Dwelling Policies and Inland Marine Practice Test

Correct answer: B. A dwelling policy (DP-1, DP-2 or DP-3)

Dwelling policies are typically used when the owner does not live in the property as a primary residence, such as rental properties, seasonal or vacation homes, and vacant or older homes. Homeowners forms like HO-3 are written for an owner-occupied private residence, HO-4 insures a tenant's contents, and HO-6 is for condominium unit owners.

Reference: North Carolina Department of Insurance, Dwelling Policies consumer guide

Correct answer: A. Fire, lightning and internal explosion only

The DP-1 base perils are Fire Or Lightning and Internal Explosion. Windstorm, hail, explosion, riot or civil commotion, aircraft, vehicles, smoke and volcanic eruption apply only when an Extended Coverage premium is shown, and vandalism requires its own premium. Theft is not a DP-1 peril, and open perils coverage describes the DP-3 on the dwelling.

Reference: ISO DP 00 01 07 14, Perils Insured Against

Correct answer: C. It does not pay them, because the Basic Form has no additional living expense coverage

The Basic Form contains Coverages A through D only. Coverage D pays the fair rental value of the part of the location rented or held for rental, not an occupant's extra living costs. Additional living expense appears as Coverage E only in DP 00 02 and DP 00 03, so the unendorsed Basic Form does not pay these costs.

Reference: ISO DP 00 01 07 14, Coverages; FC&S, Dwelling Property Forms - Coverages

Correct answer: A. $150,000

The Other Structures coverage allows up to 10% of Coverage A ($15,000) for the garage. In the DP-1, that payment reduces the Coverage A limit for the same loss, leaving $135,000 for the $140,000 dwelling damage, so the total is $150,000. In DP-2 and DP-3 the 10% is additional insurance, which would produce $155,000.

Reference: ISO DP 00 01 07 14, Other Coverages 1. Other Structures

Correct answer: B. $48,000

In DP 00 02 and DP 00 03, the insured may use up to 20% of the Coverage A limit for fair rental value (Coverage D) and additional living expense (Coverage E) combined, and this is additional insurance: 20% x $240,000 = $48,000. The 20% is one combined amount, not 20% for each coverage, so $96,000 is wrong.

Reference: ISO DP 00 03 07 14, Other Coverages 5. Rental Value And Additional Living Expense

Correct answer: D. Not covered, because Coverage C in DP 00 03 applies only to the listed named perils

The DP-3 is open perils only for Coverages A and B. Personal property under Coverage C is insured for a list of named perils such as fire, windstorm, smoke, vandalism and falling objects. Accidental breakage of a television is not one of them. Coverage C does cover the named insured's own personal property usual to a dwelling, so the landlord exclusion option is wrong.

Reference: ISO DP 00 03 07 14, Perils Insured Against B. Coverage C - Personal Property

Correct answer: C. $39,000

The insured needed 80% of $300,000, or $240,000, for full replacement cost. With less, the form pays the greater of the actual cash value ($30,000) or $195,000 / $240,000 x $48,000 = $39,000. So it pays $39,000. Dividing by the full $300,000 replacement cost ($31,200) misapplies the formula, which compares the limit to 80% of replacement cost.

Reference: ISO DP 00 03 07 14, Conditions E. Loss Settlement 2.b.

Correct answer: C. Not covered, because the dwelling was vacant more than 60 consecutive days before the loss

Vandalism Or Malicious Mischief is a Broad Form peril, but it does not cover loss on the Described Location if the dwelling was vacant for more than 60 consecutive days immediately before the loss. The Damage By Burglars peril has the same restriction. A dwelling under construction is not considered vacant. The DP forms contain no percentage reduction for vacancy; they simply remove these perils.

Reference: ISO DP 00 02 07 14, Perils Insured Against 8. Vandalism Or Malicious Mischief

Correct answer: A. Up to 10% of the Coverage C limit, and its use reduces the Coverage C limit for the same loss

The insured may use up to 10% of the Coverage C limit for loss by a Peril Insured Against to Coverage C property anywhere in the world, except rowboats and canoes. The form states that use of this coverage reduces the Coverage C limit for the same loss, so it is not additional insurance. The 20% of Coverage A figure belongs to rental value and additional living expense.

Reference: ISO DP 00 03 07 14, Other Coverages 4. World-wide Coverage

Correct answer: C. Only DP 00 02 and DP 00 03 cover them, for listed perils, up to 5% of Coverage A and $500 per item

DP 00 02 and DP 00 03 cover trees, shrubs, plants and lawns for fire or lightning, explosion, riot, aircraft, vehicles not owned or operated by a resident, and vandalism, up to 5% of Coverage A and $500 per tree, shrub or plant. The Basic Form has no such Other Coverage and states it does not cover lawns, plants, shrubs or trees outside buildings. Windstorm is not a listed peril.

Reference: ISO DP 00 02 07 14 and DP 00 03 07 14, Other Coverages 8; DP 00 01 07 14, General Exclusions B

Correct answer: B. Up to $4,000, as additional insurance

A tenant may use up to 10% of the Coverage C limit for improvements, alterations and additions made or acquired at the tenant's expense, here $4,000. In DP 00 02 and DP 00 03 this is additional insurance. Under DP 00 01, by contrast, payment for improvements reduces the Coverage C limit for the same loss.

Reference: ISO DP 00 02 07 14, Other Coverages 3. Improvements, Alterations And Additions

Correct answer: D. Both are included within the limit that applies to the damaged property

The dwelling form says debris removal expense is included in the limit of liability that applies to the damaged property, and reasonable repairs coverage does not increase that limit. Neither adds insurance. Learners often confuse this with the homeowners forms, which can add an extra 5% of the limit for debris removal when the limit is exhausted.

Reference: ISO DP 00 03 07 14, Other Coverages 2. Debris Removal and 6. Reasonable Repairs

Correct answer: C. Personal Liability form DL 24 01, Coverage L

The dwelling property forms cover property only and contain no liability section. Liability protection is added with the ISO Personal Liability form (DL 24 01), Coverage L. Because Maria rents only part of the building for residential use, its business exclusion does not apply; a landlord renting out a whole dwelling needs separate premises liability coverage. Coverages B and D and Reasonable Repairs pay property losses, not lawsuits.

Reference: ISO DL 24 01 07 14, Personal Liability, Coverages L and M

Correct answer: B. Coverage generally does not apply unless temporary coverage or an endorsement is added

Mobile home policies provide physical damage and personal liability coverage, but coverage under a regular policy generally does not apply while the home is in transit. Some insurers offer temporary coverage or an endorsement for the home and its contents during a move, often with special limitations, so the owner should arrange it before the move.

Reference: Insurance Information Institute, Mobile home insurance

Correct answer: B. $10,000

Newly acquired jewelry, furs, cameras and musical instruments are covered automatically for the lesser of 25% of that class's amount ($15,000) or $10,000, so the cap is $10,000. The insured must report the item within 30 days, and the loss occurred within that window. The endorsement states that no policy deductible applies to this coverage.

Reference: ISO HO 04 61 05 11, A. Newly Acquired Property

Correct answer: D. At actual cash value, up to 25% of the scheduled fine arts amount, if reported within 90 days

Newly acquired fine arts are covered for actual cash value, up to 25% of the amount of insurance for scheduled fine arts. The insured must report the new objects within 90 days and pay the additional premium from the date acquired. The 30-day reporting period and the $10,000 cap apply to newly acquired jewelry, furs, cameras and musical instruments.

Reference: ISO HO 04 61 05 11, B. Newly Acquired Fine Arts

Correct answer: B. $40,000, the amount shown in the Schedule

For scheduled fine arts, the insurer pays the full amount shown in the Schedule, which is agreed to be the value of the article. This agreed value approach ignores later changes in market value. Other classes, such as jewelry, are not agreed value; they are settled at the least of several amounts, including repair or replacement cost and the amount of insurance. No policy deductible applies to the endorsement.

Reference: ISO HO 04 61 05 11, F. Conditions 2.a. Loss Settlement - Fine Arts

Correct answer: C. The ring slipping off a finger and down a sink drain

The endorsement covers direct physical loss to scheduled property, which includes accidental loss such as a ring lost down a drain. It excludes only a few causes: wear and tear, gradual deterioration or inherent vice; insects or vermin; war; and nuclear hazard, plus special exclusions for fine arts and stamp or coin collections. A worn setting falls under wear and tear.

Reference: ISO HO 04 61 05 11, C. Perils Insured Against

Correct answer: D. Replace the lost earring to restore the pair, or pay the drop in actual cash value

For property other than fine arts, the insurer may repair or replace any part to restore the pair or set to its value before the loss, or pay the difference between the actual cash value of the property before and after the loss. The insurer is not required to pay a flat half of the scheduled amount. Paying the full scheduled amount in exchange for the remaining parts is the rule for scheduled fine arts.

Reference: ISO HO 04 61 05 11, F. Conditions 3.a. Loss To A Pair Or Set

Correct answer: C. Insures a household's furniture and household effects, wherever located, on an open perils basis

Personal property floaters are usually issued to households and insure furniture and household effects wherever they are located, on an all-risk (open perils) basis. A policy listing valuables for stated amounts is a personal articles floater, and coverage for articles carried by travelers is a personal effects floater. A dwelling with named-peril contents coverage describes a dwelling or homeowners form, not a floater.

Reference: NAIC Nationwide Marine Definition, Personal Property Floater Risks (as summarized by Rough Notes PF&M)

Correct answer: A. $1,500

Coverage C has a $1,500 special limit on watercraft of all types, including their trailers, furnishings, equipment and outboard engines or motors. The boat, trailer and motor all fall under that single limit. The separate $1,500 limit on trailers applies only to trailers not used with watercraft, so $3,000 is wrong. Owners who need more protection buy a boatowners or watercraft policy.

Reference: ISO HO 00 03 05 11, Section I, Coverage C, Special Limits Of Liability c.

Correct answer: C. Not covered, because inboard and jet-pump craft are covered only when not owned by an insured

For watercraft powered by an inboard or inboard-outdrive engine, including one that powers a water jet pump, the HO-3 covers liability only if the craft is not owned by an insured (50 horsepower or less) or not owned by or rented to an insured (over 50 horsepower). An owned personal watercraft is therefore excluded at any horsepower, so a boatowners or personal watercraft policy is needed.

Reference: ISO HO 00 03 05 11, Section II Exclusions B. Watercraft Liability

Correct answer: D. To identify the kinds of property and risks that may be written as marine or inland marine insurance

As marine insurers expanded into land-based risks, fire and marine insurers competed for the same business. The NAIC adopted the Nationwide Marine Definition in 1933, later revised, to describe which property and risks may be classified as marine, inland marine or transportation insurance, such as goods in transit, bailee exposures, instrumentalities of transportation and floaters. It does not set rates.

Reference: NAIC Nationwide Marine Definition (Wikipedia, Inland marine insurance; Rough Notes PF&M)

Correct answer: A. The tower and its equipment, but not the building

Bridges, tunnels, pipelines, piers, power lines and radio and television towers are instrumentalities of transportation and communication. They qualify as inland marine even though they do not move, because they help move goods or information. The category expressly excludes buildings, their improvements and betterments, furniture and furnishings, fixed contents and supplies in storage, so the studio building must be insured under a property form.

Reference: NAIC Nationwide Marine Definition, Instrumentalities of Transportation and Communication (Rough Notes PF&M)

Correct answer: C. Contractors equipment floater

A contractors equipment floater covers the insured's owned, leased or borrowed mobile equipment, such as bulldozers, cranes, backhoes and loaders, at job sites, at unnamed locations and in transit. Builders risk covers a structure under construction, an installation floater covers materials to be installed in a project, and bailee's customers coverage protects customers' property left in the insured's care.

Reference: ISO Contractors Equipment Coverage Form (Rough Notes PF&M, ISO Non-Filed Inland Marine Overview)

Correct answer: A. Installation floater

An installation floater covers materials and equipment that will become a permanent part of a project, from the time they are loaded for transport, while in temporary storage and at the job site, until installed. Builders risk is aimed at buildings under construction or renovation for the owner or builder, while contractors equipment covers the contractor's own tools and machinery, not property being installed.

Reference: Insurance Information Institute, Understanding inland marine insurance

Correct answer: B. Motor truck cargo carriers coverage

The motor truck cargo carriers form covers lawful property of others that the insured hauls as a common or contract carrier under a bill of lading or shipping receipt it issues, reflecting the carrier's liability for that cargo. The owners form is for a business shipping its own goods on its own trucks. Ocean cargo coverage applies to waterborne shipments.

Reference: ISO Motor Truck Cargo Carriers and Owners Coverage Forms (Rough Notes PF&M)

Correct answer: A. Bailee's customers coverage

A bailee holds others' property for storage, repair or processing. Bailee's customers coverage insures the customers' property in the bailee's care for direct physical loss, whether or not the bailee is legally liable, which protects the business's customer goodwill. Liability insurance would respond only if the cleaner were legally liable, and the CGL excludes property in the insured's care, custody or control.

Reference: ISO Bailees Customers Coverage Form (Rough Notes PF&M, ISO Non-Filed Inland Marine Overview)

Correct answer: D. Profits lost when customers stop doing business with it

The Accounts Receivable form pays amounts due from customers that cannot be collected because of the damage, interest on loans taken to offset uncollected funds, extra collection expenses, and reasonable costs to reconstruct the records. It does not pay lost future profits, which belong to business income coverage. Valuable papers coverage, by contrast, pays to restore documents rather than uncollectible balances.

Reference: ISO Accounts Receivable Coverage Form (Rough Notes PF&M, ISO Filed Inland Marine Overview)

Correct answer: B. At the agreed amount shown for that item in the Declarations

Valuable papers coverage insures documents, manuscripts, maps, drawings and records. Items specifically described in the Declarations, often irreplaceable ones, are valued on an agreed value basis at the amount shown for each item. Other valuable papers that are not specifically described are covered for a blanket limit on an actual cash value type basis.

Reference: ISO Valuable Papers And Records Coverage Form, Limits of Insurance (Rough Notes PF&M analysis)

Correct answer: D. Protection and indemnity coverage

Protection and indemnity (P&I) is ocean marine liability insurance. It covers the vessel owner's liability for bodily injury to the master, crew and others, damage to property of others such as piers and docks, and liability for cargo aboard the vessel. Hull coverage insures physical damage to the vessel itself, and cargo coverage insures the goods being shipped.

Reference: Rough Notes PF&M, Ocean Marine Insurance Overview

Correct answer: A. As a general average loss shared ratably by the ship and all cargo interests

A general average act is an extraordinary sacrifice or expenditure voluntarily and reasonably made in time of peril to preserve property in a common adventure. The party whose property was sacrificed is entitled to a ratable contribution from all the other interests saved. A particular average loss is a partial loss caused by an insured peril that is not a general average loss.

Reference: Marine Insurance Act 1906, ss. 64 and 66

Correct answer: B. $60,000

General average contributions are ratable, meaning proportional to each interest's contributing value. Total contributing value is $12,000,000, and Cargo Owner B's share is $3,000,000 / $12,000,000 = 25%. So B contributes 25% x $240,000 = $60,000. Splitting the loss equally among three parties ($80,000) ignores the different values at risk.

Reference: Marine Insurance Act 1906, s. 66(3), General average contribution

Correct answer: A. Deviation applies, so the insurer is discharged from liability from the time of the deviation

Ocean marine policies carry implied warranties of seaworthiness, legality and no deviation. If a ship deviates from the voyage contemplated by the policy without lawful excuse, the insurer is discharged from liability from the time of the deviation, and it does not matter that the ship regained its route before the loss. Policies may add clauses that modify this rule.

Reference: Marine Insurance Act 1906, ss. 39, 41 and 46