Chapter 7 1. If a loss is covered by two or more insurers, both using standard forms, the likelihood of disputes is a. b. c. d. Not affected.

Increased. The same. Reduced.

2. Insurance contracts include a condition that imposes a standard of honesty on the parties. This is called a. b. c. d. Contract of indemnity. Contract of adhesion. Conditional contract. Contract of utmost good faith.

3. The process or concept of subrogation supports the concept of a. b. c. d. Consideration. Other insurance. Reinsurance. Indemnity.

4. Most insurance companies use standard forms. These forms are developed by insurance advisory organizations such as the a. b. c. d. NAIC (National Association of Insurance Commissioners) NAMIC (National Association of Mutual Insurance Companies) ISO (Insurance Services Office) NAII (National Association of Independent Insurers)

5. A policy condition provides that if an insurer broadens its policy form at no additional premium, the broadened coverage will automatically apply to all in-force policies. This is known as the a. b. c. d. Policy changes clause. Assignment clause. Co-insurance clause. Liberalization clause.

6. Insurance contracts are written in such a way that the parties only have to perform under certain conditions. This is known as a a. b. c. d. Contract of indemnity. Contract of adhesion. Conditional contract. Contract of utmost good faith.

7. Insurance policies contain exclusions for which of the following reasons? a. To eliminate coverage that most insureds do not need b. To avoid covering losses that exceed limits c. To provide coverage for exposures that require special handling by the insurer d. All of the above

8. In insurance contracts, what type of consideration is involved on the part of the insurer? a. b. c. d. The payment of policy premium The insurer's promise to pay claims as specified in the insurance The insurer's delivering the insurance policy to the insured The insurer's guarantee of payment for all losses contract

9. Sometimes an insurance policy is specifically drafted to meet the needs of an individual insured. The result of this process would be a a. b. c. d. Manuscript policy. Standard policy. Modified policy. Unilateral policy. 10. An insured cannot collect from both the insurer and a responsible third party, because this would violate the principle of indemnity. The provision in an insurance policy that addresses this issue is the a. b. c. d. Subrogation clause. Coinsurance clause. Other insurance clause. Cancellation clause.

11. All of the following items are generally located on the declarations page of an insurance policy, EXCEPT: a. b. c. d. Deductibles Premiums Exclusions Endorsements

12. In insurance contracts, what type of consideration is involved on the part of the insurer? a. b. c. d. The payment of policy premium The insurer's promise to pay claims as specified in the insurance contract The insurer's delivering the insurance policy to the insured The insurer's guarantee of payment for all losses

13. Combining standard coverage forms and other documents to tailor a policy to the insureds needs is accomplished with a. b. c. d. Modular policies. Group policies. Automated policies. Self-contained policies

14. What statement best describes subrogation in an insurance policy? a. The insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss. b. The insurer takes over the insured's right to collect damages from a third party. c. The insured adheres to the agreement as written by the insurer. d. The insured transfers its rights or interest in a policy to a third party.

15. If a loss is covered by two or more insurers, both using standard forms, the likelihood of disputes is a. b. c. d. Not affected. Increased. The same. Reduced.

16. A policy in which the insurer pays a stated amount in the event of a specified loss (usually a total loss), regardless of the actual value of the loss is known as a a. Replacement policy. b. Valued policy. c. Conditional policy. d. Specified policy

17. Jim canceled his auto policy 315 days after the inception date. The one-year premium is $1,095. Assuming that a year is 365 days, what is Jim's pro rata premium refund? a. b. c. d. $50 $150 $780 $945

18. The validity of a contract depends on all of the following essential elements, EXCEPT: a. b. c. d. Adhesion Legal purpose Consideration Agreement

19. All of the following are advantages to using standard insurance policy forms, EXCEPT: a. b. c. d. Save time and expense Promote consistency in the insurers operations Make comparing premiums easier Are precisely tailed to the insureds needs

20. All of the following are reasons for exclusions in an insurance policy, EXCEPT: a. b. c. d. Eliminate duplicate coverage To manage morale hazards To eliminate coverage that most insureds need To keep premiums reasonable

21. For most policies, the insurance company determines the wording, and the insured has little choice but to take it or leave it. This makes the insurance contract a a. b. c. d. Contract of adhesion. Contract of indemnity. Nontransferable contract. Bi-lateral contract.

22. The issue of whether a policy can be transferred from one party to another is addressed in the a. b. c. d. Assignment provision. Liberalization clause. Cancellation clause. Subrogation clause

23. The inception date of an insurance policy stated is in the a. b. c. d. Insuring agreement. Conditions. Definitions. Declarations.

24. Bill drives through a stop sign and collides with Jeff's car. The collision caused physical damage to both cars but no injuries. Bill and Jeff report the accident to their insurers. Each receives a loss payment from his respective insurer, and they have their cars repaired. What is the next step in the claim settlement process? a. b. c. d. Bill's insurer will attempt to recover for the loss from Jeff's insurer. Jeff's insurer will attempt to recover for the loss from Bill's insurer. Bill's insurer will bring a lawsuit against Jeff's insurer. Jeff's insurer will bring a lawsuit against Bill's insurer.

25. Most insurance policies have a page that provides specific details about the insured and the subject of insurance. This is called the a. b. c. d. Insuring agreement. Conditions. Definitions. Declarations.

26. All of the following are reasons for exclusions in an insurance policy, EXCEPT: a. b. c. d. Eliminate duplicate coverage To manage morale hazards To eliminate coverage that most insureds need To keep premiums reasonable

27. A condition that imposes a standard of honesty on the parties to an insurance contract is referred to as a. b. c. d. Utmost good faith. Liberalization. Subrogation. Adhesion.

28. The policy limit, which is the maximum amount the insurer will pay for a covered loss, is included in the a. b. c. d. Declarations. Conditions. Definitions. Insuring agreement.

29. All of the following are advantages to using standard insurance policy forms, EXCEPT: a. b. c. d. Save time and expense Promote consistency in the insurers operations Make comparing premiums easier Are precisely tailed to the insureds needs

30. Insurance contracts include a condition that imposes a standard of honesty on the parties. This is called a. b. c. d. Contract of indemnity. Contract of adhesion. Conditional contract. Contract of utmost good faith.

31. In order for a contract to be enforceable there must be something of value exchanged. This is called a. b. c. d. Mutual assent. Consideration. Indemnity. Adhesion.

32. Claims representatives can easily and quickly determine if a given loss is covered because of the wide use of a. b. c. d. Modular policies. Endorsements. Standard forms. Manuscript forms.

33. A legally enforceable agreement between two or more parties is a. b. c. d. An endorsement. A contract. An offer. An acceptance.

34. Brown Company's Policy includes a liberalization clause. Brown's insurer introduces a policy change that broadens coverage at no additional premium. How will this change apply to Brown's existing policy? a. b. c. d. The broadened coverage does not apply to Brown Company's policy. The broadened coverage automatically applies to Brown Company's policy. The broadened coverage will apply to Brown Company's policy with an endorsement. The broadened coverage will apply to Brown Company's new policies as they are issued.

35. The use of standard forms by insurers leads to a more a. b. c. d. Consistent interpretation of insurance policies. Creative interpretation of insurance policies. Conservative interpretation of insurance policies. Coordinated interpretation of insurance policies.