Commercial practice

All 21 free commercial questions

1. Under Section 6 of the Ontario Garage Automobile Policy OAP 4, when is no deductible payable by the insured on a specified perils claim for a customer's automobile?

   • A Where the loss or damage is caused by theft of the entire automobile.
   • B Where the loss or damage is caused by fire or lightning and those are insured perils. Correct
   • C Where the customer's automobile is damaged beyond repair.
   • D Where more than one customer's automobile is damaged in the same occurrence.

   Subsection 6.7 waives the deductible where fire or lightning causes the loss and those perils are insured, so the insured pays nothing toward a fire claim on a customer's automobile even though a deductible is stated in the certificate.

   OAP 4, subsection 6.7

2. A bakery's stock is insured under two property contracts placed by different brokers, both in force and both covering the same interest in that stock. A fire destroys $60,000 of stock. The two insurers have no written agreement between them about how a shared loss is handled. How is the loss settled?

   • A The insured picks one insurer, which pays the whole $60,000 and cannot recover any of it from the other.
   • B The insured may claim $60,000 under each contract and recover $120,000 in total.
   • C Each insurer is liable to the insured for its rateable proportion of the $60,000 loss. Correct
   • D The later contract is void for double insurance, so only the earlier contract responds.

   Subsection 150 (1) of the Insurance Act splits a loss between contracts covering the same interest by rateable proportion unless the insurers have expressly agreed otherwise in writing, so both insurers contribute and the bakery is indemnified once.

   Insurance Act, s. 150(1)

3. Part IV of the Insurance Act carries the fire insurance statutory conditions. Which of the following covers, written for a commercial client, fall outside Part IV? Select all that apply.

   • A Business interruption insurance, where the subject matter of the insurance is loss of profits. Correct
   • B Insurance on the client's warehouse building against the peril of fire.
   • C Boiler and machinery insurance. Correct
   • D Insurance against loss or damage through theft, burglary or robbery. Correct
   • E Insurance on the client's stock of goods at a fixed location against the peril of fire.

   Subsection 143 (1) applies Part IV to insurance against fire damage to property but excepts boiler and machinery insurance, theft and burglary insurance, and insurance whose subject matter is rents, charges or loss of profits, so those three sit outside the fire statutory conditions.

   Insurance Act, s. 143(1)

4. A contractor asks whether the firm's automobiles can be written as a fleet. The firm runs six automobiles under one company name: five cargo vans used to carry tools and materials to job sites, and one car the owner drives for personal use. Does this group meet the definition of a fleet in Regulation 664?

   • A No, because a fleet needs at least ten automobiles under common ownership or management.
   • B Yes, because the group holds at least five automobiles, at least five of them are commercial vehicles, and they are under common ownership. Correct
   • C No, because every automobile in the group has to be a commercial vehicle or a public vehicle.
   • D Yes, because any group of automobiles under common ownership counts as a fleet once one of them is a commercial vehicle.

   Regulation 664 sets the floor at five automobiles with at least five of them commercial vehicles, public vehicles or vehicles used for business purposes, so the five cargo vans carry the group over the line even though the sixth automobile is personal.

   R.R.O. 1990, Reg. 664, s. 1

5. Under a typical commercial property named perils form, the insuring agreement caps what the insurer will pay for a direct loss. Which measure does it use?

   • A The amount of insurance shown on the declaration page for the property lost or damaged
   • B The cost of replacing the property with new property of like kind and quality
   • C The actual cash value of the property, whatever the amount of insurance shown for it
   • D The least of actual cash value, the insured's interest and the amount of insurance Correct

   The insuring agreement pays the direct loss up to whichever is least of the actual cash value at the time of loss, the insured's interest in the property, and the amount of insurance shown for that property, so the declaration page figure is a ceiling rather than the measure of the loss.

   Commercial Property Named Perils Form C100, clause 1 (Insuring Agreement) Reference document, not law.

6. A broad form commercial property policy and a named perils commercial property policy are compared side by side. Which statement most accurately describes where the burden sits when cover is disputed?

   • A On a broad form the insured must still bring the loss inside a listed peril
   • B On a named perils form the insurer must point to an exclusion to decline
   • C On both forms the insurer must point to an exclusion in order to decline
   • D On a broad form the insurer must point to an exclusion in order to decline Correct

   A broad form starts from every risk of direct physical loss or damage and takes cover away only by exclusion, so the insurer has to bring the loss inside one, while a named perils form responds only where the insured brings the loss inside the perils it lists.

   Commercial Property Broad Form C518, clause 5 (Insured Perils) Reference document, not law.

7. Under a commercial property named perils form, what does the smoke peril cover?

   • A Smoke from any fire burning on or close to the insured premises
   • B Smoke and soot from any heating or cooking appliance on the premises
   • C Smoke from a sudden, unusual and faulty operation of a stationary furnace Correct
   • D Smoke released by an industrial process carried on at the described location

   The form limits the peril to smoke thrown off by a stationary furnace operating in a way that is sudden, unusual and faulty, so all three conditions and the furnace source have to be present, and the peril carries no liability for cumulative damage.

   Commercial Property Named Perils Form C100, clause 5 (E) (Smoke) Reference document, not law.

8. A retailer keeps a cash float and a book of prepaid transit tickets on the premises. Under a commercial property named perils form, where does that property sit?

   • A Inside the stock amount, because tickets and cash are merchandise held for sale
   • B Inside the equipment amount, because they are contents usual to the retailer's business
   • C Inside the building amount, because they are kept in a fixture attached to the building
   • D Outside the form, because money, tickets and evidence of debt are excluded property Correct

   The property excluded clause takes out money, bullion, securities, stamps, tickets and tokens and evidence of debt or title, so cash and negotiable items have to be insured under a crime cover rather than under the property section.

   Commercial Property Named Perils Form C100, clause 6 A (c) (Property Excluded) Reference document, not law.

9. A commercial property named perils form insures property at the described location, and the definition of premises sets how far that reaches. Which description matches the definition?

   • A The described buildings and the fixtures attached to them, and nothing beyond the walls
   • B The area within the property lines only, excluding sidewalks, driveways and any vehicles
   • C The area within the property lines, plus property in or on vehicles anywhere in the same municipality
   • D The area inside the property lines and under adjoining sidewalks and driveways, plus nearby vehicles Correct

   Premises means the entire area within the property lines and the areas under adjoining sidewalks and driveways at each described location, and it extends to property in or on vehicles within 100 metres of that location, so a yard loss and a loading area loss both sit inside the described premises.

   Commercial Property Named Perils Form C100, clause 18 (g) (Definitions, Premises) Reference document, not law.

10. A co-insurance percentage appears on the declaration page of a commercial property form. What does the clause oblige the insured to do, and what follows if the insured does not?

    • A Carry insurance equal to the full actual cash value, or the claim is refused outright
    • B Carry insurance equal to replacement cost, or settle every loss on an actual cash value basis
    • C Carry insurance equal to the stated percentage of each loss, or bear the shortfall personally
    • D Carry the stated percentage of actual cash value, or recover only in that proportion Correct

    The clause obliges the insured to carry insurance of at least the actual cash value multiplied by the co-insurance percentage on the declaration page, and where less is carried the recovery is the loss multiplied by insurance carried over insurance required.

    Commercial Property Named Perils Form C100, clause 4 (Co-Insurance) Reference document, not law.

11. What does Coverage A of a commercial general liability (CGL) policy promise the insured?

    • A To pay any claim brought against the business for bodily injury or property damage
    • B To pay an injured person's medical expenses whether or not the business was at fault
    • C To defend the business against any action, and to pay whatever a court eventually awards
    • D To pay sums the insured is legally obligated to pay, and to defend actions seeking them Correct

    Coverage A pays the sums the insured becomes legally obligated to pay as compensatory damages because of bodily injury or property damage the insurance applies to, and the insurer takes both the right and the duty to defend an action seeking those damages, so legal liability rather than the arrival of a claim is what triggers it.

    Commercial General Liability C574, Section I, Coverage A, clause 1.a Reference document, not law.

12. A commercial general liability (CGL) insurer has paid settlements that use up the applicable limit of insurance while an action against the insured is still running. Its right and duty to defend end at that point. Is that statement true or false?

    • A True Correct
    • B False

    The insuring agreement says the right and duty to defend end when the insurer has used up the applicable limit of insurance in the payment of judgments or settlements, so exhausting the limit ends the defence even while the action against the insured is still running.

    Commercial General Liability C574, Section I, Coverage A, clause 1.a.2) Reference document, not law.

13. Under a commercial general liability (CGL) policy, three neighbours are made ill by one continuing emission from an insured plant. Against the each occurrence limit, how many occurrences is that?

    • A Three occurrences, one for each of the persons who suffered bodily injury from the emission
    • B Three occurrences, because each claimant's injury began on a different date from the others
    • C One occurrence for each month over which the emission from the plant continued to run
    • D One occurrence, because repeated exposure to one set of conditions is one accident Correct

    The each occurrence limit is the most payable for all bodily injury and property damage arising out of any one occurrence, and the definition of occurrence brings repeated or continuous exposure to one set of substantially similar harmful conditions inside a single accident, so one continuing emission is one occurrence however many people it makes ill.

    Commercial General Liability C574, Section V, definition 21 Reference document, not law.

14. Baxter Design leases a floor of an office building. A space heater a staff member left running starts a fire that damages the floor Baxter leases and nothing beyond it, and the landlord sues Baxter. Which part of Baxter's commercial general liability (CGL) policy responds?

    • A Coverage A, because the fire caused property damage to a third party
    • B Coverage D, tenants' legal liability, because the damage is to rented premises Correct
    • C Coverage C, because the loss arose out of Baxter's operations at the premises
    • D No coverage, because a landlord's fire policy waives recovery against a tenant

    Coverage A excludes property damage to property the insured rents or occupies, and Coverage D buys that back by applying only to property damage to premises of others rented to or occupied by the insured, so a tenant's liability for the landlord's building sits in Coverage D.

    Commercial General Liability C574, Section I, Coverage D, clause 1.a Reference document, not law.

15. A courier firm's driver rear-ends a car while making a delivery in the company van, and the injured driver sues the firm. The firm holds a commercial general liability (CGL) policy and an automobile policy. Which one responds?

    • A The liability policy, because the firm's own negligence in hiring the driver is alleged
    • B Both policies, sharing by limits, because the claim arises out of the firm's operations
    • C The automobile policy, because the liability policy excludes automobiles the insured owns Correct
    • D The liability policy, because making deliveries is part of the insured business described

    Coverage A excludes bodily injury or property damage arising out of the ownership, maintenance, use or entrustment of any automobile owned by, operated by, rented to or loaned to an insured, and the exclusion holds even where the claim is pleaded as negligent hiring or supervision, so the automobile policy is the one that answers.

    Commercial General Liability C574, Section I, Coverage A, exclusion 2.f Reference document, not law.

16. A manufacturer finds a defect in a product it has already shipped and pulls the stock back from retailers. Under a commercial general liability (CGL) policy, how is the cost of doing that treated?

    • A Paid under the products-completed operations aggregate, up to that aggregate limit
    • B Paid as a supplementary payment, because it reduces the insurer's eventual exposure
    • C Paid under Coverage A once the product is shown to be dangerous when used
    • D Excluded, because the policy takes out the cost of recalling the insured's product Correct

    The recall exclusion removes damages claimed for the loss of use, withdrawal, recall, inspection, repair, replacement, removal or disposal of the insured's product or work because of a known or suspected defect in it, so the policy answers for the harm the product does and not for the cost of getting it back.

    Commercial General Liability C574, Section I, Coverage A, exclusion 2.k Reference document, not law.

17. What triggers a claim under a gross earnings business interruption form?

    • A A drop in the insured's turnover measured against the same period a year earlier
    • B A necessary interruption caused by insured damage at the described premises Correct
    • C Any event that stops the insured trading for longer than a stated waiting period
    • D The failure of a key supplier to deliver the materials the insured business depends on

    The indemnity agreement responds to loss directly resulting from a necessary interruption of business caused by destruction or damage by an insured peril to buildings, structures, machinery, equipment or stock at the described premises, so without insured physical damage there is no business interruption claim.

    Business Interruption Insurance Gross Earnings Endorsement Form C715, clause 1 (Indemnity Agreement) Reference document, not law.

18. A crime cover distinguishes robbery from burglary and from theft. What makes a taking a robbery?

    • A That the property was taken from a locked container somewhere inside the premises
    • B That it was taken by violence or the threat of violence against a messenger or custodian Correct
    • C That it was taken while the premises were open for business to members of the public
    • D That it was taken by a person who entered the premises without any right to be there

    Robbery means the taking of insured property by violence inflicted on a messenger or a custodian, by putting that person in fear of violence, or by another overt felonious act committed in that person's presence and of which the person was actually aware, so the definition turns on how the property was taken rather than on where it was kept.

    Comprehensive Dishonesty Disappearance & Destruction Rider C800, Section 3 (Definitions, Robbery) Reference document, not law.

19. A surety bond names three parties. Which set is correct?

    • A The insured, the insurer and the broker who arranged the bond
    • B The contractor, the project owner and the owner's construction lender
    • C The principal, the surety and the obligee Correct
    • D The applicant, the underwriting company and its reinsurer

    A bond binds the principal, who owes the obligation, and the surety, who guarantees it, to the obligee for whose benefit the guarantee is given, so suretyship is a three party arrangement where insurance is a contract between two.

    Bid bond, form PWGSC-TPSGC 504, Bond recital Reference document, not law.

20. A bid bond obliges a successful bidder to furnish further security before the work starts. Which instruments does it name?

    • A A maintenance bond and a warranty bond, each for a stated share of the contract price
    • B A second bid bond and a performance bond, each satisfactory to the obligee
    • C A performance bond and a labour and material payment bond, or other accepted security Correct
    • D A licence bond and a customs bond, each issued by the same surety company

    The bid bond requires the successful bidder to furnish a performance bond and a labour and material payment bond, each written for a stated proportion of the contract price and satisfactory to the obligee, unless the obligee accepts other security instead, so the sequence in contract surety runs bid, then performance, then payment.

    Bid bond, form PWGSC-TPSGC 504, Conditions of the obligation, paragraph (a) Reference document, not law.

21. What distinguishes a claims made liability policy from an occurrence policy?

    • A A claims made policy responds to injury happening in the period, whenever the claim arrives
    • B A claims made policy responds only to claims first made against the insured during the period Correct
    • C A claims made policy responds to any claim arising out of conduct during the period
    • D A claims made policy responds after the period, so long as the injury happened during it

    A claims made policy covers only claims first made against the insured during the policy period and reported as the policy requires, while an occurrence policy responds to injury or damage happening during the period no matter when the claim eventually arrives.

    Non-Profit Management and Corporate Liability Insurance Policy TDONPE.001, Policy face wording Reference document, not law.