55 Property & Casualty Practice Questions & Answers

1. 1. A homeowner sells her house and the deed transfers on June 1, but she leaves her homeowners policy in force. The house is destroyed by fire on July 10. Why is the property loss not payable to her?

   • A.Insurable interest is required only when the policy is issued, so the loss is in fact payable
   • B.Subrogation transferred her rights in the property to the insurer at the closing
   • C.The contract became void the instant the deed transferred, because insurance is aleatory
   • D.She no longer had an insurable interest in the dwelling at the time of the loss✓ Answer

   Property insurance is a contract of indemnity, so the insured must stand to suffer a financial loss when the loss occurs; insurable interest must exist at the TIME OF LOSS in property and casualty insurance (in life insurance it must exist only at policy inception). Once she sold the house she could no longer be indemnified for its destruction.

   Source: Standard P&C insurable interest rule (contrast with life insurance, where interest must exist at policy inception); Pearson VUE Property General Knowledge outline, II. Insurance Terms and Related ConceptsReport a problem with this question

2. 2. Which of the following exposures is an insurable PURE risk rather than a speculative risk?

   • A.A retailer's chance of profit or loss from stocking a new product
   • B.A gambler's wager on the outcome of a sporting event
   • C.A homeowner's chance that a windstorm will damage the roof✓ Answer
   • D.An investor's chance of gain or loss on shares of stock

   A pure risk involves only the chance of loss or no loss, with no possibility of gain, which makes it measurable and insurable. Speculative risks (investing, gambling, business ventures) carry a chance of profit as well as loss and are therefore not insurable.

   Source: Pearson VUE Property General Knowledge outline, II. Insurance Terms — risk (pure vs. speculative); only pure risk is insurableReport a problem with this question

3. 3. An insured stops locking the doors of her home, saying "if anything is stolen the insurance will just pay for it." This attitude is best classified as:

   • A.Peril
   • B.Morale hazard✓ Answer
   • C.Physical hazard
   • D.Moral hazard

   A morale hazard is an attitude of carelessness or indifference toward loss that arises because insurance exists, which increases the chance of loss without any dishonest intent. A moral hazard involves character and dishonesty, such as an insured who would stage or exaggerate a claim; a physical hazard is a tangible condition, and a peril is the actual cause of loss.

   Source: Pearson VUE Property General Knowledge outline, II. Insurance Terms — hazard (physical, moral, morale)Report a problem with this question

4. 4. A court finds an ambiguous phrase in a homeowners policy and interprets it in favor of the insured. This outcome flows from which characteristic of an insurance contract?

   • A.It is an aleatory contract
   • B.It is a conditional contract
   • C.It is a contract of adhesion✓ Answer
   • D.It is a unilateral contract

   Because the insurer alone drafts the wording and the applicant must take it or leave it, the policy is a contract of adhesion, and any ambiguity is construed against the drafter (the insurer). Aleatory refers to the unequal exchange of value, unilateral means only the insurer makes a legally enforceable promise, and conditional means performance depends on conditions being met.

   Source: Pearson VUE Property General Knowledge outline, III. Policy Provisions and Contract Law — distinct characteristics of an insurance contract (adhesion / reasonable expectations doctrine)Report a problem with this question

5. 5. An applicant for property insurance knows the building has had three prior fire losses but deliberately says nothing, and the application does not ask about prior losses. This is best described as:

   • A.Concealment of a material fact✓ Answer
   • B.A warranty
   • C.An innocent misrepresentation
   • D.A waiver by the insurer

   Concealment is the intentional withholding of a material fact that the insurer needs to evaluate the risk, and because insurance is a contract of utmost good faith the applicant has a duty to disclose it even without being asked. A warranty is a statement guaranteed to be true, a misrepresentation is an untrue statement believed to be true, and waiver is the voluntary surrender of a known right by the insurer.

   Source: Pearson VUE Property General Knowledge outline, III. Policy Provisions and Contract Law — warranties, representations and concealment; utmost good faithReport a problem with this question

6. 6. After paying its insured for fire damage caused by a negligent contractor, the insurer sues the contractor to recover what it paid. The right that permits this is:

   • A.Assignment
   • B.Subrogation✓ Answer
   • C.Salvage
   • D.Abandonment

   Subrogation transfers the insured's right of recovery against a responsible third party to the insurer once the insurer has paid the claim, which preserves indemnity by preventing the insured from collecting twice and shifts the cost to the party at fault. The insured must not do anything after a loss that impairs those rights.

   Source: Pearson VUE Property General Knowledge outline, III. Policy Provisions and Contract Law — subrogation conditionReport a problem with this question

7. 7. A business selects a large deductible on its commercial property policy in exchange for a lower premium. Which risk management technique does the deductible itself represent?

   • A.Transfer
   • B.Reduction
   • C.Retention✓ Answer
   • D.Avoidance

   A deductible is the portion of each loss the insured agrees to pay itself, which is retention; only the amount above the deductible is transferred to the insurer. Avoidance would mean eliminating the exposure entirely, and reduction means taking steps such as sprinklers to lessen the severity of a loss.

   Source: Pearson VUE Property General Knowledge outline, II. Insurance Terms — methods of handling risk (avoidance, retention, sharing, reduction, transfer); deductibleReport a problem with this question

8. 8. A roof is destroyed by a covered peril and the policy settles losses on an actual cash value basis. Actual cash value is determined by:

   • A.The cost to replace the property with no deduction for age or wear
   • B.The original purchase price of the property
   • C.Replacement cost at the time of loss minus depreciation✓ Answer
   • D.The price the property would bring on the real estate market

   Actual cash value is replacement cost at the time of loss less depreciation for age, wear and obsolescence (some states apply the broad evidence rule), which keeps the settlement consistent with the principle of indemnity. Market value reflects land and location and replacement cost takes no deduction for depreciation, so neither is the same as ACV.

   Source: Pearson VUE Property General Knowledge outline, II. Insurance Terms — loss valuation (actual cash value, replacement cost, market value)Report a problem with this question

9. 9. A commercial building is worth $500,000 at the time of loss. The policy carries a $300,000 limit, an 80% coinsurance clause, and a $1,000 deductible. A covered fire causes $100,000 of damage. How much will the insurer pay?

   • A.$60,000
   • B.$99,000
   • C.$75,000
   • D.$74,000✓ Answer

   The coinsurance formula is (limit carried ÷ limit required) × loss, and the required limit is the coinsurance percentage times the value at the time of loss: 80% × $500,000 = $400,000. Because only $300,000 was carried, the insurer pays 300,000 ÷ 400,000 = 75% of the $100,000 loss, or $75,000, and the deductible is subtracted after the penalty is applied, leaving $74,000.

   Source: ISO Commercial Property Conditions / CP 00 10 Coinsurance condition — (did ÷ should) × loss, less deductible, capped at the limitReport a problem with this question

10. 10. A dwelling has a replacement cost of $300,000 and is insured under an HO-3 for $270,000 with a $1,000 deductible. Windstorm destroys a roof whose replacement cost is $20,000 and whose actual cash value is $12,000. How is the building loss settled?

    • A.$20,000 — full replacement cost with no deductible, because loss settlement is an additional coverage
    • B.$19,000 — replacement cost less the deductible, because the dwelling is insured for at least 80% of its full replacement cost✓ Answer
    • C.$17,000 — replacement cost reduced by the ratio 270,000 ÷ 300,000, then less the deductible
    • D.$11,000 — actual cash value less the deductible, because dwellings always settle at ACV

    The homeowners loss settlement condition pays the full replacement cost of a building loss when the dwelling is insured for at least 80% of its full replacement cost at the time of loss; here $270,000 is 90% of $300,000, so no proportional penalty applies. The deductible is still subtracted, producing $19,000.

    Source: ISO HO 00 03 05 11, Section I – Conditions, Loss Settlement (buildings at replacement cost if insured to at least 80% of full replacement cost at the time of loss)Report a problem with this question

11. 11. Which statement correctly distinguishes blanket insurance from specific insurance?

    • A.Blanket insurance never requires coinsurance, while specific insurance always requires 100% coinsurance
    • B.Blanket insurance applies one limit to two or more items or locations, while specific insurance applies a separate stated limit to each item or location✓ Answer
    • C.Blanket insurance may be written only on personal property, while specific insurance may be written only on buildings
    • D.Blanket insurance applies to only one building at one location, while specific insurance covers several

    Blanket insurance places a single limit over two or more items, classes of property, or locations, so the full limit is available wherever the loss happens and values can shift among locations without penalty. Because that flexibility depends on accurate reporting, blanket writings normally require a high coinsurance percentage and a signed statement of values.

    Source: Pearson VUE Property General Knowledge outline, II. Insurance Terms — blanket vs. specific insuranceReport a problem with this question

12. 12. A building is insured by two concurrent policies: Policy A with a $100,000 limit and Policy B with a $300,000 limit. A covered $40,000 loss occurs. Under a pro rata other-insurance clause, Policy A pays:

    • A.$30,000
    • B.$20,000
    • C.$10,000✓ Answer
    • D.$40,000

    A pro rata other-insurance clause makes each policy pay the share of the loss that its limit bears to the total insurance in force, so Policy A pays $100,000 ÷ $400,000 = 25% of $40,000, or $10,000. Contribution by equal shares would instead have each insurer pay equal amounts until the loss is paid or a limit is exhausted, and in no case may the insured collect more than the loss.

    Source: Pearson VUE Property General Knowledge outline, III. Policy Provisions — other insurance provision (pro rata vs. contribution by equal shares)Report a problem with this question

13. 13. Under a Special (open peril) causes of loss form, which party carries the burden of proof after a loss?

    • A.The insurer, which must show that an exclusion applies in order to deny the claim✓ Answer
    • B.The insured, who must prove the loss was caused by one of the perils listed in the form
    • C.Neither party, because open peril forms cover every loss without exception
    • D.The state insurance department, which decides all disputed coverage questions

    A named peril form covers only the perils it lists, so the insured must prove the loss was caused by a listed peril; an open peril (special) form covers all direct physical loss unless it is excluded, so the burden shifts to the insurer to prove that an exclusion or limitation applies. That shift in burden is the practical advantage of buying special form coverage.

    Source: ISO Causes of Loss – Special Form CP 10 30 (all risks of direct physical loss except as excluded or limited); named peril vs. open peril burden of proofReport a problem with this question

14. 14. Which cause of loss is covered by the Broad causes of loss form but NOT by the Basic form?

    • A.Weight of snow, ice, or sleet✓ Answer
    • B.Volcanic action
    • C.Sprinkler leakage
    • D.Riot or civil commotion

    The Basic form lists fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse and volcanic action. The Broad form adds falling objects, weight of snow, ice or sleet, and water damage, along with the collapse additional coverage.

    Source: ISO Causes of Loss – Basic Form CP 10 10 and Broad Form CP 10 20Report a problem with this question

15. 15. A building suffers major fire damage, and the local building code now requires the undamaged portion to be demolished and the structure rebuilt to current standards. Under an unendorsed property policy, the added cost of complying with the code is:

    • A.Covered as debris removal, which is unlimited under the standard form
    • B.Covered in full, because the fire was the proximate cause of the demolition
    • C.Excluded by the ordinance or law exclusion unless the coverage is added by endorsement✓ Answer
    • D.Covered, but only up to the actual cash value of the undamaged portion

    Standard property forms exclude the increased cost of construction, demolition of undamaged property, and loss of value caused by the enforcement of any ordinance or law regulating construction, repair or demolition. The exposure is real but must be bought back, for example through the homeowners ordinance or law additional coverage or the commercial increased cost of construction / ordinance or law endorsement.

    Source: ISO property forms, Section I Exclusions — Ordinance or Law (HO 00 03 05 11 Section I Exclusion A.1; CP 10 30 Exclusion B.1)Report a problem with this question

16. 16. An insured wants open peril (special form) coverage on the dwelling AND on household personal property. Which homeowners form should be written?

    • A.HO-2
    • B.HO-3
    • C.HO-5✓ Answer
    • D.HO-8

    The HO-5 comprehensive form writes Coverages A, B and C all on an open peril basis, so personal property losses are covered unless excluded. The HO-3 is open peril only on Coverages A and B and reverts to named perils for Coverage C, the HO-2 is broad named perils throughout, and the HO-8 is a modified named peril form for older homes.

    Source: ISO Homeowners 2011 program — HO 00 05 (comprehensive form, open perils on Coverages A, B and C) vs. HO 00 03 (special form)Report a problem with this question

17. 17. Which statement about the HO-4 tenants form is correct?

    • A.It contains no Coverage A on the building; it insures the tenant's personal property on a named peril basis and also provides loss of use and Section II liability and medical payments✓ Answer
    • B.It is designed for condominium unit owners who own the interior of their unit
    • C.It insures the tenant's personal property on an open peril basis
    • D.It provides Coverage A equal to 10% of Coverage C for the tenant's improvements to the building

    A tenant has no insurable interest in the building itself, which the landlord insures, so the HO-4 is built around Coverage C personal property written on the named perils list, with Coverage D loss of use and the Section II personal liability and medical payments coverages. The condominium unit-owners exposure is handled by the HO-6 instead.

    Source: ISO Homeowners 2011 program — HO 00 04 Contents Broad Form (no Coverage A; Coverage C named perils, Coverage D = 30% of Coverage C)Report a problem with this question

18. 18. Under the HO-6 condominium unit-owners form, Coverage A:

    • A.Does not exist, because the unit owner has only Coverage C personal property
    • B.Provides a limited amount of insurance on building property such as interior walls, fixtures and improvements owned by the unit owner, and may be increased by endorsement✓ Answer
    • C.Is automatically written at 80% of the unit's market value
    • D.Insures the entire condominium building, including all common elements

    The condominium association's master policy insures the building and common elements, so the unit owner needs only a small building-property limit for the interior surfaces, fixtures, alterations and improvements that belong to the unit. The HO-6 therefore supplies a modest Coverage A that can be increased by endorsement when the unit owner has made substantial improvements.

    Source: ISO Homeowners 2011 program — HO 00 06 Unit-Owners Form, Coverage A Dwelling (limited building property amount, increasable by endorsement)Report a problem with this question

19. 19. An insured owns an ornate 100-year-old home whose replacement cost far exceeds its market value. Which homeowners form is designed for this risk, and how does it settle building losses?

    • A.HO-5, which settles building losses at agreed value because of the home's historic character
    • B.HO-2, which settles building losses at market value
    • C.HO-3, which settles building losses at full replacement cost with no insurance-to-value requirement
    • D.HO-8, which settles building losses on a functional replacement cost or actual cash value basis using common modern materials✓ Answer

    The HO-8 modified form exists precisely because insuring obsolete or ornate construction to full replacement cost would cost far more than the home is worth and could create a moral hazard. It writes named perils and settles building losses on a functional replacement cost or actual cash value basis, repairing with common modern materials rather than duplicating obsolete craftsmanship.

    Source: ISO Homeowners 2011 program — HO 00 08 Modified Coverage Form (functional replacement cost / ACV loss settlement, named perils)Report a problem with this question

20. 20. A homeowners policy is written with Coverage A of $400,000. Using the standard ISO homeowners percentage relationships, the Coverage B (Other Structures) and Coverage C (Personal Property) limits would be:

    • A.$40,000 and $120,000
    • B.$200,000 and $40,000
    • C.$40,000 and $200,000✓ Answer
    • D.$80,000 and $160,000

    In the ISO homeowners program the Section I limits are keyed to Coverage A: Coverage B is 10% of Coverage A and Coverage C is 50% of Coverage A, with Coverage D loss of use shown in the Declarations as a further percentage of Coverage A. These are minimums built into the form and each may be increased by endorsement for an additional premium.

    Source: ISO HO 00 03 05 11, Section I – Property Coverages (Coverage B = 10% of Coverage A; Coverage C = 50% of Coverage A)Report a problem with this question

21. 21. Under Section I Coverage C of a homeowners policy, the special limit of liability on jewelry, watches and furs:

    • A.Applies only when the property is away from the residence premises
    • B.Applies to every covered peril, including fire and windstorm
    • C.Can never be increased, even by endorsement
    • D.Applies only to loss by theft; a loss to the same property by another covered peril, such as fire, is subject to the full Coverage C limit✓ Answer

    The Coverage C special limits are written by category, and several of them, including jewelry, watches and furs, firearms, and silverware and goldware, are triggered only by loss caused by THEFT; other categories such as money and business property on the residence premises apply to any covered peril. Because the theft sublimit is low, high-value jewelry is normally insured under the scheduled personal property endorsement instead.

    Source: ISO HO 00 03 05 11, Section I – Coverage C, Special Limits of Liability (theft-only categories) and HO 04 61 Scheduled Personal Property EndorsementReport a problem with this question

22. 22. The owner of a rental dwelling buys an unendorsed DP-2 Broad Form. Which of the following is NOT provided by the base policy?

    • A.Coverage on other structures on the premises
    • B.Coverage on the dwelling itself
    • C.Fair rental value
    • D.Theft coverage and personal liability coverage✓ Answer

    The dwelling program is a property-only program, so the unendorsed DP forms contain no theft coverage and no liability coverage at all. Theft must be added by a broad theft coverage endorsement and liability by the personal liability supplement or endorsement, which is why the dwelling policy is written for landlord, seasonal and non-owner-occupied risks that do not fit the homeowners forms.

    Source: ISO Dwelling Property 2002 program (DP 00 01/02/03) — no theft and no liability in the base forms; DP 04 72 Broad Theft Coverage and Personal Liability SupplementReport a problem with this question

23. 23. Which statement correctly describes the DP-3 Special Form?

    • A.Coverages A and B are written on an open peril basis, while Coverage C personal property is covered for broad named perils✓ Answer
    • B.All coverages, including personal property, are written on an open peril basis
    • C.It may be written only on dwellings occupied by their owners
    • D.All coverages are limited to fire, lightning and internal explosion until an endorsement is added

    The DP-3 mirrors the HO-3 structure: open perils on Coverage A dwelling and Coverage B other structures, with Coverage C personal property still limited to the broad named perils list, and buildings settled at replacement cost. The DP-1 Basic Form is the one restricted to fire, lightning and internal explosion until the extended coverage endorsement is added, and dwelling forms may be written on owner-occupied, tenant-occupied, seasonal and vacant risks alike.

    Source: ISO Dwelling Property 2002 program — DP 00 03 Special Form (open perils on Coverages A and B, broad named perils on Coverage C)Report a problem with this question

24. 24. Under the National Flood Insurance Program definition, a "flood" generally requires:

    • A.Any entry of water into a building, including water from a burst interior pipe
    • B.A general and temporary condition of partial or complete inundation of normally dry land affecting two or more acres or two or more properties✓ Answer
    • C.A sewer or drain backup, regardless of any surface water condition
    • D.Water entering through an opening in the roof created by wind

    The Standard Flood Insurance Policy defines flood as a general and temporary condition of partial or complete inundation of two or more acres of normally dry land or of two or more properties, one of which is the insured's. That breadth requirement is what separates a true flood from localized water damage such as a burst pipe or wind-driven rain, which are handled by the property policy rather than the NFIP.

    Source: NFIP Standard Flood Insurance Policy, Dwelling Form, Article II Definitions — "flood" (44 CFR Part 61, Appendix A)Report a problem with this question

25. 25. A tenant purchases NFIP contents coverage for an apartment. How is a covered contents loss valued, and how does contents coverage relate to building coverage?

    • A.Contents are valued at replacement cost, and building coverage automatically extends to contents
    • B.Contents are valued at replacement cost provided the tenant insures them to at least 80% of value
    • C.Contents are valued at market value and share a single limit with building coverage
    • D.Contents are valued at actual cash value, and contents coverage must be purchased separately from building coverage, with its own limit and its own deductible✓ Answer

    Under the NFIP, contents are ALWAYS settled on an actual cash value basis; replacement cost is available only on the building of a single-family dwelling that is the insured's principal residence and is insured to at least 80% of replacement cost. Building and contents are also separate purchases with separate limits and separate deductibles, so a tenant who owns no building simply buys contents coverage alone.

    Source: NFIP Standard Flood Insurance Policy — loss settlement (contents always ACV; replacement cost limited to single-family principal residence insured to 80%); separate building and contents limits and deductiblesReport a problem with this question

26. 26. Why would an insured schedule an expensive diamond ring on a personal articles floater (scheduled personal property endorsement) instead of relying on homeowners Coverage C?

    • A.The floater covers the ring only while it is inside the residence premises
    • B.The floater is the only way to obtain any coverage at all for jewelry
    • C.The floater applies the same named perils as Coverage C but simply doubles the limit
    • D.The floater insures the item on an open peril basis worldwide and replaces the low Coverage C theft sublimit with a specific scheduled amount✓ Answer

    Scheduled personal property is an inland marine coverage written on an open peril basis, worldwide, usually with no deductible, and with agreed value settlement available on classes such as jewelry, furs and fine arts. Scheduling therefore removes the item from the restrictive Coverage C theft sublimit and from the named peril limitations that would otherwise apply.

    Source: ISO HO 04 61 Scheduled Personal Property Endorsement / Personal Articles Floater (inland marine, open perils, worldwide coverage, agreed value classes)Report a problem with this question

27. 27. Under a commercial business income coverage form, the period of restoration ends on the date:

    • A.The business income limit of insurance is first reduced by any payment
    • B.The insured actually resumes operations, no matter how long the delay
    • C.The damaged property should be repaired, rebuilt or replaced with reasonable speed and similar quality✓ Answer
    • D.The policy expires, regardless of the state of the repairs

    Business income pays the actual loss sustained during the period of restoration, and that period is measured objectively by how long repair or replacement SHOULD take with reasonable speed and similar quality, not by how long the insured actually takes. That objective standard keeps an insured who delays from extending the insurer's obligation, and extended business income then continues the coverage for a limited time after operations resume.

    Source: ISO Business Income (and Extra Expense) Coverage Form CP 00 30 — definition of "period of restoration"Report a problem with this question

28. 28. A customer slips on a spilled liquid in a store aisle. The store had no cleanup procedure and no employee had inspected the aisle for hours. Which set of elements must the customer prove to establish the store's negligence?

    • A.Intent, opportunity, causation, and financial loss
    • B.Duty, breach, and damages only — causation is presumed in premises cases
    • C.A legal duty owed, breach of that duty, proximate cause, and damages✓ Answer
    • D.A written contract, breach, foreseeability, and punitive damages

    Negligence is failure to use the care a reasonably prudent person would use, and liability attaches only when all four elements coexist: a duty owed to the injured party, a breach of that duty, proximate cause linking the breach to the harm, and actual damages. Missing any single element defeats the claim, which is why an unsafe condition alone is not enough — it must have caused measurable injury to someone the store owed a duty.

    Source: Common law of negligence — four required elements (duty, breach, proximate cause, damages); Pearson VUE Casualty General Knowledge outline, II. Insurance Terms and Related Concepts — negligenceReport a problem with this question

29. 29. A jury awards an injured plaintiff $40,000 for medical bills, $15,000 for lost wages, $90,000 for pain and suffering, and $250,000 to punish the defendant's reckless conduct. Which characterization is correct?

    • A.Pain and suffering and the punishment award are both punitive because neither is an out-of-pocket cost
    • B.All amounts awarded are compensatory damages because they were awarded in one verdict
    • C.Medical bills are general damages and pain and suffering is special damages
    • D.Medical bills and lost wages are special damages; pain and suffering is general damages; the punishment award is punitive damages✓ Answer

    Compensatory damages restore the injured party and divide into special damages — objectively measurable out-of-pocket losses such as medical expenses, lost wages, and repair costs — and general damages, which are non-economic harms like pain and suffering, disfigurement, and loss of consortium. Punitive damages are a separate category awarded not to compensate but to punish and deter egregious conduct, and many states hold them uninsurable as a matter of public policy.

    Source: Damages taxonomy: compensatory (special vs. general) vs. punitive; Pearson VUE Casualty General Knowledge outline, II — damagesReport a problem with this question

30. 30. A delivery driver, while making deliveries on his employer's route, negligently rear-ends another car. The injured party sues the employer even though the employer did nothing wrong. This is an application of which doctrine?

    • A.Res ipsa loquitur
    • B.Absolute liability
    • C.Assumption of risk
    • D.Vicarious liability✓ Answer

    Vicarious liability makes one party legally answerable for the negligent acts of another because of the relationship between them — employer for employee acting in the scope of employment, parent for child, or vehicle owner for a permissive driver. The employer's own conduct is irrelevant; liability is imputed through the relationship, which is distinct from absolute liability (imposed by statute regardless of fault) and res ipsa loquitur (an evidentiary rule that infers negligence from the nature of the accident).

    Source: Doctrine of respondeat superior / vicarious liability; Pearson VUE Casualty General Knowledge outline, II — liabilityReport a problem with this question

31. 31. A plaintiff is found 30% at fault for her own injuries in a state that follows a pure comparative negligence rule. Her total damages are assessed. What is the effect on her recovery?

    • A.She recovers her damages reduced by 30%✓ Answer
    • B.She recovers her full damages because the defendant was more at fault
    • C.She recovers nothing unless her fault is below 10%
    • D.She recovers nothing because she contributed to her own injury

    Pure comparative negligence apportions damages by each party's percentage of fault, so the plaintiff's award is simply reduced by her own share and she can recover even if she is mostly at fault. This contrasts with contributory negligence, which bars recovery entirely if the plaintiff contributed at all, and with modified comparative negligence, which cuts off recovery once the plaintiff's fault reaches the 50% or 51% threshold.

    Source: Negligence defenses: contributory vs. pure vs. modified comparative negligence; Pearson VUE Casualty General Knowledge outline, II — negligenceReport a problem with this question

32. 32. A homeowner keeps a pet tiger in a secure enclosure. Despite reasonable precautions, the animal escapes and injures a neighbor. Under what theory is the homeowner most likely liable?

    • A.Strict liability, because keeping a dangerous animal imposes liability without proof of negligence✓ Answer
    • B.Vicarious liability, because the owner is answerable for the animal's acts as an agent
    • C.No liability, because reasonable precautions were taken
    • D.Ordinary negligence, because the neighbor must prove the enclosure was defective

    Strict liability attaches to inherently dangerous activities and conditions — ultrahazardous operations such as blasting, defective products, and dangerous animals — and the injured party need not prove any breach of duty; the risk itself is enough. Because the standard bypasses the breach element entirely, the owner's exercise of reasonable care is not a defense.

    Source: Strict liability doctrine (ultrahazardous activities, products, dangerous animals); Pearson VUE Casualty General Knowledge outline, II — liabilityReport a problem with this question

33. 33. An insured's homeowners policy Section II is in force when a neighbor's child is injured by a fall on the insured's steps. The insured is not legally liable, but the family submits the child's medical bills. Which statement correctly describes Coverage F — Medical Payments to Others?

    • A.It pays necessary medical expenses on a no-fault basis, so legal liability need not be established✓ Answer
    • B.It pays only after a court finds the insured legally liable for the injury
    • C.It pays medical expenses for the insured and resident family members as well as guests
    • D.It is a supplementary payment made in addition to the Coverage E limit

    Medical Payments to Others is a no-fault, goodwill coverage that pays reasonable and necessary medical expenses incurred by an injured third party within a stated period after the accident, regardless of whether the insured was negligent — its purpose is to settle small claims quickly and discourage litigation. It expressly excludes the named insured and regular residents of the household, who must look to their own health insurance.

    Source: ISO Homeowners Policy, Section II — Coverage F Medical Payments to Others (no-fault; excludes the named insured and regular household residents)Report a problem with this question

34. 34. Which of the following losses would be covered under Section II of an unendorsed homeowners policy?

    • A.A client is injured at the insured's in-home hair salon during a paid appointment
    • B.A patient sues the insured, a physician, over care rendered at the office
    • C.A guest is injured when the insured's dog bites him in the insured's fenced yard✓ Answer
    • D.A pedestrian is struck by the insured's licensed automobile on a public road

    Homeowners Section II covers personal (non-business) liability of the insured and household members, including liability arising from animals they own or keep, so a dog bite on the premises is a covered occurrence. The other three fall squarely within the standard exclusions for business pursuits, motor vehicles licensed for road use, and professional services — exposures that require a separate CGL, personal auto policy, or professional liability policy.

    Source: ISO Homeowners Policy, Section II Exclusions — business pursuits, motor vehicle liability, professional servicesReport a problem with this question

35. 35. An insured with a Personal Auto Policy borrows a friend's car while her own vehicle is being repaired. She causes an accident and both her policy and the friend's policy apply. How does the Other Insurance provision of the PAP operate?

    • A.The two policies share the loss pro rata by their respective limits
    • B.Her policy is primary because she was the driver at fault
    • C.Her policy is excess over other collectible insurance because the vehicle is one she does not own✓ Answer
    • D.Her policy does not respond at all to a vehicle she does not own

    The PAP Other Insurance condition provides that when more than one policy applies the insurers share pro rata by limits, but it carves out an important exception: any coverage the policy provides for a vehicle the insured does not own — including a temporary substitute auto — is excess over any other collectible insurance. Insurance follows the car first, so the owner's policy pays as primary and the driver's policy sits above it.

    Source: ISO Personal Auto Policy (PP 00 01), Part A — Other Insurance condition (excess for non-owned autos)Report a problem with this question

36. 36. An insured carries split limits of liability on her Personal Auto Policy. She causes one accident in which three people are injured and one vehicle is damaged. Which statement correctly describes how split limits apply?

    • A.The per-person limit applies separately to each person's bodily injury and property damage combined
    • B.The first figure caps bodily injury per accident and the second caps bodily injury per person
    • C.The first figure caps bodily injury per person, the second caps total bodily injury per accident, and the third caps property damage per accident✓ Answer
    • D.All three injured persons and the damaged vehicle share a single undivided limit

    Split limits are stated as three numbers in the order bodily injury per person / bodily injury per accident / property damage per accident, so no single claimant can collect more than the per-person figure and all bodily injury claims together cannot exceed the per-accident figure. A combined single limit differs fundamentally: it is one aggregate amount available for all bodily injury and property damage from one accident, with no internal per-person cap.

    Source: ISO Personal Auto Policy, Part A — Limit of Liability (split limits vs. combined single limit)Report a problem with this question

37. 37. An insured is struck by a driver who carries bodily injury liability limits below the state's financial responsibility minimum. Under Part C of the Personal Auto Policy, how is that driver's vehicle classified?

    • A.As a properly insured vehicle, so Part C does not respond
    • B.As a hit-and-run vehicle, because the coverage is inadequate
    • C.As an uninsured motor vehicle, because its liability limit is below the state's required minimum✓ Answer
    • D.As an underinsured motor vehicle, because it carries some insurance

    The PAP defines an uninsured motor vehicle to include not only a vehicle with no bodily injury bond or policy and a hit-and-run vehicle whose owner or operator cannot be identified, but also a vehicle whose applicable bodily injury limit is less than the minimum required by the financial responsibility law of the state where the covered auto is principally garaged. Underinsured motorists coverage is the separate concept that applies when the at-fault driver meets the legal minimum but still carries less than the injured party's damages.

    Source: ISO Personal Auto Policy, Part C — definition of "uninsured motor vehicle" (includes limits below the state financial responsibility minimum)Report a problem with this question

38. 38. An insured's parked car is damaged when a deer runs into it, and separately the same car's windshield is shattered by a rock thrown from a mower. Under Part D of the Personal Auto Policy, how are these losses classified?

    • A.Neither is covered under Part D because the vehicle was not being driven
    • B.Both are other than collision losses, since contact with an animal and breakage of glass are listed as OTC perils✓ Answer
    • C.Both are collision losses, since each involved an impact with an object
    • D.The deer is collision and the glass is other than collision

    Part D defines collision as the upset of the covered auto or its impact with another vehicle or object, and then expressly removes a list of perils from that definition and treats them as other than collision — including contact with a bird or animal and breakage of glass, along with fire, theft, explosion, windstorm, hail, flood, vandalism, and riot. Classification matters because collision and OTC typically carry separate deductibles and may be purchased independently.

    Source: ISO Personal Auto Policy, Part D — definition of Collision and listed Other Than Collision perilsReport a problem with this question

39. 39. An insured uses his personal vehicle to carry passengers for a fee through a ride-hailing app and has an at-fault accident while a paying passenger is aboard. His unendorsed Personal Auto Policy will most likely respond how?

    • A.Coverage applies with limits reduced to the state financial responsibility minimum
    • B.Coverage applies but only for the passenger's injuries under Medical Payments
    • C.Coverage applies in full because the insured owns the vehicle and is a named insured
    • D.Coverage is excluded because the auto was being used as a public or livery conveyance✓ Answer

    The PAP liability section excludes bodily injury or property damage arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance — that is, carrying persons or property for a fee — which is precisely the transportation-network exposure. The exposure must be insured under a commercial auto policy or a specific ride-sharing endorsement; the exclusion does not apply to ordinary share-the-expense car pools.

    Source: ISO Personal Auto Policy, Part A — Exclusions (public or livery conveyance; share-the-expense car pool exception)Report a problem with this question

40. 40. A contractor's Commercial General Liability policy shows a General Aggregate, a Products-Completed Operations Aggregate, a Personal and Advertising Injury Limit, and an Each Occurrence Limit. Which statement correctly describes how these limits interact?

    • A.All four limits draw from the General Aggregate, which is the single most the policy will pay
    • B.The Each Occurrence Limit is the annual maximum and the aggregates apply per claim
    • C.The Products-Completed Operations Aggregate is separate from and not reduced by the General Aggregate, while Personal and Advertising Injury is subject to the General Aggregate✓ Answer
    • D.Personal and Advertising Injury is subject to the Products-Completed Operations Aggregate

    Under the CGL Limits of Insurance section the General Aggregate is the most the insurer will pay for the sum of Coverage C medical expenses, Coverage A damages other than those in the products-completed operations hazard, and Coverage B damages — so Personal and Advertising Injury erodes it. The Products-Completed Operations Aggregate stands entirely apart and is not touched by general-liability losses, which preserves a dedicated pool of coverage for the products exposure.

    Source: ISO CG 00 01, Section III — Limits of Insurance (General Aggregate vs. separate Products-Completed Operations Aggregate)Report a problem with this question

41. 41. A CGL insurer spends money defending its insured, posts a bond to release an attachment, and pays post-judgment interest. How do these amounts affect the policy's Each Occurrence Limit?

    • A.They reduce the Each Occurrence Limit dollar for dollar as they are paid
    • B.They are Supplementary Payments made in addition to the limit and do not reduce it✓ Answer
    • C.They reduce the General Aggregate but not the Each Occurrence Limit
    • D.They are paid only after the limit is exhausted by a judgment

    The CGL Supplementary Payments provision states that the listed items — the insurer's defense expenses, bail bonds, bonds to release attachments, reasonable expenses at the insurer's request including loss of earnings, court costs taxed against the insured, prejudgment interest on the portion paid, and all post-judgment interest — are paid in addition to the applicable limit of insurance. This is the sharp contrast with most professional liability forms, where defense costs erode the limit.

    Source: ISO CG 00 01, Section I — Supplementary Payments Coverages A and B (paid in addition to the limit of insurance)Report a problem with this question

42. 42. Which of the following would be covered under Coverage B — Personal and Advertising Injury of the Commercial General Liability policy?

    • A.A written statement in the insured's newsletter that disparages a competitor's goods✓ Answer
    • B.The insured's unauthorized use of a competitor's patented manufacturing process
    • C.The insured's infringement of a rival's registered trademark on product packaging
    • D.Bodily injury to a customer caused by a falling display

    Coverage B responds to a closed list of enumerated offenses, including oral or written publication of material that slanders or libels a person or organization or disparages its goods, products, or services, along with false arrest, malicious prosecution, wrongful eviction, violation of the right of privacy, use of another's advertising idea, and infringement of copyright, trade dress, or slogan in the insured's advertisement. Patent and trademark infringement are conspicuously absent from that list and are not covered, and bodily injury belongs to Coverage A.

    Source: ISO CG 00 01, Section V — definition of "personal and advertising injury" (enumerated offenses; patent and trademark not included)Report a problem with this question

43. 43. A professional liability policy is written on a claims-made basis with a retroactive date. A claim is first made against the insured after the policy expires, arising from an act that occurred during the policy period. Which mechanism is designed to provide coverage for that claim?

    • A.The other insurance clause, which shifts the claim to the succeeding insurer
    • B.The liberalization clause, which broadens the expired policy automatically
    • C.An extended reporting period, which allows claims first made after expiration for acts occurring on or after the retroactive date✓ Answer
    • D.Moving the retroactive date forward to the expiration date

    A claims-made policy is triggered only when the claim is first made during the policy period, so a late-reported claim would otherwise fall into a gap; the extended reporting period (tail) cures this by allowing claims first made after expiration, provided the injury or wrongful act happened on or after the retroactive date and before the end of the policy period. Advancing the retroactive date is the opposite move — it destroys coverage for prior acts rather than preserving it.

    Source: ISO claims-made CGL / professional liability — retroactive date and extended reporting period provisionsReport a problem with this question

44. 44. A retail bakery, a small accounting office, and a metal-stamping manufacturer each apply for a Businessowners Policy. Which statement about BOP eligibility and structure is correct?

    • A.All three are eligible because the BOP is designed for any small business
    • B.The manufacturer is typically ineligible, and no BOP includes workers compensation, professional liability, or commercial auto✓ Answer
    • C.The BOP automatically includes workers compensation for businesses under a stated payroll
    • D.The BOP is a modular policy from which the insured selects property or liability separately

    The BOP is a pre-packaged, non-modular policy that combines property and liability coverage for eligible small and medium businesses such as offices, retail stores, apartments, and service risks within stated size limits — manufacturers, auto dealers and repair shops, bars, banks, and amusement operations are classically ineligible. Workers compensation, professional liability, commercial auto, and employee benefits liability are never built in and must be written separately or by endorsement where available.

    Source: ISO Businessowners Policy (BP 00 03) — eligibility classes and package structure; excluded linesReport a problem with this question

45. 45. A business buys an umbrella liability policy over its CGL and business auto policies. It also faces a liability claim for which no underlying policy provides any coverage, though the umbrella does. What must the insured pay before the umbrella responds to that claim?

    • A.A per-claim deductible that applies to every umbrella claim, covered underlying or not
    • B.The self-insured retention, which applies only where no underlying insurance covers the loss✓ Answer
    • C.The full underlying limit that would have applied had a policy been in force
    • D.Nothing, because the umbrella drops down and pays from the first dollar

    An umbrella performs three functions — excess coverage above scheduled underlying limits, drop-down when an underlying aggregate is exhausted, and broader coverage than the underlying subject to a self-insured retention. The SIR is an out-of-pocket amount the insured absorbs only on losses the underlying policies do not cover at all; it is not a deductible applied to ordinary excess claims, and separately, if the insured fails to maintain the required underlying limits the umbrella still pays as though those limits were in place, leaving the insured to fund the gap.

    Source: Standard commercial umbrella liability form — self-insured retention and maintenance of underlying insurance conditionsReport a problem with this question

46. 46. An employer is sued by an employee alleging wrongful termination, hostile work environment, and retaliation. Which policy is designed to respond to these allegations?

    • A.The workers compensation policy, Part One
    • B.The Commercial General Liability policy, Coverage A
    • C.A fidelity bond covering employee dishonesty
    • D.Employment Practices Liability Insurance✓ Answer

    EPLI covers wrongful employment acts — discrimination, harassment, wrongful termination, failure to hire or promote, wrongful demotion, hostile work environment, and retaliation — which produce economic and emotional harm rather than the bodily injury or property damage the CGL requires. The CGL cannot respond because these are not Coverage A occurrences and the employment-related practices exclusion removes them, while workers compensation addresses only work-related injury and disease.

    Source: Employment Practices Liability policy form — definition of wrongful employment act; ISO CG 00 01 employment-related practices exclusionReport a problem with this question

47. 47. An injured worker accepts workers compensation benefits and then attempts to sue his employer in tort for additional pain and suffering damages arising from the same on-the-job injury. What is the likely result?

    • A.The suit is heard under Part One of the workers compensation policy
    • B.The suit proceeds only if the employee first repays the benefits received
    • C.The suit is generally barred because workers compensation is the employee's exclusive remedy against the employer✓ Answer
    • D.The suit proceeds because pain and suffering is not a workers compensation benefit

    Workers compensation is a statutory no-fault system in which the employee gives up the right to sue the employer in tort in exchange for prompt, certain benefits regardless of fault — this trade-off is the exclusive remedy doctrine. Part Two, Employers Liability, exists precisely to cover the narrow suits that fall outside the compensation law, such as third-party-over actions, consequential injury to a family member, dual-capacity claims, and loss of consortium.

    Source: Workers compensation exclusive remedy doctrine; NCCI Workers Compensation and Employers Liability Policy, Part One vs. Part TwoReport a problem with this question

48. 48. A railroad employee is injured on the job and seeks recovery from the railroad. Which statement about the applicable federal law is correct?

    • A.The Jones Act governs railroad workers and provides no-fault benefits
    • B.The Longshore and Harbor Workers Compensation Act governs railroad workers
    • C.The Federal Employers Liability Act provides no-fault benefits identical to state workers compensation
    • D.Under the Federal Employers Liability Act the worker must prove the employer's negligence, so recovery is fault-based✓ Answer

    FELA is the classic exception to the no-fault pattern: it gives interstate railroad workers a negligence cause of action against the railroad rather than a schedule of statutory benefits, so the worker must prove employer fault to recover. The Jones Act covers seamen, the Longshore and Harbor Workers Compensation Act covers maritime workers who are not seamen, and neither applies to railroad employment.

    Source: Federal Employers Liability Act (FELA) — fault-based railroad worker remedy; Jones Act and LHWCA distinguishedReport a problem with this question

49. 49. An employer operating in a monopolistic state fund jurisdiction buys its workers compensation coverage from the state fund. What coverage gap should the producer address?

    • A.Rehabilitation benefits, which must be purchased from a private insurer
    • B.Employers liability, which the monopolistic fund does not provide and which is added by stop-gap coverage✓ Answer
    • C.Medical benefits, which the state fund pays only after a deductible
    • D.Death benefits, which are excluded from all state funds

    In monopolistic fund states the employer must buy statutory workers compensation benefits from the state fund, and those funds provide only the compensation benefits — they do not include Part Two employers liability for suits that fall outside the compensation statute. Stop-gap coverage, usually added by endorsement to the CGL, fills that gap so third-party-over actions, consortium claims, and dual-capacity suits are still insured.

    Source: Monopolistic state fund limitation — no Part Two employers liability; stop-gap endorsement to the CGLReport a problem with this question

50. 50. A general contractor must guarantee to a project owner that, if awarded the job, it will complete the work according to the contract terms. Which bond serves this purpose, and who are the parties?

    • A.A performance bond: the contractor is the principal, the owner is the obligee, and the bonding company is the surety✓ Answer
    • B.A fidelity bond: the contractor is the principal and the surety guarantees employee honesty
    • C.A performance bond: the owner is the principal, the surety is the obligee, and the contractor is the beneficiary
    • D.A bid bond: the contractor is the obligee and the owner is the surety

    Every surety bond has three parties: the principal who owes the performance, the obligee who is protected, and the surety who guarantees that performance. A performance bond specifically guarantees completion of the contract as written, while a bid bond guarantees only that the successful bidder will enter the contract and furnish required bonds, and a payment bond guarantees that subcontractors and suppliers are paid.

    Source: Surety bond structure — principal, obligee, surety; contract bonds (bid, performance, payment)Report a problem with this question

51. 51. How does a surety bond fundamentally differ from an insurance policy such as a fidelity bond?

    • A.The surety involves two parties while the fidelity bond involves three
    • B.The surety indemnifies the principal, while the fidelity bond indemnifies the employee
    • C.The surety expects to be reimbursed by the principal for any loss it pays, while an insurer expects and prices for losses it will not recover from the insured✓ Answer
    • D.The surety is regulated as a banking product rather than as an insurance product

    Suretyship is a guarantee of performance rather than a transfer of risk: the surety underwrites on the assumption that no loss will occur, and if it must pay the obligee it has a right of reimbursement against the principal. Fidelity bonds are true two-party insurance protecting an employer against employee dishonesty, where losses are expected, funded by premium, and not recovered from the insured.

    Source: Suretyship vs. insurance — guarantee with right of reimbursement vs. risk transfer; fidelity bonds as two-party insuranceReport a problem with this question

52. 52. A commercial policy is issued naming ABC Corp. first on the declarations, with two subsidiaries also listed as named insureds and a landlord shown as an additional insured. Who has the right to request policy changes and receive notice of cancellation?

    • A.The additional insured, because it holds a contractual interest
    • B.Only the insurer's appointed producer of record
    • C.ABC Corp., as the first named insured✓ Answer
    • D.Any of the three named insureds, acting independently

    The first named insured — the person or entity listed first in the declarations — is designated by the policy conditions to act on behalf of all insureds: it pays the premium, receives return premium and dividends, requests policy changes, may cancel, and is the party entitled to notice of cancellation or nonrenewal. Other named insureds enjoy coverage but not these administrative rights, and an additional insured has only the limited coverage granted by the endorsement.

    Source: Common Policy Conditions — rights and duties of the first named insured; additional insured endorsement scopeReport a problem with this question

53. 53. After a covered loss, the insured and the insurer agree that the loss is covered but cannot agree on the amount of the damage. Which policy condition applies, and what is its scope?

    • A.The appraisal condition, which resolves the amount or value of the loss but never questions of coverage or liability✓ Answer
    • B.The subrogation condition, which transfers the dispute to the responsible third party
    • C.The proof of loss condition, which makes the insurer's valuation binding on the insured
    • D.The appraisal condition, which resolves both the amount of loss and whether the peril is covered

    Appraisal is a valuation mechanism, not a coverage forum: each party selects a competent and impartial appraiser, the two appraisers choose an umpire, and an agreement by any two of the three sets the amount of loss. Because coverage disputes and questions of legal liability are outside its scope, invoking appraisal does not waive the insurer's right to deny the claim on coverage grounds.

    Source: Standard policy Appraisal condition — amount of loss only; appraisers and umpire, agreement of any two bindingReport a problem with this question

54. 54. An insurer pays its insured for collision damage caused by a negligent third party, then pursues that third party for reimbursement. Which condition permits this, and what duty does it impose on the insured?

    • A.Abandonment, which permits the insured to relinquish the property and claim a total loss
    • B.Salvage, which requires the insured to surrender the damaged property to the insurer
    • C.Assignment, which requires the insured to transfer the policy to the third party
    • D.Subrogation, which requires the insured to do nothing after a loss to impair the insurer's recovery rights✓ Answer

    Subrogation transfers to the insurer, up to the amount it paid, the insured's legal right to recover from the party that caused the loss, which prevents the insured from collecting twice and holds the negligent party ultimately responsible. The insured must preserve those rights — signing a release or waiving subrogation after a loss can void coverage, whereas a waiver of subrogation agreed to in writing before the loss is generally permitted.

    Source: Standard policy Transfer of Rights of Recovery Against Others To Us (subrogation) condition; pre-loss written waiver of subrogationReport a problem with this question

55. 55. A producer issues a written binder to a commercial applicant while the underwriter reviews the application. Which statement about the binder and a related certificate of insurance is correct?

    • A.The certificate amends the policy to add the certificate holder as an insured
    • B.A binder must always be in writing and remains effective for the full policy term
    • C.The binder is temporary evidence of coverage effective until the policy is issued or coverage is declined, while a certificate is only evidence of coverage and grants no rights✓ Answer
    • D.Both the binder and the certificate create coverage independent of any policy

    A binder is temporary evidence that coverage is in force pending underwriting; it may be oral or written and terminates when the policy is issued or the insurer declines the risk. A certificate of insurance merely summarizes coverage already in force for a third party's information — it confers no rights on the holder and cannot alter, extend, or amend the underlying policy, which requires an endorsement.

    Source: Binder as temporary evidence of coverage; certificate of insurance as evidence only (no rights conferred, no policy amendment); Pearson VUE Casualty outline, II and IIIReport a problem with this question

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