1. A property and casualty broker tells a prospect that a competing insurer is on the verge of insolvency, knowing the statement is false. Under the Unfair Insurance Practices Act, this conduct is best described as:
- a.Twisting
- b.Rebating
- c.Boycott
- d.Defamation of an insurer✓
Section 790.03(b) prohibits making, publishing, or circulating any false, maliciously critical, or derogatory statement calculated to injure any person engaged in the business of insurance. Lying about a competitor's financial condition is the classic example of defamation of an insurer. Twisting involves misrepresentations to induce a policy replacement, boycott involves coercive agreements not to deal, and rebating involves giving improper inducements to the insured.
Cal. Ins. Code §790.03(b)2. An HO-3 policy provides what kind of peril coverage on the dwelling (Coverage A) and on personal property (Coverage C)?
- a.Named perils on the dwelling and open perils on personal property
- b.Open perils on both the dwelling and personal property
- c.Named perils on both the dwelling and personal property
- d.Open perils on the dwelling and named perils on personal property✓
The HO-3 Special Form is the most widely sold homeowners policy precisely because it gives the dwelling and other structures open-peril ("all-risk") protection, meaning any cause of loss is covered unless specifically excluded, while personal property is written on a named-peril basis covering only the 16 listed perils such as fire, lightning, windstorm, theft, and vandalism.
ISO HO-3 policy form (industry standard)3. An applicant asks her broker for the minimum bodily injury and property damage liability limits that satisfy California's financial responsibility law for a private passenger auto. Which combination meets the statutory minimum?
- a.$30,000 / $60,000 / $15,000✓
- b.$10,000 / $20,000 / $3,000
- c.$25,000 / $50,000 / $10,000
- d.$15,000 / $30,000 / $5,000
Effective January 1, 2025, Senate Bill 1107 (the Protect California Drivers Act) raised California's compulsory auto liability minimum to 30/60/15 — $30,000 per person for bodily injury, $60,000 per accident for bodily injury, and $15,000 for property damage — amending Vehicle Code §16056. The former 15/30/5 limits (in effect 1967–2024) no longer satisfy the financial-responsibility law. The other options are below the current minimum, so they do not satisfy the law.
Cal. Veh. Code §16056; Cal. Ins. Code §11580.1b4. A commercial property policy is built from several standardized components. Which of the following is the MINIMUM combination of forms required to create a complete commercial property coverage part?
- a.A coverage form and a causes of loss form, with no separate declarations needed
- b.Just the coverage form and the declarations
- c.Common policy declarations, common policy conditions, commercial property declarations, a coverage form, and a causes of loss form✓
- d.Common policy declarations and common policy conditions only
The commercial property coverage part is modular: it requires the common policy declarations, the common policy conditions, a commercial property declarations page, at least one coverage form (such as the Building and Personal Property Coverage Form), and a causes of loss form (Basic, Broad, or Special). Removing any of these breaks the coverage part.
ISO Commercial Property Coverage Part (modular structure)5. To establish a prima facie case of negligence against a defendant, a plaintiff must prove four elements. Which of the following is NOT one of them?
- a.Intent on the part of the defendant to cause harm✓
- b.Damages proximately caused by the breach
- c.A legal duty of care owed by the defendant to the plaintiff
- d.A breach of that duty by the defendant
Negligence requires (1) duty, (2) breach, (3) proximate (legal) cause, and (4) actual damages. Intent is NOT an element of negligence; it is the distinguishing feature of an intentional tort such as battery or false imprisonment. A negligent defendant may be liable even though he or she never intended any harm.
Common law of negligence (Restatement (Second) of Torts §281)6. A property policy that lists each peril it will cover and pays only when a loss is caused by one of those listed perils is best described as which type of form?
- a.A liability-only form
- b.A self-insured retention form
- c.A named-peril form✓
- d.An open-peril form, sometimes called a special form
A named-peril (also called specified-peril) form provides coverage only for the perils that are specifically listed in the policy. Open-peril or special-form coverage works in the opposite way: it covers all direct physical loss except for perils that are specifically excluded.
ISO Basic Form (CP 10 10) concept; Cal. Ins. Code §675 et seq.7. Which ISO Dwelling Property form provides open-perils coverage on the dwelling structure but only named-perils coverage on personal property?
- a.HO-3 Special Form
- b.DP-3 Special Form✓
- c.DP-1 Basic Form
- d.DP-2 Broad Form
The DP-3 Special Form insures the dwelling and other structures on an open-perils (all-risk) basis, meaning any cause of loss not specifically excluded is covered. Personal property under DP-3, however, is still written on a named-perils basis. DP-1 uses named perils throughout, DP-2 uses broader named perils throughout, and HO-3 is a homeowners form, not a dwelling form.
ISO Dwelling Property forms (DP-1, DP-2, DP-3)8. Under California Labor Code §3700, which employers are required to carry workers' compensation insurance?
- a.All employers, including those with only one employee✓
- b.Only employers in construction, agriculture, or mining
- c.Only employers whose annual payroll exceeds $100,000
- d.Only employers with five or more employees
California is the strictest state in the nation on this point: Labor Code §3700 requires every employer with even one employee to either carry a workers' compensation policy from an admitted insurer or obtain approval to self-insure. There is no small-employer exemption based on headcount, industry, or payroll size.
Cal. Labor Code §37009. Under California law, insurance is best defined as a contract whereby one party undertakes to:
- a.Pool savings of many persons and return the savings on demand
- b.Pay a fixed annuity for the life of the insured regardless of any loss
- c.Indemnify another against loss, damage, or liability arising from a contingent or unknown event✓
- d.Guarantee a financial profit to another party when an event occurs
California Insurance Code §22 defines insurance as a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event. Insurance is about indemnification for a contingent loss, not guaranteeing profit, paying annuities, or pooling savings.
Cal. Ins. Code §2210. An admitted insurer that writes residential property insurance in California must offer earthquake coverage to the policyholder at what point?
- a.Only after the U.S. Geological Survey reports increased seismic activity
- b.Only when a new policy is first issued, never again
- c.At every policy renewal, in writing, with the premium and basic terms✓
- d.Only when the policyholder asks in writing
Cal. Ins. Code §10081 requires every admitted insurer that writes residential property insurance to offer earthquake coverage in writing at each renewal. The offer must state the premium and basic terms. The policyholder may decline, but the offer itself must be made — it is not contingent on a written request or seismic activity.
Cal. Ins. Code §10081