1
Montana All Lines Adjuster Pearson VUE Exam: 100 Practice Questions with Answers &
Rationales
Section 1: Insurance Principles & Concepts (Questions 1–20)
Q1. What is the primary duty of an adjuster when handling a claim?
A) Deny all questionable claims
B) Represent the insured in court
C) Investigate, evaluate, and settle claims fairly
D) Set rates for policyholders
Correct Answer: C
Rationale: The adjuster's core duty is to fairly investigate and evaluate claims according to
policy provisions and facts.
Q2. Which document establishes the contractual agreement between an insurer and an
insured?
A) Loss report
B) Insurance policy
C) Claim file
D) Adjuster log
Correct Answer: B
Rationale: The insurance policy is the legal contract defining coverage terms and obligations.
Q3. What does the principle of "utmost good faith" (uberrimae fidei) mean in insurance?
A) The insurer must always pay claims
B) Both parties must honestly disclose all material facts
C) The insured must always accept settlements
D) The insurer can withhold information
Correct Answer: B
Rationale: Utmost good faith requires both the insured and the insurer to act honestly and
disclose all material facts relevant to the insurance contract .
Q4. A policyholder fails to disclose a pre-existing medical condition when applying for
health insurance. This is an example of:
A) Waiver
B) Estoppel
C) Concealment
D) Indemnity
, 2
Correct Answer: C
Rationale: Concealment is the intentional withholding of material facts during the
application process. If discovered, it can void the policy .
Q5. What is the purpose of the principle of indemnity in insurance?
A) To allow the insured to profit from a loss
B) To restore the insured to their financial position before the loss
C) To provide unlimited compensation
D) To eliminate all financial risk
Correct Answer: B
Rationale: Indemnity limits compensation to actual covered financial loss, preventing the
insured from profiting from a claim.
Q6. What constitutes "actual cash value" (ACV)?
A) Replacement cost plus depreciation
B) Replacement cost minus depreciation
C) Market value plus tax
D) Original purchase price only
Correct Answer: B
Rationale: ACV equals replacement cost minus depreciation. It represents the value of the
property at the time of loss.
Q7. What is "subrogation" in insurance?
A) The insurer cancels the policy
B) The insurer transfers risk to the insured
C) The insurer recovers from a liable third party
D) The insured waives all rights
Correct Answer: C
Rationale: Subrogation allows the insurer to recover claim payments from a negligent third
party who caused the loss.
Q8. What is the "duty to defend" in liability insurance?
A) The insured hires their own attorney
B) The insurer provides legal defense for the insured
C) The court appoints a defense
D) A government defense program
Correct Answer: B
, 3
Rationale: Liability insurers must defend the insured against covered claims, even if the
claim is groundless or false.
Q9. Insurance contracts are called "contracts of adhesion" because:
A) Both parties have equal bargaining power
B) The insured can negotiate all terms
C) The insurer drafts the contract, and the insured must "adhere" to its terms
D) They are always in writing
Correct Answer: C
Rationale: Insurance contracts are contracts of adhesion because the insurer drafts the
policy language, and the insured has little or no ability to negotiate terms. Courts interpret
ambiguities in favor of the insured .
Q10. Which characteristic of an "aleatory" contract applies to insurance?
A) Both parties exchange equal values
B) The performance depends on an uncertain event
C) The contract is always profitable for the insured
D) The contract cannot be cancelled
Correct Answer: B
Rationale: Aleatory contracts involve an unequal exchange of value where the outcome
depends on a chance event. Insurance is aleatory because the insured pays premiums but
may never collect benefits, or may collect much more than premiums paid .
Q11. Insurance contracts are "unilateral" because:
A) Both parties make legally enforceable promises
B) Only the insurer makes a legally enforceable promise
C) The contract cannot be cancelled
D) The contract is verbal
Correct Answer: B
Rationale: Insurance contracts are unilateral because only the insurer makes a legally
enforceable promise (to pay claims), while the insured's duty is to pay premiums .
Q12. What does "proximate cause" refer to in insurance?
A) The time the loss occurred
B) The primary or dominant cause of a loss
C) The distance of the loss
D) The total amount of the loss
Correct Answer: B
Montana All Lines Adjuster Pearson VUE Exam: 100 Practice Questions with Answers &
Rationales
Section 1: Insurance Principles & Concepts (Questions 1–20)
Q1. What is the primary duty of an adjuster when handling a claim?
A) Deny all questionable claims
B) Represent the insured in court
C) Investigate, evaluate, and settle claims fairly
D) Set rates for policyholders
Correct Answer: C
Rationale: The adjuster's core duty is to fairly investigate and evaluate claims according to
policy provisions and facts.
Q2. Which document establishes the contractual agreement between an insurer and an
insured?
A) Loss report
B) Insurance policy
C) Claim file
D) Adjuster log
Correct Answer: B
Rationale: The insurance policy is the legal contract defining coverage terms and obligations.
Q3. What does the principle of "utmost good faith" (uberrimae fidei) mean in insurance?
A) The insurer must always pay claims
B) Both parties must honestly disclose all material facts
C) The insured must always accept settlements
D) The insurer can withhold information
Correct Answer: B
Rationale: Utmost good faith requires both the insured and the insurer to act honestly and
disclose all material facts relevant to the insurance contract .
Q4. A policyholder fails to disclose a pre-existing medical condition when applying for
health insurance. This is an example of:
A) Waiver
B) Estoppel
C) Concealment
D) Indemnity
, 2
Correct Answer: C
Rationale: Concealment is the intentional withholding of material facts during the
application process. If discovered, it can void the policy .
Q5. What is the purpose of the principle of indemnity in insurance?
A) To allow the insured to profit from a loss
B) To restore the insured to their financial position before the loss
C) To provide unlimited compensation
D) To eliminate all financial risk
Correct Answer: B
Rationale: Indemnity limits compensation to actual covered financial loss, preventing the
insured from profiting from a claim.
Q6. What constitutes "actual cash value" (ACV)?
A) Replacement cost plus depreciation
B) Replacement cost minus depreciation
C) Market value plus tax
D) Original purchase price only
Correct Answer: B
Rationale: ACV equals replacement cost minus depreciation. It represents the value of the
property at the time of loss.
Q7. What is "subrogation" in insurance?
A) The insurer cancels the policy
B) The insurer transfers risk to the insured
C) The insurer recovers from a liable third party
D) The insured waives all rights
Correct Answer: C
Rationale: Subrogation allows the insurer to recover claim payments from a negligent third
party who caused the loss.
Q8. What is the "duty to defend" in liability insurance?
A) The insured hires their own attorney
B) The insurer provides legal defense for the insured
C) The court appoints a defense
D) A government defense program
Correct Answer: B
, 3
Rationale: Liability insurers must defend the insured against covered claims, even if the
claim is groundless or false.
Q9. Insurance contracts are called "contracts of adhesion" because:
A) Both parties have equal bargaining power
B) The insured can negotiate all terms
C) The insurer drafts the contract, and the insured must "adhere" to its terms
D) They are always in writing
Correct Answer: C
Rationale: Insurance contracts are contracts of adhesion because the insurer drafts the
policy language, and the insured has little or no ability to negotiate terms. Courts interpret
ambiguities in favor of the insured .
Q10. Which characteristic of an "aleatory" contract applies to insurance?
A) Both parties exchange equal values
B) The performance depends on an uncertain event
C) The contract is always profitable for the insured
D) The contract cannot be cancelled
Correct Answer: B
Rationale: Aleatory contracts involve an unequal exchange of value where the outcome
depends on a chance event. Insurance is aleatory because the insured pays premiums but
may never collect benefits, or may collect much more than premiums paid .
Q11. Insurance contracts are "unilateral" because:
A) Both parties make legally enforceable promises
B) Only the insurer makes a legally enforceable promise
C) The contract cannot be cancelled
D) The contract is verbal
Correct Answer: B
Rationale: Insurance contracts are unilateral because only the insurer makes a legally
enforceable promise (to pay claims), while the insured's duty is to pay premiums .
Q12. What does "proximate cause" refer to in insurance?
A) The time the loss occurred
B) The primary or dominant cause of a loss
C) The distance of the loss
D) The total amount of the loss
Correct Answer: B
