Principles of Risk Management and Insurance - Chapter 26

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Commercial Liability Insurance
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1

The phrase "general liability" is used to refer to the legal liability of a business arising from all of the following EXCEPT

  1. A) employees injured on the job.
  2. B) defective products.
  3. C) liability assumed by contract.
  4. D) completed operations.

Answer: A

2

Liability arising out of work performed by independent contractors is referred to as

  1. A) contractual liability.
  2. B) contingent liability.
  3. C) care, custody, and control liability.
  4. D) customer's liability.

Answer: B

3

A customer was injured when a furnace exploded following its faulty installation by a heating and cooling business. For the heating and cooling business, this is an example of

  1. A) contingent liability.
  2. B) completed operations liability.
  3. C) products liability.
  4. D) contractual liability.

Answer: B

4

The Commercial General Liability (CGL) Policy covers liability for which of the following loss exposures?

  1. Bodily injury of an employee of the insured arising out of and in the course of employment
  2. Bodily injury of a customer injured by a defective product manufactured by the insured
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

5

Which of the following exposures is covered under a Commercial General Liability Policy with no endorsements?

  1. A) liability arising out of seepage of pollutants
  2. B) employment-related practices liability
  3. C) personal injury liability
  4. D) aircraft liability

Answer: C

6

Bay Gallery owns a building on Wharf Street. Bay Gallery purchased a Commercial General Liability Policy with no endorsements. All of the following claims would be covered under the policy EXCEPT

  1. A) An artist sued the gallery for slander after an employee of the gallery said the artist's work looks like it was painted by an intoxicated monkey.
  2. B) A customer is injured when a painting falls from the wall and strikes the customer.
  3. C) A customer is injured after falling on a slippery floor at the gallery.
  4. D) An employee of the gallery accidentally started a fire that caused extensive damage to the building.

Answer: D

7

Which of the following losses would be covered under a Commercial General Liability Policy that has no endorsements?

  1. The named insured rented a building and an employee of the named insured negligently started a fire at the rented building.
  2. The cost to recall defective products
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: A

8

Which of the following is (are) covered under an unendorsed Commercial General Liability Policy?

  1. False arrest of a customer wrongly accused of shoplifting
  2. Publication of material that violates an individual's right to privacy
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

9

In addition to the named insured, all of the following are insureds under the Commercial General Liability Policy EXCEPT

  1. A) suppliers of products to the named insured's business.
  2. B) the insured's employees while acting within the scope of their employment.
  3. C) the manager of the insured's real estate.
  4. D) partners of the named insured.

Answer: A

10

Which of the following is (are) covered under a claims-made policy?

  1. Claims arising out of occurrences which take place during the policy period, regardless of when the claim is made
  2. Claims first reported during the policy period, provided the event occurred after a retroactive date stated in the policy
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

11

A provision included in a claims-made commercial general liability policy provides coverage for claims filed after the policy has expired. This provision is called a(n)

  1. A) extended reporting period provision.
  2. B) agreed amount endorsement.
  3. C) retroactive date provision.
  4. D) per-occurrence limit clause.

Answer: A

12

Which of the following statements about workers compensation insurance is (are) true?

  1. Under the workers compensation part of the policy, the insurer agrees to pay the benefits required by the workers compensation law of any state listed in the policy declarations.
  2. The employers liability part of the policy provides workers compensation benefits when employees are working in states other than those listed in the policy declarations.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: A

13

Which of the following statements regarding employer liability insurance under the workers compensation insurance coverage form is (are) true?

  1. Employer liability insurance covers an employee injury that occurs on the job but may not be considered work-related.
  2. If an injured employee sues a negligent third-party, and the third-party sues the employer for contributory negligence, the lawsuit is covered under employer liability insurance.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

14

An employee of Nelson Manufacturing was injured by a defective machine Nelson purchased from Clark Corporation. The employee's tort action against Clark was successful. Clark, in turn, sued Nelson, alleging that Nelson failed to provide proper operating instructions to the employee. This claim (Clark vs. Nelson) is covered under Part Two of Nelson's workers compensation and employer liability policy. Such claims are called

  1. A) third-party over cases.
  2. B) absolute liability cases.
  3. C) joint-and-several liability cases.
  4. D) mass tort cases.

Answer: A

15

All of the following are coverage options under the physical damage coverage in the Business Auto Coverage Form EXCEPT

  1. A) comprehensive coverage.
  2. B) specified causes-of-loss coverage.
  3. C) collision coverage.
  4. D) property damage liability coverage.

Answer: D

16

Which of the following statements about the liability coverage of the Business Auto Coverage Form is (are) true?

  1. The insurer agrees to defend the insured and pay all legal defense costs arising out of an accident involving a covered auto.
  2. The insured is covered for property damage and bodily injury arising out of the use of a covered auto.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

17

The auto dealers coverage form pays for damages that the insured is legally obligated to pay because of damage to a customer’s auto left in the insured’s car while it is being serviced or repaired. This coverage is called

  1. A) garagekeepers coverage.
  2. B) general liability coverage.
  3. C) other-than-collision loss coverage.
  4. D) acts, errors or omissions liability coverage.

Answer: A

18

All of the following statements about aviation insurance are true EXCEPT

  1. A) Physical damage coverage can be written on an "all-risks" basis.
  2. B) Liability coverage also applies to bodily injury arising out of the premises where the aircraft is stored.
  3. C) Liability coverage applies to liability arising out of a workers compensation law.
  4. D) Aviation insurance is a highly-specialized market with relatively few insurers.

Answer: C

19

Which of the following statements is (are) true concerning the self-insured retention (SIR) under a commercial umbrella liability policy?

  1. The SIR applies to claims covered by the umbrella policy but not by any underlying insurance.
  2. The SIR only applies to those claims for which the underlying policy has paid first, and the umbrella policy is paying on an excess basis.
  3. A) I only
  4. B) II only
  5. C) Both I and II
  6. D) Neither I nor II

Answer: A

20

Which of the following statements about the typical commercial umbrella policy is (are) true?

  1. The policy is designed to cover only those loss exposures specifically excluded by the underlying insurance contracts.
  2. The policy is excess over the required underlying coverages.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

21

Which of the following losses is generally covered under a commercial umbrella policy?

  1. A) liability arising out of workers compensation laws
  2. B) liability arising out of pollution
  3. C) liability arising out of use of a business auto
  4. D) the cost of recalling defective products

Answer: C

22

All of the following statements about liability coverage under the businessowners policy are true EXCEPT

  1. A) Liability arising out of personal and advertising injury is covered as part of the insuring agreement.
  2. B) Medical payments coverage is provided.
  3. C) Employees acting within the scope of their employment are excluded from coverage.
  4. D) Coverage is included for the legal costs of defending the insured.

Answer: C

23

Which of the following is covered under the liability coverage of a businessowners policy?

  1. A) damage to the insured's property
  2. B) bodily injury liability
  3. C) automobile liability
  4. D) professional liability

Answer: B

24

Which of the following statements about physicians, surgeons, and dentists liability insurance is true?

  1. A) Liability coverage is restricted to accidental acts.
  2. B) The policy eliminates the need for medical practitioners to purchase general liability insurance.
  3. C) The insurer must obtain the consent of medical practitioners before the insurer can settle claims.
  4. D) The policy covers the physician for the negligent acts of an employee.

Answer: D

25

Which of the following statements about errors and omissions insurance is (are) true?

  1. It is purchased by professionals to protect against claims arising for negligent acts, errors, and omissions.
  2. It is designed to meet the needs of stock brokers, attorneys, engineers, architects and other professionals who give advice to clients.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

26

A-1 Electrical Service is an electrical contractor that employs 14 electricians. A-1 faces many loss exposures. One general liability exposure arises out of faulty work that A-1 electricians may perform for customers at their homes or businesses. This liability exposure is known as

  1. A) premises and operations liability.
  2. B) products liability.
  3. C) completed operations liability.
  4. D) contingent liability.

Answer: C

27

Executives of a Fortune 500 firm blocked an acquisition attempt by a larger company. When the stockholders learned they could have made large profits had the acquisition not been blocked, they filed a lawsuit against the executives of the firm. What type of liability insurance protects the executives of the organization against such suits?

  1. A) dram shop liability insurance
  2. B) directors and officers liability insurance
  3. C) employers liability insurance
  4. D) employment related practices liability insurance

Answer: B

28

ABC Company purchased an ISO Commercial General Liability Policy. The agent who sold ABC the coverage noted that the coverage trigger in this policy was different from the trigger in the previous policy. The new policy covers only those claims which are first reported during the policy period, provided the event occurred after a retroactive date. This type of policy is known as

  1. A) extended reporting coverage.
  2. B) claims-made coverage.
  3. C) accident only coverage.
  4. D) occurrence coverage.

Answer: B

29

HRC Company purchased an unendorsed ISO Commercial General Liability (CGL) policy. Which of the following claims would be covered under the CGL?

  1. A) workers compensation liability
  2. B) liability arising from intentional acts
  3. C) personal and advertising injury liability
  4. D) professional liability

Answer: C

30

Ted is risk manager of XYZ Company. He is concerned his company might be sued by current or former employees alleging wrongful termination, failure to promote, racial or gender discrimination, or sexual harassment. What type of liability insurance can Ted purchase to cover these types of claims?

  1. A) workers compensation insurance
  2. B) employer liability insurance
  3. C) employment-related practices liability insurance
  4. D) directors and officers liability insurance

Answer: C

31

Medical malpractice insurance written on a claims-made basis can leave a surgeon vulnerable to malpractice claims if the surgeon retires, changes insurers, or drops coverage. A provision can be added to the claims-made form that protects the surgeon for future claims arising from incidents that occurred while the claims-made policy was in force. This provision is called a(n)

  1. A) cut-through endorsement.
  2. B) drop-down endorsement.
  3. C) agreed amount endorsement.
  4. D) extended reporting period endorsement.

Answer: D

32

Which of the following statements is true concerning the ISO employment-related practices liability form?

  1. A) Coverage is provided without a co-payment provision.
  2. B) Legal defense costs are included as part of the policy limit.
  3. C) Wrongful termination is excluded from coverage.
  4. D) Liability to employees is excluded from coverage.

Answer: B

33

Jenkins Company purchased a commercial umbrella policy with a $10 million limit and a $100,000 self-insured retention. The insurer required Jenkins Company to carry a $1 million per-occurrence limit on its general liability policy and a $1 million per-occurrence limit on its business auto policy. Jenkins purchased these required limits. A Jenkins driver was negligent while operating a company vehicle and killed another motorist. The court ruled that Jenkins must pay $5 million. How much of this amount will be paid by the umbrella policy?

  1. A) $1.0 million
  2. B) $3.9 million
  3. C) $4.0 million
  4. D) $5.0 million

Answer: C

34

David started a public accounting firm. David is concerned that accountants on his staff may give incorrect accounting advice, and the accounting firm may be sued. What type of liability insurance should David purchase to protect against such claims?

  1. A) errors and omissions insurance
  2. B) directors and officers liability insurance
  3. C) general liability insurance
  4. D) employers liability insurance

Answer: A

35

Holiday DeCor Company is insured by a commercial general liability policy (CGL). Holiday DeCor rented a storage facility for one month to store some excess inventory. While visiting the storage facility, a Holiday DeCor employee discarded a cigarette. The resulting fire severely damaged the storage facility. Which statement is true regarding coverage of this damage under the CGL?

  1. A) There is no coverage as the damage occurred at a rented premises.
  2. B) There is no coverage because property damage liability is excluded.
  3. C) The damage is covered under the fire legal liability coverage.
  4. D) There is no coverage because an employee of Holiday DeCor caused the loss.

Answer: C

36

Which of the following statements is (are) true with respect to the treatment of legal defense costs under the ISO Commercial General Liability policy?

  1. Legal defense costs usually are counted against the policy limit.
  2. Once the insurer has paid out the applicable limit of liability, the insurer's duty to defend ends.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

37

Which of the following statements concerning directors and officers liability insurance (D&O) is (are) true?

  1. D&O policies usually cover the personal liability of directors and officers.
  2. D&O policies exclude coverage for claims brought by employees and by stockholders.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: A

38

Jennifer was just asked to serve on the Board of an insurance company. Jennifer is concerned that if the company is mismanaged, the policyowners, stockholders, and employees might sue the management team. What type of liability insurance will protect Jennifer from such claims if she accepts a position on the insurance company's Board?

  1. A) commercial general liability insurance
  2. B) employment-related practices liability insurance
  3. C) workers compensation and employer liability insurance
  4. D) directors and officers liability insurance

Answer: D

39

The general liability policy covers bodily injury or property damage caused by "an accident, including continuous repeated exposure to substantially the same general harmful conditions." This cause is loss is called a(n)

  1. A) occurrence.
  2. B) accident.
  3. C) event.
  4. D) incident.

Answer: A

40

One general liability loss exposure develops as a result of a written or oral agreement to assume the legal liability of another party. A lease that specifies that the building owner is held harmless for liability arising out of use of the building is an example. This liability loss exposure is

  1. A) premises and operations liability.
  2. B) contractual liability.
  3. C) products and completed operations liability.
  4. D) contingent liability.

Answer: B

41

The employees of an industrial heating and cooling company spent four days installing a large gas furnace in a newly-constructed building. While testing the furnace one week later, an explosion occurred, damaging the building. Damage to the building was covered under the heating and cooling company's general liability insurance. When the heating and cooling company also sought reimbursement for the time its employees spent installing the furnace, the insurer denied coverage and noted a specific applicable exclusion. What exclusion denies coverage for such reimbursement?

  1. A) damage to the insured's product
  2. B) damage to the insured's work
  3. C) damage to impaired property
  4. D) damage to the insured's reputation.

Answer: B

42

Some directors and officers (D&O) liability policies include an insuring agreement tcovers the legal liability of a corporation arising out of the wrongful acts of directors and officers. This coverage for the corporation is called

  1. A) blanket coverage.
  2. B) corporate reimbursement coverage.
  3. C) personal liability of directors and officers coverage.
  4. D) entity coverage.

Answer: D

43

One physical damage coverage alternative under the Business Auto Policy provides coverage for losses caused by certain named perils, such as fire, lightning, or explosion; theft; windstorm, hail or earthquake; flood; vandalism or mischief; or the sinking, burning, collision or derailment of any conveyance transporting the covered auto. This physical damage coverage alternative is

  1. A) collision coverage.
  2. B) property damage liability.
  3. C) comprehensive coverage.
  4. D) specified causes-of-loss coverage.

Answer: D

44

The auto dealers coverage form includes coverage for violating odometer (mileage) disclosure laws and selling a vehicle where there was a title defect. Which coverage under the auto dealers coverage form would respond to such claims?

  1. A) garagekeepers liability coverage
  2. B) liability coverage for “covered autos”
  3. C) general liability insurance coverage
  4. D) acts, errors or omissions liability coverage

Answer: D

45

One type of liability insurance covers damages arising from the failure of a data holder to protect private information from being accessed by an unauthorized party. This type of liability coverage is called

  1. A) errors and omissions insurance.
  2. B) cyber liability insurance.
  3. C) terrorism insurance.
  4. D) employment-related practices liability insurance.

Answer: B

46

Which of the following statements about purchasing cyber liability insurance is true?

  1. The coverage can be obtained by adding the appropriate endorsement to the general liability coverage.
  2. The coverage can be obtained by purchasing stand-alone cyber liability coverage.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C