Claims Adjuster (Property and Casualty) Practice Test

Correct answer: B. $18,500

Salvage is damaged property the insurer takes over after paying a total loss and then sells to reduce its cost. The insurer paid $22,000 and received $3,500 from the sale, so its net cost is $18,500. The insured cannot keep both the full payment and the salvage, because that would leave the insured better off than before the loss.

Reference: California Department of Insurance, Automobile Insurance Terms: Salvage

Correct answer: B. The insurer's written consent to the assignment

Property insurance is a personal contract: it protects a person against loss rather than insuring the property itself, and insurers care who owns the property. The HO-3 states that assignment of the policy will not be valid unless the insurer gives written consent. Coverage does not automatically pass to a buyer, so Grace normally needs her own policy or the insurer's approval.

Reference: ISO HO 00 03 05 11, Sections I And II Conditions E. Assignment; Baranoff, Brockett & Kahane, Risk Management for Enterprises and Individuals (open textbook), Sec. 9.3 Personal

Correct answer: C. Pretext interview, generally prohibited unless a narrow claim exception for suspected fraud applies

Model 670 defines a pretext interview as one in which a person pretends to be someone else, misrepresents the interview's purpose, or refuses to identify himself or herself on request. Section 3 prohibits pretext interviews, with a narrow claim exception where specific information gives a reasonable basis to suspect criminal activity, fraud, or material misrepresentation. Adjusters should normally identify themselves and whom they represent.

Reference: NAIC Insurance Information and Privacy Protection Model Act (Model 670), Sections 2V and 3

Correct answer: B. Decline without the individual's written authorization or an exception

Model 670 Section 13 bars insurers, agents, and insurance support organizations from disclosing personal or privileged information collected in connection with an insurance transaction unless the individual gives written authorization or a listed exception applies, such as disclosures needed to perform an insurance function or to detect fraud. Claim-related details are privileged information. A reporter's request fits no exception, and payment of the claim changes nothing.

Reference: NAIC Model 670, Sections 2W and 13

Correct answer: A. At $700 actual cash value; HO 04 90 would provide replacement cost

The HO-3 settles personal property losses at actual cash value, not more than the cost to repair or replace, so Nadia receives $700 before the deductible. The 80% replacement cost provision applies only to buildings under Coverages A and B. The HO 04 90 Personal Property Replacement Cost endorsement changes Coverage C settlement to replacement cost, though items such as antiques and fine arts remain ineligible.

Reference: ISO HO 00 03 05 11, Section I - Conditions, D. Loss Settlement, 1.a; PF&M Analysis (HO 04 90)

Correct answer: A. HO 04 46 Inflation Guard: raises Coverages A, B, C and D by a set annual percentage, pro rata

The Inflation Guard endorsement increases the limits for Coverages A, B, C and D by a selected annual percentage, applied pro rata through the policy term, to help keep insurance to value. HO 07 01 provides, rather than excludes, property and liability coverage for a business run from the residence premises. Identity fraud coverage pays the cost of restoring credit and records, and the earthquake endorsement does not cover flood.

Reference: PF&M Analysis, ISO Homeowners Optional Coverage Endorsements (HO 04 46, HO 07 01, HO 04 55, HO 04 54); HO 04 46 summary

Correct answer: B. $60,000

General average contributions are ratable, meaning proportional to each interest's contributing value. Total contributing value is $12,000,000, and Cargo Owner B's share is $3,000,000 / $12,000,000 = 25%. So B contributes 25% x $240,000 = $60,000. Splitting the loss equally among three parties ($80,000) ignores the different values at risk.

Reference: Marine Insurance Act 1906, s. 66(3), General average contribution

Correct answer: A. Deviation applies, so the insurer is discharged from liability from the time of the deviation

Ocean marine policies carry implied warranties of seaworthiness, legality and no deviation. If a ship deviates from the voyage contemplated by the policy without lawful excuse, the insurer is discharged from liability from the time of the deviation, and it does not matter that the ship regained its route before the loss. Policies may add clauses that modify this rule.

Reference: Marine Insurance Act 1906, ss. 39, 41 and 46

Correct answer: A. It permits a tort suit for pain and suffering only when the injury meets a statutory definition of serious injury

No-fault laws restrict lawsuits for pain and suffering. A verbal (descriptive) threshold allows a suit only when the injury meets the state statute's description of a serious injury. A monetary threshold, by contrast, allows a suit once medical expenses reach a set dollar amount. PIP itself pays medical expenses, lost wages and similar losses regardless of who caused the accident.

Reference: Triple-I, Background on: No-fault auto insurance

Correct answer: B. The arbitration is between the signatory companies, and the insureds are not parties to it

Intercompany arbitration lets insurers and self-insureds resolve subrogation disputes, such as auto physical damage recoveries, without litigation. Arbitration Forums states that the insured is not a party; only the interests of the signatory companies are involved, and companies remain free to handle their own insureds' claims, such as refunding a deductible, as they see fit. Individuals cannot file.

Reference: Arbitration Forums, Inc., Frequently Asked Questions

Correct answer: B. $260,000

A per-passenger sublimit caps what is paid for each person aboard, even when the occurrence limit is higher. The first passenger is capped at $100,000, the second receives the full $60,000, and the third is capped at $100,000, for $260,000. A smooth limit, with no per-passenger sublimit, would have made the whole $1,000,000 available and paid all $490,000. Owners who regularly carry passengers often buy smooth limits.

Reference: AOPA, What's the Benefit of a Smooth Limit? (2022)

Correct answer: C. The owner's insurer may pay the loss and then pursue Luis through subrogation

Being listed as an approved (named) pilot on a flight school's or owner's policy is not the same as being a named insured, so it does not eliminate a renter's need for coverage. After paying for the damaged aircraft, the owner's insurer may seek recovery from the renter through subrogation, and the owner's limits may be inadequate. Renter's (non-owned aircraft) policies provide liability coverage and can add physical damage coverage for the rented aircraft and the owner's loss of use.

Reference: AOPA, Renter Insurance (2014)

Correct answer: A. Coverage A, loss to the undamaged portion of the building

CP 04 05 splits the ordinance exposure into three parts. Coverage A pays for the loss in value of the undamaged portion that must be demolished, and it falls within the building limit rather than carrying a separate limit. Coverage B pays to demolish and clear the undamaged portion, and Coverage C pays the increased cost to rebuild to code. Each requires damage from a Covered Cause of Loss and an ordinance in force at the time of loss.

Reference: ISO CP 04 05 Ordinance Or Law Coverage, Coverages A, B and C (Rough Notes analysis)

Correct answer: D. Spoilage Coverage endorsement

Spoilage coverage insures perishable stock against spoilage from power outage on or off the premises, mechanical breakdown of refrigerating equipment, and contamination. Without it, the Special Form excludes mechanical breakdown, changes in temperature affecting personal property, and power failures originating off the premises. A peak season endorsement raises the personal property limit for seasonal inventory but adds no perils.

Reference: Commercial property endorsements: spoilage coverage; ISO CP 10 30 10 12, B.1.e. and B.2.d.

Correct answer: A. Court approval of the minor's settlement

A release is the document in which a claimant gives up the right to pursue a claim in exchange for payment. Because minors generally cannot make binding contracts, a release signed only by a parent or by the child may be voidable when the child reaches adulthood. Most states require court approval of a minor's settlement, often with conditions on how the money is held, so that the release is final.

Reference: Settling personal injury claims for minors (court approval requirement), Gislaw firm article

Correct answer: C. A structured settlement

A structured settlement resolves a claim with a stream of periodic payments, commonly funded by an annuity issued by a licensed insurance company, instead of a single lump sum. It can provide long-term income for an injured person's future needs. Under federal tax law, damages for personal physical injuries, including qualifying periodic payments, are generally excluded from the claimant's income. An advance payment is a partial payment made before final settlement.

Reference: 26 U.S.C. section 130 (qualified assignments and qualified funding assets) and section 104(a)(2)

Correct answer: A. Treat the facts as red flags calling for a thorough investigation

A Monday morning report of an unwitnessed injury said to have happened late Friday, delayed reporting, and a pending layoff are classic fraud indicators. Indicators are not proof. The adjuster should investigate in good faith: take statements, interview coworkers, review medical records and prior claims, and refer the file to a special investigations unit if facts warrant. Denying without investigation or accepting without investigation are both improper.

Reference: The Hartford, Workers' Compensation Fraud (red flags such as delayed reporting and inconsistent details)

Correct answer: B. $40,800

The experience modification compares an employer's actual losses with the losses expected for its classifications and payroll. A factor of 1.00 is average, below 1.00 is a credit, and above 1.00 is a debit. Multiply manual premium by the factor: $48,000 x 0.85 = $40,800. $55,200 would result from a 1.15 debit mod, and $7,200 is only the amount of the credit.

Reference: Wikipedia, Experience modifier; NCCI WC 00 04 03 Experience Rating Modification Factor Endorsement

Correct answer: B. $70,000

Unlike the Dwelling Form, which has no coinsurance penalty, the RCBAP applies coinsurance to building coverage. Required insurance is the lesser of 80 percent of replacement cost ($1,600,000) or the NFIP maximum for the building. $1,200,000 divided by $1,600,000 equals 0.75; $100,000 times 0.75 equals $75,000; minus the $5,000 deductible leaves $70,000. Paying $95,000 ignores the penalty.

Reference: FEMA SFIP Residential Condominium Building Association Policy (F-144, October 2021), VII Coinsurance

Correct answer: C. The NFIP policy is primary, and the private policy responds as excess

When flood insurance not issued under the National Flood Insurance Act also covers a loss, the SFIP generally pays only its pro rata share based on amounts of insurance. But if the other policy states that it is excess insurance, the SFIP is primary. NFIP rules bar more than one NFIP policy on a building (with a condominium exception), not the combination of NFIP and private flood coverage.

Reference: FEMA SFIP Dwelling Form (F-122, October 2021), VII.B.1 Other Insurance and I.F

Correct answer: D. $10,000

The Dwelling Form settles personal property at actual cash value; replacement cost settlement is available only for a qualifying single-family dwelling building. Payment is $11,000 - $1,000 = $10,000. $17,000 uses replacement cost, and $11,000 forgets that a separate contents deductible applies.

Reference: NFIP Standard Flood Insurance Policy, Dwelling Form (FEMA F-122, October 2021), VII.R.4. Actual Cash Value Loss Settlement (personal property)

Correct answer: B. $64,000

Replacement cost settlement applies if the insurance is at least 80% of full replacement cost or the maximum available under the NFIP. $250,000 is less than 80% of $400,000 ($320,000) but is the maximum, so the loss is paid at replacement cost: $66,000 - $2,000 = $64,000. $50,000 wrongly applies a 250/320 proportion, and $46,000 pays ACV.

Reference: NFIP Standard Flood Insurance Policy, Dwelling Form (FEMA F-122, October 2021), VII.R.1.a. and R.2. Replacement Cost Loss Settlement