BCP Property & Casualty Insurance 2 — Questions and Answers
Question 1: What is 'business interruption' insurance designed to compensate?
- Physical damage to business premises
- Loss of gross profit and additional expenses following insured physical damage (Correct answer)
- Employee personal losses during a fire
- Cost of rebuilding damaged property
Correct answer: Loss of gross profit and additional expenses following insured physical damage
Business interruption insurance compensates for loss of gross profit (revenue less variable costs) and increased cost of working following an insured physical damage event that interrupts the business.
Question 2: In marine cargo insurance, what does 'Institute Cargo Clauses (A)' provide?
- Named perils coverage only
- All risks coverage subject to exclusions (Correct answer)
- Coverage for war risks only
- Coverage for delay and inherent vice
Correct answer: All risks coverage subject to exclusions
Institute Cargo Clauses (A) provide the broadest 'all risks' coverage for marine cargo, covering all risks of loss or damage except those specifically excluded, such as inherent vice and delay.
Question 3: What is 'product liability insurance' designed to protect against?
- Damage to the manufacturer's production equipment
- Legal liability for injury or damage caused by defective products sold or supplied (Correct answer)
- Liability for delay in product delivery
- Workers injured during product manufacturing
Correct answer: Legal liability for injury or damage caused by defective products sold or supplied
Product liability insurance protects manufacturers, distributors, and retailers against legal liability for bodily injury or property damage caused by defective products they have sold or supplied.
Question 4: What does 'subrogation waiver' mean in an insurance policy context?
- The insurer waives the right to collect premiums
- The insurer agrees not to pursue recovery against a specified third party after paying a claim (Correct answer)
- The insured waives the right to make claims
- The insurer waives the deductible requirement
Correct answer: The insurer agrees not to pursue recovery against a specified third party after paying a claim
A subrogation waiver means the insurer agrees to waive its right of subrogation against a specified third party, often used in construction contracts to prevent one contractor's insurer from suing another.
Question 5: What is 'consequential loss' in property insurance?
- The direct physical damage to property
- Financial losses that are a consequence of physical damage, such as lost profits (Correct answer)
- Losses caused by the insured's own negligence
- Environmental damage following a fire
Correct answer: Financial losses that are a consequence of physical damage, such as lost profits
Consequential loss refers to indirect financial losses that follow from physical damage — such as lost profits, ongoing expenses during repair, or loss of rental income — as distinct from the direct physical damage itself.
Question 6: In property insurance, what does 'reinstatement value' mean?
- The second-hand market value of property
- The cost to rebuild or replace the property with new equivalent at current prices (Correct answer)
- The original purchase price of the property
- The depreciated book value of the property
Correct answer: The cost to rebuild or replace the property with new equivalent at current prices
Reinstatement value is the cost to rebuild or replace the damaged property with new equivalent at current construction or market prices, without deduction for depreciation.
BCP Property & Casualty Insurance 2
What is 'business interruption' insurance designed to compensate?