P&C Property & Casualty Insurance License MCQ 3 — Questions and Answers
Question 1: A business owner's fire sprinkler system activates accidentally and damages inventory. Which commercial property coverage would respond?
- Fire legal liability
- Sprinkler leakage coverage (Correct answer)
- Business income coverage
- Equipment breakdown coverage
Correct answer: Sprinkler leakage coverage
Sprinkler leakage coverage specifically covers damage caused by the accidental discharge of water from automatic sprinkler systems.
Question 2: Which of the following best describes the 'coinsurance' clause in a commercial property policy?
- Requires the insured to carry coverage equal to a specified percentage of the property's value or share in any loss (Correct answer)
- Requires two or more insurers to share the risk equally
- Allows the insured to self-insure a portion of every loss
- Mandates that all co-owners be named on the policy
Correct answer: Requires the insured to carry coverage equal to a specified percentage of the property's value or share in any loss
The coinsurance clause requires the insured to maintain coverage at a specified percentage (commonly 80%) of the property's value or become a co-insurer in any loss.
Question 3: Under workers' compensation, the employer's liability portion of the policy covers:
- Job-related injuries covered under the state's workers' comp statute
- Employee lawsuits alleging employer negligence not covered by the WC statute (Correct answer)
- Injuries to independent contractors
- OSHA penalties and fines
Correct answer: Employee lawsuits alleging employer negligence not covered by the WC statute
Part Two (Employer's Liability) of a workers' comp policy covers common-law suits by employees for work-related injuries that fall outside the statutory WC system.
Question 4: An agent who binds coverage on behalf of an insurer without authorization is acting under which type of authority?
- Express authority
- Implied authority
- Apparent authority (Correct answer)
- No authority
Correct answer: Apparent authority
Apparent authority arises when an insurer's actions lead a third party to reasonably believe the agent has authority that was never actually granted.
Question 5: Business interruption insurance is designed primarily to cover:
- The cost to repair or replace damaged property
- Lost net income and continuing expenses while a business is closed due to a covered loss (Correct answer)
- Liability claims arising from business operations
- The cost of temporary employees hired after a covered loss
Correct answer: Lost net income and continuing expenses while a business is closed due to a covered loss
Business interruption (Business Income) coverage replaces lost net income and pays continuing fixed expenses during the period of restoration after a covered property loss.
Question 6: Under the Personal Auto Policy, which coverage pays for damage to the insured's own vehicle caused by a collision with another car?
- Comprehensive coverage
- Collision coverage (Correct answer)
- Liability coverage
- Uninsured motorist coverage
Correct answer: Collision coverage
Collision coverage pays for damage to the insured vehicle resulting from a collision with another vehicle or object, regardless of fault.
Question 7: A 'binder' in property and casualty insurance serves as:
- A permanent insurance policy
- Temporary evidence of coverage until a formal policy is issued (Correct answer)
- A premium payment agreement
- A cancellation notice from the insurer
Correct answer: Temporary evidence of coverage until a formal policy is issued
A binder is a temporary contract that provides immediate insurance coverage until the formal policy can be prepared and delivered.
P&C Property & Casualty Insurance License MCQ 3
A business owner's fire sprinkler system activates accidentally and damages inventory.
Which commercial property coverage would respond?