Kentucky Property & Casualty Insurance License Exam — All Questions

A warehouse with a $1,200,000 replacement cost is insured for $810,000 under a 90 percent coinsurance clause. A covered fire causes $150,000 of damage and the policy carries no deductible. The insurer pays:

• a.$150,000
• b.$135,000
• c.$112,500✓
• d.$101,250

The coinsurance formula is the amount carried divided by the amount required, times the loss. The amount required is 90 percent of $1,200,000, or $1,080,000, and $810,000 / $1,080,000 = 0.75, so 0.75 x $150,000 = $112,500. Multiplying the loss by the 90 percent coinsurance figure gives $135,000 and is the most common wrong turn, because the clause compares the limit carried with the amount required, not the loss with the percentage.

A building with a $750,000 replacement cost carries $675,000 of insurance, an 80 percent coinsurance clause and a $2,500 deductible. A covered loss of $95,000 occurs. The insurer pays:

• a.$95,000
• b.$83,000
• c.$85,500
• d.$92,500✓

The clause required 80 percent of $750,000, or $600,000, and the insured carried $675,000, so the coinsurance test is met and there is no penalty: $95,000 - $2,500 = $92,500. Comparing the $675,000 limit with the building's full $750,000 value produces $85,500 and is wrong, because the ratio is built on the amount required, not on total value. Paying $95,000 satisfies coinsurance but forgets the deductible.

An apartment building worth $800,000 is insured for $480,000 with an 80 percent coinsurance clause and a $5,000 deductible. A covered fire causes an $80,000 loss. How much does the insurer pay?

• a.$56,250
• b.$55,000✓
• c.$80,000
• d.$60,000

Run the coinsurance formula on the loss first, then subtract the deductible. The amount required is 80 percent of $800,000, or $640,000, and $480,000 / $640,000 = 0.75, so 0.75 x $80,000 = $60,000, less the $5,000 deductible = $55,000. Taking the deductible off before applying the ratio gives $56,250 and understates the underinsurance penalty, while $60,000 is the figure of a candidate who stops before the deductible.

A commercial building is insured for $600,000 under a policy with a 5 percent deductible that applies to the amount of insurance. A covered loss of $125,000 occurs. The insurer pays:

• a.$125,000
• b.$118,750
• c.$30,000
• d.$95,000✓

A percentage deductible is figured on the stated base, here 5 percent of the $600,000 amount of insurance, or $30,000, and that comes off the loss: $125,000 - $30,000 = $95,000. Taking 5 percent of the loss instead gives $118,750 and is the classic error, because this deductible grows with the amount of insurance rather than with the size of the claim. The $30,000 figure is the deductible itself, the share the insured absorbs.

Compared with a flat dollar deductible, a percentage deductible on a commercial property policy:

• a.Is capped at the flat deductible amount
• b.Applies once a policy year, not per loss
• c.Rises as the amount of insurance rises✓
• d.Replaces the coinsurance clause entirely

A flat deductible is a fixed dollar figure taken off each covered loss, while a percentage deductible is computed from a stated base such as the amount of insurance, so raising the limit raises the deductible with it. It is not an annual aggregate; like a flat deductible it applies to each occurrence. And a deductible only reduces what the insurer pays, which leaves the adequacy of the limit to the coinsurance clause.

A commercial property policy written on a special, open-perils causes-of-loss form covers a physical loss unless:

• a.The insurer shows an exclusion applies✓
• b.The peril is missing from a listed schedule
• c.The loss happened away from the premises
• d.The insured cannot name the peril involved

An open-perils form insures risk of direct physical loss except as excluded or limited, so once the insured shows a fortuitous physical loss, the insurer carries the burden of proving that an exclusion removes it. A named-perils form reverses that arrangement: nothing is covered until the insured shows the cause of loss appears on the policy's list. Requiring the insured to name the peril applies the named-perils rule to the wrong form.

A restaurant's kitchen burns and the owner also loses six weeks of profit while it is rebuilt. The lost profit is an example of:

• a.An indirect, consequential loss✓
• b.A liability loss to a third party
• c.An excluded speculative business risk
• d.A direct loss to business property

Direct loss is the physical damage the peril does to the property itself; indirect or consequential loss is the financial harm that follows from that damage, such as lost net income and continuing expenses during the shutdown. Business income coverage exists precisely because the property forms pay for the burned kitchen and stop there. Calling it a liability loss confuses harm the owner suffers with damages the owner owes to someone else.

Lightning strikes a building, the fire it starts is put out with water, and the water ruins stock in the basement. Under proximate cause reasoning, the water damage is:

• a.Split evenly between the two named perils
• b.Covered only if water damage is also listed
• c.Covered, as lightning set the chain in motion✓
• d.Excluded, because water is the actual cause

Proximate cause asks what set in motion an unbroken chain of events leading to the damage, and when a covered peril starts that chain the resulting damage is treated as loss by that peril. Lightning is the proximate cause here, so water used to fight the fire it started is a covered consequence even though water by itself is not a listed peril. Treating the last event in the chain as the cause would defeat most fire claims, since smoke and water do much of the damage.

Two policies with no special other-insurance wording cover the same building, one for $300,000 and one for $200,000. A covered $80,000 loss occurs. On a pro rata basis, the $200,000 policy pays:

• a.$32,000✓
• b.$40,000
• c.$48,000
• d.$80,000

Pro rata sharing splits a loss in proportion to each policy's limit against the total insurance in force. The $200,000 policy is 40 percent of the $500,000 total, and 40 percent of $80,000 is $32,000, while the larger policy pays the remaining $48,000. Splitting the loss evenly at $40,000 ignores that the limits differ. Either way the insured collects the $80,000 once and not twice, which is what an other-insurance clause is for.

Which of these parties holds an insurable interest in a commercial building?

• a.A lender holding a mortgage on it✓
• b.A prior owner who sold it last year
• c.A contractor who bid on the job
• d.An insurer's appointed loss adjuster

Insurable interest means standing to suffer a financial loss if the property is damaged, and a mortgagee's loan is secured by that building, so the lender plainly qualifies. A seller gives up that interest at closing, which is why a prior owner cannot collect on a fire the following year. A losing bidder and an adjuster have a business relationship with the property rather than a financial stake in whether it survives.

The limit of insurance shown on the declarations for a building tells the insured:

• a.The floor beneath which payment cannot fall
• b.The most the insurer can be asked to pay✓
• c.The value the insurer places on the building
• d.The amount payable for any covered loss

A limit is a ceiling and not a promise: the insurer pays the loss as the valuation clause measures it, up to that figure and no further. An insured who reads the limit as the amount payable for any covered loss expects a full-limit check for a broken window. Nor is the limit the insurer's opinion of value; choosing an adequate limit is the insured's job, which is the behavior the coinsurance clause polices.

A distributor keeps stock in three warehouses and the amounts shift between them week to week. Blanket insurance suits this better than specific insurance because:

• a.Each building carries its own stated limit
• b.One limit applies across all the locations✓
• c.It removes the coinsurance clause entirely
• d.It pays regardless of the stock's real value

A blanket limit applies to all the described property at all the described locations, so the insured is not penalised when values move from one warehouse to another. Specific insurance is the opposite arrangement, a separate stated limit for each building or class of property, and it is the one that leaves a location short when stock shifts. Blanket writing does not delete coinsurance either; the test is simply run against the combined values on the statement of values.

A blanket limit of $900,000 covers two buildings reported at $700,000 and $500,000 on the statement of values, under an 80 percent coinsurance clause with no deductible. A $250,000 covered fire loss strikes the smaller building. The insurer pays:

• a.$187,500
• b.$234,375✓
• c.$250,000
• d.$200,000

Under a blanket limit the coinsurance test runs against the combined values on the statement of values, not building by building. The amount required is 80 percent of $1,200,000, or $960,000, and only $900,000 was carried, so the insurer pays $900,000 / $960,000 x $250,000 = $234,375. Dividing by the full $1,200,000 of values gives $187,500 and skips the 80 percent step, and multiplying the loss by 80 percent gives $200,000, which misreads the clause as a flat copayment.

An agreed value provision on a commercial property policy works by:

• a.Suspending the coinsurance clause for a term✓
• b.Paying the full limit for any covered loss
• c.Fixing the deductible for the policy term
• d.Raising the limit as construction costs rise

Agreed value is written after the insured files a statement of values that the insurer accepts, and in exchange the coinsurance condition is suspended, so a partial loss is settled without any underinsurance penalty. It does not turn the policy into a promise to pay the limit for every loss: the loss is still measured and the deductible still applies. Automatic increases in the limit as costs climb are the work of an inflation guard, not of agreed value.

A policy with a $900,000 agreed value limit insures a building whose replacement cost has climbed to $1,050,000 by the time a $300,000 covered loss occurs. The deductible is $10,000. The insurer pays:

• a.$257,143
• b.$290,000✓
• c.$300,000
• d.$247,143

Because the agreed value provision suspends coinsurance, the climb in replacement cost creates no penalty: the insurer pays the $300,000 loss less the $10,000 deductible, or $290,000. Running a coinsurance ratio of $900,000 against the $1,050,000 value would produce about $257,143 before the deductible, and that penalty is exactly what the agreed value provision was bought to remove. Paying $300,000 forgets the deductible.

Property written on a stated amount basis is settled at a covered total loss by paying:

• a.The stated amount plus the accrued inflation guard
• b.The stated amount, whatever the property is worth
• c.The replacement cost with no depreciation taken
• d.The least of stated amount, value or repair cost✓

A stated amount is a ceiling the insured declares for hard-to-value property, and settlement is the smallest of that figure, the property's value at the time of loss, and what it costs to repair or replace the item. That is what separates it from agreed value, where the figure the insurer accepted is binding. Reading a stated amount as a guaranteed payout is the common misunderstanding, and it leaves an insured paying premium on a number no claim will ever produce.

An inflation guard provision attached to a property policy:

• a.Waives the coinsurance clause at renewal
• b.Increases the limit through the policy term✓
• c.Pays extra when materials cost more to buy
• d.Indexes the deductible to building costs

An inflation guard raises the amount of insurance automatically during the term, so limits keep pace with construction costs and the insured stays near the amount coinsurance requires. It moves the limit only, leaving the deductible and the coinsurance condition alone. It also adds no money at claim time: whatever the limit has grown to on the day of loss is still the ceiling on what the insurer will pay.

In property underwriting, a building is described as vacant rather than unoccupied when:

• a.It holds no contents and no operations✓
• b.The owner has listed it for sale
• c.It is furnished but nobody sleeps there
• d.The residents are away on a long trip

Vacancy means the building is empty of the contents and the activity needed to carry on customary operations, while unoccupancy means it is still furnished and equipped but nobody is present for a time. The difference matters to underwriters because an empty building invites vandalism, undetected water damage and late discovery of fire, and property forms restrict certain perils once a vacancy has run long enough. A family away on a long trip leaves a home unoccupied, not vacant.

A mortgagee named under the mortgage clause of a property policy holds rights that are:

• a.Separate from the owner's own rights✓
• b.Identical to the owner's in every way
• c.Cancelled when the owner's coverage is
• d.Created only after the owner is paid

The standard mortgage clause creates a separate contract between the insurer and the lender, so the mortgagee can still be paid its interest when the owner's own claim is denied for something like arson or misrepresentation. The lender is also entitled to its own notice of cancellation or non-renewal and may pay the premium to keep coverage alive. That independence is what distinguishes it from a bare loss payee, whose rights rise and fall with the owner's.

After a fire claim, either party invokes the appraisal clause. What will the appraisal decide?

• a.The amount of the loss, not whether it is covered✓
• b.Whether the insured breached a policy condition
• c.Whether a policy exclusion applies to the loss
• d.The premium owed for the remainder of the term

Appraisal is a valuation mechanic rather than a coverage forum: each side names an appraiser, the two appraisers select an umpire, and agreement by any two of the three sets the amount of the loss. Coverage questions, such as whether an exclusion applies or a condition was breached, stay with the parties and, if it comes to that, the courts. An insurer that pays an appraisal award normally keeps its right to contest coverage on other grounds.

After paying a fire claim in full, the insurer takes the damaged inventory and sells what it can. This is:

• a.Salvage, which cuts the insurer's net cost✓
• b.Abandonment, which the insured may compel
• c.A breach of the indemnity principle
• d.Subrogation against the property itself

Salvage is the insurer's right to take and dispose of damaged property once it has paid the loss in full, and the proceeds offset what the claim cost. It is not abandonment: property policies state that the insured may not abandon property to the insurer and demand a total loss payment on it. Subrogation is a different recovery, aimed at the third party whose negligence caused the loss rather than at the damaged goods.

A contractor's welding starts a fire in a store. Before the insurer pays, the store owner signs a paper releasing the contractor from all liability. The likely result is that:

• a.The store owner may collect twice over
• b.The release binds only the contractor
• c.The claim can be reduced or denied✓
• d.The insurer must pay and then sue

Property policies require the insured to do nothing after a loss that impairs the insurer's right of recovery, because the insurer expects to step into the insured's place and pursue whoever caused the fire. Signing away the claim against the welding contractor destroys that right, and the insurer may cut or refuse payment to the extent it was prejudiced. An insured cannot settle privately with the wrongdoer and still collect the whole loss, which would be a double recovery.

A set of four matched showroom chairs is worth $2,400 as a set. A covered peril destroys one chair, and the three that remain are worth $1,500 together. Under the pair or set clause, the insurer pays:

• a.$600
• b.$2,400
• c.$1,500
• d.$900✓

The pair or set clause measures the difference between the value of the set before the loss and the value of what is left: $2,400 - $1,500 = $900. That captures the loss in value the survivors suffer from no longer being a set. Paying one quarter of the set value gives $600 and ignores that damage entirely, while the insured cannot force the insurer to pay the full $2,400 and take the three good chairs away.

Settlement of a covered building loss differs between a partial loss and a total loss because:

• a.A total loss is settled at the purchase price
• b.A partial loss ignores the coinsurance test
• c.A partial loss is paid at the cost to repair✓
• d.A total loss removes the deductible from it

A partial loss is measured by what it costs to repair or replace the damaged portion, valued as the policy's valuation clause requires, while under the policy's own valuation terms a total loss is settled at the lesser of the property's value and the limit, which is why an underinsured owner feels the limit at a total loss. Coinsurance is tested on partial losses as usual, and the deductible comes off either kind of loss. Purchase price does not govern, because it carries land and market factors the policy does not insure.

A standard homeowners form covers trees, shrubs and plants for up to 5 percent of the Coverage A limit, but no more than $500 for any one tree, shrub or plant. Coverage A is $360,000 and a covered fire destroys six ornamental trees worth $1,200 each. The insurer pays:

• a.$3,000✓
• b.$500
• c.$18,000
• d.$7,200

Two caps run at the same time. Five percent of the $360,000 Coverage A limit is $18,000, far more than this loss needs, so the per-item cap controls: six trees at $500 each is $3,000. The $7,200 figure is the trees' actual value and ignores the per-item limit, while $18,000 is the outer ceiling the loss never reaches. A percentage sublimit sets the boundary, and an inner per-item limit can bind long before it.

Under a value reporting form, an insured reports $200,000 of stock at a location where the actual value on the reporting date was $250,000. A $100,000 covered loss later occurs there. The insurer pays:

• a.$80,000✓
• b.$100,000
• c.$50,000
• d.$75,000

The full reporting condition limits recovery to the proportion the last reported value bears to the value that should have been reported: $200,000 / $250,000 = 80 percent, and 80 percent of $100,000 is $80,000. Reporting forms exist so a business with a heavy peak season pays premium on the values it actually holds month by month instead of insuring the seasonal high all year. Under-reporting buys the cheaper premium and the smaller recovery with it.

A key difference between a Dwelling policy and a Homeowners policy is that the Dwelling policy:

• a.Covers personal property but not the structure itself
• b.Does not automatically include personal liability coverage✓
• c.Includes broader theft and liability coverage as standard
• d.Can be written only on an owner-occupied family home

Dwelling (DP) policies are designed primarily for property coverage on residences, including rentals and non-owner-occupied homes, and they do not automatically include personal liability or medical payments coverage; liability must be added by endorsement. Homeowners policies package property and personal liability together. This makes the Dwelling form flexible for landlords and situations that do not fit a standard Homeowners eligibility.

Which Dwelling policy form provides the broadest coverage by insuring the dwelling on an open-perils basis?

• a.A liability-only endorsement
• b.The Special form (DP-3)✓
• c.The Basic form (DP-1)
• d.The Broad form (DP-2)

The Dwelling Special form (DP-3) is the broadest, insuring the dwelling and other structures on an open-perils (all-risk) basis while covering personal property on a named-perils basis. The Basic form (DP-1) is the narrowest, covering a short list of named perils, and the Broad form (DP-2) adds more named perils but is still not open-perils. Broader coverage generally means higher premium.

Under a Dwelling policy, coverage for the physical house structure is provided under:

• a.Coverage E – Additional Living Expense
• b.Coverage A – Dwelling✓
• c.Coverage D – Fair Rental Value
• d.Coverage C – Personal Property

In the Dwelling program, Coverage A insures the dwelling structure itself. Coverage B insures other structures, Coverage C insures personal property, Coverage D provides fair rental value if a rented dwelling becomes uninhabitable, and Coverage E provides additional living expense for an owner-occupant. Knowing the standardized coverage letters is essential and is consistent across the country.

A landlord who rents out a house wants to insure the loss of rent if the home becomes uninhabitable after a covered fire. This need is met by:

• a.Coverage C – Personal Property
• b.Coverage E – Additional Living Expense
• c.Coverage D – Fair Rental Value✓
• d.Coverage B – Other Structures

Fair Rental Value (Coverage D) reimburses a landlord for lost rental income when a covered peril makes the rented dwelling unfit to live in, limited to the time reasonably required to repair. Additional Living Expense (Coverage E) instead pays the extra costs an owner-occupant incurs to maintain a normal standard of living elsewhere. The two coverages address different insureds: a landlord versus a resident owner.

A homeowner moves out of her house, rents it to a family, and asks to keep her homeowners policy on it. Her producer must move the risk to a dwelling policy because:

• a.a homeowners policy may not insure a one-family house
• b.rented dwellings can be insured only at market value
• c.the homeowners program excludes fire at a rented home
• d.homeowners forms require the insured to live there✓

Homeowners forms are eligible only while the named insured occupies the dwelling as a residence, so once the owner moves out and rents the house to others the risk belongs in the dwelling program. The notion that a homeowners policy cannot insure a one-family house is backwards, since that is the risk it was built for. Renting does not limit recovery to market value either.

Which of these buildings could NOT be insured under a dwelling policy?

• a.A home still under construction
• b.A twelve-unit apartment house✓
• c.A house rented to a single family
• d.A cabin lived in only in summer

Dwelling forms are written for residences holding a small number of family units, so a twelve-unit apartment building is a commercial habitational risk that belongs on a commercial property or package policy. Seasonal dwellings, rented dwellings, and dwellings under construction are all ordinary dwelling-program risks. Owner occupancy is not required by the dwelling forms.

A builder needs coverage on a house he is putting up, including the lumber and fixtures stored on the site. The usual answer is:

• a.an inland marine floater on the finished home
• b.a builders risk policy on the job✓
• c.a dwelling policy bought by the future buyer
• d.a commercial general liability policy

Builders risk insures a structure while it is being built along with the materials and supplies at the site that will become part of it. General liability answers third-party injury and damage claims, not damage to the builder's own work in progress. A floater written on a finished home responds to nothing during the construction period.

A dwelling policy is written on a house being built for the owner who will live in it. The Coverage A limit should be set at:

• a.the price of the lot plus the permits
• b.the builder's profit on the whole job
• c.the value of the work finished so far
• d.the completed value of the dwelling✓

A building under construction is written to its completed value, because the amount at risk climbs toward that figure as the work goes on and the form measures any loss against the work actually in place. Setting the limit at the work finished so far would leave the insured short within weeks. Land, permits, and the builder's profit are not covered property.

On a dwelling policy carrying vandalism coverage, letting the building stand empty matters because vandalism is:

• a.paid at half the loss while the building is empty
• b.replaced by open-perils wording during a vacancy
• c.unaffected, since vacancy reaches only theft losses
• d.suspended once vacancy runs past the stated period✓

Vandalism or malicious mischief is suspended once the dwelling has been vacant beyond the period the form allows, because an empty building is a far easier target; the other perils keep running. The policy does not cut the payment in half. Vacancy is not limited in its effect to theft, which the unendorsed dwelling policy does not insure in the first place.

Gas that leaked inside a dwelling insured on an unendorsed basic form ignites and blows out a kitchen wall. The loss is:

• a.covered, as an explosion inside the dwelling✓
• b.denied, until a wider explosion peril is added
• c.covered, but only for the kitchen appliances
• d.denied, because gas leaks are excluded events

Fire, lightning, and internal explosion are the three perils the unendorsed basic form insures, so an explosion occurring inside the described dwelling is covered as the form stands. The endorsement answer confuses this with the broader explosion peril that reaches blasts originating outside the building. The form pays the resulting building damage, not merely appliances.

A propane tank standing in the yard explodes and cracks the wall of a dwelling. A basic form pays nothing for this, but the loss is covered once the insured adds:

• a.a personal liability endorsement
• b.a vandalism and mischief endorsement
• c.a theft coverage endorsement
• d.the extended coverage endorsement✓

The basic form's explosion peril reaches only an explosion occurring inside the described dwelling, while extended coverage substitutes a broader explosion peril that includes a blast originating outside the building. Vandalism, liability, and theft endorsements each add something else entirely and would leave this wall unpaid. Extended coverage also brings windstorm or hail, riot, aircraft, vehicles, smoke, and volcanic eruption.

Which peril is NOT part of the extended coverage group added to a dwelling policy?

• a.Vandalism or malicious mischief✓
• b.Riot or civil commotion damage
• c.Ash from a volcanic eruption
• d.Damage caused by an aircraft

Extended coverage adds windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, and volcanic eruption. Vandalism or malicious mischief is a separate endorsement bought after extended coverage is already on the policy, and it carries its own vacancy condition. Riot, aircraft damage, and volcanic ash all sit inside the extended coverage group itself.

Under the smoke peril added by extended coverage, which loss to a dwelling is covered?

• a.Years of staining from a fireplace
• b.Fumes from a factory two blocks away
• c.Haze drifting from farm field smudging
• d.A sudden puff-back from the furnace✓

The smoke peril covers sudden and accidental smoke damage, so a furnace puff-back that coats the interior is paid. Smoke from agricultural smudging and smoke from industrial operations are written out of the peril itself. Staining that builds up over years is neither sudden nor accidental, so the wording decides all four of these situations the same way.

Wind drives rain through a window the family left open, soaking the carpet and the wall below it. Under the windstorm peril the loss is:

• a.not covered; carpet is real property
• b.covered, since the storm caused it
• c.not covered; wind made no opening✓
• d.covered as interior water damage

The windstorm peril reaches rain, snow, or sleet driven inside only when the wind or hail first makes an opening in the roof or an outside wall. A window the occupants left open is not an opening the storm created, so the water damage stays with the family. Calling carpet real property is not the reason; the missing element is the storm-made opening.

An insured backs his own pickup into the fence at the described location. Under the vehicles peril the damage to the fence is:

• a.covered, because a vehicle struck it
• b.covered, but only above the deductible
• c.excluded, since a resident drove it✓
• d.excluded, because fences are not covered

The vehicles peril does not pay for damage to fences, driveways, or walks caused by a vehicle owned or operated by someone living at the described location, so the owner's own pickup puts this loss outside the peril. A fence is covered property as another structure; it is the identity of the driver that removes the coverage. The deductible never becomes the issue here.

The volcanic eruption peril on a dwelling policy pays for damage caused by:

• a.airborne ash, dust, and blast✓
• b.settling of soil after ash falls
• c.tremors that shake the ground
• d.flooding from melted ice and snow

Volcanic action covers the airborne blast and shock waves of an eruption together with the ash, dust, and particulate matter it throws out, and a lava flow. The earth movement wording keeps out the tremors and land shock waves that accompany an eruption, and settling of soil is excluded earth movement as well. Flood stays excluded whatever set it off.

The roof of a detached garage caves in under a heavy snow load. The dwelling policy is a basic form with extended coverage attached. The loss is:

• a.not covered; that is a broad form peril✓
• b.not covered; a garage is not covered property
• c.covered, because windstorm and hail include snow
• d.covered under the falling objects peril instead

Weight of ice, snow, or sleet is one of the perils the broad form adds, so a basic form carrying only extended coverage does not insure it and this collapse goes unpaid. Windstorm or hail answers wind and hailstones, not a static snow load resting on a roof. Falling objects means something striking from outside, not the building's own accumulated load, and a detached garage is covered property as another structure.

A supply pipe splits inside the wall of a dwelling insured on a broad form, ruining plaster and flooring. The policy pays for:

• a.the damage the water did, not the pipe✓
• b.only the plumber's bill to fix the pipe
• c.the pipe and the plaster and the floor
• d.nothing; escaping water is excluded

Accidental discharge or overflow of water is a broad form peril that pays for the damage the escaping water causes, while the system or appliance the water came from is not itself covered under that peril. Replacing the split pipe is therefore the owner's own cost. Treating escaping water as excluded altogether describes the basic form rather than the broad form.

A dwelling sits empty over the winter with the heat shut off and the water lines left full. A pipe freezes and bursts. Under the broad form the loss is:

• a.excluded because the pipe was old
• b.covered as a discharge of water
• c.excluded; heat was not maintained✓
• d.covered, since freezing is listed

The freezing peril applies only where the insured used reasonable care to maintain heat in the building or shut off the water supply and drained the system. Letting an empty house go cold with water still standing in the lines takes the loss outside the peril, even though freezing is otherwise insured on the broad form. The age of the pipe is not what decides it.

A storm drops a tree limb on a dwelling; it dents the roof, and the jolt cracks a ceiling in the room below. Under the falling objects peril:

• a.both the roof and the ceiling are paid✓
• b.only the ceiling inside is paid for
• c.only the tree removal cost is paid
• d.neither is paid; limbs are excluded

Falling objects pays for damage inside the building only when the falling object first damages the roof or an outside wall, and here the limb did damage the roof, so the interior crack is covered as well. Had the ceiling cracked with the roof untouched, the interior damage would not be paid. The peril is not limited to the cost of removing the limb.

A tenant renting a house installs built-in bookcases at her own expense, and a fire destroys them. On the tenant's own dwelling policy they are:

• a.excluded as a permanent alteration
• b.covered only with the landlord's consent
• c.covered as her personal property✓
• d.not covered; they are part of the house

A tenant may buy a dwelling policy on household goods, and building additions and alterations made at the tenant's own expense are insured under the personal property coverage, subject to a limit the form states. Treating them as part of the landlord's building would leave the tenant nothing for what she paid for. The landlord's consent is not a coverage condition.

An unendorsed dwelling policy pays nothing when a burglar carries off the television. The owner can obtain that coverage by:

• a.raising the Coverage C limit
• b.moving up to the broad form
• c.adding a theft endorsement✓
• d.buying extended coverage

Theft of the insured's property is not a peril any dwelling form insures, so it comes only from a theft endorsement written onto the policy. Moving to the broad or special form adds perils such as weight of ice and snow and accidental discharge of water, and extended coverage adds windstorm, riot, aircraft, and the rest. A bigger limit cannot create a peril that is absent.

A dwelling insured on a special form cracks as the soil beneath the foundation shifts. The claim is:

• a.denied; the form insures contents only
• b.paid as a collapse of the building
• c.denied; earth movement is excluded✓
• d.paid, because the form is open perils

Open perils means every cause of loss except the ones the form excludes, and earth movement is a standard exclusion, so shifting soil is unpaid even on the broadest dwelling form. The error is reading open perils as unlimited. Collapse wording does not restore a cause of loss the policy already excluded, and the special form insures the dwelling, not contents alone.

Which item is insured as personal property under a dwelling policy?

• a.A lawn tractor used on the premises✓
• b.Cash kept in a kitchen drawer
• c.A licensed car kept in the garage
• d.A boarder's sofa in a rented room

Motorized equipment used to service the described location and not licensed for road use, such as a lawn tractor, is insured personal property, while a car licensed for the road is not. Dwelling forms list money and securities as property not covered, which is one place they are narrower than a homeowners form. Property of roomers unrelated to the insured is outside the coverage too.