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TX Surplus Lines study materials
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TX Surplus Lines practice questions

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Question 1Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Which risk management technique is being used when a business buys a commercial property policy to shift the financial consequences of fire losses to an insurer?

  1. Risk transfer Correct answer.
  2. Risk retention
  3. Loss control
  4. Risk avoidance

Explanation

Insurance is a transfer technique: the insured pays a premium and the insurer assumes the financial consequences of covered losses. Avoidance eliminates the exposure entirely, retention keeps the risk, and loss control reduces frequency or severity.

Question 2Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

A property owner insures a building she owns. Which principle requires that she stand to suffer a financial loss if the building is damaged?

  1. Indemnity
  2. Utmost good faith
  3. Insurable interest Correct answer.
  4. Subrogation

Explanation

Insurable interest requires the insured to have a financial stake in the subject matter so that a loss would cause genuine economic harm. It supports the principle that insurance should not create a profit opportunity.

Question 3Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Under the principle of indemnity, what does an insurer promise to do after a covered loss?

  1. Pay the full face amount of the policy for any loss
  2. Pay every debt the insured owed before the loss
  3. Restore the insured to the pre-loss position Correct answer.
  4. Pay a benefit that may exceed the actual loss

Explanation

Indemnity means the insured is restored financially to approximately the position held before the loss, within policy limits. It prevents the insured from collecting more than the value of what was lost.

Question 4Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Which of the following is an example of a speculative risk?

  1. A fire that damages a warehouse
  2. A windstorm that tears off a roof
  3. Stock bought hoping for a gain Correct answer.
  4. An employee injured by a machine

Explanation

Speculative risk involves the chance of gain as well as loss and is generally not insurable. Pure risk involves only the chance of loss or no loss, which is the type of risk insurance is designed to handle.

Question 5Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Which term describes the cause of a loss, such as fire or windstorm?

  1. Exposure
  2. Retention
  3. Hazard
  4. Peril Correct answer.

Explanation

A peril is the actual cause of a loss, while a hazard is a condition that increases the chance or severity of a loss. Policies typically insure against named or open perils and exclude others.

Question 6Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

What is the primary purpose of a deductible in a property policy?

  1. To increase the insurer's share of each small loss
  2. To transfer the entire loss to the insured
  3. To eliminate small claims and reduce premiums Correct answer.
  4. To raise the policy limit automatically

Explanation

A deductible makes the insured retain a stated amount of each loss, which removes many small claims and lowers the premium. It does not change the policy limit and does not shift the entire loss.

Question 7Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Which part of an insurance policy identifies the named insured, the covered property, the policy period and the limits?

  1. Conditions
  2. Exclusions
  3. Declarations Correct answer.
  4. Insuring agreement

Explanation

The declarations page supplies the specific facts of the individual policy, including who is insured, what is covered, the term, and the limits. The remaining components state the promise to pay, the rules of the contract, and what is not covered.

Question 8Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Which of the following is required for a contract of insurance to be legally enforceable?

  1. Approval of the contract by a court
  2. Offer, acceptance, and consideration Correct answer.
  3. A minimum of three parties to the agreement
  4. A guarantee that no loss will occur

Explanation

A valid insurance contract requires an offer, acceptance, consideration, competent parties, and a legal purpose. It does not require court approval, and it involves two parties: the insurer and the insured.

Question 9Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

A homeowner who deliberately sets fire to his own insured house to collect insurance is an example of which type of hazard?

  1. Legal hazard
  2. Morale hazard
  3. Moral hazard Correct answer.
  4. Physical hazard

Explanation

Moral hazard is a dishonest or intentional act, such as arson or fraud, that arises from the existence of insurance. It is distinguished from carelessness (morale hazard) and from tangible conditions (physical hazard).

Question 10Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

A driver stops locking his car because he knows theft insurance will pay for a replacement. This behavior illustrates which concept?

  1. Morale hazard Correct answer.
  2. Adverse selection
  3. Moral hazard
  4. Physical hazard

Explanation

Morale hazard is carelessness or indifference toward loss created by the presence of insurance. The driver is not acting dishonestly; he is simply less careful because he is insured.

Question 11Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Which problem occurs when applicants who know they face a high chance of loss are the ones most likely to buy or keep coverage?

  1. Law of large numbers
  2. Salvage
  3. Adverse selection Correct answer.
  4. Retention

Explanation

Adverse selection is the tendency of higher-than-average risks to seek insurance, which can distort an insurer's loss experience. Underwriting and proper rating exist largely to counter this tendency.

Question 12Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

How does the law of large numbers assist an insurer in predicting losses?

  1. It permits rates to be established without any loss history being collected
  2. It causes actual results to approach expected results as exposures grow Correct answer.
  3. It proves that losses always occur in fixed and repeating ten-year cycles
  4. It guarantees that every individual loss will equal the expected average amount

Explanation

As the number of similar exposure units increases, actual loss experience tends to come closer to the expected or predicted result. This principle underlies the use of broad classes of similar risks for ratemaking.

Question 13Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

After paying a fire claim caused by a negligent contractor, an insurer sues the contractor to recover the amount it paid. This right is called:

  1. Salvage
  2. Reinsurance
  3. Subrogation Correct answer.
  4. Contribution

Explanation

Subrogation lets an insurer step into the insured's shoes and pursue a responsible third party after paying a claim. It supports the principle of indemnity by preventing the insured from collecting twice.

Question 14Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

A building is insured under two policies with pro rata other insurance clauses: Policy A has a $300,000 limit and Policy B has a $100,000 limit. If a $40,000 covered loss occurs, how much does Policy A pay?

  1. $10,000
  2. $20,000
  3. $40,000
  4. $30,000 Correct answer.

Explanation

Under a pro rata clause, each policy pays its share of the total applicable limits. Policy A carries 300,000 of the 400,000 combined limit, or 75 percent, and 75 percent of $40,000 is $30,000.

Question 15Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Which statement best distinguishes a claims-made liability policy from an occurrence policy?

  1. It responds only after the insured has retired from business
  2. It responds to claims first made during the policy period Correct answer.
  3. It covers only claims reported within 90 days of the loss
  4. It never covers any act that happened before its inception date

Explanation

A claims-made policy responds to claims first made during the policy period, subject to any applicable retroactive date. An occurrence policy responds to injury or damage that takes place during the policy period regardless of when the claim is later reported.

Question 16Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

A building has a replacement cost of $400,000 and has depreciated 25 percent. Ignoring policy limits and deductibles, what is the maximum recovery for a total loss under actual cash value?

  1. $400,000
  2. $100,000
  3. $500,000
  4. $300,000 Correct answer.

Explanation

Actual cash value equals replacement cost minus depreciation, so $400,000 less 25 percent ($100,000) equals $300,000. Replacement cost coverage, by contrast, would pay the cost to rebuild without deducting depreciation.

Question 17Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

A producer gives a temporary written or oral agreement that provides immediate coverage while the policy is being issued. This is known as:

  1. An endorsement
  2. A binder Correct answer.
  3. A certificate
  4. A warranty

Explanation

A binder is temporary evidence of coverage that takes effect before the policy is issued and remains in force until the policy is written or the binder expires. Its terms are those of the policy it represents.

Question 18Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

An insurer's written agreement appointing an agent and describing the agent's powers creates which type of authority?

  1. Apparent authority
  2. Implied authority
  3. Customary authority
  4. Express authority Correct answer.

Explanation

Express authority is granted in writing through the agency agreement and spelled out in the appointment. Implied authority covers acts incidental to carrying out express powers, and apparent authority arises from the insurer's conduct toward third parties.

Question 19Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Which statement about a warranty in an insurance policy is accurate?

  1. It is never used in property and casualty policies
  2. It is a promise that a stated fact is true, and a breach may void coverage Correct answer.
  3. It applies only to life insurance contracts
  4. It is a statement the insured believes to be true to the best of his knowledge

Explanation

A warranty is a promise or statement that a fact is true, and a material breach can give the insurer grounds to deny a claim or void coverage. A representation, by contrast, is a statement believed true to the best of the insured's knowledge.

Question 20Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

An annual policy with a $1,200 premium is canceled by the insured after four months. Using pro rata cancellation, what is the unearned premium?

  1. $400
  2. $800 Correct answer.
  3. $1,200
  4. $300

Explanation

Under pro rata cancellation, premium is earned in proportion to elapsed time. Eight of twelve months remain, so the unearned premium is eight-twelfths of $1,200, or $800.

Question 21Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Hurricane winds blow down a wall, which crushes a sprinkler pipe and floods the interior. When the policy covers wind but excludes water damage, how is the loss typically handled?

  1. Covered only for the cost of replacing the wall
  2. Denied, because water caused most of the damage
  3. Denied, because two perils combined to produce the loss
  4. Covered, because wind was the efficient proximate cause Correct answer.

Explanation

Under the efficient proximate cause rule, the loss is attributed to the peril that set the chain of events in motion. Because wind was the dominant cause and wind is covered, the resulting water damage is generally covered.

Question 22Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

An insurer knowingly accepts a late premium and continues coverage, then later tries to deny a claim based on that late payment. Which doctrines most directly undercut the insurer's position?

  1. Representation and warranty
  2. Subrogation and salvage
  3. Coinsurance and contribution
  4. Waiver and estoppel Correct answer.

Explanation

Waiver is the intentional relinquishment of a known right, and estoppel bars a party from asserting a right when another has relied on its conduct to their detriment. Accepting the late payment without objection can waive the timeliness requirement and estop a later denial.

Question 23Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Because an insurance policy is a contract of adhesion, how is an ambiguous policy provision generally interpreted?

  1. In favor of the insured, who had no part in drafting it Correct answer.
  2. By applying the strictest possible reading of the text
  3. In favor of the insurer, which drafted the wording
  4. By referring the disputed wording to the state insurance department

Explanation

A contract of adhesion is drafted by one party and offered take-it-or-leave-it, so ambiguity is construed against the drafter and in favor of the insured. This rule protects the party with no bargaining power over the wording.

Question 24Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Which statement is accurate about coverage placed with a nonadmitted (surplus lines) insurer?

  1. The insured must be a Texas resident to be eligible for such coverage
  2. Claims are paid by the Texas Property and Casualty Insurance Guaranty Association if the insurer becomes insolvent
  3. The coverage is not protected by the state guaranty fund that backs admitted insurers Correct answer.
  4. The policy is void because the insurer holds no certificate of authority

Explanation

Surplus lines insurers are not admitted in the state, so their policies are not covered by the state guaranty association that protects policyholders of insolvent admitted insurers. Surplus lines coverage is lawful when properly placed through a licensed surplus lines agent after a diligent effort to obtain admitted-market coverage.

Question 25Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

An insurer has incurred losses of $6 million, loss adjustment expenses of $1 million, and underwriting expenses of $2.5 million, on earned premiums of $10 million. What is its combined ratio?

  1. 95% Correct answer.
  2. 70%
  3. 105%
  4. 85%

Explanation

The loss and loss adjustment expense ratio is $7 million divided by $10 million, or 70 percent, and the expense ratio is $2.5 million divided by $10 million, or 25 percent. Adding them gives a combined ratio of 95 percent, indicating an underwriting profit before investment income.

Question 26Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

In property insurance, when must the insured have an insurable interest for a claim to be payable?

  1. At the time the claim is first reported to the producer
  2. Only at the time the application is signed
  3. At the time of the loss Correct answer.
  4. At the inception of the policy and at each anniversary thereafter

Explanation

Property insurance is a contract of indemnity, so the insured must stand to suffer a financial loss when the damage occurs. Insurable interest is therefore measured at the time of the loss; an interest that existed only at application or inception does not support recovery for a loss suffered after that interest ended.

Question 27Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

Which statement best describes the principle of indemnity as applied to property insurance?

  1. The insured is restored to approximately the same financial position held before the loss, without profiting from it. Correct answer.
  2. The insurer pays the full policy limit whenever a covered peril causes any damage.
  3. The insured may collect the full amount from each of several policies covering the same loss.
  4. The insured and the insurer share every covered loss in equal amounts.

Explanation

Indemnity means the insured is made whole for the actual value of the loss and should not end up financially better off than before the loss occurred. This principle underlies limits of liability, actual cash value settlements, and the prohibition on collecting twice for one loss.

Question 28Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

A building with a replacement cost of $500,000 is insured under a property policy containing an 80 percent coinsurance clause and a limit of $300,000. A covered fire loss of $100,000 occurs and no deductible applies. What amount does the insurer pay?

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

Explanation

The insured was required to carry 80 percent of $500,000, or $400,000, and carried $300,000, which is 75 percent of the requirement. The payment is therefore 75 percent of the $100,000 loss, or $75,000, and that figure is within the policy limit.

Question 29Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

An applicant for a commercial property policy states on the application that the building is protected by a working sprinkler system, when in fact the system has been shut off for a year. The underwriter issues the policy at a reduced premium in reliance on that statement, and a fire loss later occurs. Which outcome is most consistent with insurance contract principles?

  1. The insurer may rescind the policy and refuse the claim because the misstatement was material to its acceptance of the risk. Correct answer.
  2. The insurer may avoid the policy only if it can show the insured also intended to cause the fire.
  3. The insurer must pay the claim in full because statements made on an application are treated as mere opinions.
  4. The insurer must pay the claim but may retroactively charge the premium that would have applied without the credit.

Explanation

Insurance is a contract of utmost good faith, and a material misrepresentation that induces the insurer to issue coverage on different terms permits rescission. The sprinkler status affected both the acceptance of the risk and the rate charged, so reliance on the false statement supports avoidance of the policy.

Question 30Insurance Principles and Concepts (general insurance fundamentals applicable to surplus lines)

A commercial building is insured under a special-form (open perils) property policy that covers risks of direct physical loss unless excluded. A windstorm damages the roof, and the insurer points to an exclusion for faulty workmanship. Which statement about the parties' burdens is accurate?

  1. The insured must first prove that the damage resulted from a peril specifically named in the policy.
  2. The insured must prove that no exclusion anywhere in the policy could possibly apply to the loss.
  3. Once the insured shows direct physical loss to covered property, the insurer must prove that the excluded cause applies. Correct answer.
  4. Neither party carries a burden because open perils policies cover every possible cause of loss.

Explanation

Under a special-form policy the insured satisfies its initial burden by showing direct physical loss to covered property. The burden then shifts to the insurer to establish that an exclusion applies, after which the insured may show that an exception to the exclusion restores coverage.

Question 31Texas Insurance Law and Regulations Common to All Lines

Who appoints the Commissioner of Insurance in Texas?

  1. The Governor Correct answer.
  2. The voters of Texas in a statewide general election
  3. The Texas Sunset Advisory Commission
  4. The Lieutenant Governor with the consent of the Senate

Explanation

The Texas Insurance Code provides that the Commissioner of Insurance is appointed by the Governor, subject to the advice and consent of the Texas Senate. The Commissioner heads the Texas Department of Insurance and serves a fixed term rather than being elected.

Question 32Texas Insurance Law and Regulations Common to All Lines

Which statement best describes the Texas Department of Insurance?

  1. It is the state agency that regulates the Texas insurance industry. Correct answer.
  2. It is a trade association funded by admitted insurers.
  3. It is an independent federal agency that enforces the McCarran-Ferguson Act.
  4. It is a division of the Texas Attorney General's consumer protection section.

Explanation

The Texas Department of Insurance is the state administrative agency charged with enforcing the Insurance Code and the rules adopted by the Commissioner. Its responsibilities include licensing, rate and form review, financial solvency monitoring, and market conduct examinations.

Question 33Texas Insurance Law and Regulations Common to All Lines

An agent collects premium payments from insureds. In what capacity does the agent hold those funds?

  1. As an escrow agent for the Texas Department of Insurance
  2. As the owner of the funds until the insurer requests remittance
  3. In a fiduciary capacity on behalf of the insurer Correct answer.
  4. As unrestricted personal income once the policy is delivered

Explanation

Premiums collected by an agent are trust funds held in a fiduciary capacity for the insurer or the insured, not the agent's own money. The agent must account for and remit those funds promptly and may not use them for personal purposes.

Question 34Texas Insurance Law and Regulations Common to All Lines

An agent offers to give a prospect half of the commission earned on a new auto policy if the prospect buys the policy. This practice is best described as:

  1. Permissible, because the agent is sharing only the agent's own money
  2. Rebating, which is prohibited by the Texas Insurance Code Correct answer.
  3. Permissible, because it lowers the cost of insurance to the consumer
  4. Permissible, if the prospect signs a written consent form

Explanation

Rebating is the offering of any inducement not specified in the policy, such as a share of commission, to persuade a person to buy insurance. Texas prohibits rebating because it results in unequal treatment of similarly situated buyers.

Question 35Texas Insurance Law and Regulations Common to All Lines

Texas requires most licensed agents to complete how much continuing education every two years?

  1. 12 hours, including 4 hours of ethics
  2. 40 hours, including 1 hour of ethics
  3. 24 hours, including 2 hours of ethics Correct answer.
  4. 16 hours, with no ethics component required

Explanation

Texas agents must complete 24 credit hours of continuing education during each two-year license period, and the hours must include at least 2 hours of ethics. Failure to complete the requirement can block license renewal.

Question 36Texas Insurance Law and Regulations Common to All Lines

What is the minimum age to hold a Texas insurance agent license?

  1. 19 years
  2. 21 years
  3. 16 years
  4. 18 years Correct answer.

Explanation

An applicant for a Texas insurance agent license must be at least 18 years of age, among other qualifications such as passing the licensing examination and submitting fingerprints. No minimum age above 18 applies to agent licensure.

Question 37Texas Insurance Law and Regulations Common to All Lines

An agent uses misrepresentations to persuade a policyholder to lapse an existing policy and buy a replacement policy. This conduct is:

  1. Defamation
  2. Coercion
  3. Sliding
  4. Twisting Correct answer.

Explanation

Twisting is inducing a policyholder to surrender or lapse coverage through misrepresentation or incomplete comparison of policies. It is an unfair method of competition prohibited by the Insurance Code.

Question 38Texas Insurance Law and Regulations Common to All Lines

Knowingly presenting a false or inflated claim to an insurer for payment is best characterized as:

  1. Rebating
  2. Insurance fraud under Texas law Correct answer.
  3. A permissible negotiation tactic
  4. An unfair claim settlement practice by the insurer

Explanation

Texas law makes it a criminal and civil violation to knowingly present false or inflated information in support of an insurance claim. The offense falls under the insurance fraud provisions of the Insurance Code.

Question 39Texas Insurance Law and Regulations Common to All Lines

An agent deposits client premium payments into the agent's personal checking account and uses the money for personal expenses. This conduct is best described as:

  1. Permissible if the agent repays the money within 30 days
  2. Permissible because collected premiums belong to the agent
  3. Commingling and a breach of fiduciary duty Correct answer.
  4. A minor bookkeeping error that TDI does not regulate

Explanation

Premium funds must be kept separate from the agent's personal or general business funds; mixing them is commingling. Because the agent holds premiums in a fiduciary capacity, using them personally is also a breach of that duty and grounds for disciplinary action.

Question 40Texas Insurance Law and Regulations Common to All Lines

Under Insurance Code Chapter 542, if an insurer delays payment of a claim beyond the statutory period after receiving all required documentation, the insurer generally must also pay:

  1. Double the claim amount as punitive damages
  2. A flat $1,000 penalty to the Texas Department of Insurance
  3. Interest at 6 percent per year on the amount of the claim
  4. Interest at 18 percent per year on the amount of the claim Correct answer.

Explanation

Chapter 542 requires an insurer to pay a claim within the statutory period after receiving all items reasonably requested, and a late payment accrues interest at 18 percent per year. The claimant may also recover reasonable attorney's fees in some circumstances.

Question 41Texas Insurance Law and Regulations Common to All Lines

Under Chapter 542, an insurer that receives notice of a claim must acknowledge receipt and begin investigating within how many days?

  1. 5 days
  2. 15 days Correct answer.
  3. 60 days
  4. 30 days

Explanation

Texas requires an insurer to acknowledge receipt of a claim, begin an investigation, and request any additional items it needs from the claimant within 15 days. Failing to meet these deadlines can trigger the prompt-payment remedies.

Question 42Texas Insurance Law and Regulations Common to All Lines

An insurer denies a claim without conducting any investigation, relying solely on a note in the file. This conduct is best described as:

  1. Lawful, because insurers may deny claims for any reason
  2. Lawful, provided the insurer sends written notice of the denial
  3. An unfair claim settlement practice Correct answer.
  4. Rebating

Explanation

Refusing to pay a claim without a reasonable investigation of the available facts is expressly identified in the Insurance Code as an unfair claim settlement practice. Insurers must investigate claims and must not deny coverage on the basis of an unsupported file note.

Question 43Texas Insurance Law and Regulations Common to All Lines

Before an agent may solicit or sell insurance on behalf of a particular insurer, what must generally occur?

  1. The agent must purchase a professional liability policy
  2. The agent must post a surety bond with the county clerk
  3. The insurer must appoint the agent with TDI Correct answer.
  4. The insurer must obtain a separate license for that agent

Explanation

An insurer authorizes an agent to act for it by filing an appointment with the Texas Department of Insurance. Until the appointment is in place, the agent lacks authority to write business for that insurer.

Question 44Texas Insurance Law and Regulations Common to All Lines

A licensed Texas agent wants to pay part of a commission to an unlicensed friend who referred a client. This arrangement is:

  1. Permissible if the friend does not negotiate policy terms
  2. Permissible, provided the referral fee is disclosed in writing to the insurer and the client
  3. Permissible, provided the amount paid to the friend is under $500
  4. Prohibited; commissions may not be shared with an unlicensed person Correct answer.

Explanation

Texas prohibits paying or sharing a commission with a person who is not licensed to sell the insurance involved, because such a payment is an indirect way of compensating unlicensed activity. Disclosure or a dollar cap does not create an exception.

Question 45Texas Insurance Law and Regulations Common to All Lines

If the Commissioner finds that a person is engaging in an unfair method of competition, the Commissioner may initially:

  1. Seize the person's personal residence
  2. Revoke the person's driver's license
  3. Issue a cease and desist order Correct answer.
  4. File criminal charges in federal district court

Explanation

The Commissioner may issue a cease and desist order to stop conduct that violates the Insurance Code, and may later seek enforcement in court if the order is disobeyed. The order is an administrative remedy available before or instead of other penalties.

Question 46Texas Insurance Law and Regulations Common to All Lines

Before imposing an administrative penalty on a licensee, the Commissioner must generally provide:

  1. Notice and an opportunity for a hearing Correct answer.
  2. Consent from the licensee's insurer
  3. A jury trial in state district court
  4. Approval from the Texas Legislature

Explanation

Administrative penalties may be imposed only after the licensee receives notice of the alleged violation and an opportunity for a hearing, which is typically held before an administrative law judge. This satisfies constitutional due process requirements.

Question 47Texas Insurance Law and Regulations Common to All Lines

Before filing a lawsuit alleging an unfair or deceptive act under Insurance Code Chapter 541, a claimant must generally give the insurer:

  1. At least 60 days' written notice of the complaint Correct answer.
  2. Notice only after the petition has been filed
  3. At least 10 days' written notice of the complaint
  4. No notice of any kind

Explanation

Chapter 541 requires a claimant to give the insurer at least 60 days' written notice of the specific complaint and the amount of damages sought before filing suit. The notice period gives the insurer an opportunity to investigate and resolve the dispute.

Question 48Texas Insurance Law and Regulations Common to All Lines

The Texas Property and Casualty Insurance Guaranty Association exists to:

  1. Reimburse agents for unpaid commissions after an insolvency
  2. Pay covered claims of insolvent property and casualty insurers Correct answer.
  3. Provide free coverage to low-income Texas residents
  4. Guarantee that insurers earn a minimum profit each year

Explanation

The guaranty association is funded by member insurers and steps in to pay covered claims when a licensed property and casualty insurer becomes insolvent. It does not guarantee insurer profits and does not pay all claims in full.

Question 49Texas Insurance Law and Regulations Common to All Lines

An agent tells an applicant that a homeowners policy covers flood damage when it does not. The agent has engaged in:

  1. Misrepresentation Correct answer.
  2. Twisting
  3. Defamation
  4. Rebating

Explanation

Misrepresenting the terms, benefits, or conditions of a policy is an unfair method of competition and an unfair practice under the Insurance Code. Describing coverage that the policy does not provide is a classic example of such misrepresentation.

Question 50Texas Insurance Law and Regulations Common to All Lines

Which circumstance is a lawful ground for TDI to deny or refuse to renew an agent license?

  1. The applicant holds a college degree in an unrelated field
  2. The applicant was convicted of a felony involving dishonesty Correct answer.
  3. The applicant resides in a different county than the insurer's office
  4. The applicant has never worked in insurance before

Explanation

A criminal conviction involving dishonesty or breach of trust is a statutory ground on which TDI may deny, suspend, or refuse to renew a license. Prior industry experience, county of residence, and field of study are not disqualifying.