CCA Damage Evaluation and Settlement Procedures 2 — Questions and Answers
Question 1: When evaluating a total loss vehicle, which method determines the actual cash value (ACV) by referencing comparable vehicles currently available in the local market?
- Stated value method
- Agreed value method
- Market comparison approach (Correct answer)
- Replacement cost method
Correct answer: Market comparison approach
The market comparison approach determines ACV by analyzing the prices of comparable vehicles currently listed for sale in the claimant's local market.
Question 2: A claimant disputes the adjuster's damage estimate and hires a public adjuster. Under most insurance policies, what dispute resolution mechanism is available to both parties?
- Mediation only
- Appraisal clause (Correct answer)
- Litigation only
- Arbitration through NAIC
Correct answer: Appraisal clause
Most property insurance policies include an appraisal clause that allows each party to hire an independent appraiser, with disagreements resolved by an umpire.
Question 3: What is the primary purpose of a reservation of rights letter sent to an insured?
- To deny the claim outright
- To notify the insured that coverage may not apply while the insurer investigates (Correct answer)
- To extend the policy period
- To request additional premium payment
Correct answer: To notify the insured that coverage may not apply while the insurer investigates
A reservation of rights letter informs the insured that the insurer is investigating the claim without waiving its right to later deny coverage based on policy exclusions.
Question 4: During a structural damage inspection, an adjuster discovers pre-existing damage unrelated to the current loss. How should this be handled in the settlement?
- Include all damage in the settlement to benefit the insured
- Exclude the pre-existing damage and only cover loss caused by the covered peril (Correct answer)
- Request the insured repair pre-existing damage before settling
- Deny the entire claim due to pre-existing conditions
Correct answer: Exclude the pre-existing damage and only cover loss caused by the covered peril
Adjusters must differentiate between damage caused by the covered peril and pre-existing damage, settling only for the loss attributable to the covered event.
Question 5: Which depreciation method calculates the reduction in value based on the ratio of an item's age to its total expected useful life?
- Straight-line depreciation
- Age-to-life method (Correct answer)
- Declining balance method
- Sum-of-years-digits method
Correct answer: Age-to-life method
The age-to-life method determines depreciation by dividing the item's age by its total expected useful life, then applying that percentage to the replacement cost.
Question 6: A homeowner's policy contains a coinsurance clause requiring the property to be insured to 80% of its replacement value. If the owner insures to only 60%, how is a partial loss paid?
- Full replacement cost up to policy limits
- A proportionate share based on the ratio of insurance carried to insurance required (Correct answer)
- Actual cash value only
- Nothing — coinsurance violation voids the policy
Correct answer: A proportionate share based on the ratio of insurance carried to insurance required
Under the coinsurance formula, the insurer pays (amount carried ÷ amount required) × loss amount, penalizing underinsurance on partial losses.
Question 7: When settling a bodily injury claim, which document formally releases the claimant's right to pursue further legal action against the insured in exchange for payment?
- Proof of loss form
- Subrogation agreement
- General release (Correct answer)
- Assignment of benefits
Correct answer: General release
A general release is a legally binding document in which the claimant surrenders all future claims arising from the incident in exchange for the agreed settlement payment.
CCA Damage Evaluation and Settlement Procedures 2
When evaluating a total loss vehicle, which method determines the actual cash value (ACV) by referencing comparable vehicles currently available in the local market?