CAIA Policy Coverage and Exclusions 4 — Questions and Answers
Question 1: A vehicle sustains flood damage from a hurricane. Which coverage pays for the damage?
- Collision coverage
- Comprehensive (other than collision) coverage (Correct answer)
- Property damage liability
- Uninsured motorist coverage
Correct answer: Comprehensive (other than collision) coverage
Flood damage is a weather-related peril covered under comprehensive (other than collision) coverage.
Question 2: The 'at-fault' driver has liability limits of $25,000, but the victim's damages total $60,000. The victim has UIM coverage with $50,000 limits. How much can the victim's UIM pay?
- $50,000 (the full UIM limit)
- $25,000 (mirrors the at-fault limit)
- $35,000 (the gap between actual damages and at-fault limit) (Correct answer)
- $60,000 (total damages)
Correct answer: $35,000 (the gap between actual damages and at-fault limit)
UIM coverage pays the difference between the at-fault driver's liability payment and the victim's actual damages, up to the UIM policy limit.
Question 3: Which policy condition requires the insured to promptly notify the insurer after an accident?
- Subrogation condition
- Duties after an accident condition (Correct answer)
- Cooperation clause
- Other insurance condition
Correct answer: Duties after an accident condition
The 'duties after an accident or loss' condition obligates the insured to notify the insurer promptly and cooperate in the investigation.
Question 4: An insured rents a car while on vacation. Their PAP includes liability coverage. How does it apply to the rental?
- PAP liability does not extend to rental vehicles
- PAP liability typically extends to non-owned vehicles used temporarily (Correct answer)
- The rental company's insurance is always primary
- Coverage only applies in the home state
Correct answer: PAP liability typically extends to non-owned vehicles used temporarily
PAP liability coverage extends to non-owned vehicles, such as rentals, used temporarily by the named insured.
Question 5: A vehicle is stolen and recovered two months later with significant interior damage. Which coverage applies to the interior damage?
- Collision coverage
- Comprehensive coverage (Correct answer)
- Liability coverage
- Personal Injury Protection
Correct answer: Comprehensive coverage
Damage occurring as a result of theft or vandalism during the theft is covered under comprehensive coverage.
Question 6: What is the purpose of the 'other insurance' clause in an auto policy?
- It prevents the insured from buying multiple policies
- It coordinates payment when more than one policy covers the same loss (Correct answer)
- It requires the insured to exhaust personal savings first
- It eliminates the deductible when multiple policies apply
Correct answer: It coordinates payment when more than one policy covers the same loss
The other insurance clause establishes whether a policy responds as primary or excess when multiple policies cover the same loss.
Question 7: Under a standard PAP, which of the following vehicles is considered a 'covered auto' without needing an endorsement?
- A motorcycle owned by the named insured
- A newly acquired replacement vehicle during the first 14 days (Correct answer)
- A commercial truck used for business hauling
- A vehicle owned by a non-resident family member
Correct answer: A newly acquired replacement vehicle during the first 14 days
PAPs automatically cover newly acquired replacement vehicles for a grace period (typically 14 days) without a formal endorsement.
CAIA Policy Coverage and Exclusions 4
A vehicle sustains flood damage from a hurricane.
Which coverage pays for the damage?