ACE Policy Analysis & Evaluation 2 — Questions and Answers
Question 1: When analyzing a commercial general liability (CGL) policy, which coverage trigger determines when bodily injury must occur for coverage to apply under an occurrence form?
- During the policy period (Correct answer)
- When the claim is filed
- When the lawsuit is served
- When damages are paid
Correct answer: During the policy period
An occurrence-trigger CGL policy requires the bodily injury or property damage to occur during the policy period, regardless of when the claim is made.
Question 2: Which ACORD form is used to document a certificate of insurance for property and casualty coverage?
- ACORD 25 (Correct answer)
- ACORD 27
- ACORD 28
- ACORD 35
Correct answer: ACORD 25
ACORD 25 is the standard Certificate of Liability Insurance form used to summarize P&C coverage for third parties.
Question 3: A policyholder claims damage from a slow water leak discovered three years after it began. Under a property policy with a 'manifestation' trigger, coverage would be tied to:
- When the damage first became apparent (Correct answer)
- When the leak physically started
- When repair costs were incurred
- When the insured notified the insurer
Correct answer: When the damage first became apparent
A manifestation trigger attaches coverage to the policy in effect when the damage first became apparent or visible.
Question 4: What does the 'other insurance' clause in a policy primarily address?
- How multiple policies sharing the same loss coordinate payment (Correct answer)
- Whether the insured can purchase additional coverage
- Subrogation rights against third parties
- The insurer's right to cancel duplicate policies
Correct answer: How multiple policies sharing the same loss coordinate payment
The 'other insurance' clause establishes whether a policy is primary, excess, or contributes pro-rata when another policy also covers the same loss.
Question 5: Under a commercial property policy, which valuation method reimburses the cost to replace damaged property with new property of like kind and quality without a deduction for depreciation?
- Replacement cost value (RCV) (Correct answer)
- Actual cash value (ACV)
- Agreed value
- Functional replacement cost
Correct answer: Replacement cost value (RCV)
Replacement cost value pays to repair or replace damaged property with new materials without subtracting depreciation.
Question 6: When evaluating a workers' compensation policy, the experience modification factor (EMR) is primarily used to:
- Adjust premium based on an employer's actual loss history compared to industry average (Correct answer)
- Set the statutory benefit limits for injured workers
- Determine which employees are eligible for coverage
- Calculate the insurer's reinsurance obligations
Correct answer: Adjust premium based on an employer's actual loss history compared to industry average
The EMR compares an employer's actual losses to expected industry losses, modifying premium up or down accordingly.
Question 7: A policy contains a 'liberalization clause.' What is its effect?
- Automatically extends broader coverage to existing policyholders when the insurer broadens the policy form (Correct answer)
- Allows the insured to liberally interpret ambiguous policy language
- Permits the insurer to liberally apply exclusions
- Grants the insured the right to add endorsements at any time
Correct answer: Automatically extends broader coverage to existing policyholders when the insurer broadens the policy form
A liberalization clause automatically grants existing policyholders any broadened coverage the insurer introduces mid-term without additional premium.
ACE Policy Analysis & Evaluation 2
When analyzing a commercial general liability (CGL) policy, which coverage trigger determines when bodily injury must occur for coverage to apply under an occurrence form?