Common Elements and Additional Common Types of Commercial Insurance Policies: Practice Questions and Solutions

This section of the study guide is intended to provide practice problems and solutions to accompany the pages of Commercial Insurance, cited below. Students are encouraged to read these pages before attempting the problems. This study guide is entirely an independent effort by Mr. Stolyarov and is not affiliated with any organization(s) to whose textbooks it refers, nor does it represent such organization(s).

Some of the questions here ask for short written answers based on the reading. This is meant to give the student practice in answering questions of the format that will appear on Exam 5. Students are encouraged to type their own answers first and then to compare these answers with the solutions given here. Please note that the solutions provided here are not necessarily the only possible ones.

Source:
Arthur L. Flitner, Jerome Trupin, and Martin J. Frappoli. Commercial Insurance. (Second Edition). 2007. Chapters 1 and 2, pp. 1.10-1.20, 2.3-2.8.

Original Problems and Solutions from The Actuary's Free Study Guide

Problem S5-123-1. Discuss the manner in which farm insurance combines what would typically be personal insurance coverages and commercial insurance coverages.

Solution S5-123-1. This question is based on the discussion in Commercial Insurance, p. 1.10.

The personal component of a farm insurance policy provides coverage similar to that in a typical homeowner's policy. The farmer's house and personal property in that house are covered. Liability arising from personal activities is covered.

The commercial component of a farm insurance policy provides coverage similar to that in typical commercial property and inland marine policies. Property and buildings used in farming operations are covered. Liability arising out of farming activities is also covered.

Problem S5-123-2.

(a) How does an umbrella liability policy differ from other excess liability policies?

(b) What is a surety bond? What are the parties to a surety bond called?

Solution S5-123-2.

(a) An umbrella liability policy does more than just provide coverage above the limits of the insured's primary insurer. In addition to providing limits in excess of what the primary insurer would provide, the umbrella policy also covers some claims below the primary insurer's limit, if those claims are not covered by the primary insurer.

(b) A surety bond is "an agreement by one party (the surety) to answer for the failure of another (the principal) to perform as the principal has promised" (Commercial Insurance, p. 1.11).

Problem S5-123-3.

(a) Name four elements that are likely to be found in the declarations of a commercial package policy.

(b) Name and briefly describe four policy conditions that are likely to be found in a commercial package policy.

(c) Name four coverage parts that are likely to be found in a commercial package policy.

Solution S5-123-3. This question is based on the discussion in Commercial Insurance, pp. 1.14-1.17.

(a) The following elements are likely to be found in the declarations of a commercial package policy (Commercial Insurance, p. 1.14):

1. Policy number;

2. Names of the insurer and producer;

3. Name, address, and business description of the named insured;

4. Effective date and expiration date of the policy;

5. Premium for each coverage part included in the policy;

6. Total premium.

Any four of the above suffice as an answer. Other valid answers may also be possible.

(b) The following policy conditions are likely to be found in a commercial package policy:

1. Cancellation: Terms under which the insured and insurer may cancel the policy, and provisions pertaining to notices of cancellation;

2. Changes: Statement that the policy can only be changed by a written endorsement from the insurer;

3. Examination of Books and Records: The insurer's right to audit and examine the insured's books and records related to the policy;

4. Inspections and Surveys: The insurer's right to inspect the insured's premises and operations;

5. Premiums: The insured's responsibility for paying premiums and the insurer's responsibility of refunding any return premium owed to the insured;

6. Transfer of Rights and Duties Under the Policy: Non-transferability of the policy by the insured, except with the insurer's written consent - or an analogous provision.

Any four of the above suffice as an answer. Other valid answers may also be possible.

(c) The following coverage parts are likely to be found in a commercial package policy (Commercial Insurance, p. 1.17):

1. Commercial property;

2. Commercial crime;

3. Equipment breakdown;

4. Commercial inland marine;

5. Commercial general liability;

6. Commercial automobile.

Any four of the above suffice as an answer. Other valid answers may also be possible.

Problem S5-123-4.

(a) In a commercial property insurance policy or coverage part, what is the purpose of the cause of loss form?

(b) Name three types of cause of loss forms that are typically available for many commercial property insurance policies or coverage parts.

Solution S5-123-4. This problem is based on the discussion in Commercial Insurance, p. 2.5.

(a) A cause of loss form specifies the perils covered under the commercial property insurance policy or coverage part.

(b) The following are three common types of cause of loss forms: (1) the basic form, (2) the broad form, and (3) the special form.

Problem S5-123-5.

(a) What three broad categories of property are covered under the Building and Personal Property (BPP) form commonly used to provide commercial property coverage?

(b) Name four features, in addition to the building itself, that are encompassed in the definition of "building" under the Building and Personal Property (BPP) form?

Solution S5-123-5. This problem is based on the discussion in Commercial Insurance, pp. 2.7-2.8.

(a) The following three broad categories of property are covered under the Building and Personal Property (BPP) form:

1. The building itself;

2. The named insured's business personal property;

3. Personal property of others.

(b) The following features, in addition to the building itself, are encompassed in the definition of "building" under the Building and Personal Property (BPP) form (Commercial Insurance, p. 2.8):

1. "Completed additions to covered buildings";

2. Fixtures, indoor and outdoor;

3. "Permanently installed machinery and equipment";

4. "Personal property owned by the insured and used to maintain or service the building or its premises";

5. Additions, alterations, or repairs in progress, including materials, equipment, and supplies relating to such work, provided that they are in close proximity to the premises. These items are only covered if they are not otherwise insured.

Any four of the above suffice as an answer. Other valid answers may also be possible.

See other sections of The Actuary's Free Study Guide for Exam 5.