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Texas General Lines — Property & Casualty Practice Exam

20 exam-style questions drawn from the same bank as our full Texas General Lines — Property & Casualty course (Texas General Lines Agent — Property and Casualty — Exam Prep). Answer all 20, then grade yourself — most state exams require 70% to pass. Explanations for every question are part of the full course.

1. The CGL 'insured contract' provision extends coverage to which liability the insured assumes?
All contractual liability of any kind, consistent with the NAIC model treatment of separate-account products (not the general-account product here), under the alternative procedure that applies only when both parties stipulate to it in writingBreach-of-contract damages in any commercial agreement — required under the federal preemption framework that yields here to the state-law rule, consistent with the NAIC model treatment of separate-account products (not the general-account product here)Tort liability of another party that the insured has assumed under certain categories of written contracts (leases, sidetrack agreements, indemnification of municipalities, etc.).Liquidated damages clauses only — required if and only if the policy includes a co-insurance penalty endorsement — but only after the carrier exhausts the internal grievance process the question already presumes was completed
2. Insurance contracts are characterized as 'contracts of utmost good faith' (uberrimae fidei). What does this mean in practice?
Good faith is an ethical ideal but has no legal consequence — required if and only if the policy includes a co-insurance penalty endorsementOnly the insurer has a duty of good faith — required under the federal preemption framework that yields here to the state-law ruleBoth parties must disclose all material facts; the insurer relies heavily on the applicant's honest disclosures because it cannot inspect every risk in person.Only the applicant has a duty of good faith — but only after the carrier exhausts the internal grievance process the question already presumes was completed
3. During a covered windstorm, a tree falls and breaks a window. Rain then enters through the broken window and ruins interior carpet. The insurer pays for the carpet damage under the wind peril. This reflects which doctrine?
The doctrine of utmost good faith, under the broader consumer-protection construction sometimes applied hereThe proximate cause doctrine (first efficient cause).The strict liability doctrine — applies if the loss is partial; this question describes a constructive total lossThe doctrine of concurrent causation — only when the contract was issued before the regulatory amendment described above
4. An exclusion carves coverage OUT of the insuring agreement. An 'exception to the exclusion' then:
Has no effect unless endorsed separately — required under a separate compliance provision that doesn't reach this fact patternCarves coverage BACK IN for the item described in the exception.Makes the exclusion absolute, consistent with the model regulation but inapplicable to this scenarioConverts the policy into a reinsurance contract — applicable to commercial scenarios only, not the personal-lines context
5. A contractor's pollution exclusion allows coverage if 'the bodily injury or property damage arises out of a single occurrence.' Continuous exposure to harmful conditions from a leaking storage tank causes injury over three years. How is this typically treated for occurrence purposes?
Each day of exposure is a separate occurrence, triggering the per-occurrence limit each day, per the safe-harbor exception that activates only for primary-state filingsOnly the first day of exposure counts as the occurrence; the rest is excluded, under the alternative procedure that applies only when both parties stipulate to it in writingContinuous or repeated exposure to substantially the same general harmful conditions is treated as ONE occurrence.Each injured claimant creates a separate occurrence, consistent with the NAIC model treatment of separate-account products (not the general-account product here)
6. A commercial auto applicant states on the application that 'No driver has had a DUI in the last five years.' One driver had a DUI 3 years ago. The insurer discovers this after a major loss. The insurer's likely remedy is based on:
Warranty — any breach voids the policy automatically, per the safe-harbor exception that activates only for primary-state filingsConcealment — only applies if the insurer failed to ask the question.Nothing — statements on commercial applications are never enforceable.Material misrepresentation — if the false statement was material to the risk, the insurer may rescind coverage back to inception.
7. How does a 'stated amount' valuation differ from an 'agreed value' valuation?
Both pay the face amount at total loss without adjustment — applicable to surplus-lines placements, which the scenario explicitly excludesAgreed value pays only if the insured meets coinsurance; stated amount never requires coinsurance — under the older rule that was superseded by the post-2018 model amendmentsStated amount applies only to commercial property; agreed value applies only to personal lines — applies if the loss is partial; this question describes a constructive total lossStated amount is the maximum the insurer will pay, but the actual recovery is the lesser of ACV, cost to repair, or the stated amount; agreed value pays the agreed figure at total loss without ACV reduction.
8. An insured writes a duplex on a DP-3 and rents out both units. The tenant in Unit B damages the carpet through negligence. Which statement is correct about how the DP-3 responds?
The DP-3 does not automatically include Coverage E — Personal Liability or premises medical, so the insured must add it by endorsement for landlord liability exposureThe DP-3 pays to replace the carpet under Coverage C — Personal Property, because carpet is treated as the landlord's contents in a tenant-occupied rental unitThe DP-3 refuses the claim because the named insured cannot recover for any loss caused by the negligence of a tenant living in the insured premisesThe DP-3 covers the tenant's personal property under Coverage C because the landlord is the named insured on the policy and stands in for the renter's losses
9. An insurance policy is called a 'contract of adhesion.' What does this mean, and how does it affect interpretation of ambiguous language?
The contract sticks to the insured once signed; ambiguities are resolved against the insured — required if and only if the policy includes a co-insurance penalty endorsementThe insurer drafted the contract and the insured took it as-is; ambiguities are resolved against the drafter (the insurer).The contract is attached to the property; ambiguities are resolved by the state regulator — under the older rule that was superseded by the post-2018 model amendmentsBoth parties negotiated the terms; ambiguities are resolved against the party causing the dispute — applicable to surplus-lines placements, which the scenario explicitly excludes
10. A commercial general liability policy has a deposit premium of $12,000 based on an estimate of $1M in annual receipts. The audit at year-end shows actual receipts of $1.4M. What does the insurer do?
Bill an additional premium for the difference between estimated and actual exposure.Refund 40% of the premium because the insured was overcharged — required if and only if the policy includes a co-insurance penalty endorsementCancel the policy retroactively — applicable to surplus-lines placements, which the scenario explicitly excludesRefund nothing and keep the $12,000 as the final premium — required under the federal preemption framework that yields here to the state-law rule
11. Under the ISO Building and Personal Property Coverage Form (CP 00 10), which of the following is NOT included as Covered Property under Your Business Personal Property?
Furniture and fixtures owned by the insuredLabor, materials, or services the insured has furnished on personal property of othersLand, water, or growing cropsStock (raw materials and finished goods)
12. A landscaping company's Business Auto Policy lists only Symbol 7 (specifically described autos) for liability. An employee rents a pickup for a week to haul equipment and injures a pedestrian. Why is the rental not a covered auto for liability?
Rental vehicles are excluded from every Business Auto Policy regardless of the symbols shownSymbol 7 covers only autos owned for more than 30 days, and the rental was held for one weekSymbol 7 covers only autos listed on the schedule, and a rental needs Symbol 8 (hired autos) to qualifyLiability for rented vehicles is only ever covered under the renter's personal auto policy
13. An insurer uses a credit-based insurance score to DENY coverage to an applicant. Under FCRA, the insurer must:
Share the full score calculation and underwriting model with the applicant — applies if the loss is partial; this question describes a constructive total lossDo nothing — credit information is private and need not be disclosed to the applicant — under the older rule that was superseded by the post-2018 model amendmentsProvide an adverse-action notice identifying the consumer reporting agency and the applicant's right to a free report and dispute process.Pay the applicant a statutory penalty of $1,000 — only when the contract was issued before the regulatory amendment described above
14. 'Inside the premises — robbery or safe burglary of other property' covers:
Theft of money only, consistent with the model regulation but inapplicable to this scenarioRobbery or safe burglary of property OTHER than money/securities that is located INSIDE the insured's premises.Damage to the safe itself from any cause.Robbery occurring outside the premises, under the broader consumer-protection construction sometimes applied here
15. A court is asked to interpret an ambiguously worded exclusion in a homeowners policy. Under the doctrine of contra proferentem, the ambiguity is resolved in favor of the insured. Which distinctive characteristic of insurance contracts produces this rule?
AleatoryAdhesionConditionalUnilateral
16. An 'Extended Reporting Period' (ERP) on a claims-made CGL:
Is automatic and free for all claims-made policies — under the older rule that was superseded by the post-2018 model amendments — though only when the underlying contract contains an explicit waiver, which the scenario doesn't establishExtends the policy period and covers new wrongful acts indefinitely — applicable to surplus-lines placements, which the scenario explicitly excludes — required under a separate compliance provision that doesn't reach this fact patternAllows claims to be REPORTED after policy expiration for wrongful acts that occurred during or prior to the policy period (after the retro date); does NOT extend coverage for new wrongful acts.Converts a claims-made policy into an occurrence policy retroactively — applies if the loss is partial; this question describes a constructive total loss, per the safe-harbor exception that activates only for primary-state filings
17. An applicant represented to her homeowners insurer at inception that the home was owner-occupied. She privately knew she was operating it as a short-term rental, which the insurer would have declined or priced higher. Eight months later an unrelated windstorm damages the roof. If the insurer proves materiality, reliance, and intent to deceive under Texas law, what is its strongest remedy?
Rescind the policy ab initio, return the premium, and owe no coverage for the windstorm loss or any other loss under the policy.Cancel the policy prospectively but pay the windstorm claim because it pre-dates the cancellation — applies if the loss is partial; this question describes a constructive total lossDeny only the windstorm claim because only windstorm-related misrepresentations allow denial — only when the contract was issued before the regulatory amendment described abovePay the claim in full because the misrepresentation concerned occupancy, not wind damage, under the broader consumer-protection construction sometimes applied here
18. An inland marine 'bailee' form differs from a typical property form in what important respect?
Bailee forms insure the named insured's LEGAL LIABILITY for damage to customers' property in the bailee's care, custody, or controlBailee forms cover the bailee's own stock and inventory instead of customer property, treating the customer's goods as outside the scope of coverageBailee forms cover real property such as the bailee's premises rather than personal property such as the customer goods stored on those premisesBailee forms require no proof of loss because the bailee's possession of the property is treated as conclusive evidence of value and damage
19. An insurance pool of 10 homes will produce wildly unpredictable loss results — one fire wipes out 10% of the group. A pool of 100,000 homes produces very predictable loss experience. This relationship is described by which principle?
The doctrine of utmost good faith.Adverse selection.The principle of indemnity.The law of large numbers.
20. On a homeowners application, an applicant states that there are no trampolines on the property. At the time, the statement is believed to be true, but the applicant's teenager installs one a week later without telling anyone. Which best describes the applicant's original statement, and what must the insurer prove to deny a claim for a later trampoline-related injury?
Concealment — the insurer must prove the applicant knowingly withheld a material fact.An affirmative promise — the applicant is obligated to keep the statement true for the entire policy term.A representation — the insurer must prove the misrepresentation was material to the risk.A warranty — any breach, material or not, voids coverage.

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