Causes of Loss
Practice questions on causes of loss for the property exam, each with an answer and explanation.
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Study questions and answers
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1. Which commercial causes of loss form covers direct physical loss unless the loss is specifically excluded or limited?
- Special form
- Basic form
- Broad form
- Earthquake form
Show answer
The special causes of loss form is open perils: everything is covered unless excluded. The basic and broad forms list named perils.
2. Which peril is covered by the broad causes of loss form but NOT by the basic form?
- Windstorm or hail
- Vandalism
- Falling objects
- Sprinkler leakage
Show answer
The broad form adds falling objects, weight of snow, ice or sleet, and water damage to the basic form's named perils.
3. Which of the following perils is found in the basic causes of loss form?
- Weight of ice, snow or sleet
- Theft
- Water damage from a leaking appliance
- Aircraft or vehicles
Show answer
Aircraft or vehicles is one of the basic named perils, along with fire, lightning, explosion, windstorm or hail, smoke, riot, vandalism, sprinkler leakage, sinkhole collapse and volcanic action.
4. A thief breaks into a store at night and steals inventory. Which commercial causes of loss form would cover this loss?
- Basic form
- Special form
- Broad form
- None of the commercial causes of loss forms
Show answer
Theft is not a named peril in the basic or broad forms. The special form covers theft because it is not excluded, subject to some limitations.
5. Which of the following losses is excluded under all three commercial causes of loss forms (basic, broad, and special)?
- Smoke
- Lightning
- Explosion
- Flood
Show answer
Flood, earthquake and other earth movement are excluded in all of the standard causes of loss forms. Separate coverage is needed for them.
6. Sprinkler leakage is a covered peril in the basic causes of loss form. This means the form covers damage caused by:
- Leakage or discharge from an automatic fire protective system
- Rain entering through an open window
- Overflow of a nearby river
- Backup of a sewer line
Show answer
Sprinkler leakage covers leakage or discharge of any substance from an automatic sprinkler system. Flood and sewer backup are excluded water losses.
7. Under the special causes of loss form, which cause can trigger the additional coverage for abrupt collapse of a building?
- An earthquake that shakes the building apart suddenly
- Hidden decay that the insured did not know about
- Known decay that the owner ignored for several years
- Normal settling of the foundation over many years
Show answer
Abrupt collapse is covered when caused by hidden decay or hidden insect damage that the insured did not know about, among other listed causes. Earthquake is excluded, and known decay or gradual settling is not a hidden, abrupt cause.
8. Fire damages part of a building, and the city then requires the undamaged part to be rebuilt to current code. The standard causes of loss forms treat that code-driven cost as:
- Covered as part of the fire loss under the building limit
- Covered only under the basic causes of loss form
- Covered only if the whole building is a total loss
- Excluded, unless an ordinance or law endorsement is added to the policy
Show answer
Ordinance or law is excluded in the basic, broad and special forms because the cost comes from enforcing the code, not from the fire itself. An ordinance or law endorsement (such as CP 04 05) buys the coverage back.
9. Under the special causes of loss form, theft of which type of property is subject to a special dollar limit?
- Office desks, chairs and filing cabinets
- Packaged grocery items held as regular stock
- Furs, jewelry and precious metals
- Ordinary building materials stored on site
Show answer
The special form caps theft of small, valuable items such as furs, jewelry and precious metals, and also patterns and dies. Ordinary stock, furniture and materials are not under that special sublimit.
10. An employee steals inventory from the insured's stockroom. How does the special causes of loss form typically treat this loss?
- Covered in full because theft is an open peril
- Covered only if the employee is later convicted
- Excluded; commercial crime coverage applies
- Covered under the equipment breakdown form
Show answer
The special form excludes dishonest or criminal acts by the insured, partners and employees, even though theft by outsiders is covered. Employee theft is what commercial crime coverage is for.
11. Which loss is excluded under the special causes of loss form even though the form covers direct physical loss unless excluded?
- Fire started by a lightning strike
- Rust and corrosion that develop gradually
- Damage from a vehicle striking the building
- Damage caused by a vandal
Show answer
Wear and tear, rust, corrosion and other gradual deterioration are excluded because the form is aimed at sudden, fortuitous loss. Fire, vehicle impact and vandalism are not excluded.