17 Free California Property & Casualty Practice Questions: California Law: Cancellation, Unfair Practices, FAIR Plan, CAARP and Ethics (2026)

Question 1 (Chapter 8)

A producer is explaining the FAIR Plan to a client who owns a brush-covered property in a high-risk wildfire area. The client asks what perils are covered under a basic FAIR Plan property insurance policy. Which of the following accurately describes the coverage?

• A) The FAIR Plan policy covers all perils except earthquake, flood, and landslide, making it equivalent to a standard HO-3 policy.
• B) The FAIR Plan policy covers fire and extended coverage, but excludes vandalism and malicious mischief unless specifically endorsed.
• C) The FAIR Plan policy covers the same perils as a Difference in Conditions (DIC) policy, including earthquake and flood.
• D) The FAIR Plan policy covers only fire, lightning, explosion, smoke, windstorm or hail, vehicles, and vandalism or malicious mischief.

Question 2 (Chapter 8)

The FAIR Plan is required by law to reduce its existing policyholders over time and move more policies to admitted insurers. Which California Insurance Code section mandates this requirement?

• A) Section 10090
• B) Section 10091(c)
• C) Section 10095(a)
• D) Section 10095(i)

Question 3 (Chapter 8)

A workers' compensation policy includes an 'other states' insurance' endorsement. What is the purpose of this endorsement under California Insurance Code §11780.5?

• A) To allow the employer to opt out of California's workers' compensation system and rely solely on federal programs.
• B) To cover liability for injuries to independent contractors working in other states.
• C) To duplicate the employer's liability coverage for out-of-state operations.
• D) To provide coverage for employees who are temporarily working in states other than California, ensuring compliance with those states' workers' compensation laws.

Question 4 (Chapter 8)

A producer completes the required 12-hour ethics and California Insurance Code course, which includes one hour on insurance fraud. When must this course be completed in relation to the licensing process?

• A) Before sitting for the state licensing examination.
• B) Before the license application is submitted to the CDI.
• C) Within 60 days after the license is issued to maintain active status.
• D) Before the CDI issues the license, but it may be completed after passing the examination.

Question 5 (Chapter 8)

A risk is placed with the California State Compensation Insurance Fund (SCIF) for workers' compensation coverage. Which of the following statements is true regarding eligibility to place business with SCIF under California Insurance Code §11784?

• A) Only employers who have been declined by three or more admitted workers' compensation insurers are eligible to place business with SCIF.
• B) SCIF only accepts risks that are also placed with the FAIR Plan for property coverage.
• C) Employers must first obtain a certificate of self-insurance before being eligible to place business with SCIF.
• D) Any employer operating in California is eligible to place workers' compensation business with SCIF, regardless of their admission status with other carriers.

Question 6 (Chapter 8)

A FAIR Plan policy covers a dwelling in a high-risk wildfire area. The policyholder also purchases a Difference in Conditions (DIC) policy to cover additional perils. Which statement accurately describes the relationship between the FAIR Plan policy and the DIC policy?

• A) The FAIR Plan policy provides all-risk coverage, and the DIC policy is unnecessary for comprehensive protection.
• B) The FAIR Plan policy covers only fire and lightning, while the DIC policy covers all other perils including earthquake and flood.
• C) The DIC policy must be purchased from the same insurer as the FAIR Plan policy to avoid coverage gaps or overlaps.
• D) The FAIR Plan policy covers basic perils such as fire, lightning, explosion, smoke, windstorm, hail, vehicles, and vandalism, and the DIC policy covers additional perils like earthquake and flood not included in the FAIR Plan.

Question 7 (Chapter 8)

Under the California Automobile Assigned Risk Plan (CAARP), which of the following statements is correct regarding eligibility for applicants?

• A) Applicants must have been declined coverage by at least three admitted insurers to be eligible for CAARP.
• B) Applicants are ineligible if they have been convicted of insurance fraud within the past five years.
• C) Only individuals who own personal vehicles are eligible; commercial risks are never eligible for CAARP.
• D) Applicants must reside in California and have a valid California driver's license to be eligible for CAARP.

Question 8 (Chapter 8)

Under the California Automobile Assigned Risk Plan (CAARP), a producer is attempting to place coverage for a taxi cab business that operates solely within Los Angeles County. The risk has been declined by admitted insurers. Which statement is correct regarding the producer's ability to place this risk through CAARP?

• A) The risk is ineligible for CAARP because taxi cabs are considered commercial risks and CAARP only covers personal vehicles.
• B) The risk is eligible for CAARP only if the taxi cab business has fewer than five vehicles.
• C) The risk is ineligible for CAARP because it operates solely within one county and does not meet the interstate operation requirement.
• D) The risk is eligible for CAARP because it is a commercial risk operating in California, and the producer may place it through the plan after being declined by admitted insurers.

Question 9 (Chapter 8)

A producer is explaining the concept of 'twenty-four hour coverage' in the context of workers' compensation to a client. Which statement accurately reflects the meaning of this term as referenced in California Insurance Code §1749.02?

• A) It refers to a combination of workers' compensation insurance and traditional health insurance, intended to manage all of an employee's medical needs under one program, whether the injury or illness is work-related or not.
• B) It means the employer must report any workplace injury to the claims administrator within 24 hours of occurrence.
• C) It limits coverage to only those injuries that occur exactly 24 hours after the start of a work shift.
• D) It requires the insurer to pay all medical benefits within 24 hours of receiving a claim.

Question 10 (Chapter 8)

A commercial property owner has a mortgage with a local bank. The insurer decides to cancel the policy due to the owner's failure to comply with safety recommendations that significantly increased the risk of fire. According to the California Insurance Code, what protection is afforded to the mortgagee in this scenario?

• A) The insurer must provide the mortgagee with the same advance notice of cancellation as the named insured to protect the bank's interest.
• B) The mortgagee's coverage is automatically terminated at the same moment as the named insured's coverage.
• C) The mortgagee is required to pay the full annual premium immediately to keep the policy in force for the insured.
• D) The California FAIR Plan must automatically take over the mortgagee's interest without a new application.

Question 11 (Chapter 8)

A producer is helping a client with a poor driving record apply for auto insurance through the California Automobile Assigned Risk Plan (CAARP). The client pays the premium deposit and signs the application. When is the producer authorized to bind coverage?

• A) Immediately upon receipt of the premium deposit.
• B) As soon as the application is mailed to the CAARP administrator.
• C) Producers do not have binding authority for CAARP; coverage is assigned and bound by the plan or the designated insurer.
• D) Only after the producer receives a verbal confirmation from the California Department of Insurance.

Question 12 (Chapter 8)

During a claim investigation, an adjuster falsely tells a claimant that their policy does not cover 'smoke damage' from a nearby wildfire, even though the policy explicitly includes smoke as a covered peril. Which California statute is the insurer violating?

• A) The California FAIR Plan Act (§10090).
• B) The Surplus Lines Disclosure Act (§1764.1).
• C) The Unfair Practices Act (§790.03) regarding unfair claims settlement practices.
• D) The Workers' Compensation Exclusive Remedy Doctrine.

Question 13 (Chapter 8)

A homeowner has a FAIR Plan policy for their dwelling in a high-risk canyon. They are concerned that the FAIR Plan only covers basic perils like fire and windstorm. The producer recommends a 'Difference in Conditions' (DIC) policy. What is the primary purpose of the DIC policy in this scenario?

• A) To provide liability and theft coverage that the FAIR Plan policy lacks.
• B) To replace the FAIR Plan policy entirely with better fire coverage.
• C) To act as a secondary fire policy that pays only after the FAIR Plan limits are exhausted.
• D) To cover the deductible of the FAIR Plan policy.

Question 14 (Chapter 8)

An employee is injured while working at a temporary job site in Arizona for their California-based employer. The employer's California Workers' Compensation policy includes 'Other States Insurance.' How does CIC §11780.5 apply?

• A) It requires the employee to sue the employer in Arizona civil court first.
• B) It mandates that Arizona law must always follow California benefit levels regardless of the policy.
• C) It prohibits any coverage for injuries occurring outside of California state lines.
• D) It allows the California policy to provide benefits as required by the laws of the other state listed on the policy.

Question 15 (Chapter 8)

A newly licensed producer is attending a mandatory 12-hour ethics and California Insurance Code course. According to CIC §1749.1(b), which of the following topics is STRICTLY PROHIBITED from being included in the curriculum of this course?

• A) Motivational training and sales techniques to increase production.
• B) Procedures for reporting insurance fraud.
• C) The 16 unfair claims settlement practices.
• D) The history of the California Insurance Code.

Question 16 (Chapter 8)

An insurer sends a notice of cancellation for a commercial property policy because the insured began storing large quantities of fireworks in a warehouse permitted only for textile storage. This is an example of which permitted reason for cancellation?

• A) Non-payment of premium.
• B) A substantial increase in the hazard insured against.
• C) Loss of reinsurance by the carrier.
• D) A change in the insurer's underwriting profit goals.

Question 17 (Chapter 8)

A producer is explaining a complex commercial general liability policy to a small business owner. To act ethically and in accordance with California standards, the producer should:

• A) Use highly technical legal jargon to ensure the client knows the producer is an expert.
• B) Use layperson's language to ensure the client understands the coverage and its limitations.
• C) Omit mentioning the exclusions to avoid confusing the client and making them nervous.
• D) Tell the client that the policy covers 'everything' to provide peace of mind.