Under California Insurance Code Section 381, which of the following is NOT required to be specified in an insurance policy?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 381 requires a policy to specify six things: the parties between whom the contract is made, the property or life insured, the interest of the insured if not the absolute owner, the risks insured against, the period during which the insurance continues, and the premium or the basis on which the final premium will be determined. A financial rating from a private agency such as A.M. Best or Standard & Poor's is not one of these required provisions. Although ratings exist to help consumers evaluate insurers, no California statute requires a rating to appear in the policy itself, and its absence does not make a policy deficient under Section 381.
Why the other options are wrong
- B) The parties between whom the contract is made are one of the six items expressly required by Section 381, so failing to name them would render a policy deficient.
- C) The risks insured against are a required specification under Section 381, because the policy must identify what events are covered before the insurer's duty to pay can arise. Naming the risks insured against fixes the scope of the insurer's obligation and distinguishes covered from uncovered events.
- D) The period during which the insurance is to continue is a required specification under Section 381, so the policy must state its effective and expiration dates. The period provision fixes the beginning and end of coverage, which is essential to determining which losses the policy will pay.
Memory hook
Section 381 names six things — a private credit score for the insurer is not one of them.