Texas Property & Casualty Insurance License, Practice Exams

Employment Practices Liability Insurance (EPLI) covers claims such as:

1. Defects in the products the insured manufactures that injure a consumer
2. Damage to premises the insured rents, caused by a fire it started
3. Wrongful termination, discrimination, harassment, and retaliation by employees ✓
4. Bodily injury to a customer who trips over a floor display inside the insured's retail store

Why: EPLI responds to employment-related claims like discrimination, harassment, wrongful termination, and retaliation.

A competitor sues the insured alleging the insured's advertisement infringed its slogan. This falls under:

1. Coverage B — Personal and Advertising Injury ✓
2. Coverage A, treating the slogan as tangible property that was damaged
3. A fidelity bond, because copying the slogan was a dishonest act
4. Coverage C, which pays medical expenses without regard to fault

Why: Advertising injury offenses such as use of another's advertising idea or slogan are covered under Coverage B.

In property insurance, the insured generally may NOT abandon damaged property to the insurer because:

1. Abandonment forfeits the insurer's right of subrogation
2. The insured, not the insurer, owns any salvage after payment
3. The abandonment clause prohibits forcing the insurer to take the property ✓
4. Abandoned property triggers a premium surcharge at the next renewal

Why: Most property policies state the insured cannot abandon property to the insurer; the insurer is not required to accept it.

Among the sanctions the commissioner may impose in addition to revocation, which is expressly authorized?

1. A permanent nationwide ban on insurance employment
2. An order to cease and desist from the violating activity ✓
3. Imprisonment of the license holder
4. Seizure of the holder's personal residence

Why: Sec. 82.052(2) authorizes a cease-and-desist order; the statute also allows suspension, administrative penalties, and restitution.

Under Section 4002.003, which applicant is exempt from the licensing examination requirement?

1. An applicant for a life, accident, and health license designated as a chartered life underwriter (CLU) ✓
2. An applicant whose earlier Texas license the commissioner revoked for fraud two years before this application
3. Any applicant who can document at least five years of full-time work experience in the insurance industry
4. A first-time applicant for a general property and casualty license who has completed a prelicensing course

Why: Tex. Ins. Code § 4002.003(a) exempts several applicants from the examination, including an applicant for a life, accident, and health license who holds the CLU designation, license-renewal applicants, and recently expired (not revoked) licensees. A first-time applicant generally must test, and a revoked-license applicant is not exempt.

Medical Payments to Others (Coverage F) typically does NOT pay for injuries to:

1. The named insured or a resident relative ✓
2. A delivery person hurt on the walkway
3. A guest tripping on the stairs
4. A child injured at a party

Why: Coverage F excludes the named insured and regular residents of the household; it is intended for injuries to third parties, not the insureds themselves.

A business decides not to manufacture a dangerous chemical at all to eliminate the chance of related liability claims. This is an example of risk:

1. Transfer
2. Reduction
3. Avoidance ✓
4. Retention

Why: Risk avoidance eliminates the possibility of a particular loss by not engaging in the activity that creates the exposure.

In auto insurance, "stacking" of uninsured motorists coverage refers to:

1. Combining UM limits across multiple covered vehicles or policies to increase recovery ✓
2. Applying a separate deductible to each vehicle before uninsured motorists benefits are paid
3. Excluding any driver added to the policy after inception from uninsured motorists benefits
4. Reducing the uninsured motorists limit by the amount already paid by the at-fault driver's insurer

Why: Stacking allows an insured to add together the UM limits for each insured vehicle (or policy) to increase the total amount available.

Shareholders sue a corporation's board alleging mismanagement caused a stock drop. Which policy responds?

1. CGL Coverage B, treating the board's statements as advertising injury
2. Directors and Officers (D&O) Liability ✓
3. Liquor liability, if the board met over dinner
4. EPLI, because the suit names corporate officers

Why: Claims against directors and officers for wrongful management acts are handled by D&O liability insurance.

Under the FCRA, an investigative consumer report differs from an ordinary consumer report because it includes:

1. Only the consumer's numerical credit score and the four factors that most depressed it, with no narrative gathered from any other person
2. Information about a consumer's character, reputation, and lifestyle obtained through interviews with associates or neighbors ✓
3. Records of criminal convictions copied from county courthouse files
4. Flood zone determinations drawn from FEMA mapping data

Why: An investigative consumer report gathers information on a consumer's character, general reputation, and mode of living through personal interviews, triggering additional notice requirements.

Hired auto physical damage coverage under the BACF can be provided by:

1. Symbol 7 alone, since it reaches every auto the insured operates, rented units included
2. An endorsement to the workers compensation policy covering autos employees rent on trips
3. Symbol 1, which covers any auto and so picks up hired units for physical damage
4. Endorsement or designation that extends physical damage to autos the insured hires or rents ✓

Why: Physical damage on hired autos is added via the appropriate symbol (e.g., 8) or hired auto physical damage endorsement, often with a stated limit.

If a property and casualty agent dies, becomes disabled, or is found insolvent, the department may issue an emergency license without examination. How long is that emergency license valid?

1. 30 days in any 12 months
2. 90 days in any 12 consecutive months ✓
3. One year
4. Until the next renewal cycle

Why: Sec. 4051.054(b) makes an emergency license valid for 90 days in any 12 consecutive months, renewable for an additional 90 days during the period if other requirements are met.

A driver with multiple at-fault accidents and DUIs is repeatedly declined by standard auto insurers. The mechanism most likely to provide required liability coverage is:

1. An automobile assigned-risk plan ✓
2. A FAIR Plan
3. A beach and windstorm plan
4. A risk retention group

Why: Drivers unable to obtain coverage voluntarily are placed through the automobile assigned-risk plan, the residual market for auto insurance.

The difference between cancellation and nonrenewal is that nonrenewal:

1. Requires the insurer to return the entire annual premium paid, not merely the unearned portion
2. Requires the insurance commissioner's prior written approval before the notice may be mailed
3. Ends coverage in the middle of the policy term once the statutory notice period expires
4. Lets the current policy run to expiration but does not continue it for a new term ✓

Why: Cancellation terminates a policy during its term, while nonrenewal allows the current term to expire and declines to issue a new term.

Under §2210.005(a), the commissioner may designate a catastrophe area only upon determining that windstorm and hail insurance is not reasonably available to a substantial number of owners because the territory is subject to what?

1. A high volume of fraudulent windstorm claims filed by property owners in the territory
2. Property values above the association's limits
3. A shortage of agents licensed to write windstorm coverage
4. Unusually frequent and severe damage from windstorms or hailstorms ✓

Why: §2210.005(a) requires a finding that the territory is subject to unusually frequent and severe damage resulting from windstorms or hailstorms.

Experience rating in workers' compensation works by comparing an individual employer's actual losses to:

1. The employer's payroll growth over the past three policy years
2. A benefit schedule published each year by the U.S. Labor Department
3. The expected (average) losses for employers in the same classifications ✓
4. The losses of employers in unrelated industries

Why: Experience rating compares an employer's actual loss experience to the average expected losses for similar employers, producing a credit or debit modification.

A Texas employer with a workers' comp policy decides to terminate that coverage. When does the termination take effect, at the earliest?

1. On the later of the 30th day after filing notice with the Division or the policy cancellation date ✓
2. Immediately when the employer notifies its insurance carrier that the policy is being terminated
3. At the end of the calendar year in which the notice is filed with the Division
4. On the 10th day after the employer posts notice of the termination for employees at the workplace, without regard to the policy's cancellation date

Why: An employer terminating coverage must file written notice with the Division within 10 days of notifying the carrier; termination takes effect on the later of the 30th day after that filing or the policy's cancellation date, and coverage continues until then.

The first, nonadversarial, informal dispute-resolution proceeding in the Texas workers' compensation dispute process is the:

1. Benefit review conference ✓
2. Arbitration hearing
3. Appeals panel review
4. Contested case hearing

Why: A benefit review conference (BRC) is a nonadversarial, informal proceeding designed to explain the parties' rights, delineate disputed issues, and mediate a resolution — the first step in the dispute process.

In addition to canceling or revoking an authorization, what is the maximum period for which the commissioner may suspend an authorization under the sanctions statute?

1. A specified time not to exceed one year ✓
2. 30 days
3. Six months
4. Five years from the date the sanction order against the insurer becomes final

Why: Sec. 82.052(1) permits suspension of the authorization for a specified time not to exceed one year, among other sanctions such as cease-and-desist orders and restitution.

An insured increases jewelry coverage by scheduling items. Scheduled items differ from blanket Coverage C because they:

1. Are excluded from theft coverage unless a burglar alarm is installed
2. Have lower limits than Coverage C provides for the same class of property
3. Require a mortgage clause naming the lender before the schedule takes effect
4. Are individually listed and valued, often with broader perils and no deductible ✓

Why: Scheduled personal property is individually listed and valued, generally insured on a broader open-peril basis, often with no deductible and above Coverage C sublimits.

Because an insurance policy is a contract of adhesion, any ambiguity in its wording is generally:

1. Considered void and unenforceable, so the provision containing it is struck out
2. Resolved in favor of the insured, against the insurer who drafted it ✓
3. Sent to the state insurance department for an authoritative interpretation
4. Resolved in favor of the insurer who drafted it, since it chose the wording

Why: Since the insurer drafts the contract, ambiguities are construed against the drafter and in favor of the insured.

Coercing a person to buy insurance from a particular insurer by economic pressure is, under Texas law:

1. Twisting, a separate Chapter 541 offense
2. A prohibited unfair trade practice (coercion) ✓
3. Required of lenders under federal law
4. Allowed if the buyer signs a waiver

Why: Coercion — using force or economic pressure to compel an insurance transaction — is an unfair practice under Chapter 541.

Why does Texas refer to its UM/UIM and PIP rules as 'mandatory offer' rather than 'mandatory coverage' requirements?

1. Because the coverages are required only in the counties the commissioner designates as high-risk areas
2. Because a commercial auto policyholder may decline the coverages while a personal auto policyholder may not
3. Because the coverages attach only after a court finds the other driver liable and unable to pay the judgment
4. Because the insurer must include the coverage unless the named insured rejects it in writing ✓

Why: Under 1952.101(c) and 1952.152(b), the insurer must provide UM/UIM and PIP unless the named insured rejects the coverage in writing.

To lawfully NONRENEW a Texas auto policy, by when must the insurer mail written notice of nonrenewal to the insured?

1. Not later than the 60th day before the date the policy expires ✓
2. Not later than the 30th day before expiration, the same period used for cancellation notices
3. Not later than the 90th day before expiration, with a copy filed with the Department
4. On or before the expiration date shown on the policy

Why: 551.105 requires the nonrenewal notice to be mailed not later than the 60th day before the policy expires; otherwise the insurer must renew at the insured's request.

A business has a CGL with a $1M each occurrence and $2M general aggregate limit. During the year it has already paid $1.5M in unrelated premises/operations claims. A new $1M premises liability claim occurs. The most the policy will pay on the new claim is:

1. $0
2. $1,000,000
3. $500,000 ✓
4. $2,000,000

Why: Only $500,000 of general aggregate remains ($2M minus $1.5M), so the new claim is limited to the remaining aggregate even though the occurrence limit is $1M.

Under the definitions in Chapter 701, a "fraudulent insurance act" must, among other things, be:

1. any material misstatement on an insurance application, whether or not the misstatement violates a penal law
2. a violation of a penal law that is committed in the business of insurance, in support of an insurance transaction, or to defraud an insurer ✓
3. conduct that the department's insurance fraud unit has formally referred to a prosecuting attorney for indictment before it may be treated as fraud
4. an act causing actual monetary loss of more than $2,500 to an insurer or to one of its policyholders

Why: Sec. 701.001(2) defines a fraudulent insurance act as a violation of a penal law committed/attempted in the business of insurance, in support of an insurance transaction, or to defraud an insurer.

Under §551.106(c), an insurer may reinstate a personal automobile policy canceled for nonpayment of premium if the premium owed is paid not later than which day after cancellation?

1. The 60th day after the date of cancellation ✓
2. The date the insurer completes a new underwriting review of the risk
3. The 10th day after the insurer mails a second notice of cancellation
4. The 90th day after the cancellation date

Why: §551.106(c) permits reinstatement of a personal auto policy canceled for nonpayment if the owed premium is paid not later than the 60th day after the date of cancellation; coverage lapses during the gap and is not effective until payment is received.

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.

An 'insured contract' in the CGL includes:

1. Any written or oral agreement the insured enters into, so long as the other party demands indemnification as a condition of the deal
2. Only purchase orders issued to suppliers for materials delivered to the job site
3. Only employment contracts between the insured and its workers, including union collective bargaining agreements
4. A contract in which the insured assumes the tort liability of another, such as a lease or sidetrack agreement ✓

Why: Insured contracts are specified agreements (leases, easements, sidetrack agreements, etc.) in which the insured assumes another party's tort liability.

Which best describes "non-owned autos" in commercial auto?

1. New and used autos held in a dealer's showroom inventory for sale, which Symbol 9 picks up while they sit on the display lot
2. Rental cars the named insured hires under short-term agreements while its own fleet units are in the shop being repaired
3. Autos used in the business but not owned, leased, or borrowed by the named insured — typically employees' own vehicles ✓
4. Autos titled to the named insured but assigned to a single employee for that employee's exclusive use during the workweek

Why: Non-owned autos (Symbol 9) are vehicles not owned/hired by the insured but used in its business, most often employees' personal autos.

Texas UM/UIM coverage protects insureds who are legally entitled to recover from owners or operators of uninsured or underinsured vehicles for which of the following?

1. Exemplary damages assessed against the uninsured motorist, but not the insured's actual damages
2. Bodily injury, sickness, disease, or death, or property damage ✓
3. Bodily injury and death only, with property damage payable solely under the collision coverage
4. Property damage only, subject to the $250 deductible

Why: 1952.101(a) defines the coverage as protecting against damages for bodily injury, sickness, disease, or death, or property damage.

Under Section 544.453, an entity offering a health benefit plan, annuity, or life policy may not use which of the following to reject, limit, cancel, or increase premiums for a person?

1. the person's documented use of tobacco products during the twenty-four months immediately preceding the date of the application for coverage
2. the fact that the person has been exposed to asbestos fibers or silica or has filed a claim governed by the asbestos/silica statute ✓
3. the person's age at the time of application, as shown on the insurer's filed rate table
4. the person's failure to complete the paramedical examination the insurer requested during underwriting, which left the application incomplete

Why: Sec. 544.453 bars using exposure to asbestos/silica or the filing of a Chapter 90 asbestos/silica claim to adversely affect coverage.

The PIP offer requirement under 1952.152 applies to policies issued through which residual-market mechanism?

1. The federal assigned-risk pool run by the U.S. Department of Transportation
2. No residual market; 1952.152 reaches voluntary business only
3. The Texas Automobile Insurance Plan Association under Chapter 2151 ✓
4. The Texas FAIR Plan Association, which writes residential property

Why: 1952.152(a) extends the PIP requirement to a policy provided through TAIPA under Chapter 2151.

Under §2210.052(a), how is each TWIA member insurer's share of association losses and operating expenses (in excess of premium and revenue) determined?

1. In proportion that the member's net direct premiums bear to the aggregate net direct premiums of all members ✓
2. Equally among all member insurers, without regard to premium volume or size
3. In proportion to the number of agents the member has appointed in the catastrophe area
4. In proportion to the member's policyholder surplus as reported in its annual statement to the NAIC

Why: §2210.052(a) apportions each member's participation in TWIA losses and expenses in the proportion that the member's net direct premiums during the preceding calendar year bear to the aggregate net direct premiums of all members.

What is the maximum amount of PIP coverage an insurer is REQUIRED to make available per person under Texas law?

1. $5,000
2. $2,500 ✓
3. $10,000
4. $1,000

Why: 1952.153: the subchapter does not require PIP coverage exceeding $2,500 for all benefits, in the aggregate, for each person.

An employer is also the manufacturer of the product that injured its own employee, and the employee sues the employer in its role as product maker rather than as employer. What doctrine does this illustrate, potentially triggering Part Two?

1. Dual-capacity doctrine ✓
2. Exclusive remedy doctrine
3. Fellow-servant doctrine
4. Going-and-coming doctrine

Why: The dual-capacity doctrine allows an employee to sue the employer in a second, distinct capacity (e.g., as product manufacturer); such suits can fall under Part Two Employers Liability.

Offering a prospective Texas buyer a gift not stated in the policy to induce a sale is:

1. Twisting
2. An unfair claim practice
3. Permissible marketing
4. Rebating ✓

Why: Rebating — giving an inducement not specified in the contract — is an unfair practice under Chapter 541.

A determination that a particular work-related injury is noncompensable (for example, under §406.032) has what effect on a subscribing employer's exclusive-remedy protection?

1. It converts the employer into a non-subscriber
2. It does not adversely affect the exclusive-remedy provisions ✓
3. It allows the employee to recover exemplary damages automatically
4. It eliminates the exclusive-remedy protection entirely

Why: A determination under §406.032, §409.002, or §409.004 that a work-related injury is noncompensable does not adversely affect the exclusive-remedy protection a subscriber enjoys.

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.

An agent tells a prospect that a policy includes a benefit it does not actually provide. Under the Texas Insurance Code this is best described as:

1. Lawful comparative advertising of two competing insurers
2. Coordination of benefits between two health plans
3. Misrepresentation of an insurance policy's benefits or terms ✓
4. A permitted rebate authorized by the home office

Why: Making an untrue statement of material fact about a policy's benefits is misrepresentation of an insurance policy under § 541.061(1).

Several manufacturers in the same industry want to form an insurer they own to write their own liability coverage and operate across state lines. The most appropriate vehicle is a:

1. Beach plan
2. Risk purchasing group
3. Risk retention group ✓
4. FAIR Plan

Why: A risk retention group, owned by members in similar businesses, is designed to write its members' liability coverage and may operate across states once licensed in one.

A business that performs incidental contracts and also assumes a railroad's liability in a sidetrack agreement has the assumed liability covered under the CGL because:

1. It is a Coverage B personal and advertising injury offense committed in the conduct of the insured's business
2. A sidetrack agreement is an 'insured contract' excepted from the contractual liability exclusion ✓
3. The pollution exclusion contains a stated exception for railroad operations carried out on a sidetrack
4. All liability the insured assumes by written contract is covered automatically

Why: Sidetrack agreements are listed insured contracts, so liability assumed under them is excepted from the contractual liability exclusion.

Under TRIA, insurers writing certain commercial property and casualty lines must:

1. Deny any claim arising from a certified act of terrorism and refer the insured to Treasury for payment
2. Attach a mandatory terrorism exclusion to every commercial policy they issue in that state
3. Provide flood coverage at no extra charge on each commercial property policy written
4. Make available (offer) coverage for certified acts of terrorism to policyholders ✓

Why: TRIA requires participating insurers to make terrorism coverage available to commercial policyholders, though the insured may decline it.

Under the FCRA, before an insurer obtains an investigative consumer report on an applicant, it must:

1. Notify FEMA that an applicant file has been opened
2. Obtain a court order permitting the interviews
3. Cancel any policy already in force with the applicant before ordering it
4. Clearly and accurately disclose to the consumer that such a report may be obtained ✓

Why: The FCRA requires advance written disclosure to the consumer that an investigative consumer report may be requested, along with a description of the consumer's rights.

The policy provision that states the insurer's promise to pay covered losses is the:

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

Why: The insuring agreement is the insurer's core promise describing what coverage is provided in exchange for premium.

Under the NFIP, deductibles apply:

1. Only to contents coverage
2. Only after a federal disaster is declared
3. Only to building coverage
4. Separately to building and contents losses ✓

Why: The NFIP applies separate deductibles to building and to contents losses arising from the same flood event.

Under §408.082, when does the injured worker become entitled to compensation computed back to the first day disability began (i.e., recover the initial waiting-period week)?

1. If the disability continues for two weeks or longer after it begins ✓
2. Never; the waiting week is uncompensated regardless of duration
3. Only when the employee reaches maximum medical improvement
4. When the insurance carrier accepts liability within 60 days

Why: If the disability continues for two weeks or longer after it begins, compensation is computed from the date the disability begins — retroactively covering the initial waiting week.

A worker suffers third-degree burns. Under the Texas LIB statute, burns qualify for Lifetime Income Benefits if they are third-degree burns covering at least what portion of the body (and requiring grafting)?

1. 30 percent of the body
2. 40 percent of the body ✓
3. 20 percent of the body
4. 50 percent of the body

Why: LIBs are payable for third-degree burns covering at least 40 percent of the body and requiring grafting, or third-degree burns covering the majority of certain combinations of hands, feet, and the face.

Under Section 4005.054, a licensed agent who already receives a commission for services to a client generally may not charge that same client an additional fee unless the fee is:

1. Held to less than 10 percent of the annual premium charged for the policy
2. Paid directly to the insurer and remitted back to the agent as commission
3. Approved verbally by the client
4. Disclosed as required and authorized under the fee-disclosure statutes ✓

Why: Tex. Ins. Code § 4005.054 prohibits a commissioned agent from receiving an additional fee for the same services to the same client except for a fee described by § 550.001 or § 4005.003 and for which disclosure is made as required under § 4005.003 or § 4005.004.

A personal auto policy is reinstated under §551.106(c) after a nonpayment cancellation. What is the effect on coverage during the gap before payment is received?

1. Coverage is retroactively restored to the date of cancellation, so a loss occurring during the gap is paid once the overdue premium reaches the insurer
2. Coverage is suspended only as to physical damage during the gap, while the liability coverage required for financial responsibility stays in force
3. Coverage lapses on the cancellation date and is not effective again until the payment is received, and no premium is owed for the lapse period ✓
4. Coverage continues without interruption during the gap, but the insurer may charge double premium for the period before the payment is received

Why: §551.106(c) states coverage lapses on the date of cancellation and is not again effective until payment is received; premium is not owed for any period the policy is not in effect.

A 'nonscheduled' (unscheduled) permanent partial disability typically involves:

1. An injury to a body part named on the statutory schedule, such as a thumb or a foot, paid at a fixed number of weeks regardless of actual wage loss
2. An injury compensable only under Part Two, Employers Liability, because the statute schedules no benefit for that body part
3. An injury that resolves before maximum medical improvement is reached, so benefits end when the worker is released to full duty
4. An injury to the body as a whole (e.g., back or internal organ) valued by impairment to earning capacity ✓

Why: Nonscheduled injuries affect the body as a whole or parts not on the schedule (such as the back), and benefits are based on the impact on earning capacity or impairment rating.

For an injury to be compensable under workers' compensation, it generally must arise:

1. Solely from the employer's negligence
2. From a single sudden accident only
3. During regularly scheduled hours only
4. Out of and in the course of employment ✓

Why: The basic compensability test is that the injury must 'arise out of and in the course of employment' — connected to the work and occurring within the scope of the job.

An agent persuades a client to surrender an existing whole life policy and replace it with a new one by misrepresenting the old policy's terms. Under the Texas Insurance Code this prohibited practice is called:

1. Rebating
2. Twisting ✓
3. Adverse selection
4. Coordination of benefits

Why: Section 541.051 prohibits making a misrepresentation to induce a policyholder to lapse, forfeit, or surrender an existing policy. Misrepresentation used to induce replacement is commonly called twisting.

Under the PAP, the duty to allow the insurer to inspect and appraise the damaged vehicle before its repair or disposal falls under:

1. Part E — Duties After an Accident or Loss ✓
2. Part C, which governs uninsured motorists claims handling
3. Part A general conditions applying to liability claims
4. Part B medical payments

Why: Part E requires the insured to permit the insurer to inspect and appraise the damaged property before repairs or disposal, as part of the post-loss duties.

Because the standard policy's Part One does not apply in monopolistic fund states (where coverage comes from the state fund), what does the policy still commonly provide for those states via endorsement?

1. Part One statutory benefits for those states
2. Vocational rehabilitation and retraining benefits
3. Stop Gap / Employers Liability coverage ✓
4. Other States Insurance listing the monopolistic states

Why: In monopolistic states, the state fund provides statutory benefits but not employers liability; a stop gap (Employers Liability) endorsement fills that gap.

An insurer files a financial statement with a state supervisory official that overstates its reserves. Under Chapter 541, filing a false statement of an insurer's financial condition with a public official is a prohibited unfair or deceptive act when it is done:

1. only if a policyholder suffers actual monetary damages as a direct and proximate result of relying on the false statement
2. with intent to deceive ✓
3. negligently, regardless of the filer's state of mind or knowledge
4. only by an officer or director of the insurer and not by any other employee

Why: Sec. 541.055(a) prohibits filing or publishing a false statement of an insurer's financial condition 'with intent to deceive.'

Directors and Officers (D&O) liability insurance primarily protects:

1. The company's products against claims that they failed to perform in the way the sales literature had promised buyers they would
2. Customers who slip and fall in the lobby of the corporate headquarters while they are waiting to meet with an officer of the firm
3. Employees who are hurt on the job, by paying for their medical treatment and lost wages until they are able to return to work
4. Corporate directors and officers (and often the entity) against claims alleging wrongful acts in managing the organization ✓

Why: D&O covers directors, officers, and frequently the entity for losses from alleged wrongful management acts.

Compared with the standard CGL, professional liability and D&O policies most often pay defense costs:

1. Within the limit of insurance, eroding the available limit ✓
2. Only after the self-insured retention has been paid twice
3. In addition to the limit, as under the CGL
4. Never, leaving defense entirely to the insured

Why: Many specialty/management liability policies use defense-within-limits, so defense costs reduce the amount available for settlements.

Under §542.060(c) (applicable to a Chapter 542A weather-related claim), how is the damages interest rate determined instead of the flat 18%?

1. The federal prime rate in effect on the date of judgment minus two percent
2. A flat 10 percent a year as simple interest on the amount of the claim
3. Whatever interest rate the policy's appraisal provision specifies
4. Simple interest at the Section 304.003, Finance Code judgment rate plus five percent ✓

Why: §542.060(c) (for actions to which Chapter 542A applies) sets simple interest as damages at the rate determined under Section 304.003, Finance Code plus five percent, together with reasonable and necessary attorney's fees.

Debris removal under a Homeowners policy is best described as:

1. A separate Section ii liability coverage that responds when debris from the insured's property injures a neighbor
2. An additional coverage that pays to remove debris of covered property after a covered loss ✓
3. Excluded entirely unless the debris blocks a public roadway
4. Available only by endorsement, since the base form treats removal costs as an owner's maintenance expense

Why: Debris removal is an additional coverage paying the cost to remove debris of covered property following a covered cause of loss.

When the commissioner directs restitution under the enforcement chapter, to whom must the holder of the authorization make complete restitution?

1. Each Texas resident, Texas insured, and entity operating in Texas harmed by the violation ✓
2. Only the appointing insurance company that filed the holder's appointment with the department
3. Only those other licensed insurers that suffered a measurable loss because of the violation
4. Only the Texas Department of Insurance, which then distributes the funds to harmed consumers

Why: Sec. 82.053(a) directs complete restitution to each Texas resident, each Texas insured, and each entity operating in the state harmed by the violation or noncompliance.

Under TRIA, federal sharing of terrorism losses is triggered only for a 'certified act of terrorism,' which is certified by:

1. FEMA, through its disaster declaration process
2. The individual insurer, once its deductible is exhausted
3. The insurance commissioner of the state where the loss occurred
4. The Secretary of the Treasury (in consultation with other officials) ✓

Why: A terrorism event must be certified by the Secretary of the Treasury, in consultation with designated officials, before TRIA's loss-sharing applies.

A binder provides:

1. Permanent coverage that stays in force until the insured cancels it
2. A refund of the deposit premium if the application is declined
3. Temporary evidence of coverage until the policy is issued ✓
4. A promise to defend the applicant against any suit filed before issuance

Why: A binder is temporary proof of insurance that provides coverage until the formal policy is issued.

Under §2301.007(d), an order withdrawing approval of a form may not take effect earlier than which day after the order's effective date?

1. The 10th day after a replacement form is filed
2. The 15th day after Texas Register publication
3. The 60th day after the effective date of the order
4. The 30th day after the effective date of the order ✓

Why: §2301.007(d) provides the commissioner may not prescribe a withdrawal-of-approval effective date earlier than the 30th day after the order's effective date.

Vocational rehabilitation benefits under workers' compensation are intended to:

1. Reimburse the employer for the cost of recruiting and training a replacement worker
2. Pay for all of the medical treatment the injured worker receives during the recovery period
3. Permanently replace the worker's lost wages once statutory indemnity benefits are exhausted
4. Help an injured worker retrain or be re-educated to return to gainful employment ✓

Why: Vocational rehabilitation provides retraining, education, or job-placement assistance so an injured worker can return to suitable employment.

For property and casualty insurance, insurable interest must exist:

1. At the inception of the policy and at the time of the loss ✓
2. Only at the time the policy is purchased, not afterwards
3. Only at the time of the loss, not when the policy is bought
4. At the time of application and at no later point

Why: For P&C insurance, insurable interest must be present both when the policy is issued and at the time of loss.

How may a Texas employer that elects coverage obtain workers' compensation insurance?

1. Only through a state-operated insurance fund administered by the Division of Workers' Compensation
2. Only by purchasing an annuity that funds future benefits
3. Only through an industry group captive that the commissioner approves for that trade association
4. Through a licensed insurance company or through self-insurance as authorized by the subtitle ✓

Why: An employer may obtain coverage through a licensed insurance company or through self-insurance as provided by the subtitle.

A party dissatisfied with the decision of the administrative law judge after a contested case hearing may appeal to the appeals panel within how many days after receiving the decision?

1. 45 days
2. 30 days
3. 10 days
4. 15 days ✓

Why: To appeal, a party must file a written request for appeal with the appeals panel not later than the 15th day after the date the ALJ's decision is received (excluding weekends and listed holidays).

Under the PAP, who qualifies as an insured under Part B — Medical Payments?

1. Any person injured in the accident, including occupants of the other vehicle and bystanders who witnessed the crash
2. The named insured and family members (in any auto or as pedestrians) and other occupants of the covered auto ✓
3. Only persons holding a valid driver's license at the time of the crash, so unlicensed passengers collect nothing
4. Only the named insured, and only while occupying the auto shown in the Declarations

Why: Part B insureds are the named insured and family members while occupying or struck as pedestrians, plus any other person occupying the covered auto.

Under Section 547.051, an unauthorized alien or foreign insurer is prohibited from making a misrepresentation to a Texas resident that violates Chapter 541 concerning specified matters. Which of the following is among those specified matters?

1. the insurer's financial condition ✓
2. the commission rate the insurer pays to producers who write business in this state
3. the geographic territory in which the insurer is authorized to transact insurance
4. the licensing status of the agent who is soliciting the prospective Texas resident's application

Why: Sec. 547.051(a) applies to an insurer's misrepresentation of its financial condition, contract terms, promised benefits/advantages, or dividends/surplus.

The authority that is not written but is reasonably necessary to carry out a producer's express authority is called:

1. Implied authority ✓
2. Apparent authority
3. Express authority
4. Statutory authority

Why: Implied authority is not written but is assumed to be granted because it is necessary to transact the business of the agency.

Under the FCRA, a consumer who is the subject of an adverse action based on a consumer report has the right to:

1. Demand a copy of the producer's license and appointment before the file is reopened
2. Receive the policy at the originally quoted rate while the dispute is pending
3. Sue the Federal Trade Commission for damages caused by the reporting agency
4. Obtain a free copy of the report and dispute inaccurate information ✓

Why: The FCRA gives consumers the right to a free copy of the report that led to an adverse action and the right to dispute inaccurate or incomplete information.

A Texas insurer that violates the prompt-payment deadlines is liable for the claim plus:

1. A flat $500 administrative fine
2. 18% per annum and reasonable attorney's fees ✓
3. Only 6% simple interest per year
4. Treble damages on the entire policy limit

Why: Violation makes the insurer liable for the claim amount plus 18% annual interest and reasonable attorney's fees.

Under 551.104(g), a NEW personal automobile insurance policy may be cancelled for underwriting reasons only if it has been in effect less than how many days?

1. 45 days
2. 30 days
3. 60 days ✓
4. 90 days

Why: 551.104(g): an insurer may cancel a personal auto policy if it has been in effect less than 60 days.

Under the BACF, if a covered auto is a total loss, the insurer generally pays:

1. The outstanding balance financed on the loan or lease as of the date of loss, less the deductible
2. The original purchase price shown on the bill of sale
3. The actual cash value or cost to repair, whichever is less, minus deductible ✓
4. The full cost of a brand-new replacement vehicle of like make and model

Why: BACF physical damage settlement is based on the lesser of ACV or repair cost, less the applicable deductible, similar to the PAP.

PAP Part B — Medical Payments covers:

1. Lost wages and the cost of household services the named insured cannot perform while recovering from the accident
2. Medical expenses of the other driver only, and only after that driver's own liability insurer has denied the claim
3. Repair costs for damage to the covered auto, plus any medical bills the insured cannot recover from the at-fault driver
4. Reasonable medical and funeral expenses for the insured and occupants of the covered auto, regardless of fault ✓

Why: Medical Payments covers reasonable and necessary medical and funeral expenses for an insured injured in an auto accident, paid without regard to fault.

How may an insured decline the uninsured/underinsured motorist coverage that an insurer must otherwise provide on a Texas auto policy?

1. By paying a lower premium
2. By an oral statement to the agent
3. Rejection is not permitted
4. By rejecting the coverage in writing ✓

Why: 1952.101(c): the required UM/UIM coverage does not apply if any named insured rejects it in writing.