CCA Insurance Policies and Coverage 2 — Questions and Answers
Question 1: A homeowner's policy includes a 'replacement cost' endorsement. The insured's 10-year-old roof is destroyed. How should the adjuster calculate the payment?
- Pay actual cash value minus depreciation
- Pay full cost to replace the roof with new materials, no depreciation deduction (Correct answer)
- Pay only the original purchase price of the roof
- Pay 50% of current replacement cost
Correct answer: Pay full cost to replace the roof with new materials, no depreciation deduction
A replacement cost endorsement eliminates the depreciation deduction, so the insurer pays the full cost to replace the damaged property with new materials of like kind and quality.
Question 2: Which clause in a liability policy requires the insurer to defend the insured against covered claims even if the allegations are groundless?
- Subrogation clause
- Duty to defend clause (Correct answer)
- Other insurance clause
- Severability clause
Correct answer: Duty to defend clause
The duty to defend clause obligates the insurer to provide a legal defense for the insured for any claim that falls within the policy's coverage territory, even if the suit is ultimately found to be groundless.
Question 3: Under an occurrence-based liability policy, coverage is triggered when:
- The claim is first reported to the insurer
- The lawsuit is filed against the insured
- The bodily injury or property damage occurs during the policy period (Correct answer)
- The policy is renewed after the incident
Correct answer: The bodily injury or property damage occurs during the policy period
An occurrence-based policy is triggered by the date the injury or damage actually happens, regardless of when the claim is reported or lawsuit is filed.
Question 4: A business auto policy's Symbol 1 (Any Auto) designation means coverage applies to:
- Only vehicles listed on the declarations page
- Only hired and non-owned autos
- All autos owned, hired, borrowed, or used in the business (Correct answer)
- Only autos with a gross vehicle weight under 10,000 lbs
Correct answer: All autos owned, hired, borrowed, or used in the business
Symbol 1 is the broadest designation, extending coverage to any auto used in connection with the business, including owned, non-owned, and hired vehicles.
Question 5: What is the primary purpose of a 'subrogation waiver' endorsement requested by a tenant?
- To increase the tenant's liability limits
- To prevent the landlord's insurer from suing the tenant after paying a covered loss (Correct answer)
- To add the tenant as an additional insured on the landlord's policy
- To waive the tenant's deductible obligation
Correct answer: To prevent the landlord's insurer from suing the tenant after paying a covered loss
A waiver of subrogation endorsement on the landlord's property policy prevents the insurer from exercising its subrogation rights against the tenant after paying a covered claim caused by the tenant.
Question 6: A commercial general liability (CGL) policy's 'products-completed operations' coverage protects the insured against claims arising from:
- Damage to the insured's own products while in transit
- Bodily injury or property damage occurring after a product is sold or work is completed (Correct answer)
- Employee injuries sustained while manufacturing products
- Contractual liability assumed in a product distribution agreement
Correct answer: Bodily injury or property damage occurring after a product is sold or work is completed
Products-completed operations coverage applies to BI/PD claims arising after the insured's product leaves their custody or after contracted work has been completed.
Question 7: An insured has a $1,000 straight deductible and suffers a $750 loss. What does the insurer pay?
- $750
- $250
- $0 (Correct answer)
- $1,000
Correct answer: $0
With a straight deductible, the insurer pays nothing if the loss amount is less than or equal to the deductible; the insured absorbs the entire $750 loss.
CCA Insurance Policies and Coverage 2
A homeowner's policy includes a 'replacement cost' endorsement.
The insured's 10-year-old roof is destroyed.
How should the adjuster calculate the payment?