AINS Chapter 6
A person or entity that would suffer a financial loss if property were damaged has Select one: A. A renewable interest. B. An insurable interest. C. A discretionary interest. D. A contractual interest.
B
Compensatory damages represent Select one: A. Damages to deter others from committing wrongful acts. B. Actual harm suffered. C. Out-of-pocket expenses. D. Non-economic loss.
B
Most insurers give some producers the authority to pay claims up to a certain amount. In this role, producers function much like an Select one: A. Outside claim representative. B. Inside claim representative. C. Independent adjuster. D. Insurance appraiser.
B
One way for claim managers to help maintain an insurer's underwriting profit is to Select one: A. Retain high-priced experts whenever possible. B. Establish appropriate spending policies. C. Grant claim staff complete autonomy as to spending decisions. D. Achieve the lowest settlements possible.
B
Some courts hold insurers liable only if their behavior is found to be intentional or to constitute gross misconduct. To prove intentional misconduct, a complainant must show that the claim representative Select one: A. Had unequal bargaining power. B. Intended both the misconduct and the consequences. C. Was wanton and willful in acts of gross misconduct. D. Attempted to deceive the complainant.
B
A liability loss has the following damages: •Medical expenses: $10,000 •Damages for disfigurement: $50,000 •Damages for pain and suffering: $100,000 What is the amount of general damages? Select one: A. $ 60,000 B. $110,000 C. $150,000 D. $160,000
C
All of the following are factors in determining the replacement cost of real property, EXCEPT: Select one: A. Construction cost per square foot B. Type and quality of the construction C. Actual cash value of the property D. Square footage of the property
C
Anyone who submits a claim to an insurer may be called a Select one: A. First-party claimant. B. Third-party claimant. C. Claimant. D. Claim producer.
C
Bill's three-year-old stereo was completely destroyed in a covered loss. Its expected useful life was ten years. Its replacement cost is $600. Its actual cash value (ACV) is Select one: A. $ 60. B. $180. C. $420. D. $600.
C
If an insured wants to receive "new for old" in the event of a property loss, he or she would purchase Select one: A. Agreed value. B. Actual cash value (ACV). C. Replacement cost. D. Market value.
C
People who handle claims fall into a number of categories. Those who handle claims, keep claim records, and perform statistical analysis on behalf of self-insureds are called Select one: A. Staff claim representatives. B. Claim managers. C. Third-party administrators. D. Independent adjusters.
C
The best description of a third-party claim is a claim Select one: A. Made by the insurer against the policyholder. B. Made by the policyholder against the insurer. C. Made against the policyholder by someone to whom the policyholder may be liable. D. Made by the liable party against the policyholder.
C
The foundation of good faith claim handling is Select one: A. Training. B. Efficiency. C. Thorough, timely, and unbiased investigations. D. Prompt and courteous service.
C
If a claim representative's investigation determines that no coverage applies for a liability claim, the insurer will Select one: A. Try to quickly settle the claim. B. Pay for the defense but not the settlement of the claim. C. Settle the claim and then seek reimbursement from the insured. D. Deny the claim.
D
If an insured's house burns to the ground due to faulty wiring, the most difficult part of the claim handling process will probably be Select one: A. Verifying coverage. B. Determining insurable interest. C. Determining the cause of loss. D. Determining the amount of damages.
D
In liability claims, the claimant is referred to as the Select one: A. Primary party. B. First party. C. Second party. D. Third party.
D
Lou is a claim manager at a small property-casualty insurance company. Lou takes pride in the fact that because of his leadership, his company has gained a public reputation for resisting legitimate claims. Ultimately, this reputation Select one: A. Makes the company's policies more marketable. B. Satisfies the mandate of regulators. C. Supports his company's profit goals. D. Undermines the effectiveness of his company's advertising.
D
Mira raised chickens in a coop that she constructed in her backyard. Due to her careless smoking, the coop was destroyed by fire. She submitted a claim to her homeowners insurer, which assigned an adjuster. This is the adjuster's first claim involving a building detached from a dwelling. Assuming the adjuster has established Mira's insurable interest in the property, which one of the following should the adjuster be asking next? Select one: A. Was the chicken coop constructed within the standards of the local building code? B. How many chickens died in the fire? C. How old is the chicken coop? D. Is the damaged property covered by the policy?
D
The best description of a first-party claim is a claim Select one: A. Made by the insurer against the policyholder. B. Made by the liable party against the policyholder. C. Made by the policyholder against someone to whom the policyholder may be liable. D. Made by the policyholder against the insurer.
D
The most typical third-party bad-faith claim alleges Select one: A. Bad-faith claims made against the first-party policyholder relating to coverage issues. B. Failure of a claim representative to divulge details of a loss investigation that would lead to an increased claim payment to the insured. C. Breach of contract. D. An improper failure to settle a third party's liability claim within policy limits followed by a verdict that exceeds the policy limits.
D
The processing of almost every claim involves which one of the following activities? Select one: A. Subrogating B. Sending a reservation of rights letter to the insured C. Salvaging D. Determining the amount of damages or extent of loss
D
The value of an insurance contract in the event of a claim Select one: A. Is purely remedial. B. Includes the opportunity to profit. C. Is purely financial. D. Includes peace of mind.
D
Which one of the following allegations in insurance claims handling result from criticisms of claim representatives' actions, sometimes regardless of validity? Select one: A. Use of improper valuation techniques allegations B. Contract or policy manipulation allegations C. Unfair rating practices allegations D. Bad faith allegations
D
Which one of the following is an example of general damages? Select one: A. Prescription costs B. Hospital expenses C. Lost wages D. Compensation for disfigurement
D
Which one of the following statements about good faith negotiations is correct? Select one: A. Claim representatives are expected to make unrealistic offers when confronted with outrageous demands. B. Settlement negotiations should begin before the claim is evaluated. C. Claim representatives should always wait for a demand before presenting an offer to settle. D. Claim representatives can use arbitration clauses to resolve disputes over the settlement amount.
D
Which one of the following would have an insurable interest in real property? Select one: A. Bank that has provided a personal credit card to the owner of the property B. Former owner of the property C. Someone expressing interest in purchasing the property D. Mortgagee that has provided a mortgage loan on the property
D
A goal of the claims function is to support the profit goal of the Select one: A. Insurer. B. Insured. C. Claimant. D. Policyholder.
A
A liability loss has the following damages: Medical expenses: $ 10,000 Damages for disfigurement: $ 50,000 Damages for pain and suffering:$100,000 What is the amount of special damages? Select one: A. $ 10,000 B. $ 50,000 C. $100,000 D. $160,000
A
A loss reserve that is assigned to an individual claim is called a Select one: A. Case reserve. B. Bulk reserve. C. Deferred reserve. D. Third-party reserve.
A
Damages for the loss of the ability to bear children are a form of Select one: A. General damages. B. Special damages. C. Out-of-pocket damages. D. Punitive damages.
A
One who offers claim handling services to insurance companies for a fee is Select one: A. An independent adjuster. B. A public adjuster. C. A staff claim representative. D. An outside claim representative.
A
A person or entity that would suffer a financial loss if property were damaged has Select one: A. An insurable interest. B. A renewable interest. C. A contractual interest. D. A discretionary interest.
A
A reservation of rights letter Select one: A. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later. B. Advises the insurer that the insured has made a claim, but retains the right to withdraw the claim later. C. Lists all of the rights that an insured has under an insurance policy. D. Lists all of the rights that an insurer has under an insurance policy.
A
A reservation of rights letter Select one: A. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later. B. Lists all of the rights that an insured has under an insurance policy. C. Lists all of the rights that an insurer has under an insurance policy. D. Advises the insurer that the insured has made a claim, but retains the right to withdraw the claim later.
A
An employee of an insurance company who performs some or all of the insurer's claim-handling activities is called Select one: A. A staff claim representative. B. A public adjuster. C. A field claim adjuster. D. An inside claim representative.
A
An important aspect of acknowledging a claimant's bodily injury liability claim, upon first contact, is to try to obtain information on the Select one: A. Nature and extent of the injury. B. Claimant's sources of additional income. C. Claimant's accident history. D. Claimant's medical history.
A
Damages for pain and suffering are a form of Select one: A. General damages. B. Punitive damages. C. Out-of-pocket damages. D. Special damages.
A
If a claim is complex or if settlement negotiations are not progressing with the insurer, the insured may hire Select one: A. A public adjuster. B. A public defender. C. An independent adjuster. D. A senior claim representative.
A
If an insured submits a claim for a seven-year-old refrigerator that was damaged due to lightning, the adjuster will probably factor in an allowance for wear and tear. This is called Select one: A. Depreciation. B. Agreed amount. C. Replacement cost. D. Stated amount.
A
In an insurance transaction, the insured is designated the Select one: A. First party. B. Second party. C. Third party. D. Fourth party.
A
In the claim evaluation process, specific, out-of-pocket expenses are called Select one: A. Special damages. B. General damages. C. Negotiated damages. D. Compensatory damages.
A
One way for claim managers to help maintain an insurer's underwriting profit is to Select one: A. Establish appropriate spending policies. B. Achieve the lowest settlements possible. C. Retain high-priced experts whenever possible. D. Grant claim staff complete autonomy as to spending decisions.
A
The insurer's rights to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss are called Select one: A. Salvage rights. B. Fiduciary rights. C. Constructive rights. D. Catastrophe rights.
A
The processing of almost every claim involves which one of the following activities? Select one: A. Determining the amount of damages or extent of loss B. Salvaging C. Subrogating D. Sending a reservation of rights letter to the insured
A
Which one of the following is a common alternative dispute resolution (ADR) technique. Select one: A. Arbitration B. Motion for summary judgment C. Interrogatories D. Pleadings
A
Which one of the following is a negotiation process in which a neutral outside party helps participants examine the issues and develop a mutually agreeable settlement? Select one: A. Mediation B. Appraisal C. Arbitration D. Mini-trial
A
Which one of the following is a negotiation process in which a neutral outside party helps participants examine the issues and develop a mutually agreeable settlement? Select one: A. Mediation B. Mini-trial C. Appraisal D. Arbitration
A
Which one of the following would have an insurable interest in real property? Select one: A. Mortgagee that has provided a mortgage loan on the property B. Former owner of the property C. Someone expressing interest in purchasing the property D. Bank that has provided a personal credit card to the owner of the property
A
An insurance contract is designed to be all of the following in the event of a claim, EXCEPT: Select one: A. A way to restore a claimant to pre-loss condition B. A means to provide a profit to the insured C. A means to afford peace of mind to the insured D. A financial mechanism that can benefit policyholders and other claimants
B
Anyone who is not a party to an insurance contract who submits a claim against an insured is known as the Select one: A. Claimant party. B. Third party. C. Second party. D. First party.
B
At year-end, SBC Insurance Company posted the following results: •Incurred losses - $18 million •Loss adjustment expenses - $2 million •Underwriting expenses - $5 million •Written premiums - $26 million •Earned premiums - $24 million Based upon the company's year-end results, which one of the following represents SBC's loss ratio? Select one: A. 75% B. 83% C. 96% D. 104%
B
Because insurers control how claims are resolved, courts reason that insurers should be responsible for the outcome of their claim handling if they have acted in bad faith. Therefore, courts hold insurers to a higher standard of conduct to Select one: A. Encourage insurers to be equitable in all insurance transactions. B. Discourage insurers from abusing their position of power. C. Discourage insurers from deceiving the public in marketing and advertising practices. D. Encourage insurers to keep rates accurate, fair, and reasonable.
B
Claim representative Beth adjusted a property damage claim in which the insured's loss totaled $2,500. She knew that the insured had suffered some financial hardships and was eager to receive some cash as soon as possible. Optimistic that the insured could be persuaded to take less than the full value of the claim if a draft was delivered right away, she offered $1,500 to settle the claim. The insured surprised Beth by filing a small claims suit against the insurer in which he recovered the full $2,500 value of the claim. This is not the first time this tactic has backfired on Beth. Beth may be in violation of which one of the following unfair claim practices regulations? Select one: A. Failing to respond to demands to settle under an insurance policy B. Compelling an insured to sue to recover amounts due under an insurance policy C. Failing to reasonably investigate claims for damages under insurance policies D. Misrepresenting insurance policy provisions
B
Damages for disfigurement are a form of Select one: A. Out-of-pocket damages. B. General damages. C. Special damages. D. Punitive damages.
B
In a liability claim, damages awarded for pain and suffering incurred by the claimant are referred to as Select one: A. Special damages. B. General damages. C. Secondary damages. D. Punitive damages.
B
In property insurance claims, there is sometimes a question of whether coverage exists or not. In these situations the insurer will send a reservation of rights letter. The purpose of this letter is to advise the insured that Select one: A. The claim is in excess of the deductible. B. A coverage problem may exist. C. The policy may not be renewed due to loss frequency. D. The claim will be handled by an independent adjuster.
B
In the claim evaluation process, specific, out-of-pocket expenses are called Select one: A. General damages. B. Special damages. C. Negotiated damages. D. Compensatory damages.
B
Jerry is an experienced claim adjuster who handles claims for Jackson Insurance Company during hurricane season when Jackson's staff adjusters need assistance. Jerry is Select one: A. A public adjuster. B. An independent adjuster. C. A third-party adjuster. D. A hurricane adjuster.
B
John had an unendorsed homeowners policy. John's two-year-old bicycle was stolen. The bicycle's purchase price was $700, its current replacement cost is $800, and depreciation was estimated at $450. What was the bicycle's actual cash value? Select one: A. $225 B. $350 C. $450 D. $800
B
Loss reserves are funds held by an insurer to pay claims for losses that have occurred but have not yet been settled. Such funds assigned to an individual claim create a Select one: A. Damage reserve. B. Case reserve. C. Claim reserve. D. Suit reserve.
B
Marvin suffered a fire loss at his residence. The claim representative valued several antiques at a very low price. Marvin refuses to settle his claim with his insurer. Which one of the following is Marvin's recourse? Select one: A. Marvin may choose to arbitrate the value of the antiques before a judge. B. Marvin may follow the appraisal provision in the policy to settle the dispute over the value of the damaged property. C. Marvin's only recourse is to sue the insurer for coverage and damages to the property. D. Marvin may obtain a quote from a certified antique dealer to determine the value the insurer must pay.
B
One who offers claim handling services to insurance companies for a fee is Select one: A. A public adjuster. B. An independent adjuster. C. An outside claim representative. D. A staff claim representative. 1/1
B
The best description of a first-party claim is a claim Select one: A. Made by the policyholder against someone to whom the policyholder may be liable. B. Made by the policyholder against the insurer. C. Made by the liable party against the policyholder. D. Made by the insurer against the policyholder.
B
Which one of the following concerning claim status reports is true? Select one: A. Claim status reports are not vital to an insurer because the reports are usually read only by insurance department employees. B. Claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on a periodic basis. C. Claim status reports are vital to an insurer because the reports provide work for the claim representatives, rounding out their written and verbal skills. D. Claim status reports are not vital to an insurer because the reports are used only as a method of illustrating work that needs to be done by the claims adjuster.
B
Worthley Insurance Company uses claim audits to ensure compliance with best practices. These audits evaluate both quantitative and qualitative factors. Which one of the following factors that Worthley evaluates is a qualitative factor? Select one: A. Accuracy of data entry B. Accurate evaluation of insured's liability C. Average claim settlement value by claim type D. Timeliness of reserving
B
Adjuster Toni is evaluating damages in a bodily injury liability claim where she has determined that the insured is completely at fault for the accident. The claimant suffered a sprain and strain injury to his neck. His special damages total $1,500. He was out of work for a week, was disabled and prevented from performing some regular activities for a month, and attended physical therapy for six weeks. In assessing general damages, Toni should Select one: A. Multiply the amount of special damages of $1,500 by three as a rule of thumb, and pay $4,500. B. Multiply $1,500, the amount of special damages, by six, the number of weeks of physical therapy, and pay $9,000. C. Use past cases which are similar as a guide. D. Consider what she would want to be paid if she were in claimant's shoes.
C
All of the following correctly describe reasons for the use of independent adjusters, EXCEPT: Select one: A. Insurers may use independent adjusters when special skills and expertise are needed, for example to investigate aircraft accidents. B. In some areas it is not economically feasible to set up claim offices, and insurers may contract with independent adjusters to handle claims in these remote areas. C. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily. D. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the large number of claims, and may use independent adjusters.
C
In good-faith claim handling, the insurer should give consideration to the insured's interests Select one: A. That are greater than that given to the insurer's interests. B. That are no less than the government-mandated threshold for the government in which the litigation occurs. C. While remaining impartial to all aspects. D. That are less than that given to a third party claimant's interests.
C
Incurred losses (including loss adjustment expenses) divided by earned premium is the formula for Select one: A. Combined ratio. B. Underwriting profit ratio. C. Loss ratio. D. Expense ratio.
C
Juanita is the senior claim officer for Worthy Insurance Company, which uses the claim audit as a performance measure for its claim operations. Claim audits usually evaluate both quantitative and qualitative factors. Which one of the following factors is qualitative for Juanita and her staff? Select one: A. Accuracy and completeness of data entry B. Percentage of recovery from subrogation C. Accurate evaluation of insured's liability D. Average claim settlement value by claim type
C
Under certain circumstances, an insurer may authorize the adjustment of claims by producers. One of the benefits of providing producers with draft authority is that Select one: A. It gives agents the option of providing coverage for smaller claims that staff adjusters might deny. B. Claim handling by producers is immune to regulatory scrutiny. C. If an agent can issue a draft directly to the insured, it reduces the time an insured waits for payment. D. Claim payments by producers are not included in loss ratio calculations.
C
Which one of the following statements about claim evaluation is correct? Select one: A. The claim representative's opinion of the value of a claim is the most important evaluation factor. B. The limit of liability should be considered when determining the value of a liability claim. C. Prompt evaluation helps to ensure compliance with time limits specified by unfair claims settlement practices acts. D. Evaluation of a liability claim should be made after the claimant makes his or her first settlement demand.
C
A liability adjuster must be concerned with specific, out-of-pocket expenses when evaluating the damages being claimed. The technical term for such expenses is Select one: A. General damages. B. Punitive damages. C. Measurable damages. D. Special damages.
D
Actual cash value (ACV) is Select one: A. Replacement cost minus agreed value. B. Replacement cost plus depreciation. C. Agreed value minus depreciation. D. Replacement cost minus depreciation.
D
All of the following explain when the use of independent adjusters might be advantageous, EXCEPT: Select one: A. In some areas it is not economically feasible to set up remote claim offices and in these areas insurers may depend on independent adjusters to handle their insureds' losses. B. Insurers may use independent adjusters for specific types of losses, for example, aircraft accidents, in which specialized expertise is required to settle the claim. C. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the claim volume and may temporarily depend upon independent adjusters to handle the excess. D. The insured may retain an independent adjuster after becoming dissatisfied with the pace of negotiations with the insurer.
D
All of the following explain when the use of independent adjusters might be advantageous, EXCEPT: Select one: A. In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the claim volume and may temporarily depend upon independent adjusters to handle the excess. B. Insurers may use independent adjusters for specific types of losses, for example, aircraft accidents, in which specialized expertise is required to settle the claim. C. In some areas it is not economically feasible to set up remote claim offices and in these areas insurers may depend on independent adjusters to handle their insureds' losses. D. The insured may retain an independent adjuster after becoming dissatisfied with the pace of negotiations with the insurer.
D
An insurance company employee who investigates the scene of a loss; meets with insureds, claimants, lawyers, and others; and inspects damage is most accurately called Select one: A. A third-party administrator. B. An adjusting agent. C. An independent adjuster. D. A field claim representative.
D
Brad is a claim representative and has received a claim from an insured. The insured backed his car into a post and slightly damaged the bumper. Brad does a quick estimate and sees that the damage probably does not even exceed the insured's deductible, so he puts the claim aside to work on a larger more complicated claim. After four weeks of hearing nothing, the insured eventually gets upset and contacts Brad's manager and the state insurance department. Which one of the following best addresses the question of whether Brad's actions likely constitute a violation of the states unfair claims practices act? Select one: A. No, because Brad has not officially declined the claim or told the insured that the amount of the claim is less than the insured's deductible and therefore is not subject to these laws. B. Yes, because most of these laws require that insurers contact the insured about a claim within one week of first receiving the claim report. C. Yes, because most of these laws prohibit claim representatives from making their own estimates as to the damage incurred and require that a licensed estimator make the estimate. D. Yes, because most of these laws generally prohibit failure to acknowledge and promptly respond to communications about a claim.
D
Claim representative Jan is reviewing an auto liability claim concerning a two-car collision that has just been assigned to her. She notes that the insured was clearly 100 percent at fault for the accident. No one was injured. The estimate for the costs of the repair to claimant's car and a substitute auto for the week it will take to perform the repairs is $3,000. Which one of the following best describes the approach Jan should take in setting the case reserve? Select one: A. Set it at zero dollars, because the claim is expected to resolve within a week. B. Set it at a predetermined percentage above $3,000, in case the original estimate is lower than the actual costs. C. Set it at a predetermined percentage below $3,000, in the expectation that some money can be saved on the claim. D. Set it at $3,000, representing an estimate of what Jan expects to pay to settle the claim.
D
People who handle claims may be staff claim representatives, independent adjusters, employees of third-party administrators, or Select one: A. Special claims representatives. B. Private claims representatives. C. Self-insurer claim representatives. D. Producers who sell policies to insureds.
D
Subrogation is the insurer's right to Select one: A. Transfer coverage to a third party. B. Estimate the value of the damaged property. C. Drop a claim in exchange for an agreed amount of money. D. Recover its claim payment from the responsible party.
D
Work on a new claim begins for the claim representative upon receipt of the notice of loss. The representative obtains initial information and verifies coverage. Next, the representative should Select one: A. Make an offer to settle the claim. B. Assign the claim to defense counsel. C. Retain causation experts. D. Set a loss reserve.
D
