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Practice test · 25 questions
Claims Handling and Adjuster Ethics Practice Test (Part 1 of 2)
This is the part of the exam that tests how you would actually work a file: who you represent, what you must document, how to handle a coverage question without waiving the insurer's rights, and what conduct regulators treat as an unfair claims settlement practice.
Questions follow the NAIC Unfair Claims Settlement Practices model act and model regulation, which most states have adopted in some form. State-specific deadlines are tested on our Texas and Florida pages.
Questions
25
Suggested time
30 min
Difficulty mix
9 / 13 / 3
Passing target
70%
What these questions cover
Staff, independent and public adjusters and who each one represents
First notice of loss, investigation, recorded statements, reserves and documentation
Insured duties after a loss, proof of loss and examinations under oath
Reservation of rights letters, non-waiver agreements and denials
Appraisal, arbitration, subrogation, salvage and mortgagee payments
Fraud indicators, SIU referrals, good faith and unfair claims practices
Under the disclosure required by the NAIC Public Adjuster Licensing Model Act (Model 228), which type of adjuster is hired by the insured and paid by the insured rather than by the insurance company?
Show answer and explanation
Correct answer: C. A public adjuster
Under the Model 228 disclosure, a company adjuster is an insurer employee and an independent adjuster is hired by the insurer on a contract basis; both represent the insurer and charge the insured nothing. A public adjuster works for the insured under a written contract and is paid by the insured, often a percentage of the settlement. An umpire only resolves differences between appraisers.
After a kitchen fire, Priya's insurer assigns her claim to an adjusting firm that handles losses for several insurers on a contract basis. The adjuster from that firm primarily represents the interests of:
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Correct answer: A. The insurer that hired the firm
An independent adjuster is a contractor paid by the insurer to adjust losses on its behalf, so, like a staff adjuster, the adjuster represents the insurer's interest. That does not permit unfair treatment: Model 900 defines insurer to include adjusters, so fair claim standards still apply. If Priya wants an adjuster working for her, she can hire a licensed public adjuster.
Dana is a licensed public adjuster. Under the NAIC Public Adjuster Licensing Model Act (Model 228), which of the following actions would violate her standards of conduct?
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Correct answer: D. Offering her services to a homeowner while a wildfire is still burning the property
Model 228 Section 19B bars a public adjuster from soliciting an insured during the progress of a loss-producing occurrence, such as a fire that is still burning. The other actions are allowed or required: the contract may name the public adjuster as co-payee and must state the fee, including the exact percentage, and Section 15E requires a disclosure that hiring a public adjuster is optional.
Marcus calls his insurance agent the morning after a pipe bursts in his home. The agent waits five days before reporting the loss to the insurer. Under the Section I Duties After Loss condition of HO 00 03 05 11, has Marcus met his notice duty?
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Correct answer: B. Yes, because the policy calls for prompt notice to the insurer or its agent
Duties After Loss item 1 requires prompt notice to us or our agent, so a prompt call to the agent satisfies the duty. The producer's delay in relaying the loss is not the insured's breach. Nothing in Section I requires certified mail, and a signed, sworn proof of loss is due within 60 days after the insurer requests it, not automatically.
Under NAIC Model Regulation 902, an insurer receives notification of a homeowners claim on June 3 and does not make payment within the next 15 days. By what date must the insurer acknowledge receipt of the notice?
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Correct answer: C. June 18
Model 902 Section 6A requires an insurer to acknowledge a claim notice within 15 days unless payment is made within that time, and Section 3 defines days as calendar days. June 3 plus 15 days is June 18. June 24 would be 21 days, the time frame for answering an insurance department inquiry or for accepting or denying a claim after a proof of loss.
The amount an adjuster believes remains to be paid on a specific, reported claim as of an evaluation date is called a:
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Correct answer: A. Case reserve
A case reserve is the amount the adjuster believes remains to be paid on a specific, known claim as of the evaluation date, and it is revised as facts develop. An IBNR reserve covers losses that have happened but are not yet reported, so it cannot be tied to one claim file. The unearned premium reserve relates to premium for coverage not yet provided.
A hailstorm strikes on December 28. On December 31, the insurer knows many policyholders have damage they have not yet reported. The insurer's estimate for those unreported losses belongs in which category of loss reserves?
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Correct answer: B. Incurred but not reported (IBNR) reserves
The NAIC defines incurred but not reported (IBNR) as claims that have occurred but of which the insurer has not been notified at the reporting date. Because these hail losses are not yet reported, no adjuster can set case reserves on them; case reserves exist only for reported claims. Unearned premium reserves relate to premium, not losses, and salvage and subrogation are recoveries.
On a liability claim, the insurer has paid $18,500 in medical bills so far, and the adjuster's case reserve for the remaining expected payments is $31,500. What is the total reported (case incurred) loss on the claim?
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Correct answer: D. $50,000
Reported, or case incurred, loss equals paid loss plus the outstanding case reserve: $18,500 + $31,500 = $50,000. The case reserve alone ($31,500) ignores what has already been paid, and subtracting the two figures ($13,000) has no meaning. As payments are made, the reserve goes down, but the incurred total changes only when the estimate of the claim's total value changes.
An adjuster measures each water-damaged room, lists the affected materials, and notes whether each item must be repaired or replaced, before applying any pricing. This step is best described as:
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Correct answer: A. Preparing the scope of loss
The scope of loss is the detailed, item-by-item record of what was damaged, with measurements, quantities, and the repair or replace decision for each item. The estimate then applies unit pricing for labor, materials, and equipment to that scope. Reserves are financial estimates, and a reservation of rights letter addresses coverage questions, not the extent of the damage.
An adjuster acknowledges a new claim by phone four days after notice and sends nothing in writing. Under NAIC Model Regulation 902, what must the adjuster do to properly document this acknowledgment?
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Correct answer: C. Make an appropriate dated notation of the acknowledgment in the claim file
Model 902 Section 6A allows acknowledgment by means other than writing, but an appropriate notation of the acknowledgment must be made in the claim file and dated. This supports Section 4, which requires claim files detailed enough to permit reconstruction of the insurer's activities. No claimant signature is required, and a properly documented call does not need a later letter to replace it.
After a collision, Luis seeks Part D coverage under his Personal Auto Policy (PP 00 01 09 18). The adjuster asks for a recorded statement, and Luis refuses because no lawsuit has been filed. Which statement is accurate?
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Correct answer: B. Anyone seeking coverage must give recorded statements when reasonably required
Part E of PP 00 01 09 18 says a person seeking any coverage must submit, as often as the insurer reasonably requires, to physical exams, examination under oath, and recorded statements. The duty applies to first-party coverages such as Part D, not only liability claims, and it does not wait for a lawsuit. A failure to comply that prejudices the insurer can defeat coverage.
Under the Section I Duties After Loss condition of HO 00 03 05 11, each of the following is a duty of the insured EXCEPT:
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Correct answer: D. Obtain three written repair bids before reporting the loss
The HO-3 Duties After Loss condition requires prompt notice, police notice for theft, protecting the property, cooperating, preparing a personal property inventory, showing the property, providing records, submitting to examination under oath, and sending a signed, sworn proof of loss within 60 days after the insurer's request. It does not require repair bids before reporting; delaying notice to collect bids could itself breach the prompt notice duty.
A windstorm tears a hole in Grace's roof. She pays a contractor $650 to tarp the opening so rain will not damage the interior, then reports the claim. Under HO 00 03 05 11, how is the tarp cost treated?
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Correct answer: A. It is payable as a reasonable repair, but it does not increase the limit of liability
Section I Conditions require the insured to protect the property from further damage, make reasonable and necessary repairs, and keep a record of repair expenses. Additional Coverage E.2, Reasonable Repairs, pays the reasonable cost of necessary measures taken solely to protect covered property damaged by a Peril Insured Against. That payment does not increase the limit of liability, and the form requires no prior insurer consent.
Under HO 00 03 05 11, when the insurer requires examinations under oath of two spouses who are both insureds, how must the examinations be conducted?
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Correct answer: C. Separately, with neither spouse present for the other's examination
Duties After Loss item 7.c requires an insured, as often as the insurer reasonably requires, to submit to examination under oath while not in the presence of another insured, and to sign it. Separate examinations keep one insured's answers from shaping another's. The examination under oath is a policy condition used during the claim investigation, not a step that waits for a lawsuit.
Under HO 00 03 05 11, Omar's loss occurs on March 1, and the insurer sends him a written request for a proof of loss on April 10. By what date must Omar send his signed, sworn proof of loss?
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Correct answer: D. June 9
The HO-3 requires a signed, sworn proof of loss within 60 days after the insurer's request, not 60 days after the loss. Counting from April 10: 20 days remain in April and 31 in May (51 days), so day 60 is June 9. April 30 is the tempting wrong answer because it is 60 days after the March 1 date of loss.
Under HO 00 03 05 11, Ken reports a small roof leak three weeks after he noticed it. The adjuster confirms the delay caused no additional damage and did not hinder the investigation. Based on the Section I Duties After Loss condition, how does the late notice affect the claim?
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Correct answer: B. Coverage still applies, because the delay did not prejudice the insurer
The HO-3 Duties After Loss condition says the insurer has no duty to provide coverage if the failure to comply with the listed duties is prejudicial to the insurer. Late notice that caused no added damage and did not hamper the investigation is not prejudicial, so it alone does not defeat coverage. The form contains no automatic late-notice penalty percentage.
Which statement correctly contrasts a reservation of rights letter with a non-waiver agreement?
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Correct answer: A. A reservation of rights letter is a unilateral notice from the insurer, while a non-waiver agreement is signed by both insurer and insured
Both documents preserve the insurer's right to deny coverage later while it investigates or defends. A reservation of rights letter is unilateral: the insurer sends it, and the insured's agreement is not needed. A non-waiver agreement is bilateral, signed by both the insurer and the insured. Neither is a court order; a court's declaratory judgment would be needed to resolve coverage.
Reservation of rights and non-waiver · Challenging
While investigating a fire claim, an adjuster learns the insured may have been running an unreported business from the home, which could affect coverage. The insured refuses to sign a non-waiver agreement. What is the adjuster's best next step?
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Correct answer: C. Send a reservation of rights letter and continue investigating
An insured is not obligated to sign a non-waiver agreement. When the insured refuses, the usual practice is a unilateral reservation of rights letter that identifies the specific coverage issue, so the insurer can keep investigating without waiving its defenses. Refusing to sign is not a breach of the cooperation duty, and stopping or paying without addressing coverage invites waiver or estoppel arguments.
An adjuster tells Hannah in writing that her water loss is covered and that she should start tearing out the flooring. Relying on this, she pays a contractor $9,000. Later, the insurer tries to deny the claim under an exclusion it knew about all along. Which doctrine would Hannah most likely raise?
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Correct answer: B. Estoppel
Estoppel bars a party from asserting a position that contradicts its earlier words or conduct, especially when the other party relied on them to its detriment. Hannah relied on the written coverage statement and spent $9,000. Insurers avoid this risk by reserving rights before investigating questionable claims. Subrogation, contribution, and appraisal deal with recovery from others, sharing among insurers, and the amount of loss.
Coverage counsel and declaratory judgment · Application
An insurer is defending its insured under a reservation of rights but believes an exclusion applies. To obtain a binding court ruling on whether it owes coverage, the insurer's coverage counsel would most likely file a:
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Correct answer: D. Declaratory judgment action
A declaratory judgment is a binding court judgment defining the parties' rights, such as whether a policy covers a claim. Coverage counsel often files one while the insurer defends under a reservation of rights, and a well-drafted reservation letter may warn of that possibility. Appraisal decides only the amount of loss, and a non-waiver agreement is a private contract, not a ruling.
Under NAIC Model Regulation 902, an adjuster concludes that a first-party theft claim falls within a policy exclusion. Which method of denying the claim meets the regulation?
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Correct answer: A. A written denial that cites the specific exclusion relied on
Model 902 Section 7A bars denying a claim on the grounds of a specific policy provision, condition, or exclusion unless the denial refers to it, and the denial must be given in writing with documentation in the claim file. Model 900 Section 4L also requires a reasonable and accurate explanation of the basis for a denial. A vague written denial still fails this standard.
Under the Appraisal condition of HO 00 03 05 11, how long does each party have to choose its appraiser after receiving a written request from the other?
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Correct answer: B. 20 days
Each party must choose a competent and impartial appraiser within 20 days after receiving a written request. The two appraisers then choose an umpire; if they cannot agree within 15 days, either party may ask a judge of a court of record in the state where the residence premises is located to choose one. Fifteen days is the umpire deadline, not the appraiser deadline.
Under CP 00 10 10 12, a business owner and the insurer disagree about the amount of a fire loss and also about whether the vacancy provision limits coverage. The owner makes a written demand for appraisal. What does the appraisal process resolve?
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Correct answer: C. Only the value of the property and the amount of loss
The BPP Appraisal condition applies when the parties disagree on the value of the property or the amount of loss, and the appraisers state those figures separately. It expressly says that if there is an appraisal, the insurer still retains its right to deny the claim. Coverage questions, such as whether the vacancy provision applies, are left to the parties or a court.
Under HO 00 03 05 11, an appraisal resolves a dispute over the amount of loss. The insured's appraiser charges $3,000, the insurer's appraiser charges $2,400, and the umpire charges $1,800. How much does the insured pay in total for the appraisal?
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Correct answer: A. $3,900
Each party pays its own appraiser and bears the other expenses of the appraisal and umpire equally. The insured pays its own appraiser ($3,000) plus half the umpire fee ($1,800 / 2 = $900), for $3,900. Splitting every cost in half ($3,600) is the common error, because the insurer's appraiser fee belongs entirely to the insurer.
Which statement best describes mediation as a way to resolve a disputed insurance claim?
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Correct answer: D. A neutral person helps the parties negotiate but cannot impose a decision on them
Mediation uses a neutral mediator to facilitate settlement talks. The mediator does not decide the merits, and the process is non-binding unless the parties reach their own agreement. Arbitration, by contrast, ends with an arbitrator's decision; appraisal is the policy process for setting the amount of loss; and litigation ends with a court judgment.
Pick an answer and the correct choice appears with an explanation and the policy form, statute or FEMA document it comes from. Difficulty is labeled on each question: recall items test a definition, application items put the rule into a short claim scenario, and challenging items combine two rules or require a calculation.
Aim for at least 80% before moving on, since the real exam mixes these topics with state law under time pressure. When you are consistently above that line, take a full timed exam or the version for your state: Texas or Florida 6-20.
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