New Jersey Property & Casualty Insurance License, Practice Exams

An employer headquartered in one state sends a crew temporarily into another state not listed on the policy. Which Part of the policy is designed to provide coverage in states not listed in Part One?

1. Part Two — Employers Liability
2. Part Three — Other States Insurance ✓
3. Part One — Workers Compensation
4. Part Four — Your Duties If Injury Occurs

Why: Part Three (Other States Insurance) extends coverage to operations in states listed in the Part Three item, providing benefits if the insured incurs WC obligations in a state not shown in Part One.

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.

Under New Jersey law, a motor vehicle is 'underinsured' for UIM purposes when:

1. The at-fault driver was speeding or otherwise operating the vehicle negligently
2. It carries no bodily injury liability insurance whatsoever at the time of the accident
3. It is a hit-and-run motor vehicle whose owner or operator cannot be identified
4. Its available liability limits are less than the injured person's own UIM limits ✓

Why: A vehicle is underinsured when the sum of all applicable liability limits is less than the injured person's UIM limits; UIM does not apply to an uninsured (no-coverage) vehicle.

Which Homeowners form is designed for renters/tenants who do not own the building?

1. HO-8
2. HO-3
3. HO-2
4. HO-4 ✓

Why: HO-4 is the Contents Broad Form for tenants, covering personal property and liability but not the building structure, which the renter does not own.

Insurable interest in property insurance requires that the insured:

1. Hold a state insurance license before the property can be covered at all
2. Own the property outright, free of any mortgage, lien or other encumbrance
3. Be related by blood or marriage to the previous owner of the property
4. Will suffer a financial loss if the property is damaged or destroyed ✓

Why: Insurable interest exists when a person would suffer a genuine financial loss from damage to or destruction of the property.

An injured New Jersey worker, without authorization, sees his own doctor while the employer stands ready to provide treatment. Who generally bears that cost?

1. The worker, as the employer did not refuse or neglect to treat ✓
2. The Division automatically orders reimbursement
3. The employer must pay all self-procured treatment on demand
4. The Second Injury Fund reimburses the worker's chosen doctor

Why: Under N.J.S.A. 34:15-15 the employer is not liable for treatment the employee obtains on his own unless the employee asked the employer to furnish it and the employer refused or neglected to do so, or another listed exception applies (such as an emergency that made notifying the employer impossible).

Within compensatory damages, payments for tangible, measurable losses such as medical bills and lost wages are called:

1. Punitive damages
2. General damages
3. Nominal damages
4. Special damages ✓

Why: Special damages are specific, quantifiable economic losses such as medical expenses and lost income.

Within how many days must a New Jersey licensee inform the Commissioner of a change of address?

1. 15 days
2. 10 days
3. 30 days ✓
4. 60 days

Why: N.J.S.A. 17:22A-33(f) requires licensees to inform the Commissioner of a change of address within 30 days of the change.

PAP Part D — Coverage for Damage to Your Auto includes which two basic perils categories?

1. Uninsured and underinsured motorists, split between bodily injury and property damage
2. Fire and theft only, with every other cause of physical damage excluded
3. Collision and other than collision (comprehensive) ✓
4. Liability for bodily injury to others and medical payments for the insured's own injuries

Why: Part D physical damage coverage is divided into Collision and Other Than Collision (comprehensive) coverages.

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).

Injuries to civilian federal government employees (such as a postal or federal agency worker) are covered under:

1. FELA, since the employer is federal
2. The Defense Base Act, for postal routes
3. The Federal Employees' Compensation Act (FECA) ✓
4. The LHWCA, for federal facilities

Why: FECA provides workers' compensation benefits to civilian employees of the federal government for job-related injuries and illnesses.

An insured damages a friend's mailbox and fence while backing out of a driveway in the covered auto. This is covered under:

1. Part A — Property Damage Liability ✓
2. Part D — Collision
3. Part B — Medical Payments
4. Part C — Uninsured Motorists

Why: Damage to another person's property (mailbox, fence) for which the insured is legally liable is covered under Part A property damage liability.

Under 17:23A-8, medical-record information supplied by a medical-care institution and requested by the individual may be supplied:

1. Only after a court of competent jurisdiction enters an order directing the institution to release the record to the individual
2. Either directly to the individual or to a medical professional the individual designates, at the entity's preference ✓
3. Only to the individual in person at the institution's office, on presentation of photographic identification and a signed receipt
4. Only to an attorney the individual has retained, who then decides whether the individual should be shown the record itself

Why: Section 17:23A-8(c) provides medical record information may be supplied either directly to the individual or to a medical professional designated by the individual, whichever the insurance institution, agent or support organization prefers.

Under the law of agency, the acts of the producer (agent) are generally considered to be the acts of the:

1. Reinsurer
2. Insured
3. State insurance department
4. Insurer ✓

Why: An agent represents the insurer; under the law of agency, the agent's actions within authority are treated as those of the insurer (principal).

A fidelity bond protects an employer against:

1. Loss caused by the dishonest or fraudulent acts of its employees (e.g., embezzlement) ✓
2. Government-ordered cleanup of pollutants that escape from the employer's premises during operations
3. A contractor's failure to finish a job on schedule, which a performance bond guarantees
4. Bodily injury to customers who slip and fall on the premises

Why: Fidelity bonds (employee dishonesty coverage) protect an employer from loss due to employee theft or fraud.

The CGL Aircraft, Auto, or Watercraft exclusion eliminates coverage for:

1. Bodily injury or property damage arising from ownership, operation, or use of autos, aircraft, or most watercraft ✓
2. Every claim for bodily injury the insured causes, whether or not a vehicle, aircraft, or watercraft was involved in the accident
3. Personal and advertising injury offenses such as libel, slander, and wrongful eviction
4. Slip-and-fall claims on premises the insured owns or rents for its business

Why: This exclusion routes auto, aircraft, and watercraft exposures to separate policies (e.g., business auto, aircraft, marine).

To insure a $25,000 diamond ring for all-risk coverage with no special sublimit and often no deductible, the best option is:

1. Increase the Coverage A dwelling limit so the ring falls within the larger amount of insurance
2. Add the inflation guard endorsement
3. Add a Scheduled Personal Property endorsement / Personal Articles Floater ✓
4. Rely on the unendorsed Coverage C jewelry limit

Why: Scheduling the ring on a Personal Articles Floater (scheduled personal property endorsement) provides broad coverage above the Coverage C jewelry sublimit, typically with no deductible.

Part Two (Employers Liability) of the policy is primarily designed to cover which of the following?

1. Statutory benefits owed to the injured worker directly under the state workers compensation act
2. Fines and penalties assessed against the employer by the state for workplace safety violations
3. Suits brought against the employer for work injuries that fall outside the WC statute ✓
4. Damage to the employer's own buildings and equipment

Why: Part Two covers the employer's liability for damages because of bodily injury by accident or disease arising out of employment that is not compensable as statutory benefits under Part One, such as certain lawsuits.

An insurer routinely offers far less than claims are worth, forcing insureds to sue to recover, then pays substantially more. Under 17:29B-4(9), this practice is:

1. Permissible where the policy is silent about the amount payable
2. Only a breach of contract, remediable in court but not by the Commissioner
3. A lawful negotiating tactic in a disputed claim
4. An unfair claim settlement practice (compelling litigation) ✓

Why: Section 17:29B-4(9)(g) defines as unfair compelling insureds to institute litigation to recover amounts due by offering substantially less than the amounts ultimately recovered.

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.

After a covered fire, a city orders demolition of the undamaged portion of an older building to meet current code. Which coverage pays for the demolition and increased rebuilding cost?

1. Peak season
2. Business income
3. Ordinance or Law ✓
4. Utility services

Why: Ordinance or Law coverage pays for loss to the undamaged portion, demolition costs, and increased cost of construction to comply with current codes.

Which coverage is NOT part of the mandatory PIP benefit package under N.J.S.A. 39:6A-4 on the Standard policy?

1. Collision (physical damage) benefits ✓
2. Essential services benefits
3. Income continuation benefits
4. Medical expense benefits

Why: PIP comprises medical expense, income continuation, essential services, death, and funeral benefits. Collision (physical damage) coverage is a separate, optional first-party coverage, not part of PIP.

Electronic Data Processing (EDP) / electronic equipment floaters are notable because they often cover:

1. Liability claims brought against the insured by customers whose personal information was exposed in a system breach
2. Perils such as electrical injury, mechanical breakdown, and data loss not covered by standard property forms ✓
3. Only fire damage to the insured's computer hardware and media
4. Flood damage to computer hardware and nothing else

Why: EDP floaters provide broad coverage for computer hardware, software, and data, including perils like electrical/mechanical breakdown that standard property forms typically exclude.

Regarding the producer licensing examination, N.J.S.A. 17:22A-31 requires that:

1. The examination be administered only in the English language, in which every licensing form must also be completed
2. The examination fee be refunded in full to an applicant who fails on a first attempt
3. The examination and registration materials be offered in English and Spanish ✓
4. An applicant pay no additional fee for a second or later retake of the examination

Why: N.J.S.A. 17:22A-31(e) requires the Commissioner to ensure the examination and registration materials are offered in English and Spanish; the exam fee is nonrefundable.

Smoke damage under a Homeowners policy is typically:

1. Covered only under DP-1 and DP-2, since homeowners forms treat smoke as a pollution loss instead
2. A covered named peril, though smoke from agricultural smudging or industrial operations may be excluded ✓
3. Excluded entirely, because smoke residue is considered gradual damage rather than a sudden loss
4. Covered under Coverage E liability, which reimburses the insured for smoke damage to their contents

Why: Smoke is a covered peril, but smoke arising from agricultural smudging or industrial operations is commonly excluded.

Under 17:29B-7, if the person knew or reasonably should have known he was in violation, the penalty per act or violation may be increased to not more than:

1. $1,000
2. $5,000 ✓
3. $2,500
4. $25,000

Why: Section 17:29B-7(a) provides that where the person knew or reasonably should have known he was in violation, the penalty shall be not more than $5,000.00 for every act or violation.

Under the NFIP Dwelling Form, building coverage and contents coverage:

1. Are both automatically included at the same limit
2. Share a single combined limit
3. Have separate limits and must be purchased separately ✓
4. Cannot both be purchased on one property

Why: NFIP building and contents coverages carry separate limits, and contents coverage must be purchased separately from building coverage.

Private flood insurance, as opposed to NFIP coverage, is best described as:

1. Flood coverage that may be written by private agents only after they complete FEMA certification training each year
2. Excess coverage that responds only after the maximum NFIP building and contents limits have been exhausted
3. Coverage that federal law requires every mortgage lender to demand in place of an NFIP policy on all loans
4. Flood coverage offered by private insurers, often with higher limits or broader terms than the NFIP ✓

Why: Private flood insurers compete with the NFIP and frequently offer higher limits, replacement cost on contents, or additional living expense not available under standard NFIP forms.

Directors and Officers (D&O) liability insurance primarily protects:

1. The company's products against claims that they failed to perform in the way the sales literature had promised buyers they would
2. Customers who slip and fall in the lobby of the corporate headquarters while they are waiting to meet with an officer of the firm
3. Employees who are hurt on the job, by paying for their medical treatment and lost wages until they are able to return to work
4. Corporate directors and officers (and often the entity) against claims alleging wrongful acts in managing the organization ✓

Why: D&O covers directors, officers, and frequently the entity for losses from alleged wrongful management acts.

A loss in which the property is completely destroyed or damaged beyond economical repair is a:

1. Partial loss
2. Consequential loss
3. Total loss ✓
4. Salvage loss

Why: A total loss occurs when property is entirely destroyed or so damaged that repair is not economically feasible.

A New Jersey verbal-threshold plaintiff's physician certification of injury must be supported by what?

1. The plaintiff's sworn certification describing the pain, its duration, and the daily activities the injury prevents him from performing
2. A police accident report identifying the at-fault driver
3. Affidavits from two eyewitnesses who saw the collision
4. Objective clinical evidence, which may include valid diagnostic testing performed under medical protocols ✓

Why: The certification must be based on and refer to objective clinical evidence, which may include medical testing performed in accordance with the statutory protocols and not dependent entirely on subjective patient response.

Which two lawful methods may a New Jersey employer use to satisfy its obligation to secure payment of workers' compensation?

1. Establishing a payroll escrow account with the Division of Workers' Compensation, or obtaining written waivers signed by the employees
2. Membership in a trade association group, or an offshore captive
3. A surety bond posted with the county clerk, or a group health plan
4. Purchasing a policy from an authorized carrier, or approved self-insurance ✓

Why: N.J.S.A. 34:15-71 (with 34:15-77 and 34:15-78) allows an employer to insure through an authorized carrier or to become an approved self-insurer; those are the two statutory methods.

Hired auto physical damage coverage under the BACF can be provided by:

1. Symbol 7 alone, since it reaches every auto the insured operates, rented units included
2. An endorsement to the workers compensation policy covering autos employees rent on trips
3. Symbol 1, which covers any auto and so picks up hired units for physical damage
4. Endorsement or designation that extends physical damage to autos the insured hires or rents ✓

Why: Physical damage on hired autos is added via the appropriate symbol (e.g., 8) or hired auto physical damage endorsement, often with a stated limit.

An admitted (authorized) insurer is one that:

1. Is incorporated outside the United States and operates here through a branch office
2. Sells only surplus lines coverage, placed through licensed surplus lines brokers
3. Is owned by its policyholders rather than by stockholders
4. Has received a certificate of authority to do business in the state ✓

Why: An admitted or authorized insurer has been granted a certificate of authority by the state insurance department to transact business there.

Under the BACF, coverage for autos the named insured does not own, hire, or borrow but that are used in the business by employees is most economically added through:

1. Specified causes of loss physical damage endorsed onto each employee's personal auto, with a separate premium charged for every vehicle
2. Non-owned auto liability (Symbol 9), which carries no separate vehicle premium for owned units ✓
3. Garagekeepers coverage added to the business auto policy, which insures autos of others while they are in the named insured's care, custody, or control
4. Symbol 1 physical damage, which sweeps any auto the business uses into the schedule

Why: Symbol 9 non-owned liability is typically rated on a flat or employee/exposure basis rather than per scheduled auto, providing economical vicarious-liability protection.

When an employer is held responsible for the negligent acts of an employee committed within the scope of employment, this is:

1. Contributory negligence
2. Vicarious liability ✓
3. Absolute liability
4. Strict liability

Why: Vicarious liability holds one party (e.g., an employer) responsible for the actions of another (e.g., an employee acting within the scope of employment).

The CGL contractual liability exclusion contains an important exception for:

1. Liability the insured would have without the contract, and liability assumed in an 'insured contract' ✓
2. Cleanup of pollutants released at a job site whenever the insured has agreed in a written contract to restore the property
3. Punitive damages assessed against the party the insured indemnified, provided the state allows them to be insured
4. War risks, when the contract is with a government agency

Why: Liability assumed under an 'insured contract' (and liability that would exist absent the contract) is excepted from the contractual liability exclusion, so it remains covered.

A manufacturer being held liable for injury caused by a defective product, without the injured party needing to prove negligence, is an example of:

1. Comparative negligence
2. Strict liability ✓
3. Contributory negligence
4. Vicarious liability

Why: Strict liability in product cases holds the manufacturer responsible for defective products regardless of the level of care exercised.

Under the PAP, when an insured has two PAPs from DIFFERENT insurers covering the same liability loss on a non-owned auto, coverage is generally coordinated as:

1. Both primary, with each insurer paying its full limit until the loss is satisfied
2. Each excess, sharing on the basis stated in the other-insurance provision ✓
3. The newer policy is void for concealment
4. Neither pays, since the auto owner's policy is the only coverage

Why: When the insured's coverage is excess (as on a non-owned auto) under two policies, they typically share the excess pro rata as provided in the other-insurance clause.

When two policies cover the same loss and an 'other insurance' clause requires each to pay a share proportional to its limit, this is:

1. Nonconcurrency
2. Primary and excess
3. Pro rata (proportional) sharing ✓
4. Contribution by equal shares

Why: Pro rata sharing divides the loss among insurers in proportion to each policy's limit relative to total coverage.

A building constructed with exterior walls of brick or masonry but with a combustible (wood) roof is generally classified as:

1. Joisted masonry (masonry) ✓
2. Frame construction
3. Fire-resistive construction
4. Modified fire-resistive

Why: Joisted masonry has masonry exterior walls but combustible floors or roof, making it more fire-resistant than frame but less than fire-resistive.

Shareholders sue a corporation's board alleging mismanagement caused a stock drop. Which policy responds?

1. CGL Coverage B, treating the board's statements as advertising injury
2. Directors and Officers (D&O) Liability ✓
3. Liquor liability, if the board met over dinner
4. EPLI, because the suit names corporate officers

Why: Claims against directors and officers for wrongful management acts are handled by D&O liability insurance.

Section III of the BOP contains:

1. The declarations page listing limits, deductibles, and the insured's name
2. Only the property exclusions
3. Common policy conditions applicable to the whole policy ✓
4. The liability limits of insurance

Why: Section III contains the Common Policy Conditions (cancellation, changes, etc.) that apply to the entire Businessowners Policy.

Under N.J.S.A. 17:29B-4(9), when an insurer makes a claim payment to an insured, that payment must be accompanied by:

1. A signed release of all future claims against the insurer
2. A copy of the reinsurance treaty applicable to the loss
3. A statement setting forth the coverage under which payment is made ✓
4. A new blank proof-of-loss form for the insured to complete

Why: Subsection (9)(j) prohibits making claim payments 'not accompanied by a statement setting forth the coverage under which the payments are being made.'

Under the ISO Commercial General Liability Coverage Form, which coverage part responds to bodily injury and property damage liability arising out of the insured's premises and operations?

1. Supplementary Payments
2. Coverage B
3. Coverage C
4. Coverage A ✓

Why: Coverage A insures bodily injury and property damage liability. Coverage B is personal and advertising injury; Coverage C is medical payments.

What is the current minimum property damage liability limit required on a New Jersey Standard automobile policy?

1. $5,000
2. $10,000
3. $50,000
4. $25,000 ✓

Why: The PD liability minimum became $25,000 for plans issued or renewed on or after January 1, 2023 and remains $25,000.

Under N.J.S.A. 17:30A-8, member insurers must be notified of a PLIGA assessment not later than how many days before it is due?

1. 10 days
2. 60 days
3. 30 days ✓
4. 90 days

Why: Section 8 requires that '[e]ach member insurer shall be notified of the assessment not later than 30 days before it is due.'

According to N.J.S.A. 17:22A-28, a "license" issued by the Commissioner:

1. Automatically appoints the producer to every insurer admitted in New Jersey for the lines of authority shown on the face of the document
2. Creates apparent authority permitting the holder to bind any insurer admitted in this State for the lines of authority the license lists
3. Itself does not create any authority, whether actual, apparent or inherent, in the holder to represent or commit an insurer ✓
4. Guarantees the producer an appointment contract with at least one authorized insurer for every line of authority it grants

Why: The Act states the license is a document authorizing a person to act as a producer for specified lines, but the license itself does not create any authority, actual, apparent or inherent, to represent or commit an insurer.

Pure risk differs from speculative risk in that pure risk involves:

1. Only the chance of loss or no loss ✓
2. Voluntary participation for reward
3. Guaranteed profit
4. Both loss and gain possibilities

Why: Pure risk presents only the possibility of loss or no loss, with no opportunity for gain, making it the only insurable type of risk.

Market value as a basis of valuation refers to:

1. The cost to rebuild the property new at today's prices, excluding the land
2. The price the property would bring in a sale, including land ✓
3. The face amount of the policy shown on the declarations page
4. Replacement cost less an allowance for depreciation and obsolescence

Why: Market value is what a buyer would pay a seller in an open market and can differ substantially from replacement cost because it includes land and location factors.

Which day counts as the first day of the New Jersey workers' compensation waiting period?

1. The first Monday of the week following the injury
2. The day the claim petition is filed
3. Only the calendar day after the accident
4. The day the worker is first unable to continue working ✓

Why: N.J.S.A. 34:15-14 states that the day the employee is unable to continue at work by reason of the accident, whether the day of the accident or later, counts as one whole day of the waiting period; the days need not be consecutive.

Violations of 18 U.S.C. § 1033 can result in:

1. A written warning letter from the state insurance department and nothing further
2. Loss of eligibility to write NFIP flood policies, with no other consequence
3. A surcharge added to the producer's errors and omissions premium at renewal
4. Federal criminal penalties including fines and imprisonment ✓

Why: Section 1033 carries federal criminal penalties, including fines and imprisonment, depending on the offense and resulting harm.

A business that performs incidental contracts and also assumes a railroad's liability in a sidetrack agreement has the assumed liability covered under the CGL because:

1. It is a Coverage B personal and advertising injury offense committed in the conduct of the insured's business
2. A sidetrack agreement is an 'insured contract' excepted from the contractual liability exclusion ✓
3. The pollution exclusion contains a stated exception for railroad operations carried out on a sidetrack
4. All liability the insured assumes by written contract is covered automatically

Why: Sidetrack agreements are listed insured contracts, so liability assumed under them is excepted from the contractual liability exclusion.

A false statement of a material fact on an application that, if known, would have changed the insurer's underwriting decision is a:

1. Warranty
2. Representation
3. Misrepresentation ✓
4. Estoppel

Why: A misrepresentation is a false statement; if it is material it can void the contract.

Personal Injury Protection (PIP), where applicable, typically covers:

1. Comprehensive damage to the insured's own vehicle from theft, fire, hail, or falling objects
2. Liability to third parties for bodily injury and property damage the insured causes
3. Property damage to another person's vehicle or fence caused by the insured
4. The insured's medical expenses, lost wages, and certain other economic losses regardless of fault ✓

Why: PIP, common in no-fault states, pays the insured's own medical, wage loss, and related economic benefits without regard to fault.

A bar overserves a patron who then injures a third party in a fight. Which coverage is designed to respond to the bar's liability?

1. Workers compensation, because the bartender was on duty when the fight started
2. Liquor Liability / Dram Shop coverage ✓
3. A surety bond posted with the state liquor control board
4. CGL Coverage A, because the patron's injury is bodily injury on the premises

Why: Because the CGL excludes the liquor business's liability, the bar needs liquor liability/dram shop coverage for injuries connected to serving alcohol.

Under N.J.S.A. 17:36-5.20a, a third-party criminal act is protected from being the sole basis for nonrenewal when the act is committed by:

1. The named insured acting personally against the property
2. Someone who is not a resident of the insured dwelling ✓
3. A member of the insured's own household or immediate family
4. A prior owner of the property before the current policy

Why: Section 5.20a addresses 'a third-party criminal act committed by someone who is not a resident of the insured dwelling.'

General average in ocean marine refers to:

1. The average premium charged across all vessels in a single fleet policy
2. A total loss of the vessel and everything aboard, after which the underwriter pays the full insured value
3. A voluntary sacrifice or expense incurred to save the venture, shared proportionally by all parties ✓
4. A partial loss falling entirely on the owner of the damaged property, with no contribution from others

Why: General average is a partial loss intentionally incurred (e.g., jettisoning cargo) to save the entire venture; the loss is shared proportionally among all interests (ship, cargo, freight).

The maximum amount an insurer will pay for any one accident, regardless of the number of claimants, is the:

1. Per-person limit
2. Aggregate limit
3. Split limit
4. Per-accident limit ✓

Why: A per-accident limit is the most the insurer pays for all damages from one accident combined.

Under the PAP, a "temporary substitute auto" used while the covered auto is being repaired is treated as:

1. A non-owned auto, which the pap leaves entirely uninsured
2. Excluded outright once the covered auto goes into the shop
3. A covered auto, picking up the coverages that applied to the disabled vehicle ✓
4. Covered for Part A liability only, never for damage to the substitute itself

Why: A temporary substitute for a covered auto out of service (for repair, breakdown, etc.) is covered with the same coverages as the vehicle it replaces.

Which payment is included as a Supplementary Payment under PAP Part A and does NOT reduce the limit of liability?

1. Punitive damages assessed against the insured for reckless driving, paid on top of the stated limit
2. Up to a stated daily amount for loss of earnings to attend a trial at the insurer's request ✓
3. The bodily injury damages awarded to a third party by the court
4. Property damage to the insured's own vehicle in the same accident

Why: Supplementary payments include a stated daily amount for loss of earnings to attend hearings or trials at the insurer's request, paid in addition to the limit.

A general contractor's subcontractor fails to carry required workers' compensation coverage, and a subcontractor employee is injured. Under N.J.S.A. 34:15-79, who may be liable for the compensation owed?

1. The general contractor, subject to reimbursement rights ✓
2. No one, because the subcontractor was independent
3. Only the injured worker's own health insurer
4. The premises owner exclusively, in all cases

Why: N.J.S.A. 34:15-79 makes a contractor liable for compensation owed to a subcontractor's employee when the subcontractor fails to carry insurance, granting the contractor a right of reimbursement against the subcontractor.

Several businesses pool their funds to collectively cover one another's losses without buying commercial insurance. This best illustrates risk:

1. Transfer to an insurer
2. Reduction
3. Avoidance
4. Sharing ✓

Why: Risk sharing or pooling spreads the cost of losses among a group of similarly exposed parties.

For an insurer authorized to write property insurance in New Jersey, membership in the Insurance Underwriting Association (FAIR Plan) is:

1. Optional, and available to any authorized insurer that applies to the association
2. Required only of insurers domiciled in New Jersey, with foreign insurers joining voluntarily
3. Limited to insurers writing coastal or urban exposures
4. Mandatory, as a condition of its authority to transact that business ✓

Why: Section 3 states each such insurer 'shall be a member... as a condition of its authority to continue to transact such kinds of insurance in this State.'

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.

A risk retention group (RRG) is:

1. A reinsurance company that assumes liability risk ceded by primary insurers under a treaty
2. A consumer-reporting agency that assembles loss-history reports for underwriters
3. A liability insurer owned by its members who are engaged in similar businesses ✓
4. A federal pool that writes flood coverage for commercial property in flood zones

Why: Authorized under the federal Liability Risk Retention Act, an RRG is a member-owned insurer that writes liability coverage for its members engaged in similar or related businesses.

A technology consultant gives faulty advice causing a client a large financial loss (no bodily injury or property damage). The proper coverage is:

1. A liquor liability endorsement
2. Technology/Professional E&O ✓
3. CGL Coverage A for property damage
4. A $10,000 bid bond

Why: Pure financial loss from negligent professional advice is covered by professional E&O, not the CGL which requires BI/PD (or a covered offense).

The Spoilage endorsement primarily covers:

1. Theft of packaged inventory from a walk-in cooler
2. Damage to the building's refrigeration room structure
3. Spoilage of perishable stock due to power outages or equipment breakdown ✓
4. Liability for customer illness caused by contaminated food sold

Why: The Spoilage endorsement covers loss to perishable stock from breakdown of refrigeration equipment or off-premises power interruption, depending on options selected.

Custom furnishings or equipment installed in a pickup or van (e.g., custom murals, special carpeting) under the unendorsed PAP are:

1. Covered automatically up to the actual cash value of the furnishings, with no endorsement needed
2. Covered in full with no dollar limit, because they are permanently attached to the vehicle
3. Generally excluded from Part D unless coverage is added by endorsement ✓
4. Covered only under Part A liability, and only if the equipment injures a passenger

Why: The PAP excludes custom furnishings or equipment in pickups and vans unless coverage is specifically added, often by endorsement.

A legal doctrine that reduces a plaintiff's recovery in proportion to their own degree of fault is:

1. Contributory negligence
2. Res ipsa loquitur
3. Comparative negligence ✓
4. Strict liability

Why: Comparative negligence apportions damages according to each party's percentage of fault rather than barring recovery entirely.

The standard CGL excludes liability for professional services. An architect, accountant, or doctor would address this gap with:

1. Raising the CGL general aggregate to $4 million at renewal
2. Professional Liability / Errors & Omissions coverage ✓
3. An umbrella following form over the CGL
4. Coverage C medical payments with a higher per-person limit

Why: Professional services are excluded under the CGL and must be insured with a Professional Liability/E&O policy.

Under N.J.S.A. 17:30A-5, a first-party PLIGA covered claim requires that the claim be for damage to property with:

1. A value under $300,000
2. A permanent location in New Jersey ✓
3. Full replacement-cost coverage
4. No mortgage against it

Why: Section 5 defines a covered claim to include 'a first party claim made by an insured for damage to property with a permanent location in this State.'

In the Homeowners program, the loss assessment additional coverage is most relevant to which insured?

1. A renter under an HO-4 form, whose landlord may pass building repair costs through as added rent
2. A landlord who insures a rented dwelling and bills tenants for damage to common hallways
3. The owner of a vacant home awaiting sale
4. A condominium or association member who may be assessed for shared property damage ✓

Why: Loss assessment coverage helps pay an insured's share of an assessment charged by a homeowners or condo association for a covered loss to commonly owned property.

A ship's captain orders cargo jettisoned to keep the vessel from sinking in a storm; the ship and remaining cargo are saved. The loss to the jettisoned cargo is handled as:

1. General average, shared by all interests ✓
2. A constructive total loss of the vessel, payable in full to the shipowner
3. An excluded loss, because the captain sacrificed the cargo on purpose
4. Particular average, borne solely by the owner of the jettisoned cargo

Why: Voluntarily sacrificing cargo to save the venture is a general average loss, shared proportionally among ship, cargo, and freight interests.

Under the PAP, who qualifies as an insured under Part B — Medical Payments?

1. Any person injured in the accident, including occupants of the other vehicle and bystanders who witnessed the crash
2. The named insured and family members (in any auto or as pedestrians) and other occupants of the covered auto ✓
3. Only persons holding a valid driver's license at the time of the crash, so unlicensed passengers collect nothing
4. Only the named insured, and only while occupying the auto shown in the Declarations

Why: Part B insureds are the named insured and family members while occupying or struck as pedestrians, plus any other person occupying the covered auto.

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.

In most liability policies, defense costs are:

1. Paid in addition to the limit of liability ✓
2. Deducted from the limit of liability
3. Paid by the insured
4. Never covered

Why: Defense costs are typically paid in addition to (outside) the policy limits in standard liability forms, though some forms erode limits.