Arizona Property & Casualty Insurance License, Practice Exams

Employment Practices Liability Insurance (EPLI) covers claims such as:

1. Defects in the products the insured manufactures that injure a consumer
2. Damage to premises the insured rents, caused by a fire it started
3. Wrongful termination, discrimination, harassment, and retaliation by employees ✓
4. Bodily injury to a customer who trips over a floor display inside the insured's retail store

Why: EPLI responds to employment-related claims like discrimination, harassment, wrongful termination, and retaliation.

Under the Business Auto Coverage Form, the named insured is an insured for any covered auto. Additionally, who qualifies as an insured?

1. Only the corporation's officers and directors, and only while they are on company business
2. Any member of the public who is injured near a covered auto, whether or not anyone was at fault
3. Anyone using a covered auto with the named insured's permission (with some exceptions) ✓
4. Only employees on the company payroll, and only while driving during scheduled work hours

Why: Permissive users of a covered auto are insureds, subject to exceptions such as employees using their own autos and certain auto-business operations.

Which of the following risks would be considered an ideally insurable risk?

1. An investor's losses on the stock market during a general downturn
2. Expected gradual wear and tear on a roof over its normal service life
3. Losses to civilian property from a nationwide war or act of foreign enemies
4. A homeowner's loss from a sudden, accidental kitchen fire ✓

Why: A sudden, accidental fire is fortuitous, definite, measurable, and not catastrophic to the insurer, meeting the criteria for an insurable risk.

The 'nationwide marine definition' establishes:

1. Which private passenger auto policies each state must honor when a covered auto is driven interstate
2. The types of risks that may properly be written as inland and ocean marine insurance ✓
3. The boundaries of the federal flood hazard zones that FEMA maps along coastal waterways
4. The minimum premium an insurer may charge before writing an ocean marine policy in a state

Why: The Nationwide Marine Definition outlines classes of risks that may properly be insured under marine (inland and ocean) policies, including imports, exports, domestic shipments, instrumentalities of transportation, and certain floaters.

Under ARS 20-321, which person is NOT an 'adjuster'?

1. One who negotiates settlement of casualty claims for a fee
2. One who holds out to investigate property claims for pay
3. One who adjusts claims under P&C contracts for compensation
4. A salaried employee of an insurer, not paid per claim outcome ✓

Why: ARS 20-321(2)(b)(ii) excludes a salaried employee of an insurer, whose pay is not contingent on the claim outcome, from the adjuster definition.

The Watercraft endorsement on a Homeowners policy is generally used to:

1. Schedule jewelry and other valuables that the insured keeps aboard the boat
2. Extend limited liability for certain larger boats otherwise excluded ✓
3. Insure large yachts for both hull damage and liability without a separate marine policy
4. Cover flood damage to the home when rising water reaches it from the adjoining lake

Why: The watercraft endorsement extends Section II liability for boats that exceed the size/horsepower thresholds otherwise excluded by the base policy.

Under a Homeowners policy, the 'residence premises' definition primarily refers to:

1. Any dwelling the insured owns, including seasonal and rental homes
2. Any rental property the insured owns and insures separately
3. The dwelling where the insured resides as shown in the declarations ✓
4. Vacant land the insured holds for future construction

Why: Residence premises is the one- to four-family dwelling where the insured resides, as shown in the Declarations, including grounds and related structures.

Under ARS 20-1113, which item must every insurance policy specify?

1. The names of the parties, the risks insured and the premium ✓
2. The insurance producer's applicable commission rate
3. The insurer's reinsurance, retention and pooling arrangements
4. The recent claims-paying history of the insurer

Why: ARS 20-1113(B) requires every policy to specify the parties, insurer's name, subject, risks insured against, effective time and period, premium and conditions.

A heating contractor ships and installs a new furnace; the equipment is stolen from the job site before acceptance. Best coverage:

1. Installation floater ✓
2. Accounts receivable
3. Ocean marine cargo
4. Jewelers block

Why: An Installation floater covers materials and equipment during transit, storage, and installation until the work is accepted by the owner.

In commercial auto, motor carrier or trucking risks often need cargo coverage because the BACF/Motor Carrier liability form:

1. Pays the carrier's cargo liability claims under physical damage coverage once the trailer's deductible has been satisfied
2. Does not cover the carrier's liability for damage to the property (cargo) being hauled ✓
3. Covers cargo only for theft occurring while the tractor-trailer is parked at a secured terminal
4. Automatically covers cargo up to the liability limit shown in the declarations for each shipment

Why: Auto liability and physical damage forms cover the vehicle and third-party injury/damage, not the freight; motor truck cargo insurance is needed for hauled goods.

How does a Combined Single Limit (CSL) differ from split limits in auto liability coverage?

1. CSL doubles the per-person bodily injury limit at no charge
2. CSL applies only to property damage claims per accident
3. CSL excludes bodily injury, covering only the insured's own losses
4. CSL provides one total limit for both BI and PD combined per accident ✓

Why: A combined single limit provides a single dollar amount that applies to the total of bodily injury and property damage liability arising from one accident.

Mobile agricultural machinery and equipment under a farm policy refers to:

1. Livestock such as dairy cattle, hogs, and horses kept for breeding or sale
2. Harvested grain and seed held in silos and storage bins on the premises
3. The farm dwelling and its attached structures
4. Tractors, combines, and similar equipment used in farming operations ✓

Why: Mobile agricultural machinery (tractors, combines, harvesters) is a category of covered farm personal property, often insured for direct physical loss.

Under ARS 20-401.01, it is generally unlawful for an insurer to transact insurance business in Arizona without:

1. A surplus lines broker license issued for each line of insurance the insurer intends to write
2. Membership in the guaranty fund
3. A resident agent maintained in every Arizona county in which it writes business
4. A certificate of authority from the director ✓

Why: ARS 20-401.01(A) makes it unlawful for an insurer to transact insurance business in this state without a certificate of authority from the director.

An automobile assigned-risk plan is a type of:

1. A private umbrella program that adds excess limits above a driver's personal auto liability
2. A federal reinsurance pool backed by the Department of Transportation
3. Residual (shared) market that distributes hard-to-insure drivers among insurers ✓
4. A voluntary discount program for defensive-driving graduates

Why: Assigned-risk plans are auto residual markets that assign drivers who cannot obtain coverage voluntarily to insurers in proportion to their market share.

Under the FCRA, an investigative consumer report differs from an ordinary consumer report because it includes:

1. Only the consumer's numerical credit score and the four factors that most depressed it, with no narrative gathered from any other person
2. Information about a consumer's character, reputation, and lifestyle obtained through interviews with associates or neighbors ✓
3. Records of criminal convictions copied from county courthouse files
4. Flood zone determinations drawn from FEMA mapping data

Why: An investigative consumer report gathers information on a consumer's character, general reputation, and mode of living through personal interviews, triggering additional notice requirements.

The principle of indemnity states that an insured should:

1. Profit from a covered loss, since the premium was paid for that possibility
2. Receive replacement cost on every policy, whatever valuation basis it names
3. Be restored to approximately the same financial condition that existed before the loss ✓
4. Always receive the full face amount of the policy regardless of the size of the loss

Why: Indemnity restores the insured to the financial position held before the loss, without allowing profit from the loss.

Under ARS 20-2110, when an adverse underwriting decision is made, the insurer or producer must provide the applicant with:

1. the specific reason in writing, or notice of the right to it ✓
2. a refund of every premium deposit paid, with interest from receipt
3. the names of other insurers writing that line locally
4. an automatic hearing before the department

Why: ARS 20-2110(A) requires providing the specific reason in writing or advising of the right to request it, along with a summary of rights.

The policy section that defines the rights and duties of both parties, such as duties after a loss and cancellation, is the:

1. Insuring agreement
2. Declarations
3. Conditions ✓
4. Definitions

Why: The conditions section spells out the rules, rights, and duties governing how the policy operates for both insurer and insured.

A worker can return to light-duty work at reduced hours and lower pay while still recovering. The wage-loss benefit during this period is classified as:

1. Temporary partial disability ✓
2. Temporary total disability
3. Permanent total disability
4. Permanent partial disability

Why: Temporary partial disability (TPD) compensates for the wage loss when a recovering worker can perform some work but earns less than before the injury.

Under PAP Part A, which of the following is an "insured" while using a non-owned auto?

1. The named insured and family members for any auto, and others only for the covered auto ✓
2. Any person operating the named insured's vehicle for a fee, such as a valet or mechanic on duty
3. Only the registered owner of the non-owned auto, since that owner's policy is primary
4. Anyone in the world who drives any vehicle with the named insured's verbal or written permission

Why: For Part A, the named insured and family members are insureds for the ownership/use of any auto, while other persons are insureds only for use of the named insured's covered auto.

The provision describing the geographic area where coverage applies is the:

1. Policy period
2. Coinsurance clause
3. Insuring agreement
4. Policy territory ✓

Why: The policy territory defines the geographic boundaries within which covered losses or occurrences must take place.

For a hit-and-run UM/UIM claim with no physical contact with the phantom vehicle, ARS 20-259.01 requires the insured to provide:

1. A police accident report filed within twenty-four hours
2. Two independent eyewitness sworn affidavits
3. Photographs of the phantom vehicle's damage
4. Corroboration that the unidentified vehicle caused it ✓

Why: ARS 20-259.01(M): a no-contact claim involving an unidentified vehicle requires corroboration that the vehicle caused the accident.

A boatowner wants liability protection for bodily injury to others caused by the vessel. This is provided under the yacht policy's:

1. Hull coverage
2. Medical payments to the owner only
3. Flood coverage
4. Protection and indemnity (P&I) coverage ✓

Why: Protection and indemnity coverage in a yacht policy provides liability protection for bodily injury and property damage to others arising from operation of the vessel.

A personal auto insured pays the second installment 5 days late. Under ARS 20-1632.01, the insurer must:

1. Cancel the policy effective the premium due date
2. Charge a ten percent penalty and then cancel it
3. Immediately nonrenew the policy at its very next renewal term
4. Treat the policy as in force under the 7-day grace period ✓

Why: ARS 20-1632.01(A) guarantees at least a seven-day grace period for premiums other than the first, so a payment 5 days late keeps the policy in full force.

A home's replacement cost is $250,000, insured for $200,000 (80% would be $200,000). A covered partial roof loss costs $20,000 (ignore deductible). The settlement is:

1. $16,000
2. $18,000
3. $20,000 ✓
4. $10,000

Why: Because the carried amount ($200,000) meets the 80% requirement ($200,000), the partial loss is paid in full at replacement cost: $20,000.

Under PAP Part F, if the insured cancels the policy, the company will:

1. Return any unearned premium, often computed short rate or pro rata per policy terms ✓
2. Keep the entire premium as fully earned once the policy has been in force for 60 days or more
3. Convert the unused portion of the term to a Business Auto policy carrying the same limits
4. Charge a cancellation penalty equal to the full premium for the balance of the policy term

Why: On cancellation, the unearned premium is refunded; insured-requested cancellations may be calculated short rate, while insurer cancellations are typically pro rata.

What is the typical special limit for theft of silverware, goldware, and pewterware under Coverage C?

1. $2,500 ✓
2. $200
3. $5,000
4. $1,000

Why: Theft of silverware, goldware, and pewterware is commonly subject to a $2,500 special limit under Coverage C.

An insurer's only Arizona activity is subsequent transactions on a policy that was lawfully solicited, written and delivered outside Arizona covering non-Arizona subjects. Under ARS 20-401.01, those transactions are:

1. Always prohibited without a new certificate
2. Exempt from the certificate-of-authority requirement ✓
3. Allowed only if they involve ocean marine risks
4. Treated as unauthorized insurance transactions

Why: ARS 20-401.01(B)(3) exempts subsequent Arizona transactions on a policy lawfully written and delivered outside the state covering non-Arizona subjects.

The amount added to the pure premium to cover operating expenses, commissions, and profit is called the:

1. Deductible
2. Loading ✓
3. Salvage
4. Coinsurance

Why: Loading is added to the pure premium to account for the insurer's expenses, contingencies, and profit margin.

Under ARS 20-1632, an insurer's failure to comply with the notice and refund requirements has what effect?

1. It merely delays the insurer's action by ten days
2. It results only in a small fine but the action still stands
3. It shifts the burden of proof onto the named insured
4. It invalidates the cancellation, nonrenewal or reduction ✓

Why: ARS 20-1632(B) provides that failure to comply with subsection A invalidates any cancellation, nonrenewal or reduction in limits of liability or coverage.

A limit expressed as 'per occurrence' refers to:

1. The most paid for all damages arising from a single event ✓
2. The most paid for any one injured person's bodily injury
3. The deductible applied to each claim
4. The annual maximum for all claims combined

Why: A per-occurrence limit caps the total amount payable for all damages arising out of a single covered event.

Which of the following losses is covered under "Other Than Collision" (comprehensive) rather than Collision?

1. Rolling the vehicle over in a ditch
2. Striking a guardrail
3. Damage from hail, fire, theft, or hitting a deer ✓
4. Colliding with another vehicle at an intersection

Why: Other Than Collision (comprehensive) covers losses such as fire, theft, hail, vandalism, glass breakage, and contact with animals like a deer.

A deductible in a property policy is the portion of a loss that:

1. The insurer pays first, then bills the insured
2. Is recovered from salvage sale proceeds
3. The insured retains/pays before the insurer pays ✓
4. Is added to the annual premium at renewal

Why: A deductible is the amount the insured must absorb on a covered loss before insurance benefits apply.

Under ARS 20-447, a false entry in an insurer's books or reports is prohibited when made with what state of mind?

1. With intent to deceive ✓
2. Negligently
3. Without the director's approval
4. For any reason whatsoever

Why: ARS 20-447 prohibits false financial statements and false entries in an insurer's books made with intent to deceive an agent, examiner or public official.

Which best describes the DP-2 vs DP-3 distinction?

1. DP-2 is broad named peril; DP-3 is special (open) peril on the dwelling ✓
2. Both are basic named-peril forms limited to fire, lightning, and internal explosion
3. Both are open-peril forms, differing only in the amount of loss of use provided
4. DP-2 is open peril on the dwelling; DP-3 is named peril only

Why: DP-2 provides broad-form named perils, while DP-3 upgrades the dwelling and other structures to open-peril (special form) coverage.

A producer operates an authorized insurance vending machine. Under ARS 20-293, the authority to operate that machine expires:

1. coincident with the insurance producer's license ✓
2. one year after the machine is first installed
3. each December 31 regardless of licensure
4. only when the machine is physically removed

Why: ARS 20-293(B) provides that the vending machine authority expires coincident with the producer's license and is terminated with it.

Under ARS 28-4135, on a first financial-responsibility violation the department suspends or restricts driving privileges for:

1. Six months
2. One year
3. Thirty days
4. Three months ✓

Why: ARS 28-4135(E)(1): a first violation results in a three-month suspension or restriction.

The primary purpose of underwriting is to:

1. Settle claims quickly so that the insured is restored without delay
2. Investigate suspected fraud after a loss has already been reported
3. Select and classify risks to determine acceptability and proper pricing ✓
4. Sell as many policies as possible to spread the insurer's fixed costs

Why: Underwriting is the process of evaluating, selecting, classifying, and pricing risks to maintain a profitable book of business.

Proof of automobile insurance coverage is most commonly evidenced by:

1. A bill of sale showing the dealer collected the first premium
2. An insurance ID card listing the policy number, insurer, and effective dates ✓
3. The registration card alone, since the state checks coverage at renewal
4. A driver's license endorsed by the examining officer

Why: An insurance identification card showing the insurer, policy number, vehicle, and policy period is the standard proof of coverage carried by drivers.

PAP Part E — Duties After an Accident or Loss requires the insured to:

1. Promptly notify the insurer and cooperate in the investigation and settlement ✓
2. Pay the other driver's damages directly and then submit the receipts for reimbursement
3. Complete all repairs before reporting the loss to the insurer
4. Admit fault at the scene so the insurer can settle quickly

Why: Part E requires prompt notice of the accident, cooperation, providing proof of loss, and allowing inspection, among other duties.

Under ARS 20-229, an authorized insurer generally may not issue an Arizona policy unless the declarations page or endorsement identifies:

1. the insurer's total surplus and loss reserves
2. the name of the producer licensed for that line ✓
3. the reinsurer assuming the underlying risk
4. the director's certificate of authority number

Why: ARS 20-229(A) requires the policy to identify the name of the producer licensed for that line of authority.

Under ARS 20-661, a member insurer excludes an insurer whose writings are restricted solely to lines such as:

1. Life, title, surety, disability and surplus lines ✓
2. Homeowners and personal auto
3. Commercial property and general liability
4. Workers' compensation and auto liability

Why: ARS 20-661(6) defines member insurer to exclude insurers writing solely life, title, surety, disability, credit, mortgage guaranty, ocean-marine or surplus lines insurance.

The maximum NFIP building coverage limit available for a single-family residential structure under the regular program is:

1. $250,000 ✓
2. $100,000
3. $500,000
4. $150,000

Why: The NFIP caps building coverage for a single-family dwelling at $250,000, with a separate $100,000 limit available for contents.

A 'stated amount' is most commonly used to value:

1. Specialized or unusual vehicles/equipment where ACV is hard to determine ✓
2. Owner-occupied dwellings written on a homeowners form, where the limit is set by a replacement cost estimator
3. General damages for pain and suffering in a bodily injury claim
4. Liability limits for bodily injury and property damage

Why: Stated amount coverage is used for specialty vehicles or equipment, with the insurer paying the lesser of the stated amount or ACV at loss.

The difference between an umbrella policy and a simple excess liability policy is that an umbrella:

1. Provides lower limits than the underlying policy, functioning as a buffer layer
2. Can broaden coverage and may pay for some claims not covered by the underlying policy, whereas excess simply follows the underlying form ✓
3. Cannot be purchased by individuals and is available only to commercial entities
4. Covers only automobile liability, so the insured must purchase a separate excess form to sit above the premises and personal injury exposures

Why: Excess liability merely adds limits over an underlying policy following its terms; an umbrella both adds limits and can broaden coverage beyond the underlying policies.

Symbol 2 in the Business Auto Coverage Form designates:

1. Hired autos only
2. Any auto
3. Specifically described autos
4. Owned autos only ✓

Why: Symbol 2 covers all owned autos, both those owned now and those acquired later, depending on category symbols used.

Under comparative negligence (pure form), a plaintiff found 30% at fault for a $100,000 injury recovers:

1. $100,000
2. $30,000
3. $70,000 ✓
4. $0

Why: Pure comparative negligence reduces recovery by the plaintiff's percentage of fault: $100,000 − 30% = $70,000.

Which of the following is generally EXCLUDED from a standard Homeowners policy without an endorsement?

1. Fire damage to the dwelling under Coverage A
2. Wind damage to the roof shingles
3. Theft of insured personal property
4. Earth movement (earthquake) and flood ✓

Why: Earthquake and flood are standard exclusions; earthquake can be added by endorsement and flood is covered separately through the NFIP.

Under ARS 23-901.04, compensation for an occupational-disease disability may be barred when it is caused by the employee's:

1. Simple negligence during a routine task
2. Refusal to work scheduled overtime hours
3. Wilful misconduct or wilful self-exposure ✓
4. Failure to join the employer's health plan

Why: ARS 23-901.04(A): compensation is precluded where the disability was caused by wilful misconduct, wilful self-exposure or disobedience of posted rules.

A producer who handles premium funds belonging to the insurer and the insured holds those funds in a:

1. Fiduciary capacity ✓
2. Personal capacity
3. Reciprocal capacity
4. Speculative capacity

Why: A producer holding others' money, such as premiums, acts in a fiduciary capacity and must handle those funds with trust and care.

Under the BACF, the limit of insurance for liability is typically written as:

1. Unlimited, with no dollar cap stated anywhere
2. A single limit for the most the insurer will pay for any one accident or loss ✓
3. A per-person limit only, applied separately to each injured claimant
4. Split limits only, never a combined single limit

Why: The Business Auto Coverage Form most commonly uses a combined single limit for liability per accident.

A property worth $500,000 has a 90% coinsurance requirement. The insured carries $360,000 and has a $50,000 loss. Ignoring deductible, the insurer pays:

1. $50,000
2. $40,000 ✓
3. $36,000
4. $45,000

Why: Required = 90% x $500,000 = $450,000. Did/should = $360,000/$450,000 = 0.80. Payment = 0.80 x $50,000 = $40,000.

A producer left an agency but was properly licensed when she wrote the business. Under ARS 20-298, renewal or deferred commissions on that business:

1. are forfeited the moment she terminates her agency contract
2. must be escrowed with the guaranty fund
3. are payable only if she relicenses
4. may be paid because she was licensed at the sale ✓

Why: ARS 20-298(C) permits renewal or deferred commissions where the person was required to be and was licensed at the time of the sale, solicitation or negotiation.

Under ARS 20-401.01, the exemptions from the certificate-of-authority requirement include which of the following?

1. The lawful transaction of reinsurance by insurers ✓
2. Direct sale of personal auto policies to residents
3. Issuing new homeowners policies for delivery here
4. Marketing commercial GL to Arizona businesses

Why: ARS 20-401.01(B)(2) exempts the lawful transaction of reinsurance by insurers from the requirement.

Fair dealing and good faith in claims handling require an insurer and producer to:

1. Avoid all direct contact with the insured once defense counsel has been retained on the claim file
2. Pay only the largest claims in full and settle the smaller ones for a fraction of their value
3. Delay payment on every claim as long as the statute of limitations allows, to preserve reserves
4. Treat the insured honestly, investigate fairly, and not unreasonably deny valid claims ✓

Why: The duty of good faith and fair dealing requires honest, prompt, and fair treatment of insureds and reasonable handling of valid claims.

A stock insurer is owned by its:

1. Stockholders ✓
2. State insurance department
3. Policyholders
4. Board of agents

Why: A stock insurer is owned by stockholders, who supply capital and receive dividends; policyholders are not owners.

A new auto policy (not a renewal) has been in effect for 90 days when the insurer finds it was obtained by fraudulent misrepresentation. Under ARS 20-1631, the insurer:

1. May cancel, since fraud is a valid ground ✓
2. May not cancel; cancellation is barred
3. May act only at the next renewal date
4. May not cancel, as fraud is not listed

Why: ARS 20-1631(D)(2): once a policy has been in effect for sixty days, insurance obtained through fraudulent misrepresentation is one of the enumerated grounds on which the insurer may cancel.

Which perils does the Broad Causes of Loss form ADD beyond the Basic form?

1. Earthquake and flood, which the Basic form omits from its list of covered causes
2. War and nuclear hazard, added back once the Broad form endorsement is attached
3. Wear and tear from ordinary use
4. Falling objects; weight of snow, ice, or sleet; and water damage ✓

Why: The Broad form adds falling objects; weight of snow, ice, or sleet; water damage; and includes a limited collapse provision.

Builders Risk coverage typically ends when:

1. The first building inspection by the local code official is completed and signed off
2. The general contractor receives final payment from the project owner for the work
3. The building is accepted/occupied, or the policy expires (whichever first) ✓
4. Coverage continues indefinitely because the form has no termination provision at all

Why: Builders Risk coverage typically terminates when the property is accepted by the owner, occupied, or the policy expires/is cancelled, whichever happens first.

Electronic equipment such as a permanently installed aftermarket sound/navigation system not factory-installed is, under the unendorsed PAP, generally:

1. Subject to exclusion or limitation unless added by endorsement ✓
2. Paid under Part B medical payments rather than Part D physical damage
3. Covered in full under Part D, just like factory-installed equipment
4. Always replaced with a new unit of like kind

Why: The PAP limits or excludes certain non-factory permanently installed electronic equipment; broader coverage requires an endorsement.

Civil Authority coverage under a Business Income form provides for loss when:

1. The insured voluntarily closes the premises for a remodeling project and loses income during the shutdown
2. A government order prohibits access to the premises due to a covered cause of loss to nearby property ✓
3. Employees walk off the job in a strike and the plant cannot operate
4. A competitor opens a store nearby and sales fall sharply

Why: Civil Authority extends Business Income/Extra Expense when access to the insured premises is prohibited by a civil authority because of a covered cause of loss to property in the vicinity.

After a covered loss, the insured's duties include all of the following EXCEPT:

1. Admitting liability to any injured third party ✓
2. Protecting the property from further damage
3. Giving prompt notice to the insurer
4. Preparing an inventory of damaged property

Why: Insureds must give notice, mitigate further damage, and document the loss, but they must NOT voluntarily assume obligations or admit liability.

Which of the following best states the purpose of the deductible in Section I of a Homeowners policy?

1. To pay the mortgagee its share of the loss before the insured receives any portion of the settlement
2. To increase coverage by the deductible amount at each renewal
3. To cover liability claims under Section ii before Coverage E responds
4. To eliminate small claims and reduce premium by having the insured retain part of each loss ✓

Why: The Section I property deductible has the insured retain a portion of each loss, discouraging small claims and lowering premium; it does not apply to Section II liability.

The General Aggregate Limit in the standard CGL applies to all of the following EXCEPT:

1. Coverage A losses other than products-completed operations
2. Coverage B personal and advertising injury
3. Coverage C medical payments
4. Products-completed operations claims ✓

Why: Products-completed operations losses are subject to their own separate Products-Completed Operations Aggregate, not the General Aggregate.

Employee Benefits Liability (EBL) coverage protects an employer against:

1. Errors or omissions in the administration of the company's employee benefit programs ✓
2. Discrimination and harassment claims brought by job applicants and current employees alike
3. Bodily injury to an employee occurring in the course of employment
4. Liability for injuries caused by products the employer made and sold

Why: EBL covers negligent acts, errors, or omissions in administering employee benefit plans (e.g., failing to enroll an employee).

Salvage refers to:

1. The insurer's right to recover and sell damaged property after paying a total loss ✓
2. The unearned portion of the premium returned to the insured when a policy is canceled early
3. The portion of a loss the insured must bear when the coinsurance requirement is not met
4. The dollar amount subtracted from every covered loss before the insurer issues payment

Why: After paying for a loss (often a total loss), the insurer may take title to and sell the damaged property to recoup some payment—this is salvage.

Under ARS 20-661, a covered claim does NOT include:

1. An insured's otherwise-covered first-party property loss
2. Amounts due a reinsurer as subrogation recoveries ✓
3. A third party's bodily injury claim
4. An unearned premium refund

Why: ARS 20-661(3) excludes from covered claims any amount due a reinsurer, insurer or pool as subrogation recoveries and pre-insolvency attorney fees.

An insured runs a small in-home daycare for several children. The appropriate way to address the liability and incidental property exposure is the:

1. Mortgage clause, which extends the policy's protection to everyone lawfully on the premises
2. Home Day Care / business pursuits-type endorsement ✓
3. Inflation guard endorsement, raising the limits as the number of children enrolled grows
4. Personal Injury endorsement, which covers bodily injury to children left in the insured's care

Why: A home day care endorsement (a form of permitted incidental occupancy/business endorsement) addresses the liability and limited property exposure of running a daycare from the home.

Agreed value (agreed amount) provisions are used primarily to:

1. Cover punitive damages awarded against the insured
2. Waive the coinsurance requirement by agreeing on a value in advance ✓
3. Reduce the policy limit by the amount of each paid claim
4. Substitute a flat 25% deductible for the coinsurance penalty

Why: Under an agreed value option, the insurer and insured agree on the property's value in advance, suspending the coinsurance penalty.

Job classification codes in workers' compensation are used to:

1. Record the state in which the employee's home office sits, so that benefits follow that state's schedule
2. Group jobs by their expected loss exposure to set appropriate rates ✓
3. Set the dollar amount of death benefits payable to a surviving spouse and dependent children
4. Determine how many days a worker must be disabled before indemnity benefits begin

Why: Classification codes group occupations by similar hazard/loss potential so that a rate reflecting that exposure can be applied to the payroll in each class.

Insurers require minimum 'underlying limits' for an umbrella because:

1. Umbrellas are written to pay first-dollar losses, so the underlying policies serve only to establish the premium basis for the account
2. Drop-down is prohibited by the insuring agreement, so the umbrella cannot respond until every underlying policy's limits renew
3. The insurer wants more premium from each underlying policy the insured is made to buy
4. The umbrella is meant to sit above primary coverage; the insured must maintain stated underlying limits or pay as though they were in force ✓

Why: Umbrellas require specified underlying limits; if the insured fails to maintain them, the umbrella pays only as if the required underlying limits existed.

Coverage E in a Homeowners policy provides:

1. Personal Liability ✓
2. Medical Payments to Others
3. Other Structures
4. Loss of Use

Why: In Section II of the Homeowners policy, Coverage E is Personal Liability, paying for bodily injury and property damage the insured is legally liable for.

The PAP towing and labor costs coverage pays for labor:

1. For accident-related medical transport
2. Only when performed at the place of disablement ✓
3. Anywhere repairs are needed regardless of location
4. For routine maintenance at the shop

Why: Towing and labor costs coverage pays towing plus labor, but only labor performed at the place where the vehicle was disabled.

Under ARS 20-408, a surplus lines broker must file with the director a verified report that includes:

1. The insured's personal consumer credit score
2. The insurer's NAIC identification number and the premium ✓
3. A complete copy of the insured's most recent annual tax return
4. The insurer's applicable reinsurance treaty terms

Why: ARS 20-408(A) requires the broker's verified report to include the insurer's name and NAIC identification number, the policy number, the insured's location, the premium and the coverage written.

Under ARS 20-1021, a 'Lloyd's association' engages in the business of insurance through underwriters bound by:

1. a mutual board elected by the policyholders
2. shares of capital stock held by its investors
3. reciprocal indemnity agreements among subscribers
4. an attorney-in-fact who obligates them severally ✓

Why: ARS 20-1021 defines a Lloyd's association as underwriters who act through an attorney-in-fact having authority to obligate them severally.

The principle that allows insurers to predict losses more accurately as the number of similar exposure units increases is the:

1. Principle of indemnity
2. Law of agency
3. Law of large numbers ✓
4. Doctrine of reasonable expectations

Why: The law of large numbers states that the larger the number of similar exposures, the more predictable actual loss experience becomes.

Under ARS 20-442, what does the Unfair Trade Practices article prohibit a person from doing in Arizona?

1. An unfair or deceptive act in the business of insurance ✓
2. Filing insurer rate schedules with the director beforehand
3. Transacting business without a posted surety bond
4. Advertising insurance over television or radio

Why: ARS 20-442 bars any trade practice prohibited by, defined in, or determined under the article to be an unfair method of competition or an unfair or deceptive act in the business of insurance.