P&C Policy Provisions and Options 3

Question 1

What does the term 'pro rata cancellation' mean in the context of insurance?

Accepted Answer

The insurer returns the unearned premium proportionally based on the time remaining in the policy period

Answer

The insurer retains the full premium and returns nothing when cancelling

Answer

The insured must pay a penalty for early cancellation

Answer

The insurer doubles the premium for the remainder of the term

Question 2

A 'consent to settle' (hammer) clause in a liability policy allows the insurer to:

Accepted Answer

Require the insured to share in any additional damages above the insurer's recommended settlement if the insured refuses to consent to a proposed settlement

Answer

Settle claims without the insured's consent, even over the insured's objection

Answer

Deny coverage if the insured settles a claim without the insurer's approval

Answer

Settle all claims for a flat fee regardless of actual damages

Question 3

Under the 'vacancy' provision of a commercial property policy, coverage may be affected if the building has been vacant for more than:

Accepted Answer

60 days

Answer

15 days

Answer

30 days

Answer

180 days

Question 4

What is the purpose of a 'mortgagee clause' in a property insurance policy?

Accepted Answer

To protect the lender's (mortgagee's) insurable interest by ensuring the lender receives insurance proceeds even if the insured's coverage is voided by the insured's acts

Answer

To require the insured to maintain a specific mortgage amount

Answer

To limit the insurer's liability to the outstanding mortgage balance

Answer

To prevent the insured from selling the property during the policy period

Question 5

An 'agreed value' clause in a property policy means:

Accepted Answer

The insured and insurer have agreed in advance on the value of the insured property, and the insurer will pay that amount in full in the event of a total loss without applying coinsurance

Answer

The insurer will negotiate the value of the property at the time of loss

Answer

The replacement cost is automatically adjusted for inflation annually

Answer

The insured must pay a coinsurance penalty on every claim

Question 6

What does the 'subrogation waiver' endorsement do in a commercial property policy?

Accepted Answer

Waives the insurer's right to recover from specified third parties (such as a tenant) after paying the insured's claim

Answer

Prevents the insured from suing the insurer

Answer

Eliminates the insured's subrogation obligations

Answer

Requires the insured to pursue recovery from third parties on behalf of the insurer