CALA Coverage Analysis & Interpretation 2 — Questions and Answers
Question 1: Under a standard homeowners policy, which of the following losses would most likely be excluded under the 'earth movement' exclusion?
- Water damage from a burst pipe
- Foundation cracking caused by soil subsidence (Correct answer)
- Roof damage from high winds
- Fire damage following a lightning strike
Correct answer: Foundation cracking caused by soil subsidence
Soil subsidence is a form of earth movement, which is excluded under standard homeowners policies regardless of the cause.
Question 2: An insured's commercial auto policy has a $500,000 combined single limit. After a covered accident, bodily injury damages total $450,000 and property damage totals $100,000. What is the insurer's maximum payment?
- $450,000
- $500,000 (Correct answer)
- $550,000
- $100,000
Correct answer: $500,000
A combined single limit applies to the total of all damages combined, so the insurer pays a maximum of $500,000 regardless of how damages are split.
Question 3: Which doctrine holds that an ambiguous insurance policy term must be interpreted in favor of the insured?
- Doctrine of reasonable expectations
- Contra proferentem (Correct answer)
- Subrogation doctrine
- Indemnity principle
Correct answer: Contra proferentem
Contra proferentem is the legal rule requiring that ambiguous contract language be construed against the drafter, which is typically the insurer.
Question 4: A business owner's policy (BOP) typically covers which of the following under its liability section?
- Workers' compensation claims
- Professional liability errors
- Bodily injury to third parties on the premises (Correct answer)
- Directors and officers liability
Correct answer: Bodily injury to third parties on the premises
A BOP's liability coverage protects the business against third-party bodily injury and property damage claims, not employee or professional liability.
Question 5: An insured files a claim for stolen jewelry worth $8,000. The homeowners policy has a $1,500 sublimit for jewelry theft. How much will the insurer pay (ignoring deductibles)?
- $8,000
- $6,500
- $1,500 (Correct answer)
- $0
Correct answer: $1,500
Sublimits cap payment for specific categories regardless of the item's actual value or the policy's overall limit.
Question 6: Which of the following best describes 'occurrence' coverage under a CGL policy?
- Coverage applies when the claim is filed during the policy period
- Coverage applies when the injury or damage occurs during the policy period (Correct answer)
- Coverage applies when the policy is renewed
- Coverage applies when the lawsuit is served during the policy period
Correct answer: Coverage applies when the injury or damage occurs during the policy period
Occurrence-based CGL policies trigger coverage based on when the bodily injury or property damage actually happened, not when the claim is made.
Question 7: Under a personal auto policy, 'underinsured motorist coverage' applies when:
- The at-fault driver has no insurance
- The at-fault driver's limits are lower than the insured's damages (Correct answer)
- The insured is driving without a license
- The insured's vehicle is unregistered
Correct answer: The at-fault driver's limits are lower than the insured's damages
Underinsured motorist (UIM) coverage fills the gap when the at-fault driver's liability limits are insufficient to cover the insured's actual damages.
CALA Coverage Analysis & Interpretation 2
Under a standard homeowners policy, which of the following losses would most likely be excluded under the 'earth movement' exclusion?