RIMS Insurance Policies & Coverage Analysis 2 — Questions and Answers
Question 1: A commercial property policy contains a coinsurance clause requiring 80% coverage. If a building worth $1,000,000 is insured for only $600,000 and suffers a $200,000 loss, how much will the insurer pay?
- $150,000 (Correct answer)
- $200,000
- $160,000
- $120,000
Correct answer: $150,000
Using the coinsurance formula: ($600,000 / $800,000) × $200,000 = $150,000.
Question 2: Which policy condition requires an insured to take all reasonable steps to protect property from further damage after a covered loss occurs?
- Subrogation clause
- Duties after loss condition (Correct answer)
- Concealment clause
- Pro rata condition
Correct answer: Duties after loss condition
The duties after loss condition obligates the insured to mitigate further damage following a covered loss.
Question 3: An 'occurrence' policy form covers claims for incidents that:
- Are reported during the policy period regardless of when they occurred
- Occur during the policy period regardless of when the claim is filed (Correct answer)
- Are both reported and occur within the same policy period
- Occur and are reported within an extended reporting period
Correct answer: Occur during the policy period regardless of when the claim is filed
Occurrence policies trigger coverage based on when the injury or damage actually took place, not when the claim is made.
Question 4: What is the purpose of a 'separation of insureds' (cross-liability) clause in a general liability policy?
- It prevents one insured from suing another under the same policy
- It treats each insured separately so coverage applies as if each had its own policy (Correct answer)
- It divides the aggregate limit equally among all named insureds
- It separates commercial from personal exposures under the same policy
Correct answer: It treats each insured separately so coverage applies as if each had its own policy
A separation of insureds clause allows each insured to be treated independently, enabling coverage even when one insured sues another.
Question 5: Under a commercial general liability (CGL) policy, 'products-completed operations' coverage applies to bodily injury or property damage arising from:
- Work in progress at the job site
- Products sold or work completed away from the insured's premises (Correct answer)
- Employee injuries during manufacturing
- Professional errors during product design
Correct answer: Products sold or work completed away from the insured's premises
Products-completed operations covers liability for harm caused by the insured's products or completed work after they leave the insured's control.
Question 6: A 'manuscript policy' differs from standard insurance forms primarily because it is:
- Written by regulators for high-risk industries
- Customized and individually negotiated for a specific insured (Correct answer)
- A pre-approved ISO form with manuscript endorsements only
- A policy that requires handwritten signatures on every page
Correct answer: Customized and individually negotiated for a specific insured
Manuscript policies are uniquely drafted or heavily modified to meet the specific coverage needs of a particular insured.
Question 7: Which term describes the dollar amount of loss that must be sustained before the insurer becomes liable under a self-insured retention (SIR) structure?
- Aggregate deductible
- Policy limit
- Retention threshold
- Self-insured retention (Correct answer)
Correct answer: Self-insured retention
The self-insured retention (SIR) is the amount the insured pays out of pocket before the insurer's obligation begins, differing from a deductible in that the insured handles claims below the SIR directly.
RIMS Insurance Policies & Coverage Analysis 2
A commercial property policy contains a coinsurance clause requiring 80% coverage.
If a building worth $1,000,000 is insured for only $600,000 and suffers a $200,000 loss, how much will the insurer pay?