CIA Insurance Policies & Coverage Analysis 3 — Questions and Answers
Question 1: An insured files a claim for water damage caused by a burst pipe. The adjuster discovers the pipe had been leaking slowly for months before bursting. Which policy exclusion is most likely to apply?
- Concurrent causation exclusion
- Earth movement exclusion
- Wear and tear / gradual damage exclusion (Correct answer)
- Ordinance or law exclusion
Correct answer: Wear and tear / gradual damage exclusion
Gradual or continuous leakage is typically excluded under most property policies because it represents maintenance neglect rather than a sudden, accidental loss.
Question 2: A liability policy with a '$1 million per occurrence / $2 million aggregate' limit means:
- The insurer pays a maximum of $1 million for all claims combined
- The insurer pays up to $1 million for any single event and $2 million total for all events in the policy period (Correct answer)
- Each claimant receives a maximum of $1 million regardless of loss size
- The aggregate resets each time a claim is paid
Correct answer: The insurer pays up to $1 million for any single event and $2 million total for all events in the policy period
The per-occurrence limit caps payment for a single incident, while the aggregate limit is the total the insurer will pay for all occurrences during the policy period.
Question 3: Which homeowner policy form (HO-3) provides open-peril coverage on the dwelling but named-peril coverage on personal property?
- HO-1
- HO-3 (Correct answer)
- HO-5
- HO-8
Correct answer: HO-3
The HO-3 Special Form covers the dwelling and other structures on an open-peril basis but covers personal property only for the named perils listed in the policy.
Question 4: A 'claims-made' liability policy covers claims:
- That arise from incidents occurring during the policy period, regardless of when reported
- That are first reported during the policy period, regardless of when the incident occurred
- Only if both the incident and claim occur in the same policy year
- That arise from incidents occurring after the retroactive date and reported during the policy period (Correct answer)
Correct answer: That arise from incidents occurring after the retroactive date and reported during the policy period
Claims-made policies require that the triggering incident occur after the retroactive date AND that the claim be reported while the policy is in force.
Question 5: Under the principle of indemnity, an insured who suffers a $40,000 loss on property insured for $60,000 should receive:
- $60,000
- $40,000 (Correct answer)
- $20,000
- $30,000
Correct answer: $40,000
Indemnity means restoring the insured to their pre-loss financial position, so they receive the actual loss amount ($40,000), not the full policy limit.
Question 6: An 'umbrella' liability policy is designed to:
- Replace underlying auto and homeowner policies
- Provide excess coverage above the limits of underlying policies and fill certain coverage gaps (Correct answer)
- Cover only commercial risks not insurable by standard markets
- Provide first-dollar coverage with no deductible
Correct answer: Provide excess coverage above the limits of underlying policies and fill certain coverage gaps
Umbrella policies sit above underlying liability policies and pay after those limits are exhausted, and may also cover some exposures excluded by underlying policies.
Question 7: Which of the following best describes a 'blanket' property insurance policy?
- A policy covering one specific item at a scheduled value
- A policy covering multiple locations or items under a single limit (Correct answer)
- A policy that excludes all business personal property
- A policy with no deductible applied to any covered loss
Correct answer: A policy covering multiple locations or items under a single limit
A blanket policy provides one combined limit applicable to multiple locations, buildings, or categories of property rather than scheduling each separately.
CIA Insurance Policies & Coverage Analysis 3
An insured files a claim for water damage caused by a burst pipe.
The adjuster discovers the pipe had been leaking slowly for months before bursting.
Which policy exclusion is most likely to apply?