CAIA Legal & Ethical Considerations in Insurance Adjusting 3 — Questions and Answers
Question 1: An adjuster receives a gift from a body shop owner who regularly receives referrals. Accepting the gift most likely violates which ethical principle?
- Confidentiality
- Conflict of interest / impartiality (Correct answer)
- Promptness of investigation
- Proper documentation
Correct answer: Conflict of interest / impartiality
Accepting gifts from vendors creates a conflict of interest that can compromise the adjuster's impartiality in claim handling and vendor selection.
Question 2: A claimant with a legitimate total-loss claim is offered a settlement far below fair market value. Under which legal theory could the insurer face extra-contractual damages?
- Comparative negligence
- Contributory negligence
- First-party bad faith (Correct answer)
- Assumption of risk
Correct answer: First-party bad faith
First-party bad faith occurs when an insurer unreasonably refuses to pay a valid claim, potentially exposing the insurer to damages beyond policy limits.
Question 3: When an adjuster suspects staged accident fraud, what is the most appropriate immediate action?
- Deny the claim immediately
- Inform the claimant of the suspicion
- Refer the matter to the Special Investigations Unit (SIU) (Correct answer)
- Contact local police on behalf of the claimant
Correct answer: Refer the matter to the Special Investigations Unit (SIU)
Suspected fraud must be referred to the SIU for investigation rather than acted on unilaterally by the line adjuster.
Question 4: An insured's policy lapses due to non-payment two days before an accident. The insured later pays the premium. What coverage determination applies?
- Coverage is reinstated retroactively to the lapse date
- Coverage is restored but only for future losses
- No coverage exists because the policy was lapsed at the time of loss (Correct answer)
- Coverage applies if the lapse was the insurer's error
Correct answer: No coverage exists because the policy was lapsed at the time of loss
A lapsed policy provides no coverage for losses occurring during the lapse period; reinstatement generally applies prospectively unless the policy states otherwise.
Question 5: Which of the following best describes the legal concept of 'material misrepresentation' in an auto insurance application?
- A minor error in the vehicle's color description
- A false statement that would have affected the insurer's decision to issue or price the policy (Correct answer)
- Failing to list a minor traffic ticket from five years ago
- Providing an estimated rather than exact mileage
Correct answer: A false statement that would have affected the insurer's decision to issue or price the policy
A material misrepresentation is a false statement about a fact that would have influenced the insurer's underwriting decision, potentially voiding the policy.
Question 6: Under HIPAA, an adjuster requesting medical records related to an auto injury claim must:
- Obtain records directly from the treating physician without authorization
- Secure a signed medical authorization from the claimant before requesting records (Correct answer)
- Request records through the state insurance department
- Obtain records only through a court subpoena
Correct answer: Secure a signed medical authorization from the claimant before requesting records
HIPAA requires a valid, signed authorization from the patient before a third party (including an insurer) can obtain protected health information.
Question 7: A claimant alleges whiplash but the adjuster finds video evidence showing the claimant performing strenuous physical activity post-accident. The adjuster should:
- Immediately deny the claim based on the video
- Preserve the evidence and refer to SIU for further investigation (Correct answer)
- Inform the claimant about the video before making any decisions
- Disregard the video as it may be from a different date
Correct answer: Preserve the evidence and refer to SIU for further investigation
Surveillance evidence must be properly documented and referred to SIU; unilateral denial without full investigation can expose the insurer to bad faith liability.
CAIA Legal & Ethical Considerations in Insurance Adjusting 3
An adjuster receives a gift from a body shop owner who regularly receives referrals.
Accepting the gift most likely violates which ethical principle?