CAIB 2 - Practice Quiz Answer Key

1. When insuring building, stock and equipment on an all property-blanket basis

a. All property owned by the Insured is covered by a single limit of insurance.

b. Coverage is usually subject to a minimum 90% Co-insurance requirement.
c. Coverage limits can be extended to include property at more than one location.
d. All of the above.
e. None of the above.

The answer is d. All of the above.

2. Your client, who operates the business out of leased premises, is undertaking major renovations which include new
flooring, wall paneling and light fixtures. The total cost of the renovations is $25,000. You advise her that these values

a. Are insured under the landlord s building insurance.

b. Must be added to her own policy as building coverage.
c. Must be added to equipment insured under her own policy.
d. Cannot be insured because she does not own the building.
e. None of the above.

The answer is c. Tenant s improvements made to the leased space must be insured as equipment.

3. Which of the following is not used in determining an amount of insurance for property?

a. Book Value.
b. True Value to the Owner
c. Income Approach
d. Market Value/Direct Sales Approach
e. Broad Evidence Rule.

The answer is a. The Book Value is not used in determining an amount of insurance for property.

4. Insurers can use both Reinsurance and Subscription policies to limit their exposure on risks. Select the answer which
best describes Reinsurance.

a. The insurer cedes part of the risk it has assumed to one or more insurers.
b. Each agreement is negotiated separately with the participating insurers.
c. The policy is controlled by the primary insurer and all claims are paid by it.
d. a and b.
e. a and c.

The answer is e. The insurer cedes part of the risk it has assumed to one or more insurers, and the policy is
controlled by the primary insurer and all claims are paid by it.
5. The amount of a claim payment made to the insured is

a. The least of the actual cash value, the interest of the insured, and the replacement cost.
b. Not limited to the amount of insurance specified.
c. The actual cash value, the interest of the insured, and the amount of insurance specified, whichever is the least.
d. Limited to the actual cash value only.
e. Always based on the replacement value.

The answer is c. The amount of the payment is the least of the actual cash value, the interest of the insured,
and the amount of insurance specified, whichever is the least.

6. The co-insurance requirement is waived when:

a. The loss is less than $5000.

b. The loss is more than $5000 but less than 2% of the amount of insurance
c. The loss is less than the Actual Cash Value.
d. The loss is less than 2% of the amount of insurance and less than $5000.
e. None of the above.

The answer is d. Co-insurance is waived when the loss is less than 2% of the amount of insurance and less
than $5000.

7. Which of the following does not apply to the Stated Amount Co-Insurance Clause?

a. The Stated Amount Co-Insurance Clause replaces the standard co-insurance clause normally contained in the
policy.
b. The Stated Amount Co-Insurance Clause does not require the insured to insure values to 100%.
c. The insured files a Statement of Values representing 100% of the value of the property insured.
d. Values are verified by appraisal or other means acceptable to the insurer.
e. The insured must maintain those values throughout the policy term.

The answer is b. Only the standard Co-Insurance Clause permits the amount of insurance to be less than
100% of the value of the property insured.

Page 2 of 20
8. The Property Protection Systems Clause requires the insured to:

a. Notify the insurer immediately when becoming aware of any interruption, flaw or defect in property protection
systems.
b. Notify the insurer as soon as possible when becoming aware of any interruption, flaw or defect in property
protection systems.
c. Notify the insurer within 30 days when becoming aware of any interruption, flaw or defect in property
protection systems.
d. Notify the insurer within 15 days when becoming aware of any interruption, flaw or defect in property
protection systems.
e. Notify the insurer immediately after repairs have been made.

The answer is a. Notify the insurer immediately when becoming aware of any interruption, flaw or defect in
property protection systems.

9. The Locked Vehicle Warranty:

a. Requires that the vehicle containing the property insured be equipped with a fully enclosed metal body or
compartment of the vehicle.
b. Requires that the doors and windows of the vehicle must be securely locked when the vehicle is unattended,
only when away from the insured s premises.
c. Requires that the doors and windows of the vehicle must be securely locked when the vehicle is unattended.
d. There must be visible signs of force used to gain entry into the body or compartment of the vehicle.
e. a, c and d

The answer is e. All, a, c and d are provisions of Locked Vehicle Warranty.

10. The Statutory Condition One, Misrepresentation identifies breaches of good faith. A breach of good faith is
deemed to have occurred when:

a. The quality of the risk is superior to what has been described on the application.
b. The Insured fails to disclose previous claims.
c. The Insured does not disclose facts which the insurer has waived the requirement for information.
d. The Insured does not disclose facts which are known to the insurer.
e. The Insured does disclose facts which need not be disclosed by reason of a policy condition.

The answer is b. The Insured must disclose all previous claims for the period specified by the insurer, failure
to do so is considered a breach of good faith.

Page 3 of 20
11. Which of the following best describes why brokers are referred to as the insurer s first line underwriter?

a. They have binding authority on all commercial risks.

b. They have the first opportunity to qualify a prospect for insurance.
c. They select risks that are most profitable to the insurer.
d. They carry out the inspections of risks.
e. They have the first contact with the prospect.

The answer is b. Brokers are the insurer s first line underwriter because they have thefirst opportunity to
qualify a prospect for insurance.

12. A submission is

a. An application for insurance.

b. Written information provided to the underwriter.
c. Verbal information provided to the underwriter.
d. A proposal for insurance which has been presented to the underwriter for consideration.
e. None of the above

The answer is d. A submission is a proposal for insurance which has been presented to the underwriter for
consideration and can include an application, written information, and verbal information.

13. What is the purpose of conducting a fact find or survey?

a. To reduce errors and omissions claims.

b. To assist in the identification of loss exposures.
c. To eliminate the purchase of coverages not needed.
d. a and c.
e. b and c.

The answer is e. The purpose of a fact find or survey is to identify loss exposures and to eliminate the
purchase of coverages not needed.

14. Fire resistive means

a. A building has met minimum standards in terms of hours it can withstand a controlled test fire.
b. A building which is constructed of non-combustible materials.
c. A building which is constructed of concrete block with the roof, floors and interior framing constructed of
wood or other combustible materials.
d. A building which is constructed of heavy timber.
e. None of the above.

The answer is a. A fire restive building is one which has met minimum standards in terms of hours it can
withstand a controlled test fire. The rating of two or three hours is given to this class of construction.
Page 4 of 20
15. When a building is more than 25 years old additional information is normally requested by the underwriter. Which
of the following items is not part of this information?

a. Over-current protection, such as circuit breakers or fuses;

b. The roof;
c. The plumbing and heating;
d. The detachment;
e. The wiring.

The answer is d. Detachment is not part of the information requested.

16. The primary function of an Underwriter is

a. To classify risks according to their probability for loss as a class.

b. To determine the rate or premium to be charged.
c. To select those risks likely to be most profitable for the insurer.
d. To select those risks most likely to suffer a loss.
e. To provide policyholders service.

The answer is c. The primary function of an Underwriter is to select those risks likely to be most profitable
for the insurer.

17. An underwriter must assess the hazards of a risk which can increase the chance of losses. In addition to the
physical hazards, the existence of potential moral hazards is also determined. Which of the following conditions is not
considered a moral hazard?

a. The financial condition of the insured.

b. The housekeeping.
c. The associates of the insured.
d. All of the above.
e. None of the above.

The answer is b. Housekeeping is not a condition indicating a moral hazard.

18. Physical hazards are:

a. Subjective characteristics of the applicant that may cause a peril to occur.

b. Characteristics of the risk itself.
c. Characteristics of the environment in which the risk is located
d. Conditions relating to the use of tangible property which may cause a peril to occur.
e. All of the above.

The answer is d. Physical hazards are Conditions relating to the use of tangible property which may cause a
peril to occur.
Page 5 of 20
19. Underwriters may use external sources of information to supplement the information provided on an application.
Which of the following is not an external source of information?

a. The broker s production records.

b. Financial Rating Services.
c. Consumer Investigation Reports.
d. Government records.
e. The Broker.

The answer is a. The broker s production records are part of the internal information available to the
underwriter.

20. The purpose of an inspection report is

a. To provide data on the physical characteristics of the risk;

b. To provide an indication of the character of the applicant or insured;
c. To provide the insurer with a list of mandatory recommendations;
d. To provide the insurer with a list of suggested recommendations;
e. All of the above.

The answer is e. All of the above.

21. One of the statutory requirements pertaining to contracts of insurance is that Insurers state the policy period on the
Declarations Page. The Insurance Acts of the Common Law provinces state that the coverage commences at a specific
time on the effective date of the policy. Select the effective time.

a. 12:01 a.m. Standard Time at the address of the Broker.

b. 12:01 a.m. Standard Time at the address of the Named Insured as stated on the Declarations Page.
c. 12:01 p.m. Standard Time at the address of the location insured.
d. 12:01 a.m. Standard Time at the address of the Insurer s Head Office.
e. 12:01 p.m. Standard Time at the address of the Named Insured as stated on the Declarations Page.

The answer is b. 12:01 a.m. Standard Time at the address of the Named Insured as stated on the
Declarations Page.

Page 6 of 20
22. The Removal Clause is one of the Extensions of Coverage provided in the Fire Policy. Of the following provisions
which one is not part of the Removal Clause:

a. The Insurer extends coverage for 30 days when property is at a location not indicated on the Declarations Page,
and which is a newly acquired location of the Insured.
b. The Insurer extends coverage when property is at a location not indicated on the Declarations Page and which
was necessarily removed to prevent loss.
c. The Insurer extends coverage at an unnamed location for a maximum of 7 days or until expiry of the policy,
whichever is the least.
d. In the event of a loss at an unnamed location the amount of payment is restricted to the amount of insurance
remaining after the payment of any losses at the location insured.
e. None of the above.

The answer is a. Coverage is not automatically extended to newly acquired location of the Insured. This
clause will only respond when property was necessarily removed to protect insured property from loss or
further loss.

23. The Peril of Explosion in the Fire and Extended Coverage form excludes explosions due to:

a. Natural, coal or manufactured gas.

b. Pressure vessels with a maximum internal working pressure of no more than 15 pounds per square inch.
c. Pressure vessels with a maximum internal working pressure in excess of 15 pounds per square inch.
d. Damage to insured stock or equipment that is caused by an explosion occurring during pressure testing.
e. All of the above.

The answer is c. Pressure vessels with an internal working pressure in excess of 15 pounds per square inch
are excluded from coverage under the peril of explosion, when they are owned, operated or controlled by
the Insured.

24. Fire and Extended Coverage insures loss or damage caused by riot, vandalism and malicious acts. Select the
conditions that constitute a Riot.

a. There was clear and present danger of, or which would result in damage to property or injury to persons.
b. There was a group of no less than two persons involved causing injury or damage.
c. There was an act or acts of violence or threatened violence.
d. There were at least three or more persons involved, even though only one may have caused damage or injury.
e. a, c & d.

The answer is e. a, c & d.

Page 7 of 20
25. The Broad Form Policy:

a. Is the most extensive standard coverage form available.

b. Insures against all risks except those that are specifically excluded.
c. Excludes all losses that are partially or totally in the Insured s control.
d. Includes losses directly caused by a Named Peril.
e. All of the above.

The answer is e. All of the above are features of the Broad Form Policy.

26. Inherent Vice is considered to be:

a. A Criminal act perpetrated by the Insured or their employees.

b. Claiming for multiple damages under a single claim.
c. The same as moral hazard.
d. Something within a commodity or other kind of property that causes it to spoil over time.
e. Poor or negligent management.

The answer is d. Inherent vice is something which causes the spoilage of perishable goods.

27. Loss due to delay or loss of market is not covered because:

a. It is an uninsurable risk.
b. It is a trade risk.
c. It is directly under the control of the Insured.
d. It is cumulative damage, and this policy covers single occurrence damage only.
e. It is an indirect loss.

The answer is e. The Broad Form Policy covers direct loss only.

28. Which of the following property are not excluded in the Broad Form?

a. Lottery tickets, tickets or token for public transit.

b. Unlicensed automobiles used on the Insured s premises.
c. Property in the custody of a sales representative outside the Insured s premises.
d. Boats and watercraft, not for sale.
e. Property on loan or on rental or sold under a conditional sale, installment payment or other deferred payment
plan.

The answer is b. Unlicensed vehicles that are used exclusively on the premises are insured.

Page 8 of 20
29. Which of the following losses is insured under the Broad Form Policy?

a. Damage to insured s building caused by the explosion of a steam boiler.

b. Damage to equipment caused by the rupture of a hot water heater with an internal diameter of 20 inches which
is used for production purposes.
c. Bursting of a pressure vessel with an internal pressure over 15 pounds per square inch.
d. Damage cause by the explosion of a hot water heater with a diameter of 24 inches and an internal pressure of
over 25 pounds per square inch used for domestic purposes.
e. Damage due to mechanical breakdown of machinery.

The answer is d. Explosion of a hot water heater with an internal diameter of 24 inches or less is covered
regardless of the internal pressure, provided the use is strictly for domestic purposes.

30. Extensions of Coverage:

a. Broaden the scope of coverage.

b. Increase the Insurer s liability for loss.
c. Are added to the policy at the request of the Insured.
d. Are not subject to a deductible.
e. Are provided strictly at the discretion of the Insurer.

The answer is a. These extensions serve to broaden the coverage available to the Insured, without which
there would be no coverage under a commercial property insurance policy.

31. An endorsement:

a. Is a separate policy, issued to cover previously excluded items.

b. Is approval in principle of the terms of the policy.
c. Changes the terms or conditions of the policy.
d. Adds additional coverage to what is already in place.
e. Is a preliminary agreement by the Insurer to pay the Insured s claim.

The answer is c. An endorsement changes the terms or conditions of an existing policy.

32. To get coverage for breakdown of computer hardware, the Insured must:

a. Have a valid maintenance contract for the equipment.

b. There is no coverage for mechanical breakdown.
c. Must get a Boiler and Machinery Policy.
d. Must have Replacement Cost Endorsement.
e. Must have an Electronic Data Processing Policy.

The answer is a. Even with an Electronic Data Processing Policy, the Insurer can refuse to cover the loss if
the Insured does not have a valid maintenance contract.
Page 9 of 20
33. The Accounts Receivable Form does not cover:

a. Collection expenses that arise due to the loss, for debt collection by collection agencies.
b. Outstanding debts that cannot be collected as a result of the loss.
c. Reasonable expenses incurred in re-establishing the accounts receivable records.
d. Interest charges on money that the Insured was forced to borrow due to an impaired cash flow.
e. The actual costs of copying accounts receivable information from other source documents.

The answer is e. The costs of copying the information from other sources are covered under the standard
commercial property forms.

34. The Boiler and Machinery policies cover losses arising out of:

a. Explosions.
b. Interruption of business operations.
c. Accidents.
d. Spoilage.
e. All of the above.

The answer is c. These policies cover loss due to accidents to objects. An accident is defined as the sudden
and accidental breakdown of an object, with simultaneous physical damage.

35. Expediting Expenses refer to:

a. The cost of shipping goods via Canada Post.

b. Debris removal.
c. An extra payment by the Insured to speed up approval of the policy.
d. Payments to the Insured to help them return to business as quickly as possible.
e. Expenses incurred in recreating the Accounts Receivable records.

The answer is d. Expediting Expenses are paid out under the Boiler and Machinery policies, to pay for
reasonable expenses incurred in making the necessary temporary repairs, and expediting the permanent
repairs.

36. Losses incurred to the stock, when the cooler breaks down in a dairy are covered if:

a. They are caused because of a lightning strike.

b. The Insured has a Consequential Loss Assumption Clause.
c. The storage facility is off the premises.
d. It was due to the neglectful act of an employee.
e. It was due to the malicious act of an employee.

The answer is b. The Consequential Loss Assumption Clause covers loss to stock due to a change in
temperature, which was a result of damage to the cooling apparatus.

Page 10 of 20
37. Which is not true in respect to the By-Laws Coverages?

a. The Insured must also have the Replacement Cost Endorsement to eliminate the effects of depreciation.
b. The Broker should be aware of the various by-laws affecting his or her clients.
c. The basis of settlement is Actual Cash Value
d. The Insured should select an amount of insurance that is sufficient to bring the building up to the new
standards.
e. The Insured is permitted to rebuild at a different location.

The answer is e. There is a same site restriction, which would have to be waived if the by-laws no longer
permitted the existing type of building to be erected on the site.

38. Should the stock of a sales representative be stolen out of his home:

a. The loss is covered under the Home Owner s Policy.

b. The loss is covered under the Sales Representative Coverage.
c. The loss is covered only if the home is listed as a location on the Declarations Page.
d. The loss is covered under the Instalment Sales Contract Floater.
e. The loss is covered under the standard commercial property insurance policy.

The answer is b. The Sales Representative Coverage will pay for losses in the Sales Representative s home.

39. The Peak Season Endorsement covers which of the following:

a. Peak periods where there are increases in stock.

b. Regularly fluctuating stock amounts.
c. Occasions when the Insured informs the Insurer of the increase in stock..
d. a and b.
e. All of the above.

The answer is a. This coverage is only for businesses that experience increases in stock on a few, well-defined
occasions, which are detailed in the policy, so that the coverage is automatically in place on those dates.

40. Which is not true concerning the Replacement Cost Endorsement?

a. There is no Replacement Cost Endorsement for stock.

b. It is site-specific.
c. Delays in replacement may mean that the Insured is disqualified from coverage.
d. If like property cannot be obtained, the policy will pay for new property that is as similar as possible.
e. Payments cannot be greater than what is actually spent in replacing the property, even if the value of the
property is greater than the expenses.

The answer is a. There is a Replacement Cost Endorsement available for stock, although it is less common,
and applies to selected items only.

Page 11 of 20
41. A Bailee For Hire is:

a. One who is renting property from someone.

b. One who is selling the goods of another.
c. One who has the temporary custody of another s personal property for a purpose other than sale and who is
compensated as a condition of such custody.
d. One who is has the custody of another s property but is not compensated as a condition of such custody.
e. A rental agent.

The answer is c. The two conditions that define a Bailee for Hire are that one must have temporary custody
of another s personal property for a purpose other than sale, and one is compensated as a condition of such
custody.

42. What is the standard of care that bailees owe the owner of the property which is in their custody?

a. Bailees owe the highest duty of care to the owner of the property.
b. Bailees are required to take the same care as would be taken by a prudent and diligent owner of the goods.
c. Bailees owe no duty of care to the owner of the property which is in their custody.
d. All of the above.
e. None of the above.

The answer is b. The standard of care owed by bailees is the same care as would be taken by a prudent and
diligent owner of the goods. This standard of care is referred to as ordinary care .

43. Which of the following risks is not insured by Inland Transportation Insurance?

a. Shipments transported by ocean-going vessels.

b. Shipments transported by airline.
c. Shipments transported by railroad.
d. Shipments transported by a trucking company.
e. None of the above.

The answer is a. Shipments transported by ocean-going vessel are specifically excluded under Inland
Transportation Insurance.

44. How is the liability of common carriers determined?

a. The liability rests with the owner of the goods.

b. By the type of goods being transported.
c. By agreement with the owner of the goods.
d. By tariff.
e. By Bills of Lading.

The answer is e. By Bills of Lading; the extent of the common carrier s liability is determined by the type of
Bill of Lading used.
Page 12 of 20
45. The Insured wishes to insure the shipment of a very expensive piece of equipment coming from the manufacturer.
Which of the following is the most appropriate coverage form?

a. Truckman s Liability Cargo Rider.

b. Trip Transit Policy.
c. Transportation Floater.
d. Installation Floater.
e. This is covered under the standard commercial policy.

The answer is b. The Trip Transit Policy is the most appropriate coverage form to insure the transportation
exposure of a single shipment.

46. The Tool Floater Rider:

a. Covers the off premises use of the tools.

b. Covers mysterious disappearance of tools.
c. Cannot be obtained on a blanket basis.
d. Covers losses on a replacement cost basis.
e. Covers electrical malfunctions.

The answer is a. This policy is designed for carpenters, mechanics or the like, whose greatest exposure to loss
is off premises.

47. The Contractor s Equipment Floater

a. Insures movable equipment only when owned by contractors.

b. Does not have a provision to insure contractor s tools.
c. Automatically insures all newly acquired equipment for 30 days from the date of acquisition.
d. Is based on 100% co-insurance.
e. Insures all kinds of movable equipment owned, rented or leased by contractors.

The answer is e. Insures movable equipment owned, rented or leased by contractors.

48. A Builder s Risk Broad Form does not insure:

a. Contractor s tools and equipment.

b. Landscaping that is part of the project.
c. Scaffolding stored on the site.
d. Portable washrooms for the worker.
e. Air conditioning system that was purchased by a sub-contractor, and installed in the building.

The answer is a. Contractor s tools and equipment.

Page 13 of 20
49. When does coverage under a Builders Risk Policy normally cease?

a. 30 days after the construction is completed.

b. 30 days after the building becomes occupied.
c. Even if construction is not fully completed but part of the building is used for office occupancy.
d. When the building comes into use or is occupied.
e. When the building has been inspected or there is testing carried out.

The answer is d. Coverage normally ceases when the building comes into use or is occupied.

50. Which coverage is not automatically provided by the Installation Floater Rider?

a. Property stored at the site awaiting installation.

b. Property transported to the work site by most types of land conveyance.
c. Property stored at the Insured s own premises.
d. Property during installation until accepted or the interest of the insured ceases, whichever occurs first.
e. None of the above.

The answer is c. Property stored at the Insured s own premises. There is no coverage for property stored at
any other location unless the Insured selects a specific amount of insurance to cover this exposure.

51. Some property items that are more susceptible to crime losses than others are referred to as target items. What
criteria will make an item a target?

a. The value of the item

b. Its portability, visibility and value
c. Its portability and convertibility
d. Its visibility and lack of point protection
e. Its portability, convertibility and value

The answer is e. A target item is one that can be carried away easily, converted quickly into cash, and has a
high value.

52. Area protection is used to

a. Achieve defence in depth.

b. Restrict unauthorized entry into areas where valuable property is kept.
c. Protect the premises when the business is closed.
d. Protect safes and vaults.
e. Guard the exterior and interior of the building during business hours.

The answer is b. The purpose of area or space protection is to restrict unauthorized entry into areas where
valuable property is kept.

Page 14 of 20
53. What is the main advantage of Heat Detectors?

a. They detect intruders before they enter the premises.

b. They detect the intruder as he moves from one area of the premises to another.
c. They are a passive device which does not transmit a visible signal.
d. They are not prone to set of false alarms because of movement of blinds or drapes caused by air conditioning
systems.
e. They do not have to be ULC approved.

The answer is d. Heat detectors are not prone to set of false alarms because of movement of blinds or drapes
caused by air conditioning systems, instead they sense the body heat of the intruder in the area under
surveillance.

54. The highest level of supervisory control is provided by:

a. Central Station Service

b. Monitoring Station Service
c. Emergency Station Service
d. Local Alarms
e. Digital Communicator Service

The answer is a. Central station service monitors the opening and closing times of the premises and
automatically activates the alarm system. It screens after-hours users. When an alarm is received it provides
immediate notice to the police, and dispatches a security guard to the subscribers premises.

55. Which of the following losses is not insured under the Safe Burglary Rider?

a. Theft of money from the insured s safe which has been pried open with a crow bar.
b. Damage to stock and equipment from explosives used to open the safe.
c. Loss of money and securities kept in the safe which was removed from the premises by thieves.
d. Damage to interior walls which was caused by thieves during the removal of the safe.
e. Theft of money from the safe caused by a thief who knew the combination to the safe.

The answer is e. The Safe Burglary Rider will respond to pay only when there is evidence of force used to
gain entry into the safe.

Page 15 of 20
56. Inside/Outside Robbery:

a. Does not cover money or securities.

b. Covers theft from a window display inside the premises while the premises are open for business when the
window was broken by the thief.
c. Covers theft from a custodian s car or home for up to 500 Dollars.
d. Covers theft at any time from display windows which do not open into the interior of the premises.
e. Covers the damage to glass in show cases as a result of the robbery or attempted robbery.

The answer is b. The Inside/Outside Robbery Rider insures theft from a window display inside the premises
during normal hours, when the window was broken by the thief.

57. Condition Six, Duties in the Event of Loss requires the Insured

a. To notify the Insurer immediately.

b. To notify the police or other authority as soon as possible.
c. To provide the Insurer with a sworn proof of loss within 120 days of the discovery of the loss.
d. To provide the Insurer with a sworn proof of loss within 90 days of the discovery of the loss.
e. None of the above.

The answer is c. The Insured is required to provide the Insurer with a sworn proof of loss within 120 days of
the discovery of the loss.

58. Employee Dishonesty Coverage Form A. Commercial Blanket Bond

a. Insures only certain identified positions within the business.

b. Provides the limit selected to each employee involved in the loss.
c. Allows the Insured to purchase increased amounts for those employees who offer the greatest potential for loss.
d. Insures all employees and does not require the insured to specifically identify the employee who has caused the
loss.
e. Has a discovery period of two years from the date of expiry.

The answer is d. Form A. Commercial Blanket Bond insures all employees and does not require the insured
to specifically identify the employee who has caused the loss.

59. The main purpose of risk management for employee dishonesty is to

a. To lower premiums
b. To safeguard against losses due to employee theft
c. To safeguard against intruders
d. To make employees aware of the security procedures in place
e. To identify at-risk employees

The answer is b. Risk management plays a key role in safeguarding against losses due to employee theft.

Page 16 of 20
60. Which of the following statements regarding Agreement Two, Inside Premises Coverage is true?

a. Insures loss of money and securities by the actual destruction, disappearance or wrongful abstraction
b. Premises means the insured s premises including banking premises and other recognized places of safe deposit
c. Money is defined as currency and coins in current use and having a face value, bank notes and bullion, traveller s
cheques, register cheques and money orders held for sale to the public.
d. Insures loss of other property resulting from safe burglary or robbery committed by an employee
e. Insures theft of money from vending machine not equipped with a continuous recording device.

The answer is e. Answer (e) relates to the specific "exclusion" regarding theft of money from vending
machines which are not equipped with a recording device. This exclusion is found in Chapter 6, Page 30.

61. Business Interruption Policies do not

a. Insure the operating expenses which must necessarily continue during the period of interruption.
b. Insure the net profit lost because of a partial or total interruption to the business.
c. Cover lost income for a period of up to 12 months from the date of loss.
d. Insure loss of income to the level of what the business earned immediately prior to the interruption.
e. Insure loss of income to the level of what the business would have earned had the loss not occurred.

The answer is d. Business Interruption policies are not like property policies. The loss of income is not based
on what the business earned prior to the interruption; instead the loss is measured on the basis of what the
business would have earned during the interruption.

62. Business Interruption Insurance Forms

a. Insure direct and indirect losses.

b. Continue to pay even after the policy has expired.
c. State the perils insured against.
d. Can be purchased as a separate policy without property insurance.
e. Pay all expenses incurred by the Insured during the interruption including expense incurred to extinguish a fire.

The answer is b. Business Interruption Insurance Forms are designed to insure the loss of income from the
date of the loss and payment is not limited by the expiry of the policy.

Page 17 of 20
63. Business Interruption Insurance

a. Should only be sold by brokers who have an accounting background.

b. Should never be sold to a business which does not have an operating profit.
c. Does not use the same terms and definitions as accounting.
d. Is not needed when the loss is caused by a third party who is not insured by the policy.
e. Covers only the net profit earned by the business.

The answer is c. The terms and definitions used in Business Interruption Insurance are not accounting
terms, they are insurance terms.

64. Fixed Expenses are

a. Those expenses that continue during the period of interruption.

b. Those expenses that may or may not continue during the period of interruption.
c. Those expenses which vary in direct proportion to the amount of business transacted by the insured.
d. Those expenses that the business incures during normal operations.
e. None of the Above.

The answer is a. Fixed expenses are those expenses that continue during the period of interruption.

65. Which of the following expenses is not considered a non-continuing expense under the Gross Earnings
Endorsement Form?

a. The cost of materials and supplies consumed directly in supplying the services sold by the Insured.
b. The cost of services provided by outsiders who are not employees of the Insured which do not continue under
contract.
c. The cost of merchandize sold, including packaging materials.
d. The cost of payroll for all employees whose services are considered essential during the period of interruption.
e. None of the above.

The answer is d. Payroll expenses of employees whose services are considered essential during the period of
interruption are considered a necessary continuing expense by the Insurer.

Page 18 of 20
66. The Due Diligence and Dispatch requirement under the Gross Earnings Endorsement Form

a. Can result in the reduction of the indemnity period only when the Insured is responsible for the delay in
reinstating the property.
b. Can result in the reduction of the indemnity period only when the delay in reinstating the property is caused by
the Insured s landlord.
c. Can result in the reduction of the indemnity period only when the delay in reinstating the property is because the
building plans have not been approved by municipal building authorities.
d. Can result in the reduction of the indemnity period only when the delay in reinstating the property is caused by
the contractor who is involved in a labour dispute.
e. Can result in the reduction of the indemnity period regardless of who is responsible for any delay in the
reinstatement of the lost or damaged property.

The answer is e. The Due Diligence and Dispatch requirement is considered impersonal and any delay in
reinstating the property can result in the reduction of the indemnity period..

67. Under the Business Interruption Insurance Profits Form

a. The indemnity period ends when the lost or damaged property has been reinstated.
b. Payment ends when the income is restored to the level it would have been had the loss not occurred but not
exceeding the period of indemnity insured.
c. The indemnity period may be reduced when the delay is caused by the insured or anyone else involved in
reinstating the lost or damaged property.
d. The amount of insurance is based on the gross profit earned by the business plus standing charges.
e. Coverage for loss of income is provided for the additional time required to reinstate the property in order to
comply with local building by-laws and the additional time is added to the period of indemnity insured.

The answer is b. Payment ends when the income is restored to the level it would have been had the loss not
occurred but not exceeding the period of indemnity insured.

68. The Monthly Earnings Endorsement Form

a. Does not contain a Co-insurance Clause.

b. Limits the amount of payment to 25% of the amount of insurance in any 30 consecutive calendar days.
c. Requires the Insured to purchase a minimum of four months coverage.
d. Requires an amount of insurance based on four times the maximum earnings in any one month.
e. All of the above.

The answer is e. All of the above are features of the Monthly Earnings Endorsement Form.

Page 19 of 20
69. The term Contributing Properties refers to

a. A business the Insured depends upon to provide materials and supplies.

b. A business the Insured depends upon to purchase its products.
c. A business that has the ability to attract a large number of customers to the area where it is located.
d. A business that is located next to the Insured s premises.
e. A business that regularly makes donations to a charity organization.

The answer is a. A contributing property is one upon which the insured depends for materials or supplies.

70. The Extra Expense Endorsement Form

a. Pays extra expenses during the period of restoration which are not covered by the Gross Earnings or Profits
Form for a maximum of four months.
b. Pays extra expenses during the period of restoration which are not covered by the Gross Earnings or Profits
Form without requiring the Insured to prove that the expenses reduced the amount of the claim.
c. Pays the fees of an auditor or other professional hired by the Insured who assist in determining the loss of
income sustained during the period of interruption.
d. Insures the additional loss of income sustained by the Insured after payment has ceased under the Gross
Earnings or Profits Form.
e. None of the above.

The answer is b. This form covers the extra expenses incurred by the Insured to resume operations as
quickly as possible after a loss. The only proof required is that these expenses are over and above normal
operating expenses.

Page 20 of 20