CALA Legal & Regulatory Compliance in Auto Insurance 3 — Questions and Answers
Question 1: A driver in a no-fault state files a claim for lost wages after an accident. Under no-fault laws, this benefit is typically paid by:
- The at-fault driver's liability insurer
- The claimant's own Personal Injury Protection (PIP) coverage (Correct answer)
- The state's uninsured motorist fund
- Workers' compensation only
Correct answer: The claimant's own Personal Injury Protection (PIP) coverage
In no-fault states, PIP coverage under the claimant's own policy pays for lost wages regardless of fault, up to policy limits.
Question 2: What is the primary purpose of a reservation of rights letter sent by an insurer to an insured?
- To deny the claim outright
- To notify the insured the claim is being investigated while preserving coverage defenses (Correct answer)
- To demand premium payment before processing
- To assign the claim to an independent adjuster
Correct answer: To notify the insured the claim is being investigated while preserving coverage defenses
A reservation of rights letter allows the insurer to investigate and defend without waiving its right to later deny coverage based on policy exclusions.
Question 3: Which doctrine holds that an insurer may be estopped from denying coverage if it led the insured to reasonably believe coverage existed?
- Subrogation
- Promissory estoppel (Correct answer)
- Indemnification
- Contribution
Correct answer: Promissory estoppel
Promissory estoppel prevents a party from going back on a promise when another party reasonably relied on it to their detriment, including insurers who imply coverage.
Question 4: Under the Gramm-Leach-Bliley Act, what obligation does an insurer have regarding non-public personal information of claimants?
- Share it freely with affiliated companies
- Provide privacy notices and limit disclosure to non-affiliated third parties (Correct answer)
- Report all personal data to state regulators annually
- Store data in federal repositories only
Correct answer: Provide privacy notices and limit disclosure to non-affiliated third parties
GLB requires financial institutions, including insurers, to provide privacy notices and restrict sharing of non-public personal information with non-affiliated third parties.
Question 5: When adjusting a total loss in a state with a title-washing law, the adjuster must ensure:
- The salvage title is issued in another state to avoid disclosure
- The salvage vehicle receives a branded title indicating its total loss history (Correct answer)
- The vehicle is repaired before retitling
- The insurer retains the title permanently
Correct answer: The salvage vehicle receives a branded title indicating its total loss history
Anti-title-washing laws require that totaled vehicles receive a salvage or rebuilt title to disclose the vehicle's history to future purchasers.
Question 6: What is 'stacking' in the context of uninsured/underinsured motorist coverage, and how do many states handle it?
- Adding multiple vehicles to one policy; universally prohibited
- Combining UM/UIM limits across multiple vehicles or policies; many states allow or prohibit it by statute (Correct answer)
- Increasing liability limits mid-term; regulated by NAIC only
- Applying deductibles cumulatively; federally mandated
Correct answer: Combining UM/UIM limits across multiple vehicles or policies; many states allow or prohibit it by statute
Stacking allows combining UM/UIM limits from multiple vehicles or policies; state laws vary widely, with some permitting it and others prohibiting it via anti-stacking statutes.
Question 7: An insurer delays payment on a valid auto claim for 90 days without justification in a state requiring payment within 30 days of proof of loss. The adjuster's liability exposure includes:
- No liability if the delay was accidental
- Interest penalties and potential bad faith damages (Correct answer)
- Only a regulatory warning letter
- Mandatory policy cancellation
Correct answer: Interest penalties and potential bad faith damages
Unjustified payment delays beyond statutory deadlines expose insurers to interest penalties, regulatory fines, and bad faith damage claims.
CALA Legal & Regulatory Compliance in Auto Insurance 3
A driver in a no-fault state files a claim for lost wages after an accident.
Under no-fault laws, this benefit is typically paid by: