Download CPCU 530 EXAM 2025 (ACTUAL EXAM) | ALL QUESTIONS AND CORRECT ANSWERS WITH EXPLANATIONS and more Exams Insurance Economics in PDF only on Docsity!
CPCU 530 EXAM 2025 (ACTUAL EXAM) | ALL QUESTIONS
AND CORRECT ANSWERS WITH EXPLANATIONS | LATEST
EXAM | VERIFIED ANSWERS | GRADED A+ (JUST
RELEASED)
Martha promised to sell her car to Tim who promised to pay $10,000 on June 1. On May 15, Tim said to Martha, "I cannot afford that car, and I will not buy it from you." Tim's statement is a Select one: A. Contract novation because of a change of circumstances. B. Rescission since he wishes to invalidate the offer to purchase Martha's car. C. Breach of contract by anticipatory repudiation. D. Failed repudiation of the contract since agreement was bilateral and mutual. ---------CORRECT ANSWER-----------------C. Breach of contract by anticipatory repudiation. Correct. Tim's statement is a breach of contract by anticipatory repudiation and Martha does not need to wait until June 1 but may sue Tim immediately for damages for breach of contract. Tim did not alter the contract or rescind it but he has breached the contract through his stated unwillingness to comply with contract terms. A mistake in a contract is a perception that does not agree with the facts. While some mistakes do not affect the parties' rights, others make the agreement voidable or Select one: A. Unreliable. B. Retractable. C. Unenforceable. D. Mistaken. ---------CORRECT ANSWER-----------------C. Unenforceable. Lucy offered her home for sale and told the prospective buyer, Tania, that the home built in 1923 was rewired in 2006. The home has not been
rewired. Which one of the following elements of fraud is illustrated by this case? Select one: A. Unlawful mistake B. False representationCorrect. The first element of fraud is false representation, that is, a false statement of fact or opinion. C. Fraudulent information D. Detriment ---------CORRECT ANSWER-----------------B. False representation Correct. The first element of fraud is false representation, that is, a false statement of fact or opinion. Betty Lou, who owes Hillary $300, sells a gem necklace to Jennifer for $600. Betty Lou receives $300 in cash and Jennifer's promise to pay $ to Hillary to discharge Betty Lou's debt to Hillary. In this situation, Hillary is best described as Select one: A. An incidental beneficiary. B. A donee beneficiary. C. A creditor beneficiary. D. An intended beneficiary. ---------CORRECT ANSWER-----------------C. A creditor beneficiary. Ray sells a schooner to Catherine. The bill of sale indicates the price of the schooner as well as the make, model, and year of the boat. Catherine later claims in a lawsuit that Ray had promised to include communications and computer equipment in the sale, and she attempts to support her claim in court with a letter written by Ray. Ray wrote and signed the letter before the date of the final bill of sale, in which he promised to include the claimed items. Under the parol evidence rule, the contract Select one: A. Will not include the letter because the letter cannot be admitted into evidence. B. Will be modified to add only the letter written and signed before the date of the final bill of sale.
If an insurer discovers a question of coverage under an insured's policy but elects to defend the insured without issuing a reservation of rights letter or executing a nonwaiver agreement, a court would likely hold that Select one: A. The insurer has waived any coverage defenses. B. The insurer is liable for breach of contract. C. The insurer has preserved all coverage defenses. D. The insurer retains the right to deny coverage later. ---------CORRECT ANSWER-----------------A. The insurer has waived any coverage defenses. Alva had an auto insurance policy written by Guilford Insurance Co. Alva had an auto accident with Furkan. Furkan was injured in the accident and he filed suit against Guilford for his damages. Guilford filed a motion to dismiss the lawsuit, claiming that Furkan had no right to sue Guilford. Which one of the following correctly states how the court will rule on Guilford's motion? Select one: A. The motion will be denied, if a direct-action statute has been enacted. B. The motion will be denied because liability insurers generally owe a duty to third-party claimants. C. The motion will be denied, if Alva asks Guilford to permit Furkan to sue Guilford. D. The motion will be denied because third parties may sue insurers of negligent parties. ---------CORRECT ANSWER-----------------A. The motion will be denied, if a direct-action statute has been enacted. Sebastian applied for homeowner insurance with Blithe Insurance. Blithe's application asked if Sebastian had any damage to his house within the last three years. Sebastian had two losses four years ago but none in the last three years so Sebastian answered "no" to this question. Blithe issued the homeowner policy. Which one of the following statements about Sebastian's response to the application question is true? Select one: A. It was a warranty B. It was a misrepresentation
C. It was neither a warranty nor a misrepresentationCorrect. Sebastian gave an accurate answer to Blithe's question. He made no misrepresentation. Sebastian's statement would not be interpreted to be a warranty. It was not an opinion—it was a statement of fact. D. It was an opinion ---------CORRECT ANSWER-----------------C. It was neither a warranty nor a misrepresentation Sebastian gave an accurate answer to Blithe's question. He made no misrepresentation. Sebastian's statement would not be interpreted to be a warranty. It was not an opinion—it was a statement of fact. When the insurance policy wording is ambiguous, a court generally applies the interpretation that favors the insured. This is because the insurance policy is a Select one: A. Contract of material fact. B. Contract of indemnity. C. Contract of adhesion D. Contract of unequal amounts. ---------CORRECT ANSWER----------------- C. Contract of adhesion Which one of the following is generally the appropriate next step for an insurer that has identified a coverage question under the insured's policy and requested the insured to sign a nonwaiver agreement, but the insured has refused to sign the agreement? Select one: A. Pay the insured's claim B. Send a reservation of rights letter to the insured C. Inform the insured that the insured has breached the policy's cooperation clause D. Deny the insured's claim ---------CORRECT ANSWER-----------------B. Send a reservation of rights letter to the insured If the insured refuses to sign a nonwaiver agreement, the only way the insurer can protect itself against later claims of variance is to resort to the reservation of rights notice.
D. Resulting damage is an unbroken chain of events. ---------CORRECT ANSWER-----------------B. Resulting injury or detriment to the insured. Which one of the following special characteristics of insurance contracts reflects the idea that insurance companies should be able to select persons who will be insured by them? Select one: A. Nontransferable contract B. Contract of indemnity C. Contract of adhesion D. Contract of utmost good faith ---------CORRECT ANSWER----------------- A. Nontransferable contract Noncompliance with a warranty concerning one type of covered property will not defeat coverage for another type of property to which the warranty does not relate, because courts generally interpret insurance policies as Select one: A. Valid. B. Severable. C. Contracts of adhesion. D. Incontestable. ---------CORRECT ANSWER-----------------B. Severable. For an insurer to waive the insured's breach of condition under the insurer's policy, the insurer Select one: A. Need not have any knowledge of the insured or any activity under the insured's policy. B. Must not know of the breach of the condition. C. Must know of the breach of the condition. D. Need not know about the breach of the condition. ---------CORRECT ANSWER-----------------C. Must know of the breach of the condition.
After a windstorm which opened a hole in the roof, an insured was required to place a tarp over the hole. This requirement is an example of an insurance policy being a Select one: A. Requirement contract. B. Contract of utmost good faith. C. Contract of indemnity. D. Conditional contract. ---------CORRECT ANSWER-----------------D. Conditional contract. A conditional contract requires the insured to fulfill the condition of protecting the property from further damage. Mustafa met with his insurance agent Lucy to obtain a businessowners policy. Lucy helped Mustafa complete an application and sent the signed application along with Mustafa's premium check to Delmond Insurance Co. Delmond never responded to Mustafa. Ninety days later, Mustafa had a loss to his business that would have been covered by the Delmond policy. If Mustafa files suit against Delmond to receive compensation for his loss, Select one: A. Mustafa will win, because Delmond's silence constituted acceptance of his application. B. Mustafa will lose, because silence cannot result in acceptance of an insurance application. C. Mustafa will lose, because Delmond never issued a policy. D. Mustafa will win, if Delmond's s delay on his application was unreasonable. ---------CORRECT ANSWER-----------------D. Mustafa will win, if Delmond's s delay on his application was unreasonable. Silence does not constitute acceptance in these situations. Insurers can, however, become liable under contract if they delay action on an application beyond a reasonable time. Leah called her insurance agent Matthias right after Leah purchased her first car. Leah said: "I need coverage on my car (which she described in detail)—$100,000 liability and $250 deductible collision and comprehensive." Mathias responded: "Great—you have this insurance
Select one: A. Replacement cost policy B. Special limits C. Subrogation D. Valued policy ---------CORRECT ANSWER-----------------C. Subrogation Martin visited his insurance agent Laura to discuss his insurance needs. Laura recommended that Martin purchase a businessowners policy and Martin agreed with Laura's recommendation. Laura helped Martin complete an insurance application and she sent the completed and signed application to Blythe Insurance Co., along with Martin's premium payment check. Blithe cashed Martin's check, issued the policy, and mailed the policy to Martin. Blythe's actions were Select one: A. A solicitation of an offer. B. An offer. C. A counteroffer. D. An acceptance. ---------CORRECT ANSWER-----------------D. An acceptance. Which one of the following best explains why nonwaiver agreements and reservation of rights letters must typically be in writing? Select one: A. Oral insurance contracts are not permitted in some states. B. Most insurance policies require such agreements to be in writing. C. Oral notice is too difficult to prove. D. Written documents are easier to create and transmit in a timely fashion. ---------CORRECT ANSWER-----------------C. Oral notice is too difficult to prove. Which one of the following is the best explanation for why an insurer would ask an insured to sign a nonwaiver agreement? Select one:
A. To inform the insured that the insurer will deny coverage of any improper claims B. To prevent subsequent claims of waiver, estoppel, and election C. To establish grounds for a reservation of rights letter D. To alert the insured to a potential coverage problem ---------CORRECT ANSWER-----------------B. To prevent subsequent claims of waiver, estoppel, and election Julio had a commercial insurance policy with Barnley Insurance. In Julio's application for this policy, Julio said that his building had a sprinkler system. Julio's insurance policy had a provision stating that the application is part of the insurance policy. Which one of the following factors would most likely result in a court finding that Julio's statement about the sprinkler system constituted a warranty? Select one: A. The statement was clearly and unmistakably intended by the parties to be a warranty B. The statement was made with knowledge of its falsity C. The statement pertained to a matter that was material D. The statement was false ---------CORRECT ANSWER-----------------A. The statement was clearly and unmistakably intended by the parties to be a warranty For a promise to be a warranty: (1) the parties must have clearly and unmistakably intended it to be one and (2) the statement must form a part of the contract itself. The policy said that the application—and thus statements in it—was a part of the policy. So the most important additional factor would be an unmistakable intention that the statement was intended to be a warranty. Carolina, a lessee, leased business property from Millwright Property Management (MPM), a lessor. MPM had fire insurance through Pravalt Insurance Co. Carolina negligently caused a fire loss to the premises and Pravalt paid MPM for this loss. Pravalt then made a subrogation claim against Carolina. Carolina will have to reimburse Pravalt with her own funds, if Select one:
promise to buy Bill a new car. This arrangement creates a life estate agreement that is an interest in land that is Select one: A. Not valid unless Bill adds a codicil to his will. B. Valid only if all three parties to the life estate agree to the arrangement either orally or in writing. C. Unenforceable unless it is in writing. D. Valid only if his son signs a written release. ---------CORRECT ANSWER-----------------C. Unenforceable unless it is in writing. Oral contracts for life estates are unenforceable under the statute of frauds. Contracts related to the sale of real property or legal interests in real property must be in writing. As a general rule of contract law, the assignee's rights Select one: A. Cannot be delegated to the assignee by the assignor. B. May not be restricted by contract or policy provisions. C. Are non-negotiable. D. Do not exceed the assignor's rights. ---------CORRECT ANSWER---------- -------D. Do not exceed the assignor's rights. Sandee owed Patty $200, but knowing Sandee was low on funds, Patty asked Sandee to wallpaper her living room instead of paying the $200. Sandee agreed that she would do the wallpapering to satisfy her $ debt. This contractual arrangement is known as Select one: A. Contract reformation. B. An accord and satisfaction.Correct. An accord is an agreement between contracting parties that one of them is to substitute a different performance for the performance required in the contract and completion of that performance (wallpapering) is the satisfaction. This was not substantial performance nor was it a novation or reformation of the original contract. C. A novation. D. Substantial performance. ---------CORRECT ANSWER-----------------B. An accord and satisfaction
An accord is an agreement between contracting parties that one of them is to substitute a different performance for the performance required in the contract and completion of that performance (wallpapering) is the satisfaction. This was not substantial performance nor was it a novation or reformation of the original contract. ABC Corporation, which purchased insurance from XYZ Insurance Company, materially breached the insurance contract. Which one of the following is a right the insurer has against the insured? Select one: A. Substantial performance B. Tender of performance C. Repudiation D. Nonperformance ---------CORRECT ANSWER-----------------D. Nonperformance Nonperformance is a right the insurer has against the insured when a material breach occurs. A party's material breach excuses the other party's performance and immediately gives rise to remedies for breach of contract. Mason sold a ring to Carol. Mason told Carol that the ring was made of solid gold, but both Mason and Carol actually believed the ring was merely gold-plated. In fact, the ring was made out of a copper alloy. This situation is best described as Select one: A. A bilateral mistake, which created a voidable contract. B. A fraud, which created a void contract. C. A unilateral mistake, which created a binding contract. D. A bilateral mistake, which created a binding contract. ---------CORRECT ANSWER-----------------A. A bilateral mistake, which created a voidable contract. This situation is best described as a bilateral mistake, which created a voidable contract. A unilateral mistake ordinarily does not affect a contract. Bilateral mistakes generally create voidable contracts. Bilateral mistakes as to subject value are usually not voidable, but mistakes as to subject matter identity are voidable.
A. Parties in privity of the contract. B. The offeror of the contract. C. The offeree of the contract.I D. An innocent or injured party. ---------CORRECT ANSWER-----------------D. An innocent or injured party. Physician Betty administered medical services to stroke victim Karl who was unconscious. She provided medication and direction and followed all procedures. When Karl woke up, he refused other medical services and he also indicated that he could not be held liable for any expenses that he did not personally authorize or to which he did not consent. It is likely that Karl might be required to pay the reasonable value of the services received based on Select one: A. An implied-in-fact contract. B. An implied-in-law contract. C. A unilateral contract. D. An executory contract. ---------CORRECT ANSWER-----------------B. An implied-in-law contract. A contract is made between two parties for delivery of goods. The goods are delivered and the receiving party pays for them. Which one of the following terms describes the contract? Select one: A. ExecutedCorrect. B. Exacted C. Executory D. Completed ---------CORRECT ANSWER-----------------A. Executed A homeowners policy is an example of Select one: A. An executory contract B. A personal contract. C. An implied-in-fact contract.
D. An implied-in-law contract. ---------CORRECT ANSWER-----------------A. An executory contract for the extra two bushels and Hank refused to give her the apples unless she paid for all six bushels. Which one of the following statements is true? Select one: A. Hank breached the contract. B. There was no valid offer made and therefore no contract between Hilda and Hank. C. Hank and Hilda did not mutually assent to the terms of the contract when it was formed. D. There was no communication of intent to contract from Hank to Hilda. --- ------CORRECT ANSWER-----------------A. Hank breached the contract. Which one of the following most accurately describes the ability of an offeror to revoke an offer made to an individual offeree? Select one: A. An offeror can revoke an offer any time before acceptance, but the revocation is effective only when communicated to the offeree and the offeree actually receives the communication. B. An offeror can revoke an offer any time before acceptance, but must do so through the same means of communication used in making the original offer. C. An offeror can revoke an offer either by expressly refusing to abide by it or by making a new offer to the offeree. D. An offeror can revoke an offer by any reasonable means, at any time before the offeree completes performance of the contract. --------- CORRECT ANSWER-----------------A. An offeror can revoke an offer any time before acceptance, but the revocation is effective only when communicated to the offeree and the offeree actually receives the communication. Charlotte wanted a swimming pool built in her backyard, so she asked various pool installers she knew to give her an estimate. Only Emma
accept. I will buy the collars on or before Saturday with the color of the collars to be worked out. Ruth told Eric that she will sell her inventory to him for $30,000. Eric responded to her offer saying, "Your price is ridiculous, but I must have the inventory. Enclosed is a check for $30,000, but I really think this is unfair." Which one of the following statements it true regarding whether there has been a legally enforceable acceptance of an offer to contract? Select one: A. There has been valid acceptance, but a court will have to determine Eric's intent. B. There has been valid acceptance, because complaining has no effect. C. There has been no acceptance, because an acceptance must be unequivocal. D. Acceptance cannot be determined, because Eric's protest created a conditional acceptance. ---------CORRECT ANSWER-----------------B. There has been valid acceptance, because complaining has no effect. Brenda offered to sell her collection of gemstones to Jolene for $25,000, and Jolene told her brother Kevin about Brenda's offer. When Jolene died in an auto accident, Kevin, as executor of Jolene's estate, tried to accept Brenda's offer to sell the collection. Kevin's acceptance on behalf of the estate is Select one: A. Not enforceable because the acceptance must be unconditional and unequivocal. B. Not enforceable because the offeror has the right to choose with whom to contract. C. Enforceable because of Brenda's intent to contract with Jolene. D. Enforceable since Kevin did not deviate from the original terms of the offer. ---------CORRECT ANSWER-----------------B. Not enforceable because the offeror has the right to choose with whom to contract.
Tony got married at age 15, and then divorced only six months later. While still a minor, Tony was providing child support to his ex-wife. If Tony ceases to provide child support and his ex-wife sues him, it is likely that Tony Select one: A. Will not be required to pay child support until he reaches the age of majority. B. Will only be required to provide child support based on his age and his income. C. Will be required to continue to provide child support D. Will not be obligated to pay because he is still a minor. --------- CORRECT ANSWER-----------------C. Will be required to continue to provide child support Which one of the following is true regarding the capacity of a minor to contract? Select one: A. A minor cannot avoid a contract when he or she misrepresents his or her age. B. A parent is always liable for a minor child's contract. C. A minor can challenge a contract and retain the benefits of the contract. D. A minor must fulfill his or her obligation under a contract for necessaries. ---------CORRECT ANSWER-----------------D. A minor must fulfill his or her obligation under a contract for necessaries. Persons claiming insanity may avoid a contract when Select one: A. They were experiencing a delusion. B. The contract is for necessaries. C. The contract was formed during an interval of time in which two or more independent third parties are willing to attest to the person's inability to contract. D. They did not know that a contract was forming or they did not understand the legal consequences of acts purporting to form the contract. ---------CORRECT ANSWER-----------------D. They did not know that a contract was forming or they did not understand the legal consequences of acts purporting to form the contract.
