CALA Insurance Policy and Regulations 3 — Questions and Answers
Question 1: Under most state regulations, what is the maximum number of days an insurer has to acknowledge receipt of a first-party auto claim after notification?
- 10 days (Correct answer)
- 30 days
- 60 days
- 90 days
Correct answer: 10 days
Most state unfair claims settlement regulations require insurers to acknowledge receipt of a claim within 10 working days of notification.
Question 2: A policy contains a 'severability of interests' clause. How does this affect coverage when two insureds under the same policy have conflicting interests in a claim?
- Coverage is voided for both parties
- Each insured is treated separately, so one insured's misconduct does not affect the other's coverage (Correct answer)
- The policy pays only 50% of the applicable limit
- The insurer chooses which insured to defend
Correct answer: Each insured is treated separately, so one insured's misconduct does not affect the other's coverage
A severability of interests (separation of insureds) clause treats each insured independently, preventing one party's wrongful act from eliminating coverage for an innocent co-insured.
Question 3: Which coverage part of the PAP responds when the insured is legally entitled to recover damages from the owner or operator of an underinsured motor vehicle?
- Medical Payments (MedPay)
- Uninsured/Underinsured Motorist (UM/UIM) (Correct answer)
- Collision coverage
- Bodily Injury Liability
Correct answer: Uninsured/Underinsured Motorist (UM/UIM)
Underinsured Motorist (UIM) coverage responds when the at-fault driver's liability limits are insufficient to cover the insured's damages.
Question 4: What does a 'policy period' clause define in an automobile insurance contract?
- The geographic territory in which the vehicle may be driven
- The time frame during which covered losses must occur for the policy to respond (Correct answer)
- The number of claims allowed per year
- The schedule for premium payments
Correct answer: The time frame during which covered losses must occur for the policy to respond
The policy period clause establishes the start and end dates of coverage, and generally only losses occurring within that window are covered.
Question 5: In a no-fault auto insurance state, which type of coverage pays for the policyholder's own medical expenses and lost wages regardless of who caused the accident?
- Bodily Injury Liability (BI)
- Personal Injury Protection (PIP) (Correct answer)
- Uninsured Motorist Bodily Injury (UMBI)
- Medical Payments (MedPay)
Correct answer: Personal Injury Protection (PIP)
Personal Injury Protection (PIP) is the primary coverage in no-fault states, paying the policyholder's medical costs and lost wages without regard to fault.
Question 6: A CALA adjuster finds that the insured misrepresented the vehicle's primary use at policy inception. Which legal doctrine allows the insurer to treat the policy as void from the beginning?
- Estoppel
- Rescission based on material misrepresentation (Correct answer)
- Waiver
- Subrogation
Correct answer: Rescission based on material misrepresentation
A material misrepresentation at policy inception gives the insurer grounds for rescission, treating the policy as if it never existed.
Question 7: Which regulatory requirement mandates that insurers provide written notice to a policyholder before canceling an auto policy mid-term for reasons other than nonpayment?
- The financial responsibility law
- State minimum advance notice requirements (typically 20-30 days) (Correct answer)
- The McCarran-Ferguson Act
- The insurer's internal underwriting guidelines
Correct answer: State minimum advance notice requirements (typically 20-30 days)
State insurance regulations require insurers to provide advance written notice (commonly 20–30 days) before mid-term cancellation, protecting policyholders from sudden loss of coverage.
CALA Insurance Policy and Regulations 3
Under most state regulations, what is the maximum number of days an insurer has to acknowledge receipt of a first-party auto claim after notification?