Arkansas Personal Lines Insurance License Exam — All Questions

Which class of property is subject to the $200 special limit under Coverage C on a standard unendorsed homeowners form?

• a.Firearms and related equipment
• b.Money, coins, bullion and bank notes✓
• c.Silverware and goldware flatware
• d.Deeds and manuscripts kept at home

Money, bank notes, bullion, coins, medals and similar items carry the lowest special limit on the standard form, $200, and it applies to loss by any covered peril. Deeds and manuscripts sit in the $1,500 class, while firearms and silverware each carry $2,500 for theft. Cash kept at home is therefore very lightly insured.

A fire destroys three ornamental trees worth $1,200 each on an insured's lot. Coverage A is $300,000. Under the trees, shrubs and other plants additional coverage, the policy pays:

• a.$15,000 in total
• b.$1,500 in total✓
• c.$3,600 in total
• d.$500 in total

This additional coverage is limited to 5% of the Coverage A limit in any one loss, here 5% of $300,000 = $15,000, but no more than $500 for any one tree, shrub or plant. Three trees at $500 each comes to $1,500, well under the $15,000 ceiling. The $15,000 answer applies only the aggregate cap, and $3,600 ignores the per-item cap.

A fire department bills an insured $900 for responding to a fire at the covered dwelling. Under the fire department service charge additional coverage, the policy pays:

• a.$500, with no deductible✓
• b.$450, half of the charge
• c.$900, less the deductible
• d.$0, as this is excluded

The fire department service charge additional coverage pays up to $500 for a charge the insured becomes liable for when a department is called to save covered property, and no deductible applies to it. A $900 bill therefore brings $500 rather than the full amount. The answer that subtracts a deductible misreads how this additional coverage is written.

An insured's credit card is used fraudulently and a forged check clears the account. The homeowners additional coverage for credit card, fund transfer, forgery and counterfeit money pays up to:

• a.$1,000 with a deductible
• b.$200 with a deductible
• c.$2,500 with no deductible
• d.$500 with no deductible✓

This additional coverage pays up to $500 for the insured's legal obligation from unauthorized use of a credit or fund transfer card, forgery of a check, and acceptance of counterfeit paper currency, and no deductible applies. The $1,000 figure is the loss assessment amount. The $2,500 figure belongs to firearms, silverware or business property.

A condominium association charges each unit owner a $4,300 assessment after a covered loss to the commonly owned property. Under the loss assessment additional coverage on a standard unendorsed form, the policy pays:

• a.$1,000 of the assessment✓
• b.$2,500 of the assessment
• c.$4,300, the full amount
• d.$500 of the assessment

Loss assessment is an additional coverage with a standard limit of $1,000 for the insured's share of an assessment charged by the association after a loss to property owned collectively, so the owner keeps $3,300 of the $4,300 charge. The full-payment answer treats loss assessment as if it shared the Coverage A limit. A higher amount can be bought by endorsement.

An insured rents out an apartment in the covered dwelling and a covered fire destroys the appliances and carpeting supplied to the tenant. The landlord's furnishings additional coverage pays up to:

• a.$5,000 for those items
• b.$1,000 for those items
• c.$2,500 for those items✓
• d.$500 for those items

The landlord's furnishings additional coverage insures appliances, carpeting and other household furnishings in an apartment on the residence premises that is rented or held for rental, up to $2,500. The $1,000 answer is the loss assessment limit and $500 is the credit card and forgery amount. Theft of those furnishings is outside this additional coverage.

Coverage A is $250,000 and a rebuild after a covered fire must meet a newer building code, raising the cost. The ordinance or law additional coverage on a standard form provides up to:

• a.$12,500, being 5% of A
• b.$25,000, being 10% of A✓
• c.$250,000, the full limit
• d.$2,500, a flat sublimit

Ordinance or law is an additional coverage of up to 10% of the Coverage A limit for the increased cost of construction needed to meet a code when repairing covered damage, and 10% of $250,000 is $25,000. The 5% figure is the trees, shrubs and plants aggregate. The $2,500 figure is a Coverage C special limit, not a rebuilding allowance.

An insured moves furniture out of the house to protect it from an approaching covered peril. Under the property removed additional coverage, the removed property is insured against:

• a.direct loss from any cause for 90 days
• b.named perils only, while off premises
• c.theft only, for a period of 30 days
• d.direct loss from any cause for 30 days✓

Property removed from the premises because it is endangered by a covered peril is insured against direct loss from any cause for 30 days while removed, an unusually broad grant. The 90-day answer stretches the period, and limiting the coverage to theft or to named perils understates it. This coverage does not increase the limit on the removed property.

How does a Section I additional coverage differ from the limits shown for Coverage A through Coverage D?

• a.It applies only after the Coverage A limit is exhausted
• b.It is a limit the insured selects when the policy is written
• c.It replaces the Coverage C limit whenever a theft occurs
• d.It carries a stated amount set by the form for one named expense✓

Additional coverages are grants the form supplies for specific expenses, each with its own stated dollar amount or percentage, rather than limits the insured picks on the declarations. The answer describing a limit the insured selects describes Coverage A through Coverage D. Nothing requires the Coverage A limit to be used up first before one applies.

After a covered storm the insured pays a contractor to tarp the roof so rain cannot enter. Which additional coverage responds to that cost?

• a.Debris removal of the damaged roof material
• b.Ordinance or law compliance for the repair
• c.Loss assessment charged for the repair work
• d.Reasonable repairs made to protect the property✓

The reasonable repairs additional coverage pays the necessary cost of measures taken solely to protect covered property from further damage after a covered loss, which is exactly what tarping an opened roof does. Debris removal pays to haul away wreckage rather than to prevent more damage. This coverage does not increase the limit on the damaged property.

Debris removal under a standard homeowners policy pays the cost of:

• a.demolishing an undamaged structure the insured dislikes
• b.removing debris of covered property after a covered loss✓
• c.removing household trash on a scheduled weekly basis
• d.clearing a neighbor's lot of debris blown from the home

Debris removal pays the reasonable expense of removing the debris of covered property when a covered peril causes the loss, and that expense is included in the limit applying to the damaged property. Routine trash collection and voluntary demolition of an undamaged building are maintenance decisions, not losses. The coverage follows the insured's own covered property.

The collapse additional coverage on a standard homeowners form applies when a building collapses from:

• a.wear and tear the insured has known about for years
• b.cracking or bulging that has not yet caused a collapse
• c.a specified cause such as hidden decay or vermin damage✓
• d.any cause at all, including gradual settling of walls

Collapse is an additional coverage that responds to an abrupt falling in of a building caused by one of the causes the form lists, such as hidden decay, hidden insect or vermin damage, or the weight of contents, equipment or people. Settling, cracking, bulging and expansion are specifically not a collapse, and long-known wear is not a listed cause.

On a standard homeowners policy, the minimum limit normally written for Coverage E personal liability is:

• a.$1,000,000 in aggregate
• b.$100,000 per person hurt
• c.$100,000 per occurrence✓
• d.$25,000 per occurrence

Coverage E carries a standard minimum of $100,000 for each occurrence, and higher limits can be purchased for a modest premium. It is an occurrence limit covering all damages from one event, so the per-person answer misreads the structure. Coverage F, medical payments to others, is the Section II coverage written on a per-person basis.

An insured with a $100,000 Coverage E limit is held liable for $100,000 of damages, and the insurer spends $30,000 defending the suit. The insurer's total outlay is:

• a.$130,000✓
• b.$70,000
• c.$100,000
• d.$30,000

Coverage E pays damages the insured is legally liable for up to the limit, and defense is provided at the insurer's expense in addition to that limit, so $100,000 of damages plus $30,000 of defense costs comes to $130,000. The $100,000 answer treats defense as if it eroded the limit, which is how a defense-inside-the-limits policy works, not a homeowners form.

A neighbor's child is hurt on the insured's trampoline and runs up $2,600 of medical bills. The standard minimum Coverage F limit pays:

• a.$1,000 for that child✓
• b.$500 for that child
• c.$2,600 for that child
• d.$100,000 for that child

Coverage F medical payments to others is written per person with a standard minimum of $1,000, so $1,000 of the $2,600 is paid and the balance is not a Coverage F matter. The $100,000 figure is the Coverage E personal liability limit, which responds only if the insured is legally liable. No fault has to be shown to trigger Coverage F.

The insured's own resident daughter breaks her arm on the stairs at home and needs $3,000 of treatment. Under Coverage F, the homeowners policy pays:

• a.$1,000, the per-person limit
• b.$500, half the stated limit
• c.nothing, as she resides there✓
• d.$3,000, as no fault is needed

Medical payments to others is written for people outside the household; it excludes bodily injury to the named insured, the resident spouse and other residents of the household, so a resident daughter brings nothing. Her care is a health insurance matter instead. The answer paying $1,000 forgets that the residency test comes before the no-fault feature.

A 19-year-old foster child living with and cared for by the named insured injures a visitor. Under Section II, this young person is:

• a.an insured only if named on the policy
• b.not an insured, being over 18 years old
• c.an insured, being under 21 in their care✓
• d.not an insured, having no blood relation

Section II defines an insured to include the named insured and resident spouse, resident relatives, and any other person under 21 who is in the care of an insured, which covers a foster child living in the household. Blood relationship is not required for that group. Nobody has to be listed by name on the declarations to qualify as an insured.

A friend walks the insured's dog with permission and the dog bites a passerby. Under Section II of the homeowners policy, the friend is treated as:

• a.a stranger with no standing to be covered
• b.an insured for that use of the animal✓
• c.a claimant the policy will defend against
• d.an insured for all of his own activities

Section II extends the definition of an insured to a person legally responsible for an animal owned by an insured while that person is using it with permission, so the friend walking the dog is an insured for that use. He is not an insured for his own unrelated activities. He is not a claimant either, since the bitten passerby is the one making the claim.

Immediately after a guest is hurt on the premises, the insured pays $300 for first aid at the scene. Under the Section II additional coverages, that expense is:

• a.excluded, being a voluntary payment made
• b.covered only when the insured is at fault
• c.charged against the Coverage F limit first
• d.covered as a Section II additional coverage✓

First aid expenses an insured incurs for others after a covered bodily injury are one of the Section II additional coverages, paid in addition to the Coverage E and Coverage F limits rather than out of them. The answer charging the payment against Coverage F confuses an additional coverage with the medical payments limit. First aid to an insured is not covered.

An insured who repairs computers for pay in the garage is sued by a customer whose machine caught fire and burned her desk. Section II of the homeowners policy:

• a.excludes it only if a permit was needed
• b.excludes the claim as a business pursuit✓
• c.covers the claim up to the $1,000 limit
• d.covers the claim under Coverage E in full

Section II excludes bodily injury and property damage arising out of an insured's business pursuits, so a paid repair operation run from the home needs a separate commercial liability policy or an endorsement. The $1,000 answer confuses this with damage to property of others, an additional coverage that itself excludes damage arising out of a business.

A licensed architect works from home and is sued for a design error on a client's building. Under Section II of the homeowners policy, the claim is:

• a.excluded only above $100,000 of loss
• b.covered once a suit is actually filed
• c.excluded, as a professional service✓
• d.covered by Coverage E as an occurrence

Section II excludes bodily injury and property damage arising out of the rendering or failure to render professional services, so a design error belongs on a professional liability policy. The answer treating it as an ordinary occurrence ignores that exclusion. The exclusion is a subject-matter bar, not a dollar threshold that bites above the Coverage E limit.

Which of these Section II claims is excluded on a standard homeowners policy?

• a.The insured's dog bites a child at the park
• b.A car the insured drives injures a cyclist✓
• c.A guest slips on ice on the insured's walk
• d.A ladder the insured drops injures a helper

Section II excludes bodily injury and property damage arising out of the ownership, maintenance or use of motor vehicles, most watercraft and aircraft, because those exposures belong on an auto, boat or aviation policy. A dog bite away from home, a fall on the premises and a dropped-tool injury are ordinary occurrences the homeowners form is written to cover.

During an argument the insured deliberately punches a neighbor and breaks his jaw, and the neighbor sues. Section II will:

• a.deny it only if a conviction follows
• b.deny it as expected or intended harm✓
• c.pay under Coverage F medical payments
• d.pay the damages but not the defense

Section II excludes bodily injury and property damage expected or intended by an insured, so a deliberate punch brings neither damages nor a defense; insuring intentional harm would defeat the fortuity insurance requires. A criminal conviction is not needed for the exclusion to apply, and Coverage F does not step in where the injury was intended.

The insured's 9-year-old son breaks a neighbor's $1,400 laptop while playing, and nobody claims the boy was negligent. The homeowners policy pays:

• a.$500, a goodwill sublimit
• b.$1,000, regardless of fault✓
• c.nothing, as fault is absent
• d.$1,400, the full loss shown

Damage to property of others is a Section II additional coverage that pays up to $1,000 per occurrence for property damage caused by an insured, at replacement cost and whether or not the insured is legally liable, so $1,000 of the $1,400 is paid. The answer paying nothing applies a liability test this additional coverage deliberately leaves out.

A guest is injured at the insured's home and hires a lawyer. Under the Section II duties after a loss, the insured must:

• a.pay the medical bills and seek repayment
• b.admit liability in writing to the claimant
• c.give notice and forward every legal paper✓
• d.settle directly with the injured guest first

Section II requires the insured to give written notice of the occurrence, to promptly forward every notice, demand or legal paper received, to cooperate with the insurer and to help secure evidence and witnesses. Settling on his own or admitting liability voluntarily is what the duties forbid, because it prejudices the insurer's defense of the claim.

Compared with an owner-occupied homeowners form, the Section II liability coverage in a tenant HO-4 or a unit-owner HO-6 policy is:

• a.capped at half the Coverage C amount
• b.absent, being the landlord's obligation
• c.the same, and it applies away from home✓
• d.narrowed to the rented or owned unit only

Section II is written the same way in the tenant and unit-owner forms as in the owner-occupied forms: Coverage E personal liability and Coverage F medical payments follow the insured's personal activities rather than sticking to the premises. The answer handing the liability duty to the landlord confuses building property coverage with personal liability.