Los Angeles Claims Adjuster Property and Causality Practice Exam

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What amount must an insurer pay to a claimant if their failure to pay is not justified?

$1,000
$2,500
$5,000
$10,000

The correct answer is: $5,000

In cases where an insurer fails to pay a claim without a justified reason, the amount may escalate due to various penalties or damages that reflect the impact of the insurer’s actions. In many jurisdictions, including California, if an insurer is found to have acted in bad faith or delayed payment unjustifiably, they may be responsible for paying not just the actual damages but also additional amounts that serve as penalties. The amount of $5,000 is often cited as a statutory penalty for bad faith practices in insurance claims. This amount is intended to act as a deterrent against wrongful denial of claims and to protect the rights of policyholders. By establishing a clear financial consequence for unjustified failures to pay, it incentivizes insurance companies to act responsibly and fairly in managing claims. In contrast, the other amounts typically fall outside the usual fines or penalties commonly referenced in insurance law. Therefore, the selection of $5,000 aligns with established standards in the industry regarding penalties for unjustified claim denial.