16 Free California Property & Casualty Law Practice Questions (2026)
How to Use This California Law Question Set
Neither the Property nor the Casualty License Examination Objectives has a section labeled 'California law.' Cancellation and nonrenewal (§481.5, §§660-669.5, §670, §673, §§675-679.6), the Unfair Practices Act (§790.03), the FAIR Plan (§10090, §10091(c), §10095(i)), CAARP and workers' compensation statutes are tagged throughout Personal Lines and Commercial Insurance on both halves of the combined exam instead of sitting in one block. LanePrep gathers that material into a single course chapter because studying it as a scattered set of statute numbers across two objectives documents is harder than studying it once, in context.
This is also where a national study guide is least useful. SCIF's open-market role under §11784, the 'twenty-four hour coverage' concept under §1749.02, and the distinction between what the 12-hour ethics course under §1749(a)(1) must and must not teach under §1749.1(b) are California-specific, and none of them carry over from another state's producer exam.
These 16 questions come from chapter 8 of LanePrep's California Property & Casualty quiz bank and follow the three ways the exam approaches the topic: cancellation, nonrenewal and the Unfair Practices Act; the FAIR Plan and CAARP as the state's two residual-market mechanisms; and workers' compensation statutes together with the producer-ethics rules that apply to every license, not just this one.
Work them before you read the answer. Every question has the explanation folded underneath it. Guessing and then reading is worth more than reading and then agreeing.
Practice Questions 1-5: Cancellation, Nonrenewal and the Unfair Practices Act
A policy can be cancelled mid-term for specific, limited reasons — nonpayment, a substantial increase in hazard — and each one carries its own notice requirements, including separate notice to a mortgagee whose interest is on file. The Unfair Practices Act's 16 prohibited claims practices and its ethics expectations for producers sit alongside those cancellation rules.
Question 1 (Chapter 8)
An insurer cancels a commercial property policy for non-payment of premium. The notice of cancellation was mailed 15 days before the effective date of cancellation. The insured received the notice 5 days before the cancellation date. Under California Insurance Code §673, which statement is correct regarding the validity of the cancellation?
- A) The cancellation is valid only if the insurer also provided notice to the mortgagee or loss payee as required by §673.
- B) The cancellation is valid because the insurer mailed the notice within the required time period for non-payment of premium.
- C) The cancellation is invalid because the insurer must provide at least 20 days' notice for non-payment of premium on commercial policies.
- D) The cancellation is invalid because notice must be delivered personally to the insured to be valid under California law.
Show answer & explanation
Answer: A
Under §673, when a commercial property policy is cancelled, the insurer must notify not only the named insured but also any mortgagee, loss payee, or other interested party whose interest appears on the policy, so that interest is protected even if the named insured's coverage ends. Mailing notice to the named insured alone is not sufficient if an interested party of record was not also notified. Option B is incorrect because notifying the named insured is not enough on its own. Option C is incorrect because California law does not set a 20-day minimum tied specifically to this scenario. Option D is incorrect because notice may be given by mail; personal delivery is not required.
Question 2 (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.
Show answer & explanation
Answer: A
Under California law and standard policy provisions, a mortgagee named on a commercial property policy is entitled to its own advance notice of cancellation, separate from the notice sent to the named insured, so the bank can act to protect its interest even if the named insured's own coverage is being cancelled for cause. Option B is incorrect because the mortgagee's interest is not automatically extinguished along with the insured's. Option C is incorrect because nothing requires the mortgagee to pay the premium to keep the policy in force. Option D is incorrect because the FAIR Plan does not automatically step in for a cancelled commercial policy without a new application.
Question 3 (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.
Show answer & explanation
Answer: B
Under CIC §676, one of the valid reasons for cancelling a commercial policy after it has been in effect is a 'substantial increase in the hazard insured against'—in this case, moving from low-risk textiles to high-risk explosives (fireworks).
Question 4 (Chapter 8)
A producer is conducting an interview with a neighbor of an applicant to gather information about the applicant's lifestyle and habits, but the producer does not identify themselves as an insurance professional and pretends to be a delivery driver. This is an example of:
- A) A standard investigative consumer report.
- B) Due diligence required by the California Insurance Code.
- C) A pretext interview, which is generally prohibited under CIC §791.03.
- D) A lawful 'blind' risk assessment.
Show answer & explanation
Answer: C
CIC §791.03 prohibits pretext interviews—interviews where the person misrepresents their identity or the purpose of the interview—except in limited cases involving suspected fraud or material misrepresentation.
Question 5 (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.
Show answer & explanation
Answer: B
Ethical mandates for producers include representing products truthfully and using layperson's language. Misrepresenting coverage (Option D) or hiding exclusions (Option C) is unethical and potentially illegal under the Unfair Practices Act.
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Practice Questions 6-11: The FAIR Plan and CAARP
California runs two residual-market mechanisms for risks the voluntary market will not take: the FAIR Plan for property, limited to a specific statutory list of perils and required by law to shrink over time, and CAARP for auto, open to personal and commercial risks alike once admitted insurers have declined them.
Question 6 (Chapter 8)
A FAIR Plan policy covers a dwelling in a high-risk wildfire area. Which of the following perils is NOT covered under a basic FAIR Plan property insurance policy?
- A) Fire or lightning
- B) Explosion
- C) Earthquake
- D) Windstorm or hail
Show answer & explanation
Answer: C
Under California Insurance Code §10091(c), basic property insurance through the FAIR Plan covers fire or lightning, explosion, smoke, windstorm or hail, vehicles, and vandalism or malicious mischief. Earthquake is not included in the basic FAIR Plan coverage and requires a separate policy or endorsement, such as through the California Earthquake Authority. Therefore, earthquake is the peril NOT covered. Options A, B, and D are all explicitly covered perils under the FAIR Plan.
Question 7 (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)
Show answer & explanation
Answer: D
California Insurance Code §10095(i) specifically requires the FAIR Plan to reduce its existing policyholders over time and move more policies to admitted insurers. Section 10090 establishes the FAIR Plan's purpose and eligibility. Section 10091(c) defines 'basic property insurance.' Section 10095(a) outlines other FAIR Plan powers but does not contain the specific reduction mandate. Therefore, option D is correct.
Question 8 (Chapter 8)
A licensed producer wants to submit an application for FAIR Plan coverage on behalf of a client. Which of the following is required for the producer to be eligible to submit such an application?
- A) The producer must be appointed by the FAIR Plan as a licensed agent and have completed FAIR Plan-specific training within the past year.
- B) The producer must have placed the risk with at least three admitted insurers who all declined coverage before applying to the FAIR Plan.
- C) The producer must be employed by a surplus lines broker to submit applications to the FAIR Plan.
- D) The producer must hold a valid property and casualty license issued by the California Department of Insurance (CDI).
Show answer & explanation
Answer: D
Under California Insurance Code §10091, any licensed property and casualty insurance agent or broker is eligible to submit applications for FAIR Plan coverage. There is no requirement for FAIR Plan-specific appointment, training, or a set number of prior declinations from admitted insurers (though the FAIR Plan is intended as a last resort, the law does not mandate a specific number of declinations), and the producer does not need to be a surplus lines broker. Therefore, holding a valid P&C license issued by the CDI is the only requirement among the options. Options A, B, and C impose additional conditions not required by statute.
Question 9 (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.
Show answer & explanation
Answer: D
To be eligible for CAARP, an applicant must be a California resident with a valid California driver's license and own or regularly operate a vehicle in California. There is no requirement to be declined by a specific number of insurers. While insurance fraud convictions may affect eligibility, the statute does not specify a five-year bar; eligibility is determined by the plan's rules. Commercial risks are eligible for CAARP under certain conditions, such as for trucks or fleets used in California. Option D correctly states the core eligibility requirements: California residency and a valid California driver's license.
Question 10 (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.
Show answer & explanation
Answer: D
CAARP is not limited to personal vehicles; commercial risks such as taxi cabs, trucks, and fleets are eligible for coverage if they operate in California and the applicant meets eligibility requirements (California residency, valid California driver's license). There is no vehicle count limit or interstate operation requirement. The risk is eligible because it is a commercial risk operating in California and has been declined by admitted insurers, which is a common pathway to the assigned risk plan.
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.
Show answer & explanation
Answer: C
In CAARP, producers act as facilitators but do not have the authority to bind coverage. Coverage is effective only after the plan processes the application and assigns it to an insurer, or as specified by the plan's rules regarding the effective date of assignment.
Practice Questions 12-16: Workers' Compensation Statutes and Producer Ethics
Workers' compensation brings its own layer of California-specific statutes — employers' liability as a narrow exception to the exclusive remedy, coverage for employees temporarily working out of state, and the '24-hour coverage' concept that blends workers' comp with ordinary health insurance. Producer ethics closes the set with the rules around the mandatory 12-hour course itself.
Question 12 (Chapter 8)
An employer in California is reviewing their workers' compensation policy and questions why employers' liability coverage is included. Which statement best explains the necessity of employers' liability coverage in addition to workers' compensation benefits under California Insurance Code §11750.1(f)?
- A) Employers' liability coverage pays for workplace injuries that exceed the statutory workers' compensation benefit limits.
- B) Employers' liability coverage provides benefits for non-work-related injuries that occur on the employer's premises.
- C) Employers' liability coverage replaces workers' compensation benefits if the employee elects to sue for damages instead of accepting statutory benefits.
- D) Employers' liability coverage is required to cover claims where the employee's exclusive remedy under workers' compensation does not apply, such as third-party-over actions or dual-capacity suits.
Show answer & explanation
Answer: D
Under California Insurance Code §11750.1(f), employers' liability coverage is necessary because workers' compensation provides the exclusive remedy for most workplace injuries, but there are exceptions where an employee can still sue the employer, such as third-party-over actions (where an employee injures a third party who then sues the employer) or dual-capacity suits (where the employer stands in two capacities, e.g., as employer and manufacturer of a product that caused the injury). Employers' liability coverage responds to these types of claims. Option A is incorrect because employers' liability does not pay amounts simply exceeding statutory workers' compensation limits. Option B is incorrect because employers' liability does not cover non-work-related injuries. Option C is incorrect because the exclusive remedy doctrine bars an employee from electing a lawsuit instead of statutory benefits; employers' liability covers specific exceptions to that doctrine, not a general opt-out.
Question 13 (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.
Show answer & explanation
Answer: D
Under California Insurance Code §11780.5, the 'other states' insurance endorsement in a workers' compensation policy provides coverage for employees who are temporarily employed in other states, ensuring that the employer meets those states' workers' compensation requirements. It does not allow opting out of California's system (option A is incorrect), nor does it cover independent contractors (option B is incorrect; it covers employees). It is not for duplicating employer's liability coverage (option C is incorrect; that is addressed separately under §11750.1(f)). Therefore, option D is correct.
Question 14 (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.
Show answer & explanation
Answer: A
Under California Insurance Code §1749.02, 'twenty-four hour coverage' describes a concept in which an employer combines workers' compensation insurance with traditional health insurance so that an employee's medical needs are managed under one program regardless of whether the injury or illness happened on or off the job. It is not a reporting deadline (Option B), a limit tied to a specific hour after a shift begins (Option C), or a payment-speed requirement (Option D).
Question 15 (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.
Show answer & explanation
Answer: D
Under California Insurance Code §1749(a)(1), the 12-hour ethics and California Insurance Code course (including one hour on insurance fraud) is required before the CDI issues the license, but it is not required before the examination; it may be completed after passing the exam but prior to license issuance. Option A is incorrect because pre-licensing education, including this course, is no longer required before sitting for the exam (AB 943, effective 2026-01-01). Option B is incorrect because the course is not a prerequisite for submitting the license application—only for the license actually being issued. Option C is incorrect because the course is a one-time requirement for initial licensure, not a post-issuance maintenance condition.
Question 16 (Chapter 8)
Which of the following activities is prohibited for a pre-licensing or continuing education provider under California Insurance Code §1749.1(b) when conducting the required ethics and California Insurance Code course?
- A) Using motivational speakers to inspire students about career success in insurance.
- B) Including case studies that require students to identify unfair claims settlement practices.
- C) Teaching students how to calculate personal auto insurance premiums based on driving record.
- D) Discussing the ethical implications of using credit scores in underwriting decisions.
Show answer & explanation
Answer: A
California Insurance Code §1749.1(b) prohibits the ethics and California Insurance Code course from including sales training, motivational training, self-improvement training, or training on new insurer products or programs. Using motivational speakers to inspire students about career success constitutes motivational training, which is explicitly prohibited. Option B is permitted because case studies on unfair claims practices relate directly to ethics and the Code. Option C is permissible because premium-calculation instruction is product/underwriting knowledge, not sales or motivational training. Option D is allowed as it falls within ethics education on underwriting practices.
The California Law Mistakes That Cost Marks
Treating any mailed cancellation notice as sufficient. §673 requires notice to every mortgagee, loss payee or other interested party on file, not just the named insured. A cancellation that only reaches the policyholder can still be deficient if a lender of record was never notified.
Assuming the FAIR Plan covers what a standard policy covers. §10091(c) limits FAIR Plan basic property insurance to a specific list — fire, lightning, explosion, smoke, windstorm or hail, vehicles, and vandalism or malicious mischief. Earthquake, flood and landslide are not on that list; a Difference in Conditions policy exists specifically to fill that gap, not to duplicate the FAIR Plan.
Adding conditions to CAARP eligibility that the statute does not impose. There is no fixed number of prior declinations required, no vehicle-count cap, and commercial risks like taxi fleets and trucking operations are eligible on the same footing as personal auto — the exam tests the actual residency and licensing requirements, not assumptions carried over from other residual-market mechanisms.
Forgetting that workers' compensation's exclusive remedy is the default, not the exception. An employee injured on the job generally cannot sue the employer in tort, even for alleged negligence like inadequate safety training. Employers' liability coverage under §11750.1(f) responds only to the narrow exceptions — third-party-over actions, dual-capacity suits — not to ordinary workplace injury claims.
Citing the pre-licensing course as if it still applies. AB 943 removed California's 20-hour pre-licensing requirement effective January 1, 2026. The 12-hour ethics and Insurance Code course under §1749(a)(1) still has to happen, but before the license is issued, not before the exam — and §1749.1(b) bars that course from including sales, motivational or product-specific training, a distinction the exam tests directly.
Reading the Unfair Practices Act as claims-only. §790.03's 16 prohibited practices cover misrepresentation to claimants, but they also reach a producer's own sales conduct — overstating what a policy covers to a client is the same statute, not a separate rule.
Your Next Step
How did you score?
- 14 or more correct (88%+): You have this material covered. Move to personal lines property, the single biggest section on the Property exam, and the 25-question sample for a check across the whole exam.
- 10-13 correct: You are close but not secure on a topic that is woven through both halves of the exam rather than confined to one section. Note which statute (cancellation, the FAIR Plan, CAARP, workers' compensation or the ethics-course rules) tripped you up and re-listen to that part of chapter 8 before retesting.
- Under 10 correct: This is the material a national study guide is least likely to cover accurately, since it is California-specific and scattered across two objectives documents rather than labeled as its own section. Start with chapter 8 of the LanePrep California course and work the statutes one group at a time rather than retesting immediately.
Chapters 1 and 9 are free at /ca/p-and-c/preview — the full audio and the quiz, no signup. For a full-length timed run, try the practice exam.
Statute citations come from the California Insurance Code as referenced in the CDI's Property and Casualty License Examination Objectives, effective January 1, 2026. Read October 2026.
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