CALA Coverage Analysis & Interpretation 3 — Questions and Answers
Question 1: A contractor's CGL policy has a 'your work' exclusion. Which scenario would this exclusion most likely bar from coverage?
- Property damage to a neighbor's fence caused by debris
- Bodily injury to a passerby from a falling tool
- Damage to the building the contractor was hired to renovate (Correct answer)
- A worker's injury on the job site
Correct answer: Damage to the building the contractor was hired to renovate
The 'your work' exclusion eliminates coverage for property damage to the work the contractor performed, as this is considered a business risk rather than an insurable event.
Question 2: Which term describes a policy condition requiring the insured to take reasonable steps to protect property from further damage after a covered loss?
- Subrogation
- Duty to cooperate
- Protective safeguards
- Preservation of property (Correct answer)
Correct answer: Preservation of property
The preservation of property condition obligates insureds to mitigate further loss after an insured event occurs or risk having part of the claim denied.
Question 3: A property policy is written on a 'replacement cost' basis. The insured's 10-year-old roof is destroyed by a covered peril. How is the claim typically settled?
- Actual cash value minus a $1,000 deductible
- Cost of a new roof of like kind and quality (Correct answer)
- Depreciated value of the old roof
- Market value of the home minus the land value
Correct answer: Cost of a new roof of like kind and quality
Replacement cost coverage pays the cost to replace damaged property with new property of like kind and quality, without a deduction for depreciation.
Question 4: Under ISO's standard commercial property form, the 'building' definition generally includes:
- Outdoor signs not attached to the building
- Permanently installed fixtures and machinery (Correct answer)
- Vehicles parked on the premises
- Inventory stored in a separate warehouse
Correct answer: Permanently installed fixtures and machinery
ISO commercial property forms define 'building' to include permanently installed fixtures, machinery, and equipment as part of the covered structure.
Question 5: A claims adjuster discovers that two insurers each have a policy covering the same loss. Under the 'other insurance' clause, which approach divides payment equally up to each policy's limit?
- Primary/excess method
- Pro-rata method
- Contribution by equal shares (Correct answer)
- Indemnity coordination
Correct answer: Contribution by equal shares
Contribution by equal shares splits the loss equally between insurers until one policy's limit is exhausted, after which the remaining insurer pays the rest.
Question 6: Which of the following is NOT typically considered an 'insured location' under a personal homeowners policy?
- The insured's primary residence
- A vacation home the insured owns
- A hotel room the insured temporarily occupies
- A rental property with 5 residential units (Correct answer)
Correct answer: A rental property with 5 residential units
Standard homeowners policies limit insured locations to smaller rental properties (usually 1-4 units); a 5-unit building requires a commercial policy.
Question 7: An adjuster reviewing a 'claims-made' liability policy must verify that:
- The occurrence happened before the policy inception date
- The claim is first made during the policy period or extended reporting period (Correct answer)
- The lawsuit is filed in the state where the policy was issued
- The insured reported the loss within 24 hours
Correct answer: The claim is first made during the policy period or extended reporting period
Claims-made policies require that the claim be first made and reported within the policy period or any applicable extended reporting period for coverage to apply.
CALA Coverage Analysis & Interpretation 3
A contractor's CGL policy has a 'your work' exclusion.
Which scenario would this exclusion most likely bar from coverage?