemnity principle by keeping the insured from collecting twice and by shifting the cost to the responsible party.

Question 24General Insurance Principles

An insured has two property policies covering the same building against the same risk, and both contain pro rata other insurance clauses. When a loss occurs, each insurer pays a share. This principle is:

  1. Coinsurance
  2. Contribution Correct answer.
  3. Indemnity
  4. Subrogation

Explanation

Contribution allows several insurers covering the same interest and risk to share a loss so that no one insurer pays more than its fair share. It works together with other insurance clauses and protects the indemnity principle by preventing double recovery.

Question 25General Insurance Principles

A building with a replacement cost of $500,000 is insured for $300,000 under a policy with an 80% coinsurance clause. A covered loss of $100,000 occurs, and no other insurance applies. Ignoring any deductible, how much does the policy pay?

  1. $80,000
  2. $60,000
  3. $100,000
  4. $75,000 Correct answer.

Explanation

The coinsurance requirement is 80% of $500,000, or $400,000. Because the insured carried only $300,000, the payment is ($300,000 / $400,000) x $100,000, which equals $75,000.

Question 26General Insurance Principles

Wind blows down a wall, and the falling wall crushes the insured's fence. The policy covers wind but excludes damage caused by falling objects. The damage to the fence is most likely:

  1. Excluded, because a fence is an outside item
  2. Covered, because wind was the proximate cause of the loss Correct answer.
  3. Excluded, because the immediate cause was a falling object
  4. Covered only under a separate endorsement

Explanation

When a covered peril sets an excluded event in motion without a break in the chain, the covered peril is treated as the proximate cause of the loss. The wind, not the falling wall, is therefore the cause to which the policy responds.

Question 27General Insurance Principles

Which part of an insurance policy identifies the named insured, the property insured, the policy period, and the limits of liability?

  1. Conditions
  2. Insuring agreement
  3. Declarations Correct answer.
  4. Exclusions

Explanation

The declarations page is the front section that lists the who, what, where, when, and how much of the coverage. The insuring agreement then states the promise to pay, while conditions and exclusions limit and condition that promise.

Question 28General Insurance Principles

An insurance contract is described as aleatory because:

  1. It depends on the insured's utmost good faith
  2. It is offered on a take-it-or-leave-it basis
  3. The amounts exchanged may be unequal Correct answer.
  4. Only the insurer makes a legally enforceable promise

Explanation

An aleatory contract is one in which the value exchanged by the parties may be unequal and depends on chance. The insured may pay modest premiums and collect a large claim, or pay for years and collect nothing.

Question 29General Insurance Principles

A statement in an insurance policy in which the insured promises that a condition will be maintained, such as keeping a sprinkler system in service, is a:

  1. Representation
  2. Warranty Correct answer.
  3. Waiver
  4. Concealment

Explanation

A warranty is a promise by the insured that a specified fact or condition is or will be true. A material breach of a warranty can allow the insurer to deny a claim or void the policy, depending on the state's rules.

Question 30General Insurance Principles

The law of large numbers allows an insurer to predict losses most reliably when it:

  1. Insures many independent, similar risks Correct answer.
  2. Concentrates its book in one geographic area
  3. Selects only the lowest-risk applicants
  4. Insures a small number of similar risks

Explanation

The law of large numbers holds that actual results approach expected results as the number of similar, independent exposure units increases. Spreading risk across many independent units makes losses more predictable and rates more stable.

Question 31General Insurance Principles

An insured who intentionally stages a fake theft to collect insurance proceeds is an example of:

  1. Morale hazard
  2. Legal hazard
  3. Moral hazard Correct answer.
  4. Physical hazard

Explanation

Moral hazard is a dishonest tendency or character trait that leads a person to create or exaggerate a loss for financial gain. It is distinguished from morale hazard, which is carelessness or indifference rather than intentional wrongdoing.

Question 32General Insurance Principles

A five-year-old machine has a replacement cost of $20,000, a 10-year expected useful life, and no salvage value. Using straight-line depreciation, its actual cash value is:

  1. $5,000
  2. $20,000
  3. $15,000
  4. $10,000 Correct answer.

Explanation

Straight-line depreciation is $20,000 divided by 10 years, or $2,000 per year. After five years, accumulated depreciation is $10,000, so actual cash value is $20,000 minus $10,000, or $10,000.

Question 33General Insurance Principles

An adjuster tells an insured in writing that a late-reported claim will be honored, and the insured relies on that statement to their detriment. The insurer is most likely barred from denying coverage by:

  1. Estoppel Correct answer.
  2. Abandonment
  3. Subrogation
  4. Coinsurance

Explanation

Estoppel prevents a party from asserting a right after conduct or a statement led another party to rely on it and change position. When an insurer knowingly waives a policy requirement and the insured relies on that waiver, the insurer may be estopped from later enforcing the requirement.

Question 34General Insurance Principles

Because an insurance policy is a contract of adhesion, ambiguous policy language is generally:

  1. Voided in its entirety
  2. Interpreted in favor of the insurer that drafted it
  3. Interpreted against the insurer that drafted it Correct answer.
  4. Rewritten by the state insurance department

Explanation

A contract of adhesion is drafted by one party and accepted or rejected by the other, so the drafter bears the risk of unclear wording. Courts therefore construe genuine ambiguities against the insurer, which had the opportunity to write the language clearly.

Question 35General Insurance Principles

A liability policy covers injury that occurs during the policy period even if the claim is reported years later, after the policy has expired. This describes a:

  1. Occurrence policy Correct answer.
  2. Claims-made policy
  3. Reporting-form policy
  4. Extended reporting policy

Explanation

An occurrence policy responds to injury or damage that takes place during the policy period, regardless of when the claim is filed. A claims-made policy instead depends on when the claim is first made against the insured.

Question 36General Insurance Principles

Adverse selection is best controlled by an insurer through:

  1. Offering identical rates across all risk classes
  2. Accepting every applicant regardless of loss history
  3. Lowering premiums for every applicant
  4. Underwriting and classifying risks by expected loss Correct answer.

Explanation

Adverse selection occurs when applicants with the greatest likelihood of loss are the most eager to buy coverage at an average price. Underwriting screens out unacceptable risks, and classification charges premiums that reflect each group's expected losses so the price matches the risk.

Question 37Property Insurance Fundamentals

In property insurance, insurable interest must exist at which point in time?

  1. Throughout the policy period without interruption
  2. Only after the insurer requests proof of loss
  3. Only when the application is signed
  4. At the time of the loss Correct answer.

Explanation

Property insurance requires insurable interest at the time of loss, because the insured must suffer actual financial detriment. A policy purchased by someone with no interest at the time of loss does not respond.

Question 38Property Insurance Fundamentals

The principle of indemnity in property insurance is designed to do which of the following?

  1. Guarantee replacement of every damaged item with brand-new property
  2. Restore the insured to the financial position held before the loss Correct answer.
  3. Allow the insured to collect more than the value of the damaged property
  4. Reduce premium charges when no claims have been filed

Explanation

Indemnity means the insured is made whole, no better and no worse, after a covered loss. Recovery is therefore capped by the value of the loss rather than by the premium paid or the policy limit.

Question 39Property Insurance Fundamentals

What information is found in the declarations section of a property policy?

  1. The method used to settle and value covered losses
  2. The named insured, covered locations, limits, and policy period Correct answer.
  3. The insured's duties after a loss occurs
  4. The perils that the policy excludes from coverage

Explanation

The declarations page personalizes the policy by identifying who is insured, what and where is insured, the limits of liability, the policy term, and the premium. The remaining sections describe the coverage terms that apply to those declarations.

Question 40Property Insurance Fundamentals

How is a property insurance deductible best described?

  1. The amount of insurance required to avoid a coinsurance penalty
  2. A percentage added to the premium after a claim is filed
  3. The most the insurer will pay for any one occurrence
  4. The portion of a covered loss the insured absorbs before the insurer pays Correct answer.

Explanation

The deductible is the insured's retained share of each covered loss. The insurer pays the covered amount above the deductible, subject to the limit of liability.

Question 41Property Insurance Fundamentals

Actual cash value in property insurance is calculated as which of the following?

  1. The full policy limit shown in the declarations
  2. The outstanding balance of any mortgage on the property
  3. The original purchase price of the property
  4. Replacement cost less depreciation Correct answer.

Explanation

Actual cash value reflects the depreciated value of the damaged property at the time of loss. It is commonly computed as replacement cost minus an allowance for depreciation, and it supports the indemnity principle.

Question 42Property Insurance Fundamentals

A building with a replacement cost of $400,000 is insured for $240,000 under a policy with an 80% coinsurance clause and no deductible. A covered loss causes $100,000 of damage. How much will the insurer pay?

  1. $100,000
  2. $60,000
  3. $240,000
  4. $75,000 Correct answer.

Explanation

The coinsurance requirement is 80% of $400,000, or $320,000. The insured carried $240,000, which is 75% of the requirement, so the loss is paid at 75% of $100,000, or $75,000.

Question 43Property Insurance Fundamentals

An HO-3 policy shows a Coverage C limit of $200,000. The insured's child lives in a college dormitory and keeps $30,000 of personal property there. What is the most the policy will pay for that dormitory property if it is destroyed by a covered peril?

  1. $20,000 Correct answer.
  2. $30,000
  3. $200,000
  4. $10,000

Explanation

Personal property usually located at another residence is limited to 10% of the Coverage C limit under the homeowners form. Ten percent of $200,000 is $20,000, so the $30,000 of dormitory property is only partly covered.

Question 44Property Insurance Fundamentals

Which coverage responds when a covered loss makes the insured dwelling uninhabitable and the family must rent another home?

  1. The cost to rebuild the dwelling after a total loss
  2. Medical bills for guests injured on the premises
  3. Additional living expenses incurred while the dwelling is unusable Correct answer.
  4. Damage to trees, shrubs, and other outdoor property

Explanation

Coverage D pays the necessary increase in living costs so the household can maintain its normal standard of living while the dwelling is being repaired. It also covers fair rental value when the premises were rented to others.

Question 45Property Insurance Fundamentals

A neighbor's child is injured while visiting the insured's home. How does Coverage F medical payments respond?

  1. It pays reasonable medical expenses regardless of who was at fault Correct answer.
  2. It pays only expenses that exceed the liability limit
  3. It pays the insured's own family members for their injuries
  4. It pays only after the insured is found legally liable by a court

Explanation

Medical payments coverage is a no-fault coverage that pays necessary medical expenses of others injured on the insured location or by the insured's activities. Payment does not depend on establishing negligence.

Question 46Property Insurance Fundamentals

An insurance binder serves which purpose?

  1. It transfers the policy to a different insurer
  2. It cancels coverage as of the date of application
  3. It provides temporary evidence that coverage is in force Correct answer.
  4. It permanently replaces the policy declarations

Explanation

A binder is temporary evidence of coverage issued while the policy is being written. Coverage exists according to the binder's terms until the policy is issued or the binder expires.

Question 47Property Insurance Fundamentals

Under a replacement cost loss settlement provision, the insurer pays which amount?

  1. The original cost of the damaged property as shown in the records
  2. A fixed percentage of the policy limit regardless of the actual damage
  3. The cost to replace with like kind and quality without a depreciation deduction Correct answer.
  4. Replacement cost reduced by depreciation for each year of use

Explanation

Replacement cost coverage pays what it costs today to repair or replace the damaged property with new property of comparable kind and quality. Depreciation is not subtracted, but payment never exceeds the applicable limit.

Question 48Property Insurance Fundamentals

A dwelling insured under an HO-3 has been vacant for 70 consecutive days when vandals cause damage. How does the policy respond?

  1. It pays because vandalism is a covered named peril
  2. It pays the full Coverage A limit for the damage
  3. It denies the loss because vandalism is excluded after 60 days of vacancy Correct answer.
  4. It pays only if the dwelling was winterized before the loss

Explanation

The homeowners form excludes vandalism and malicious mischief if the dwelling has been vacant for more than 60 consecutive days before the loss. The exclusion is intended to limit exposure on unoccupied property.

Question 49Property Insurance Fundamentals

A building with a replacement cost of $500,000 is insured for $300,000 under a policy with a 90% coinsurance clause. A covered loss causes $50,000 of damage with no deductible. What does the insurer pay?

  1. $45,000
  2. $50,000
  3. $33,333 Correct answer.
  4. $30,000

Explanation

The coinsurance requirement is 90% of $500,000, or $450,000. Because $300,000 was carried, the insurer pays that fraction of the loss: $300,000 divided by $450,000 equals two-thirds, and two-thirds of $50,000 is $33,333.

Question 50Property Insurance Fundamentals

Two property policies with equal limits cover the same building on the same basis. A covered loss occurs and neither policy contains an excess clause. How is the loss shared?

  1. The insured chooses one policy to pay the full amount
  2. The policy with the earlier effective date pays the whole loss
  3. The insured may collect the full loss from each policy
  4. Each policy pays its proportionate share of the loss Correct answer.

Explanation

When concurrent policies apply on the same basis, the other insurance condition requires each insurer to pay its pro rata share of the loss. The insured recovers the loss once, divided among the carriers.