Named PerilP&C producer exam prep

Coverage partPersonal lines

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Drill16 items

Umbrella, flood and floaters on the P&C exam

The personal coverages in this part fill the gaps homeowners and auto policies leave: the personal umbrella above their liability limits, NFIP flood, the earthquake and mobile home endorsements, boats, personal articles floaters and FAIR plans. The common thread is a homeowners exclusion or sublimit: flood, earth movement, larger boats, and the $1,500 theft limit on jewelry in the 2011 HO-3.

Where a personal umbrella sits

Retention (SIR)$1,000Auto Part A$250,000Home Coverage E$400,000Umbrella$1,000,000
The umbrella pays above the required underlying limits, and drops down over a self-insured retention for a loss it covers that no underlying policy does. Figures are illustrative.

The umbrella: excess first, broader second

A personal umbrella does two jobs. Over a covered personal auto policy or homeowners claim it is excess: it pays once the underlying limit is used up. For a loss the underlying policies exclude or never address but the umbrella covers, it drops down and pays above a self-insured retention (SIR). The form's “retained limit” is whichever of the two applies.

The umbrella insurer names the underlying limits it requires, and keeping them is the insured's job. If an underlying policy lapses or is carried at a lower limit, the umbrella still pays only above the required amount, and the insured absorbs the gap. A follow-form excess policy does less: it repeats the underlying coverage and never drops down. The distinction gets its own page, umbrella vs excess liability.

The $150,000 a lapsed limit costs the insured

WorksheetWorked example

Umbrella requires $300,000 of auto liability; the insured carries $150,000; judgment $700,000

Judgment
$700,000
Underlying limit required
$300,000
Underlying limit carried
$150,000
Umbrella limit
$1,000,000
  1. Auto policy pays its limitcarried limit$150,000
  2. Umbrella pays above the required amount$700,000 − $300,000$400,000
  3. Gap left to the insured$300,000 − $150,000$150,000

Out of the insured's pocket$150,000

A figure of $550,000 for the umbrella assumes it drops down to fill a lapsed limit. It drops down only for losses the underlying policies do not cover at all.

An NFIP flood policy, from purchase to payment

  1. Day 0

    Policy bought

    From a Write Your Own insurer or NFIP Direct, in a community that takes part in the program. The federal government keeps the risk either way.

  2. Days 1 to 30

    Waiting period

    No flood coverage yet. There is no wait when the policy is tied to making, increasing, extending or renewing a loan, and a one-day wait when it is bought within 13 months of a flood-map revision that puts the building in a high-risk zone.

  3. After day 30

    Coverage in force

    Residential limits up to $250,000 on the building and $100,000 on contents, plus increased cost of compliance up to $30,000.

  4. The flood

    What counts

    A general and temporary inundation of two or more acres or two or more properties, one of them the insured's.

  5. The claim

    Settlement

    Replacement cost only for a single-family principal residence insured to at least 80% of its replacement cost or the program maximum; otherwise ACV. Contents at ACV, basement items very limited, no living expenses.

The other gaps and what fills them

Earthquake endorsement (HO 04 54)
Adds earthquake to a homeowners policy, which excludes earth movement. A percentage deductible is figured on Coverage A or C, whichever is greater, and all shocks within 72 hours count as one earthquake. Masonry veneer stays excluded unless added.
Mobile home endorsement (MH 04 01)
Adapts an HO-2 or HO-3 to a mobile home: Coverage B is 10% of A with a $2,000 minimum, and up to $500 with no deductible pays to move the home out of danger.
Watercraft endorsement and boatowners policy
The endorsement extends homeowners liability to a boat the form excludes. A boatowners policy packages hull, liability, medical payments and uninsured boater coverage. Yachts go on ocean marine forms with hull and P&I, part of inland and ocean marine.
Personal articles floater
Schedules valuables by class, such as jewelry, furs, cameras, musical instruments, fine arts, stamps or coins, on an open-perils, worldwide basis with no deductible. A newly acquired item in a class already scheduled is covered at 25% of that class for 30 days. Fine arts breakage is excluded unless added.
FAIR plan
A residual-market pool, set up under state law, that writes property coverage for risks the voluntary market will not take.

Sorting a water or earth loss

Water losses sort by where the water came from. Surface water spreading across two or more acres or two or more properties is flood, which the homeowners and dwelling forms exclude and the NFIP pays. Water from a pipe that bursts inside the wall is a homeowners loss, because it never crossed the ground.

Earth movement follows a similar path. The base form excludes it, the earthquake endorsement adds it back with a percentage deductible, and fire that follows an earthquake stays covered either way.

Which policy, if any, pays

0 of 16 answered · 0 right

Each loss here has one policy that answers for it, or none. Check the homeowners exclusions before reaching for a separate policy.

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

    After a flood, the Garcias must live in a hotel for two months while their home is repaired. Their NFIP dwelling policy will pay for the hotel:

    1. ACorrect: the NFIP dwelling policy covers direct physical loss to the building and contents only, with no additional living expense or loss of use.
    2. BThirty days is the waiting period before a new flood policy takes effect, not a condition for hotel costs.
    3. CThis borrows a homeowners-style percentage that the flood form doesn't have.
    4. DThis borrows the homeowners Coverage D idea, which doesn't exist in the flood form.
  2. Item 02

    The maximum NFIP limits for a single-family dwelling are:

    1. A$100,000/$50,000 is too low; the residential NFIP maximums are $250,000 building and $100,000 contents.
    2. BCorrect: the NFIP maximum for a residential building is $250,000 and for residential contents $100,000.
    3. CContents top out at $100,000 for residential risks, not $250,000.
    4. D$500,000/$500,000 is the nonresidential limit, not the single-family limit.
  3. Item 03

    The Lees' HO-3 has Coverage A of $300,000 and Coverage C of $150,000, with an earthquake endorsement carrying a 10% deductible. An earthquake causes $80,000 of covered damage. How much will the insurer pay?

    1. A$72,000 takes 10% of the loss, but the earthquake deductible is a percentage of the policy limit.
    2. B$79,000 subtracts a flat $1,000 deductible, but the earthquake endorsement uses a percentage deductible.
    3. C$65,000 bases the deductible on Coverage C, but the rule uses the greater of the A or C limit.
    4. DCorrect: the deductible is 10% of the greater of Coverage A or C, $300,000 × 10% = $30,000, so $80,000 − $30,000 = $50,000.
  4. Item 04

    A personal umbrella is written over Ann's auto and homeowners policies. Which statement about its underlying requirements is CORRECT?

    1. AUmbrellas do require minimum underlying limits, and the insured must keep them in force.
    2. BCorrect: a personal umbrella requires specified underlying auto and homeowners liability limits and pays only after they are exhausted.
    3. CAn umbrella is excess, not primary; it pays after the underlying policies.
    4. DAn umbrella sits on top of the auto and home liability coverage; it doesn't replace it.
  5. Item 05

    Floodwater carrying a mudflow damages Nora's home. She has an HO-3 and an NFIP policy. Which responds?

    1. ACorrect: the NFIP definition of flood includes mudflow, so the flood policy responds.
    2. BAn earthquake endorsement covers earthquake, not a flood-driven mudflow.
    3. CThe HO-3 excludes both flood and earth movement, so it pays nothing here.
    4. DThe NFIP does respond, because its flood definition includes mudflow.
  6. Item 06

    A boatowners policy is best described as a package that typically combines:

    1. AExcess liability above the homeowners policy is what an umbrella provides, not a boatowners package.
    2. BCorrect: a boatowners policy packages physical damage to the boat, motor and trailer with liability, medical payments and uninsured boaters coverage.
    3. CA boatowners policy is a package; it isn't just coverage for the owner's gear.
    4. D'Hull only' leaves out the liability, medical payments and uninsured boaters parts of the package.
  7. Item 07

    A FAIR plan most commonly provides:

    1. ACorrect: a FAIR plan is a state residual-market pool that provides basic property coverage for properties the voluntary market won't take.
    2. BFlood coverage is written through the NFIP, not FAIR plans.
    3. CExcess liability above a homeowners policy is an umbrella, not a FAIR plan.
    4. DHigh-risk drivers are handled by the automobile insurance plan, not the FAIR plan.
  8. Item 08

    With no loan involved, Omar buys an NFIP policy on June 1 because a storm is forecast. The storm floods his home on June 20. What will the policy pay?

    1. AThere's no partial payment during the waiting period; the policy simply isn't in effect yet.
    2. BCorrect: a new NFIP policy generally takes effect after a 30-day wait, and with no loan or map change, a flood on day 19 isn't covered.
    3. CBuying first doesn't matter; the 30-day waiting period still has to run.
    4. DThe waiting period applies to building and contents alike.
  9. Item 09

    A ring scheduled at $10,000 on a personal articles floater is stolen. A substantially identical ring now costs $8,000. How much does the floater pay?

    1. A$10,000 treats the scheduled amount as agreed value, but for jewelry it is only a maximum.
    2. BCorrect: for jewelry the floater pays the least of ACV, repair, replacement with substantially identical property, or the amount of insurance, so $8,000.
    3. C$1,500 is the homeowners theft limit on jewelry, which scheduling is meant to avoid.
    4. D$9,500 assumes a deductible, but personal articles floaters usually have none and the replacement cost is lower anyway.
  10. Item 10

    Mia owns a $6,000 ring, insured only under her HO-3 (2011 edition). What BEST protects the ring against theft?

    1. AThe $1,500 theft limit on jewelry applies no matter which perils cover Coverage C.
    2. BRaising Coverage C does not help, because the $1,500 theft sublimit still caps the ring.
    3. CReplacement cost changes the valuation but not the $1,500 theft sublimit.
    4. DCorrect: scheduling the ring on a personal articles floater insures it for its stated amount, outside the $1,500 HO theft limit.
  11. Item 11

    Ana's personal articles floater schedules only jewelry. She buys a $3,000 camera, which is stolen a week later before she reports it. The floater:

    1. ACorrect: automatic coverage for newly acquired items applies only to classes already scheduled, and cameras aren't a scheduled class.
    2. B$1,500 is a homeowners special limit, not a floater rule, and the floater doesn't cover the camera at all.
    3. CThe 30-day reporting window applies only to new items in classes already scheduled, which cameras aren't.
    4. DThe 25% newly-acquired amount is a percentage of the same class, so jewelry coverage can't be stretched to a camera.
  12. Item 12

    Carl's HO-3 excludes his ski boat, which has a 150-horsepower inboard engine. How can he add liability coverage for the boat to his homeowners policy?

    1. AThe miscellaneous type vehicle endorsement is a personal auto endorsement, not a boat liability fix for the HO.
    2. BRaising Coverage E increases the limit but doesn't remove the watercraft exclusion.
    3. CA floater covers property, not liability.
    4. DCorrect: a watercraft endorsement extends homeowners Section II liability to boats the form excludes, such as owned inboard boats.
  13. Item 13

    A hurricane is approaching Dana's mobile home, which is insured with the mobile home endorsement. She pays to have it moved inland. The endorsement pays up to:

    1. ACorrect: the mobile home endorsement pays up to $500 with no deductible to move the home to protect it from a covered peril.
    2. BApplying the deductible is the usual error; this removal coverage has none.
    3. C$1,000 is double the removal limit, and no deductible applies.
    4. DNo actual damage is needed, because the coverage exists to prevent loss.
  14. Item 14

    Two tremors hit 40 hours apart and damage Tom's home, which has a homeowners earthquake endorsement. How is the deductible applied?

    1. AThe deductible applies once to the whole earthquake loss, not separately to each coverage.
    2. BTwo deductibles apply only if the tremors are more than 72 hours apart.
    3. CCorrect: all shocks within 72 hours count as one earthquake, so one deductible applies.
    4. DAftershocks aren't deductible-free; they are part of the single earthquake and share its one deductible.
  15. Item 15

    A city sewer backs up into the finished basement of a rental house insured under a DP-3, with no flood in the area. How is the damage treated?

    1. AThe NFIP pays for sewer backup only when a flood causes it, and there was no flood in the area.
    2. BAccidental discharge refers to water escaping from plumbing or appliances, and the policy separately excludes water that backs up through sewers or drains.
    3. CCorrect: the DP-3 excludes water that backs up through sewers or drains, so this loss is covered only if a water backup endorsement is added.
    4. DOpen perils coverage still yields to the policy's exclusions, and water backup through sewers is one of them.
  16. Item 16

    Joe has a personal umbrella with a $10,000 self-insured retention. He is sued for libel, which his homeowners policy does not cover but the umbrella does, and a $60,000 judgment results. How much will the umbrella pay?

    1. A$0 assumes the umbrella never pays without underlying coverage, but it drops down for losses it covers that the underlying policies don't.
    2. B$10,000 is the self-insured retention Joe pays himself.
    3. CCorrect: the umbrella drops down over the $10,000 retention and pays $60,000 − $10,000 = $50,000.
    4. D$60,000 ignores the self-insured retention.
Mixed practice test · Timed mock

Flood, mobile homes and earthquake: the follow-ups

Who sells NFIP flood policies?

Write Your Own insurers, under their own names, and NFIP Direct. Either way the federal government keeps the risk; the private insurer services the policy and handles claims.

Is a mobile home covered while it is being moved?

Only with the transportation endorsement (MH 04 03), which covers the home in transit within the US and Canada for 30 days. The basic mobile home endorsement pays only the cost of moving it out of danger, up to $500.

Does the dwelling policy take an earthquake endorsement too?

Yes. Both the homeowners and the dwelling forms exclude earthquake and accept an endorsement that adds it; the dwelling policy page covers the rest of that program.

Practice the gap questions

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