Legal & Regulatory Compliance Flashcards

Which legal doctrine holds that ambiguous policy language should be construed against the insurer who drafted the policy?

Answer: Contra proferentem

Contra proferentem (Latin for 'against the offeror') requires that any ambiguity in a contract be interpreted against the party that drafted it—typically the insurer.

Under the Americans with Disabilities Act (ADA), when may an insurer lawfully differentiate between individuals with and without disabilities in underwriting?

Answer: When the distinction is based on sound actuarial principles or reasonably anticipated experience

The ADA's insurance safe harbor permits underwriting distinctions based on bona fide actuarial risk classification, provided they are not a subterfuge to evade ADA purposes.

What is the significance of the 'freedom of contract' limitation in the context of insurance policy compliance?

Answer: Insurance contracts must comply with state statutes; provisions that violate mandatory law are void

While freedom of contract is a general principle, insurance contracts are heavily regulated; policy provisions conflicting with mandatory state statutes are unenforceable.

A state insurance department issues a 'cease and desist' order against an insurer. What does this order typically require?

Answer: The insurer must stop engaging in specific unlawful practices identified in the order

A cease and desist order directs an insurer to stop specific violations of law or regulation, and failure to comply can result in license suspension, revocation, or fines.

Which NAIC model act establishes standards for unfair claims settlement practices by insurance companies?

Answer: Unfair Claims Settlement Practices Act

The NAIC Unfair Claims Settlement Practices Act prohibits specific claims handling behaviors such as misrepresenting policy provisions, failing to acknowledge claims promptly, and offering unreasonable settlements.

Under the Affordable Care Act (ACA), which underwriting practice is prohibited for individual and small group health insurance markets?

Answer: Denying coverage or charging higher premiums based on pre-existing conditions

The ACA prohibits health insurers from denying coverage or varying premiums based on an applicant's pre-existing health conditions in individual and small group markets.

What is the primary function of a state insurance guaranty association?

Answer: To pay covered claims when a member insurer becomes insolvent

State guaranty associations protect policyholders by paying covered claims (up to statutory limits) when an insurer is declared insolvent and placed into liquidation.