Los Angeles Claims Adjuster Property and Causality Practice Exam

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When may an insurer refuse to pay claims under a CGL policy?

  1. If the insured is negligent

  2. If the insured becomes insolvent

  3. If the insured fails to report an incident

  4. If the insured's business closes

The correct answer is: If the insured becomes insolvent

The correct answer, which identifies a situation where an insurer may refuse to pay claims under a Commercial General Liability (CGL) policy, is linked to the insured's insolvency. When the insured becomes insolvent, this financial state can severely impact the insurer's ability to collect premiums and manage claims effectively. Insolvency often leads to complications regarding the obligations of both the insured and the insurer. In the instance of insolvency, it may imply that the insured is unable to meet their financial commitments, including those related to the policy. This situation can drastically affect the handling of open claims as it might relate to ongoing business operations or the capacity to defend against claims. An insurer typically reserves the right to assess the risk and coverage based on the financial viability of the insured; thus, insolvency can be a valid reason for the insurer to refuse payment. On the other hand, options involving negligence, failure to report incidents, or business closure do not necessarily invalidate the coverage itself. For example, negligence may lead to disputes over coverage limits or defense obligations but does not automatically exclude coverage under a CGL policy. Failing to report an incident could complicate the claims process but would not universally lead to a denial of claims. Finally, a business closing may