Texas All Lines Adjuster License Exam — All Questions

Which term means the cause of a loss, such as fire or hail?

• a.Exposure
• b.Peril✓
• c.Hazard
• d.Risk

The California guide defines peril simply as cause of loss; a hazard is a circumstance that increases the likelihood or severity of loss.Commercial Insurance Guide

A building with no fire sprinklers and wooden construction presents which kind of thing to an underwriter?

• a.A hazard✓
• b.An exclusion
• c.A loss
• d.A peril

A hazard is a circumstance that increases the likelihood or potential severity of a loss; the construction does not itself cause loss.Commercial Insurance Guide

How does TDI define insurable interest?

• a.The agent's commission interest
• b.A financial interest in it✓
• c.A relative's interest in a house
• d.The insurer's interest in premium

TDI's glossary defines insurable interest as any financial interest a person has in the property or person insured.Home Insurance Glossary

How does the Texas Supreme Court interpret insurance policies?

• a.By TDI's advisory opinions
• b.By the agent's explanation
• c.Always in the insurer's favor
• d.Under ordinary contract rules✓

The court interprets insurance policies under the well-established rules of contract construction, reading the contract as a whole according to the plain meaning of its terms.Great American Insurance Co. v. Primo, No. 15-0317 (Tex. 2017)

Which term describes the insurer's giving up a known right, such as a late-notice defense, on purpose?

• a.Estoppel
• b.Waiver✓
• c.Subrogation
• d.Indemnity

Waiver is the intentional relinquishment of a right actually known; estoppel turns on another party's detrimental reliance.Ulico Casualty Co. v. Allied Pilots Ass'n, 262 S.W.3d 773 (Tex. 2008)

What does a non-waiver clause in the standard fire policy say about appraisal and examinations?

• a.They do not waive policy provisions✓
• b.They extend the policy term
• c.They cancel the policy
• d.They waive every policy defense

The standard fire policy provides that no provision, stipulation or forfeiture is waived by any requirement or proceeding relating to appraisal or examination.New York Insurance Law § 3404, Fire insurance contract; standard policy provisions; permissible variations (standard fire policy text)

Which statement about estoppel in Texas insurance law is correct?

• a.It cannot create coverage✓
• b.It applies only to insureds
• c.It always creates coverage
• d.It requires a written agreement

The Texas Supreme Court held that estoppel and waiver cannot make an insurance contract cover a loss it never covered by its terms.Ulico Casualty Co. v. Allied Pilots Ass'n, 262 S.W.3d 773 (Tex. 2008)

What is a proof of loss?

• a.The police report of the loss
• b.The insurer's payment check
• c.The adjuster's final report
• d.The insured's sworn claim✓

The standard fire policy requires a proof of loss signed and sworn to by the insured, stating the time and origin of the loss, interests, values and other insurance.New York Insurance Law § 3404, Fire insurance contract; standard policy provisions; permissible variations (standard fire policy text)

How does TDI define depreciation?

• a.Decrease in value from use or wear✓
• b.An increase in value over time
• c.The cost to replace an item new
• d.The deductible on older property

TDI's glossary defines depreciation as the decrease in the value of property over time due to use or wear and tear.Home Insurance Glossary

According to TDI's home insurance glossary, what caps additional living expenses?

• a.20 percent of dwelling coverage✓
• b.50 percent of the contents limit
• c.Six months of rent
• d.The deductible amount

TDI's glossary says policies cap the amount of additional living expenses payable to 20 percent of the policy's dwelling coverage.Home Insurance Glossary

A building is insured for its full value under a Texas fire policy and is totally destroyed by fire. Which Texas rule applies to the dwelling?

• a.The coinsurance clause
• b.The valued policy law✓
• c.The liberalization clause
• d.Pro rata sharing

Insurance Code §862.053 makes a fire policy a liquidated demand for the full amount on a total loss by fire of real property.Texas Insurance Code Chapter 862, General Provisions (fire insurance total loss)

What does an appraisal award decide?

• a.If the insured committed fraud
• b.The amount of the loss✓
• c.Whether the policy is cancelled
• d.Whether a loss is covered

TDI explains that the umpire's decision is binding only for the loss amount, and coverage disputes can still be pursued after appraisal.Home Insurance Glossary

Under the flood policy, how soon must each side choose an appraiser after a written request?

• a.Within 90 days
• b.Within 60 days
• c.Within 10 days
• d.Within 20 days✓

FEMA's Standard Flood Insurance Policy says each side will choose a competent and impartial appraiser within 20 days after receiving a written request from the other.44 CFR Part 61, Appendix A(1): Standard Flood Insurance Policy, Dwelling Form

How does FEMA's flood policy define actual cash value?

• a.Assessed tax value
• b.Cost less physical depreciation✓
• c.Market value including land
• d.Original purchase price

The flood policy defines actual cash value as the cost to replace an insured item at the time of loss, less the value of its physical depreciation.44 CFR Part 61, Appendix A(1): Standard Flood Insurance Policy, Dwelling Form

A thief points a gun at a cashier and takes the day's receipts. What crime is this?

• a.Robbery✓
• b.Embezzlement
• c.Larceny by trick
• d.Burglary

Texas robbery is theft while threatening or placing another in fear of imminent bodily injury or death; burglary requires unlawful entry into premises.Texas Penal Code Chapter 29, Robbery

Which Texas definition requires entering a building not then open to the public?

• a.Burglary✓
• b.Robbery
• c.Theft
• d.Forgery

Texas burglary includes entering a habitation or a building not then open to the public with intent to commit a felony, theft or an assault.Texas Penal Code Chapter 30, Burglary and Criminal Trespass

Which crime is the broadest category of unlawful taking in Texas law?

• a.Arson
• b.Burglary
• c.Robbery
• d.Theft✓

Texas theft is unlawfully appropriating property with intent to deprive the owner; robbery and burglary add force or entry.Texas Penal Code Chapter 31, Theft

Which valuation method is most common for fine art and classic autos, according to the California guide?

• a.Agreed value✓
• b.Market value less land
• c.Functional value
• d.Actual cash value

The California guide says agreed value is most common when insuring valuable artwork, antiques or classic autos.Commercial Insurance Guide

Which statement about replacement cost coverage is correct?

• a.It always waives coinsurance
• b.It pays only market value
• c.It ignores policy limits
• d.It does not deduct depreciation✓

TDI defines replacement cost as paying to replace property without deducting for depreciation, but limited by the policy's maximum; it remains subject to coinsurance.Home Insurance Glossary; Commercial Insurance Guide

What is the goal of indemnity in property and casualty insurance?

• a.Improve the insured's property
• b.Restore the insured's position✓
• c.Return all premium
• d.Punish the wrongdoer

The California guide states that the objective of indemnity is to restore an insured to the same financial position after the loss as before.Commercial Insurance Guide

Which damages compensate a claimant for actual economic or pecuniary loss under Texas law?

• a.Noneconomic damages
• b.Economic damages✓
• c.Exemplary damages
• d.Nominal damages

Texas defines economic damages as compensatory damages intended to compensate a claimant for actual economic or pecuniary loss.Texas Civil Practice and Remedies Code Chapter 41, Damages

An insurer pays a claim and then sues the person who caused the loss. What doctrine allows this?

• a.Arbitration
• b.Salvage
• c.Subrogation✓
• d.Liberalization

TDI's auto glossary defines subrogation as the legal right of insurers to pursue the party who caused a loss to their policyholder, to recover money paid.Auto Insurance Glossary

Two PIP coverages apply to an injured person in the named insured's own car. Under the Texas Personal Auto Policy's PIP other-insurance clause, how does the policy pay?

• a.Double the limit
• b.Nothing until the other pays
• c.Only its proportionate share✓
• d.The full amount, then seeks refund

The form says that if there is other personal injury protection insurance the insurer pays only its share, the proportion its limit bears to the total of all applicable limits.Texas Personal Auto Policy (effective January 1, 2020)

Two property insurers with $100,000 and $300,000 limits share an $80,000 loss pro rata. What does the smaller insurer pay?

• a.$20,000✓
• b.$60,000
• c.$40,000
• d.$10,000

Under pro rata sharing, the $100,000 insurer's share is 100/400 = 25% of $80,000, or $20,000.New York Insurance Law § 3404, Fire insurance contract; standard policy provisions; permissible variations (standard fire policy text)

Under the standard fire policy, what may the insurer elect to do instead of paying cash for a loss?

• a.Require the insured to rebuild
• b.Cancel the policy retroactively
• c.Reduce the limit for next year
• d.Repair or replace the property✓

The company's options clause lets the insurer take the property at the agreed or appraised value or repair, rebuild or replace it with like kind and quality, on notice within thirty days after receiving the proof of loss.New York Insurance Law § 3404, Fire insurance contract; standard policy provisions; permissible variations (standard fire policy text)

When is a damaged car most likely declared a total loss, according to TDI?

• a.Whenever an airbag deploys
• b.When repair cost nears its value✓
• c.When the car is over 10 years old
• d.Only after a fire

TDI tells drivers that if the cost to repair a car is close to its current value, the company might decide to total it.Auto insurance guide

Which statement about misrepresentation in an insurance application is correct under Texas law?

• a.It must be material✓
• b.Any error voids the policy
• c.It matters only if written by the agent
• d.It never affects coverage

Insurance Code §705.004 gives effect to a misrepresentation defense only if the matter was material to the risk or contributed to the event on which the policy became payable.Texas Insurance Code Chapter 705, Misrepresentation by Policyholders

Under the flood policy, what happens if the insured keeps damaged property?

• a.Its salvage value is deducted✓
• b.The deductible is waived
• c.The insured must pay a penalty
• d.The claim is denied

FEMA's flood policy lets the insurer permit the insured to keep damaged property and reduce the loss payment by the value of the salvage.44 CFR Part 61, Appendix A(1): Standard Flood Insurance Policy, Dwelling Form

How does the California guide describe insurance itself?

• a.An investment with guaranteed return
• b.A government benefit
• c.A way to eliminate hazards
• d.A method of shifting risk✓

The California guide defines insurance as a method of shifting risk from a person, business or organization to an insurer in exchange for premium.Commercial Insurance Guide

Under the flood policy's liberalization clause, what change applies automatically to existing policies?

• a.Any new exclusion
• b.Any premium increase
• c.Any restriction of coverage
• d.Any free broadening✓

The flood policy says a change that broadens coverage without additional premium automatically applies to existing policies.44 CFR Part 61, Appendix A(1): Standard Flood Insurance Policy, Dwelling Form

How does TDI define a binder?

• a.A claim payment voucher
• b.A cancellation notice
• c.A temporary contract✓
• d.A permanent policy form

TDI's glossary defines a binder as a temporary insurance contract that provides proof of coverage until the permanent policy is received.Home Insurance Glossary

Which Texas statute lets an insurer submit a reservation of rights instead of immediately affirming or denying coverage?

• a.Insurance Code §4101.101
• b.Labor Code §408.082
• c.Insurance Code §541.060✓
• d.Transportation Code §601.072

Section 541.060 makes it unfair to fail within a reasonable time to affirm or deny coverage or submit a reservation of rights to a policyholder.Texas Insurance Code Chapter 541, Unfair Methods of Competition and Unfair or Deceptive Acts or Practices

Under the standard fire policy, when is a loss payable?

• a.60 days after proof and ascertainment✓
• b.One year after the loss
• c.Within 5 days of the fire
• d.Immediately on notice of loss

The standard fire policy makes the loss payable sixty days after proof of loss is received and the loss is ascertained by agreement or an appraisal award; Texas's prompt-payment statute imposes faster deadlines on Texas insurers.New York Insurance Law § 3404, Fire insurance contract; standard policy provisions; permissible variations (standard fire policy text); Texas Insurance Code Chapter 542, Processing and Settlement of Claims

Which element of proximate cause asks whether a person of ordinary intelligence should have anticipated the danger?

• a.Cause in fact
• b.Damages
• c.Duty
• d.Foreseeability✓

The Texas Supreme Court says foreseeability is proven by showing a person of ordinary intelligence should have anticipated the danger created by the negligent act.Stanfield v. Neubaum, No. 15-0387 (Tex. 2016)

A building worth $300,000 carries $180,000 of insurance with an 80% coinsurance clause. A $40,000 loss occurs; ignore the deductible. What is paid?

• a.$36,000
• b.$40,000
• c.$30,000✓
• d.$24,000

Required is 80% of $300,000, or $240,000; $180,000 ÷ $240,000 = 0.75; 0.75 × $40,000 = $30,000.Commercial Insurance Guide

Which type of liability policy responds to injuries that happen during the policy period, whenever the claim is made?

• a.An occurrence policy✓
• b.A binder
• c.A floater
• d.A claims-made policy

The California guide defines an occurrence policy as covering claims arising out of occurrences during the policy period, regardless of when the claim is filed.Commercial Insurance Guide

What does a short-rate cancellation involve?

• a.An insurer cancellation with full refund
• b.A cancellation on the effective date
• c.An insured's cancellation, less a penalty✓
• d.A cancellation back to inception

The California guide defines short rate cancellation as one initiated by the policyholder in which the premium returned is subject to an administrative penalty.Commercial Insurance Guide

Under Texas law, which is a permitted reason for an insurer to cancel a policy midterm?

• a.A claim the policy does not cover
• b.The insured's age
• c.The insured's political office
• d.Nonpayment of premium✓

Insurance Code §551.104 allows cancellation of any policy if the named insured does not pay the premium when due, if the insured submits a fraudulent claim, or if continuing would violate the law.Texas Insurance Code Chapter 551, Cancellation, Denial, and Nonrenewal of Certain Policies

A homeowners policy excludes vacancy losses after 60 days. Which fact matters most for applying it?

• a.The size of the deductible
• b.The age of the house
• c.The mortgage balance
• d.The length of the vacancy✓

The standard fire policy suspends coverage while a building is vacant or unoccupied beyond sixty consecutive days, and TDI notes most companies stop coverage after 60 days of vacancy.New York Insurance Law § 3404, Fire insurance contract; standard policy provisions; permissible variations (standard fire policy text); Home insurance guide

How does TDI define an endorsement?

• a.An agent's license
• b.A written policy change✓
• c.A premium receipt
• d.A claim form

TDI's glossary defines an endorsement as a written agreement attached to a policy expanding or limiting the benefits otherwise payable.Home Insurance Glossary