NASCLA Insurance, Bonding, and Risk Management 2 — Questions and Answers
Question 1: What is the difference between an 'occurrence' policy and a 'claims-made' policy in liability insurance?
- They are identical but use different terminology
- An occurrence policy covers incidents that happen during the policy period; a claims-made policy covers claims filed during the policy period (Correct answer)
- A claims-made policy is more expensive in all cases
- An occurrence policy only covers completed operations
Correct answer: An occurrence policy covers incidents that happen during the policy period; a claims-made policy covers claims filed during the policy period
An occurrence policy covers any incident that happens during the policy period, even if the claim is filed years later; a claims-made policy only covers claims reported while the policy is active.
Question 2: Which type of coverage protects a contractor if a past project causes injury or property damage after the project is completed?
- Builder's risk insurance
- Completed operations coverage (part of CGL) (Correct answer)
- Equipment floater insurance
- Automobile liability insurance
Correct answer: Completed operations coverage (part of CGL)
Completed operations coverage, included in most CGL policies, protects contractors against liability for bodily injury or property damage arising from completed work.
Question 3: What is a 'certificate of insurance' and why is it required?
- A government document confirming a contractor's license status
- A document from an insurer verifying that coverage exists, required by owners before contractors can start work (Correct answer)
- A receipt for insurance premium payments
- A list of all past insurance claims filed by the contractor
Correct answer: A document from an insurer verifying that coverage exists, required by owners before contractors can start work
A certificate of insurance is a summary document issued by an insurer that verifies coverage types, limits, and effective dates, typically required by project owners before work begins.
Question 4: Under workers' compensation law, which of the following is generally TRUE about independent contractors?
- They are always covered by the hiring company's workers' compensation policy
- They are generally not covered by the hiring company's workers' comp but may need their own policy (Correct answer)
- They automatically receive workers' comp benefits if injured
- Federal law mandates they receive the same coverage as employees
Correct answer: They are generally not covered by the hiring company's workers' comp but may need their own policy
Independent contractors are generally not covered under the hiring company's workers' compensation policy, but misclassification of employees as contractors creates significant legal liability.
Question 5: What does 'umbrella liability insurance' provide for a contractor?
- Coverage for vehicles used on job sites
- Additional liability coverage above the limits of underlying policies (Correct answer)
- Replacement coverage for the contractor's tools
- Coverage for professional design errors
Correct answer: Additional liability coverage above the limits of underlying policies
Umbrella liability insurance provides excess liability coverage above the limits of underlying policies (CGL, auto, employer's liability), protecting against catastrophic losses.
Question 6: Risk management in construction involves which of the following strategies?
- Eliminating all project risks before bidding
- Identifying, assessing, and responding to risks through avoidance, reduction, transfer, or acceptance (Correct answer)
- Transferring all project risk to subcontractors
- Accepting all risks without insurance or bonds
Correct answer: Identifying, assessing, and responding to risks through avoidance, reduction, transfer, or acceptance
Effective risk management involves systematically identifying, assessing, and then responding to risks through avoidance, mitigation, transfer (via insurance/bonds), or acceptance.
NASCLA Insurance, Bonding, and Risk Management 2
What is the difference between an 'occurrence' policy and a 'claims-made' policy in liability insurance?