CAIB 2 Exam Study Guide Questions and
Answers
Question 1
Sue White of Sue's Submarine Shop Ltd. Recently hired a cashier who was
recommended to her by a business associate. Three months after the cashier had
been employed. Sue learned that she had been dismissed from her last job for
stealing $1,200 from her employer. The Employee Dishonesty coverage provided to
the business is under a Commercial Blanket Bond (Form A) with a limit of $10,000.
A. What effect does their prior fraud by Sue's employee have one
i) Coverage for the EE'S
ii) Coverage under other EE'S
B. Yesterday, Sue'S accountant confirmed her worst fears. According to the
accountant approximately $7,500 in receipts were stolen from the business by
employees over the past 12 months. While the police were called in to deal with the
matter they were unable to identify the employee responsible.
What impact would this have on the coverage provided by this form?
Correct Answer
A. When an employee has committed to a prior fraud or dishonest act, the coverage
provided under this agreement ceases to apply from the moment the insured
becomes aware of it
B. Removing coverage from such employee shall not affect the coverage provided
to other employees.
Question 2
Ann Cherry operates a large independent grocery at the local mall. She insures all
Business Interruption coverage's under a gross earnings endorsement form
(mercantile and non-manufacturing).
Ann has made a decision not be insured ordinary payroll values. In the event, Ann has
to lay off certain employees after a loss. She will be faced with increased expenses to
comply with legislated lay-off provisions applicable in her province. What coverage
has been specifically designed to address this short term payroll exposure?
Correct Answer
Wages in lieu of notice endorsement
Page 1 of 183
,Question 3
Wally's Wonderful Waterbed Inc, owns a building which is insured under a fire and
extended coverage policy. A portion of the stove has been rented to a tenant. The
building is heated by a hot water gas fire boiler on the premises.
A. Although explosion coverage is provided under by the policy identify 2 objects for
which there is no coverage
B. Wally's tenant has heard that tenants never have to purchase their own boiler and
machinery insurance policy. How do you respond to this statement?
C. Many of today's boiler and machinery policies provide coverage for equipment
such as computers, printers, copiers, and cash registers. Identify 2 key coverages
provided by specialized boiler and machinery policies for such equipment.
Correct Answer
A. There is no coverage for boilers and industrial hot water heaters
B. A tenant should purchase this coverage is they have any other machinery subject
or mechanical or electrical breakdown. For example, Computers used to operate an
insured object, printers, copiers, fax machines and telephone systems
C. Mechanical or Electrical Breakdown
Question 4
During a risk survey of Risk and Hope Furniture Inc. you noticed several conditions
which, in your opinion, constitutes a greater than normal physical hazard. You also
have reason to be concerned about the moral hazard present in this risk.
A. What is the difference between a physical hazard and a moral hazard?
B. Identify which of 'physical hazard' or 'moral hazard' is indicated by the presence of
the following condition?
Owner has no established means of controlling the stores inventory and in general,
appears to have a total lack of regards for the protection of store property
Correct Answer
A. A physical hazard is a condition relating to the use of tangible property which
could cause a peril to occur. It can be characteristics of the risk itself or of the
environment in which it is located. A moral hazard refers to subjective
characteristics of the applicant that could cause a peril to occur. Indicators of moral
hazard include financial condition, associates, moral character.
B. Physical Hazard
Page 2 of 183
,Question 5
The sales representative coverage option available under the commercial building,
equipment, and stock - broad form policy insures the loss of property while in the
custody of the sales representative.
i) This coverage is normally subject to two separate coverage limits. Identify the two
coverage limits which will normally be displayed on the policy for this coverage.
ii)Indicate whether the policy would respond to the following loss:
Sample case containing insureds stock items was stolen from the hotel room while
sales representative having custody of such samples was attending a cocktail party in
another hotel
Correct Answer
i) Total limits insured and maximum limit of any one representative
ii) covered
Question 6
Dewey, Cheatem and Howe provides fully automated accounting and income tax
service. The equipment used in the business represents the latest in computer
technology. You have been requested to provide an insurance quote which will
address the potential exposures to loss from such equipment.
A. Identify two sections of coverage normally provided under an electronic data
processing policy
B. The insured has specifically asked that you provide a quote for mechanical
breakdown coverage. The insurer with whom you intend to place this coverage
requires that they file a certain document with the company before such coverage will
be provided. Identify this document.
C. What advice oiled you provide to this insured which will help to eliminate the
potential for lost information?
Correct Answer
A. i - Loss to data processing systems, including equipment and component parts
ii. Active data processing media, including programs
iii. Extra Expense
B. Maintenance Contract
C. The best means to avoid a loss is through implementing proper backup
procedures.
Page 3 of 183
, Question 7
The accounts receivable form would not provide payment for:
A. Penalties charged the insured by suppliers for late payment of account
B. Sum charged by insureds accountant to reconstruct lost records
C. Sums charged by collector agency to collect amounts due to insured
D. Sums due from customers which the insured is unable to collect asa direct result of
the loss of records
Correct Answer
A. Penalties charged by the insured by suppliers for late payment on the account
Question 8
The owners of Dress Smart Menswear Inc requested that you provide them with a
premium quote for all risk coverage. In your recommendations, they purchased the
commercial building equipment and stock broad form policy. The building, stock and
equipment are owned by the company and insured under the policy.
Indicate whether losses caused by the following perils would be insured by the policy.
State whether covered or not covered.
A. Damage to building from earthquake
b. Damage to floor and walls of the building from sewer backup caused during severe
rainstorm
C. Damage to building caused by overflowing of river water
Correct Answer
A. Not covered
B. Not covered
C. Not covered
Page 4 of 183
Answers
Question 1
Sue White of Sue's Submarine Shop Ltd. Recently hired a cashier who was
recommended to her by a business associate. Three months after the cashier had
been employed. Sue learned that she had been dismissed from her last job for
stealing $1,200 from her employer. The Employee Dishonesty coverage provided to
the business is under a Commercial Blanket Bond (Form A) with a limit of $10,000.
A. What effect does their prior fraud by Sue's employee have one
i) Coverage for the EE'S
ii) Coverage under other EE'S
B. Yesterday, Sue'S accountant confirmed her worst fears. According to the
accountant approximately $7,500 in receipts were stolen from the business by
employees over the past 12 months. While the police were called in to deal with the
matter they were unable to identify the employee responsible.
What impact would this have on the coverage provided by this form?
Correct Answer
A. When an employee has committed to a prior fraud or dishonest act, the coverage
provided under this agreement ceases to apply from the moment the insured
becomes aware of it
B. Removing coverage from such employee shall not affect the coverage provided
to other employees.
Question 2
Ann Cherry operates a large independent grocery at the local mall. She insures all
Business Interruption coverage's under a gross earnings endorsement form
(mercantile and non-manufacturing).
Ann has made a decision not be insured ordinary payroll values. In the event, Ann has
to lay off certain employees after a loss. She will be faced with increased expenses to
comply with legislated lay-off provisions applicable in her province. What coverage
has been specifically designed to address this short term payroll exposure?
Correct Answer
Wages in lieu of notice endorsement
Page 1 of 183
,Question 3
Wally's Wonderful Waterbed Inc, owns a building which is insured under a fire and
extended coverage policy. A portion of the stove has been rented to a tenant. The
building is heated by a hot water gas fire boiler on the premises.
A. Although explosion coverage is provided under by the policy identify 2 objects for
which there is no coverage
B. Wally's tenant has heard that tenants never have to purchase their own boiler and
machinery insurance policy. How do you respond to this statement?
C. Many of today's boiler and machinery policies provide coverage for equipment
such as computers, printers, copiers, and cash registers. Identify 2 key coverages
provided by specialized boiler and machinery policies for such equipment.
Correct Answer
A. There is no coverage for boilers and industrial hot water heaters
B. A tenant should purchase this coverage is they have any other machinery subject
or mechanical or electrical breakdown. For example, Computers used to operate an
insured object, printers, copiers, fax machines and telephone systems
C. Mechanical or Electrical Breakdown
Question 4
During a risk survey of Risk and Hope Furniture Inc. you noticed several conditions
which, in your opinion, constitutes a greater than normal physical hazard. You also
have reason to be concerned about the moral hazard present in this risk.
A. What is the difference between a physical hazard and a moral hazard?
B. Identify which of 'physical hazard' or 'moral hazard' is indicated by the presence of
the following condition?
Owner has no established means of controlling the stores inventory and in general,
appears to have a total lack of regards for the protection of store property
Correct Answer
A. A physical hazard is a condition relating to the use of tangible property which
could cause a peril to occur. It can be characteristics of the risk itself or of the
environment in which it is located. A moral hazard refers to subjective
characteristics of the applicant that could cause a peril to occur. Indicators of moral
hazard include financial condition, associates, moral character.
B. Physical Hazard
Page 2 of 183
,Question 5
The sales representative coverage option available under the commercial building,
equipment, and stock - broad form policy insures the loss of property while in the
custody of the sales representative.
i) This coverage is normally subject to two separate coverage limits. Identify the two
coverage limits which will normally be displayed on the policy for this coverage.
ii)Indicate whether the policy would respond to the following loss:
Sample case containing insureds stock items was stolen from the hotel room while
sales representative having custody of such samples was attending a cocktail party in
another hotel
Correct Answer
i) Total limits insured and maximum limit of any one representative
ii) covered
Question 6
Dewey, Cheatem and Howe provides fully automated accounting and income tax
service. The equipment used in the business represents the latest in computer
technology. You have been requested to provide an insurance quote which will
address the potential exposures to loss from such equipment.
A. Identify two sections of coverage normally provided under an electronic data
processing policy
B. The insured has specifically asked that you provide a quote for mechanical
breakdown coverage. The insurer with whom you intend to place this coverage
requires that they file a certain document with the company before such coverage will
be provided. Identify this document.
C. What advice oiled you provide to this insured which will help to eliminate the
potential for lost information?
Correct Answer
A. i - Loss to data processing systems, including equipment and component parts
ii. Active data processing media, including programs
iii. Extra Expense
B. Maintenance Contract
C. The best means to avoid a loss is through implementing proper backup
procedures.
Page 3 of 183
, Question 7
The accounts receivable form would not provide payment for:
A. Penalties charged the insured by suppliers for late payment of account
B. Sum charged by insureds accountant to reconstruct lost records
C. Sums charged by collector agency to collect amounts due to insured
D. Sums due from customers which the insured is unable to collect asa direct result of
the loss of records
Correct Answer
A. Penalties charged by the insured by suppliers for late payment on the account
Question 8
The owners of Dress Smart Menswear Inc requested that you provide them with a
premium quote for all risk coverage. In your recommendations, they purchased the
commercial building equipment and stock broad form policy. The building, stock and
equipment are owned by the company and insured under the policy.
Indicate whether losses caused by the following perils would be insured by the policy.
State whether covered or not covered.
A. Damage to building from earthquake
b. Damage to floor and walls of the building from sewer backup caused during severe
rainstorm
C. Damage to building caused by overflowing of river water
Correct Answer
A. Not covered
B. Not covered
C. Not covered
Page 4 of 183
