RIMS Insurance Policies & Coverage Analysis 3 — Questions and Answers
Question 1: A business interruption policy's 'period of restoration' typically ends when:
- The policy period expires
- The insured decides to resume operations
- The damaged property is repaired or replaced with reasonable speed (Correct answer)
- The maximum indemnity period stated in the policy is reached
Correct answer: The damaged property is repaired or replaced with reasonable speed
The period of restoration concludes when the property could reasonably be repaired or rebuilt, using due diligence, regardless of actual resumption of operations.
Question 2: Under directors and officers (D&O) liability insurance, 'Side A' coverage is designed to protect:
- The corporation when it indemnifies its directors and officers
- Directors and officers directly when the company cannot or will not indemnify them (Correct answer)
- Shareholders who sue the company's board
- The company's legal fees for securities investigations
Correct answer: Directors and officers directly when the company cannot or will not indemnify them
Side A coverage fills the gap by protecting individual directors and officers when corporate indemnification is unavailable, such as during insolvency.
Question 3: A 'blanket' property insurance policy differs from a 'specific' policy because it:
- Covers only one location with a single stated limit
- Applies a single limit across multiple locations or property types (Correct answer)
- Requires itemized values for each building separately
- Covers only the highest-value location automatically
Correct answer: Applies a single limit across multiple locations or property types
A blanket policy provides one combined limit that can apply to any or all covered locations or property items, offering greater flexibility.
Question 4: In workers' compensation insurance, the 'experience modification factor' (EMR) reflects:
- The insurer's profit margin on the account
- The insured's past loss experience relative to its industry peers (Correct answer)
- The number of employees covered under the policy
- The jurisdiction's statutory benefit levels
Correct answer: The insured's past loss experience relative to its industry peers
The EMR compares the insured's actual losses to expected losses for similar businesses, adjusting the premium up or down accordingly.
Question 5: Which provision in a property policy allows the insurer to take possession of damaged property and attempt to restore it rather than paying a total loss settlement?
- Abandonment clause (Correct answer)
- Salvage clause
- Reinstatement clause
- Pair and set clause
Correct answer: Abandonment clause
The abandonment clause prevents the insured from simply abandoning damaged property to the insurer; the insurer may choose whether to accept or refuse abandoned property.
Question 6: A 'claims-made' liability policy with a retroactive date of January 1, 2020 will NOT cover a claim filed in 2024 for an incident that occurred in:
- March 2020
- June 2022
- December 2019 (Correct answer)
- January 2021
Correct answer: December 2019
Claims-made policies only cover incidents that occurred on or after the retroactive date; a 2019 incident predates the January 1, 2020 retroactive date.
Question 7: Under the Additional Insured endorsement on a CGL policy, which of the following best describes the scope of coverage typically granted to an additional insured?
- Full independent coverage identical to the named insured's coverage
- Coverage only for liability arising out of the named insured's ongoing operations (Correct answer)
- Coverage for the additional insured's own independent negligence
- Coverage that is primary and non-contributory in all circumstances
Correct answer: Coverage only for liability arising out of the named insured's ongoing operations
Standard additional insured endorsements limit coverage to liability arising from the named insured's acts or omissions, not the additional insured's own independent negligence.
RIMS Insurance Policies & Coverage Analysis 3
A business interruption policy's 'period of restoration' typically ends when: