Commercial Property and Business Income Practice Test (Part 1 of 2)

Correct answer: C. Permanently installed machinery and equipment

Building includes completed additions, fixtures (including outdoor fixtures), permanently installed machinery and equipment, and the owner's personal property used to maintain or service the building. Underground pipes, retaining walls that are not part of a building, and foundations below the lowest basement floor are all listed under Property Not Covered, so they are not insured even when a Building limit is shown.

Reference: ISO CP 00 10 10 12, A.1.a. Building and A.2. Property Not Covered

Correct answer: D. They are covered as her use interest in tenants' improvements and betterments

Your Business Personal Property includes the tenant's use interest in improvements and betterments: fixtures, alterations, installations or additions made part of a building the insured occupies but does not own, made at the tenant's expense, and not legally removable. Even though the items become part of the landlord's building, the tenant's financial interest is insured under the business personal property limit, not under Building coverage.

Reference: ISO CP 00 10 10 12, A.1.b.(6) Your Business Personal Property, tenants' improvements and betterments

Correct answer: C. $55,000

The basic debris amount is 25% of the loss payable plus the deductible: 25% x ($119,000 + $1,000) = $30,000, and $119,000 + $30,000 stays within the $200,000 limit. Because actual debris cost exceeds that 25% figure, the 2012 form adds up to $25,000 more per location. Total payable is $30,000 + $25,000 = $55,000, and the remaining $15,000 is the insured's. (The prior 2007 edition's additional amount was $10,000.)

Reference: ISO CP 00 10 10 12, A.4.a. Debris Removal, Paragraphs (3) and (4)

Correct answer: A. Covered under Preservation of Property, since it occurred within 30 days

Preservation of Property applies when Covered Property is moved to protect it from a Covered Cause of Loss. It pays for any direct physical loss or damage while the property is being moved or temporarily stored at another location, as long as the loss happens within 30 days after the property is first moved. The damage does not have to come from the original threat. Payments do not increase the limit of insurance.

Reference: ISO CP 00 10 10 12, A.4.b. Preservation Of Property

Correct answer: D. $1,000

The Fire Department Service Charge additional coverage pays up to $1,000 per described premises (unless a higher limit is shown) for charges assumed by contract before the loss or required by local ordinance. No deductible applies to this coverage, so the full $1,000 is paid, and it is additional insurance. Subtracting the $500 deductible, which produces $500 or $1,300, is the common mistake.

Reference: ISO CP 00 10 10 12, A.4.c. Fire Department Service Charge

Correct answer: D. $10,000 per described premises for each 12-month period

The insurer pays up to $10,000 per described premises for all covered pollutant extraction expenses arising from Covered Causes of Loss during each separate 12-month period of the policy. The release must be caused by a Covered Cause of Loss during the policy period, and expenses must be reported in writing within 180 days. Testing and monitoring are not covered unless done while extracting the pollutants. The $25,000 figure belongs to additional debris removal.

Reference: ISO CP 00 10 10 12, A.4.d. Pollutant Clean-up And Removal

Correct answer: B. It applies only with Replacement Cost, up to $10,000 or 5% of the limit, whichever is less

Increased Cost of Construction applies only to buildings insured with the Replacement Cost Optional Coverage. It pays the added cost to comply with building, zoning or land use laws in force at the time of loss when repairing damaged parts, up to the lesser of $10,000 or 5% of that building's limit, as additional insurance. It does not pay for codes the insured was already required to meet but ignored, and repairs must be made within two years.

Reference: ISO CP 00 10 10 12, A.4.e. Increased Cost Of Construction

Correct answer: A. It is the most paid for all loss sustained in any one policy year

The Electronic Data additional coverage pays to replace or restore electronic data destroyed or corrupted by a Covered Cause of Loss, up to $2,500 for all loss in any one policy year, regardless of the number of occurrences, premises or computer systems. An unused balance stays available only for later losses in that same policy year. A computer virus is a covered cause, but manipulation of the system by employees or system contractors is not.

Reference: ISO CP 00 10 10 12, A.4.f. Electronic Data, Paragraph (4)

Correct answer: B. A Coinsurance percentage of 80% or more, or a Value Reporting period symbol

The form allows the insured to extend the insurance through the Coverage Extensions only if a Coinsurance percentage of 80% or more, or a Value Reporting period symbol, appears in the Declarations. This rewards insureds who carry adequate limits. Once available, the extensions are additional insurance, and the Coinsurance condition does not apply to them. Replacement Cost and the Special Form are not prerequisites.

Reference: ISO CP 00 10 10 12, A.5. Coverage Extensions (introductory paragraph and closing paragraph)

Correct answer: C. $250,000

The Newly Acquired or Constructed Property extension covers buildings acquired at other locations if intended for similar use or for use as a warehouse, up to $250,000 at each building. Coverage lasts until the policy expires, 30 days pass after acquisition, or values are reported, whichever comes first, so a loss on day 18 is covered. The $100,000 figure is the limit for newly acquired business personal property.

Reference: ISO CP 00 10 10 12, A.5.a. Newly Acquired Or Constructed Property

Correct answer: C. It does not pay, because windstorm is not a peril for this extension

The Outdoor Property extension covers outdoor fences, antennas, trees, shrubs and plants only for fire, lightning, explosion, riot or civil commotion, and aircraft, even when the Special Form applies. Windstorm is not among them, so nothing is owed. Had fire caused the damage, the extension would pay up to $1,000 per occurrence, with no more than $250 for any one tree, shrub or plant. Otherwise these items are Property Not Covered.

Reference: ISO CP 00 10 10 12, A.5.e. Outdoor Property and A.2.q. Property Not Covered

Correct answer: B. Carried in or on a vehicle while away from the described premises

Property Off-premises extends coverage to Covered Property temporarily at a location the insured does not own, lease or operate, in storage at a location leased after the current policy term began, or at a fair, trade show or exhibition. It does not apply to property in or on a vehicle, or in the custody of salespersons except at a fair or trade show. The most payable under this extension is $10,000.

Reference: ISO CP 00 10 10 12, A.5.d. Property Off-premises

Correct answer: C. Falling objects

The Basic Form covers fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse and volcanic action. The Broad Form adds falling objects, weight of snow, ice or sleet, and water damage (accidental discharge from plumbing, heating or air conditioning systems), and it includes the collapse additional coverage. Sinkhole collapse and volcanic action are already in the Basic Form.

Reference: ISO CP 10 10 and CP 10 20 Covered Causes of Loss (RNC-Pro forms analysis)

Correct answer: B. Not covered, because water damage is a Broad Form peril, not a Basic Form peril

The Basic Form is a named-perils form, and accidental discharge from a plumbing or heating system is not one of its perils. Sprinkler leakage applies only to discharge from an automatic sprinkler system, not a water heater. The Broad Form adds water damage, meaning accidental discharge or leakage of water or steam from a cracked or broken system or appliance, so Lena needed Broad or Special Form coverage for this loss.

Reference: ISO CP 10 10 Basic Form and CP 10 20 Broad Form perils (RNC-Pro forms analysis)

Correct answer: B. $2,500

Money is Property Not Covered under CP 00 10, so the $800 of cash is not payable. The Special Form caps theft of patterns, dies, molds and forms at $2,500 per occurrence; furs and jewelry also carry $2,500 theft limits, and stamps, tickets and letters of credit carry $250. These limits are part of, not in addition to, the policy limit. The insurer pays $2,500, and cash coverage would require a commercial crime policy.

Reference: ISO CP 10 30 10 12, C.3.c. theft special limits; CP 00 10 10 12, A.2.a. Property Not Covered

Correct answer: C. It is excluded as continuous or repeated seepage over 14 days or more

The Special Form excludes continuous or repeated seepage or leakage of water, or the presence of moisture, that occurs over a period of 14 days or more. It also excludes wear and tear, rot and decay. The insured's lack of knowledge about a hidden leak does not change the result. A sudden pipe burst that is found and addressed promptly would be treated very differently.

Reference: ISO CP 10 30 10 12, B.2.f. continuous or repeated seepage or leakage

Correct answer: C. Water that backs up through a floor drain from an overloaded sewer

The Water exclusion removes flood, surface water, mudslide or mudflow, water under the ground surface, and water that backs up or overflows from a sewer, drain, sump or sump pump. Sewer backup coverage must be added by endorsement. Accidental discharge from a cracked plumbing pipe is covered water damage, sprinkler leakage is covered, and rain entering through wind damage to the roof is covered because the roof was first damaged by a Covered Cause of Loss.

Reference: ISO CP 10 30 10 12, B.1.g. Water exclusion and C.1.c. interior limitation

Correct answer: A. The fire damage is covered, but damage caused directly by the quake is not

Earth movement, including earthquake, is excluded regardless of any other cause contributing concurrently or in sequence. However, the exclusion contains an exception: if earth movement results in fire or explosion, the insurer pays for the loss caused by that fire or explosion. The cracked walls are not covered, but the ensuing fire damage is. Coverage for direct earthquake damage requires an earthquake endorsement.

Reference: ISO CP 10 30 10 12, B.1.b. Earth Movement

Correct answer: A. Excluded, because the power failure originated away from the premises

The Utility Services exclusion removes loss caused by failure of power or other utility service supplied to the described premises if the failure originates away from the premises, however caused. The exception applies only if the failure results in a Covered Cause of Loss, such as a fire, and then only that resulting loss is paid. Spoilage is not a specified cause of loss, so the grocer would need spoilage or utility services coverage by endorsement.

Reference: ISO CP 10 30 10 12, B.1.e. Utility Services

Correct answer: B. Covered, since the destruction was ordered to stop a fire from spreading

The Governmental Action exclusion removes seizure or destruction of property by order of governmental authority, but it has an exception: the insurer pays for acts of destruction ordered by governmental authority and taken at the time of a fire to prevent its spread, if the fire would have been covered. The fire does not have to physically reach the insured's building for this exception to apply.

Reference: ISO CP 10 30 10 12, B.1.c. Governmental Action

Correct answer: D. Explosion of a steam boiler owned or operated by the insured

The Special Form excludes explosion of steam boilers, steam pipes, steam engines or steam turbines owned, leased or operated by the insured, along with mechanical breakdown. It does cover a fire or combustion explosion that results, and explosion of gases or fuel within a furnace. Equipment breakdown insurance, historically called boiler and machinery, is designed to cover the boiler explosion itself and other sudden and accidental breakdowns of equipment.

Reference: ISO CP 10 30 10 12, B.2.d.(6) and B.2.e.; boiler and machinery overview

Correct answer: B. Vandalism is not covered, and the windstorm payment is reduced by 15%

When a building has been vacant for more than 60 consecutive days before a loss, the Vacancy condition eliminates coverage for vandalism, sprinkler leakage (unless the system is protected against freezing), building glass breakage, water damage, theft and attempted theft. Losses from other Covered Causes of Loss, such as windstorm, are still paid but reduced by 15%. Vacancy does not suspend all coverage.

Reference: ISO CP 00 10 10 12, E.6. Vacancy, b. Vacancy Provisions

Correct answer: A. Only the destruction, because theft by employees is not covered

The Special Form excludes dishonest or criminal acts by the insured's employees, but the exclusion does not apply to acts of destruction by employees. The smashed equipment is therefore covered, while the employee's theft remains excluded. Employee theft is insured under commercial crime coverage through the Employee Theft insuring agreement.

Reference: ISO CP 10 30 10 12, B.2.h. Dishonest or criminal acts

Correct answer: D. Within 60 days after the insurer's request

The insured must send a signed, sworn proof of loss containing the information the insurer requests within 60 days after the insurer's request, and the insurer supplies the forms. Other duties include prompt notice, notifying police if a law may have been broken, protecting property from further damage, providing inventories, permitting inspections and examinations under oath, and cooperating. The clock starts with the request, not the date of loss.

Reference: ISO CP 00 10 10 12, E.3. Duties In The Event Of Loss Or Damage

Correct answer: A. Each party pays its own appraiser and shares umpire costs, and the insurer may still deny the claim

Either party may make written demand for appraisal when they disagree on value or amount of loss. Each selects a competent and impartial appraiser, the appraisers choose an umpire, and agreement by any two is binding. Each party pays its own appraiser and shares the other appraisal and umpire expenses equally. Appraisal settles the amount, not coverage, so the insurer keeps its right to deny the claim.

Reference: ISO CP 00 10 10 12, E.2. Appraisal