Insurance Commercial & Business Insurance 2 — Questions and Answers
Question 1: What is 'directors and officers' (D&O) liability insurance designed to protect?
- The company's physical assets from theft
- Corporate directors and officers against personal liability for management decisions made on behalf of the organization (Correct answer)
- Customers injured by the company's products
- The company's vehicles used by executives
Correct answer: Corporate directors and officers against personal liability for management decisions made on behalf of the organization
D&O insurance protects the personal assets of corporate directors and officers when they are sued by shareholders, employees, or regulators for alleged wrongful acts in their management roles.
Question 2: In commercial insurance, what is 'product liability' coverage?
- Coverage for damage to the insured's own product inventory
- Coverage for third-party claims that a product manufactured or sold by the business caused bodily injury or property damage (Correct answer)
- Coverage for loss of product during shipping
- Coverage for product recalls ordered by the government
Correct answer: Coverage for third-party claims that a product manufactured or sold by the business caused bodily injury or property damage
Product liability coverage protects manufacturers, distributors, and retailers from claims alleging that their product caused injury or damage to a consumer or their property.
Question 3: What is 'commercial auto' insurance and why do businesses need it separately from personal auto coverage?
- Commercial auto is only for trucking companies; other businesses use personal auto
- Commercial auto covers vehicles owned or used by a business, providing higher limits and coverage that personal auto policies exclude for business use (Correct answer)
- Commercial auto is only for vehicles with more than four wheels
- Personal auto policies automatically extend coverage for all business activities
Correct answer: Commercial auto covers vehicles owned or used by a business, providing higher limits and coverage that personal auto policies exclude for business use
Personal auto policies typically exclude or limit coverage for vehicles used for business purposes, making a separate commercial auto policy essential for business-owned or regularly business-used vehicles.
Question 4: What is 'fidelity bond' insurance used for in a business context?
- Guaranteeing a contractor will complete a project
- Protecting a business against financial losses caused by employee theft or dishonesty (Correct answer)
- Ensuring the business complies with licensing requirements
- Covering the cost of employee health benefits
Correct answer: Protecting a business against financial losses caused by employee theft or dishonesty
A fidelity bond (employee dishonesty bond) protects businesses from losses due to fraudulent or dishonest acts committed by employees, such as theft, embezzlement, or forgery.
Question 5: What is 'employment practices liability' (EPL) insurance?
- Coverage for workers injured on the job
- Coverage protecting an employer from claims by employees alleging discrimination, harassment, wrongful termination, or other employment-related violations (Correct answer)
- A state-mandated benefit for unemployed workers
- Coverage for the cost of employee background checks
Correct answer: Coverage protecting an employer from claims by employees alleging discrimination, harassment, wrongful termination, or other employment-related violations
EPL insurance covers the costs of defending and settling claims made by current, former, or prospective employees alleging wrongful employment acts such as discrimination or harassment.
Question 6: What does 'commercial umbrella' insurance do for a business?
- Replaces all underlying liability policies once their premiums are paid
- Provides additional liability coverage above the limits of the underlying GL, auto, and employers liability policies (Correct answer)
- Covers losses from severe weather that underlying policies exclude
- Caps the business's total annual premium outlay
Correct answer: Provides additional liability coverage above the limits of the underlying GL, auto, and employers liability policies
A commercial umbrella policy provides a high, additional layer of liability protection that activates once the underlying policy limits are exhausted by a large claim.
Insurance Commercial & Business Insurance 2
What is 'directors and officers' (D&O) liability insurance designed to protect?