Study guide
18.1 Unfair Trade Practices and Unfair Claims Settlement
Arkansas Property & Casualty Insurance State
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1 Standalone Coverage Map
Standalone Coverage Map
2 Introduction: Arkansas Property & Casualty Insurance Exam Overview
Arkansas Property & Casualty Exam Overview
3 National Portion: Insurance Fundamentals
1.1 Risk, Hazards, Perils, and the Law of Large Numbers 1.2 Insurable Interest, Indemnity, and Other Insurance Principles 1.3 Insurance Contract Law and Elements 1.4 Policy Structure: Declarations, Insuring Agreement, Conditions, Exclusions 1.5 Parties, Agents vs. Brokers, and Authority
4 National Portion: Property Insurance Concepts
2.1 Causes of Loss / Named-Peril vs. Open-Peril 2.2 Valuation: ACV, Replacement Cost, and Functional Value 2.3 Coinsurance and the Coinsurance Formula 2.4 Deductibles, Limits, and Loss Settlement 2.5 Common Property Policy Conditions and Clauses
5 National Portion: Dwelling Policies (DP)
3.1 Dwelling Policy Forms DP-1, DP-2, DP-3 3.2 Dwelling Coverages A-E and Other Coverages 3.3 Dwelling Perils, Conditions, and Endorsements 3.4 Mobile Home and Specialized Dwelling Coverage
6 National Portion: Homeowners Policies - Forms & Section I
4.1 Homeowners Forms HO-2 through HO-8 and Eligibility 4.2 Section I Coverages A-D and Additional Coverages 4.3 Section I Perils Insured Against and Exclusions 4.4 Replacement Cost vs. ACV and Loss Settlement in Homeowners
7 National Portion: Homeowners Policies - Section II & Endorsements
5.1 Section II Coverages E (Liability) and F (Medical Payments) 5.2 Homeowners Conditions and Duties After Loss 5.3 Common Homeowners Endorsements (scheduled property, water backup, ordinance or law)
8 National Portion: Personal Auto Policy - Liability & Injury
6.1 Personal Auto Policy Structure and Eligibility 6.2 Part A Liability and Supplementary Payments 6.3 Part B Medical Payments 6.4 Part C Uninsured/Underinsured Motorists
9 National Portion: Personal Auto Policy - Physical Damage & Duties
7.1 Part D: Coverage for Damage to Your Auto 7.2 Exclusions and Part E: Duties After an Accident 7.3 Part F: General Provisions, Endorsements, and No-Fault Concepts
10 National Portion: Liability Insurance Concepts
8.1 Negligence, Torts, and Legal Liability 8.2 Defenses, Damages, and Vicarious Liability 8.3 Occurrence vs. Claims-Made Triggers 8.4 Bodily Injury, Property Damage, and Personal/Advertising Injury
11 National Portion: Commercial Property Insurance
9.1 Commercial Package Policy Structure and Common Policy Conditions 9.2 Building and Personal Property Coverage Form (BPP) 9.3 Causes of Loss Forms (Basic, Broad, Special) 9.4 Business Income and Extra Expense 9.5 Commercial Property Endorsements and the BOP
12 National Portion: Commercial General Liability - Coverages
10.1 CGL Coverage A: Bodily Injury and Property Damage Liability 10.2 CGL Coverage B: Personal and Advertising Injury, Coverage C: Medical Payments 10.3 Who Is an Insured and Supplementary Payments
13 National Portion: Commercial General Liability - Limits, Triggers & Exclusions
11.1 CGL Limits of Insurance and Aggregates 11.2 Occurrence vs. Claims-Made CGL and Retroactive Dates 11.3 Key CGL Exclusions and Endorsements
14 National Portion: Commercial Auto Insurance
12.1 Business Auto Coverage Form and Covered Auto Symbols 12.2 Commercial Auto Liability and Physical Damage 12.3 Motor Carrier / Trucking and MCS-90 12.4 Garage Coverage Form and Garagekeepers 12.5 Commercial Auto Endorsements
15 National Portion: Workers Compensation
13.1 Workers Compensation Statutory Background and Benefits 13.2 Part One (Workers Comp) and Part Two (Employers Liability) 13.3 Premium Basis, Experience Modification, and Classification 13.4 Other States, USL&H, and Federal Acts 13.5 Workers Comp Exclusions and Endorsements
16 National Portion: Other Commercial Lines - BOP, Crime & Marine
14.1 Businessowners Policy (BOP) in Depth 14.2 Crime and Fidelity Coverage 14.3 Inland Marine and Nationwide Marine Definition 14.4 Ocean Marine Coverages (Hull, Cargo, Freight, P&I)
17 National Portion: Other Commercial Lines - Specialty & Professional
15.1 Farm and Agricultural Coverage 15.2 Commercial Umbrella and Excess Liability 15.3 Professional Liability and Errors & Omissions 15.4 Directors & Officers and Employment Practices Liability
18 National Portion: Other Commercial Lines - Surety, Flood & Specialty
16.1 Surety and Fidelity Bonds 16.2 National Flood Insurance Program (NFIP) 16.3 Cyber, Aviation, and Other Specialty Lines
19 National Portion: Insurance Regulation & Market Conduct
17.1 State Regulation, Licensing, and the McCarran-Ferguson Act 17.2 Rates, Forms, Solvency, and Guaranty Associations 17.3 Producer Authority, Fiduciary Duty, and Company Operations
20 National Portion: Ethics & Unfair Trade Practices
18.1 Unfair Trade Practices and Unfair Claims Settlement 18.2 Producer Ethics, Errors & Omissions Exposure, and Fiduciary Conduct 18.3 Privacy, Fraud, and Consumer Protection
21 Chapter 1: Arkansas P&C Insurance Regulation & Licensing
1.1 Arkansas Insurance Department 1.2 Arkansas P&C Producer Licensing Requirements 1.3 Arkansas Producer Responsibilities
22 Chapter 2: Arkansas Property Insurance
2.1 Arkansas Homeowners Insurance 2.2 Arkansas Commercial Property Insurance
23 Chapter 3: Arkansas Casualty & Auto Insurance
3.1 Arkansas Auto Insurance Requirements 3.2 Arkansas Liability Insurance 3.3 Arkansas Workers' Compensation Insurance
24 Chapter 4: Arkansas Ethics & Professional Conduct
4.1 Ethical Practices and Consumer Protection
18.1 Unfair Trade Practices and Unfair Claims Settlement
Key Takeaways Explain This Topic AI
Every state adopts versions of the NAIC Unfair Trade Practices Act (UTPA) for sales conduct and the Unfair Claims Settlement Practices Act (UCSPA) for claims handling.
TWISTING induces replacement with a DIFFERENT insurer through misrepresentation; CHURNING replaces with the SAME insurer to harvest new commissions.
REBATING is offering anything of value not stated in the policy as an inducement to buy, illegal in most states even when the buyer requests it.
A single UCSPA violation is a market-conduct issue, but a GENERAL BUSINESS PRACTICE (pattern) triggers the harshest penalties.
BAD FAITH is a tort: damages can exceed the policy limit, unlike an ordinary breach of contract capped at the limit.
Last updated: June 2026
Two NAIC Model Acts
The national exam tests two parallel frameworks adopted in some form by every state. The NAIC Unfair Trade Practices Act (UTPA) governs the marketing and sale of insurance; the companion Unfair Claims Settlement Practices Act (UCSPA) governs how an insurer handles a claim after a loss. Examiners exploit the subtle boundaries between named offenses, so learn each definition by its precise mechanism .
UTPA: Prohibited Sales Conduct
Misrepresentation is any false or misleading statement about policy terms, benefits, dividends, premiums, or the insurer's financial condition. It need not be intentional; a negligent misstatement still counts. Telling a buyer that a Personal Auto Policy collision endorsement "covers mechanical breakdown" is misrepresentation.
Twisting and churning both involve replacing an in-force policy, and the exam draws a bright line between them.
- Offense Replacement target Mechanism
- Twisting A DIFFERENT (competing) insurer Misrepresentation drives the lapse and rewrite
- Churning The SAME insurer Existing policy values fund a new policy
Memory hook: T wisting = T wo companies; C hurning = same C ompany.
Rebating and Unfair Discrimination
Rebating is offering anything of value not specified in the policy as an inducement to buy, illegal in most states even when the buyer asks for it because it creates unfair treatment between similarly situated buyers.
- Prohibited (rebating) Generally allowed
- Returning part of the commission Dividends stated in the contract
- Paying the client's premium Filed rate discounts open to all
- Gifts over the statutory cap ($25-$100) Nominal items (pens, calendars) under the cap
Unfair discrimination is rate or coverage distinctions based on protected classes (race, religion, national origin). Distinctions based on actuarial risk (driving record, loss history) are fair and required to keep rates not unfairly discriminatory. Charging two people in the same risk class different rates is unfair; charging different rates across different risk classes is fair.
Other UTPA offenses: defamation (false statements injuring a competitor; libel is written, slander is spoken), coercion , boycott , false advertising , and controlled business (writing primarily on the producer's own circle, usually capped at 25-50% of volume).
Lawful Replacement vs. Twisting
Not all replacement is illegal. A producer may recommend replacing a policy when it genuinely benefits the client, for example broader coverage, a lower premium for equal protection, or a more financially sound insurer. The line is crossed only when misrepresentation or an incomplete comparison drives the sale, and most states require a replacement notice so the client can compare honestly.
The exam test is intent and honesty: was the customer misled, and did the producer benefit at the customer's expense? Newer prohibited practices include sliding (adding products the customer did not knowingly request, such as "required" towing coverage) and advertising "free" insurance as an inducement.
UCSPA: Claims Handling
The UCSPA forces prompt, fair claim treatment. Memorize the sequence and typical windows; exact numbers vary by state.
- Action Typical timeframe
- Acknowledge the claim 10-15 days from notice
- Begin investigation Promptly upon notice
- Affirm or deny coverage 30-60 days after proof of loss
- Pay an accepted claim 30-60 days after agreement
A denial must be in writing and cite the specific policy provision, exclusion, or condition relied upon. The insurer must pay the undisputed portion while continuing to investigate any disputed portion; it cannot freeze the entire payment because part is contested.
Most states layer prompt-payment statutes on top of the UCSPA, commonly requiring payment within 30-60 days of an accepted proof of loss and charging statutory interest (often 9-18% annually) on overdue amounts. Legitimate extensions exist when a genuine coverage dispute, a need for additional information, or an active fraud investigation applies, but a pretextual "investigation" used to stall becomes bad faith.
The enumerated unfair claims practices the exam tests most include misrepresenting policy provisions, failing to acknowledge communications promptly, refusing to pay without a reasonable investigation, and compelling insureds to litigate by offering substantially less than amounts later recovered in suit.
Bad Faith
Bad faith is the unreasonable denial, delay, or underpayment of a valid claim. First-party bad faith mishandles the policyholder's own claim (denying a clearly covered fire loss without investigation). Third-party bad faith is a liability insurer's failure to settle within policy limits, exposing the insured to an excess judgment . Because bad faith is a tort in many states, damages can exceed the policy limit, plus punitive damages and attorney fees, unlike an ordinary breach of contract capped at the limit.
Common Exam Traps
Rebating is illegal even if the customer requests it in most states.
A single mishandled claim is a violation, but a general business practice (pattern) triggers the most severe penalties.
Twisting vs. churning hinges on one fact: different insurer (twisting) vs. same insurer (churning).
A reasonable, documented denial is NOT bad faith.