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TX state law · part 2 of 4
Texas All-Lines Adjuster Practice Test: Texas law, Part 2
25 more Texas law questions for the Texas All-Lines Adjuster exam. Every explanation cites the statute or rule it is based on, so you can read the source when a rule surprises you. Start with part 1 on the main Texas adjuster page if you have not done it yet.
Subtopics in this part: Unfair settlement practices (Ch. 541), Unfair claim settlement rules (Ch. 542, 28 TAC 21.203), Misrepresentation and defamation, Prompt payment of claims, Weather claim suits (Ch. 542A), Appraisal law (SB 458), Public adjusters and roofing conflicts.
Rosa Villarreal's car is damaged when another driver runs a red light in El Paso. Her insurer confirms her collision coverage applies, but the adjuster refuses to make any offer until the other driver's insurer decides liability. Her policy allows no such delay. Under Texas Insurance Code Sec. 541.060(a)(5), this is:
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Correct answer: B. Unfair, since another party's fault is no basis for delay
Sec. 541.060(a)(5) and 28 TAC 21.203(11) make it unfair to refuse, fail, or unreasonably delay a settlement offer under applicable first-party coverage because other coverage may be available or third parties are responsible, unless the policy specifically provides otherwise. Paying the insured does not waive subrogation; the insurer can pay its own insured and then pursue the at-fault driver.
Under Texas Insurance Code Sec. 541.060(a)(6), when may an insurer enforce a full and final release from a policyholder after making only a partial payment?
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Correct answer: C. When the payment is a compromise of a doubtful or disputed claim
Undertaking to enforce a full and final release when only a partial payment has been made is an unfair settlement practice under Sec. 541.060(a)(6) and 28 TAC 21.203(13). The one exception is a compromise settlement of a doubtful or disputed claim, where both sides knowingly give up part of their positions. Timing, payment size, or an oral explanation does not make the release enforceable.
An adjuster handling claims in San Antonio wants claimants' federal income tax returns before settling. Without a court order, Texas Insurance Code Sec. 542.004 permits that request for which claim?
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Correct answer: D. A restaurant's claim after a kitchen fire
Sec. 542.004 (repeated in Sec. 541.060(a)(9) and 28 TAC 21.203(19)) bars an insurer from requiring federal income tax returns as a condition of settlement unless a court orders them or the claim involves a fire loss or a loss of profits or income. The restaurant fire qualifies; the theft, collision, and hail claims do not. A violation is also a deceptive trade practice under the DTPA.
In a private action under Texas Insurance Code Chapter 541, the jury finds the defendant knowingly committed an unfair settlement practice. Under Sec. 541.152, the jury may award up to:
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Correct answer: A. Three times actual damages, except in an action against TWIA
Sec. 541.152(a) allows actual damages, court costs, and reasonable attorney's fees. Under subsection (b), if the defendant acted knowingly, meaning with actual awareness of the falsity, unfairness, or deception, the trier of fact may award up to three times actual damages. Subsection (c) bars that enhanced award in an action against the Texas Windstorm Insurance Association. The 18 percent figure is the prompt payment penalty in Sec. 542.060.
Which statement about a private lawsuit under Texas Insurance Code Chapter 541 is correct?
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Correct answer: B. Notice is due at least 61 days before filing; suit must be filed within 2 years
Sec. 541.154 requires written notice at least 61 days before suit, stating the specific complaint and the amount of actual damages and expenses, including attorney's fees; notice is excused if limitations is about to run or the claim is a counterclaim. Sec. 541.162 requires suit before the second anniversary of the act or of its discovery, extendable 180 days if the defendant's conduct induced the delay.
At a Midland business luncheon, an insurance agent falsely tells prospects that a competing insurer is insolvent and will not pay claims, hoping to hurt the competitor's sales. Under Texas Insurance Code Chapter 541, this conduct is best described as:
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Correct answer: C. Defamation of an insurer
Sec. 541.053 makes it an unfair or deceptive act to make or circulate, or help others circulate, a statement that is false or maliciously critical of, or derogatory to, an insurer's financial condition and is calculated to injure a person in the business of insurance. It covers oral and written statements. Rebating involves premium inducements, twisting involves misrepresentation to induce replacing a policy, and claim settlement practices concern claim handling.
An adjuster correctly tells Hannah Novak that her policy covers water damage but deliberately leaves out that it covers only sudden and accidental discharges, so she believes her long-term slab leak is covered. Under 28 TAC 21.4 and Texas Insurance Code Sec. 541.061, this is:
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Correct answer: D. Misrepresentation, because the omission made it misleading
Sec. 541.061 and 28 TAC 21.4 define misrepresentation to include failing to state a material fact needed to keep other statements from being misleading, making a statement in a way that would mislead a reasonably prudent person, and making a material misstatement of law, not just stating an outright falsehood. A technically true statement that creates a false impression through omission still violates the rule.
A Fort Worth liability adjuster is unsure whether a claim falls within coverage and needs more time to investigate. Under 28 TAC 21.203(10), which step lets the insurer comply with its duty to affirm or deny coverage within a reasonable time?
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Correct answer: A. Sending a reservation of rights letter in a timely way
28 TAC 21.203(10) makes it unfair to fail to affirm or deny coverage within a reasonable time, but it deems the reasonable submission of a reservation of rights letter within a reasonable time to be compliance. Sec. 541.060(a)(4) likewise accepts either affirming or denying coverage or submitting a reservation of rights. The letter lets the insurer keep investigating without waiving its coverage defenses.
Tomas Herrera is hurt in a one-car accident in Laredo. His Texas personal auto policy includes PIP, and he also has health insurance through another company. The adjuster says PIP will pay nothing until his health plan pays first. Under 28 TAC 21.203(17), which statement is correct?
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Correct answer: B. Tomas may choose which coverage pays and in what order
28 TAC 21.203(17) and Sec. 541.060(a)(8) make it unfair, under a Texas personal auto policy, to delay or refuse settlement solely because other insurance of a different type is available. A claimant who can recover from either or both insurers chooses under which coverage and in what order payment is made. Texas PIP is also payable without regard to collateral sources such as health benefits (Sec. 1952.155).
Which act is listed as an unfair claim settlement practice in Texas Insurance Code Sec. 542.003(b)?
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Correct answer: C. Compelling a suit by offering far less than is later recovered
Sec. 542.003(b) lists unfair claim settlement practices, including knowingly misrepresenting pertinent facts or policy provisions, failing to acknowledge pertinent communications promptly, failing to adopt reasonable standards for prompt investigation, failing to attempt a good-faith settlement when liability is reasonably clear, and compelling policyholders to sue by offering substantially less than they ultimately recover. Requiring a policy-mandated proof of loss, inspecting, and naming a mortgagee are normal practices.
Under a commercial general liability policy that does not require the insured's consent to settle, a Waco insurer makes an initial offer on May 1 to settle a third party's claim against its named insured. Under Texas Insurance Code Sec. 542.153, written notice of the offer to the named insured is due no later than:
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Correct answer: A. May 11
Sec. 542.153 requires a casualty insurer to notify the named insured in writing not later than the 10th day after an initial offer to settle a claim against the insured, and not later than the 30th day after the claim is settled. Ten days after May 1 is May 11. Subchapter D does not apply to policies that require the insured's consent to settle, to fidelity or surety bonds, or to marine insurance.
Lan Nguyen's car is struck by another driver in Houston. Her insurer pays her collision claim minus her $500 deductible. Unless the insurer gives a timely written notice that it will not pursue the other driver, what does Texas Insurance Code Sec. 542.204 require?
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Correct answer: D. Act to recover it within one year of paying, or pay it to her
Sec. 542.204 requires a private passenger auto insurer to take action against a liable third party to recover the insured's deductible within one year after paying the claim, or else pay the deductible to the insured, whether the third party is insured or not. The insurer is excused if, by the earlier of that anniversary or 90 days before limitations runs, it notifies the insured in writing that it will not pursue collection and authorizes the insured to do so.
Under Texas Insurance Code Sec. 542.055, within how many days after receiving notice of a claim must an insurer (other than an eligible surplus lines insurer) acknowledge the claim, begin investigating, and request the items it needs?
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Correct answer: A. 15 days
Sec. 542.055(a) gives an insurer 15 days after receiving notice of a claim to acknowledge receipt, commence any investigation, and request all items, statements, and forms it reasonably believes will be required. An eligible surplus lines insurer has 30 business days. If the acknowledgment is not in writing, the insurer must record its date, manner, and content, and it may make additional requests later if the investigation requires.
Jordan Pierce files a theft claim for his Austin home. The insurer has now received every item it requested to secure final proof of loss. Under Texas Insurance Code Sec. 542.056(a), the insurer must notify him in writing that it accepts or rejects the claim within:
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Correct answer: C. 15 business days
Sec. 542.056(a) requires written acceptance or rejection not later than the 15th business day after the insurer receives all items, statements, and forms required to secure final proof of loss, and a rejection must state the reasons. Business days exclude Saturdays, Sundays, and state holidays. Five business days is the separate deadline to pay after accepting a claim under Sec. 542.057.
Fire destroys a vacant rental house in Odessa, and the adjuster's findings give the insurer a reasonable basis to believe the fire was arson. After receiving all requested items, how long does the insurer have under Texas Insurance Code Sec. 542.056(b) to accept or reject the claim in writing?
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Correct answer: D. 30 calendar days
When an insurer has a reasonable basis to believe a loss resulted from arson, Sec. 542.056(b) extends the decision deadline to the 30th day after it receives all required items, instead of the usual 15 business days. Any rejection must state the reasons. If the insurer still cannot decide, Sec. 542.056(d) lets it notify the claimant of the reasons it needs more time and then decide within 45 days.
An insurer handling a large water damage claim in Plano cannot finish evaluating it within 15 business days after receiving all requested items. Under Texas Insurance Code Sec. 542.056(d), what must it do?
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Correct answer: A. Explain why it needs more time, then decide within 45 days
Under Sec. 542.056(d), an insurer that cannot accept or reject a claim within the 15-business-day period (or 30 days if arson is suspected) must, within that same period, notify the claimant of the reasons it needs more time. It must then accept or reject the claim not later than the 45th day after that notice. There is no automatic acceptance and no TDI approval step.
On a Wednesday, an insurer notifies Jamal Washington in writing that it will pay his covered theft claim. Payment is not conditioned on any act by him, and no holidays fall in the next two weeks. Under Texas Insurance Code Sec. 542.057, payment is due no later than:
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Correct answer: C. The following Wednesday
Sec. 542.057(a) requires payment not later than the 5th business day after the insurer notifies the claimant that it will pay. Counting business days from Wednesday: Thursday (1), Friday (2), Monday (3), Tuesday (4), Wednesday (5). If payment depends on an act by the claimant, the 5 business days run from when the act is performed. Eligible surplus lines insurers have 20 business days.
An insurer that is liable for a $20,000 kitchen fire claim on a Killeen home fails to comply with Texas Insurance Code Chapter 542, Subchapter B. Chapter 542A does not apply to this claim. Under Sec. 542.060(a), how much interest is owed as damages for one full year of delay?
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Correct answer: D. $3,600
Sec. 542.060(a) makes a noncompliant insurer that is liable on the claim pay, in addition to the claim amount, interest at 18 percent a year as damages, plus reasonable attorney's fees. One year at 18 percent of $20,000 is $3,600. A different rate (simple interest at the Finance Code judgment rate plus 5 percent) applies only in actions governed by Chapter 542A, such as weather-related property claims.
Neha Joshi sues her private insurer over hail damage to her Frisco home, an action governed by Chapter 542A, and proves the insurer violated the prompt payment rules. Under Texas Insurance Code Sec. 542.060(c), what interest is awarded as damages?
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Correct answer: B. Simple interest at the Finance Code judgment rate plus 5 percent
For actions to which Chapter 542A applies (first-party real property claims caused by forces of nature such as hail, wind, or flood), Sec. 542.060(c) replaces the 18 percent rate with simple interest at the Finance Code Sec. 304.003 judgment rate plus 5 percent, accruing from the date the claim was required to be paid, plus reasonable attorney's fees. Weather claims still follow the Subchapter B deadlines; only the damages rate changes.
The prompt payment rules in Texas Insurance Code Chapter 542, Subchapter B, apply to first-party claims under most policies. Which type of claim is NOT covered by those rules?
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Correct answer: C. An injured employee's claim under a workers' compensation policy
Sec. 542.053 excludes workers' compensation insurance, mortgage guaranty insurance, title insurance, fidelity, surety, or guaranty bonds, marine insurance as defined in Sec. 1807.001, and Chapter 2602 guaranty associations. Workers' compensation claims follow their own Labor Code deadlines, such as the carrier's 15-day and 60-day rules. The homeowners, auto, and renters claims are covered first-party claims.
When a weather-related catastrophe or major natural disaster occurs, as defined by the commissioner, Texas Insurance Code Sec. 542.059(b) extends the Subchapter B claim-handling deadlines by how much?
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Correct answer: A. 15 additional days
Sec. 542.059(b) extends all Subchapter B claim-handling deadlines by an additional 15 days in the event of a weather-related catastrophe or major natural disaster, as defined by the commissioner. For example, the 15-day acknowledgment deadline in Sec. 542.055 becomes 30 days. The 45-day figure is the decision deadline after an insurer tells the claimant it needs more time under Sec. 542.056(d).
Before suing her insurer over hail damage to her Round Rock home, Keisha Robinson must give pre-suit notice under Texas Insurance Code Chapter 542A. Which statement about that notice is correct?
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Correct answer: D. It must come at least 61 days before suit and state the amount owed and fees
Sec. 542A.003 requires written notice at least 61 days before filing an action on a weather-related property claim, stating the acts or omissions giving rise to the claim, the specific amount alleged to be owed, and the reasonable attorney's fees incurred. Notice is excused when limitations is about to expire or the claim is a counterclaim. Under Sec. 542A.004 the insurer may request an inspection within 30 days after receiving the notice.
After a windstorm claim dispute in Victoria, a homeowner sues his private insurer and the independent adjuster who handled the claim. The insurer then gives written notice electing to accept whatever liability the adjuster might have. Under Texas Insurance Code Sec. 542A.006, what happens to the claims against the adjuster?
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Correct answer: B. They must be dismissed with prejudice by the court
Sec. 542A.006 lets an insurer that is a party to a Chapter 542A action elect, by written notice to the claimant, to accept whatever liability its agent might have; Sec. 542A.001 defines agent to include an adjuster. If the election comes after suit is filed, the court must dismiss the action against the agent with prejudice, and the insurer may not revoke the election. The claimant's consent is not required.
Texas Insurance Code Chapter 1813, added by SB 458 in 2025, requires certain policies to contain an appraisal provision used solely to determine the amount of loss. Which policy is subject to that requirement?
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Correct answer: A. A homeowners policy issued by a Texas county mutual insurer
Sec. 1813.001 applies the appraisal requirement to personal automobile and residential property policies delivered, issued, or renewed in Texas, including those of county mutuals, Lloyd's plans, reciprocals, surplus lines insurers when Texas is the insured's home state, and the FAIR Plan. It excludes TWIA policies and commercial policies. Under Sec. 1813.004, the appraised amount binds both parties except for fraud, accident, material mistake, or an award made without authority.
A Galveston homeowners policy endorsement says the insured may not hire a public insurance adjuster to help with a claim. Under Texas Insurance Code Sec. 4102.007, added by HB 1706 in 2023, how is that provision treated?
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Correct answer: C. It is barred in residential and commercial property policies
Sec. 4102.007 says a commercial or residential property insurance policy, including any endorsement, may not include a provision that prohibits an insured from contracting with a licensed public insurance adjuster. The insured is not required to hire one; the law protects the choice. A public adjuster represents the insured, not the insurer, and is licensed separately under Chapter 4102.