CPCU 552 Module 10 Test Bank

1. The need for excess or umbrella liability insurance is closely related to three basic issues involved in the use of liability insurance. Those three issues include all of the following, EXCEPT:

2. Which one of the following statements is correct regarding the need for excess or umbrella liability coverage?

3. Because of the difficulty in estimating the maximum possible loss for liability claims, many insureds should consider:

4. Which one of the following statements is correct regarding excess liability insurance and umbrella liability insurance?

5. Which one of the following represents a difference between an excess policy and an umbrella liability policy?

6. A risk manager for a large manufacturing company has determined that the company needs $50,000,000 of liability insurance coverage. However, no single insurer is willing to write a $50,000,000 policy. The risk manager designed the following insurance plan:

• ABC Insurance Company – $5,000,000 policy.
• DEF Insurance Company – $10,000,000 policy.
• GHI Insurance Company – $15,000,000 policy.
• JKL Insurance Company – $20,000,000 policy.

Which one of the following represents the best description of this type of insurance plan?

7. ABC Company incurred a liability loss that is not covered under their primary liability insurance policy. Which one of the following statements is correct regarding coverages under either an excess or umbrella liability policy?

8. Which one of the following types of insurance policies provides coverage that is more broad than commercial excess liability insurance?

9. Which one of the following statements is correct regarding a following-form excess liability policy?

10. Which one of the following statements is correct regarding a self-contained excess liability policy?

11. Which one of the following is an excess liability policy that covers a claim in excess of the underlying limits only if the loss is covered by the underlying policy?

12. Which one of the following excess liability insurance policies includes the provisions of the underlying policy and then modifies those provisions with additional exclusions or conditions?

13. Onyx Company retains general liability claims up to $50,000 per occurrence. They purchased excess liability coverage that, after the retention, provides both specific and aggregate excess coverage as follows:

• Specific excess limit – $250,000 per occurrence.
• Aggregate excess limit – $2,500,000.

Onyx sustained the following general liability claims during the year:

• Claim 1 – $25,000 settlement.
• Claim 2 – $350,000 settlement.
• Claim 3 – $200,000 settlement.

How much of will the excess insurer pay in total?

14. GOW Manufacturing purchased a specific excess liability policy. Limits are as follows:

• Per occurrence retention – $200,000.
• Maximum limit – $2,000,000.

GOW incurred the following losses during the policy year:

• January – $300,000.
• March – $100,000.
• July – $200,000.
• September – $1,500,000.

Under the specific excess liability policy, how much will the insurer pay for the losses?

15. Which one of the following statements is correct regarding an umbrella liability policy?

16. If an umbrella liability policy provides coverage for a loss, even when the loss is not covered by underlying insurance, this coverage is known as:

17. With respect to an umbrella liability policy, an amount that is deducted from claims that are not covered at all by any primary policy is referred to as a:

18. Which one of the following statements is correct regarding umbrella liability policies?

19. Which one of the following statements is correct regarding the self-insured retention (SIR) in an umbrella policy?

20. Wanda causes an accident while driving her business automobile. The driver of the other car is awarded $900,000 for his injuries. Wanda has a Business Auto Liability policy with a bodily injury liability limit of $250,000 per person and an umbrella liability policy with a $2,000,000 limit and a $2,000 self-insured retention (SIR). It is later discovered that the amount due from Wanda’s Business Auto Liability insurer is uncollectible. What amount will the umbrella insurer pay for this accident?

21. Gina’s Manufacturing Company has a commercial general liability (CGL) policy with a limit of $1,000,000. The company also has a $1,000,000 umbrella policy. The umbrella policy is subject to a $25,000 self-insured retention (SIR). Gina’s Manufacturing Company recently posted several ads online, which included disparaging remarks about their competitors. Gina’s Manufacturing was sued by one of their competitors and lost a judgment for $500,000. Their CGL policy does not cover advertising injury. How much will Gina’s Manufacturing be entitled to recover from the insurers?

22. An insured has a commercial general liability (CGL) policy with a $2,000,000 per occurrence limit and a $4,000,000 general aggregate limit. The insured also has an umbrella policy with a $2,000,000 limit and a $25,000 self-insured retention. At the time of a loss, the CGL was canceled due to non-payment of premiums. If the insured incurred a $2,200,000 loss, and this loss would have been covered by the CGL had the premiums been paid, how much will the umbrella policy pay toward the loss?

23. A distribution company has a commercial general liability (CGL) policy with liability limits of:

• $1,000,000 per occurrence.
• $2,000,000 general aggregate.
• $2,000,000 products and completed operations aggregate.

The insured also has a drop-down coverage umbrella policy with a $2,000,000 limit and a $25,000 self-insured retention. The following bodily injury claims were filed against the company:

• Claim 1 – $900,000 settlement.
• Claim 2 – $500,000 settlement.
• Claim 3 – $1,000,000 settlement.

The CGL provided coverage for all three claims. How much did the umbrella insurer contribute to the Claim 3?

24. Which one of the following statements is correct regarding the structuring of a liability insurance program?

25. A level of excess insurance coverage that exists between a primary layer and an umbrella policy is referred to as a:

26. Which one of the following represents a problem that can occur when layering policies?

27. A large corporation purchased umbrella liability insurance with the following limits:

• $1,000,000 per occurrence.
• $2,000,000 aggregate limit.

The company is required to retain $100,000 per occurrence. During the year, the company had the following losses that were covered under the umbrella policy:

• Loss 1 – $80,000
• Loss 2 – $1,700,000
• Loss 3 – $800,000

How much of the losses will be covered by the umbrella policy?

28. ABC Company purchased a commercial general liability policy with the following limits:

• $1,000,000 per occurrence limit.
• $2,000,000 general aggregate limit.

The company also carries an umbrella liability policy with the following limits:

• $2,000,000 per occurrence limit.
• $2,000,000 general aggregate limit.
• $25,000 self-insured retention.

A covered claim arises, resulting in a judgment of $2,400,000 against the company. How much of the judgment is paid by the umbrella liability policy?