CAIA Regulatory Compliance and Ethics 4 — Questions and Answers
Question 1: Which of the following best defines 'bad faith' in the context of automotive insurance claims?
- Failing to investigate a claim within one hour of receipt
- Intentionally or unreasonably denying, delaying, or underpaying a valid claim (Correct answer)
- Asking a claimant to submit a proof of loss form
- Assigning the claim to an independent adjuster
Correct answer: Intentionally or unreasonably denying, delaying, or underpaying a valid claim
Bad faith involves an insurer's intentional or unreasonable failure to honor its obligations under a policy.
Question 2: An independent adjuster working for multiple insurers receives a claim involving two of their client insurers on opposite sides of a dispute. What must they do?
- Handle both sides to maximize efficiency
- Disclose the conflict and decline one of the assignments (Correct answer)
- Let a supervisor decide without disclosing the conflict
- Accept both assignments and split fees equally
Correct answer: Disclose the conflict and decline one of the assignments
Adjusters must disclose conflicts of interest and cannot represent adverse parties in the same dispute.
Question 3: Under most state regulations, how long does an insurer typically have to accept or deny a claim after receiving all necessary documentation?
- 5 business days
- 15 business days
- 45 calendar days (Correct answer)
- 90 calendar days
Correct answer: 45 calendar days
Most states require a coverage decision within 45 calendar days after receipt of a properly completed proof of loss.
Question 4: What is the primary ethical issue with an adjuster pressuring a claimant to use a specific repair facility when the policy does not require it?
- It increases repair cycle time
- It may limit the claimant's rights and benefit the insurer unfairly (Correct answer)
- It violates subrogation rules
- It is required by UCSPA
Correct answer: It may limit the claimant's rights and benefit the insurer unfairly
Steering a claimant to a specific shop when the policy does not mandate it may infringe on the claimant's rights and create a conflict of interest.
Question 5: Which of the following actions would help an adjuster demonstrate ethical conduct during a disputed total loss settlement?
- Withholding the valuation report from the claimant
- Providing the claimant with a written explanation of the valuation methodology (Correct answer)
- Offering a cash incentive to accept the settlement immediately
- Delaying the offer until the claimant retains an attorney
Correct answer: Providing the claimant with a written explanation of the valuation methodology
Transparency about valuation methods supports ethical standards and helps claimants make informed decisions.
Question 6: Which regulatory body has primary oversight of insurance claims practices at the state level?
- Federal Trade Commission (FTC)
- State Department of Insurance (DOI) (Correct answer)
- National Association of Insurance Commissioners (NAIC)
- Consumer Financial Protection Bureau (CFPB)
Correct answer: State Department of Insurance (DOI)
State Departments of Insurance have primary authority to regulate claims practices and license adjusters within their jurisdictions.
Question 7: An adjuster learns during an investigation that a claimant also submitted the same claim to a second insurer and received payment. This is an example of:
- Subrogation
- Double indemnity
- Insurance fraud (Correct answer)
- Comparative negligence
Correct answer: Insurance fraud
Collecting the same loss from two insurers (double-dipping) is insurance fraud and must be reported.
CAIA Regulatory Compliance and Ethics 4
Which of the following best defines 'bad faith' in the context of automotive insurance claims?