California Property & Casualty Insurance Practice Exam Free - 2026

• A. Permissible negotiation strategy
• B. Rebating
• C. Not attempting in good faith to effectuate a prompt, fair, and equitable settlement of a claim in which liability has become reasonably clear
• D. Churning

Correct answer: C. Not attempting in good faith to effectuate a prompt, fair, and equitable settlement of a claim in which liability has become reasonably clear

Explanation: The statute enumerates 16 unfair claims settlement practices, including failing to acknowledge and act reasonably promptly on claim communications and not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear. See Cal. Ins. Code 790.03.

• A. It is lawful if disclosed to the insurer
• B. It is only a civil infraction with a $250 fine
• C. It violates federal law but not California law
• D. It is a crime; a first conviction can bring up to one year in county jail and/or a fine of up to $50,000

Correct answer: D. It is a crime; a first conviction can bring up to one year in county jail and/or a fine of up to $50,000

Explanation: Any person engaged in processing, presenting, or negotiating claims who offers, delivers, receives, or accepts any rebate, refund, commission, or other consideration for the referral or procurement of clients or customers is guilty of a crime, punishable on first conviction by up to one year in county jail and/or a fine of up to $50,000. See Cal. Ins. Code 750.

• A. $15,000 per person / $30,000 per accident / $5,000 property damage
• B. $30,000 per person / $60,000 per accident / $15,000 property damage
• C. $25,000 per person / $50,000 per accident / $25,000 property damage
• D. $50,000 per person / $100,000 per accident / $25,000 property damage

Correct answer: B. $30,000 per person / $60,000 per accident / $15,000 property damage

Explanation: Effective January 1, 2025, Vehicle Code 16056 raised California's minimum limits to $30,000 for bodily injury or death of one person, $60,000 for two or more persons in one accident, and $15,000 for property damage. The old 15/30/5 limits no longer satisfy the law, and the statute schedules a further increase to 50/100/25 beginning January 1, 2035. See Cal. Veh. Code 16056.

• A. 10 percent
• B. 15 percent
• C. 20 percent
• D. 25 percent

Correct answer: C. 20 percent

Explanation: Proposition 103 requires every insurer to offer a Good Driver Discount policy to eligible drivers at a rate at least 20 percent below the rate the insured would otherwise be charged for the same coverage. The same section lists the three mandatory rating factors in decreasing order of importance: driving safety record, annual miles driven, and years of driving experience. See Cal. Ins. Code 1861.02.

• A. Coverage for ships, cargo, and related maritime exposures
• B. Flood insurance for coastal areas
• C. Coverage for marine animals
• D. Insurance for ocean-view properties

Correct answer: A. Coverage for ships, cargo, and related maritime exposures

Explanation: Ocean marine insurance covers ships (hull coverage), cargo being transported by water, freight charges, and liability for damage to others' property or vessels.

• A. Coverage protecting the corporation itself against bodily injury claims arising on its business premises
• B. Coverage protecting corporate directors and officers from personal liability for decisions
• C. Coverage protecting employee benefit plan trustees from claims of plan mismanagement
• D. Coverage protecting employers from claims of discrimination or wrongful termination

Correct answer: B. Coverage protecting corporate directors and officers from personal liability for decisions

Explanation: D&O liability insurance protects directors and officers of a company from personal liability when sued for alleged wrongful acts in managing the company, such as breach of fiduciary duty.

• A. Protection against claims of mismanagement against a company's directors and officers
• B. Protection paying medical and wage benefits to employees injured on the job
• C. Protection against claims of wrongful employment practices like harassment or discrimination
• D. Protection against claims that an employee benefit plan was administered negligently

Correct answer: C. Protection against claims of wrongful employment practices like harassment or discrimination

Explanation: EPL insurance protects employers against claims by employees alleging wrongful employment practices such as discrimination, sexual harassment, wrongful termination, or retaliation.

• A. Coverage for physical damage to computers and servers from fire or theft
• B. Coverage for a software developer's errors in the products it designs
• C. Coverage for the theft of cash and securities by a dishonest employee
• D. Coverage for data breaches, cyberattacks, and related exposures

Correct answer: D. Coverage for data breaches, cyberattacks, and related exposures

Explanation: Cyber liability insurance covers losses from data breaches, cyberattacks, network damage, and related liabilities including notification costs, credit monitoring, and legal expenses.

• A. Liability coverage for businesses that service, sell, or store vehicles
• B. Physical damage coverage for customers' vehicles left in the insured's care
• C. Liability coverage for a homeowner's detached garage and other structures
• D. Liability coverage for businesses that haul goods or passengers for hire

Correct answer: A. Liability coverage for businesses that service, sell, or store vehicles

Explanation: Garage liability insurance provides liability coverage for auto dealerships, repair shops, service stations, and other businesses that work with vehicles, covering both premises and auto liability exposures.

• A. Coverage for the cost of withdrawing a defective product from the market before anyone is hurt
• B. Coverage for claims arising from injuries or damage caused by products sold or manufactured
• C. Coverage for damage to the insured's own inventory while it is stored in the warehouse
• D. Coverage for claims arising from injuries occurring on the insured's premises during business hours

Correct answer: B. Coverage for claims arising from injuries or damage caused by products sold or manufactured

Explanation: Products liability insurance covers claims arising from bodily injury or property damage caused by products that a business manufactures, sells, or distributes.

• A. Coverage for liability arising from work while it is still in progress at a job site
• B. Coverage for the cost of redoing the insured's own defective work
• C. Coverage for liability arising from work after it has been completed
• D. Coverage for injuries to the insured's employees while finishing a job

Correct answer: C. Coverage for liability arising from work after it has been completed

Explanation: Completed operations coverage protects contractors and others against liability for bodily injury or property damage arising from work after it has been completed and handed over to the customer.

• A. Coverage for the insured's own property while it is loaned to another party
• B. A surety bond guaranteeing a defendant will appear in court when required
• C. Coverage for a landlord's liability for injuries to tenants on the premises
• D. Coverage for damage to property in someone's care, custody, or control

Correct answer: D. Coverage for damage to property in someone's care, custody, or control

Explanation: Bailee coverage applies to property of others in the insured's care, custody, or control, such as customer goods held by a repair shop or dry cleaner. Bailee legal liability forms pay only when the bailee is legally liable, while bailees customers forms pay for damage to customers' property whether or not the bailee is legally liable. The insured's own property is covered under its ordinary property insurance instead.