California Property & Casualty Insurance License, Practice Exams

A worker permanently loses one finger but can return to the same job. This injury is best classified as:

1. Permanent partial disability ✓
2. Temporary partial disability
3. Temporary total disability
4. Permanent total disability

Why: Permanent partial disability (PPD) applies when there is a permanent impairment but the worker is not totally disabled and can still work.

A medical professional wants protection against patient claims of negligent treatment. The correct policy is:

1. Medical Professional Liability (malpractice) / E&O ✓
2. Employee Benefits Liability, which covers errors in administering benefit plans
3. Commercial General Liability, since the patient suffered bodily injury
4. A performance bond for medical work

Why: Patient injury from professional treatment is excluded by the CGL and covered by medical professional liability (malpractice) insurance.

Under PAP Part D, the deductible:

1. Applies once to the entire policy term
2. Only applies to liability claims
3. Is the amount of loss the insured retains before the insurer pays ✓
4. Is the amount the insurer pays before the insured contributes

Why: The deductible is the portion of a physical damage loss the insured pays out of pocket before the insurer pays the remainder.

With auto liability split limits of 50/100/25, the maximum paid for bodily injury to any one person in an accident is:

1. $100,000
2. $50,000 ✓
3. $175,000
4. $25,000

Why: The first number (50) is the per-person bodily injury limit: $50,000.

What is the stated purpose of the Unfair Practices Article (Cal. Ins. Code Sec. 790)?

1. To regulate insurance trade practices by defining and prohibiting unfair methods of competition and unfair or deceptive acts ✓
2. To establish minimum capital, surplus, and reserve requirements that every admitted insurer in the state must continuously maintain
3. To create and administer the California Insurance Guarantee Association for the protection of policyholders of insolvent insurers
4. To set out the complete licensing, appointment, and continuing-education requirements applicable to life agents and broker-agents

Why: Section 790 states the article's purpose is to regulate trade practices by defining or determining, and prohibiting, unfair methods of competition and unfair or deceptive acts in the business of insurance.

Under Section 1759, an "administrator" is a person who collects charges or premiums from, or adjusts or settles claims on, California residents in connection with life or health coverage or annuities, EXCEPT which of the following?

1. A standalone billing service that collects premiums and also negotiates and settles disputed claims for various insurers
2. A life or health agent or broker licensed in this state whose activities are limited exclusively to the sale of insurance ✓
3. A third-party entity that contracts with several unaffiliated insurers to adjust and settle their California health claims for a fee
4. An independent claims-processing firm that collects premiums and settles claims for multiple nonaffiliated coverage providers

Why: Sec. 1759(d) excludes from 'administrator' a life or health agent or broker licensed in this state whose activities are limited exclusively to the sale of insurance.

Liquor liability (dram shop) coverage is needed because the CGL excludes liability for businesses that:

1. Serve prepared food to the public and are therefore required to hold a food-handler permit from the local health department
2. Manufacture, distribute, sell, or serve alcoholic beverages and cause or contribute to a patron's intoxication ✓
3. Rent out portions of their premises to tenants under written leases running longer than twelve consecutive months
4. Hire independent contractors whose work the insured does not directly supervise

Why: The CGL liquor liability exclusion applies to those in the alcohol business; they need separate liquor liability coverage.

Under §1861.02, what are the three mandatory rating factors in the correct decreasing order of importance?

1. Age, gender, and marital status, ranked in that decreasing order of importance
2. Years of driving experience, annual miles driven, then the insured's driving safety record
3. Credit score, garaging territory, and vehicle type, in that decreasing order
4. Driving safety record, annual miles driven, years of driving experience ✓

Why: Ins. Code §1861.02(a) mandates, in decreasing order: (1) the insured's driving safety record, (2) the number of miles driven annually, and (3) years of driving experience.

Under the PAP, "occupying" means:

1. Seated behind the wheel with the engine running and the transmission in gear
2. Driving the vehicle on a public road open to traffic
3. In, upon, getting in, on, out, or off a vehicle ✓
4. Holding title to or leasing the vehicle

Why: "Occupying" is defined as in, upon, getting in, on, out, or off of a vehicle, which is broader than merely riding inside it.

A personal articles floater (scheduled personal property) is most often classified within which line of insurance?

1. Workers compensation
2. Inland marine ✓
3. Ocean marine
4. Surety

Why: Floaters covering jewelry, furs, fine arts, and similar items are written as inland marine coverage.

The section of a policy that contains the named insured, address, policy period, limits, and premium is the:

1. Declarations ✓
2. Exclusions
3. Conditions
4. Insuring agreement

Why: The declarations page personalizes the policy with the insured's identifying information, coverage limits, and premium.

Under the unfair claims settlement practices provision, what condition turns the listed acts into a prohibited practice?

1. The department's receipt of any consumer complaint about the way the claim was handled
2. Committing any one of the listed acts after a cease-and-desist order has been served
3. Knowingly committing them, or doing so with such frequency as to indicate a general business practice ✓
4. A single inadvertent clerical error appearing in one individual claim file

Why: Section 790.03(h) applies to the listed acts when an insurer knowingly commits them or performs them with such frequency as to indicate a general business practice.

Under Section 4600, what medical treatment must the employer provide for a compensable injury?

1. Medical treatment up to a lifetime maximum of $10,000 per injury, after which further care becomes the injured worker's own responsibility
2. Only treatment furnished at a county hospital or other public clinic designated by the administrative director for injured workers
3. Only emergency treatment during the first 24 hours after the injury, with all later care billed to the worker's group health plan
4. Medical, surgical, and hospital treatment reasonably required to cure or relieve the worker from the effects of the injury ✓

Why: Section 4600(a) requires the employer to provide medical, surgical, chiropractic, hospital, and related treatment reasonably required to cure or relieve the worker. There is no dollar cap on medical treatment.

Unlike Part One, Part Two (Employers Liability) of the policy does include limits of liability. The three Part Two limits typically apply to:

1. Medical benefits, wage-replacement indemnity benefits, and death benefits payable to the worker's surviving dependents
2. Temporary disability benefits, permanent disability benefits, and survivor benefits, each shown as a separate dollar amount
3. A per-claim limit, a per-occurrence limit, and an annual aggregate limit applied to the worker's medical payments
4. Bodily injury by accident, bodily injury by disease per employee, and bodily injury by disease policy limit ✓

Why: Part Two shows three limits: bodily injury by accident (each accident), bodily injury by disease (policy limit), and bodily injury by disease (each employee).

Under the Labor Code, any person rendering service for another, other than as an independent contractor (and not expressly excluded), is:

1. Presumed to be an independent contractor
2. Given no legal presumption either way
3. Presumed to be an employee ✓
4. Presumed to be a volunteer

Why: Section 3357 creates a statutory presumption that a person rendering service for another, other than as an independent contractor and not expressly excluded, is an employee.

Insurers require minimum 'underlying limits' for an umbrella because:

1. Umbrellas are written to pay first-dollar losses, so the underlying policies serve only to establish the premium basis for the account
2. Drop-down is prohibited by the insuring agreement, so the umbrella cannot respond until every underlying policy's limits renew
3. The insurer wants more premium from each underlying policy the insured is made to buy
4. The umbrella is meant to sit above primary coverage; the insured must maintain stated underlying limits or pay as though they were in force ✓

Why: Umbrellas require specified underlying limits; if the insured fails to maintain them, the umbrella pays only as if the required underlying limits existed.

Under §675.1, following a disaster-related total loss to a primary insured structure, for how long must the insurer offer to renew the policy (absent §676 grounds) while reconstruction proceeds?

1. For at least the next two annual renewal periods, but no less than 24 months of coverage from the date of loss ✓
2. Only until the first renewal date following the loss, when ordinary underwriting rules apply again
3. For 36 months from the date of loss, whatever the number of renewal periods
4. For at least the next annual renewal period, or 12 months, whichever is shorter

Why: Section 675.1(a)(3) requires the insurer, absent §676 grounds, to offer to renew for at least the next two annual renewal periods, but no less than 24 months of coverage from the date of the loss, where a disaster caused the total loss.

Section 4656 allows an extended cap of 240 compensable weeks (within five years) for a single injury involving certain severe conditions. Which of the following qualifies?

1. Severe burns or an amputation ✓
2. Ordinary lower-back strain
3. A minor sprain
4. A common cold contracted at work

Why: Section 4656(c)(3) lists conditions warranting the 240-week cap, including amputations, severe burns, HIV, hepatitis B/C, chronic lung disease, and pulmonary fibrosis.

Notwithstanding any other law, a notice of cancellation or nonrenewal of a California auto policy is effective only if based on one or more of a limited list of grounds. Which is a permitted ground?

1. Nonpayment of premium ✓
2. The insured is over age 70
3. The insured filed a single not-at-fault claim
4. The insured drives an older-model vehicle

Why: Ins. Code §1861.03(c)(1) limits auto cancellation/nonrenewal to: (A) nonpayment of premium, (B) fraud or material misrepresentation, or (C) a substantial increase in the hazard insured against.

Which of the following is one of the four required elements of a legally enforceable contract?

1. Aleatory exchange
2. Subrogation
3. Indemnification
4. Consideration ✓

Why: The required elements of a contract are offer and acceptance, consideration, competent parties, and legal purpose.

What is the primary purpose of a coinsurance clause in commercial property insurance?

1. To set the deductible as a fixed percentage of the building limit shown in the declarations
2. To encourage insureds to carry insurance close to the property's full value ✓
3. To exclude windstorm and earthquake from the causes of loss form
4. To require the insurer to share each loss with its reinsurers under a quota share treaty

Why: Coinsurance encourages insureds to insure to value; if they underinsure below the required percentage, the loss payment is reduced proportionally.

Which statement about no-fault auto insurance CONCEPTS is generally correct?

1. No-fault systems let injured parties recover certain economic losses from their own insurer regardless of fault ✓
2. No-fault means no one pays for accident losses until a court or arbitration panel first assigns fault to one of the drivers
3. No-fault eliminates the need for liability coverage entirely, so states adopting it repeal their financial responsibility laws
4. No-fault applies only to property damage claims, with every bodily injury claim still settled through the tort system

Why: Under no-fault concepts, an injured person's own insurer pays specified personal injury/economic losses regardless of who caused the accident, with limits on lawsuits.

Under Section 4652, temporary disability indemnity is generally not recoverable for the disability suffered during:

1. The first three days after the employee leaves work as a result of the injury ✓
2. Any period before the claims administrator accepts liability for the claim, however long the disability lasts
3. The first 14 days after the injury, after which Section 4652 makes indemnity payable retroactively
4. The first full calendar week after the injury

Why: Section 4652 imposes a three-day waiting period: no TD is recoverable for the first three days off work unless disability continues more than 14 days or the employee is hospitalized as an inpatient.

Making unfair discrimination between individuals of the same class and equal expectation of life in the rates charged for life insurance is prohibited under which part of Section 790.03?

1. The subdivision concerning misrepresentation of dividends or policy terms, which also covers unfair discrimination in rates
2. The subdivision concerning false or misleading insurance advertising
3. The subdivision concerning unfair discrimination in life insurance rates ✓
4. The subdivision concerning boycott, coercion, and intimidation in trade

Why: Section 790.03(f) prohibits unfair discrimination between individuals of the same class and equal expectation of life in life insurance or annuity rates, dividends, benefits, or other terms.

Under the standard form fire policy's 'Concealment, fraud' provision (§2071), what is the effect of the insured willfully concealing or misrepresenting a material fact concerning the insurance, whether before or after a loss?

1. The claim is reduced by the amount of the misrepresentation
2. Only the affected coverage is suspended for 60 days
3. The insurer may cancel with 20 days' notice
4. The entire policy is void ✓

Why: The 'Concealment, fraud' clause makes the entire policy void if the insured willfully conceals or misrepresents any material fact, whether before or after a loss, or in case of fraud or false swearing.

A Jewelers Block policy is designed primarily for:

1. Insurance brokers seeking errors and omissions protection for misplaced coverage
2. Automobile dealers insuring vehicles held for sale
3. Manufacturers of jewelry display cases insuring finished cases awaiting shipment
4. Retail and wholesale jewelers covering their stock and customers' property ✓

Why: The Jewelers Block policy is an inland marine form covering a jeweler's stock and customers' jewelry in the jeweler's care against a broad range of perils.

The Basic Extended Reporting Period under the ISO claims-made CGL is automatically provided and typically lasts:

1. A flat 12 months after expiration to report any claim, with no extra window for reported losses
2. 60 days for any claims, plus 5 years for claims from occurrences already reported during the policy ✓
3. Nothing at all unless the insured pays an extra premium and asks for the tail in writing
4. An unlimited reporting window that runs until the insurer withdraws it by 30 days' notice

Why: The basic ERP is automatic and free: a 60-day tail to report any claims, plus a 5-year tail for occurrences reported during the policy period.

Injuries to civilian federal government employees (such as a postal or federal agency worker) are covered under:

1. FELA, since the employer is federal
2. The Defense Base Act, for postal routes
3. The Federal Employees' Compensation Act (FECA) ✓
4. The LHWCA, for federal facilities

Why: FECA provides workers' compensation benefits to civilian employees of the federal government for job-related injuries and illnesses.

An injured interstate railroad worker wishes to recover for an on-the-job injury. Which law governs the claim, and on what basis?

1. FELA, requiring proof of employer negligence (fault-based) ✓
2. The Jones Act, which extends no-fault maintenance and cure to any employee working aboard a moving vehicle
3. FECA, on a no-fault basis for transportation workers
4. The LHWCA, on a no-fault basis for rail yard crews

Why: The Federal Employers' Liability Act (FELA) covers interstate railroad workers and is fault-based, requiring the worker to prove employer negligence rather than providing automatic no-fault benefits.

Private flood insurance, as opposed to NFIP coverage, is best described as:

1. Flood coverage that may be written by private agents only after they complete FEMA certification training each year
2. Excess coverage that responds only after the maximum NFIP building and contents limits have been exhausted
3. Coverage that federal law requires every mortgage lender to demand in place of an NFIP policy on all loans
4. Flood coverage offered by private insurers, often with higher limits or broader terms than the NFIP ✓

Why: Private flood insurers compete with the NFIP and frequently offer higher limits, replacement cost on contents, or additional living expense not available under standard NFIP forms.

Federal Multiple Peril Crop Insurance (MPCI) is overseen by which federal entity?

1. The Federal Reserve Board of Governors
2. The Department of Commerce
3. The Risk Management Agency (RMA) of the USDA ✓
4. FEMA, through the NFIP

Why: MPCI is administered through the USDA's Risk Management Agency, which works with the Federal Crop Insurance Corporation and private insurers.

Under §2060, for a covered loss relating to a declared state of emergency, coverage for additional living expenses (ALE) must be provided for a period of no less than:

1. 24 months from inception of the loss ✓
2. The remaining policy term
3. 12 months from inception of the loss
4. 36 months from inception of the loss

Why: Section 2060(b)(1) requires ALE coverage for a state-of-emergency loss for no less than 24 months from inception, with an extension of up to 12 additional months (total 36) for good-cause delays.

California enacted Section 3820 declaring a compelling interest in eliminating fraud in the workers' compensation system. Which of the following does it make unlawful?

1. Requesting a DWC-1 claim form from the employer more than 30 days after the date of injury, which the section treats as presumptively fraudulent
2. Presenting a knowingly false or fraudulent material statement in support of, or in opposition to, a claim for compensation ✓
3. Filing a workers' compensation claim within 24 hours of the injury, before the employer has any chance to investigate the incident
4. Seeking treatment from a personal physician predesignated before the injury instead of from the employer's medical provider network

Why: Section 3820(b)(2) makes it unlawful to present, or cause to be presented, any knowingly false or fraudulent material statement in support of or opposition to a claim for compensation.

A domestic worker is hired directly by a homeowner to care for children and do household tasks unrelated to any trade or business of the owner. Under Section 3351, this person is:

1. Automatically an independent contractor, because Section 3353 provides that a person paid directly by a homeowner rather than by a trade or business is controlled only as to the result of the work
2. Covered only if the homeowner paid the worker more than $50,000 during the 90 days before the injury, which is the wage floor Section 3351(d) sets before residential domestic service is covered
3. Always excluded from the definition of employee, since household work is not incidental to a trade or business
4. Included as an 'employee' (subject to the specific exclusions in Section 3352), because the definition covers persons whose duties are incidental to the ownership/use of a dwelling ✓

Why: Section 3351(d) includes within 'employee' persons employed by the owner/occupant of a residential dwelling whose duties are incidental to the dwelling, including care of children, except as specifically excluded by Section 3352.

Saying that a property insurance contract is personal means that it:

1. Can only be sold to individuals in their own names, and never to a partnership, corporation or other business entity
2. Covers only personal property such as furniture and clothing, and never the dwelling or other real property
3. Must be signed in person by the named insured before the coverage can attach
4. Insures a person, not the property itself, and generally cannot be transferred without the insurer's consent ✓

Why: A personal contract insures the individual against loss, not the property; it cannot be assigned to another party without the insurer's consent.

Before workers' compensation laws, employers defending common-law negligence suits could use several defenses. Which of the following was one of those defenses that WC laws effectively removed?

1. The collateral source rule
2. The fellow-servant rule ✓
3. The statutory employer rule
4. The exclusive remedy rule

Why: The common-law defenses WC removed were contributory negligence, assumption of risk, and the fellow-servant rule (injury caused by a coworker). WC made these defenses irrelevant to benefit eligibility.

Self-insurance is best defined as:

1. Buying a policy from an offshore carrier that is not licensed in the insured's home state, so no premium tax applies
2. Purchasing an umbrella policy to sit above the primary limits
3. An entity setting aside its own funds to pay for its own anticipated losses rather than transferring the risk ✓
4. Joining a state FAIR Plan so that the residual market, rather than the entity itself, absorbs the cost of each loss

Why: Self-insurance is a risk-retention technique in which an organization budgets and funds its own losses internally instead of transferring the risk to an insurer.

A homeowner wants the dwelling limit to rise automatically each year to track building costs. The proper endorsement is:

1. Scheduled personal property, listing each item
2. Water backup of sewers and drains
3. Personal injury liability (libel, slander)
4. Inflation guard (automatic increase in insurance) ✓

Why: The inflation guard / automatic increase in insurance endorsement raises the Coverage A limit periodically to keep pace with rising construction costs.

A loss payable clause in a property policy primarily protects:

1. The state guaranty association, which is reimbursed first out of any loss payment
2. A secured creditor or lender with an interest in covered personal property ✓
3. A bailee holding the property for repair, giving it a direct claim on the proceeds
4. The named insured alone, to the exclusion of any lender

Why: A loss payable clause directs claim payments to a designated party (such as a lender) holding an interest in the covered property.

Most Professional Liability/E&O and D&O policies are written on what kind of trigger?

1. Claims-made ✓
2. Named perils
3. Open peril
4. Occurrence

Why: Professional and management liability lines are typically claims-made, with a retroactive date and ERP options.

Where liability has become reasonably clear, an insurer that does not try in good faith to reach a prompt, fair settlement has committed which unfair claims practice?

1. Appealing arbitration awards to compel claimants to accept less
2. Not attempting in good faith to effectuate prompt, fair, and equitable settlements ✓
3. Altering an application without the knowledge or consent of the insured
4. Misleading the claimant as to the applicable statute of limitations

Why: Section 790.03(h)(5) prohibits not attempting in good faith to effectuate prompt, fair, and equitable settlements where liability has become reasonably clear.

Under §675, on and after January 1, 2000, an insurer may not refuse to renew a residential property policy solely on which ground?

1. That the insured requested a policy copy
2. That a claim is pending under the policy ✓
3. That the insured filed a late premium payment
4. That the property is in a brush zone

Why: Section 675(c) prohibits refusing to renew a covered policy solely on the grounds that a claim is pending under the policy (with a stated exception for earthquake coverage claims).

Under the PAP, fire damage to the covered auto while parked in a garage is covered under:

1. Other Than Collision (comprehensive) ✓
2. Collision coverage under Part D of the pap
3. Liability coverage under Part A
4. Not covered without an endorsement

Why: Fire is a peril insured under Other Than Collision (comprehensive) coverage in Part D.

The Personal and Advertising Injury Limit in the CGL is:

1. Identical to the Medical Expense Limit and shared with it for each person injured
2. A per-person-and-per-offense limit that is also subject to the General Aggregate ✓
3. Unlimited for offenses such as libel, slander, and wrongful eviction once defense costs begin
4. One aggregate covering Coverages A, B, and C combined for the term

Why: The Personal and Advertising Injury Limit caps damages per person/organization for one offense and is subject to the General Aggregate.

What is the key conceptual difference between an occupational disease and an accidental injury under workers' compensation?

1. Occupational disease is never compensable under the act and must be pursued in a civil suit
2. Accidental injury always produces permanent disability, while disease is temporary
3. Occupational disease results from a single sudden event at an identifiable time
4. Occupational disease develops gradually from conditions characteristic of the job ✓

Why: An occupational disease arises gradually from repeated exposure or conditions inherent to the occupation, whereas an accidental injury results from a sudden, identifiable event.

Defense costs under the standard CGL are:

1. Paid in addition to the limits as a Supplementary Payment ✓
2. Paid within the limits of insurance, reducing them
3. Never covered
4. Subject to a separate aggregate only

Why: Under the standard CGL, defense costs are paid in addition to the limits as part of Supplementary Payments (unlike many specialty 'defense-within-limits' policies).

Under §10095, each member insurer participates in the FAIR Plan's writings, expenses, profits, and losses in what proportion?

1. In proportion to its total admitted assets as shown on the annual statement filed with the commissioner for the preceding calendar year
2. In proportion to the number of licensed agents it appoints in the state
3. In proportion to its basic-property premiums written during the second preceding calendar year relative to all insurers in the program ✓
4. Equally with every other member insurer, whatever its size or premium volume, under a flat per-company assessment set by the governing committee

Why: Section 10095(c) provides that an insurer participates in proportion to its premiums written during the second preceding calendar year relative to the aggregate premiums written by all insurers in the program.

The voluntary and intentional giving up of a known right is called:

1. Estoppel
2. Waiver ✓
3. Concealment
4. Subrogation

Why: A waiver is the intentional and voluntary relinquishment of a known legal right.

A dwelling with a $400,000 replacement cost is insured for $240,000. The 80% requirement is $320,000. A partial loss of $40,000 (ignoring deductible) would be settled at what amount under the coinsurance formula?

1. $32,000
2. $24,000
3. $40,000
4. $30,000 ✓

Why: Apply (carried $240,000 / required $320,000) x $40,000 = 0.75 x $40,000 = $30,000, the most the policy pays before deductible.

An employer with worse-than-average claims experience for its class would most likely have an experience modification factor that is:

1. Equal to 1.00, with no change
2. Set to zero
3. Below 1.00, producing a credit
4. Above 1.00, producing a debit ✓

Why: A debit mod above 1.00 reflects worse-than-average loss experience and increases the employer's premium relative to the class average.

Which of the following is NOT one of the three permitted grounds for cancelling or nonrenewing a California private-passenger auto policy under §1861.03(c)?

1. Fraud or material misrepresentation affecting the policy or insured
2. A substantial increase in the hazard insured against
3. Nonpayment of premium
4. The insured had two comprehensive glass claims ✓

Why: Ins. Code §1861.03(c)(1) permits only nonpayment, fraud/material misrepresentation, and a substantial increase in the hazard. Loss frequency such as glass claims is not a listed ground.

In a monopolistic state fund jurisdiction, employers must generally obtain workers' compensation coverage from:

1. A federal program
2. Any private insurer licensed in the state
3. An out-of-state surplus lines insurer
4. The state-operated fund only ✓

Why: In monopolistic fund states, the state fund is the sole source of WC coverage and private insurers may not write it; employers must buy from the state fund.

Except as provided in Section 1669, what procedural protection does Section 1667 give a license applicant before a license may be denied?

1. Automatic approval if the commissioner fails to act within 30 days
2. A right to a jury trial in superior court
3. A mandatory 60-day cure period before any denial becomes effective, during which the applicant may correct the deficiencies identified by the commissioner
4. An opportunity to be heard in support of the application, with the hearing conducted under the Administrative Procedure Act ✓

Why: Sec. 1667 provides that, except as provided in Sec. 1669, a license shall not be denied without an opportunity to be heard, with hearings conducted under the Government Code APA provisions.

A single limit of insurance covering multiple items or multiple locations under one amount is:

1. Specific insurance
2. Scheduled insurance
3. Blanket insurance ✓
4. Valued insurance

Why: Blanket insurance applies a single limit across multiple properties, items, or locations rather than assigning separate limits.

After denying a claim, an insurer never tells the insured how the policy language or facts supported the denial. Which unfair claims settlement practice is this?

1. Failing to acknowledge and act reasonably promptly upon claim communications
2. Failing to provide promptly a reasonable explanation of the basis for the denial ✓
3. Not attempting in good faith to effectuate a prompt and fair settlement
4. Misleading the claimant as to the applicable statute of limitations

Why: Section 790.03(h)(13) lists failing to provide promptly a reasonable explanation of the basis for the denial of a claim.

If two PAP policies issued by the same insurer apply to the same loss, Part F provides that:

1. Both policies pay their full limits, so the insured may collect twice for the same element of damages
2. Both policies are void for concealment, because the duplicate coverage was never disclosed to the insurer
3. The insurer's maximum liability shall not exceed the highest applicable limit under any one policy ✓
4. The policy issued more recently is canceled flat and the full premium paid for it is refunded to the insured

Why: The "Two or More Auto Policies" provision limits recovery so the insurer pays no more than the highest limit under any one of its policies.

The DP-3 (Special Form) insures the dwelling and other structures on what basis?

1. Open perils (all risks except those excluded) ✓
2. Broad form named perils, the DP-2 list
3. Liability and medical payments only
4. Basic form named perils, the DP-1 list

Why: DP-3 provides open-perils (special form) coverage on the dwelling and other structures, covering all causes of loss except those specifically excluded.

Under the CLCA installment (premium financing) option, an insured is required to pay no more than what portion of the total policy cost upon issuance?

1. 50 percent
2. 20 percent ✓
3. 25 percent
4. 10 percent

Why: Ins. Code §11629.72(b)(1) provides an installment option requiring no more than 20 percent of the total policy cost upon issuance, followed by seven other payments.

Under Insurance Code §11580.2, how may an insured decline or reduce the mandatory uninsured motorist coverage that an insurer must offer?

1. By an agreement in writing in the statutory form ✓
2. Orally at the time of application
3. Only by allowing the policy to lapse
4. It cannot be declined under any circumstances

Why: Ins. Code §11580.2(a)(1) permits deletion or reduction of UM coverage only by an agreement in writing, in the form prescribed by paragraphs (2) and (3) of that subdivision.

A person who violates the anti-fraud provisions of Section 3820 is subject to a civil penalty of:

1. Up to $100,000 per claim with no statutory minimum, set by the administrative director
2. A flat $1,000 for each violation, doubled for a second offense committed within five years, with no separate assessment for medical costs
3. Not less than $500 nor more than $2,000 per claim, plus a separate assessment equal to the medical treatment expenses already paid
4. Not less than $4,000 nor more than $10,000 per claim, plus a possible assessment tied to treatment/medical-legal expenses ✓

Why: Section 3820(d) sets a civil penalty of not less than $4,000 nor more than $10,000 per claim, plus an assessment of up to three times the medical treatment and medical-legal expenses paid.

An employer with a poor loss history cannot find a private insurer willing to write its workers' compensation voluntarily. Where would this employer most likely obtain coverage?

1. The assigned-risk (residual market) plan ✓
2. The Jones Act pool
3. The federal LHWCA program
4. A monopolistic fund in a competitive state

Why: Employers unable to obtain WC in the voluntary market are placed in the assigned-risk or residual market plan, which guarantees availability of mandatory coverage.

The Dwelling Under Construction endorsement is designed to:

1. Cover a tenant's contents in a newly built dwelling until the owner's permanent policy is issued
2. Add theft coverage to a finished home, which the unendorsed dwelling form leaves out entirely
3. Provide earthquake coverage for the foundation and framing while the structure is being erected
4. Adjust coverage and reporting for a home being built where value increases over time ✓

Why: The dwelling under construction endorsement tailors coverage to a home being built, where the insurable value grows as construction progresses.

Under the unendorsed PAP, towing and labor (Part D) coverage is:

1. An optional coverage that must be added, with a stated per-disablement limit ✓
2. Built into Part A liability, so any tow after an accident is paid within the liability limit
3. Included automatically at full cost whenever the policy carries collision, with no separate premium
4. Available only for rental cars the insured hires while the covered auto is being repaired

Why: Towing and labor costs coverage is an optional add-on with a small per-disablement limit (e.g., $25–$75), not automatically included.

Under §2051, a deduction for physical depreciation in computing actual cash value of a structure may be applied to:

1. Only components normally subject to repair and replacement during the useful life of the structure ✓
2. Only the foundation, framing, and other components expected to last the useful life of the structure
3. Any and all structural components, including those not normally subject to repair or replacement during the building's useful life
4. The value of the land underlying the structure

Why: Section 2051(b) states a depreciation deduction shall apply only to components of a structure normally subject to repair and replacement during the useful life of that structure.

"Your covered auto" under the PAP includes:

1. Any car the insured happens to drive, owned or not, anywhere in the world, so long as the owner has given permission
2. Only vehicles the insured leases under a written agreement of six months or longer, with owned autos added by endorsement
3. Vehicles shown in the Declarations, newly acquired autos, trailers owned, and temporary substitutes (per terms) ✓
4. Only the first auto listed in the Declarations, with later additions needing a new policy

Why: "Your covered auto" encompasses vehicles in the Declarations, certain newly acquired autos, owned trailers, and qualifying temporary substitute autos.

The Business Pursuits endorsement on a Homeowners policy is used to:

1. Extend liability for certain business activities of an insured (e.g., a teacher or clerk) ✓
2. Cover an insured's full-scale business operation, replacing the need for a commercial general liability policy
3. Add scheduled coverage for jewelry, silverware and other valuables kept at the insured's place of work
4. Provide flood coverage for a home office

Why: The business pursuits endorsement extends Section II liability to certain employee business activities that would otherwise be excluded; it does not cover an owned business.

A business with predictable, frequent small losses decides to fund those losses internally rather than buy first-dollar insurance. This strategy is:

1. Risk transfer to an insurer
2. Joining an assigned-risk plan
3. Risk avoidance
4. Self-insurance (risk retention) ✓

Why: Funding one's own predictable losses internally is self-insurance, a form of planned risk retention.

The HO-2 form covers personal property against:

1. Liability only
2. The broad form named perils ✓
3. Open perils
4. Flood and earthquake

Why: HO-2 insures both the dwelling and personal property on the broad form named-perils basis.

Under a value reporting form, what happens if the insured underreports values at the last report before a loss?

1. The insurer pays the full policy limit because the limit was purchased for the year
2. Coverage is voided from inception and the insurer returns all the premium paid
3. The honesty/full reporting clause limits recovery to the proportion reported ✓
4. The deductible is waived on the loss

Why: The full reporting (honesty) clause penalizes underreporting by limiting recovery to the ratio of the value last reported to the actual value.

A warehouse roof collapses under the weight of accumulated snow. The insured has only the Basic Causes of Loss form. Is the collapse from snow weight covered?

1. No, weight of snow/ice is added by the Broad and Special forms, not Basic ✓
2. Only if theft accompanied the collapse
3. Yes, weight of snow is listed among the Basic form's named perils
4. Yes, collapse from any cause is a Basic peril

Why: Weight of snow, ice, or sleet is added in the Broad and Special forms; the Basic form does not include it, so the loss would not be covered.

In addition to burial expenses, Section 4701 makes the employer liable for what when a work injury causes death?

1. Nothing further; burial expenses are the whole of the liability
2. A death benefit allowed to persons dependent on the deceased for support ✓
3. Punitive damages awarded to the decedent's estate by the WCAB
4. Reimbursement of the wages the decedent would have earned to age 65

Why: Section 4701(b) provides a death benefit to be allowed to the dependents when the deceased employee leaves any person dependent upon him or her for support, in addition to burial expenses.

A vessel departs from its customary route for no necessity, and a loss occurs. The insurer may deny coverage based on:

1. The absence of any deductible in the marine declarations
2. Failure to satisfy the cargo policy's coinsurance requirement
3. Breach of the implied warranty of no deviation ✓
4. The Special Causes of Loss form's exclusion for water damage

Why: Unjustified deviation from the agreed or customary route breaches the implied warranty against deviation, allowing the insurer to deny coverage.

An employee files a claim, and the only question is whether to pay statutory benefits set by the state law. Which Part of the policy responds?

1. Part One ✓
2. Part Two
3. Part Four
4. Part Three

Why: Payment of the benefits required by the state WC statute is handled by Part One — Workers Compensation.

When an employer is found to be operating without required workers' compensation security, what enforcement action does Section 3712 authorize a court to take?

1. Immediate revocation of the employer's business license by the Secretary of State, effective upon service of the order on the employer
2. A mandatory referral of the employer to the federal OSHA office for an enforcement inspection of every worksite within 30 days
3. An order restraining the future or further conduct and operation of the business while the violation continues (a stop order) ✓
4. A tax lien recorded against the employer's real property only, enforceable by the Franchise Tax Board against later purchasers

Why: Section 3712 declares operating without full compensation security violates state social policy and empowers the superior court to restrain further operation of the business until cured.

The commissioner believes a person is committing an act that is unfair or deceptive but is NOT specifically defined in Section 790.03. Which section authorizes proceeding against that undefined act?

1. Section 790.06, addressing methods or acts not defined in Section 790.03 ✓
2. Section 790.05, addressing acts already defined in Section 790.03
3. Section 790.035, fixing civil penalties for defined acts
4. Section 790.07, addressing violations of an existing cease-and-desist order

Why: Section 790.06 lets the commissioner proceed against an unfair or deceptive act not defined in Section 790.03.

Which of the following is a possible result of the underwriting process?

1. Acceptance with modified terms or higher premium
2. Rejection of the risk
3. All of the above ✓
4. Acceptance of the risk as applied for

Why: Underwriting can result in accepting the risk as is, accepting with modifications/conditions, or rejecting the application.

An insurer incorporated in London, England and operating in the United States is classified as:

1. Domestic
2. Alien ✓
3. Reciprocal
4. Foreign

Why: An alien insurer is one incorporated outside the United States.