AINS: Chapter 6

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? -a coverage problem may exist -the claim will be handled by an independent adjuster -the policy my not be renewed due to loss frequency -the claim is in excess of the deductible

a coverage problem may exist

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? -a third-party administrator -a field claim representative -an independent adjuster -an adjusting agent

a field claim representative

an insurance contract is designed to be all of the following in the event of a claim, EXCEPT: -a financial mechanism that can benefit policyholders and other claimants -a means to provide a profit to the insured -a means to afford peace of mind to the insured -a way to restore a claimant to pre-loss condition

a means to provide a profit to the insured

an employee of an insurance company who performs some or all of the insurer's claim-handling activities is called? -an inside claim representative -a staff claim representative -a public adjuster -a field claim adjuster

a staff claim representative

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 for juanita and her staff? -percentage of recovery from subrogation -accurate evaluation of insured's liability -average claim settlement value by claim type -accuracy and completeness of data entry

accurate evaluation of insured's liability

all of the following are factors in determining the replacement cost of real property, EXCEPT: -actual cast value of the property -construction cost per square foot -square footage of the property -type and quality of the construction

actual cash value of the property

compensatory damages represent? -out-of-pocket expenses -non-economic loss -actual harm suffered -damages to deter others from committing wrongful acts

actual harm suffered

a reservation of rights letter? -lists all of the rights that an insurer has under an insurance policy -advises the insurer that the insured has made a claim, but retains the right to withdraw the claim later -lists all of the rights that an insured has under an insurance policy -advises the insured that the insurer is investigating the claim but retains the right to deny coverage later

advises the insured that the insurer is investigating the claim but retains the right to deny coverage later

the most typical third-party bad-faith claim alleges? -breach of contract -bad-faith claims made against the first-party policyholder relating to coverage issues -failure of a claim representative to divulge details of a loss investigation that would lead to an increased claim payment to the insured -an improper failure to settle a third party's liability claim within policy limits followed by a verdict that exceeds the policy limits

an improper failure to settle a third party's liability claim within policy limits followed by a verdict that exceeds the policy limits

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? -a public adjuster -a third-party adjuster -an independent adjuster -a hurricane adjuster

an independent adjuster

one who offers claim handling services to insurance companies for a fee is? -an outside claim representative -a public adjuster -an independent adjuster -a staff claim representative

an independent adjuster

a person or entity that would suffer a financial loss if property were damaged has? -a contractual interest -a discretionary interest -a renewable interest -an insurable interest

an insurable interest

which one of the following is a common alternative dispute resolution (ADR) technique? -motion for summary judgment -pleadings -arbitration -interrogatories

arbitration

one aspect of good-faith claim handling is the fair evaluation of the claim. a fair approach to evaluating liability claims is for the claim representative to evaluate them? -as if no coverage limit existed -from the claimant's perspective -as they relate to similar claims with similar coverage and limits -by forming a claim committee for the purpose of achieving greater impartiality

as if no coverage limit existed

which one of the following allegations in insurance claims handling result from criticism of claim representatives' actions, sometimes regardless of validity? -use of improper valuation techniques allegations -unfair rating practices allegations -bad faith allegations -contract or policy manipulation allegations

bad faith allegations

a loss reserve that is assigned to an individual claim is called a? -case reserve -bulk reserve -third-party reserve -deferred reserve

case reserve

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? -damage reserve -suit reserve -claim reserve -case reserve

case reserve

which one of the following statements is true regarding elements of good-faith handling? -a claim file's medical bills, doctors' reports, and other information on each claimant should be in chronological order -once contact with the insured is made, the claim representative should acknowledge and assign the claim -claim representative should use policy provisions, such as arbitration clauses, which applicable, to resolve disputes over the settlement amount -generally, the first activity of the insurer in the claim handling process involves two functions (investigating the claim and concluding the claim)

claim representative should use policy provisions, such as arbitration clauses, which applicable, to resolve disputes over the settlement amount

all of the following are correct with respect to fair evaluation of a claim, EXCEPT: -a fair approach to evaluating liability claims is to evaluate them as if no coverage limit existed -claim representatives are prohibited from discussing the evaluation of a claim with anyone not directly connected with that claim -legislation often specifies a time limit within which evaluations of coverage and damages must be completed -information about settlements or trial results from similar cases can half claim representatives knowledgably evaluate a claim

claim representatives are prohibited from discussing the evaluation of a claim with anyone not directly connected with that claim

which one of the following statements about good faith negotiations is correct? -settlement negotiations should begin before the claim is evaluated -claim representatives can use arbitration clauses to resolve disputes over the settlement amount -claim representatives are expected to make unrealistic offers when confronted with outrageous demands -claim representatives should always wait for a demand before presenting an offer to settle

claim representatives can use arbitration clauses to resolve disputes over the settlement amount

insurers and their representatives are called upon to handle claims with utmost good faith. however, allegations of bad faith in insurance claims remain one of the most troublesome and controversial issues for insurers and claim representatives. which one of the following statements related to bad-faith in the insurance arena is true? -the single widely-accepted definition of bad faith used by insurers is from the Black's Law Dictionary -claim representatives must be familiar with the bad-faith laws in jurisdiction in which they handle claims -bad-faith allegations can only be brought by second-party or third=party claimants -third-party bad-faith claims generally arise in property insurance

claim representatives must be familiar with the bad-faith laws in jurisdiction in which they handle claims

which one of the following concerning claim status reports is true? -claim status reports are not vital to an insurer because the reports are usually read only by insurance department employees -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 -claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on a periodic basis -claim status reports are vital to an insurer because the reports provide work for the claim representatives, rounding out their written and verbal skills

claim status reports are vital to an insurer because the reports advise the insurer how the claim is progressing on a periodic basis

anyone who submits a claim to an insurer may be called a? -first-party claimant -third-party claimant -claimant -claim producer

claimant

which one of the following is an example of general damages? -hospital expenses -lost wages -prescription costs -compensation for disfigurement

compensation for disfigurement

if a claim representative's investigation determines that no coverage applies for a liability claim, the insurer will? -pay for the defense but not the settlement of the claim -settle the claim and then seek reimbursement from the insured -deny the claim -try to quickly settle the claim

deny the claim

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? -replacement cost -depreciation -stated amount -agreed amount

depreciation

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? -determining the cause of loss -verifying coverage -determining the amount of damages -determining insurable interest

determining the amount of damages

the processing of almost every claim involves which one of the following activities? -subrogating -determining the amount of damages or extent of loss -sending a reservation of rights letter to the insured -salvaging

determining the amount of damages or extent or loss

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? -encourage insurers to be equitable in all insurance transactions -encourage insurers to keep rates accurate, fair, and reasonable -discourage insurers from abusing their position of power -discourage insurers from deceiving the public in marketing and advertising practices

discourage insurers from abusing their positions of power

one way for claim managers to help maintain an insurer's underwriting profit is to? -retain high priced experts whenever possible -achieve the lowest settlements possible -establish appropriate spending policies -grant clam staff complete autonomy as to spending decisions

establish appropriate spending policies

in an insurance transaction, the insured is designated the? -first party -second party -third party -fourth party

first party

damages for disfigurement are a form of? -out-of-pocket damages -punitive damages -special damages -general damages

general damages

damages for pain and suffering are a form of? -out-of-pocket damages -punitive damages -special damages -general damages

general damages

damages for the loss of the ability to bear children are a form of? -out-of-pocket damages -punitive damages -special damages -general damages

general damages

when insurers willingly pay what they owe on all claims, a positive attitude naturally flows down through management and affects claim representatives' communication with the public. this positive attitude flow is part of? -the model unfair claims practices act -good faith claim handling -state regulatory requirements -common law compliance

good faith claim handling

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? -it gives agents the option of providing coverage for smaller claims that staff adjusters might deny -if an agent can issue a draft directly to the insured, it reduces the time an insured waits for payment -claim handling by producers is immune to regulatory scrutiny -claim payments by producers are not included in loss ratio calculations

if an agent can issue a draft directly to the insured, it reduces the time an insured waits for payment

most bad-faith claims arising out of contracts are insurance-related. all of the following explains why this is the case, EXCEPT: -insurance contracts involve the public interest and unequal bargaining power -insurers have an implied duty of good faith based on the special relationship they have with their insureds -insurers generally control claim investigation, evaluation, negotiation, and settlement -in comparison to other contracts, insurance contracts require a low standard of conduct

in comparison to other contracts, insurance contracts require a low standard of conduct

the value of an insurance contract in the event of a claim? -is purely financial -is purely remedial -includes the opportunity to profit -includes peace of mind

includes peace of mind

most insurers give some producers the authority to pay claims up to a certain amount. in this role, producers function much like an? -outside claim representative -independent adjuster -insurance appraiser -inside claim representative

inside claim representative

a goal of the claims function is to support the profit goal of the? -insured -claimant -insurer -policyholder

insurer

all of the following are true, EXCEPT: -insurers that are merely negligent in their claim handling face no consequences, regardless of jurisdiction -bad faith might fall somewhere between simple error and outright fraud -some courts look for behavior on the part of the insurer which is arbitrary, reckless, or indifferent or involved intentional disregard -courts attempt to determine the insurer's state of mind when establishing gross misconduct

insurers that are merely negligent in their claim handling face no consequences, regardless of jurisdiction

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? -was the chicken coop constructed within the standards of the local building code? -how old is the chicken coop? -how many chickens died in the fire? -is the damaged property covered by the policy?

is the damaged property covered by the policy?

incurred losses (including loss adjustment expenses) divided by earned premium is the formula for? -combined ration -loss ratio -expense ratio -underwriting profit ration

loss ratio

the best description of a third-party claim is a claim? -made by the liable party against the policyholder -made by the policyholder against the insurer -made by the insurer against the policyholder -made against the policyholder by someone to whom the policyholder may be liable

made against the policyholder by someone to whom the policyholder may be liable

the best description of a first-party claim is a claim? -made by the liable party against the policyholder -made by the policyholder against the insurer -made by the insurer against the policyholder -made by the policyholder against someone to whom the policyholder may be liable

made by the policyholder against the insurer

claim management involves many duties crucial to good-faith claim handling such as consistent supervision, thorough training, and? -expense management -organizational skills -customer service soft skills -manageable caseloads

manageable caseloads

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? -marvin's only recourse is to sue the insurer for coverage and damages to the property -marvin may follow the appraisal provision n the policy to settle the dispute over the value of the damaged property -marvin may obtain a quote from a certified antique dealer to determine the value the insurer must pay -marvin may choose to arbitrate the value of the antiques before a judge

marvin may follow the appraisal provision in the policy to settle the dispute over the value of the damaged property

which one of the following is a negotiation process is which a neutral outside party helps participants examine the issues and develop a mutually agreeable settlement? -appraisal -arbitration -mediation -mini-trial

mediation

which one of the following would have an insurable interest in real property? -bank that has provided a personal credit card to the owner of the property -former owner of the property -mortgagee that has provided a mortgage loan on the property -someone expressing interest in purchasing the property

mortgagee that has provided a mortgage loan on the property

an important aspect of acknowledging a claimant's bodily injury liability claim, upon first contact, is to try to obtain information on the? -claimant's medical history -nature extent of the injury -claimant's accident history -claimant's sources of additional income

nature and extent of injury

people who handle claims may be staff claim representatives, independent adjusters, employees of third-party administrators, or? -private claims representatives -self-insurer claim representatives -producers who sell policies to insureds -special claims representatives

producers who sell policies to insureds

which one of the following statements about claim evaluation is correct? -prompt evaluation helps to ensure compliance with time limits specified by unfair claims settlement practices acts -the limit of liability should be considered when determining the value of a liability claim -the claim representative's opinion of the value of a claim is the most important evaluation factor -evaluation of a liability claim should be made after the claimant makes his or her first settlement demand

prompt evaluation helps to ensure compliance with time limits specified y unfair claims settlement practices acts

subrogation is the insurer's right to? -recover its claim payment from the responsible party -drop a claim in exchange for an agreed amount of money -estimate the value of the damaged property -transfer coverage to a third party

recover its claim payment from the responsible party

if an insured wants to receive "new for old" in the event of a property loss, he or she would purchase? -actual cash value (ACV) -replacement cost -agreed value -market value

replacement cost

actual cash value (ACV) is? -replacement cost minus depreciation -agreed value minus depreciation -replacement cost plus depreciation -replacement cost minus agreed value

replacement cost minus depreciation

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? -fiduciary rights -salvage rights -constructive rights -catastrophe rights

salvage rights

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? -set a loss reserve -make an offer to settle the claim -retain causation experts -assign the claim to defense counsel

set a loss reserve

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 the 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? -set it at zero dollars, because the claim is expected to resolve within a week -set it at a predetermined percentage above $3,000, in case the original estimate is lower than the actual costs -set it at a predetermined percentage below $3,000, in the expectation that some money can be saved on the claim -set it at $3,000, representing an estimate of what jan expects to pay to settle the claim

set it at $3,000, representing an estimate of what jan expects to pay to settle the claim

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? -special damages -punitive damages -general damages -measurable damages

special damages

claim representatives should understand the subjective interpretation of negligence and gross misconduct. the difference between negligence and gross misconduct is determined by? -the actual intentions of the claim representative -the court's or jury's interpretation of the facts -federal law -the claim representative's exercised standard of care

the court's or jury's interpretation of the facts

all of the following explain when the use of independent adjusters might be advantageous, EXCEPT: -insurers may use independent adjusters for specific types of losses, for example, aircraft accidents, in which specialized expertise is required to settle the claim -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 -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 -the insured may retain an independent adjuster after becoming dissatisfied with the pace of negotiations with the insurer

the insured may retain an independent adjuster after becoming dissatisfied with the pace of negotiations with the insurer

in a bad-faith lawsuit, claimant jerryalleges improper conduct on the part of claim representative, twila, who works for a large insurance company. as is generally the case in such bad-faith allegations, which one of the following parties would be the defendant? -jerry -the insurance producer -twila -the insurer

the insurer

anyone who is not a party to an insurance contract who submits a claim against an insured is known as the? -claimant party -first party -second party -third party

third party

in liability claims, the claimant is referred to as the? -primary party -first party -second party -third party

third party

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? -claim managers -independent adjusters -staff claim representatives -third-party administrators

third-party administrators

the foundation of good faith claim handling is? -training -prompt and courteous service -thorough, timely, and unbiased investigations -efficiency

thorough, timely, and unbiased investigations

lou is a claim manager to 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? -satisfies the mandate of regulators -makes the company's policies more marketable -supports his company's profit goals -undermines the effectiveness of his company's advertising

undermines the effectiveness of his company's advertising

adjuster toni is evaluating damages in 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? -multiply the amount of special damages of $1,500 by three as a rule of thumb, and pay $4,500 -use past cases which are similar as a guide -consider what she would want to be paid if she were in claimant's shoes -multiply $1,500, the amount of special damages, by six, the number of weeks of physical therapy, and pay $9,000

use past cases which are similar as a guide

all of the following are correct with respect to the elements of good-faith claim handling, EXCEPT: -consistent supervision, thorough training, and manageable caseloads help ensure that claim representatives are able to handle claims in good faith -if the insured has excess insurance, the claim representative should notify the excess insurer of the claim and provide the insured with copies of all communications -when resolving a coverage question, insurers should avoid the appearance of bad faith by dealing with those lawyers hired to defend the insured -claim representatives should use policy provisions, such as arbitration clauses, when applicable to resolve disputes over the settlement amount

when resolving a coverage question, insurers should avoid the appearance of bad faith by dealing with those lawyers hired to defend the insured

in good-faith claim handling, the insurer should give consideration to the insured's interests -that are less than that given to a third party claimant's interests -that are no less than the government-mandated threshold for the government in which the litigation occurs -while remaining impartial to all aspects -that are greater than that given to the insurer's interests

while remaining impartial to all aspects

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? -$10,000 -$50,000 -$100,000 -$160,000

$10,000

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? -$60,000 -$110,000 -$150,000 -$160,000

$150,000

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? -$225 -$350 -$450 -$800

$350

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? -$60 -$180 -$420 -$600

$420