AINS 103 CHAPTER 1 UPDATED COMPLETE
QUESTIONS AND ANSWERS VERIFIED
PREPARATION RESOURCE
●● Extra expenses are expenses, in addition to ordinary expenses, that
an organization incurs to mitigate the effects of a business interruption.
Which one of the following is an example of an extra expense?
Answer: Cost to rent temporary office space.
●● An electrical contractor was hired to install a new 100-amp fuse box
in the Smith's home. During installation, the contractor inadvertently left
a small screwdriver in a duct space behind the panel. Three weeks later,
the screwdriver caused an electrical short which led to a fire. Which one
of the following loss exposures best categorizes the electrical
contractor's legal liability exposure for the fire damages?
Answer: Completed operations liability.
●● Upon entering a restaurant, a customer grasped a handrail that broke
off, causing the customer to fall and break his wrist. This is an example
of which one of the following types of commercial general liability loss?
Answer: Premises and operations liability.
●● Inland marine insurance is insurance that covers:
,Answer: Many different classes of property that typically involve an
element of transportation on land.
●● Workers compensation benefits include which one of the following?
Answer: Rehabilitation benefits.
●● Bio-Pharma was a highly-regarded pharmaceutical company. That
changed last year when it was revealed that Bio-Pharma researchers had
fabricated test results of the company's new hypertension drug, and a
company official bribed a key regulator to get the drug approved. These
revelations led to a sharp decline in sales of all of Bio-Pharma's drugs, a
sharp decline in net income, and a decline in Bio-Pharma's stock price.
This scenario clearly indicates the value of a corporation's...?
Answer: Reputation.
●● When a clothing manufacturer decides to expand the sale of its
clothing line by offering internet purchases, it creates new exposures not
otherwise covered, or not fully covered, by a traditional policy. These
include:
Answer: Loss or damage caused by computer viruses.
●● Sally is a commercial property claims adjuster. When she is first
assigned a claim, she reviews the commercial property part of the policy
to make sure that the property that suffered the loss matches the
description of the property insured. She also reviews the kinds and
amount of coverage provided. Which one of the following components
,of the commercial property part will provide Sally with this
information?
Answer: The commercial property declarations page contains
information such as a description of the property insured, the kinds and
amounts of coverage provided, and any optional coverages, among other
information.
●● Billy owns a baseball souvenir store in Cooperstown, NY. He insured
his store under a Building and Personal Property Coverage Form (BPP)
with a $275,000 limit and a $1,500 deductible. A large fire in the store
caused significant damage amounting to $310,000 in covered damages.
How much would Billy's insurer pay under his BPP?
Answer: $275,000. $310,000 - $1,500 = $308,500, which exceeds the
BPP limit. The insurer will pay $275,000. The deductible is subtracted
from the loss, not the limit.
●● Which one of the following is one of the covered causes of loss in
the commercial property policy Causes of Loss—Basic form?
Answer: Explosion is a covered cause of loss under the basic form. All
the others are additional causes of loss covered by the broad form (and
they are also covered under the special form).
●● Which one of the following is correct with respect to the Increased
Cost of Construction additional coverage of the Building and Personal
Property Coverage Form (BPP)?
, Answer: It provides a small amount of insurance to cover the increased
cost to comply with ordinances or laws regulating the repair, rebuilding,
or replacement of covered buildings.
●● Which one of the following would be considered an extra expense
under the Business Income (and Extra Expense) Coverage Form of the
commercial package policy?
Answer: The increased cost of rent at a temporary location.
●● Dooley's Restaurant is insured under a commercial package policy
(CPP) with the Business Income (with Extra Expense) Coverage Form.
The business suffered a $400,000 loss of business income when it was
forced to suspend operations after flood waters damaged the basement
and first floor of the restaurant. Which one of the following is an
acceptable reason for the CPP insurer to deny the business income
claim?
Answer: The policy's covered causes of loss did not include flood.
●● Which one of the following would be covered under the Extra
Expense insuring agreement of the Business Income (and Extra
Expense) Coverage Form?
Answer: Costs to move to a temporary location.
●● Richard's Clothing Store has a $500,000 Business Income (and Extra
Expense) Coverage Form on which there is an 80 percent coinsurance
clause. A fire swept through the store. Richard's Clothing Store estimates
QUESTIONS AND ANSWERS VERIFIED
PREPARATION RESOURCE
●● Extra expenses are expenses, in addition to ordinary expenses, that
an organization incurs to mitigate the effects of a business interruption.
Which one of the following is an example of an extra expense?
Answer: Cost to rent temporary office space.
●● An electrical contractor was hired to install a new 100-amp fuse box
in the Smith's home. During installation, the contractor inadvertently left
a small screwdriver in a duct space behind the panel. Three weeks later,
the screwdriver caused an electrical short which led to a fire. Which one
of the following loss exposures best categorizes the electrical
contractor's legal liability exposure for the fire damages?
Answer: Completed operations liability.
●● Upon entering a restaurant, a customer grasped a handrail that broke
off, causing the customer to fall and break his wrist. This is an example
of which one of the following types of commercial general liability loss?
Answer: Premises and operations liability.
●● Inland marine insurance is insurance that covers:
,Answer: Many different classes of property that typically involve an
element of transportation on land.
●● Workers compensation benefits include which one of the following?
Answer: Rehabilitation benefits.
●● Bio-Pharma was a highly-regarded pharmaceutical company. That
changed last year when it was revealed that Bio-Pharma researchers had
fabricated test results of the company's new hypertension drug, and a
company official bribed a key regulator to get the drug approved. These
revelations led to a sharp decline in sales of all of Bio-Pharma's drugs, a
sharp decline in net income, and a decline in Bio-Pharma's stock price.
This scenario clearly indicates the value of a corporation's...?
Answer: Reputation.
●● When a clothing manufacturer decides to expand the sale of its
clothing line by offering internet purchases, it creates new exposures not
otherwise covered, or not fully covered, by a traditional policy. These
include:
Answer: Loss or damage caused by computer viruses.
●● Sally is a commercial property claims adjuster. When she is first
assigned a claim, she reviews the commercial property part of the policy
to make sure that the property that suffered the loss matches the
description of the property insured. She also reviews the kinds and
amount of coverage provided. Which one of the following components
,of the commercial property part will provide Sally with this
information?
Answer: The commercial property declarations page contains
information such as a description of the property insured, the kinds and
amounts of coverage provided, and any optional coverages, among other
information.
●● Billy owns a baseball souvenir store in Cooperstown, NY. He insured
his store under a Building and Personal Property Coverage Form (BPP)
with a $275,000 limit and a $1,500 deductible. A large fire in the store
caused significant damage amounting to $310,000 in covered damages.
How much would Billy's insurer pay under his BPP?
Answer: $275,000. $310,000 - $1,500 = $308,500, which exceeds the
BPP limit. The insurer will pay $275,000. The deductible is subtracted
from the loss, not the limit.
●● Which one of the following is one of the covered causes of loss in
the commercial property policy Causes of Loss—Basic form?
Answer: Explosion is a covered cause of loss under the basic form. All
the others are additional causes of loss covered by the broad form (and
they are also covered under the special form).
●● Which one of the following is correct with respect to the Increased
Cost of Construction additional coverage of the Building and Personal
Property Coverage Form (BPP)?
, Answer: It provides a small amount of insurance to cover the increased
cost to comply with ordinances or laws regulating the repair, rebuilding,
or replacement of covered buildings.
●● Which one of the following would be considered an extra expense
under the Business Income (and Extra Expense) Coverage Form of the
commercial package policy?
Answer: The increased cost of rent at a temporary location.
●● Dooley's Restaurant is insured under a commercial package policy
(CPP) with the Business Income (with Extra Expense) Coverage Form.
The business suffered a $400,000 loss of business income when it was
forced to suspend operations after flood waters damaged the basement
and first floor of the restaurant. Which one of the following is an
acceptable reason for the CPP insurer to deny the business income
claim?
Answer: The policy's covered causes of loss did not include flood.
●● Which one of the following would be covered under the Extra
Expense insuring agreement of the Business Income (and Extra
Expense) Coverage Form?
Answer: Costs to move to a temporary location.
●● Richard's Clothing Store has a $500,000 Business Income (and Extra
Expense) Coverage Form on which there is an 80 percent coinsurance
clause. A fire swept through the store. Richard's Clothing Store estimates
