Named PerilP&C producer exam prep

Coverage partCommercial lines

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Specialty commercial coverages on the P&C exam

Specialty commercial coverages are the miscellaneous commercial insurance lines that fill gaps the standard forms leave on purpose: equipment breakdown, the farm program, difference in conditions, surety bonds, professional liability, D&O, employment practices, cyber, liquor liability, umbrella and excess, and aviation. Each line answers one exclusion in a standard form, from the property forms' mechanical breakdown exclusion to the CGL's data breach exclusion, CG 21 06.

A surety bond has three parties, and the surety expects to be paid back by the principal after any claim. Fidelity coverage has two, and it simply pays the employer's loss. That repayment right is why a surety prices a bond as if no loss will ever happen.

Surety vs fidelity in one line

Which gap each line fills

Specialty lines as the national part of the exam presents them. Forms in these lines vary widely from insurer to insurer.
LineGap it fillsHow it is written
Equipment breakdownProperty forms exclude mechanical and electrical breakdown and steam-boiler explosionSudden, accidental breakdown of covered equipment; the insurer also inspects
Farm programHomeowners and commercial forms do not fit a working farmLettered coverages A through J, property and liability
Difference in conditions (DIC)Perils a named-perils property form leaves out, often flood and earthquakeWritten over the underlying property policy
Professional liability (E&O)The CGL and BOP exclude professional servicesUsually claims-made
Directors and officers (D&O)Personal liability of directors and officers for management decisionsClaims-made, in three insuring agreements
Employment practices (EPLI)The CGL excludes employment-related practicesClaims-made
CyberThe CGL excludes data breach liability (CG 21 06)First-party costs plus third-party liability
Liquor liabilityThe CGL liquor exclusion for insureds in the alcohol businessSeparate policy or coverage part
Commercial umbrella and excessLimits above the CGL, business auto and employers liabilityExcess layer; an umbrella can drop down
AviationAircraft exclusions on property and liability formsPhysical damage plus liability coverages

Three lines in more depth

Read the table above as a map from exclusion to line: the property forms' breakdown exclusion leads to equipment breakdown, the CGL's professional services exclusion leads to E&O, its employment practices exclusion to EPLI. Three lines carry enough rules of their own to need more than a table row.

Equipment breakdown

Equipment breakdown, still called boiler and machinery in older texts, pays for direct damage from an "accident" to covered equipment, meaning a sudden and accidental breakdown, plus expediting expenses, spoilage and business income. Gradual deterioration is outside it. A large share of the premium pays for the insurer's inspections, and the suspension condition lets the insurer immediately suspend coverage on a dangerous object by written notice. A furnace explosion of gas or fuel is a property-form loss; a steam boiler bursting from internal pressure belongs here.

Farm

The ISO farm program follows the homeowners pattern for the farm dwelling (Coverages A to D: dwelling, other structures, household personal property, loss of use), then adds farm personal property (E scheduled, F unscheduled), barns and outbuildings (G), and farm liability (H bodily injury and property damage, I personal and advertising injury, J medical payments). Farm employees need workers compensation or a voluntary compensation endorsement, and custom farming for others is excluded unless endorsed.

Surety bonds

A surety bond guarantees that a principal will perform. The surety underwrites the principal's character, capacity and capital, expects no losses, and has the right to recover any payment from the principal. Contract bonds include bid, performance, payment, maintenance and supply bonds; commercial bonds include license and permit bonds and bonds required of people holding public office; judicial bonds include fiduciary (probate) bonds and court bonds such as appeal, attachment and injunction bonds. Federal construction contracts above a threshold need performance and payment bonds under the Miller Act. Employee dishonesty is the separate two-party side, now written under commercial crime; surety vs fidelity bonds sets the two out side by side.

The three parties to a surety bond

owes dutyguaranteesrecovers payoutPrincipalexecutorObligeecourt, heirsSuretybonding co.
An estate executor posts a fiduciary bond for the probate court. The executor is the principal, the court and the heirs it protects are the obligee, and the bonding company is the surety.

Management and professional liability, sorted

Professional liability (E&O)
Claims that a professional's service was done wrong. Usually claims-made, often with a consent-to-settle ("hammer") clause. Malpractice is the medical version. The trigger itself is explained on claims-made vs occurrence.
D&O Side A
Pays directors and officers directly when the company cannot or will not indemnify them.
D&O Side B
Reimburses the company after it has indemnified its directors and officers.
D&O Side C
Entity coverage: claims made against the company itself.
EPLI
Claims by employees for discrimination, wrongful termination, harassment and retaliation; coverage for claims by third parties such as customers is optional. Bodily injury is outside it.
Cyber
First-party costs the business bears itself after an attack or breach, plus third-party liability to the people whose data was exposed or whose systems were harmed.

Specialty lines quiz

0 of 16 answered · 0 right

This set ranges across equipment breakdown, the farm forms, bonds, the claims-made management lines, cyber, DIC, umbrella and aviation, roughly in the order of the table above.

Notes on each optionCommit to an answer first. The notes under the item then open on every option: what rules it in or out, and the one word that splits the runner-up from the key.

  1. Item 01

    Which loss is most likely covered by equipment breakdown insurance?

    1. ACorrosion is gradual deterioration, which equipment breakdown excludes.
    2. BCorrect: equipment breakdown covers a sudden and accidental breakdown, including electrical arcing damage.
    3. CGradual wear and tear is excluded, because it isn't an accident.
    4. DA planned shutdown isn't an accidental loss at all.
  2. Item 02

    A visitor trips over a hose at a farm and incurs $3,000 of medical bills. Without regard to fault, the farm liability coverage form pays these bills under:

    1. ACorrect: Coverage J is farm medical payments, paying others' medical expenses regardless of fault.
    2. BCoverage I is personal and advertising injury, not medical payments.
    3. CCoverage H is bodily injury and property damage liability, which requires legal liability.
    4. DCoverage G is a property coverage for barns and outbuildings, not a liability coverage.
  3. Item 03

    A ransomware attack shuts down a manufacturer's production systems for five days, causing lost income. Which coverage is designed for the lost income?

    1. ACorrect: cyber business interruption covers income lost when a network outage or cyber attack disrupts operations.
    2. BComputer fraud covers theft of money or property through computer entries, not lost income.
    3. CCP 00 30 requires direct physical loss or damage to property, which a ransomware lockout normally isn't.
    4. DCoverage B covers listed offenses such as libel, not the insured's own lost income.
  4. Item 04

    A farmer's cattle break through a fence and damage a passing motorist's car. Under the ISO farm liability coverage form, which coverage responds?

    1. ACorrect: Coverage H is farm bodily injury and property damage liability, and the motorist's car is property damage.
    2. BCoverage G is a property coverage for barns and outbuildings, not liability.
    3. CCoverage I is personal and advertising injury, which covers offenses, not property damage.
    4. DCoverage J is medical payments, which doesn't pay for property damage.
  5. Item 05

    To be certified as an act of terrorism under the Terrorism Risk Insurance Act, an act must cause insured property and casualty losses of more than:

    1. A$200 million is the separate program trigger that industry losses must exceed before federal payments begin, not the certification threshold.
    2. BCorrect: certification requires, among other conditions, insured P&C losses of more than $5 million in aggregate.
    3. C$100 million was the program trigger under earlier reauthorizations, not the certification threshold.
    4. D$1 million isn't a TRIA threshold.
  6. Item 06

    A fire makes a farmhouse uninhabitable, and the family must rent another home during repairs. Which ISO farm coverage pays the extra living costs?

    1. ACoverage G insures barns and outbuildings, not living expenses.
    2. BCoverage C pays for household contents, not extra living costs.
    3. CCorrect: farm Coverage D, loss of use, pays additional living expense or fair rental value when the dwelling can't be lived in.
    4. DCoverage A pays to repair the dwelling, not the cost of living elsewhere.
  7. Item 07

    An employment practices liability policy typically covers all of the following claims EXCEPT:

    1. ACorrect: EPLI excludes workers compensation obligations, which belong under the WC and employers liability policy.
    2. BSexual harassment is a core EPLI claim, so it cannot be the EXCEPT answer.
    3. CWrongful termination is a core EPLI claim, so it cannot be the EXCEPT answer.
    4. DRetaliation is a core EPLI claim, so it cannot be the EXCEPT answer.
  8. Item 08

    At renewal, a business's insurer offers coverage for certified acts of terrorism on its commercial property policy for an additional premium. Under TRIA, the business:

    1. AThe federal program is a backstop to insurers, not a direct seller of coverage.
    2. BTRIA requires the insurer to make the offer; it isn't up to the insurer.
    3. CTRIA coverage isn't mandatory for the insured, who may decline it.
    4. DCorrect: TRIA requires the offer, but the policyholder may reject the coverage, usually in writing.
  9. Item 09

    A difference in conditions (DIC) policy is usually written on which basis?

    1. AClaims-made is a liability trigger, not a basis for a property policy.
    2. BA DIC policy is broader than named perils; it covers what the underlying named-perils form leaves out.
    3. CCorrect: a DIC policy is written on an open-perils basis, excluding the perils the underlying policy already covers.
    4. DFollow form describes an excess liability policy that mirrors the underlying, the opposite of a gap-filling DIC.
  10. Item 10

    A contractor's CGL does not cover a $50,000 claim because of an exclusion, but the claim is covered by its commercial umbrella, which has a $10,000 self-insured retention. How is the claim paid?

    1. ACorrect: when the umbrella covers a claim the CGL excludes, it drops down over the $10,000 retention, which the insured pays.
    2. BThe umbrella doesn't pay from the first dollar; the self-insured retention comes first.
    3. CThe CGL pays nothing because it excludes the claim, so it doesn't fund the retention.
    4. DAn umbrella isn't limited to what the CGL covers; that is the difference from a follow-form excess policy.
  11. Item 11

    Which of the following is typically NOT covered equipment under an equipment breakdown policy?

    1. ACorrect: equipment breakdown excludes vehicles and construction equipment such as bulldozers, which belong under a contractors equipment floater.
    2. BElectrical switchboards are standard covered equipment, so this can't be the NOT answer.
    3. CA heating boiler is standard covered equipment, so this can't be the NOT answer.
    4. DHVAC systems are standard covered equipment, so this can't be the NOT answer.
  12. Item 12

    A difference in conditions (DIC) policy is written over a firm's commercial property policy on the basic causes of loss form. Which peril does the DIC policy typically exclude?

    1. AEarthquake is one of the main gaps a DIC is bought to fill.
    2. BCorrect: a DIC policy excludes fire and the other perils the underlying basic form already insures, to avoid duplicate coverage.
    3. CFlood is one of the main gaps a DIC is bought to fill.
    4. DThe basic form doesn't insure theft, so the DIC typically picks it up.
  13. Item 13

    Which aviation coverage pays for physical damage to the insured's own aircraft?

    1. AAdmitted liability pays set amounts to injured passengers regardless of fault, not damage to the aircraft.
    2. BPassenger liability covers the insured's legal liability to passengers, not the plane itself.
    3. CNon-ownership liability covers liability from aircraft the insured doesn't own.
    4. DCorrect: aviation hull coverage is physical damage insurance on the insured's own aircraft.
  14. Item 14

    Hackers encrypt the servers of Jim's company and demand $100,000 in cryptocurrency to unlock them. Which coverage is designed for this demand?

    1. ACorrect: cyber extortion coverage pays ransom and response costs when criminals threaten the insured's data or systems.
    2. BCoverage B covers offenses such as libel, not the insured's own data or a ransom demand.
    3. CComputer and funds transfer fraud covers money stolen through fraudulent entries or transfer instructions, not a ransom.
    4. DEmployee theft covers dishonest employees, not outside hackers.
  15. Item 15

    A city requires a road contractor to post a performance bond through ABC Surety Company. In this arrangement, the obligee is:

    1. AThe contractor is the principal, who promises to perform; principal and obligee are commonly swapped.
    2. BSubcontractors are protected by a payment bond, not the performance bond.
    3. CCorrect: the obligee is the party the bond protects, here the city.
    4. DABC Surety is the surety that guarantees the contractor's performance.
  16. Item 16

    A structural engineer's calculation error causes a balcony to collapse, injuring guests. The engineer's CGL excludes professional services. Which coverage is designed for the injury claims?

    1. ACoverage C doesn't apply to injury that Coverage A excludes, so it can't pick this up.
    2. BCorrect: professional liability covers injury caused by errors in professional services, such as a design error.
    3. CThe professional services exclusion removes this claim from Coverage A.
    4. DBuilders risk insures property under construction, not liability for injuries.
Mixed practice test · Timed mock

Specialty lines: what to pin down on a loss

  • Which standard-form exclusion created the gap.
  • For professional, D&O and EPLI, the trigger: these are usually claims-made, so the claim date and the retro date decide coverage.
  • For a bond, whether it guarantees performance (surety, three parties) or covers employee dishonesty (fidelity, two parties).
  • Unusual exposures often end up with surplus lines insurers; admitted vs non-admitted insurers covers how that market differs.

Each gap, its own line

Match losses to bonds, equipment breakdown, farm, cyber and management liability in the app's wider commercial set, which works across iPhone and iPad.

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