CALA Legal & Regulatory Compliance in Auto Insurance 5 — Questions and Answers
Question 1: Under the Unfair Claims Settlement Practices Act model law, which of the following constitutes an unfair claim practice when done with such frequency as to indicate a general business practice?
- Requesting recorded statements from claimants
- Compelling insureds to litigate by offering substantially less than amounts ultimately recovered (Correct answer)
- Requiring independent medical examinations
- Assigning claims to licensed independent adjusters
Correct answer: Compelling insureds to litigate by offering substantially less than amounts ultimately recovered
Systematically making lowball settlement offers that force litigation when recoveries are substantially higher is a prohibited unfair claims settlement practice.
Question 2: Which type of auto insurance coverage is typically mandated by state law as minimum required coverage?
- Comprehensive and collision
- Bodily injury and property damage liability (Correct answer)
- Uninsured motorist and medical payments
- Gap coverage and rental reimbursement
Correct answer: Bodily injury and property damage liability
All states requiring auto insurance mandate minimum bodily injury and property damage liability coverage to protect other parties from the insured's negligence.
Question 3: A loss adjuster in California must comply with the California Fair Claims Settlement Practices Regulations (10 CCR §2695). If the adjuster fails to conduct a reasonable investigation, this most directly violates:
- Federal anti-racketeering statutes
- The duty to thoroughly investigate before accepting or denying claims (Correct answer)
- The insured's right to jury trial
- NAIC Model Act Section 1
Correct answer: The duty to thoroughly investigate before accepting or denying claims
California's fair claims regulations explicitly require adjusters to conduct a thorough investigation of each claim before making coverage decisions.
Question 4: What is the primary legal difference between a 'cancellation' and a 'non-renewal' of an auto insurance policy?
- Cancellation requires no notice; non-renewal requires 30 days notice
- Cancellation terminates a policy mid-term; non-renewal declines to extend at expiration (Correct answer)
- Both are identical in legal effect
- Non-renewal applies only to commercial policies
Correct answer: Cancellation terminates a policy mid-term; non-renewal declines to extend at expiration
Cancellation ends coverage before the policy expiration date and is subject to stricter statutory grounds, while non-renewal simply declines to extend the policy at its natural expiration.
Question 5: When adjusting a claim involving a minor (under 18) claimant, what legal consideration is most critical before finalizing settlement?
- Obtaining approval from the minor's employer
- Securing court approval for the settlement to bind the minor (Correct answer)
- Requiring the minor to sign a full release without parental consent
- Applying a higher statute of limitations immediately
Correct answer: Securing court approval for the settlement to bind the minor
Settlements involving minors generally require court approval to be legally binding, since minors lack full contractual capacity and the court protects their interests.
Question 6: Which doctrine prevents an insurer from recovering from its own insured in subrogation after paying a claim?
- Anti-assignment rule
- Anti-subrogation rule (Correct answer)
- Pro rata rule
- Contribution rule
Correct answer: Anti-subrogation rule
The anti-subrogation rule bars an insurer from subrogate against its own insured for the same risk it was paid to cover, preventing insurers from recouping from the party they insured.
Question 7: A claimant who is 30% at fault in a comparative negligence state files a claim for $100,000 in damages. In a pure comparative negligence jurisdiction, the claimant would recover:
- Nothing, because they are at fault
- $70,000, reduced by their percentage of fault (Correct answer)
- $100,000, because the other party was more at fault
- $50,000, split equally regardless of fault percentages
Correct answer: $70,000, reduced by their percentage of fault
Pure comparative negligence reduces the claimant's recovery by their percentage of fault, so 30% fault on a $100,000 claim yields a $70,000 recovery.
CALA Legal & Regulatory Compliance in Auto Insurance 5
Under the Unfair Claims Settlement Practices Act model law, which of the following constitutes an unfair claim practice when done with such frequency as to indicate a general business practice?