Types of Casualty Policies, Bonds, and Related Terms — practice questions

15% of the exam ≈24 real questions 24 free questions here

CGL, auto, workers' compensation, professional and management liability, crime and surety — about 24 of the 160 scored questions, tied for the largest domain. Most items turn on a coverage trigger or on a Florida statutory minimum rather than on the form itself.

Where people lose points

• Fixing a claims-made gap with the wrong tool. Two conditions must hold together: the claim is first made during the policy period, and the injury or act occurred on or after the retroactive date. A tail (supplemental extended reporting period) lengthens the reporting window only — it never moves the retroactive date, and an occurrence form has no retroactive date to move.
• Treating the general aggregate as one pot. Losses inside the products-completed operations hazard erode a separate, dedicated aggregate. Exhausting one leaves the other fully intact, which is why a completed-operations claim can still be paid after the general aggregate is gone.
• Losing the PIP numbers. Section 627.736, F.S. pays 80% of reasonable medical expenses and 60% of lost gross income inside one shared $10,000 limit, plus a separate $5,000 death benefit. But initial services and care must be lawfully rendered within 14 days of the crash, and without a qualified provider's determination of an emergency medical condition reimbursement stops at $2,500.
• Using 10/20/10 after a DUI. Those are the ordinary proof-of-financial-responsibility limits in s. 324.021(7), F.S. Section 324.023, F.S. requires a person convicted of DUI to carry $100,000 per person and $300,000 per crash bodily injury plus $50,000 property damage, for at least three years, in addition to the ordinary requirement.
• Applying the four-employee workers' compensation threshold to a contractor. In the construction industry one employee triggers the duty to secure coverage; four or more is the non-construction threshold. No more than three officers of a construction corporation may elect exemption, and each must also own at least 10% of the stock.

Questions and answers, explained

All 10 questions above, with the correct answer and why it is correct. Everything here is on types of casualty policies, bonds, and related terms.

1. While her own car is being repaired, a Tallahassee insured borrows her neighbour's sedan with permission and causes an at-fault crash. Both she and the neighbour carry personal auto policies. Which policy pays the liability claim first?

   • AHer own personal auto policy, because she was the at-fault driver
   • BThe neighbour's policy on the sedan, with her own policy applying as excessCorrect
   • CNeither, because a borrowed vehicle is an excluded non-owned auto
   • DBoth policies share the loss pro rata in proportion to their limits

   Why: Under the personal auto policy's Other Insurance provision, coverage for a vehicle the insured does not own is excess over any other collectible insurance. Insurance follows the car first, so the neighbour's policy pays primary and the borrower's policy pays only amounts above those limits. Non-owned autos driven with permission are covered, not excluded, and pro rata sharing applies only when two policies are both primary.

   Reference ISO PP 00 01, Part A – Other Insurance

2. A Miami accounting firm owns no vehicles. Its staff drive their own cars to client sites, and the firm occasionally rents a van for off-site work. Which business auto arrangement fits this exposure?

   • ASymbol 7, with every employee-owned car scheduled on the policy
   • BA personal auto policy issued in the firm's name
   • CAn auto dealers coverage form with garagekeepers coverage
   • DSymbols 8 and 9 — hired autos and non-owned autos liabilityCorrect

   Why: Hired and non-owned auto liability, written with symbols 8 and 9, is the standard solution for an employer that owns no vehicles but whose employees drive their own cars on company business and that rents vehicles from time to time. Scheduling employee-owned cars under symbol 7 would put the firm on autos it does not control, a personal auto policy is not issued to a business entity for this exposure, and the auto dealers form is designed for dealerships.

   Reference ISO CA 00 01, Section I – Covered Autos (symbols 8 and 9)

3. Which of the following Florida employers is required to secure workers' compensation coverage?

   • AA drywall subcontractor with one employeeCorrect
   • BA gift shop with three employees
   • CA law office with two paralegals
   • DA bakery with three part-time employees

   Why: Florida applies a much lower threshold to the construction industry. A construction employer must secure coverage once it has one or more employees, while a non-construction employer is not required to do so until it has four or more employees. Drywall work is construction, so a single employee triggers the requirement. The gift shop, law office and bakery are all non-construction and all below four employees. Agricultural labor has its own threshold under s. 440.02(20)(c)2., F.S.: a bona fide farmer is outside the definition of employment only while employing 5 or fewer regular employees and fewer than 12 seasonal workers at one time.

   Reference s. 440.02(20)(b)2., F.S. (construction 1+ / non-construction 4+ thresholds); s. 440.02(10), F.S. ('construction industry')

4. Shareholders of a Florida corporation sue its board of directors, alleging that a negligent acquisition decision destroyed share value. There is no bodily injury and no property damage. Which policy is designed for this claim?

   • ACommercial general liability, Coverage B
   • BFiduciary liability for benefit plans
   • CCommercial crime, employee theft insuring agreement
   • DDirectors and officers liabilityCorrect

   Why: Directors and officers liability covers wrongful acts — errors, misstatements and breaches of duty — committed by directors and officers acting in their corporate capacity, and pays the resulting financial-loss claims. Fiduciary liability is a different product covering breaches of duty in administering employee benefit plans, not general management decisions. CGL Coverage B is confined to the defined personal and advertising injury offenses, and crime coverage requires actual theft of money, securities or other property.

   Reference Directors and officers (D&O) liability — non-standard proprietary wordings, no single form number, unverified; ISO CG 00 01 Coverage B cited for contrast

5. A general contractor furnishes a performance bond to Miami-Dade County for a public building project. In that bond, the county is the:

   • APrincipal
   • BSurety
   • CIndemnitor
   • DObligeeCorrect

   Why: A surety bond involves three parties. The principal is the party who must perform, here the contractor. The surety is the party guaranteeing that performance. The obligee is the party protected by the guarantee and entitled to make demand on the bond, here the county. The indemnitor is whoever agrees to reimburse the surety for any loss it pays, usually the principal itself or its owners.

   Reference Standard surety bond terminology (principal, surety, obligee)

6. A Tampa distributor's controller receives an email that appears to come from the company president and, believing it genuine, authorizes a $120,000 wire to a criminal's account. No employee was dishonest, no system was hacked, and the controller personally initiated the transfer. Which crime coverage is most likely to respond?

   • AA fraudulent impersonation or social engineering endorsement, if purchasedCorrect
   • BThe Employee Theft insuring agreement, because an employee released the funds
   • CThe Computer Fraud insuring agreement, because the fraud arrived by email
   • DThe Funds Transfer Fraud insuring agreement, because the bank wired the money

   Why: This is the classic gap in unendorsed crime coverage. Employee Theft requires dishonesty by an employee, and here the controller was deceived rather than dishonest. Computer Fraud contemplates the use of a computer to transfer property directly, not an email that merely persuades a person to act. Funds Transfer Fraud contemplates a fraudulent instruction transmitted to the financial institution without the insured's knowledge, whereas here the insured knowingly ordered the wire. Only a fraudulent impersonation or social engineering fraud endorsement, which must be added for additional premium and usually carries a lower sublimit, addresses a voluntarily parted transfer induced by deception.

   Reference ISO Commercial Crime Coverage Form insuring agreements; social engineering fraud endorsements (form numbers vary by insurer — unverified as a single standard form)

7. Which claim against a Fort Myers business falls under Coverage B, Personal and Advertising Injury, of an unendorsed commercial general liability policy?

   • AA competitor sues over a defective component that caused its production machinery to fail in service.
   • BA warehouse worker sues over a back injury suffered while unloading a delivery at the dock.
   • CA former tenant sues for wrongful eviction after the landlord changed the locks on her unit.Correct
   • DA customer sues over a slip and fall on the icy front walkway during a January cold snap.

   Why: Coverage B responds only to a closed list of enumerated offenses: false arrest, detention or imprisonment; malicious prosecution; wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room or premises; oral or written publication that slanders or libels or that violates a person's right of privacy; use of another's advertising idea; and infringement of copyright, trade dress or slogan in the insured's advertisement. Wrongful eviction sits on that list. The slip and fall is the most tempting distractor because it is plainly a liability claim, but it is bodily injury under Coverage A, a separate insuring agreement with its own limit, and an ordinary premises injury never becomes a Coverage B offense.

   Reference ISO CG 00 01, Section I - Coverage B; Section V - Definitions, 'personal and advertising injury'

8. A Gainesville accounting firm rents its office suite. A space heater belonging to an employee starts a fire that damages the suite, and the landlord holds the firm responsible. Under an unendorsed CGL, the damage is:

   • Acovered under a separate Damage To Premises Rented To You limit shown on the declarations page.Correct
   • Bexcluded, because property damage to premises the insured occupies is never covered by a CGL.
   • Ccovered under the each occurrence limit in full, since the care custody and control exclusion has no exception.
   • Dcovered only if the firm also purchased a tenants and contractual liability endorsement for its lease.

   Why: The unlettered paragraph that follows the Coverage A exclusions provides that exclusions c. through n. do not apply to damage by fire to premises while rented to the insured or temporarily occupied with the owner's permission; exclusion 2.j. separately carves back property damage from causes other than fire where the premises, including their contents, are rented to the insured for seven or fewer consecutive days. The fire carve-back is capped by the Damage To Premises Rented To You Limit stated in the declarations, and Section III paragraph 6. makes that limit subject to the Each Occurrence Limit rather than a limit sitting outside it. C therefore fails twice: the care, custody and control exclusion does have an exception, and the loss is not paid up to the full each occurrence amount. B overstates the exclusion; fire damage to rented premises is the classic exception, historically sold as fire legal liability.

   Reference ISO CG 00 01 04 13, Section I - Coverage A exclusion 2.j. and the fire paragraph following the Coverage A exclusions; Section III - Limits Of Insurance, paragraphs 5. and 6.

9. A hospital hires a general contractor to build an addition and requires an owners and contractors protective liability policy for the project. Under that policy:

   • Athe contractor is the named insured, and the hospital is added by endorsement as an additional insured.
   • Bboth parties are named insureds and share a single limit covering all of their respective operations.
   • Cthe hospital is the named insured, and coverage extends to its own maintenance operations elsewhere.
   • Dthe hospital is the named insured, and the contractor ordinarily pays the premium for the coverage.Correct

   Why: An owners and contractors protective liability policy is issued in the name of the indemnitee - here the hospital - and protects it against liability arising out of the designated contractor's operations at the designated project and out of the hospital's own general supervision of that work. As a contract requirement the contractor normally buys and pays for it, but the contractor is not an insured on it, and coverage does not follow the hospital to unrelated operations, which is why C fails. A is the most tempting distractor because it describes additional insured status under the contractor's own CGL, the common alternative; the practical difference is that an OCP gives the owner a separate dedicated limit that claims against the contractor cannot erode.

   Reference ISO CG 00 09, Owners and Contractors Protective Liability Coverage Form

10. An insurer issues a Florida private passenger auto policy with $100,000/$300,000 bodily injury liability limits. The applicant does not want uninsured motorist coverage. Under Florida law:

    • AUM must simply be described in the policy, and an oral decline noted in the agency file is sufficient.
    • BUM must be offered at limits equal to the bodily injury limits and can be declined only in writing.Correct
    • CUM cannot be declined at all in Florida on a policy that carries bodily injury liability coverage.
    • DUM must be offered at limits of at least $10,000 per person, and the applicant may decline it orally.

    Why: Section 627.727(1), F.S., prohibits delivery of a Florida motor vehicle liability policy providing bodily injury liability coverage unless uninsured motorist coverage is included, unless the named insured rejects the coverage in writing on a form approved by the Office. Section 627.727(2) sets those limits at not less than the bodily injury liability limits purchased, subject to the insured's right to select a lower limit permitted by the insurer's rating plan. Once the insured has rejected the coverage or selected lower limits in writing, the insurer need not offer it again on a policy that renews, extends, changes, supersedes or replaces the existing one. A fails on the point the statute is most rigid about: the rejection must be written, so an agency file note will not do.

    Reference s. 627.727(1) and (2), F.S.

Topics inside this domain

• Occurrence vs claims-made liability forms
• 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%)
• Casualty Insurance Terms and Related Concepts (9.5%)
• Casualty Policy Provisions (8%)
• Florida Statutes, Rules and Regulations Common to All Lines (15%)

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