RIMS Documentation & Legal Requirements 3 — Questions and Answers
Question 1: Which U.S. federal law mandates that employers with 20 or more employees provide written notice of COBRA continuation coverage rights within a specified timeframe?
- ERISA
- HIPAA
- COBRA itself under Title X of OBRA 1985 (Correct answer)
- ACA Section 1502
Correct answer: COBRA itself under Title X of OBRA 1985
COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) requires employers to provide qualifying beneficiaries written election notice within 14 days of the plan administrator receiving notice of a qualifying event.
Question 2: A risk manager is auditing vendor contracts and finds an 'insurance to value' clause. This clause is designed to:
- Ensure premiums are calculated on actual replacement cost
- Require vendors to insure goods at full market value
- Prevent the insurer from invoking the coinsurance penalty
- Mandate that the insured maintain coverage equal to asset replacement cost (Correct answer)
Correct answer: Mandate that the insured maintain coverage equal to asset replacement cost
Insurance-to-value clauses require the insured to maintain coverage at a specified percentage (usually 80-100%) of the property's full replacement cost to avoid coinsurance penalties.
Question 3: Under the Fair Credit Reporting Act (FCRA), if an insurer uses consumer report information to take an adverse underwriting action, the insurer must:
- File a report with the FTC within 30 days
- Provide the applicant an adverse action notice identifying the reporting agency (Correct answer)
- Obtain written consent before any adverse action
- Submit the case to the state insurance commissioner
Correct answer: Provide the applicant an adverse action notice identifying the reporting agency
FCRA requires insurers to issue an adverse action notice that identifies the consumer reporting agency used, allowing the consumer to obtain a free report and dispute inaccuracies.
Question 4: What is the key distinction between a 'reservation of rights' letter and a 'declination' letter in claims handling?
- Reservation of rights accepts coverage; declination delays it
- Reservation of rights defends under a coverage caveat; declination refuses to defend or indemnify (Correct answer)
- Declination is used only in first-party claims; reservation of rights in third-party claims
- Both letters have the same legal effect on coverage
Correct answer: Reservation of rights defends under a coverage caveat; declination refuses to defend or indemnify
A reservation of rights letter allows the insurer to defend the insured while reserving the right to later deny coverage; a declination letter outright refuses defense and indemnification.
Question 5: Which type of insurance policy document formally amends, modifies, or adds to the terms of the original policy?
- Binder
- Endorsement (Correct answer)
- Declarations page
- Schedule of values
Correct answer: Endorsement
An endorsement (also called a rider) is a written document attached to the policy that changes its terms, conditions, exclusions, or coverages.
Question 6: The Gramm-Leach-Bliley Act (GLBA) requires financial institutions, including many insurers, to provide customers with a privacy notice. How often must this notice be delivered under standard GLBA requirements?
- Only at the time of account opening
- Annually while the customer relationship continues (Correct answer)
- Every three years
- Only when the privacy policy materially changes
Correct answer: Annually while the customer relationship continues
Under GLBA, covered institutions must provide customers with a clear and conspicuous privacy notice at account opening and annually thereafter.
Question 7: In workers' compensation, the 'first report of injury' (FROI) document serves what primary regulatory purpose?
- It triggers the statute of limitations for the employer's liability
- It officially notifies the state workers' comp board and insurer of a workplace injury (Correct answer)
- It establishes the final compensability determination for the claim
- It waives the employer's right to contest the claim
Correct answer: It officially notifies the state workers' comp board and insurer of a workplace injury
The FROI is the mandatory filing that notifies the state workers' compensation authority and the insurer that a workplace injury has occurred, initiating the claims process.
RIMS Documentation & Legal Requirements 3
Which U.S. federal law mandates that employers with 20 or more employees provide written notice of COBRA continuation coverage rights within a specified timeframe?