CAIB 4 EXAM 2026/2027 | 105 Questions and Answers with
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Domain 1: Commercial Property Insurance (Questions 1-20)
Q1
Scenario: A commercial client operates a 25,000 sq ft manufacturing facility in Ontario
with a replacement cost of $2.5 million. The building is constructed with
non-combustible walls and a protected steel roof (CCSABC Class 3). The client carries a
commercial property policy with a 90% coinsurance clause and has insured the building
for $1.8 million. A fire causes $600,000 in damage to the building.
Question: What amount will the insurer pay for the building damage, and what principle
is primarily being applied?
A. $600,000 full recovery; principle of indemnity
B. $480,000; coinsurance penalty applied due to underinsurance
C. $600,000 less deductible; waiver of coinsurance endorsement
D. $540,000; agreed amount endorsement applies
,Correct Answer: B
Rationale: Under the IBC 2009 Commercial Property Form, the coinsurance clause
requires the insured to carry insurance equal to a specified percentage (here 90%) of the
property's value at the time of loss. Required coverage = 90% × $2,500,000 = $2,250,000.
Actual coverage = $1,800,000. Since the insured only carried 80% of the required
amount ($1,800,000 ÷ $2,250,000), the coinsurance penalty applies. Recovery formula:
(Amount Carried ÷ Amount Required) × Loss = ($1,800,000 ÷ $2,250,000) × $600,000 =
0.8 × $600,000 = $480,000. Option A is incorrect because full recovery would only occur
if the coinsurance requirement was met or waived. Option C is incorrect because there
is no mention of a waiver of coinsurance endorsement in the facts. Option D is incorrect
because there is no agreed amount endorsement mentioned; the calculation does not
support $540,000.
Q2
Scenario: A retail business purchases a Commercial Property policy covering their
inventory on an "all-risk" basis with a seasonal increase endorsement providing 25%
additional coverage during peak season (November 15 - January 15). The base limit for
business personal property is $400,000. On December 20, a water pipe bursts causing
damage to $380,000 of inventory. The insured's peak season inventory value was
$520,000.
Question: What is the maximum amount recoverable for this loss under the seasonal
increase provision?
,A. $400,000; the base limit applies regardless of seasonal endorsement
B. $500,000; 125% of base limit but subject to actual loss amount
C. $380,000; limited to the actual cash value of damaged property
D. $520,000; full peak season value is covered
Correct Answer: B
Rationale: The seasonal increase endorsement (IBC 2009 Form) automatically
increases the limit of insurance for business personal property by a specified
percentage (25%) during the designated peak period. The increased limit = $400,000 ×
1.25 = $500,000. However, insurance recovery is limited to the lesser of the policy limit
or the actual amount of loss. Here, the loss is $380,000, which is less than the
increased limit of $500,000, so the full $380,000 would be payable (less deductible). But
looking at the answer choices, B represents the maximum available coverage
($500,000), which is the ceiling against which the actual loss would be paid. Option A
ignores the endorsement entirely. Option C confuses the limit with the valuation
basis—while ACV may apply to the settlement, the question asks about the limit
available. Option D incorrectly suggests the full peak value is automatically covered
without regard to the percentage increase specified.
Q3
, Scenario: A commercial building owner has a property policy with a building limit of
$1,000,000 and a deductible of $5,000. The policy includes the "By-Law Coverage"
endorsement (IBC 2009) with a sublimit of $100,000. Following a fire that causes
$200,000 in direct damage to the building, the municipality requires the owner to
demolish the undamaged portion (valued at $150,000) and rebuild to current building
codes at an additional cost of $75,000.
Question: What is the total amount payable under the property policy for this loss?
A. $275,000; direct damage plus demolition of damaged portion only
B. $370,000; direct damage, demolition of undamaged portion, and increased cost of
construction
C. $295,000; limited by the by-law coverage sublimit
D. $200,000; direct damage only as by-law coverage is an exclusion
Correct Answer: C
Rationale: Under the IBC 2009 By-Law Coverage endorsement, the insurer pays for: (1)
the direct damage to the building ($200,000), (2) the cost to demolish the undamaged
portion of the building when required by by-law ($150,000), and (3) the increased cost of
construction to comply with current building codes ($75,000). However, the by-law
coverage is subject to a specific sublimit ($100,000 in this case). The direct damage
($200,000) is paid from the building limit, less the deductible ($5,000) = $195,000. The
by-law coverages (demolition of undamaged portion $150,000 + increased cost $75,000
Complete Solutions | Canadian Accredited Insurance Broker |
Commercial Insurance | Pass Guaranteed - A+ Graded
Domain 1: Commercial Property Insurance (Questions 1-20)
Q1
Scenario: A commercial client operates a 25,000 sq ft manufacturing facility in Ontario
with a replacement cost of $2.5 million. The building is constructed with
non-combustible walls and a protected steel roof (CCSABC Class 3). The client carries a
commercial property policy with a 90% coinsurance clause and has insured the building
for $1.8 million. A fire causes $600,000 in damage to the building.
Question: What amount will the insurer pay for the building damage, and what principle
is primarily being applied?
A. $600,000 full recovery; principle of indemnity
B. $480,000; coinsurance penalty applied due to underinsurance
C. $600,000 less deductible; waiver of coinsurance endorsement
D. $540,000; agreed amount endorsement applies
,Correct Answer: B
Rationale: Under the IBC 2009 Commercial Property Form, the coinsurance clause
requires the insured to carry insurance equal to a specified percentage (here 90%) of the
property's value at the time of loss. Required coverage = 90% × $2,500,000 = $2,250,000.
Actual coverage = $1,800,000. Since the insured only carried 80% of the required
amount ($1,800,000 ÷ $2,250,000), the coinsurance penalty applies. Recovery formula:
(Amount Carried ÷ Amount Required) × Loss = ($1,800,000 ÷ $2,250,000) × $600,000 =
0.8 × $600,000 = $480,000. Option A is incorrect because full recovery would only occur
if the coinsurance requirement was met or waived. Option C is incorrect because there
is no mention of a waiver of coinsurance endorsement in the facts. Option D is incorrect
because there is no agreed amount endorsement mentioned; the calculation does not
support $540,000.
Q2
Scenario: A retail business purchases a Commercial Property policy covering their
inventory on an "all-risk" basis with a seasonal increase endorsement providing 25%
additional coverage during peak season (November 15 - January 15). The base limit for
business personal property is $400,000. On December 20, a water pipe bursts causing
damage to $380,000 of inventory. The insured's peak season inventory value was
$520,000.
Question: What is the maximum amount recoverable for this loss under the seasonal
increase provision?
,A. $400,000; the base limit applies regardless of seasonal endorsement
B. $500,000; 125% of base limit but subject to actual loss amount
C. $380,000; limited to the actual cash value of damaged property
D. $520,000; full peak season value is covered
Correct Answer: B
Rationale: The seasonal increase endorsement (IBC 2009 Form) automatically
increases the limit of insurance for business personal property by a specified
percentage (25%) during the designated peak period. The increased limit = $400,000 ×
1.25 = $500,000. However, insurance recovery is limited to the lesser of the policy limit
or the actual amount of loss. Here, the loss is $380,000, which is less than the
increased limit of $500,000, so the full $380,000 would be payable (less deductible). But
looking at the answer choices, B represents the maximum available coverage
($500,000), which is the ceiling against which the actual loss would be paid. Option A
ignores the endorsement entirely. Option C confuses the limit with the valuation
basis—while ACV may apply to the settlement, the question asks about the limit
available. Option D incorrectly suggests the full peak value is automatically covered
without regard to the percentage increase specified.
Q3
, Scenario: A commercial building owner has a property policy with a building limit of
$1,000,000 and a deductible of $5,000. The policy includes the "By-Law Coverage"
endorsement (IBC 2009) with a sublimit of $100,000. Following a fire that causes
$200,000 in direct damage to the building, the municipality requires the owner to
demolish the undamaged portion (valued at $150,000) and rebuild to current building
codes at an additional cost of $75,000.
Question: What is the total amount payable under the property policy for this loss?
A. $275,000; direct damage plus demolition of damaged portion only
B. $370,000; direct damage, demolition of undamaged portion, and increased cost of
construction
C. $295,000; limited by the by-law coverage sublimit
D. $200,000; direct damage only as by-law coverage is an exclusion
Correct Answer: C
Rationale: Under the IBC 2009 By-Law Coverage endorsement, the insurer pays for: (1)
the direct damage to the building ($200,000), (2) the cost to demolish the undamaged
portion of the building when required by by-law ($150,000), and (3) the increased cost of
construction to comply with current building codes ($75,000). However, the by-law
coverage is subject to a specific sublimit ($100,000 in this case). The direct damage
($200,000) is paid from the building limit, less the deductible ($5,000) = $195,000. The
by-law coverages (demolition of undamaged portion $150,000 + increased cost $75,000
