CALA Property & Casualty Insurance Coverage 3 — Questions and Answers
Question 1: A homeowner suffers a kitchen fire. The policy has a $300,000 Coverage A limit with an 80% coinsurance requirement. The home's replacement cost is $400,000 and the insured carries $280,000 in coverage. What is the coinsurance penalty formula result for a $40,000 loss?
- $35,000 (Correct answer)
- $40,000
- $28,000
- $32,000
Correct answer: $35,000
Required insurance = $320,000 (80% × $400,000); penalty ratio = $280,000/$320,000 = 0.875; insurer pays 0.875 × $40,000 = $35,000.
Question 2: Which section of the commercial package policy (CPP) addresses loss of business income caused by a covered property loss that forces the insured to suspend operations?
- Commercial general liability form
- Business income (and extra expense) coverage form (Correct answer)
- Commercial inland marine form
- Commercial crime form
Correct answer: Business income (and extra expense) coverage form
The Business Income (and Extra Expense) form covers lost net income and continuing expenses when a covered property loss causes a business interruption.
Question 3: Under the PAP, Uninsured Motorist (UM) coverage protects the insured from losses caused by:
- A driver who has inadequate liability limits
- A driver who carries no liability insurance or a hit-and-run driver (Correct answer)
- Any at-fault driver, regardless of insurance status
- A driver whose insurer becomes insolvent after the accident
Correct answer: A driver who carries no liability insurance or a hit-and-run driver
UM coverage responds when the at-fault driver has no liability coverage or flees the scene; underinsured motorist (UIM) fills gaps in coverage.
Question 4: A CGL policy's 'occurrence' trigger means a claim is covered based on:
- When the claim is first made against the insured
- When the injury or damage occurs during the policy period (Correct answer)
- When the lawsuit is filed in court
- When the insured reports the incident to the insurer
Correct answer: When the injury or damage occurs during the policy period
An occurrence-based CGL policy covers bodily injury or property damage that occurs during the policy period, regardless of when the claim is made.
Question 5: Which of the following best describes the 'other insurance' pro-rata clause in property policies?
- Each insurer pays the full loss up to its policy limit
- Each insurer pays its proportionate share based on its limit relative to total coverage (Correct answer)
- The first insurer to receive notice pays the entire loss
- The insurer with the highest limit pays first
Correct answer: Each insurer pays its proportionate share based on its limit relative to total coverage
Under a pro-rata other insurance clause, each carrier pays its proportionate share based on the ratio of its limit to the combined limits of all policies.
Question 6: An insured files a claim under their HO policy after a burglar steals jewelry valued at $8,000. The policy has a $200,000 Coverage C limit but a $1,500 sublimit for jewelry. How much will the insurer pay (assuming no deductible)?
- $8,000
- $200,000
- $1,500 (Correct answer)
- $6,500
Correct answer: $1,500
Special sublimits for jewelry cap theft coverage at $1,500 under standard HO forms regardless of the broader Coverage C limit.
Question 7: In workers' compensation, the employer's liability coverage (Part Two) protects the employer against:
- Statutory workers' compensation benefits owed to injured employees
- Third-party lawsuits by injured employees that fall outside the workers' comp exclusive remedy (Correct answer)
- OSHA fines and penalties for workplace safety violations
- Medical expenses for employees injured off the job
Correct answer: Third-party lawsuits by injured employees that fall outside the workers' comp exclusive remedy
Part Two (employer's liability) covers the employer's legal liability in suits that circumvent the exclusive remedy doctrine, such as dual-capacity or third-party-over actions.
CALA Property & Casualty Insurance Coverage 3
A homeowner suffers a kitchen fire.
The policy has a $300,000 Coverage A limit with an 80% coinsurance requirement.
The home's replacement cost is $400,000 and the insured carries $280,000 in coverage.
What is the coinsurance penalty formula result for a $40,000 loss?