CALA - Certified Automotive Loss Adjuster Insurance Policy and Regulations Questions and Answers — Questions and Answers
Question 1: An insured's vehicle has an Actual Cash Value (ACV) of $10,000. The cost to repair the damages is $7,000, and the salvage value is $3,500. In a state that uses the Total Loss Formula (TLF), how should the adjuster classify this claim?
- As a partial loss, because the repair cost is below the ACV.
- As a total loss, because the repair cost plus the salvage value is greater than the ACV. (Correct answer)
- As a constructive total loss, only if the state has a 75% threshold.
- As negotiable, depending on the policyholder's preference to keep the vehicle.
Correct answer: As a total loss, because the repair cost plus the salvage value is greater than the ACV.
States using the Total Loss Formula (TLF) determine a total loss when the cost of repairs plus the salvage value equals or exceeds the vehicle's Actual Cash Value (ACV). In this scenario, $7,000 (repairs) + $3,500 (salvage) = $10,500, which is greater than the $10,000 ACV. Therefore, the vehicle must be declared a total loss.
Question 2: Which of the following actions by an adjuster would most likely be considered an Unfair Claims Settlement Practice according to the model act created by the National Association of Insurance Commissioners (NAIC)?
- Requesting a recorded statement from the claimant to understand the details of the loss.
- Using a state-approved vendor for vehicle valuation.
- Failing to acknowledge pertinent communications regarding a claim within a reasonable time. (Correct answer)
- Offering a settlement based on a detailed repair estimate from a reputable body shop.
Correct answer: Failing to acknowledge pertinent communications regarding a claim within a reasonable time.
The Unfair Claims Settlement Practices Act (UCSPA), a model law by the NAIC, explicitly lists failing to act promptly upon communications related to claims as an unfair practice. The other options are standard and acceptable practices in the claims adjustment process.
Question 3: A policyholder has a standard auto policy but uses their vehicle to drive for a ridesharing service. They get into an accident while logged into the rideshare app but before accepting a ride. To ensure coverage for this specific situation, what is typically required?
- A commercial auto policy.
- A personal mobility endorsement.
- A ridesharing endorsement. (Correct answer)
- An increase in liability limits on the personal auto policy.
Correct answer: A ridesharing endorsement.
A standard personal auto policy typically excludes coverage when the vehicle is used for commercial purposes like ridesharing. A ridesharing endorsement, also known as a rider, is a specific addition to a personal auto policy that fills this coverage gap, providing protection during the period the driver is logged into the app but has not yet accepted a ride.
Question 4: A loss adjuster is handling a claim in a state with a 75% total loss threshold. The vehicle's ACV is determined to be $20,000. At what estimated repair cost must the adjuster declare the vehicle a total loss?
- $14,999
- $20,000
- $15,000 or more (Correct answer)
- $10,000
Correct answer: $15,000 or more
In states with a percentage-based total loss threshold, a vehicle is declared a total loss if the cost of repairs exceeds that percentage of the car's ACV. In this case, 75% of $20,000 is $15,000. Therefore, if the repair estimate is $15,000 or higher, the vehicle is considered a total loss.
Question 5: An insurer advises a third-party claimant with clear liability against their insured to file the claim under the claimant's own collision coverage to avoid paying the claim. According to most state regulations based on the NAIC model act, this practice is:
- A standard procedure to expedite the repair process.
- Permissible if the claimant agrees in writing.
- Considered an unfair claims practice. (Correct answer)
- Only prohibited if it results in a higher out-of-pocket cost for the claimant.
Correct answer: Considered an unfair claims practice.
The NAIC's Unfair Claims Settlement Practices Act and regulations adopted by many states specify that insurers shall not recommend that third-party claimants make a claim under their own policies solely to avoid paying claims where liability and damages are reasonably clear. This is considered an act of bad faith.
Question 6: What is the primary purpose of a policy endorsement in an automobile insurance contract?
- To provide a discount on the premium.
- To document the claims history of the policyholder.
- To modify, add, or delete coverage in the standard policy. (Correct answer)
- To list all the drivers covered under the policy.
Correct answer: To modify, add, or delete coverage in the standard policy.
An insurance endorsement, also known as a rider, is a written amendment to an insurance policy that changes the original terms. Its purpose is to customize the policy by adding, modifying, or removing specific coverages or provisions to better suit the insured's needs.
CALA - Certified Automotive Loss Adjuster Insurance Policy and Regulations Questions and Answers
An insured's vehicle has an Actual Cash Value (ACV) of $10,000.
The cost to repair the damages is $7,000, and the salvage value is $3,500.
In a state that uses the Total Loss Formula (TLF), how should the adjuster classify this claim?