NASCLA Insurance, Bonding, and Risk Management 1 — Questions and Answers
Question 1: Which type of insurance covers bodily injury and property damage claims made by third parties against a contractor?
- Workers' compensation insurance
- Commercial general liability (CGL) insurance (Correct answer)
- Builder's risk insurance
- Errors and omissions insurance
Correct answer: Commercial general liability (CGL) insurance
Commercial general liability (CGL) insurance protects contractors from third-party claims for bodily injury, property damage, and personal injury arising from their operations.
Question 2: Workers' compensation insurance is designed to cover:
- Damage to the contractor's tools and equipment
- Medical expenses and lost wages for employees injured on the job (Correct answer)
- Third-party property damage
- The contractor's vehicles in accidents
Correct answer: Medical expenses and lost wages for employees injured on the job
Workers' compensation insurance provides medical treatment and wage replacement for employees who suffer work-related injuries or illnesses, regardless of fault.
Question 3: What is a 'performance bond' in construction?
- A contractor's promise to perform work at the lowest price
- A surety guarantee that the contractor will complete the project according to contract terms (Correct answer)
- An insurance policy covering equipment performance
- A bond posted to guarantee employee performance reviews
Correct answer: A surety guarantee that the contractor will complete the project according to contract terms
A performance bond is a three-party guarantee by a surety company that the contractor will perform all contract obligations, protecting the owner if the contractor defaults.
Question 4: A 'payment bond' on a construction project primarily protects which parties?
- The project owner only
- Subcontractors and material suppliers who may not be paid by the contractor (Correct answer)
- The contractor's insurance company
- The state licensing board
Correct answer: Subcontractors and material suppliers who may not be paid by the contractor
A payment bond guarantees that subcontractors and material suppliers will be paid for their work and materials, even if the general contractor fails to pay them.
Question 5: 'Builder's risk insurance' covers which type of loss?
- Injuries to construction workers on the job site
- Damage to the structure and materials during the construction period (Correct answer)
- Third-party liability for property damage
- The contractor's tools and equipment off-site
Correct answer: Damage to the structure and materials during the construction period
Builder's risk insurance covers physical loss or damage to a structure under construction and materials on site, protecting against fire, theft, vandalism, and weather damage.
Question 6: What is the purpose of an 'additional insured' endorsement on a contractor's general liability policy?
- To add more coverage limits to the base policy
- To extend liability coverage to another party (such as the project owner) for claims arising from the contractor's work (Correct answer)
- To add additional contractors to the same policy
- To cover additional job sites automatically
Correct answer: To extend liability coverage to another party (such as the project owner) for claims arising from the contractor's work
An additional insured endorsement extends the contractor's liability coverage to protect another party (typically the owner or general contractor) against claims arising from the insured's operations.
NASCLA Insurance, Bonding, and Risk Management 1
Which type of insurance covers bodily injury and property damage claims made by third parties against a contractor?