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AD Banker Ch.15 - Ethics and Law
2026 Latest Questions and Answers
(100% Expert Answers) A+
Code and Ethics [ Ans: ] Ethics is a code of conduct based upon an
accepted standard of right and wrong. It specifies and explains what is
and is not acceptable in regards to behaviors or practices. The California
Insurance Code and the California Code of Regulations identify many
illegal and unethical practices. However, these are NOT a complete guide
to ethical behavior for all situations. Insurance agents have a
responsibility to be aware of the insurance laws and requirements
designed to protect consumers.
The California Insurance Code [ Ans: ] The Insurance Code is the set of
statutes enacted by the state legislature that regulate the business of
insurance in California. The Commissioner does not have the authority to
change the Insurance Code; only the state legislature has the authority to
write or amend the Insurance Code.
© 2026
The general purpose of the Code is defined by the four broad "powers"
conferred on the Commissioner and the Department of Insurance: [ Ans: ]
Prevent insurer insolvency and prevent fraud in the conduct of the
insurance business or by individuals
Insure that policies are reasonably priced and widely available in most
lines of insurance
Establish procedures that guide the operation of insurance companies
and the activities of agents, brokers, and other licensees
Provide the authority needed by the Insurance Commissioner to oversee
insurance agents and companies
Statutory Definitions [ Ans: ] The Insurance Code provides specific
definitions for various persons, organizations, and the activities they
conduct.
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Shall/May [ Ans: ] As used in this Code the word "shall" is mandatory and
the word "may" is permissive, unless otherwise apparent from the
context.
Person [ Ans: ] Any person (individual or natural person), association,
organization, partnership, business trust, limited liability company, or
corporation.
Natural Person [ Ans: ] A living human being (as opposed to a business
entity).
Mailing as Proof of Notice [ Ans: ] Any notice required to be given to an
insured may be mailed, postage paid, and addressed to the policyowner,
insured, claimant, or beneficiary at his/her last known address of record.
The affidavit of the person who mails the notice, stating the facts, is
sufficient (prima facie) evidence that the notice was mailed. The
policyowner is responsible for notifying the insurer of address changes.
Insurer/Insured [ Ans: ] The person who undertakes to indemnify
another by insurance is the insurer, and the person indemnified is the
© 2026
insured.
Any person capable of making a contract may be an insurer, subject to
the restrictions imposed by this Code
Any person, except a public enemy, may be insured
Insurance Agent [ Ans: ] A person authorized, by and on behalf of an
insurer, to transact all classes of insurance other than life, disability, or
health insurance, on behalf of an admitted insurance company.
Representations [ Ans: ] A representation may be altered or withdrawn
before the insurance is effected, but not afterwards. An applicant for
insurance must correct a misrepresentation prior to the issuance of a
policy. Once a policy is issued, and until a policy becomes incontestable,
a material misrepresentation in the application may result in denial of a
claim and/or rescission of the contract by the insurer.
A representation is false when the facts fail to correspond with its
assertions or stipulations.
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If a representation is false in a material point, whether affirmative or
promissory, the injured party is entitled to rescind the contract from the
time the representation becomes false.
Concealment [ Ans: ] Neglecting to communicate information that a party
knows and ought to communicate, whether intentional or not.
Rescission is the termination of a contract from the beginning as if it had
never existed. An insurer is entitled by law to rescind a policy in the case
of: [ Ans: ] Concealment
An intentional and fraudulent omission of matters proving the falsity of a
warranty
Material misrepresentation
Violation of a warranty
California Code of Regulations [ Ans: ] The Insurance Code does not
© 2026
always define how the laws are enforced. The Commissioner enforces the
Code by writing and adopting Regulations that specify the manner of
enforcement or provide details that are not explicitly cited in the Code.
The various Regulations enacted by the Commissioner are found in the
California Code of Regulations (CCRs).
The Commissioner's regulations are first proposed and published in draft
form, then undergo a series of public hearings, and following final
adoption, are reviewed by the Office of Administrative Law (OAL). After
passing review by the OAL, the regulations are passed on to the Secretary
of State, who is responsible for maintaining the CCRs.
The Commissioner has authority to enact Emergency Regulations without
having to follow the normal public hearing process, subject to OAL
review and judicial appeal by any person directly impacted by such
emergency regulations after they have become effective.
The Commissioner's regulations cover all aspects of the business of
insurance. Among others, the Regulations include topics such as: [ Ans: ]
Criteria the Commissioner may use to deny an application for an
insurance license
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Fictitious business name approval for insurance producers
Bail transactions
Insurance for motor vehicles as required by the Vehicle Code
Surplus lines of insurance
The sale of insurance products in connection with loans or the sale of
real or personal property
Premium financing and the compensation a person may derive from it
Recordkeeping by Agents, Agencies, and Insurers
The Insurance Commissioner is elected by [ Ans: ] the people and may
serve up to two 4-year terms. The Commissioner's term runs
concurrently with that of the Governor, and in the event a Commissioner
does not complete a term of office, the Governor is authorized to appoint
© 2026
a new Commissioner (with legislative confirmation) to serve the
remainder of the term.
Insurance Commissioner's Duties and Responsibilities [ Ans: ] File and
keep all books and papers as required by law
Issue Certificates of Authority to companies that meet the requirements
of state law
Issue, refuse, revoke, or suspend licenses or Certificates of Authority
Regulate the internal affairs of the Department of Insurance
Aid in the interpretation of any state insurance law
Make sure that insurer rates are adequate, not excessive, or unfairly
discriminatory - but the Commissioner does not set rates
AD Banker Ch.15 - Ethics and Law
2026 Latest Questions and Answers
(100% Expert Answers) A+
Code and Ethics [ Ans: ] Ethics is a code of conduct based upon an
accepted standard of right and wrong. It specifies and explains what is
and is not acceptable in regards to behaviors or practices. The California
Insurance Code and the California Code of Regulations identify many
illegal and unethical practices. However, these are NOT a complete guide
to ethical behavior for all situations. Insurance agents have a
responsibility to be aware of the insurance laws and requirements
designed to protect consumers.
The California Insurance Code [ Ans: ] The Insurance Code is the set of
statutes enacted by the state legislature that regulate the business of
insurance in California. The Commissioner does not have the authority to
change the Insurance Code; only the state legislature has the authority to
write or amend the Insurance Code.
© 2026
The general purpose of the Code is defined by the four broad "powers"
conferred on the Commissioner and the Department of Insurance: [ Ans: ]
Prevent insurer insolvency and prevent fraud in the conduct of the
insurance business or by individuals
Insure that policies are reasonably priced and widely available in most
lines of insurance
Establish procedures that guide the operation of insurance companies
and the activities of agents, brokers, and other licensees
Provide the authority needed by the Insurance Commissioner to oversee
insurance agents and companies
Statutory Definitions [ Ans: ] The Insurance Code provides specific
definitions for various persons, organizations, and the activities they
conduct.
,2
Shall/May [ Ans: ] As used in this Code the word "shall" is mandatory and
the word "may" is permissive, unless otherwise apparent from the
context.
Person [ Ans: ] Any person (individual or natural person), association,
organization, partnership, business trust, limited liability company, or
corporation.
Natural Person [ Ans: ] A living human being (as opposed to a business
entity).
Mailing as Proof of Notice [ Ans: ] Any notice required to be given to an
insured may be mailed, postage paid, and addressed to the policyowner,
insured, claimant, or beneficiary at his/her last known address of record.
The affidavit of the person who mails the notice, stating the facts, is
sufficient (prima facie) evidence that the notice was mailed. The
policyowner is responsible for notifying the insurer of address changes.
Insurer/Insured [ Ans: ] The person who undertakes to indemnify
another by insurance is the insurer, and the person indemnified is the
© 2026
insured.
Any person capable of making a contract may be an insurer, subject to
the restrictions imposed by this Code
Any person, except a public enemy, may be insured
Insurance Agent [ Ans: ] A person authorized, by and on behalf of an
insurer, to transact all classes of insurance other than life, disability, or
health insurance, on behalf of an admitted insurance company.
Representations [ Ans: ] A representation may be altered or withdrawn
before the insurance is effected, but not afterwards. An applicant for
insurance must correct a misrepresentation prior to the issuance of a
policy. Once a policy is issued, and until a policy becomes incontestable,
a material misrepresentation in the application may result in denial of a
claim and/or rescission of the contract by the insurer.
A representation is false when the facts fail to correspond with its
assertions or stipulations.
,3
If a representation is false in a material point, whether affirmative or
promissory, the injured party is entitled to rescind the contract from the
time the representation becomes false.
Concealment [ Ans: ] Neglecting to communicate information that a party
knows and ought to communicate, whether intentional or not.
Rescission is the termination of a contract from the beginning as if it had
never existed. An insurer is entitled by law to rescind a policy in the case
of: [ Ans: ] Concealment
An intentional and fraudulent omission of matters proving the falsity of a
warranty
Material misrepresentation
Violation of a warranty
California Code of Regulations [ Ans: ] The Insurance Code does not
© 2026
always define how the laws are enforced. The Commissioner enforces the
Code by writing and adopting Regulations that specify the manner of
enforcement or provide details that are not explicitly cited in the Code.
The various Regulations enacted by the Commissioner are found in the
California Code of Regulations (CCRs).
The Commissioner's regulations are first proposed and published in draft
form, then undergo a series of public hearings, and following final
adoption, are reviewed by the Office of Administrative Law (OAL). After
passing review by the OAL, the regulations are passed on to the Secretary
of State, who is responsible for maintaining the CCRs.
The Commissioner has authority to enact Emergency Regulations without
having to follow the normal public hearing process, subject to OAL
review and judicial appeal by any person directly impacted by such
emergency regulations after they have become effective.
The Commissioner's regulations cover all aspects of the business of
insurance. Among others, the Regulations include topics such as: [ Ans: ]
Criteria the Commissioner may use to deny an application for an
insurance license
, 4
Fictitious business name approval for insurance producers
Bail transactions
Insurance for motor vehicles as required by the Vehicle Code
Surplus lines of insurance
The sale of insurance products in connection with loans or the sale of
real or personal property
Premium financing and the compensation a person may derive from it
Recordkeeping by Agents, Agencies, and Insurers
The Insurance Commissioner is elected by [ Ans: ] the people and may
serve up to two 4-year terms. The Commissioner's term runs
concurrently with that of the Governor, and in the event a Commissioner
does not complete a term of office, the Governor is authorized to appoint
© 2026
a new Commissioner (with legislative confirmation) to serve the
remainder of the term.
Insurance Commissioner's Duties and Responsibilities [ Ans: ] File and
keep all books and papers as required by law
Issue Certificates of Authority to companies that meet the requirements
of state law
Issue, refuse, revoke, or suspend licenses or Certificates of Authority
Regulate the internal affairs of the Department of Insurance
Aid in the interpretation of any state insurance law
Make sure that insurer rates are adequate, not excessive, or unfairly
discriminatory - but the Commissioner does not set rates
