Los Angeles Claims Adjuster Property and Causality Practice Exam

In which situation will primary insurance respond to a loss first?

1. After all other polices have been exhausted

2. Until the limits of insurance are exhausted

3. Only when the insured identifies a specific event

4. When the insurer chooses to allocate funds

The correct answer is: Until the limits of insurance are exhausted

The reasoning behind the correct choice lies in the fundamental principles of insurance coverage, specifically regarding the hierarchy of policies when multiple insurance plans exist for the same risk. Primary insurance is defined as the policy that responds first to a loss, thereby covering the claim up to its limits before any excess or secondary insurance comes into play. When a loss occurs, the primary insurance will provide coverage and respond to the claim until the limits specified in the policy are completely utilized. This means that it directly handles the loss first without waiting for other policies to reach their limits or for a specific event to be clearly identified by the insured. After the limits are exhausted, if there are additional losses or if the damages exceed those limits, then other forms of insurance might step in, but that would only happen after the primary policy has fulfilled its obligation. In contrast to this, options referring to exhausting other policies or waiting for specific identification of events do not correctly describe the nature of primary insurance. Primary insurance is designed to act immediately within its limits, distinguishing it clearly from excess or umbrella policies, which are secondary and only come into effect after primary insurance is depleted. This distinction is key in understanding how insurance claims are processed in real-world scenarios.