AFSB 151 Study Guide With Correct Answers
1. Anthony is the surety producer for Coyle Construction (CC). CC has a
pre-set annual surety credit line of $5 million/$30 million. About 3 months into
the fiscal year, the contractor is bidding on an $8 million job and needs a bid
bond. Which one of the following correctly describes Anthony's responsibility
as the surety producer?
Select one:
A. Anthony should arrange a back-up surety with adequate capacity because
CC appears to be outgrowing the capacity of the current surety.
B. Anthony should execute the bid bond because it is within the $30 million
annual line of credit.
C. Anthony should seek underwriting approval before executing the bid bond
because it falls outside the $5 million job contract limit.
D. Anthony should execute the bid bond, but will need to seek approval if CC is
awarded the job.: C. Anthony should seek underwriting approval before executing
the bid bond because it falls outside the $5 million job contract limit.
2. Contract bond claims
Select one:
A. Require that, once the claim is made, the construction project and all
affiliated activity, such as materials and other resource delivery, must be
halted until the loss is determined and paid.
B. Generally require that the surety consult fewer sources to determine the
bond loss than are required when investigating commercial surety and fidelity
claims.
C. That are not handled promptly are not affected by variables such as the
construction project, materials, and weather conditions.
D. Can raise questions as to fault in the loss, whether the bonded principal
or the obligee was responsible.: D. Can raise questions as to fault in the loss,
whether the bonded principal or the obligee was responsible.
3. Which one of the following statements regarding fidelity bond claims is
true?
Select one:
A. There are no time limits for bringing claims under a fidelity bond, so an
insurer does not need to be concerned about whether the loss was discovered
during the policy term.
B. The insured's prompt notice of loss and the fidelity's prompt investigation
has no impact on the insurer's liability, the cause of loss, or the insured's
minimization of damages.
C. Mishandling of funds by people or entities not employed by the insured,
such as auditors, lawyers, or financial institutions, cannot be pursued by the
, AFSB 151 Study Guide With Correct Answers
insurer as a source of recovery.
D. By promptly investigating a bond loss, an insurer may discover that it has
recourse against persons or entities whose conduct caused or contributed to
the loss, but is not relevant to the proof of loss.: D. By promptly investigating a
bond loss, an insurer may discover that it has recourse against persons or entities
whose conduct caused or contributed to the loss, but is not relevant to the proof of
loss.
4. Which one of the following statements regarding legal research and unfair
claims practices acts is true?
Select one:
A. Even when fidelity and surety businesses are not affected by unfair claims
practices laws that originate from individual consumers' concerns, state law-
makers require that they adhere to these laws.
B. Unfair claims practices acts can prevent sureties from adequately investi-
gating fidelity and surety claims so that standards for prompt settlement or
denial can be met.
C. Because sureties can retain attorneys experienced in the fidelity and surety
legal matters, claims personnel do not require knowledge of legal rules and
theories that govern such coverage and liability.
D. Unfair claims practices acts prohibit sureties and insurers from misrepre-
senting pertinent facts or policy provisions relating to coverages at issue.: D.
Unfair claims practices acts prohibit sureties and insurers from misrepresenting
pertinent facts or policy provisions relating to coverages at issue.
5. Which one of the following statements regarding surety compliance with
statutes and regulations is true?
Select one:
A. Courts may interpret any bond or fidelity policy provision to the insured's
benefit whether or not it prejudices an insurer's ability to investigate the claim.
B. Surety and fidelity contracts are often prescribed by statute or regulation,
including requirements for many license and permit bonds, fidelity coverages,
and public official bonds.
C. Insurance policy forms are often subject to regulatory approval; however,
laws cannot affect the enforcement of rights and remedies under the policies.
D. When an obligee drafts a surety bond with provisions that are onerous
to the surety, if the surety executes the bond without objections, courts will
interpret any dispute in the surety's favor.: B. Surety and fidelity contracts are
often prescribed by statute or regulation, including requirements for many license
and permit bonds, fidelity coverages, and public official bonds.
, AFSB 151 Study Guide With Correct Answers
6. Surety claims against principals who appear to have resources to pay the
claims can be referred to the principals and indemnitors who can respond
before the surety must pay and before the surety seeks indemnification from
them. This practice is called
Select one:
A. Exoneration.
B. Look-see money distribution.
C. Quia timet.
D. The vouching-in procedure.: D. The vouching-in procedure.
7. When a claim is pending on a cosurety bond,
Select one:
A. Each cosurety may establish a reserve for its cosurety share of the loss.
B. The controlling cosurety is normally obligated to pay the full loss and
request reimbursement from the cosureties.
C. Each cosurety is allowed to take credit for the reinsurer's share of the
reserve that the cosurety establishes.
D. The controlling cosurety is not allowed to establish a reserve for any part
of the loss.: A. Each cosurety may establish a reserve for its cosurety share of the
loss.
8. Fidelity bond claims
Select one:
A. Can expose an insurer to waiver of a condition precedent of bond contracts
and defamation actions, if they are not handled properly.
B. Have variable circumstances; therefore, the fidelity insurer's ultimate loss
is rarely fixed when the insured gives notice of the loss.
C. Offer protections to the fidelity insurer when a late notice of loss occurs,
as late notice is typically a valid defense for the insurer.
D. Require a proof of loss filed by the insured before an investigation begins,
the claim is verified, and the insured can be confronted.: A. Can expose an
insurer to waiver of a condition precedent of bond contracts and defamation actions,
if they are not handled properly
9. In proper handling of a fidelity loss, when can an insurer begin the loss
investigation and when can claims personnel confront the insured?
Select one:
A. The insurer can begin the investigation, but claims personnel should not
confront the insured before the insured has provided an executed proof of
loss.
B. The insurer cannot begin the investigation until the insured has provided an
executed proof of loss; but claims personnel can confront the insured without
, AFSB 151 Study Guide With Correct Answers
the proof of loss.
C. The insurer can begin the investigation and claims personnel can confront
the insured at any time before the insured has provided an executed proof of
loss.
D. The insurer cannot begin the investigation and claims personnel cannot
confront the insured until the insured has provided an executed proof of
loss.: A. The insurer can begin the investigation, but claims personnel should not
confront the insured before the insured has provided an executed proof of loss.
10. Which one of the following statements regarding gathering information for
surety claims is true?
Select one:
A. Principals and obligees are usually more cooperative after the claim has
been paid than during the information-gathering process.
B. Separate information gathering sessions—to help resolve questions of
liability and to determine the possibility of enforcing rights the surety ac-
quired—is more efficient and productive than one session.
C. When gathering claims information, the producer is the best source of
evidence for recovery from others.
D. Claims personnel can gather most of the needed information for a surety
claim by applying the questions of who, what, when, where, why, and how to
the claim.: D. Claims personnel can gather most of the needed information for a
surety claim by applying the questions of who, what, when, where, why, and how to
the claim.
11. Which one of the following statements is true regarding subrogation when
a contract default has occurred and when the principal has admitted to it?
Select one:
A. Obligees cannot refuse to pay the principal's creditors and instead claim
offsets for debts owed to them by the principal, including damages allegedly
due on the project.
B. The surety's most important right acquired through subrogation is the right
of the obligee to use the contract consideration to complete the contract.
C. The unpaid and unearned contract money is part of the contractor's prop-
erty and may be used to satisfy the principal's debts.
D. If the surety directly or indirectly remedies the contract defaults, it has no
claim to any of the obligee's rights.: B. The surety's most important right acquired
through subrogation is the right of the obligee to use the contract consideration to
complete the contract.
12. Cosureties on a bond
Select one:
1. Anthony is the surety producer for Coyle Construction (CC). CC has a
pre-set annual surety credit line of $5 million/$30 million. About 3 months into
the fiscal year, the contractor is bidding on an $8 million job and needs a bid
bond. Which one of the following correctly describes Anthony's responsibility
as the surety producer?
Select one:
A. Anthony should arrange a back-up surety with adequate capacity because
CC appears to be outgrowing the capacity of the current surety.
B. Anthony should execute the bid bond because it is within the $30 million
annual line of credit.
C. Anthony should seek underwriting approval before executing the bid bond
because it falls outside the $5 million job contract limit.
D. Anthony should execute the bid bond, but will need to seek approval if CC is
awarded the job.: C. Anthony should seek underwriting approval before executing
the bid bond because it falls outside the $5 million job contract limit.
2. Contract bond claims
Select one:
A. Require that, once the claim is made, the construction project and all
affiliated activity, such as materials and other resource delivery, must be
halted until the loss is determined and paid.
B. Generally require that the surety consult fewer sources to determine the
bond loss than are required when investigating commercial surety and fidelity
claims.
C. That are not handled promptly are not affected by variables such as the
construction project, materials, and weather conditions.
D. Can raise questions as to fault in the loss, whether the bonded principal
or the obligee was responsible.: D. Can raise questions as to fault in the loss,
whether the bonded principal or the obligee was responsible.
3. Which one of the following statements regarding fidelity bond claims is
true?
Select one:
A. There are no time limits for bringing claims under a fidelity bond, so an
insurer does not need to be concerned about whether the loss was discovered
during the policy term.
B. The insured's prompt notice of loss and the fidelity's prompt investigation
has no impact on the insurer's liability, the cause of loss, or the insured's
minimization of damages.
C. Mishandling of funds by people or entities not employed by the insured,
such as auditors, lawyers, or financial institutions, cannot be pursued by the
, AFSB 151 Study Guide With Correct Answers
insurer as a source of recovery.
D. By promptly investigating a bond loss, an insurer may discover that it has
recourse against persons or entities whose conduct caused or contributed to
the loss, but is not relevant to the proof of loss.: D. By promptly investigating a
bond loss, an insurer may discover that it has recourse against persons or entities
whose conduct caused or contributed to the loss, but is not relevant to the proof of
loss.
4. Which one of the following statements regarding legal research and unfair
claims practices acts is true?
Select one:
A. Even when fidelity and surety businesses are not affected by unfair claims
practices laws that originate from individual consumers' concerns, state law-
makers require that they adhere to these laws.
B. Unfair claims practices acts can prevent sureties from adequately investi-
gating fidelity and surety claims so that standards for prompt settlement or
denial can be met.
C. Because sureties can retain attorneys experienced in the fidelity and surety
legal matters, claims personnel do not require knowledge of legal rules and
theories that govern such coverage and liability.
D. Unfair claims practices acts prohibit sureties and insurers from misrepre-
senting pertinent facts or policy provisions relating to coverages at issue.: D.
Unfair claims practices acts prohibit sureties and insurers from misrepresenting
pertinent facts or policy provisions relating to coverages at issue.
5. Which one of the following statements regarding surety compliance with
statutes and regulations is true?
Select one:
A. Courts may interpret any bond or fidelity policy provision to the insured's
benefit whether or not it prejudices an insurer's ability to investigate the claim.
B. Surety and fidelity contracts are often prescribed by statute or regulation,
including requirements for many license and permit bonds, fidelity coverages,
and public official bonds.
C. Insurance policy forms are often subject to regulatory approval; however,
laws cannot affect the enforcement of rights and remedies under the policies.
D. When an obligee drafts a surety bond with provisions that are onerous
to the surety, if the surety executes the bond without objections, courts will
interpret any dispute in the surety's favor.: B. Surety and fidelity contracts are
often prescribed by statute or regulation, including requirements for many license
and permit bonds, fidelity coverages, and public official bonds.
, AFSB 151 Study Guide With Correct Answers
6. Surety claims against principals who appear to have resources to pay the
claims can be referred to the principals and indemnitors who can respond
before the surety must pay and before the surety seeks indemnification from
them. This practice is called
Select one:
A. Exoneration.
B. Look-see money distribution.
C. Quia timet.
D. The vouching-in procedure.: D. The vouching-in procedure.
7. When a claim is pending on a cosurety bond,
Select one:
A. Each cosurety may establish a reserve for its cosurety share of the loss.
B. The controlling cosurety is normally obligated to pay the full loss and
request reimbursement from the cosureties.
C. Each cosurety is allowed to take credit for the reinsurer's share of the
reserve that the cosurety establishes.
D. The controlling cosurety is not allowed to establish a reserve for any part
of the loss.: A. Each cosurety may establish a reserve for its cosurety share of the
loss.
8. Fidelity bond claims
Select one:
A. Can expose an insurer to waiver of a condition precedent of bond contracts
and defamation actions, if they are not handled properly.
B. Have variable circumstances; therefore, the fidelity insurer's ultimate loss
is rarely fixed when the insured gives notice of the loss.
C. Offer protections to the fidelity insurer when a late notice of loss occurs,
as late notice is typically a valid defense for the insurer.
D. Require a proof of loss filed by the insured before an investigation begins,
the claim is verified, and the insured can be confronted.: A. Can expose an
insurer to waiver of a condition precedent of bond contracts and defamation actions,
if they are not handled properly
9. In proper handling of a fidelity loss, when can an insurer begin the loss
investigation and when can claims personnel confront the insured?
Select one:
A. The insurer can begin the investigation, but claims personnel should not
confront the insured before the insured has provided an executed proof of
loss.
B. The insurer cannot begin the investigation until the insured has provided an
executed proof of loss; but claims personnel can confront the insured without
, AFSB 151 Study Guide With Correct Answers
the proof of loss.
C. The insurer can begin the investigation and claims personnel can confront
the insured at any time before the insured has provided an executed proof of
loss.
D. The insurer cannot begin the investigation and claims personnel cannot
confront the insured until the insured has provided an executed proof of
loss.: A. The insurer can begin the investigation, but claims personnel should not
confront the insured before the insured has provided an executed proof of loss.
10. Which one of the following statements regarding gathering information for
surety claims is true?
Select one:
A. Principals and obligees are usually more cooperative after the claim has
been paid than during the information-gathering process.
B. Separate information gathering sessions—to help resolve questions of
liability and to determine the possibility of enforcing rights the surety ac-
quired—is more efficient and productive than one session.
C. When gathering claims information, the producer is the best source of
evidence for recovery from others.
D. Claims personnel can gather most of the needed information for a surety
claim by applying the questions of who, what, when, where, why, and how to
the claim.: D. Claims personnel can gather most of the needed information for a
surety claim by applying the questions of who, what, when, where, why, and how to
the claim.
11. Which one of the following statements is true regarding subrogation when
a contract default has occurred and when the principal has admitted to it?
Select one:
A. Obligees cannot refuse to pay the principal's creditors and instead claim
offsets for debts owed to them by the principal, including damages allegedly
due on the project.
B. The surety's most important right acquired through subrogation is the right
of the obligee to use the contract consideration to complete the contract.
C. The unpaid and unearned contract money is part of the contractor's prop-
erty and may be used to satisfy the principal's debts.
D. If the surety directly or indirectly remedies the contract defaults, it has no
claim to any of the obligee's rights.: B. The surety's most important right acquired
through subrogation is the right of the obligee to use the contract consideration to
complete the contract.
12. Cosureties on a bond
Select one:
