17 Free California Property & Casualty Practice Questions: Commercial Casualty: CGL, Commercial Auto and Workers' Compensation (2026)
How to Use This Commercial Casualty Set
Commercial casualty is the other 35% block of the Casualty objectives: Commercial Insurance Coverages. This set covers commercial general liability, professional liability on a claims-made basis, commercial auto, directors and officers, employers' liability, garage coverage, umbrellas, employment practices and package policy conditions.
Workers' compensation and employers' liability appear on the Casualty side only, so a candidate sitting the combined exam must know them.
Practice Questions 1-6: CGL, Claims-Made Policies, Package Conditions and Business Auto
Coverage A against Coverage B, the retroactive date, care custody or control, motor carrier policies and who can change a policy.
Question 1 (Chapter 7)
A California restaurant owner has a Commercial General Liability policy with Coverage A (bodily injury and property damage liability) and Coverage B (personal and advertising injury liability). A patron slips on a wet floor near the bar, falls, and breaks their wrist. The patron sues the restaurant for medical expenses and pain and suffering. Which coverage applies to this claim?
- A) Coverage B only, as it involves personal injury from the patron's fall.
- B) Both Coverage A and Coverage B, as the fall caused bodily injury and the suit alleges personal injury.
- C) Neither coverage, as slips and falls are excluded under the CGL form.
- D) Coverage A only, as it involves bodily injury from a premises condition.
Show answer & explanation
Answer: D
Coverage A applies to bodily injury and property damage liability arising from premises operations, which includes a patron slipping on a wet floor. Coverage B applies to personal and advertising injury (e.g., libel, slander, false arrest), not bodily injury from a slip and fall. The claim is solely for bodily injury, so only Coverage A responds. Slips and falls are not excluded under the standard CGL form.
Question 2 (Chapter 7)
A California consultant purchases a professional liability (errors and omissions) policy that is claims-made and reported. The policy has a retroactive date of January 1, 2022. A claim is made against the consultant on June 1, 2024, for alleged negligence in advice given on March 15, 2021. The consultant reports the claim to the insurer on June 10, 2024. Is the claim covered, and why?
- A) Yes, because the wrongful act occurred after the retroactive date and the claim was made and reported during the policy period.
- B) No, because professional liability policies do not cover negligence in advice given.
- C) Yes, but only if the consultant purchases an extended reporting period (tail) coverage.
- D) No, because the alleged wrongful act occurred before the policy's retroactive date.
Show answer & explanation
Answer: D
A claims-made and reported policy covers a claim only when the wrongful act occurred on or after the retroactive date and the claim is both made and reported during the policy period. The advice was given on March 15, 2021, before the January 1, 2022 retroactive date, so the claim is excluded however promptly it was made and reported. A misstates the date comparison, C misdescribes what professional liability insurance covers, and C is wrong because an extended reporting period extends the time to report claims, never the retroactive date backwards.
Question 3 (Chapter 7)
A California contractor's CGL policy includes the standard exclusions. The contractor is hired to install new windows in a commercial building. During the installation, a window falls and damages a tenant's personal property inside the building. The tenant sues the contractor for the damage. Which CGL exclusion applies, and is there coverage under the policy for this claim?
- A) The products-completed operations hazard exclusion applies, and there is no coverage.
- B) The expected or intended injury exclusion applies, and there is no coverage.
- C) No exclusion applies; the claim is covered under Coverage A as property damage liability.
- D) The care, custody, or control exclusion applies, and there is no coverage for damage to the tenant's personal property.
Show answer & explanation
Answer: D
The care, custody, or control exclusion (under Coverage A) eliminates coverage for property damage to property in the care, custody, or control of the insured or for which the insured is exercising physical control. The tenant's personal property inside the building was in the contractor's care, custody, or control during the window installation, so this exclusion applies. The claim is not covered under the CGL policy. The products-completed operations hazard exclusion does not apply because the work was ongoing, not completed.
Question 4 (Chapter 7)
A California trucking company operates under a motor carrier policy. The company hires a driver who is an independent contractor under a written agreement. The driver causes an accident while hauling the company's trailer, injuring another motorist. Which statement is true regarding liability coverage under the motor carrier policy?
- A) No coverage applies because the driver is not an employee of the trucking company.
- B) Coverage applies only if the driver is added as a named insured via endorsement.
- C) The motor carrier policy covers physical damage to the trailer but not liability for injuries to others.
- D) The motor carrier policy provides liability coverage for the accident, as it covers the trucking company's liability for the use of trailers under its control, regardless of driver status.
Show answer & explanation
Answer: D
Motor carrier policies (e.g., truckers coverage) provide liability coverage for the motor carrier's operations, including the use of trailers under its control. The policy covers the trucking company's liability for accidents involving its equipment, regardless of whether the driver is an employee or an independent contractor, as long as the trailer is being used in the company's business. The policy does not require the driver to be a named insured; it covers the motor carrier's liability for its operations.
Question 5 (Chapter 7)
A California construction firm purchases a Commercial Package Policy (CPP) with Commercial General Liability (CGL) and Commercial Property modules. The policy lists 'Summit Builders, Inc.' as the first named insured and 'Valley Subcontractors, LLC' as an additional named insured. During the policy period, Valley Subcontractors requests to add an endorsement increasing the CGL limits. Which statement is correct regarding this request?
- A) Valley Subcontractors can request the change because it is an additional named insured.
- B) Either party can request the change, but the insurer requires consent from both.
- C) Only Summit Builders, Inc. as the first named insured can request the change.
- D) The request must be made by the insurance producer, not the insured entities.
Show answer & explanation
Answer: C
Under the Common Policy Conditions of the ISO Commercial Lines Program, only the first named insured has the authority to request policy changes, cancel the policy, or be responsible for premium payments. Additional named insureds do not have this authority, even though they share coverage. Therefore, Valley Subcontractors cannot request the limit increase; only Summit Builders, Inc. can. Option A is incorrect because additional named insureds lack this authority. Option B is incorrect because authority is not shared or subject to mutual consent. Option D is incorrect because the insured (specifically the first named insured) makes the request, not the producer.
Question 6 (Chapter 7)
A California manufacturing company purchases a Commercial Package Policy with a Commercial General Liability (CGL) coverage form and a Commercial Property module. The policy is audited at the end of the term, and the insurer discovers the insured's actual payroll was 20% higher than the estimated payroll used to calculate the premium. What is the insurer's right regarding the premium under the common policy conditions?
- A) The insurer must absorb the additional premium cost as part of the underwriting risk.
- B) The insurer can only increase the premium at renewal, not mid-term or after an audit.
- C) The insurer must cancel the policy for material misrepresentation of payroll.
- D) The insurer can bill the insured for the additional premium due based on the audit.
Show answer & explanation
Answer: D
Under the Examination of Your Books and Records condition (a common policy condition), the insurer has the right to audit the insured's records during the policy period and for a reasonable time afterward to verify premium bases like payroll or sales. If the audit reveals a higher exposure, the insurer can bill the insured for the additional premium. This is not considered misrepresentation warranting cancellation if the discrepancy is due to legitimate business growth, and premium adjustments can be made post-audit.
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Practice Questions 7-12: D&O, Employers' Liability, Garage Coverage and Umbrellas
The three sides of a D&O policy, the exclusive remedy rule, garage keepers legal liability and how an umbrella drops down.
Question 7 (Chapter 7)
A California hospital purchases a directors and officers (D&O) liability policy with Side A, Side B, and Side C coverage. The hospital faces a lawsuit from a patient alleging that the hospital's board of directors failed to oversee proper infection control procedures, leading to the patient's illness. Which insuring agreement would most likely respond to this lawsuit?
- A) Side A coverage, protecting individual directors and officers when the hospital cannot indemnify them.
- B) Side B coverage, reimbursing the hospital for indemnification of the directors and officers.
- C) None of the above; D&O policies do not cover allegations of inadequate oversight.
- D) Side C coverage, for entity coverage of wrongful acts by the hospital itself.
Show answer & explanation
Answer: D
Side C coverage (entity coverage) in a D&O policy covers the organization itself for wrongful acts, such as failures in oversight or management by the board that constitute a breach of duty owed by the entity. The allegation that the board failed to oversee infection control, leading to patient harm, is a claim against the hospital for its own negligence in governance, making Side C the appropriate coverage. Side A protects individuals only when the organization cannot indemnify (e.g., insolvency), which is not alleged here. Side B reimburses the organization after it has indemnified individuals, but the claim is against the hospital, not seeking indemnification of individuals. Option C is incorrect because D&O policies do cover claims alleging failure of oversight as a wrongful act by the entity.
Question 8 (Chapter 7)
A California employer's workers' compensation policy includes employers' liability coverage. An employee files a lawsuit alleging that the employer failed to provide safety training, knowing that the lack of training would likely cause injury when operating machinery. The employee is injured and sues for damages. Which statement is true regarding the employers' liability coverage?
- A) The claim is covered because employers' liability insurance covers all tort claims by employees for workplace injuries.
- B) The claim is not covered because employers' liability insurance excludes bodily injury arising from the employer's failure to provide a safe workplace.
- C) The claim is not covered because the injury is compensable under workers' compensation, triggering the exclusive remedy.
- D) The claim is covered only if the employee proves the employer acted with malicious intent.
Show answer & explanation
Answer: C
Employers' liability coverage under a workers' compensation policy protects the employer against certain tort claims by employees for workplace injuries that are not barred by the exclusive remedy doctrine. However, if the injury is compensable under workers' compensation (i.e., arises out of and in the course of employment), the exclusive remedy doctrine applies, and the employee cannot sue the employer in tort—even for alleged negligence like failure to provide safety training. Employers' liability coverage only applies in specific situations, such as third-party-over actions, dual-capacity suits, or consequential bodily injury to family members—not for direct employee injury claims that fall within workers' compensation. Option A is incorrect because employers' liability does not cover all tort claims. Option B is incorrect because there is no such exclusion for failure to provide a safe workplace. Option D is incorrect because intent is not required for employers' liability to apply in covered scenarios, but the claim is barred regardless.
Question 9 (Chapter 7)
A California doctor purchases a professional liability (errors and omissions) policy that is claims-made and reported. The policy has a retroactive date of January 1, 2020. A patient files a lawsuit on March 1, 2025, alleging negligence in treatment provided on December 15, 2019. The doctor reports the claim to the insurer on March 10, 2025. Is the claim covered, and why?
- A) No, the claim is not covered because the incident occurred before the retroactive date.
- B) Yes, the claim is covered because the incident occurred after the retroactive date.
- C) Yes, the claim is covered because it was made and reported during the policy period.
- D) No, the claim is not covered because it was not reported within the policy period.
Show answer & explanation
Answer: A
For a claims-made and reported policy, coverage requires that the claim be made during the policy period and reported to the insurer during the policy period (or within any extended reporting period), and that the incident giving rise to the claim occurred on or after the retroactive date. The retroactive date is January 1, 2020. The alleged negligence occurred on December 15, 2019, which is before the retroactive date. Therefore, the claim is not covered, regardless of when it was made or reported. Option B is incorrect because the incident occurred before the retroactive date. Option C is incorrect because even if made and reported during the policy period, the incident must be on or after the retroactive date. Option D is incorrect because the claim was reported during the policy period (assuming the policy was active on March 10, 2025), but the incident date is the disqualifying factor.
Question 10 (Chapter 7)
A California architectural firm purchases a professional liability (errors and omissions) policy that is claims-made and reported. The policy has a retroactive date of January 1, 2022, and a policy period of January 1, 2024, to January 1, 2025. A client files a lawsuit on November 1, 2024, alleging negligence in a design completed on November 15, 2021. The firm reports the claim to the insurer on November 10, 2024. Is the claim covered?
- A) Yes, because the claim was made and reported during the policy period
- B) Yes, because the act occurred after the retroactive date
- C) No, because the claim was made after the policy period expired
- D) No, because the act occurred before the retroactive date
Show answer & explanation
Answer: D
A claims-made and reported policy requires both that the claim be made and reported during the policy period (satisfied here: the claim was made November 1, 2024 and reported November 10, 2024, both within the January 1, 2024 to January 1, 2025 policy period) AND that the wrongful act occurred on or after the retroactive date. The design was completed November 15, 2021, which is before the January 1, 2022 retroactive date, so the act falls outside the covered period regardless of when the claim was made or reported. Option A is incorrect because timely making and reporting the claim does not cure an act that predates the retroactive date. Option B is incorrect because the act occurred before, not after, the retroactive date. Option C is incorrect because the claim was in fact made and reported within the policy period.
Question 11 (Chapter 7)
A California auto repair shop purchases a Garage Policy. A customer's vehicle is left overnight for repairs and is stolen from the shop's parking lot. The shop is legally liable for the loss. Which coverage under the Garage Policy responds to this loss?
- A) Garage Liability Coverage
- B) Garage Keepers Direct Coverage (Primary)
- C) Garage Keepers Legal Liability Coverage
- D) Garage Keepers Direct Coverage (Excess)
Show answer & explanation
Answer: C
Garage Keepers Legal Liability Coverage protects the insured for loss to customers' vehicles in the insured's care, custody, or control when the insured is legally liable. This is the standard coverage for a repair shop that is legally responsible for a customer's vehicle. Garage Liability (A) covers liability for garage operations but typically excludes damage to property in the insured's care, custody, or control. Garage Keepers Direct Coverage (B and D) pays regardless of legal liability, which is not the standard form for this scenario. The question states the shop is 'legally liable,' making Legal Liability the correct coverage.
Question 12 (Chapter 7)
A California technology startup purchases a commercial umbrella liability policy with a $5 million limit and a $10,000 self-insured retention (SIR). The underlying policies include a CGL with a $1 million per occurrence limit. A lawsuit results in a $2 million judgment. The CGL policy pays its $1 million limit. The startup has not yet paid the $10,000 SIR. How much will the umbrella policy pay?
- A) $1 million
- B) $1 million minus the $10,000 SIR
- C) Nothing until the SIR is satisfied
- D) $990,000
Show answer & explanation
Answer: A
An umbrella policy's self-insured retention (SIR) applies only to losses that underlying insurance does not cover at all—it is a gap-filler, not an extra layer on top of an exhausted underlying limit. Here the $2 million judgment is a covered CGL loss, so the CGL pays its $1 million limit and the umbrella simply drops down to pay the amount above that limit: $2 million − $1 million = $1 million, well within the umbrella's $5 million limit. The $10,000 SIR is not triggered because the loss was not left completely untouched by underlying insurance. Option B and Option D incorrectly subtract the SIR from the umbrella's payment. Option C (nothing) is wrong because the umbrella does respond once the underlying limit is exhausted.
Practice Questions 13-17: Audits, Employment Practices, Umbrellas and Claims-Made Timing
Premium audits, retaliation claims, D&O indemnification and the timing rules of claims-made policies.
Question 13 (Chapter 7)
A California business purchases a Commercial Package Policy that includes a Commercial General Liability (CGL) coverage form and a Commercial Property module. The policy is audited, and the insurer discovers the insured's actual gross sales were 15% less than the estimated sales used to calculate the premium. What is the insurer's right regarding the premium under the common policy conditions?
- A) The insurer must return the unearned premium to the insured, as premiums are adjustable based on actual sales.
- B) The insurer must refund the excess premium to the insured within 30 days of the audit.
- C) The insurer may retain the excess premium as liquidated damages for the insured's underreporting.
- D) The insurer can cancel the policy for material misrepresentation of the exposure base.
Show answer & explanation
Answer: A
Under the Commercial Package Policy's common policy conditions, premiums are adjustable based on actual exposure (such as sales or payroll). If the actual exposure is less than estimated, the insurer must return the unearned premium to the insured. Option B incorrectly specifies a 30-day refund period, which is not mandated by the policy conditions. Option C is incorrect as excess premium is not retained as liquidated damages. Option D is incorrect because a discrepancy found in audit is not grounds for cancellation for misrepresentation; it triggers an adjustment.
Question 14 (Chapter 7)
A California employer purchases an employment practices liability (EPLI) policy. An employee alleges that the employer demoted them in retaliation for filing a workers' compensation claim. The employee sues for lost wages and emotional distress. Which statement is true regarding coverage under the EPLI policy?
- A) The claim is not covered because retaliation is excluded under the EPLI policy's bodily injury exclusion carve-out.
- B) The claim is covered under the EPLI policy's broad definition of 'wrongful act,' which includes retaliation.
- C) The claim is covered only if the employee also alleges discrimination based on a protected characteristic.
- D) The claim is not covered because emotional distress is explicitly excluded from EPLI coverage.
Show answer & explanation
Answer: B
EPLI policies define 'wrongful act' broadly to include discrimination, harassment, wrongful demotion, failure to hire/promote, hostile work environment, termination, and retaliation. Retaliation for filing a workers' compensation claim is a recognized wrongful act under EPLI. Option A is incorrect because the bodily injury exclusion carve-out in EPLI allows coverage for emotional distress, and retaliation is not excluded. Option C is incorrect as EPLI covers retaliation independently of discrimination allegations. Option D is incorrect because emotional distress is covered under EPLI, as the bodily injury exclusion does not apply to emotional distress, defamation, invasion of privacy, or humiliation.
Question 15 (Chapter 7)
A California hospital purchases a directors and officers (D&O) liability policy with Side A, Side B, and Side C coverage. A patient sues the individual board members alleging that they failed to oversee proper sterilization procedures, leading to the patient's post-operative infection. The hospital is financially solvent and indemnifies the board members. Which insuring agreement would most likely respond to this lawsuit?
- A) Side B coverage, as it reimburses the organization for indemnification of directors and officers.
- B) Side A coverage, as it protects individual directors and officers when the organization cannot indemnify.
- C) Side C coverage, as it provides entity coverage for the hospital itself.
- D) Both Side B and Side C coverage, as the hospital is sued and it indemnifies the board members.
Show answer & explanation
Answer: A
When the organization is financially solvent and indemnifies its directors and officers, Side B coverage applies, which reimburses the organization for the indemnification it provided. Side A coverage only applies when the organization cannot indemnify (e.g., due to insolvency). Side C coverage applies to claims directly against the organization for its own wrongful acts, and here the claim is against the board members individually, not the hospital as an entity. Option B is incorrect because the hospital can indemnify. Option C is incorrect as the claim is not against the hospital's entity. Option D is incorrect because Side C does not apply; only Side A is triggered by the indemnification.
Question 16 (Chapter 7)
A California business purchases a commercial umbrella liability policy with a $2 million limit and a $25,000 self-insured retention (SIR). The underlying policies include a CGL with a $500,000 per occurrence limit. A lawsuit results in a $600,000 judgment for bodily injury. The underlying CGL policy pays its $500,000 limit. How much will the umbrella policy pay, and what is the key condition for this payment?
- A) The umbrella pays $0 because the self-insured retention has not been satisfied.
- B) The umbrella pays $100,000, which is the amount of the judgment exceeding the underlying limit.
- C) The umbrella pays $350,000, which is the judgment minus the underlying limit and the SIR.
- D) The umbrella pays $250,000, which is half of the SIR, as the underlying limit paid part of the loss.
Show answer & explanation
Answer: B
A self-insured retention (SIR) on an umbrella policy applies only to a loss that underlying insurance does not cover at all; it does not re-apply to the layer above an underlying limit that did respond. Here the CGL is a covered underlying policy and it paid its full $500,000 limit toward the $600,000 judgment, so the umbrella drops down and pays the remaining $100,000 excess, subject to its own $2 million limit. The $25,000 SIR is irrelevant to this loss because the CGL did respond to it. Option A incorrectly treats the SIR as a precondition for any umbrella payment once an underlying policy has already paid. Options C and D apply the SIR in ways that have no basis in how SIRs function.
Question 17 (Chapter 7)
A California nonprofit organization purchases a directors and officers (D&O) liability policy. The policy includes Side A coverage (protection for individual directors and officers when the organization cannot indemnify), Side B coverage (reimbursement to the organization for indemnification of directors and officers), and Side C coverage (entity coverage for the organization itself). A shareholder sues the nonprofit alleging that the organization made false statements in its annual report. Which insuring agreement would most likely respond to this lawsuit?
- A) Side A only, as it protects individuals from personal liability.
- B) Side B only, as it reimburses the organization for indemnification payments.
- C) Sides A and C, as both individual and entity liability may be implicated.
- D) Side C only, as the lawsuit alleges wrongful acts by the organization itself.
Show answer & explanation
Answer: D
Side C coverage in a D&O policy provides entity coverage, meaning it covers the organization itself for wrongful acts committed by the organization (e.g., false statements in financial reports). Side A covers individuals when the organization cannot indemnify, and Side B reimburses the organization for indemnification it has made. Since the lawsuit alleges wrongful acts by the organization (the nonprofit), Side D is the primary insuring agreement that would respond.
The Mistakes That Cost Marks
These are the slips the questions above are built to catch:
- Applying the wrong CGL coverage. Coverage A is bodily injury and property damage. Coverage B is personal and advertising injury, such as libel or false arrest.
- Ignoring the retroactive date. A claims-made policy covers a wrongful act only on or after the retroactive date. A prompt claim cannot fix an act that came before it.
- Confusing the D&O sides. Side A protects individuals when the organization cannot indemnify, Side B reimburses the organization after it indemnifies, and Side C covers the entity itself.
- Overlooking exclusive remedy. If an injury is compensable under workers' compensation, the employee cannot sue the employer in tort for it.
- Mixing garage coverages. Garage keepers legal liability responds when the shop is legally liable for a customer's vehicle in its care.
- Letting the wrong party change the policy. Only the first named insured has the authority to request changes.
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