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1. Which statement BEST describes how an open peril (special form) policy treats the burden of proof for a covered loss?

Open peril (special form) policies cover ALL causes of loss EXCEPT those specifically excluded. The burden therefore shifts to the insurer to identify and prove an applicable exclusion. Named peril policies, by contrast, put the burden on the insured to show the loss came from a listed peril.

2. Under the HO-3 Special Form, how is Coverage C (personal property) typically written?

The HO-3 is the most common homeowners form in California precisely because it gives BROAD open-peril coverage on the dwelling (Coverage A) and other structures (B), while still using NAMED PERIL coverage on personal property (Coverage C). To extend open-peril coverage to personal property, the insured can upgrade to the HO-5 Comprehensive Form.

3. All of the following are classic 'basic form' perils EXCEPT:

The basic peril list (FELLW + extended) includes fire, explosion, lightning, wind/hail, smoke, vehicles, aircraft, vandalism, riot, sinkhole collapse, and volcanic action. EARTHQUAKE is excluded under all standard homeowners and dwelling forms; California requires insurers to OFFER earthquake coverage separately (CEA or stand-alone) under §10081/§10089.

4. Which peril is added by the BROAD FORM but is NOT part of the basic form perils?

Weight of ice, snow, or sleet is a classic broad form addition, along with falling objects, accidental discharge of water/steam, freezing of plumbing, sudden electrical damage, and sudden rupture of a heating system. Lightning, fire, and vandalism are all basic form perils.

5. A California homeowner asks whether his standard HO-3 policy covers damage caused by an earthquake. The CORRECT answer is:

Earth movement, including earthquake, is excluded under standard HO-3 forms. California Insurance Code §10081 and §10089 require admitted residential insurers to OFFER earthquake coverage, typically through the California Earthquake Authority (CEA) or as a separate stand-alone policy.

6. A homeowner's basement is destroyed when a nearby river overflows after several days of rain. The HO-3 policy will:

Flood, surface water, waves, tidal water, and overflow of any body of water are EXCLUDED under every standard HO and DP form. Flood coverage in California must be purchased separately, usually through the National Flood Insurance Program (NFIP) or a private flood carrier. Wind/hail does not apply because the loss came from rising water, not wind.

7. Personal property such as jewelry, firearms, silverware, and currency is typically subject to:

The HO and DP forms include SPECIAL LIMITS for theft of jewelry, firearms, silverware, currency, securities, and similar 'high-target' items. To insure for full value the insured should SCHEDULE the items on a personal articles floater (PAF) or inland marine endorsement, which lists each item with an appraised value.

8. An 18-year-old composition-shingle roof with a replacement cost of $24,000 is destroyed by hail. Depreciation is calculated at $14,000. If the policy settles this partial loss on an ACTUAL CASH VALUE basis (no replacement-cost endorsement), the insurer will pay (before deductible):

Actual Cash Value (ACV) under California Insurance Code §2051 is Replacement Cost minus Depreciation: $24,000 - $14,000 = $10,000. The remaining depreciation is the insured's responsibility unless a replacement-cost endorsement is in force and the repair is actually completed.

9. Which statement BEST distinguishes replacement cost from actual cash value?

Replacement cost pays the current cost to repair or replace with like kind and quality, with NO depreciation deducted. ACV subtracts depreciation from that amount. The difference is what makes RC valuable for older homes and roofs.

10. Under most California homeowners policies that provide replacement-cost settlement on the dwelling, the insurer typically pays:

Replacement cost is conditional on actually repairing or rebuilding. The insurer pays ACV up front and HOLDS BACK the depreciation portion (the 'recoverable depreciation') until the insured submits proof that the work was completed within the time limit, typically 12-24 months in California (extended to up to 36 months for declared disasters under §2051.5).

11. A dwelling with a replacement cost of $500,000 is insured for $300,000 under a policy with an 80% coinsurance clause. A partial loss of $40,000 occurs (ignore the deductible). How much will the insurer pay?

80% of the $500,000 RC = $400,000 required. The insured carries $300,000, so the coinsurance fraction is 300/400 = 75%. Payment = 75% × $40,000 = $30,000. The insured absorbs $10,000 as the coinsurance penalty. Coinsurance applies only to PARTIAL losses; a total loss would be paid up to the $300,000 limit.

12. Coinsurance penalties under a homeowners policy apply to:

Coinsurance is a check on UNDER-insurance, not a cap on recovery. It applies only to PARTIAL losses. A total loss is paid up to the policy limit regardless of coinsurance, because there is no 'partial recovery' question — the insured has lost everything covered.

13. A homeowner deliberately sets fire to her insured house to collect insurance. The mortgagee on the policy is named under a STANDARD (Union) mortgagee clause. What is the most likely outcome?

Under a STANDARD mortgagee clause the mortgagee's rights are NOT defeated by the insured's acts or neglect. So the lender is paid up to its loan balance. The insured is denied for intentional loss, and the insurer is subrogated to the lender's note — the insurer can collect from the insured what it paid the lender. Under an OPEN mortgagee clause the lender would also be denied.

14. Under the standard mortgagee clause typically used in California, how much advance written notice must the insurer give the mortgagee before cancelling the policy?

The standard (Union) mortgagee clause requires the insurer to give the named mortgagee at least 10 DAYS' written notice before cancelling the policy for any reason. (Notice to the named insured for non-renewal or cancellation has its own, longer statutory periods under §678 et seq.)

15. Under the standard HO-3, if the dwelling has been vacant for more than how many consecutive days immediately before the loss, certain perils (including vandalism) may be excluded or reduced?

The standard vacancy provision in HO-3 (and DP-3) suspends or reduces coverage for vandalism, glass breakage, water damage, theft, and damage by ice/snow if the dwelling is VACANT for more than 60 CONSECUTIVE DAYS before the loss. Vandalism losses are commonly excluded entirely after the 60-day mark.

16. An insured loses one chair from a matching set of six dining chairs. The pair-and-set clause means the insurer will pay:

The pair-and-set clause requires the insurer to pay a fair PROPORTION of the value of the entire set. It does not pay for the set as a total loss and it does not ignore the diminished value of the remaining pieces. The goal is to indemnify — restore the insured to the same financial position before the loss — without enriching.

17. After paying a total loss on an insured automobile, the insurer takes title to the wrecked vehicle and sells it to a salvage yard for $1,500. This is an exercise of the insurer's right of:

Salvage is the insurer's right, after paying for a total loss, to take possession of the damaged property and recover whatever value remains. It complements the principle of indemnity: the insured collects the loss but does not also keep the wrecked car and resell it for additional gain.

18. A homeowner's 30-year-old galvanized water supply line gradually rusts through and slowly leaks behind a wall for several months, eventually causing $18,000 in mold and drywall damage. The HO-3 will most likely:

Wear and tear, rust, corrosion, gradual deterioration, and resulting mold are EXCLUDED under the standard HO-3. Property insurance covers SUDDEN AND ACCIDENTAL events, not slow consequences of aging or owner neglect. A SUDDEN burst of the same pipe would be a different question and may be covered.