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LA Claims Adjuster practice questions

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Question 1Insurance Principles and Concepts

The principle of indemnity is best described as the idea that insurance should:

  1. restore the insured to the same financial position as before the loss Correct answer.
  2. allow the insured to recover more than the value of the loss
  3. shift the insured's legal liability for harm to others onto the insurer
  4. guarantee that damaged property is replaced with new property

Explanation

Indemnity means the insured is restored to roughly the financial position held before the loss, no better and no worse. It is the reason policy limits, deductibles, and actual cash value valuations exist, and it bars profiting from a loss.

Question 2Insurance Principles and Concepts

For purposes of property insurance, insurable interest is best defined as:

  1. a moral or family duty to protect the property from harm
  2. a financial stake that would be harmed by loss of the property Correct answer.
  3. the right to cancel the policy at any time during the policy period without penalty
  4. an agreement to pay premiums on behalf of another person

Explanation

Insurable interest is an economic stake in the subject matter, so that its damage or destruction causes the insured actual financial harm. Requiring it keeps insurance from becoming a wager and supports the principle of indemnity.

Question 3Insurance Principles and Concepts

A statement of fact made by an applicant on an insurance application that the applicant believes to be true to the best of his or her knowledge is called a:

  1. concealment
  2. representation Correct answer.
  3. warranty
  4. condition

Explanation

A representation is a good-faith statement of fact on the application, and coverage may be affected only if it is false and material. A warranty, by contrast, is a promise or statement the insured guarantees to be literally true.

Question 4Insurance Principles and Concepts

After paying a covered loss caused by a negligent third party, an insurer's right to pursue that third party in the insured's name is known as:

  1. salvage
  2. contribution
  3. subrogation Correct answer.
  4. indemnification

Explanation

Subrogation lets the insurer stand in the insured's shoes and recover from the party responsible for the loss after paying the claim. It reinforces indemnity by preventing a double recovery and places the cost on the party at fault.

Question 5Insurance Principles and Concepts

A deductible in a property policy primarily serves to:

  1. place a share of each loss on the insured Correct answer.
  2. eliminate the insurer's right to recover from a third party
  3. increase the limit of liability available for larger losses
  4. transfer the entire amount of every loss to the insurer

Explanation

A deductible is the portion of each loss the insured absorbs before the insurer pays, which shares risk and avoids the expense of handling small claims. It also encourages the insured to prevent losses.

Question 6Insurance Principles and Concepts

The principle that allows insurers to predict losses more accurately as the number of similar, independent exposure units increases is called the:

  1. principle of indemnity
  2. doctrine of proximate cause
  3. rule of contribution
  4. law of large numbers Correct answer.

Explanation

The law of large numbers holds that as similar independent exposure units increase, actual loss experience converges on the predicted experience. That predictability is what makes pooling and credible rate making possible.

Question 7Insurance Principles and Concepts

In property insurance, the proximate cause of a loss is:

  1. the dominant, effective cause that sets the loss in motion Correct answer.
  2. the final event in the chain of events leading up to the loss
  3. the negligence of the insured that contributed to the loss
  4. the cause that produced the largest amount of damage

Explanation

Proximate cause is the dominant and effective cause that initiates the chain of events producing the loss without a break. It is used to determine which peril actually caused the damage when several forces combined.

Question 8Insurance Principles and Concepts

A claim submitted by an insured to his or her own insurer for damage to the insured's own property is:

  1. a first-party claim Correct answer.
  2. a contribution claim
  3. a third-party liability claim
  4. a subrogation claim

Explanation

A first-party claim is brought by the insured against his or her own insurer for a benefit owed directly, such as property damage. Third-party claims arise when a claimant seeks damages from the insured for harm the insured allegedly caused.

Question 9Insurance Principles and Concepts

Two property policies with identical terms cover the same loss, and each contains an 'other insurance' condition. The insurers will typically allocate the loss under the principle of:

  1. subrogation
  2. salvage
  3. coinsurance
  4. contribution Correct answer.

Explanation

Contribution is the principle under which insurers with concurrent coverage of the same loss share it, often in proportion to their applicable limits. The 'other insurance' condition in each policy specifies the method used.

Question 10Insurance Principles and Concepts

A homeowner stops locking the doors because a theft policy will pay for any loss. This behavior is an example of:

  1. adverse selection
  2. moral hazard
  3. physical hazard
  4. morale hazard Correct answer.

Explanation

Morale hazard is carelessness or indifference toward loss that arises because insurance is in place. Moral hazard, in contrast, involves dishonesty such as staging or inflating a loss.

Question 11Insurance Principles and Concepts

Adverse selection occurs when:

  1. an insurer stops writing new business in a state because of unfavorable regulation
  2. applicants most likely to suffer a loss are the most likely to buy coverage Correct answer.
  3. insurers deliberately write coverage only for applicants in the lowest risk classes
  4. a policyholder deliberately causes a loss in order to collect benefits

Explanation

Adverse selection is the tendency of those with the highest probability of loss to be the most eager to purchase insurance, which worsens the insurer's expected experience. Underwriting, rating classifications, and exclusions are used to control it.

Question 12Insurance Principles and Concepts

A commercial property policy contains an 80% coinsurance clause. This clause requires the insured to:

  1. pay 20% of every covered loss out of pocket
  2. share premium costs with the insurer in the same proportion as the loss
  3. insure each loss for at least 80% of its repair cost
  4. carry insurance at least equal to 80% of the property's value Correct answer.

Explanation

A coinsurance clause requires limits at least equal to a stated percentage of the property's value at the time of loss. If the insured carries less, recovery is reduced in proportion to the shortfall.

Question 13Insurance Principles and Concepts

Actual cash value in a property policy is generally calculated as:

  1. replacement cost minus depreciation Correct answer.
  2. market value plus the policy deductible
  3. replacement cost plus depreciation
  4. the agreed value stated on the declarations page

Explanation

Actual cash value generally equals replacement cost less depreciation, reflecting the value of the property in its pre-loss condition. Older property therefore produces a smaller settlement than a replacement cost policy would.

Question 14Insurance Principles and Concepts

The insuring agreement in an insurance policy does which of the following?

  1. lists the duties the insured must perform after a loss occurs, such as notice
  2. identifies the perils and property that the policy does not cover
  3. contains the insurer's promise to pay and describes the coverages provided Correct answer.
  4. sets out the policy period and the premium due dates

Explanation

The insuring agreement is the core promise of the contract: it states what the insurer agrees to pay for and under what coverages. The other sections define, support, or limit that promise.

Question 15Insurance Principles and Concepts

The primary purpose of policy exclusions is to:

  1. expand coverage to losses the insuring agreement would otherwise exclude
  2. reduce the premium by lowering the limits of liability
  3. remove exposures that are uninsurable or better handled by another policy Correct answer.
  4. satisfy state filing requirements for standardized policy forms

Explanation

Exclusions carve out losses that are uninsurable, catastrophic, or more appropriately covered elsewhere, such as intentional acts or flood. They keep the policy focused on the intended exposure and help control premium.

Question 16Insurance Principles and Concepts

Which part of an insurance policy sets out the insured's duties after a loss, such as giving prompt notice and protecting property from further damage?

  1. exclusions
  2. declarations
  3. conditions Correct answer.
  4. insuring agreement

Explanation

Conditions are the provisions that govern how the contract operates, including the insured's post-loss duties and the insurer's rights. Failing to satisfy a condition may prejudice the insurer and affect the claim.

Question 17Insurance Principles and Concepts

Reinsurance is best described as:

  1. an agreement between two insureds to share their own risks
  2. insurance an insurer buys to protect against large or numerous losses Correct answer.
  3. a policy sold directly to consumers without the use of an agent
  4. coverage purchased by a business for the benefit of its employees and their families

Explanation

Reinsurance is insurance for insurers: the primary insurer cedes part of its risk and premium to a reinsurer. It protects the insurer's surplus against a single catastrophic loss or a accumulation of losses from one event.

Question 18Insurance Principles and Concepts

A large manufacturer sets aside funds to pay its own predictable property losses instead of buying a commercial policy. This is an example of:

  1. risk retention Correct answer.
  2. risk transfer
  3. risk avoidance
  4. risk elimination through subrogation

Explanation

Risk retention means the organization keeps the financial consequence of loss rather than transferring it to an insurer. Funding a reserve for expected losses is deliberate retention, often paired with excess insurance for severe losses.

Question 19Insurance Principles and Concepts

An adjuster tells an insured that late notice will not affect the claim, and the insured relies on that statement to his detriment. The insurer may be prevented from denying coverage under the doctrine of:

  1. subrogation
  2. estoppel Correct answer.
  3. contribution
  4. indemnity

Explanation

Estoppel prevents a party from asserting a right after its conduct or statements led another party to rely on them to that party's detriment. It is closely related to waiver, which is the voluntary relinquishment of a known right.

Question 20Insurance Principles and Concepts

Which policy section identifies the named insured, the policy period, the limits of liability, and the description of the insured property?

  1. conditions
  2. declarations Correct answer.
  3. insuring agreement
  4. exclusions

Explanation

The declarations page individualizes the policy by recording the named insured, dates, limits, premiums, and the property or operations insured. It is the quickest reference for the basic facts of the contract.

Question 21Insurance Principles and Concepts

A building valued at $500,000 is insured for $300,000 under a policy containing an 80% coinsurance clause. A covered loss of $100,000 occurs and no deductible applies. How much will the insurer pay?

  1. $100,000
  2. $75,000 Correct answer.
  3. $60,000
  4. $80,000

Explanation

The coinsurance requirement is 80% of $500,000, or $400,000. Because only $300,000 was carried, the insurer pays the ratio of carried to required insurance (300,000 ÷ 400,000 = 0.75) applied to the $100,000 loss, or $75,000.

Question 22Insurance Principles and Concepts

Wind tears off a roof, and rain then enters and damages interior contents under a policy that excludes water damage. Under the efficient proximate cause rule, coverage for the interior damage depends on:

  1. the coinsurance percentage that applies to the building
  2. whether water damage is listed anywhere in the exclusions
  3. whether wind, the dominant cause, is a covered peril Correct answer.
  4. the order in which the wind damage and the water damage occurred

Explanation

When two perils combine to produce a loss, the efficient proximate cause rule attributes the loss to the dominant peril that set the other in motion. Coverage therefore turns on whether that dominant peril is covered.

Question 23Insurance Principles and Concepts

A blanket insurance form differs from a specific form in that blanket coverage:

  1. is restricted to a single scheduled item at each location
  2. applies one limit to multiple items or locations Correct answer.
  3. applies only to one described location or item of property
  4. excludes all scheduled property from the limit of liability

Explanation

Blanket coverage applies a single limit across two or more items or locations, allowing the limit to respond where the loss occurs. Specific coverage assigns a separate limit to each described item or location.

Question 24Insurance Principles and Concepts

An insurer's duty to defend a liability claim is generally:

  1. identical in scope to the insurer's duty to indemnify its insured for damages
  2. owed only when the insured has admitted liability in a signed statement
  3. triggered only after a final judgment is entered against the insured
  4. broader than the duty to indemnify and triggered by potentially covered suits Correct answer.

Explanation

The duty to defend is broader than the duty to indemnify: a defense is owed whenever the allegations could fall within coverage, even if the suit proves groundless or uncovered. The duty to indemnify arises only when a covered judgment or settlement exists.

Question 25Insurance Principles and Concepts

An insured suffers a $50,000 loss, receives $40,000 from the insurer, and later collects $50,000 from the negligent third party. Under subrogation principles, the insurer is generally entitled to:

  1. the $40,000 it paid, with the insured keeping the remainder Correct answer.
  2. half of the recovery regardless of the amount it actually paid
  3. nothing further, because the insured has already been indemnified once
  4. the entire $50,000, including the insured's deductible

Explanation

Subrogation allows the insurer to recover only what it actually paid, and the insured keeps the balance until fully made whole for the uninsured portion. Neither party may recover twice, and the insurer may not profit beyond its payment.

Question 26Insurance Principles and Concepts

Insurance is best described as:

  1. a savings account used only to repay loans
  2. a government guarantee that losses will never occur
  3. a method of eliminating every risk an individual faces completely
  4. a transfer of risk through pooling many similar exposures Correct answer.

Explanation

Insurance transfers the financial consequence of certain risks from an individual to an insurer, which pools many similar exposure units. Pooling lets the insurer predict aggregate losses more reliably than an individual can predict a single loss.

Question 27Insurance Principles and Concepts

Which of the following is an example of a pure risk that is generally insurable?

  1. the chance of fire damage to a warehouse Correct answer.
  2. the possibility of gain from a stock purchase
  3. the chance of profit from a business expansion
  4. the opportunity to win a contract bid

Explanation

Pure risk involves only the possibility of loss or no loss, with no chance of gain. Fire damage to a warehouse is a classic pure risk, while business and investment gains are speculative risks.

Question 28Insurance Principles and Concepts

The insurable interest requirement in property insurance exists mainly to:

  1. guarantee that the policy limit equals the property's market value
  2. limit recovery to the insured's actual financial stake Correct answer.
  3. allow a person to insure property in which no financial stake exists
  4. require every policy to carry at least 80 percent of the property's value

Explanation

Insurable interest ensures that the insured has a financial stake in the property and suffers actual loss if it is damaged. This supports the indemnity principle and helps prevent wagering on property the insured does not own or control.

Question 29Insurance Principles and Concepts

The principle of indemnity in property insurance means the insured should:

  1. recover the original purchase price plus consequential damages
  2. be paid an amount that exceeds the value of the damaged property
  3. receive the full policy limit for every covered loss
  4. be restored to the same financial position as before the loss Correct answer.

Explanation

Indemnity means the insured is restored to approximately the pre-loss financial position, no better and no worse. It prevents the insured from profiting from a loss, which is why property policies often use actual cash value or replacement cost with limits.

Question 30Insurance Principles and Concepts

Which of the following is a physical hazard?

  1. an icy sidewalk that increases the chance of a fall Correct answer.
  2. a chance of gain from a business decision
  3. a dishonest insured who exaggerates the value of a claim
  4. indifference to loss because insurance will pay

Explanation

A physical hazard is a tangible condition that increases the chance or severity of a loss, such as an icy sidewalk. Moral hazard involves dishonesty, while morale hazard involves carelessness because insurance exists.

Question 31Insurance Principles and Concepts

Because an insurance policy is a contract of adhesion, an ambiguity in the policy is generally:

  1. interpreted in favor of the insured only if the premium was paid
  2. ignored in favor of the insurer's customary practice
  3. resolved by the state insurance department
  4. construed against the party that drafted the policy Correct answer.

Explanation

A contract of adhesion is drafted by one party and presented to the other on a take-it-or-leave-it basis. Courts generally resolve ambiguity against the drafter, which is usually the insurer, because the insured had little ability to negotiate the wording.

Question 32Insurance Principles and Concepts

An insurance policy is an aleatory contract because:

  1. the insurer must pay every claim submitted
  2. the insured may cancel at any time without consequence
  3. the amounts exchanged may be unequal and depend on chance Correct answer.
  4. both parties exchange promises of equal value at inception

Explanation

An aleatory contract depends on an uncertain event, so the values exchanged may be unequal. A small premium may result in a large claim payment, or no payment may occur if no covered loss happens.

Question 33Insurance Principles and Concepts

An insurance policy is a unilateral contract because:

  1. the insured can enforce coverage without paying premium
  2. the policy must be signed by both parties
  3. both parties must perform at exactly the same time
  4. only the insurer promises to pay covered claims Correct answer.

Explanation

In a unilateral contract, only one party makes a legally enforceable promise. The insurer promises to pay covered claims, while the insured does not promise to incur losses but must satisfy policy conditions to recover.

Question 34Insurance Principles and Concepts

A property insurance policy is a personal contract, which means:

  1. the policy covers any person who occupies the property
  2. the insurer may cancel only with the insured's permission
  3. coverage follows the property automatically when the property is sold
  4. coverage depends on the insured's interest and consent to assign Correct answer.

Explanation

Property insurance is personal because it insures the insured's financial interest in the property, not the property itself. Assignment generally requires the insurer's consent so the insurer can evaluate the new insured's risk.

Question 35Insurance Principles and Concepts

After paying a covered loss caused by a third party, an insurer's subrogation right allows it to:

  1. deny coverage because another party was at fault
  2. collect the deductible from the insured
  3. seek reimbursement from the responsible third party Correct answer.
  4. increase the insured's premium retroactively

Explanation

Subrogation lets the insurer stand in the insured's shoes and pursue the responsible third party after paying the claim. It helps prevent double recovery and places the ultimate cost on the party that caused the loss.

Question 36Insurance Principles and Concepts

Under an occurrence liability policy, coverage is triggered by:

  1. the date the insured receives a summons
  2. the date the policy is renewed
  3. the date the injury or damage occurs Correct answer.
  4. the date the claim is first reported to the insurer

Explanation

An occurrence policy is triggered by the date of the injury or damage, regardless of when the claim is reported. A claims-made policy, by contrast, is triggered by the date the claim is made or reported.

Question 37Insurance Principles and Concepts

In a pure comparative fault jurisdiction, an injured claimant who is partially at fault:

  1. has recovery reduced by his or her percentage of fault Correct answer.
  2. recovers the full amount from any defendant
  3. recovers nothing if any fault is attributed to him or her
  4. must prove the defendant acted intentionally

Explanation

Pure comparative fault reduces the claimant's recovery in proportion to the claimant's own share of fault but does not bar recovery. A claimant who is 20 percent at fault can generally recover 80 percent of the damages.

Question 38Insurance Principles and Concepts

To establish negligence in a liability claim, the claimant generally must prove:

  1. intent, malice, and punitive damages
  2. a written contract, a breach, and economic loss
  3. strict liability, proximate cause, and a warranty
  4. duty, breach of duty, causation, and damages Correct answer.

Explanation

Negligence requires a duty owed by the defendant to the claimant, a breach of that duty, causation, and actual damages. If any element is missing, the negligence claim generally fails.

Question 39Insurance Principles and Concepts

Vicarious liability makes an employer responsible for:

  1. an employee's negligent acts within the scope of employment Correct answer.
  2. only acts the employer personally directed
  3. all acts of independent contractors regardless of control
  4. the personal debts of employees

Explanation

Vicarious liability holds one party responsible for the acts of another based on their relationship. An employer is generally liable for an employee's negligent acts committed within the scope of employment.

Question 40Insurance Principles and Concepts

Strict liability differs from negligence because strict liability:

  1. does not require proof of the defendant's lack of care Correct answer.
  2. requires proof of intent to harm
  3. bars recovery for any injury
  4. applies only to written contracts

Explanation

Strict liability imposes responsibility without proof that the defendant failed to exercise reasonable care. It is often applied to abnormally dangerous activities and certain product defects.

Question 41Insurance Principles and Concepts

Compensatory damages in a liability claim are intended to:

  1. set an example for others in the community
  2. reimburse the claimant for actual losses Correct answer.
  3. punish the defendant for egregious conduct
  4. cover the defendant's attorney fees

Explanation

Compensatory damages reimburse the claimant for actual losses such as medical expenses, lost wages, and pain and suffering. Punitive damages, by contrast, are intended to punish and deter egregious conduct.

Question 42Insurance Principles and Concepts

In insurance, a warranty is:

  1. a promise by the insurer to renew the policy
  2. an oral statement that is always irrelevant to coverage
  3. a policy condition the insured must satisfy Correct answer.
  4. a guarantee that no loss will occur

Explanation

An insurance warranty is a policy condition or promise by the insured that must be satisfied. A material breach of a warranty can affect coverage, depending on the policy language and applicable law.

Question 43Insurance Principles and Concepts

Concealment in an insurance application occurs when the applicant:

  1. refuses to buy optional coverage
  2. intentionally withholds a material fact Correct answer.
  3. asks the agent to explain a confusing question
  4. accidentally misstates a minor detail on the application

Explanation

Concealment is the intentional failure to disclose a material fact that would affect the insurer's decision to issue coverage or set the premium. An innocent mistake is generally treated as a misrepresentation rather than concealment.

Question 44Insurance Principles and Concepts

An insurer's waiver of a policy condition occurs when the insurer:

  1. requests additional information from the insured
  2. denies all coverage under the policy
  3. collects the premium due
  4. gives up its right to enforce a condition Correct answer.

Explanation

Waiver is the voluntary relinquishment of a known right, such as the right to enforce a policy condition. It generally requires knowledge of the right and an intent to give it up.

Question 45Insurance Principles and Concepts

In a first-party property claim, the burden of proof generally requires:

  1. the insurer to disprove every possible cause of loss
  2. the insured proves a covered loss; the insurer proves an exclusion Correct answer.
  3. the insured to prove that no exclusion could possibly apply to the loss
  4. the state to prove the loss was accidental

Explanation

The insured generally bears the initial burden of showing that a loss occurred and that it falls within the policy's coverage. Once that is shown, the insurer typically bears the burden of proving that an exclusion applies.

Question 46Insurance Principles and Concepts

Business income coverage typically covers:

  1. the market value of the building after a fire
  2. employee bonuses paid after the business reopens
  3. the cost of permanent replacement of damaged equipment only
  4. lost net income and continuing expenses during restoration Correct answer.

Explanation

Business income coverage protects the insured against lost earnings and continuing normal operating expenses during the period of restoration. It is intended to place the business in the financial position it would have occupied had no loss occurred.

Question 47Insurance Principles and Concepts

In property insurance, the doctrine of abandonment means:

  1. the insured may refuse salvage payments
  2. the insured may not force the insurer to take title to damaged property Correct answer.
  3. the insurer may require the insured to abandon the property after a total loss
  4. the insured automatically transfers title to the insurer after any loss

Explanation

Abandonment prevents an insured from simply handing over damaged property to the insurer and demanding a total loss payment. The insurer is entitled to salvage rights, but the insured cannot compel the insurer to accept title to the property.

Question 48Insurance Principles and Concepts

A certificate of insurance generally:

  1. permanently replaces all endorsements
  2. evidences coverage but does not itself grant or modify coverage Correct answer.
  3. guarantees the insurer will pay any claim
  4. serves as a temporary binding contract until the policy is issued

Explanation

A certificate of insurance is an informational document that provides evidence of coverage at a point in time. It does not create coverage, amend policy terms, or substitute for the policy itself.

Question 49Insurance Principles and Concepts

A property policy contains an anti-concurrent causation clause. When a covered cause and an excluded cause both contribute to a loss, the clause generally:

  1. bars coverage when an excluded cause contributes to the loss Correct answer.
  2. requires the insurer to pay the entire loss because one cause is covered
  3. requires the insured to select which cause was dominant
  4. limits payment to the insured's deductible

Explanation

An anti-concurrent causation clause is designed to bar coverage when an excluded cause contributes to a loss, even if a covered cause also contributes. It prevents the insured from recovering merely because a covered cause was part of the causal chain.

Question 50Insurance Principles and Concepts

The principle of indemnity, as applied to property insurance, provides that after a covered loss the insured should:

  1. be restored to roughly the pre-loss financial position Correct answer.
  2. be reimbursed for emotional distress caused by the loss event
  3. collect from both the insurer and any other source so the loss is paid twice
  4. receive the full policy limit regardless of the amount of damage sustained

Explanation

Indemnity limits recovery to the amount of the insured's actual financial loss so that the insured is made whole rather than profiting from the loss. It is the reason recovery is generally measured by actual cash value or, where the policy provides, by the cost to repair or replace. Policy limits and deductibles further cap or reduce the indemnity owed.