Casualty Policy Provisions — practice questions

8% of the exam ≈13 real questions 13 free questions here

The duty to defend, limits and supplementary payments, other-insurance clauses, and the Florida statutes that override the printed policy — about 13 of the 160 scored questions. Read every stem for whether the money comes out of the limit or sits on top of it.

Where people lose points

• Charging defense costs against the CGL limit. Under the ISO form, Supplementary Payments — defense expenses, bail bonds, and post-judgment interest on the full judgment — are paid in addition to the limit of insurance. Two identical-looking $1,000,000 quotes are very different deals when one of them lets defense erode the limit.
• Deciding the duty to defend on the true facts. Florida's eight-corners rule compares the allegations inside the four corners of the complaint against the four corners of the policy. If any count is even potentially within coverage the insurer must defend the whole suit, which is why the duty to defend is broader than the duty to indemnify.
• Treating a reservation of rights as open-ended. Section 627.426(2), F.S. requires written notice of reservation of rights within 30 days after the insurer knew or should have known of the coverage defense, and then, within 60 days of that notice or of the summons and complaint and never later than 30 days before trial, one of exactly three things: written notice of refusal to defend, a nonwaiver agreement obtained after full disclosure, or independent counsel mutually agreeable to the parties. A declaratory action is the insurer's other remedy, not one of the three — filing one does not stop the clock, and missing it forfeits the coverage defense.
• Letting the insured settle and then bill the insurer. The voluntary payments condition makes any payment or assumed obligation the insured's own cost unless the insurer consented; first aid is the only carve-out, and giving notice of the occurrence satisfies a different duty entirely.
• Missing the Florida settlement clock. Under s. 627.4265, F.S. an insurer that has agreed in writing to settle must tender payment within 20 days, and a late payment carries 12% annual interest from the date of the agreement. Section 627.4137, F.S. separately gives the insurer 30 days to answer a claimant's written request for a sworn statement of coverage limits and defenses.

Questions and answers, explained

All 10 questions above, with the correct answer and why it is correct. Everything here is on casualty policy provisions.

1. A complaint against a Florida commercial general liability insured pleads two counts arising from the same incident: negligent supervision, which is potentially covered, and intentional battery, which is excluded. The insurer is convinced the battery count is the real claim and that it will ultimately owe nothing. What must the insurer do?

   • ADefend the entire suit, because at least one count in the complaint is potentially within coverageCorrect
   • BRefuse the defense outright, because the predominant allegation is excluded
   • CDefend only the negligent supervision count and bill the insured for the battery defense
   • DPay for counsel of the insured's choosing but take no part in directing the defense

   Why: Under Florida's eight corners rule the duty to defend is determined by comparing the allegations within the four corners of the complaint against the four corners of the policy, without regard to the insurer's view of the true facts. If any count is even potentially within coverage, the insurer must defend the entire action, and doubts are resolved in favor of the insured. That is why the duty to defend is broader than the duty to indemnify — the insurer may end up owing a full defense and no indemnity at all. The insurer's proper remedies are a reservation of rights under s. 627.426, F.S., and a declaratory judgment action, not a refusal to appear, which risks losing control of the defense and exposure to a bad faith claim.

   Reference ISO CG 00 01, Section I — Coverage A, 1.a (right and duty to defend); Florida 'eight corners' rule (common law)

2. A jury enters a $1,500,000 judgment against a commercial general liability insured whose per-occurrence limit is $1,000,000. The insurer appeals, unsuccessfully, and interest accrues on the judgment while the appeal is pending. Which statement about interest under the Supplementary Payments provision is correct?

   • AThe insurer pays post-judgment interest on the entire $1,500,000, in addition to its $1,000,000 limitCorrect
   • BThe insurer pays interest only on the $1,000,000 within its limit, eroding that limit
   • CThe insurer owes no interest, because interest is not a supplementary payment
   • DInterest is the insured's obligation, because it arises above the policy limit

   Why: The Supplementary Payments provision obligates the insurer to pay all interest on the full amount of any judgment that accrues after entry of the judgment and before the insurer has paid, offered to pay, or deposited in court the part of the judgment that is within its limit — and it is paid in addition to the limit. On an excess verdict that is a real and uncapped exposure, and it is one reason an insurer weighs an appeal carefully. Note the cut-off built into the wording: once the insurer tenders or deposits its limit, post-judgment interest stops running as to the insurer. Distinguish prejudgment interest, which is also a supplementary payment but is owed only on damages the insurer pays, not on amounts above the limit.

   Reference ISO CG 00 01 — Supplementary Payments, Coverages A and B

3. A Florida trucking company carries a $2,000,000 liability policy subject to a $250,000 self-insured retention. A $600,000 claim is filed against it. Which statement best describes how that self-insured retention differs from a $250,000 deductible on the same policy?

   • AThere is no practical difference; each simply describes the insured's first-dollar share of any covered loss
   • BThe insured pays and administers claims inside the retention; the insurer's duties, including defense, attach above itCorrect
   • CUnder a self-insured retention the insurer pays the full $600,000 and then bills the insured for the $250,000, while a deductible is paid by the insured directly to the claimant
   • DA self-insured retention reduces the available policy limit to $1,750,000, whereas a deductible has no effect at all on the limit

   Why: The real distinction is who stands in front of the claim. Under a self-insured retention the insured retains and usually administers losses within the retention, and the insurer's duties — critically including the duty to defend — are typically triggered only once the retention is satisfied; the retention sits beneath the policy and the limit generally applies above it. Under a deductible the insurer's duty to defend attaches from the first dollar, it adjusts and pays the claimant, and it then recovers the deductible from the insured, which means the insurer, not the claimant, carries the credit risk if the insured cannot pay. Option C reverses the two. Because the details vary by contract, always confirm in the specific wording whether defense costs erode the retention and whether the insurer will drop down if the insured becomes insolvent.

   Reference General P&C concept — self-insured retention vs deductible

4. A pedestrian injured by a delivery van wants to name the van owner's liability insurer as a defendant in the same complaint as her negligence count against the owner. Under Florida law, may she?

   • ANo — she must first obtain a settlement or verdict against an insuredCorrect
   • BYes — Florida is a direct-action state and permits suit against a liability insurer at any time
   • CYes, provided she first files a civil remedy notice with the Department of Financial Services and waits 60 days
   • DNo, and she can never reach the insurer directly; she must collect the judgment from the insured personally

   Why: Section 627.4136, F.S., the nonjoinder statute, makes it a condition precedent to the accrual or maintenance of a cause of action against a liability insurer by a person who is not an insured that the claimant first obtain a settlement or verdict against a person who is an insured. Once judgment is entered or a settlement is reached during the litigation, the insurer may be joined as a party defendant for the purpose of entering final judgment or enforcing the settlement — so the insurer is reachable, just not at the outset. One exception belongs with this rule: under s. 627.4136(4) the insurer may NOT be joined at that point if it denied coverage under s. 627.426(2) or defended under a reservation of rights pursuant to s. 627.426(2) — the same Claims Administration statute tested in the preceding item. In that situation the claimant's route is a separate action, not joinder. That rules out both B, which describes a true direct-action state Florida is not, and D, which overstates the bar. Option C mixes in the civil remedy notice from s. 624.155, which is the gateway to a bad faith action, not a route to joining the insurer in the underlying tort suit.

   Reference s. 627.4136(1) and (4), F.S.

5. A commercial general liability policy shows a $1,000,000 Personal And Advertising Injury Limit and a $2,000,000 General Aggregate Limit. The insured disparaged one competitor in three separate advertisements during the policy year, and that competitor recovers $1,400,000. What does Coverage B pay?

   • A$1,400,000, since the three advertisements are three separate offenses within the aggregate
   • B$1,000,000 per advertisement, capped at the $2,000,000 General Aggregate for the year
   • C$1,400,000, because Coverage B damages are capped only by the General Aggregate Limit
   • D$1,000,000, the most payable for all such injury to any one person or organizationCorrect

   Why: Section III, paragraph 4 caps Coverage B at the Personal And Advertising Injury Limit for the sum of all damages because of all personal and advertising injury sustained by any one person or organization. The number of offenses is irrelevant once the injured party is the same organization. Option A is the near-miss for a candidate who counts offenses instead of victims; the aggregate in paragraph 2 sits above this limit, it does not lift it.

   Reference ISO CG 00 01 04 13, Section III — Limits Of Insurance, para. 4

6. A CGL names a corporation as insured, and its vice president is an insured with respect to her duties as an officer. A customer injured on the premises sues the corporation and the vice president for bodily injury damages. The insurer argues that an exclusion defeating the corporation's coverage also defeats hers. What does the Separation Of Insureds condition do?

   • AIt gives each insured its own limits, so the officer has a second each-occurrence limit
   • BCoverage is read separately for each insured sued, except as to the Limits of InsuranceCorrect
   • CIt applies only to Named Insureds, so an officer insured under the form gets no separate reading
   • DIt defeats coverage for every insured whenever two insureds are sued over one occurrence

   Why: Condition 7 states that, except with respect to the Limits of Insurance and any rights or duties specifically assigned to the first Named Insured, the insurance applies as if each Named Insured were the only Named Insured and separately to each insured against whom claim is made or suit is brought. The vice president's coverage is therefore tested on its own facts, and an exclusion that reaches the corporation does not travel to her automatically. Option A is the classic overreach: separation of insureds separates the application of coverage, not the limits, which stay shared. Note why the second insured is an executive officer and the claimant a customer — an ordinary employee is not an insured at all for bodily injury to a co-employee under Who Is An Insured 2.a.(1)(a), so that fact pattern is decided before Condition 7 is ever reached.

   Reference ISO CG 00 01 04 13, Section IV — Commercial General Liability Conditions, 7. Separation Of Insureds

7. A Florida general contractor signs a subcontract in which the subcontractor assumes the contractor's tort liability for bodily injury to third parties arising out of the subcontracted work. A passer-by is injured after the agreement is executed and sues the general contractor, which tenders to the subcontractor's CGL insurer. How does the contractual liability exclusion apply?

   • AIt does not bar the claim; the assumption sits in an “insured contract” and the injury followed itCorrect
   • BIt bars the claim, since liability assumed by contract is never covered by a CGL policy
   • CIt bars the claim unless the subcontract also names the contractor as an additional insured
   • DIt does not bar the claim, because the exclusion drops out whenever a written contract exists

   Why: Exclusion b. removes liability assumed in a contract, but has two exceptions: liability the insured would have had anyway, and liability assumed in an “insured contract” provided the bodily injury or property damage occurs after the contract is executed. A subcontract assuming another party's tort liability for injury to a third person is squarely within paragraph f. of the definition of “insured contract.” Option C is the near-miss: additional insured status under CG 20 10 or CG 20 37 is a separate route to protection and is not a precondition for the insured-contract exception.

   Reference ISO CG 00 01 04 13, Section I — Coverage A, Exclusion b. (Contractual Liability); Section V, definition of “insured contract”

8. On March 1 a CGL named insured forms a new, wholly owned corporation that has no other similar insurance. The policy period runs through December 31. On July 20 a customer of the new corporation is injured on its premises. Does the new corporation qualify as a Named Insured?

   • AYes, for the rest of the policy period, since no other similar insurance is available to it
   • BYes, but only for injury arising out of conduct before the corporation was formed on March 1
   • CNo; automatic Named Insured status ran only to the 90th day after the corporation was formedCorrect
   • DNo, because a newly formed corporation never qualifies as a Named Insured under this provision

   Why: Who Is An Insured paragraph 3 gives an organization the named insured newly acquires or forms automatic Named Insured status only until the 90th day after acquisition or formation, or the end of the policy period, whichever is earlier, and only if no other similar insurance is available. Ninety days from March 1 expires on May 30, well before the July 20 injury. Option A is the trap: the absence of other similar insurance is a precondition for the grant, not a way to extend it past the 90th day. Note also that partnerships, joint ventures and limited liability companies are excluded from the provision altogether — corporations are not.

   Reference ISO CG 00 01 04 13, Section II — Who Is An Insured, para. 3

9. A Florida warehouse worker is injured on the job and collects workers' compensation. His spouse then sues the employer for loss of consortium, and the employer tenders that suit to its CGL insurer. How does the employer's liability exclusion apply?

   • AIt covers the spouse's suit, because only the injured employee's own claim is excluded
   • BIt covers the suit, because loss of consortium is personal and advertising injury under Coverage B
   • CIt excludes the suit; the exclusion reaches the employee's spouse, child, parent or siblingCorrect
   • DIt excludes the suit only if the employer actually carried workers' compensation insurance

   Why: Exclusion e. removes bodily injury to an employee of the insured arising out of and in the course of employment, and expressly extends to the spouse, child, parent, brother or sister of that employee as a consequence of the employee's injury. It applies whether the insured is liable as an employer or in any other capacity. Option D is the tempting condition: the exclusion is not conditioned on the employer having bought workers' compensation coverage — that is what an employers liability policy, Part Two of the workers' compensation policy, is for.

   Reference ISO CG 00 01 04 13, Section I — Coverage A, Exclusion e. (Employer's Liability)

10. A Florida insured lends her car to a neighbour who reasonably believes he is entitled to drive it. He backs into a pole, and Part D collision coverage pays $6,200. May the insurer subrogate against the neighbour?

    • ANo; the subrogation right does not apply under Part D against a permissive userCorrect
    • BYes; the insurer succeeds to every right the insured had against any at-fault driver
    • CYes, but only for the portion of the loss above the collision deductible amount
    • DNo, because Florida law bars all subrogation against a resident of the same household

    Why: Our Right To Recover Payment subrogates the insurer to the rights of the person for whom payment was made, but paragraph A closes with an express carve-out: those rights do not apply under Part D against any person using the covered auto with a reasonable belief that that person is entitled to do so. Option D is the plausible-sounding distractor: the carve-out turns on permissive use, not on household residency, and it is a policy provision rather than a Florida statute.

    Reference ISO PP 00 01 09 18, Part F — Our Right To Recover Payment, A

Topics inside this domain

• Florida PIP: the 14-day rule and 80/60 split

Drill other domains

• Types of Property Policies (14%)
• Property Insurance Terms and Related Concepts (9.5%)
• Property Policy Provisions and Contract Law (8%)
• Types of Casualty Policies, Bonds, and Related Terms (15%)
• Casualty Insurance Terms and Related Concepts (9.5%)
• Florida Statutes, Rules and Regulations Common to All Lines (15%)

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