CAADE Insurance and Legal Procedures 5 — Questions and Answers
Question 1: GAP insurance covers the difference between a vehicle's ACV and:
- The outstanding loan or lease balance (Correct answer)
- The original MSRP sticker price
- The cost of a comparable rental vehicle
- The deductible on the primary auto policy
Correct answer: The outstanding loan or lease balance
GAP (Guaranteed Asset Protection) insurance pays the shortfall between what the insurer pays (ACV) and what the owner still owes on the loan or lease.
Question 2: A vehicle title branded as 'salvage' indicates:
- The vehicle was declared a total loss by an insurer at some point (Correct answer)
- The vehicle has failed a state emissions test
- The vehicle's odometer has been altered
- The vehicle was previously used as a police unit
Correct answer: The vehicle was declared a total loss by an insurer at some point
A salvage title is issued when an insurance company declares a vehicle a total loss due to damage, theft recovery, or other qualifying event.
Question 3: An insured has a $1,000 collision deductible. If total repairs cost $4,200, the insurer pays:
- $3,200 (Correct answer)
- $4,200
- $1,000
- $2,100
Correct answer: $3,200
The insurer pays total repair costs minus the deductible, so $4,200 − $1,000 = $3,200.
Question 4: Which legal concept prevents an insurer from denying coverage based on a policy exclusion if it failed to clearly communicate that exclusion to the policyholder?
- Waiver and estoppel (Correct answer)
- Subrogation
- Indemnification
- Comparative negligence
Correct answer: Waiver and estoppel
Under waiver and estoppel, an insurer that fails to timely assert an exclusion or misrepresents coverage may be legally prevented from later denying the claim on that basis.
Question 5: A vehicle appraisal report used in a legal proceeding must meet the evidentiary standard of being:
- Prepared by a qualified expert using accepted industry methodologies (Correct answer)
- Submitted within 10 days of the loss
- Approved by the state insurance commissioner
- Generated by insurer-certified software only
Correct answer: Prepared by a qualified expert using accepted industry methodologies
For an appraisal to be admissible in court, it must be authored by a qualified expert who applied recognized and reliable valuation methods.
Question 6: Comparative negligence laws in auto accident claims affect damage recovery by:
- Reducing each party's recovery proportionally to their percentage of fault (Correct answer)
- Barring all recovery if the claimant is even 1% at fault
- Requiring equal payment from both insurers regardless of fault
- Doubling the at-fault driver's liability limits
Correct answer: Reducing each party's recovery proportionally to their percentage of fault
Under comparative negligence, a claimant's compensation is reduced by their own percentage of fault, allowing partial recovery even when they share blame.
Question 7: An insurer's duty to defend is triggered when:
- A claim is filed that potentially falls within policy coverage, regardless of ultimate merit (Correct answer)
- The insured is found guilty in a court of law
- The claimant demands a jury trial
- Damages exceed the policy liability limits
Correct answer: A claim is filed that potentially falls within policy coverage, regardless of ultimate merit
The duty to defend is broader than the duty to indemnify; it is triggered by any claim alleging facts that could potentially be covered under the policy.
CAADE Insurance and Legal Procedures 5
GAP insurance covers the difference between a vehicle's ACV and: