Surplus Lines Insurance Practice Exam.
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1. How much time is a candidate given to complete the Texas surplus lines examination?

• A. 90 minutes
• B. 30 minutes
• C. 120 minutes
• D. 60 minutes

2. What is the fee to sit for the Texas surplus lines examination?

• A. $19
• B. $39
• C. $49
• D. $29

3. What is the fee charged to sit for the surplus lines agent exam?

• A. $29
• B. $25
• C. $39
• D. $19

4. A producer is attempting to place a commercial risk with a surplus lines carrier. What is a diligent search, as commonly required before this placement?

• A. An audit of the insurer's capital and surplus by the state guaranty association
• B. A review of the insured's claims history over the past five years
• C. A background check on the surplus lines broker's license status
• D. Soliciting and being declined by a specified minimum number of admitted insurers, commonly three, that ordinarily write that class of business

5. Under the federal Nonadmitted and Reinsurance Reform Act (NRRA) of 2010, which state has authority to require premium tax and regulate the placement of a nonadmitted policy?

• A. Only the state where the insurer is domiciled
• B. Only the state where the surplus lines broker is physically headquartered
• C. Every state in which the insured has any business operations
• D. Only the insured's home state

6. After receiving declinations from admitted insurers during a diligent search, what must a producer typically do with that documentation?

• A. Document it, typically on an affidavit or state diligent search/declination form, and retain it for regulatory examination
• B. Submit it directly to the state guaranty fund for approval
• C. Discard it once the surplus lines policy is bound
• D. Forward it to the admitted insurers' rate filing office

7. Why does the diligent search requirement exist as part of surplus lines regulation?

• A. To determine which risks qualify for the state's export list
• B. To set the surplus lines premium tax rate for each transaction
• C. To guarantee surplus lines brokers earn a minimum commission
• D. To ensure surplus lines is used as a market of last resort, not a route around admitted regulation for convenience or price

8. A risk is listed on a state's export list. What does this mean for the placing producer?

• A. The risk can only be placed with an admitted carrier
• B. The risk may be exported to surplus lines without performing a diligent search
• C. The risk automatically qualifies for the state guaranty fund
• D. The risk must still be declined by three admitted insurers before placement

9. A resident producer with an ordinary property and casualty license wants to place a commercial account with a surplus lines insurer. What licensing requirement applies?

• A. The producer must instead hold a travel insurance producer license
• B. Only a limited lines license is required
• C. No additional license is needed beyond the ordinary resident producer license
• D. The transaction must be placed through a specially licensed surplus lines broker/producer

10. Why do states levy a surplus lines premium tax on surplus lines transactions?

• A. Because the stamping office requires it to fund its review services
• B. Because the state guaranty fund requires additional contributions from surplus lines insureds
• C. Because surplus lines insurers are exempt from all other forms of regulation
• D. Because non-admitted insurers do not pay the premium taxes that admitted carriers pay, so the tax recaptures that revenue

11. An insurer has been granted a certificate of authority by the state insurance department. Under this authorization, what is the insurer generally required to do that a non-admitted insurer is not?

• A. Deliver a disclosure notice stating the policy is not licensed
• B. Obtain a diligent search declination before issuing any policy
• C. Appear on the state's export list of eligible insurers
• D. File its rates and policy forms with the state for approval

12. If a non-admitted insurer becomes insolvent, what generally happens to its policyholders' unpaid claims?

• A. They are paid automatically by the stamping office
• B. They are covered because the insurer appeared on the state's white list
• C. They are not protected by the state guaranty fund, so there is no state backstop
• D. They are paid from the state guaranty fund, the same as admitted insurer claims

13. A business insured has its principal place of business in State X but operates a branch office in State Y. For NRRA purposes, which state is generally the insured's home state?

• A. State X, the state of the insured's principal place of business
• B. State Y, because the branch office generates the claim
• C. The state where the surplus lines broker holds its stamping office filing
• D. Whichever state has the lower surplus lines tax rate

14. A contractor's mobile crane and portable tools are damaged while being transported between job sites. Which line of coverage typically responds?

• A. Commercial general liability
• B. Commercial property at a described premises
• C. Inland marine
• D. Ocean marine

15. An insurer pays a fire claim to its insured, then sues the contractor whose negligence caused the fire to recover what it paid. What right is the insurer exercising?

• A. Subrogation
• B. Coinsurance
• C. Salvage
• D. Abandonment

16. A commercial building has an actual cash value of 800,000 dollars. The policy carries an 80 percent coinsurance clause and the insured purchased 480,000 dollars of coverage. A partial loss of 100,000 dollars occurs. Ignoring any deductible, how much will the insurer pay?

• A. 75,000 dollars
• B. 80,000 dollars
• C. 100,000 dollars
• D. 60,000 dollars

17. A policy pays the cost to repair or replace damaged property less an allowance for depreciation. Which valuation method is being used?

• A. Actual cash value
• B. Agreed value
• C. Replacement cost
• D. Functional replacement cost

18. A policy excludes loss caused directly or indirectly by flood, regardless of any other cause contributing concurrently. What is this type of wording called?

• A. A coinsurance waiver
• B. An anti-concurrent causation clause
• C. A named perils extension
• D. A proximate cause endorsement

19. An insurer is organized under the laws of Delaware and writes business in Ohio, where it has obtained no certificate of authority. From Ohio's perspective, how is this insurer classified with respect to domicile and to authority?

• A. An alien insurer that is admitted in Ohio
• B. A domestic insurer that is non-admitted in Ohio
• C. A foreign insurer that is admitted in Ohio
• D. A foreign insurer that is non-admitted in Ohio

20. A risk manager asks why surplus lines insurers exist at all if admitted carriers are more heavily regulated and better secured. What is the principal justification for the surplus lines market?

• A. It exists to replace reinsurance for admitted carriers
• B. It exists solely to insure risks located outside the United States
• C. It provides capacity for risks the admitted market will not write, at rates and forms the admitted market cannot use
• D. It provides identical coverage to the admitted market at a state-mandated discount

21. A surplus lines insurer becomes insolvent while a claim is pending. What protection does the state guaranty association provide to the policyholder?

• A. Payment of the claim only if the producer failed to disclose the insurer's status
• B. Full payment of the claim up to the policy limits
• C. None; non-admitted insurers do not participate in state guaranty funds
• D. Payment up to the same statutory cap that applies to admitted insurers

22. Because the insured relies on the insurer's promise to pay a large sum in the future while paying a comparatively small premium now, and the values exchanged are unequal, an insurance policy is described as which type of contract?

• A. Executed
• B. Commutative
• C. Bilateral in consideration
• D. Aleatory

23. An insurance policy is drafted entirely by the insurer and offered to the applicant on a take-it-or-leave-it basis. What is the legal consequence of this characteristic when a provision is genuinely ambiguous?

• A. It is a contract of adhesion, so ambiguity is construed against the insured who accepted it
• B. It is a unilateral contract, so ambiguous provisions are simply void
• C. It is a conditional contract, so the court rewrites the provision at its discretion
• D. It is a contract of adhesion, so ambiguity is construed against the insurer that drafted it

24. An applicant for property coverage must stand to suffer financial loss if the property is damaged. When must this requirement be satisfied for a property policy?

• A. Insurable interest must exist continuously for the entire policy period
• B. Insurable interest must exist only at the time of application
• C. Insurable interest is not required for commercial property coverage
• D. Insurable interest must exist at the time of loss

25. An applicant for a surplus lines property policy fails to mention a prior arson conviction that the underwriter would have considered decisive. The applicant was never asked about it. How is this best characterized?

• A. A warranty breach, which converts the policy to a conditional contract
• B. Estoppel, which prevents the insurer from denying coverage
• C. Concealment of a material fact, which may allow the insurer to void the policy
• D. An innocent omission that has no effect because no question was asked

26. An insurer transfers a portion of a large risk it has underwritten to another insurance company, retaining only part of the exposure. What is this transaction called, and what is the transferring company called?

• A. Coinsurance; the transferring company is the primary insured
• B. Subrogation; the transferring company is the subrogee
• C. Retrocession; the transferring company is the direct writer
• D. Reinsurance; the transferring company is the ceding company

27. Underwriters observe that people most likely to seek flood coverage are those whose homes are most likely to flood. What is this tendency called?

• A. Morale hazard
• B. Physical hazard
• C. Moral hazard
• D. Adverse selection

28. An insured deliberately overstates the value of destroyed contents on a claim form in the hope of a larger settlement. Which type of hazard does this behavior represent?

• A. Legal hazard
• B. Morale hazard
• C. Moral hazard
• D. Physical hazard

29. The principle that an insured should be restored to approximately the same financial position after a loss, but no better, is known as which doctrine?

• A. Reasonable expectations
• B. Utmost good faith
• C. Indemnity
• D. Contribution by equal shares

30. A surplus lines policy is written on a manuscript form drafted specifically for one insured rather than on a standard bureau form. What is the practical consequence for the producer advising the client?

• A. The form must still be approved by the state insurance department before use
• B. The insured may cancel at any time and receive a full premium refund
• C. The wording is presumed identical to the equivalent admitted form
• D. The wording must be read closely, because it has not been filed or standardized and may differ materially from admitted forms

31. A claims-made liability policy has a retroactive date of January 1, 2024. A wrongful act occurs in November 2023 and a claim is first made against the insured in June 2026 while the policy is in force. Is the claim covered?

• A. No, because claims-made policies require the act and the claim in the same period
• B. Yes, because claims-made policies cover all prior acts by default
• C. No, the wrongful act predates the retroactive date
• D. Yes, because the claim was made during the policy period

32. An insured buys an extended reporting period, sometimes called tail coverage, when a claims-made policy is not renewed. What does it accomplish?

• A. It extends the time in which a claim may be reported for acts that occurred before the policy ended
• B. It increases the policy limits for the final year of coverage
• C. It converts the claims-made policy into an occurrence policy retroactively
• D. It extends the policy period so that new wrongful acts are also covered

33. A liability policy shows a 1,000,000 dollar per-occurrence limit and a 2,000,000 dollar aggregate limit. The insured suffers three covered occurrences during the policy year costing 800,000, 900,000 and 700,000 dollars. How much does the insurer pay in total?

• A. 2,400,000 dollars
• B. 3,000,000 dollars
• C. 2,000,000 dollars
• D. 1,000,000 dollars

34. A policy provision states that the insurer will not pay more than its proportionate share when other collectible insurance covers the same loss. What is this provision called?

• A. The subrogation clause
• B. The appraisal clause
• C. The salvage clause
• D. The other insurance clause

35. The insured and insurer disagree about the dollar amount of a covered fire loss, but not about whether the loss is covered. Which policy provision offers a resolution without litigation?

• A. The abandonment clause, which lets the insured surrender the property for the full limit
• B. The appraisal clause, under which each side selects an appraiser and the appraisers select an umpire
• C. The arbitration clause, which decides coverage and amount together
• D. The proof of loss clause, which fixes the amount at the insured's stated figure

36. An insurer's claims adjuster accepts a late proof of loss without objection and continues investigating the claim for months. The insurer later tries to deny the claim for lateness. Which doctrine may prevent the denial?

• A. Waiver and estoppel
• B. Subrogation
• C. Novation
• D. Coinsurance

37. A policy contains a provision stating that after a specified period the insurer may not void the policy on the basis of misstatements in the application, absent fraud. What is this provision called?

• A. The incontestability clause
• B. The consideration clause
• C. The entire contract clause
• D. The insuring agreement

38. Which section of a policy identifies the named insured, the policy period, the limits of insurance and the premium?

• A. The exclusions
• B. The declarations
• C. The conditions
• D. The insuring agreement

39. An insurer cancels a policy mid-term and returns premium calculated as a full pro rata share of the unearned premium, with no penalty deduction. Which method is this, and when is it typically used?

• A. Pro rata, typically used when the insurer cancels
• B. Short rate, typically used when the insurer cancels
• C. Flat cancellation, used when a loss has already been paid
• D. Pro rata, typically used when the insured cancels

40. A commercial insured wants coverage that applies only after underlying primary policies are exhausted, and that also provides broader coverage than those underlying policies. Which product is this?

• A. A surety bond
• B. An umbrella policy
• C. A quota share treaty
• D. An excess follow-form policy

41. A nightclub with a history of assault claims cannot obtain liquor liability coverage in the admitted market. Which characteristic makes this a natural surplus lines placement?

• A. It requires a policy limit below the state minimum
• B. It is a personal lines exposure rather than a commercial one
• C. It is located outside the United States
• D. It is a distressed or high-hazard class the admitted market declines to write

42. A design engineering firm seeks coverage for claims alleging negligent professional advice that caused a client purely financial loss. Which coverage responds?

• A. Professional liability, also called errors and omissions
• B. Commercial property with business income
• C. Workers compensation and employers liability
• D. Commercial general liability

43. A corporation wants to protect its board members against claims alleging breach of fiduciary duty in managing the company. Which coverage is required?

• A. Employment practices liability
• B. Fidelity bond coverage
• C. Directors and officers liability
• D. Commercial general liability

44. A retailer suffers a data breach exposing customer payment card information and faces notification costs, forensic investigation and regulatory defense. Which coverage is designed for this exposure?

• A. Inland marine
• B. Cyber liability
• C. Commercial crime
• D. Business interruption under a standard property form

45. A property owner in a coastal county cannot obtain windstorm coverage from any admitted carrier and is placed through a state-created residual market mechanism. What is this type of mechanism commonly called?

• A. A residual or shared market plan, such as a FAIR plan or beach plan
• B. A surplus lines association
• C. A risk retention group
• D. A guaranty association

46. Several similar businesses form an entity that they own and that insures only their own liability exposures, operating under federal law that limits state-of-domicile regulation. What is this entity?

• A. A residual market pool
• B. A surplus lines stamping office
• C. A risk retention group
• D. A reciprocal insurer regulated in every state where it writes

47. A business wants to fund its own predictable losses while insuring only catastrophic exposures. Which risk management technique describes funding its own routine losses?

• A. Avoidance
• B. Reduction
• C. Retention
• D. Transfer

48. A wholesale intermediary has binding authority from a non-admitted insurer and can issue policies on that insurer's behalf. What is this type of intermediary usually called?

• A. A managing general agent
• B. An independent adjuster
• C. A retail producer with no underwriting authority
• D. A guaranty fund administrator

49. Under the NRRA, a large commercial insured that meets defined size and sophistication tests, and that uses a qualified risk manager, may be placed in the surplus lines market without a diligent search. What is such an insured called?

• A. A preferred admitted risk
• B. An exempt commercial purchaser
• C. A residual market applicant
• D. A qualified institutional buyer

50. A surplus lines producer places coverage with a non-admitted insurer. What disclosure obligation runs to the insured?

• A. The producer need only disclose the insurer's financial rating
• B. The insured must be notified that the insurer is not licensed in the state and that guaranty fund protection does not apply
• C. Disclosure is required only for personal lines placements
• D. No disclosure is required if the insurer appears on the state's eligible list

51. A producer places a risk with a non-admitted insurer without first seeking coverage from admitted carriers, and the risk is not on the state's export list. What has the producer most likely violated?

• A. The countersignature requirement
• B. The diligent search requirement
• C. The rate filing requirement
• D. The anti-rebating statute

52. A surplus lines producer offers to pay part of the premium out of her own commission to persuade a client to place coverage with her. What violation is this?

• A. Rebating
• B. Churning
• C. Twisting
• D. Coercion

53. A producer collects premium from an insured and deposits it into her personal checking account before remitting it to the insurer weeks later. What has she done?

• A. Acted properly, because the insurer received the premium in full
• B. Committed twisting by holding the funds
• C. Committed rebating by delaying remittance
• D. Commingled fiduciary funds, a violation regardless of whether the insurer was eventually paid

54. Many states operate an organization that reviews surplus lines filings for completeness and compliance and reports premium tax data to the regulator. What is such an organization generally called?

• A. A guaranty association
• B. A rating bureau
• C. A residual market pool
• D. A stamping office or surplus lines association

55. Before placing business with an alien surplus lines insurer, a broker checks a listing maintained by the NAIC that evaluates alien insurers seeking to write US surplus lines business. What is this listing?

• A. The NAIC International Insurers Department Quarterly Listing of Alien Insurers
• B. The NAIC Residual Market Index
• C. The NAIC Admitted Carrier Directory
• D. The NAIC Guaranty Fund Registry

56. A surplus lines policy obligates the insurer to pay covered losses once premium has been accepted, but the insured makes no enforceable promise to renew or continue the policy. Which characteristic of an insurance contract does this describe?

• A. Unilateral contract
• B. Conditional contract
• C. Aleatory contract
• D. Contract of adhesion

57. A commercial property form insures against loss from any cause of loss that is not specifically excluded, rather than enumerating a list of covered perils. What type of policy form is this?

• A. Open-peril (all-risk) form
• B. Named-peril form
• C. Valued policy form
• D. Guaranteed-replacement-cost form

58. After placing a commercial risk with a non-admitted insurer, a surplus lines producer files an affidavit with the state department of insurance attesting that a diligent search of the admitted market was performed. What is the primary regulatory purpose of this filing?

• A. It substitutes for the non-admitted insurer's certificate of authority
• B. It creates a record regulators can review to confirm the placement complied with surplus lines requirements
• C. It sets the premium tax rate the insured will owe on the transaction
• D. It guarantees the solvency of the non-admitted insurer to the insured

59. A commercial general liability policy excludes bodily injury and property damage arising from pollution conditions at an insured's manufacturing facility. Which specialized coverage would a producer seek in the surplus lines market to address this uninsured exposure?

• A. Umbrella liability
• B. Directors and officers liability
• C. Errors and omissions liability
• D. Environmental (pollution) liability

60. A commercial lease requires the tenant's property insurer to waive its right of subrogation against the landlord before a loss occurs. After the insurer pays the tenant for a covered fire loss caused by the landlord's negligence, what is the effect of this waiver?

• A. The insurer cannot pursue the landlord for reimbursement of the amount paid
• B. The insurer may still sue the landlord but must share any recovery with the tenant
• C. The landlord must reimburse the insurer directly regardless of the waiver
• D. The tenant loses the right to collect from its own insurer for the loss

61. A surplus lines producer retains diligent search documentation and the surplus lines affidavit in the producer's file well after the policy is placed. What is the primary reason regulators require this recordkeeping?

• A. To calculate the producer's personal income tax liability
• B. To satisfy federal antitrust reporting obligations
• C. To allow the department of insurance to verify compliance during an examination or complaint investigation
• D. To determine the insured's eligibility for guaranty fund protection