Texas Property & Casualty: Advanced Policy Provisions

Correct

The answer is D: 10 days

Under Texas Insurance Code §551.104, an insurer that cancels a homeowners policy for nonpayment of premium must mail written notice, and the cancellation does not take effect until the 10th day after mailing. The same 10-day notice applies to the other permitted reasons, such as a fraudulent claim or an increase in hazard within the insured's control; Texas does not require a longer notice for reasons other than nonpayment. The insured can cancel at any time without a mandatory notice period.

Source: Insurance Code §551.104

Correct

The answer is A: $1,200

When the insurer initiates cancellation, the pro rata method is used, and the insured receives a full refund of unearned premium with no penalty. The policy was in force for 8 of 12 months, so earned premium is $3,600 x (8/12) = $2,400. The unearned premium refund is $3,600 - $2,400 = $1,200. Fraud in obtaining coverage is one of the few reasons Texas lets a commercial property insurer cancel after the policy's first 60 days (Insurance Code §551.052(c)(1)), and even then the insurer still owes the pro rata unearned premium refund.

Source: Insurance Code §551.052(c)(1)

Correct

The answer is C: The insurer has a statutory subrogation right against the third party

Under the Texas Labor Code (Chapter 417), a workers' compensation insurer is subrogated to the injured worker's rights against a third party who is liable for the injury. It can enforce that liability in the worker's name or join the worker's suit. Whatever is recovered first reimburses the insurer for the benefits it has paid, and anything left goes to the worker and counts as an advance against future benefits (§§417.001-.002).

Source: Insurance Code §417.001

Correct

The answer is A: Void the policy from inception and deny the claim

Intentional concealment of a material fact in obtaining a policy lets the insurer rescind it: void it from inception, return the premium and deny the claim. This remedy comes from the law of misrepresentation, not from the auto policy's Fraud condition, which deals with fraud in connection with a claim. DUI history is material because it directly affects underwriting and premium. In Texas, materiality is a question of fact (Insurance Code §705.004), and the insurer must give notice that it refuses to be bound within 90 days after discovering the falsity (§705.005).

Source: Insurance Code §705.004 · Insurance Code §705.005

Correct

The answer is A: 10 days

Under Texas Insurance Code §551.104, an insurer may cancel a homeowners policy for nonpayment of premium, a fraudulent claim, an increase in hazard within the insured's control that would raise the premium rate, or a department finding that keeping the policy in force would violate the law. A cancellation on any of these grounds does not take effect until the 10th day after the insurer mails notice to the insured (§551.104(e)), so 10 days is the statutory minimum. A policy form can promise longer notice: the Texas FAIR Plan homeowners policy, for example, gives 30 days for any reason other than nonpayment.

Source: Insurance Code §551.104 · Insurance Code §551.104(e)