Free South Carolina Property & Casualty Practice Questions

A hazard doesn't cause the loss itself; it just makes a loss more likely or more severe. Icy steps, frayed wiring, a careless attitude: none of those start the fire or the fall, but they tip the odds. Causes of loss are perils; hazards just stack the deck.

A physical hazard is a tangible condition that increases the likelihood or severity of a loss: gasoline in the garage, a slippery floor, frayed wiring. You can see or touch it. If it's an attitude problem it's morale; if it's dishonesty it's moral; if it's a physical thing sitting there raising the odds, it's physical.

Buying insurance is the classic risk transfer: you hand the financial consequences of a loss to the insurer in exchange for a premium. Avoidance means not doing the risky thing at all, retention means keeping the risk yourself (like a deductible), and reduction means lowering the odds or severity (smoke detectors). Insurance equals transfer.

Treaty reinsurance is the automatic, blanket deal: the reinsurer agrees in advance to take a whole category of risks. Facultative is the opposite, case-by-case, where the reinsurer can accept or decline each risk individually. Treaty equals automatic and broad; facultative equals optional and specific.

The company giving away (ceding) the risk is the ceding company; the company taking it on is the reinsurer. Easy hook: to 'cede' is to give up, so the one giving up the risk is the ceding company.

A reciprocal (an unincorporated group of members who insure each other) is run by an attorney-in-fact. The members are both insureds and insurers to one another. Niche, but the exam likes the 'attorney-in-fact' detail, so tuck it away.

A captive (or exclusive) agent represents a single insurer, and that insurer owns the book of business. An independent agent represents multiple companies and owns their own expirations (the renewal rights). The ownership-of-expirations detail is the classic distinguisher.

A contract of adhesion is written by one party (the insurer) and accepted as-is by the other, with no line-by-line negotiating. The practical kicker: because the insured didn't get to write it, any ambiguity is interpreted in the insured's favor. That's a courtroom rule worth knowing.

Representations are statements the applicant believes are true, and they only need to be true to the best of the applicant's knowledge. A warranty is a stronger animal: it's guaranteed to be absolutely true. Concealment is hiding a material fact. For most applications, you're dealing with representations.

A waiver is voluntarily surrendering a known right, say, an insurer choosing not to enforce a policy condition. Estoppel is the follow-on: once you've waived something, you can be legally prevented (estopped) from later trying to enforce it. Waiver is the giving up; estoppel is being held to it.

Depreciation is the loss in a property's value from age, use, and obsolescence. It's subtracted from replacement cost to arrive at actual cash value. Hook: depreciation is the wear-and-tear value the insurer subtracts under ACV.

With agreed value, the parties set the insured amount up front (often for hard-to-value items like fine art), and that agreed figure is paid for a total loss, with the coinsurance requirement waived. Hook: agreed value locks in the payout amount ahead of time, no coinsurance fight later.

A named perils policy covers only the perils it specifically lists, such as fire, lightning, windstorm, or theft. If the cause isn't named, there's no coverage. Hook: named perils covers only what's on the list.

Open perils coverage protects against all direct physical losses unless a peril is specifically excluded, making it broader than named perils. The exclusions list defines what's left out. Hook: open perils covers everything except what's specifically excluded.

The coinsurance clause pushes insureds to insure their property to an agreed percentage of value (commonly 80%). Carry less, and a penalty reduces partial-loss payments. It keeps premiums fair across policyholders. Hook: coinsurance nudges you to insure to value, or share the loss.

The four elements of negligence are a duty owed, a breach of that duty, the breach being the proximate cause, and actual damages. Intent is not required; in fact, negligence is unintentional, which separates it from an intentional tort. Hook: duty, breach, causation, damages, but never intent for negligence.

After paying the insured for a loss caused by someone else, the insurer steps into the insured's shoes (subrogation) and pursues the at-fault party to recover what it paid. It prevents the insured from collecting twice. Hook: subrogation lets the insurer go after whoever caused the loss to get its money back.

A pro rata provision splits a loss among insurers in proportion to each policy's limit, so a policy carrying half the total coverage pays half the loss. It keeps the insured from collecting more than the actual loss. Hook: pro rata splits the loss by each policy's share of the total limits.

A moral hazard arises from a person's character, a dishonest tendency that increases risk, such as someone who would intentionally cause or exaggerate a loss to collect. Hook: moral hazard is dishonesty, the intent to cheat the insurer.

A morale hazard is an attitude of carelessness: a person takes fewer precautions simply because they know insurance will cover any loss (the why-worry-I'm-insured mindset). It differs from a moral hazard, which involves outright dishonesty. Hook: morale hazard is carelessness from having coverage; moral hazard is dishonesty.

HO-3 insures the dwelling and other structures on an open-perils basis (covered unless excluded) but covers personal property on a named-perils basis. That split is the reason it is the go-to homeowners form. Hook: HO-3 is open perils on the house, named perils on the stuff inside.

HO-8 fits older homes whose replacement cost far exceeds market value. It settles dwelling losses on a modified, functional, or actual cash value basis instead of full replacement cost, which keeps the coverage affordable and realistic. Hook: HO-8 is for older homes and pays on a modified or ACV basis, not full replacement.

Coverage A insures the dwelling itself, the house and structures attached to it. Hook: Coverage A is the dwelling, the house itself.

Coverage C usually equals about 50% of the Coverage A dwelling limit, though the percentage can be adjusted. It covers the insured's belongings. Hook: Coverage C, personal property, runs about 50% of the dwelling limit.

Section I is the property side, Coverages A through D (dwelling, other structures, personal property, loss of use). Section II is the liability side, Coverages E and F (personal liability and medical payments). Hook: Section I is property A through D; Section II is liability E and F.

Coverage F is a no-fault, goodwill coverage that pays reasonable medical expenses for others accidentally injured on the insured's premises, regardless of fault, which often heads off a larger liability claim. Coverage E, by contrast, requires legal liability. Hook: Coverage F pays guests' medical bills no-fault; Coverage E needs you to be legally liable.

Coverage C follows the insured's personal property anywhere in the world, so belongings are covered while traveling or temporarily off premises, often subject to a percentage limit when away from home. Hook: your stuff is covered worldwide, not only at the house.

Underinsuring below 80% drops the insured to the larger of the actual cash value of the loss or a reduced amount figured by the loss-settlement proportion, but never the full replacement cost. Hook: under 80%, you fall back to the greater of ACV or the prorated amount, not full replacement.

Flood is excluded from homeowners policies and must be insured separately, usually through the National Flood Insurance Program (NFIP) or a private flood policy. Earth movement such as earthquake is likewise excluded. Hook: homeowners never covers flood, that is a separate NFIP policy.

Earth movement, including earthquake, is excluded by the standard homeowners policy, but the insured can usually add earthquake coverage by endorsement or buy a separate earthquake policy. Hook: earthquake is excluded but can be bought back by endorsement.

Part A is Liability Coverage, the part that pays for bodily injury and property damage the insured causes to others. It is the core of the auto policy and the coverage states require. Hook: Part A is liability, what you owe others, and it comes first in the PAP.

Part C is Uninsured/Underinsured Motorist coverage, which protects the insured when an at-fault driver has no liability insurance or not enough of it. Hook: Part C covers you when the other driver Can't pay.

In split limits the first number is the per-person bodily injury cap, the second is the per-accident bodily injury cap, and the third is the property damage cap per accident. So 100/300/50 is 100,000 per person, 300,000 per accident, 50,000 for property. Hook: split limits read per person, per accident, then property damage.

The first claim is capped at the 25,000 per-person limit, the other two ($20,000 and $15,000) are under that cap and paid in full, summing to 60,000. But the 50,000 per-accident bodily injury limit caps the total payout at 50,000. Hook: apply the per-person cap first, then the per-accident cap can still trim the total.

Medical Payments is a no-fault coverage that pays reasonable and necessary medical (and sometimes funeral) expenses for the insured and occupants of the covered auto, no matter who caused the accident. Hook: Med Pay pays your people's medical bills, fault not required.

Auto physical damage is normally paid on an actual cash value basis, which is replacement cost minus depreciation, reflecting the car's worth at the moment of loss. Vehicles lose value over time, so ACV is usually less than what was paid. Hook: cars are paid ACV, depreciated value, not what you paid for them.

The newly acquired auto rule automatically extends the policy to a car the insured buys during the term, for a limited window (commonly up to 14 days), so the insured is not driving uninsured before reporting it. Hook: buy a new car and you get an automatic grace period to add it.

A temporary substitute auto used because the insured's vehicle is out of service for repair, service, breakdown, or loss is treated as a covered auto, so the policy's coverages extend to it. Hook: a loaner while yours is being fixed is covered like your own car.

Financial responsibility laws make drivers demonstrate the ability to pay for harm they cause, generally by carrying at least the state minimum liability limits. An SR-22 is a filing the insurer makes to confirm that coverage is in force. Hook: financial responsibility means prove you can pay, and SR-22 is the proof on file.

In a no-fault system, each injured party turns to their own Personal Injury Protection coverage for medical bills and related expenses without first proving who was at fault, which speeds payment and limits lawsuits. Hook: no-fault means you collect from your own PIP, no blame needed.

Dwelling policies fill the gap for properties homeowners forms will not write: rentals, seasonal or secondary homes, vacant dwellings, and older homes. The DP is narrower, not richer, than homeowners. Hook: the DP is the answer when the home does not qualify for homeowners.

The dwelling program has three standard forms: DP-1 Basic, DP-2 Broad, and DP-3 Special, in increasing order of coverage breadth. The HO numbers belong to the homeowners program. Hook: dwelling forms are 1 Basic, 2 Broad, 3 Special.

The DP-1 is the narrowest form: it insures a short list of named perils and generally pays losses on an actual cash value basis (replacement cost minus depreciation). Hook: DP-1 is basic, named perils paid at ACV.

Among dwelling forms, the DP-3 gives the broadest protection on the structure by covering open perils. The DP-2 is broad but still named-perils, and the DP-1 is the narrowest. Hook: broadest dwelling form is the DP-3, open perils on the building.

Extended Coverage adds the classic EC perils: windstorm, hail, explosion, riot and civil commotion, aircraft, vehicles, and smoke. Flood, earthquake, and war stay excluded. Hook: EC adds the WHARVES-style perils, wind, hail, aircraft, riot, vehicles, explosion, smoke.

Settlement basis is a major dividing line: the DP-1 pays ACV on the dwelling, while the broader DP-2 and DP-3 pay replacement cost when the insured carries enough coverage. Hook: DP-1 means ACV; DP-2 and DP-3 mean replacement cost.

Because the dwelling policy is property-focused, liability and medical payments are not built in; they are added through a personal liability supplement or endorsement when the insured wants them. Hook: want liability and med pay on a DP, add the liability endorsement.

Dwelling policies are flexible on occupancy: they can cover owner-occupied, tenant-occupied, or even vacant dwellings, with endorsements and conditions adjusting the coverage for each situation. Hook: a DP can insure owner-occupied, rented, or vacant homes.

Coverage C protects the named insured's (owner's) personal property kept at the dwelling, like appliances or upkeep equipment. The tenant insures their own belongings under a renters (HO-4) policy. Hook: on a rental DP, Coverage C is the owner's property; the tenant buys HO-4.

The DP-2 keeps the named-perils approach but lengthens the peril list and, unlike the DP-1, settles the dwelling on a replacement cost basis. Open perils is the DP-3, not the DP-2. Hook: DP-2 adds perils and upgrades the dwelling to replacement cost, still named perils.

Each coverage part is itself built from a declarations page, coverage form(s), a causes-of-loss form (for property), and applicable conditions, all sitting under the shared common declarations and common conditions. Hook: a coverage part stacks its own dec, coverage form, causes-of-loss, and conditions.

The common declarations identify who and what is insured: named insured, mailing address, policy period, a list of the coverage parts in the package, and the premium for each. Hook: the common dec is the who, when, and what of the whole package.

The Inspections and Surveys condition reserves the insurer's right (but not a duty) to inspect the premises and operations and to make safety recommendations. Hook: the right to walk the premises lives in Inspections and Surveys.

The first named insured may cancel by mailing or delivering notice, and the insurer may cancel by sending advance written notice (the number of days is set by the condition and state law). The first named insured acts on behalf of all insureds. Hook: the first named insured cancels by notice; the insurer cancels with advance written notice.

The Special form is open perils: it covers all causes of loss except those specifically excluded, making it the broadest causes-of-loss form. Basic and Broad are named-perils. Hook: Special form is open perils, the broadest of the three.

Extra expense pays the added costs of staying open or reopening sooner, such as renting a temporary location or leasing equipment, which can reduce the business income loss. Hook: extra expense is the money spent to keep the doors open after a loss.

The period of restoration runs from the date of the direct physical loss (after any waiting period) until the property is or should be repaired or replaced with reasonable speed. That window defines how long business income is paid. Hook: restoration runs from the loss to when repairs should be done.

Coverage B covers personal and advertising injury offenses: libel, slander, false arrest, wrongful eviction, and infringing on copyright or slogans in the insured's advertising. Hook: Coverage B is the reputation and advertising offenses, libel and slander.

The commercial crime coverage part handles dishonesty and theft exposures, including employee theft, forgery, robbery, and theft of money and securities. Hook: theft, forgery, and employee dishonesty live in the crime coverage part.

Company vehicles are insured under the commercial (business) auto coverage part, which provides liability and physical damage on the business's autos. Hook: company trucks go on the commercial auto coverage part.

Where the CPP is built piece by piece and fits businesses of any size, the BOP is a ready-made bundle designed for eligible small to mid-size firms, trading flexibility for simplicity. Hook: CPP is build-your-own; BOP is the ready-made small-business bundle.

BOPs are filed for eligible classes of small to mid-size businesses and screen on factors like size and type of operation. Risks that are too large or in an excluded class go on a CPP instead. Hook: BOPs are for eligible smaller businesses, not everyone.

Auto dealers, banks and financial institutions, and bars or similar amusement places are typically excluded from the BOP because of their distinct hazards. Offices, apartments, and small retail are eligible. Hook: car lots, banks, and bars are classic BOP no-gos.

BOP programs cap eligibility by size, commonly using floor area and annual gross sales or receipts for the class. Exceed the thresholds and the risk must move to a CPP. Hook: square footage and sales are eligibility gates, too big and it is a CPP.

A defining simplification of the BOP is that it usually has no coinsurance clause, so the insured is not penalized for underinsuring the way a coinsurance form would penalize them. Insuring to value is still wise but not enforced by a coinsurance penalty. Hook: the BOP drops the coinsurance clause, no did/should penalty.

BOPs bundle several automatic additional coverages, such as debris removal and limited money and securities coverage. Workers comp, professional liability, and auto are not part of the BOP. Hook: BOP throws in extras like debris removal and a little money and securities.

The BOP liability section mirrors a commercial general liability form, covering the business's liability for bodily injury and property damage to third parties, plus defense. Hook: BOP liability works like a CGL, third-party bodily injury and property damage.

BOPs do not cover professional liability; a business needing errors and omissions protection buys a separate professional liability policy or specific endorsement. Hook: E&O is not in the BOP, that needs its own professional liability policy.

While the BOP is standardized, insurers offer optional coverages and endorsements (for example, equipment breakdown or hired and non-owned auto) to tailor it to a business's needs. Hook: tailor the BOP with optional coverages and endorsements.

Business personal property is the contents the business owns and uses, furniture, fixtures, machinery, equipment, and stock, at the described premises. The building is separate, and licensed autos are excluded. Hook: BPP is the contents, furniture, fixtures, machinery, and stock.

Workers compensation pays benefits to employees who are injured or become ill because of their job. It is employee coverage, not customer or personal coverage. Hook: workers comp is for employees hurt on the job.

Under the going-and-coming rule, an ordinary commute is normally not in the course of employment, so a commuting injury usually is not covered (special exceptions can apply, such as travel that is part of the job). Hook: the normal commute is off the clock for comp purposes.

Permanent partial disability (PPD) applies when the worker is left with a lasting impairment, such as the loss of use of a limb, but retains some ability to work. Benefits often follow a statutory schedule. Hook: permanent partial means a lasting impairment, but still able to work somewhat.

A fatal work injury triggers death benefits to the worker's surviving dependents (often a percentage of wages) along with a burial or funeral allowance set by statute. Hook: a fatal claim pays the dependents plus a burial allowance.

Vocational rehabilitation helps a worker who cannot return to the old job get back to gainful work, through retraining, job placement, or similar services. Hook: voc rehab is about getting the worker back to work, retrain and replace the income.

Part Two protects the employer against lawsuits for work-related injuries that escape the exclusive-remedy bar, such as a third-party-over action or a consequential injury claim by a family member. It backstops the gaps Part One does not address. Hook: Part Two catches the work-injury suits that slip past exclusive remedy.

Workers compensation rates are quoted as a dollar rate per $100 of payroll for each classification, so payroll drives the premium. Hook: comp rates are dollars per $100 of payroll.

Because workers compensation covers employees, a true independent contractor is normally not covered by the hiring firm's policy and is expected to carry their own. Misclassifying employees as contractors is a common compliance problem. Hook: real independent contractors are not on the hiring firm's comp.

In a monopolistic state, workers compensation must be purchased from the state fund, and private insurers do not write the coverage there. Hook: monopolistic means one seller, the state fund.

Monopolistic fund policies generally omit employers liability (Part Two), so the employer buys stop-gap employers liability, usually endorsed onto a CGL or BOP, to cover those liability suits. Hook: in monopolistic states, add stop-gap to fill the missing employers liability.

When a loss is covered by the umbrella but not the underlying policy, the insured pays a self-insured retention (much like a deductible) and the umbrella covers the rest. Hook: no underlying coverage means the umbrella kicks in after your self-insured retention.

The NFIP is a federal program run through FEMA, offering flood insurance in communities that adopt and enforce floodplain management rules. Private insurers may sell and service it under write-your-own arrangements. Hook: NFIP is federal flood insurance, available where the community participates.

Scheduling valuables like jewelry, furs, or fine arts is done on a personal articles floater, which is a personal inland marine form. Hook: the personal articles floater is inland marine for your valuables.

A floater insures scheduled items for an agreed or appraised value on a broad, open-perils basis, getting past the low special theft sublimits a homeowners policy places on jewelry. Hook: schedule the ring on a floater to beat the homeowners jewelry sublimit.

Protection and indemnity (P&I) is the liability portion of ocean marine, covering the owner's legal liability for bodily injury and property damage arising from the vessel, including crew injury and damage to other ships. Hull covers the vessel, cargo covers the goods, P&I covers the liability. Hook: P&I is the liability piece of ocean marine.

Aviation risks (hull and liability for aircraft) are excluded from standard personal lines and must be written on specialized aviation policies. Hook: planes need aviation insurance, never the home or auto policy.

The obligee is the party protected by the bond, the one the principal must perform for. The principal is the one who must perform, and the surety backs that promise. Hook: the obligee is owed the obligation, the one the bond protects.

Title insurance covers losses from title defects, such as liens, errors in records, or competing ownership claims, that already existed but surface after the property is bought. Hook: title insurance protects against ownership defects hiding in the property's past.

A farm policy blends personal and business exposures, covering the farm dwelling and personal property along with barns, equipment, livestock, and farm liability, because a farm is both a home and a business. Hook: farm coverage mixes the home and the business under one roof.

Mobile and manufactured homes have unique construction and transport exposures, so they are commonly written on a specialized mobile-homeowners form rather than a standard HO-3. Hook: mobile homes get their own mobile-homeowners policy.