CAIA Legal & Ethical Considerations in Insurance Adjusting 4 — Questions and Answers
Question 1: Which document establishes the minimum standards for fair claim settlement practices in most US states?
- National Association of Insurance Commissioners (NAIC) Model Unfair Claims Settlement Practices Act (Correct answer)
- Federal Insurance Fraud Act
- Uniform Commercial Code (UCC)
- Truth in Lending Act (TILA)
Correct answer: National Association of Insurance Commissioners (NAIC) Model Unfair Claims Settlement Practices Act
The NAIC Model Unfair Claims Settlement Practices Act is the foundation for most states' unfair claims practices statutes.
Question 2: An adjuster settles a minor's injury claim without court approval. This settlement is:
- Valid if the parents signed the release
- Potentially voidable when the minor reaches majority (Correct answer)
- Valid because insurance contracts are binding on all parties
- Invalid only if the amount exceeds $10,000
Correct answer: Potentially voidable when the minor reaches majority
Settlements involving minors typically require court approval; otherwise the minor may disaffirm the release upon reaching majority.
Question 3: The principle of indemnity in auto insurance means that:
- The insured can profit from an insurance claim
- The insured is restored to their pre-loss financial position, no more (Correct answer)
- The insurer pays replacement cost regardless of depreciation
- All claims must be paid within 30 days
Correct answer: The insured is restored to their pre-loss financial position, no more
Indemnity prevents the insured from profiting from a loss by limiting recovery to restoring the pre-loss financial condition.
Question 4: An adjuster is handling a claim in a comparative negligence state where the insured is found 40% at fault. How is the insured's recovery affected?
- The insured recovers nothing because they were at fault
- The insured's recovery is reduced by 40% (Correct answer)
- The insured recovers full damages since they were less than 50% at fault
- The insured and at-fault party each pay their own damages
Correct answer: The insured's recovery is reduced by 40%
Under comparative negligence, each party's recovery is reduced in proportion to their percentage of fault.
Question 5: A claimant signs a full and final release without understanding its terms due to a language barrier. This release may be challenged on grounds of:
- Subrogation rights
- Lack of mutual assent / contract of adhesion (Correct answer)
- Policy exclusion
- Statute of limitations
Correct answer: Lack of mutual assent / contract of adhesion
A release signed without genuine understanding may lack mutual assent, making it voidable for failure of a required element of contract formation.
Question 6: When an adjuster discovers that an insured committed arson on their own vehicle, the adjuster's duty is to:
- Pay the claim and pursue subrogation against the insured
- Deny the claim and file a fraud report with appropriate authorities (Correct answer)
- Settle for a reduced amount to avoid litigation
- Refer to underwriting for policy cancellation only
Correct answer: Deny the claim and file a fraud report with appropriate authorities
Arson is a criminal act that voids coverage; the adjuster must deny the claim and report the fraud to the SIU and applicable state insurance fraud bureau.
Question 7: Which statute generally limits the time within which a claimant must file a lawsuit against an insurer for breach of contract?
- Statute of frauds
- Statute of limitations (Correct answer)
- Parol evidence rule
- Res ipsa loquitur
Correct answer: Statute of limitations
The statute of limitations sets the deadline for filing suit; missing this deadline typically bars the claimant's legal remedy.
CAIA Legal & Ethical Considerations in Insurance Adjusting 4
Which document establishes the minimum standards for fair claim settlement practices in most US states?