Texas Property & Casualty Insurance License, Practice Exams

The Motor Carrier Coverage Form is most appropriate for:

1. An individual insuring the family sedan for commuting
2. A business that transports goods or people for hire (trucking) ✓
3. A homeowner adding coverage for a car kept in the garage
4. A motorcycle dealership that sells and services bikes

Why: The Motor Carrier Coverage Form is tailored for businesses that haul property or passengers for others, addressing trucking-specific exposures.

Under TRIA, the federal government's share of insured terrorism losses applies only after the insurer pays:

1. The full amount of every certified loss, with federal reimbursement available only to reinsurers
2. Nothing, since federal sharing begins at the first dollar
3. A flat $1,000 retention for each certified event
4. An insurer deductible based on a percentage of its prior-year premiums ✓

Why: Under TRIA, each insurer retains a deductible (a percentage of its prior-year direct earned premium) before the federal government shares in the remaining certified losses.

Under §2210.251, a structure built before January 1, 1988 in an area that was governed by a recognized building code at the time of construction is treated how with respect to TWIA?

1. It must pass a new full inspection by a qualified inspector before each annual renewal of the association policy
2. It is eligible only for a loss settlement limited to 50 percent of the actual cash value of the damaged structure
3. It is insurable property eligible for coverage without the inspection or approval requirements of the section or plan of operation ✓
4. It is ineligible for association coverage unless the owner first obtains a certificate of compliance under §2210.2515 showing the structure meets the current windstorm building code

Why: §2210.251(d) provides such pre-1988 structures in code-governed areas are insurable property eligible for TWIA coverage without compliance with the section's or plan's inspection or approval requirements.

Which valuation method pays the cost to repair or replace property with new property of like kind and quality, without deduction for depreciation?

1. Agreed value
2. Functional replacement cost
3. Actual cash value
4. Replacement cost ✓

Why: Replacement cost pays to repair or replace with new property of like kind and quality with no deduction for depreciation.

Part A of the PAP provides coverage for:

1. Damage to the insured's own auto from collision or other than collision
2. Medical payments to occupants of the insured auto regardless of who was at fault
3. Bodily injury and property damage liability the insured becomes legally responsible for ✓
4. Theft of the insured vehicle and its contents

Why: Part A — Liability covers bodily injury and property damage for which an insured becomes legally liable due to an auto accident.

Under § 541.061, all of the following are ways a person may unlawfully 'misrepresent an insurance policy' EXCEPT:

1. Failing to disclose a matter that the law specifically requires to be disclosed
2. Making an untrue statement of a material fact about the policy
3. Charging a higher premium than a competitor for the same coverage ✓
4. Deliberately making a material misstatement of law regarding the policy's terms

Why: Section 541.061 defines misrepresentation of a policy as untrue statements of material fact, omissions that mislead, misleading statements, material misstatements of law, and failure to disclose required matters. Charging a higher premium is not listed.

Under 601.072(b), the coverage may exclude the first ___ of liability for bodily injury to or death of two or more persons in one collision.

1. $750
2. $250
3. $500 ✓
4. $1,000

Why: 601.072(b)(2) permits exclusion of the first $500 of liability for bodily injury to or death of two or more persons, subject to the per-person amount.

An employer with worse-than-average claims experience for its class would most likely have an experience modification factor that is:

1. Equal to 1.00, with no change
2. Set to zero
3. Below 1.00, producing a credit
4. Above 1.00, producing a debit ✓

Why: A debit mod above 1.00 reflects worse-than-average loss experience and increases the employer's premium relative to the class average.

Which best describes "non-owned autos" in commercial auto?

1. New and used autos held in a dealer's showroom inventory for sale, which Symbol 9 picks up while they sit on the display lot
2. Rental cars the named insured hires under short-term agreements while its own fleet units are in the shop being repaired
3. Autos used in the business but not owned, leased, or borrowed by the named insured — typically employees' own vehicles ✓
4. Autos titled to the named insured but assigned to a single employee for that employee's exclusive use during the workweek

Why: Non-owned autos (Symbol 9) are vehicles not owned/hired by the insured but used in its business, most often employees' personal autos.

An 'impairment rating' in workers' compensation is used primarily to:

1. Decide which state's compensation law governs a multistate claim
2. Measure the degree of permanent loss of function for benefit determination ✓
3. Set the employer's premium classification code from its payroll
4. Calculate the experience modification factor applied to the employer's manual premium

Why: An impairment rating, often expressed as a percentage, measures the extent of permanent physical impairment and is used to determine permanent disability benefits.

Coverage E in the Dwelling Policy provides which of the following?

1. Additional living expense for the owner-occupant ✓
2. Identity theft restoration expenses, up to $25,000 per occurrence
3. Medical payments to injured guests
4. Personal liability for bodily injury

Why: Coverage E — Additional Living Expense pays the increased cost of living elsewhere while the insured's own residence is being repaired after a covered loss.

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.

Because an insurance policy is a contract of adhesion, any ambiguity in its wording is generally:

1. Considered void and unenforceable, so the provision containing it is struck out
2. Resolved in favor of the insured, against the insurer who drafted it ✓
3. Sent to the state insurance department for an authoritative interpretation
4. Resolved in favor of the insurer who drafted it, since it chose the wording

Why: Since the insurer drafts the contract, ambiguities are construed against the drafter and in favor of the insured.

Which of the following is typically EXCLUDED under an NFIP flood policy?

1. The furnace and central air conditioner serving the dwelling, which NFIP building coverage insures even when they sit in a basement
2. Damage to finished basement improvements and personal property in a basement (with limited exceptions) ✓
3. The building's foundation walls, anchorage system, and staircases
4. A detached garage located on the same premises, which may draw up to ten percent of the building coverage limit

Why: The NFIP severely limits coverage in basements, generally excluding finished walls, floors, and most personal property below the lowest elevated floor.

How does a standard commercial property deductible typically apply?

1. It applies only to personal property losses, never to the building itself
2. Per item of damaged property, with no aggregate cap
3. Per occurrence, subtracted from the loss after coinsurance is applied ✓
4. Per peril, and it doubles for theft losses

Why: The deductible applies per occurrence and is subtracted from the loss amount after any coinsurance adjustment is made.

Liquor liability (dram shop) coverage is needed because the CGL excludes liability for businesses that:

1. Serve prepared food to the public and are therefore required to hold a food-handler permit from the local health department
2. Manufacture, distribute, sell, or serve alcoholic beverages and cause or contribute to a patron's intoxication ✓
3. Rent out portions of their premises to tenants under written leases running longer than twelve consecutive months
4. Hire independent contractors whose work the insured does not directly supervise

Why: The CGL liquor liability exclusion applies to those in the alcohol business; they need separate liquor liability coverage.

The HO-3 (Special Form) covers the dwelling and personal property on what basis, respectively?

1. Named perils on the dwelling; open perils on personal property
2. Open perils on the dwelling; named (broad) perils on personal property ✓
3. Named perils on both
4. Open perils on both

Why: HO-3 insures the dwelling and other structures on an open-perils basis but covers personal property (Coverage C) on a named-perils (broad form) basis.

A contractor's business owns no vehicles but employees drive their personal cars to job sites for the company. The business should carry:

1. An MCS-90 endorsement, which federal rules make the required proof of coverage for any employer
2. A personal auto policy issued to the firm
3. Hired and non-owned auto liability (Symbols 8 and 9) ✓
4. Garagekeepers coverage on employee autos

Why: Hired and non-owned auto liability protects the business against vicarious liability from employees' personal autos used on company business and any hired vehicles.

If a claims-made insured switches carriers and the new policy uses the same retroactive date, the insured generally:

1. Loses all coverage for prior occurrences unless a tail is bought on the expiring policy
2. Must buy a supplemental extended reporting period from the prior carrier at extra cost
3. Maintains continuity of coverage for prior occurrences without buying a tail ✓
4. Must accept a self-insured retention twice the size of the one on the expiring policy

Why: Keeping the same retroactive date with the new carrier preserves continuity, so a tail on the expiring policy is typically unnecessary.

Some categories of workers (such as certain domestic, agricultural, or casual employees) may be excluded from mandatory WC coverage but can be covered if the employer chooses. This describes:

1. Monopolistic employment
2. Required employment
3. Elective (exempt) employment ✓
4. Statutory employment

Why: Elective or exempt categories are those the law does not require to be covered, but the employer may elect to cover them voluntarily.

In a liability policy, the insurer's 'duty to defend' generally means it must:

1. Provide and pay for the insured's legal defense for covered claims, even groundless ones ✓
2. Defend criminal charges brought against the insured
3. Pay any judgment entered but not the cost of the defense
4. Defend only after the insured has hired counsel and submitted the attorney's bills for reimbursement

Why: The duty to defend obligates the insurer to provide a legal defense against covered claims, including those that are groundless, false, or fraudulent.

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 covered property loss totals $8,000 and the policy carries a $1,000 deductible. The insurer pays:

1. $1,000
2. $7,000 ✓
3. $9,000
4. $8,000

Why: The insurer pays the loss minus the deductible: $8,000 − $1,000 = $7,000.

Making false statements that malign the financial condition of a Texas insurer is:

1. Coercion
2. Twisting
3. Defamation ✓
4. Rebating

Why: Defamation — false, maligning statements about an insurer — is prohibited under Chapter 541.

Under the subchapter governing agents who write only small-amount life insurance for stipulated premium and mutual aid companies, an insurance agent licensed under that subchapter is subject to what coverage ceiling?

1. The agent may not write coverage with an initial guaranteed death benefit that exceeds $25,000 on any life ✓
2. The agent may write any amount so long as combined coverage on one life does not exceed $300,000 in death benefit
3. The agent may not write coverage that exceeds the actual aggregate cost of any prepaid funeral contract being funded
4. The agent may not write any combination of coverages that exceeds $50,000 of initial guaranteed death benefit on a single life

Why: An agent licensed under this subchapter may not write coverage with an initial guaranteed death benefit exceeding $25,000 on any life.

Under the PAP, the limit of liability for Part A applies:

1. Separately to each claim with no per-accident cap, so every claimant injured in one collision may collect the full stated limit
2. As the most paid regardless of the number of insureds, claims, vehicles, or persons involved (per the limits shown) ✓
3. Per insured separately, so two insureds riding in one auto double the limit available for that accident
4. Doubled when two or more vehicles are listed on the same declarations page

Why: The Part A limit of liability is the most the insurer will pay for one accident regardless of the number of insureds, claims, vehicles, or persons (subject to split/CSL terms).

A Farm Coverage Form generally combines:

1. Coverage for the dwelling, farm personal property, and farm structures ✓
2. Workers compensation benefits for the farm's hired laborers together with statutory employers liability limits
3. Only the liability arising out of the farming operation, with no property coverage on the dwelling or the barns
4. Ocean marine cargo on crops moving to market and personal auto coverage on the farm's pickup trucks

Why: The Farm Coverage Form can combine coverage for the farm dwelling, household personal property, farm personal property (including livestock and machinery), and farm buildings/structures.

Under §406.034, by default an employee of a covered (subscribing) employer who does NOT opt out:

1. Retains the full common-law right to sue the employer for negligence and to recover exemplary damages for any on-the-job injury
2. Is excluded from benefits until electing coverage in writing
3. Must submit any injury claim to binding arbitration
4. Waives the common-law right of action to recover damages for work-related injury or death ✓

Why: Unless the employee gives the required written notice to retain common-law rights, the employee of a subscribing employer waives the right of action at common law for work-related injury or death — the counterpart to the employer's exclusive-remedy protection.

Actual cash value is generally calculated as:

1. The face amount of the policy
2. Market value plus profit
3. Replacement cost minus depreciation ✓
4. Replacement cost plus appreciation

Why: ACV is typically replacement cost less depreciation, reflecting the property's depreciated value at the time of loss.

An employee's entitlement to Impairment Income Benefits (IIBs) in Texas begins:

1. On the day after the employee reaches maximum medical improvement ✓
2. Thirty days after the employee files the workers' compensation claim with the carrier
3. Only after Supplemental Income Benefits have been paid out and exhausted in full
4. On the date of the compensable injury, when the employee's disability first begins

Why: IIBs begin the day after the employee reaches maximum medical improvement and end on the earlier of expiration of the computed period or the employee's death.

Which of the following is true about how WC indemnity benefits interact with maximum and minimum limits?

1. No statutory ceiling or floor applies; the weekly check is simply two-thirds of the worker's own average wage
2. Weekly benefits are subject to statutory maximums and minimums tied to the state average wage ✓
3. A statutory maximum caps the weekly benefit, but no minimum exists, so a low-wage worker receives whatever the percentage yields
4. The weekly benefit always equals one hundred percent of the worker's pre-injury wage until maximum medical improvement

Why: Indemnity benefits are generally a percentage of average weekly wage but capped by a statutory maximum and floored by a minimum, often tied to the statewide average weekly wage.

A building valued at $1,000,000 carries an 80% coinsurance clause. The insured carries $600,000 of coverage and suffers a $200,000 loss (before deductible). What does coinsurance pay?

1. $200,000
2. $120,000
3. $160,000
4. $150,000 ✓

Why: Required = 80% of $1,000,000 = $800,000. Penalty factor = $600,000/$800,000 = 0.75. Payment = 0.75 x $200,000 = $150,000.

Several manufacturers in the same industry want to form an insurer they own to write their own liability coverage and operate across state lines. The most appropriate vehicle is a:

1. Beach plan
2. Risk purchasing group
3. Risk retention group ✓
4. FAIR Plan

Why: A risk retention group, owned by members in similar businesses, is designed to write its members' liability coverage and may operate across states once licensed in one.

A party dissatisfied with the decision of the administrative law judge after a contested case hearing may appeal to the appeals panel within how many days after receiving the decision?

1. 45 days
2. 30 days
3. 10 days
4. 15 days ✓

Why: To appeal, a party must file a written request for appeal with the appeals panel not later than the 15th day after the date the ALJ's decision is received (excluding weekends and listed holidays).

In an insurance contract, the consideration given by the insured is:

1. The promise to pay covered claims that arise during the policy period
2. The certificate of authority that the insurer holds from its state of domicile
3. The policy document itself, once it has been delivered to the applicant
4. The payment of premium and the statements made in the application ✓

Why: The insured's consideration is the premium plus the representations made in the application; the insurer's consideration is its promise to pay covered losses.

Saying that a property insurance contract is personal means that it:

1. Can only be sold to individuals in their own names, and never to a partnership, corporation or other business entity
2. Covers only personal property such as furniture and clothing, and never the dwelling or other real property
3. Must be signed in person by the named insured before the coverage can attach
4. Insures a person, not the property itself, and generally cannot be transferred without the insurer's consent ✓

Why: A personal contract insures the individual against loss, not the property; it cannot be assigned to another party without the insurer's consent.

Many Homeowners policies suspend certain coverages, such as vandalism and freezing, after the dwelling has been vacant for more than:

1. 30 days
2. 90 days
3. 60 days ✓
4. 15 days

Why: A common provision suspends or restricts coverage for vandalism, glass breakage, and freezing once the dwelling has been vacant for more than 60 consecutive days.

Under the exclusive remedy doctrine, what does an employee generally give up in exchange for statutory workers' compensation benefits?

1. The right to be reinstated to the same job and shift once the treating physician issues a release
2. The right to employer-paid medical care
3. The right to two-thirds wage benefits
4. The right to sue the employer in tort for the work-related injury ✓

Why: The exclusive remedy doctrine means workers' compensation is the employee's sole remedy against the employer; the employee gives up the right to sue the employer in tort in exchange for guaranteed no-fault benefits.

Under Section 4005.054, a licensed agent who already receives a commission for services to a client generally may not charge that same client an additional fee unless the fee is:

1. Held to less than 10 percent of the annual premium charged for the policy
2. Paid directly to the insurer and remitted back to the agent as commission
3. Approved verbally by the client
4. Disclosed as required and authorized under the fee-disclosure statutes ✓

Why: Tex. Ins. Code § 4005.054 prohibits a commissioned agent from receiving an additional fee for the same services to the same client except for a fee described by § 550.001 or § 4005.003 and for which disclosure is made as required under § 4005.003 or § 4005.004.

Under the BPP, how far from the described premises is the standard coverage for business personal property in the open or in a vehicle?

1. Anywhere in the United States, the same as a nationwide inland marine floater
2. Within 100 feet of the described premises ✓
3. Within 1,000 feet of the building
4. Only while inside the described building

Why: The BPP extends coverage to covered business personal property in the open (or in a vehicle) within 100 feet of the described premises.

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.

An employee suffers a temporary, totally disabling injury and cannot work at all for several weeks but is expected to fully recover. Which benefit classification applies?

1. Temporary partial disability (TPD)
2. Permanent partial disability (PPD)
3. Temporary total disability (TTD) ✓
4. Permanent total disability (PTD)

Why: Temporary total disability (TTD) applies when the worker is completely unable to work for a limited time but is expected to recover and return to work.

A driver with 25/50/15 limits causes an accident injuring three people for $20,000 each ($60,000 total). How much does BI liability pay?

1. $25,000 (the per-person bodily injury limit)
2. $60,000 (the combined single limit for the policy)
3. $50,000 (limited by the per-accident BI maximum) ✓
4. $15,000 (the minimum financial-responsibility limit)

Why: Each person's $20,000 is under the $25,000 per-person limit, but the total $60,000 exceeds the $50,000 per-accident maximum, so BI pays $50,000.

Temporary Income Benefits in Texas continue until the employee:

1. Returns to any employment
2. Accepts a lump-sum settlement
3. Reaches maximum medical improvement ✓
4. Has been disabled for 401 weeks

Why: Temporary Income Benefits continue until the employee reaches maximum medical improvement (MMI).

A producer who recommends a product the client does not need solely to earn a larger commission has most clearly breached the duty of:

1. Suitability and fair dealing ✓
2. Salvage and abandonment rights
3. Coinsurance and loss sharing
4. Subrogation and recovery rights

Why: Recommending unsuitable products for the producer's own gain violates the ethical duties of suitability and fair dealing owed to the client.

A hit-and-run accident with an unidentified driver who flees is typically covered under which PAP part?

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

Why: An unidentified hit-and-run vehicle is treated as an uninsured motor vehicle, so bodily injury is addressed under Part C — Uninsured Motorists.

Under §542.057(c), an eligible surplus lines insurer that agrees to pay a claim must make payment not later than which day after the notice or the date the act is performed?

1. The 30th business day
2. The 5th business day
3. The 20th business day ✓
4. The 10th business day

Why: §542.057(c) gives an eligible surplus lines insurer until the 20th business day after the notice or the date the act is performed to pay the claim.

Equipment Breakdown (Boiler and Machinery) coverage primarily insures loss caused by:

1. Sudden mechanical or electrical breakdown of covered equipment such as boilers and pressure vessels ✓
2. Flood and surface water reaching equipment in a basement, which requires a separate NFIP flood policy
3. Fire spreading from an adjoining building, which is already a named peril on every causes of loss form
4. Theft of portable equipment from a jobsite by employees, which a crime or fidelity bond would address

Why: Equipment Breakdown coverage responds to sudden and accidental breakdown of pressure, mechanical, and electrical equipment, including resulting damage—exposures excluded by standard property forms.

A farmowners-ranchowners policy is best described as a package that combines:

1. Multiple peril crop insurance on the farmer's planted acreage, bought separately from any dwelling coverage
2. Property and liability coverage for the farm dwelling, farm structures, and farming operations ✓
3. Automobile coverage on farm trucks and tractors only
4. Farm liability alone, leaving the dwelling and outbuildings to be insured under a separate property form

Why: The farmowners-ranchowners policy is a package combining homeowners-type property and liability coverage with coverage for farm structures, equipment, and operations.

An 'insured contract' in the CGL includes:

1. Any written or oral agreement the insured enters into, so long as the other party demands indemnification as a condition of the deal
2. Only purchase orders issued to suppliers for materials delivered to the job site
3. Only employment contracts between the insured and its workers, including union collective bargaining agreements
4. A contract in which the insured assumes the tort liability of another, such as a lease or sidetrack agreement ✓

Why: Insured contracts are specified agreements (leases, easements, sidetrack agreements, etc.) in which the insured assumes another party's tort liability.

A retailer's net income before a fire was $10,000/month with $4,000/month continuing expenses. The store is closed for two months. Assuming no coinsurance/limit issues, the Business Income loss is approximately:

1. $40,000
2. $8,000
3. $28,000 ✓
4. $20,000

Why: Business income = net income + continuing expenses = ($10,000 + $4,000) x 2 months = $28,000.

Vandals break windows and damage interior walls. The insured has the Basic form. Is vandalism covered?

1. Only if the vandals also committed a theft or an attempted theft
2. No, vandalism and malicious mischief appear first in the Broad form
3. Yes, vandalism is a named peril in the Basic form ✓
4. Only under the Special form, because Basic lists no vandalism peril

Why: Vandalism (V&MM) is one of the named perils included in the Basic Causes of Loss form.

An insurer organized under the laws of another U.S. state is, in any other state, classified as:

1. Domestic
2. Admitted
3. Alien
4. Foreign ✓

Why: A foreign insurer is incorporated in another U.S. state relative to the state where it is transacting business.

The Extended Non-Owned Coverage for Named Individual endorsement is used to:

1. Add a second owned vehicle to the Declarations at a reduced multi-car rate
2. Add comprehensive and collision coverage to any borrowed, non-owned auto the named individual drives, subject to the owner's deductible
3. Provide liability coverage to a named individual who regularly uses a non-owned vehicle (e.g., a furnished company car) ✓
4. Cover a resident teenage driver's first vehicle until they obtain a separate policy

Why: This endorsement removes the regular-use exclusion and extends liability (and optionally medical/UM) to a named individual using a non-owned auto regularly, such as a furnished or available company car.

A surety bond fundamentally differs from insurance because:

1. It is written without underwriting, because the surety relies on the premium charged to fund expected defaults
2. It transfers the risk of loss from the principal to the surety, which absorbs each default the way an insurer absorbs a claim and spreads that cost across all bonded principals through its rates
3. It pays first-party property losses to the principal when the project is damaged before completion
4. It is a three-party guarantee in which the surety guarantees the principal's obligation to the obligee, and the principal must reimburse the surety for losses ✓

Why: Surety is a three-party credit guarantee; the surety expects no net loss because the principal indemnifies it, unlike insurance which transfers risk.

Under the BPP, which of the following is covered as Business Personal Property?

1. Autos licensed for road use and parked in the insured's lot
2. Amounts owed by customers that cannot be collected after records are destroyed
3. Furniture, fixtures, and stock owned by the insured ✓
4. Land, water, and the cost of excavating and regrading it

Why: Coverage B (Business Personal Property) includes furniture, fixtures, machinery, equipment, and stock owned by the insured and used in the business.

Under § 542.056, the deadline for a Texas insurer to accept or reject a claim may be extended in cases such as:

1. A written request from the agent of record to pause the file
2. Any claim demanding more than $1,000
3. A weather-related catastrophe or ongoing investigation ✓
4. Ordinary staffing shortages at the insurer

Why: The 15-business-day accept/reject deadline can be extended in defined circumstances (e.g., catastrophe or necessary investigation).

An insurer incorporated in the state where it is transacting business is classified as:

1. Alien
2. Domestic ✓
3. Foreign
4. Reciprocal

Why: A domestic insurer is one organized under the laws of the state in which it is doing business.

An insurer fails to mail a §551.105 nonrenewal notice on time. Under §551.105, what nonetheless happens to the existing policy if the insured obtains a replacement policy with another carrier?

1. The existing policy terminates on the effective date of the replacement policy ✓
2. The existing policy remains primary until its original expiration date
3. Both policies provide pro-rata coverage until one is canceled
4. The new carrier must reimburse the prior insurer's premium

Why: §551.105 states that notwithstanding the insurer's failure to comply, the policy terminates on the effective date of any replacement or succeeding policy with another carrier covering the auto, home, or other property.

Under §2210.202(a), how often must evidence of a declination be obtained to renew a TWIA association policy?

1. One declination every three calendar years is required before renewal ✓
2. Evidence of a declination is required only with the original application and never again for renewal
3. A new declination must be obtained before each annual renewal
4. Two declinations every five calendar years

Why: §2210.202(a) provides that, notwithstanding §2210.203(c), evidence of one declination every three calendar years is required before renewal of an association policy.

A Named Non-Owner policy is appropriate for a person who:

1. Operates a livery or taxi service and needs liability coverage for the passengers carried for a fee
2. Wants comprehensive coverage only on a classic car kept in storage and never driven on public roads
3. Owns several commercial trucks and wants a single policy covering the entire fleet's liability exposure
4. Does not own an auto but regularly drives borrowed or rented vehicles and needs liability coverage ✓

Why: A named non-owner policy provides liability (and related) coverage to an individual who does not own a vehicle but drives others' or rented cars.

Storing oily rags near a furnace is an example of which type of hazard?

1. Speculative hazard
2. Moral hazard
3. Physical hazard ✓
4. Morale hazard

Why: A physical hazard is a tangible condition of property or environment that increases the chance of loss, such as flammable materials near a heat source.

A retail employee sues the company for sexual harassment and wrongful termination. Which policy is designed to respond?

1. Workers Compensation and Employers Liability
2. CGL Coverage A, Bodily Injury Liability
3. Commercial Property, Special Form
4. Employment Practices Liability (EPLI) ✓

Why: Harassment and wrongful termination are employment practices claims handled by EPLI, not the CGL.

Which federal law would a producer most likely consult to determine whether a previously convicted individual may lawfully work in the insurance business?

1. The can-SPAM Act
2. The Fair Credit Reporting Act
3. 18 U.S.C. §§ 1033 and 1034 ✓
4. The Terrorism Risk Insurance Act

Why: 18 U.S.C. 1033 and 1034 govern whether persons convicted of crimes involving dishonesty may engage in the business of insurance and the penalties for violations.

Which Homeowners form is intended for condominium unit-owners?

1. HO-6 ✓
2. HO-8
3. HO-4
4. HO-2

Why: HO-6 is the Unit-Owners form for condominium and co-op owners, covering personal property and improvements to the unit with a small base Coverage A limit.

Of the continuing education hours an agent must complete each license period, what does the Insurance Code require regarding the setting in which the hours are earned?

1. At least 50 percent of all required continuing education hours must be completed in a classroom setting or a classroom-equivalent setting approved by the department ✓
2. At least 25 percent of required hours must be completed in a live classroom located within this state
3. All required continuing education hours must be completed in a classroom setting unless the agent obtains a hardship waiver from the commissioner
4. No more than 50 percent of the required hours may be completed through self-study, correspondence, or online coursework, and the remainder must be earned in a live classroom setting

Why: At least 50 percent of all required CE hours must be completed in a classroom setting or department-approved classroom-equivalent setting.

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.

A policy designated as 'excess' over other coverage will:

1. Never pay anything once any other collectible insurance exists
2. Share each loss pro rata with the primary from the first dollar
3. Pay first and then seek reimbursement
4. Pay only after the primary policy's limits are exhausted ✓

Why: Excess coverage applies only after the underlying (primary) insurance limits have been used up.

Under Section 4005.053, an insurer or agent generally may not pay a commission for services performed as an agent in this state to a person who:

1. Holds a nonresident license in another state
2. Sells only group annuity contracts
3. Is a licensed agent but recently changed appointments
4. Does not hold a license to act as an agent in this state ✓

Why: Tex. Ins. Code § 4005.053(a) prohibits an insurer or agent from paying or accepting a commission for services performed as an agent in this state unless the person holds a license to act as an agent here, although deferred or renewal commissions to a formerly licensed person are permitted.

Under §542.055, after receiving notice of a claim, a standard (non-surplus-lines) insurer must acknowledge receipt, begin investigation, and request needed items not later than which day?

1. The 45th day after the insurer receives notice of the claim
2. The 30th calendar day after the insurer receives notice
3. The 15th day after the date the insurer receives notice of the claim ✓
4. The 10th day after the agent forwards the notice to the insurer

Why: §542.055(a) requires acknowledgment, commencement of investigation, and a request for needed items not later than the 15th day after the insurer receives notice (30th business day for an eligible surplus lines insurer).

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).

Which is an example of a direct loss?

1. Fire damage to the structure of a building ✓
2. Loss of rental income after a fire
3. Extra expense to operate at a temporary location
4. Spoiled food after a power outage

Why: Direct loss is immediate physical damage to property; the fire damage to the structure is direct, while income/expense impacts are indirect.

The Personal Injury endorsement adds coverage for offenses such as:

1. Libel, slander, false arrest, and invasion of privacy ✓
2. Mechanical breakdown of household appliances
3. Flood losses to the dwelling
4. Earthquake damage to the foundation

Why: The personal injury endorsement broadens liability to include offenses like libel, slander, defamation, false arrest, and invasion of privacy, which are otherwise excluded.

Speculative risk is generally uninsurable because it:

1. Cannot be measured
2. Involves the chance of either loss or gain ✓
3. Involves only the chance of loss with no chance of gain
4. Is always catastrophic

Why: Speculative risk involves the possibility of gain as well as loss, like gambling, and is not insurable; only pure risk is insurable.

The policy provision that states the insurer's promise to pay covered losses is the:

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

Why: The insuring agreement is the insurer's core promise describing what coverage is provided in exchange for premium.

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 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.