General Insurance, Contracts & the California Marketplace

Correct

The answer is B: Surety Insurance

California Insurance Code §100 lists the classes of insurance, and later sections define them. Surety is class 5 in that list. Environmental liability and cyber risk are not named classes; they are written under broader classes such as liability or miscellaneous. Pet insurance is regulated by its own provisions (§12880 et seq.) rather than as a §100 class.

Reviewed in our October 2026 California fact-check.

Correct

The answer is D: Unilateral

An insurance contract is unilateral because only one party (the insurer) makes a legally enforceable promise. Once the insured pays the premium, they have fulfilled their part of the contract's enforceable duties. The insurer promises to pay covered losses, but the insured is not legally obligated to continue paying premiums to keep the policy in force, although if they stop, coverage will lapse. Adhesion refers to the 'take-it-or-leave-it' nature of the contract. Aleatory means an unequal exchange of value. Conditional refers to the fact that the insurer's promise to pay is contingent upon certain conditions being met by the insured.

Reviewed in our October 2026 California fact-check.

Correct

The answer is A: The insurer may rescind the contract from its inception.

Under California Insurance Code §331, concealment, whether intentional or unintentional, entitles the injured party to rescind, and under §359 a representation that is false in a material point entitles the injured party to rescind from the time it became false. A misstatement of the building's construction on the application is false from the start, so the insurer may rescind from inception. Rescission voids the contract as if it had never taken effect, so the insurer is not obligated to pay claims under it. Keeping the coverage with a higher premium, cancelling only going forward, or paying claims and then suing for fraud are not the Code's remedy for a material misrepresentation.

Reviewed in our October 2026 California fact-check.

Correct

The answer is D: $9,000

Earned premium is the portion of the premium for which the insurance coverage has already been provided. Unearned premium is the portion that applies to the remaining period of coverage. In this scenario, three months (1/4 of the year) have passed, so 1/4 of the premium ($3,000) is earned. The remaining 9 months (3/4 of the year) of coverage have not been provided, making 3/4 of the premium ($9,000) unearned. This unearned portion is typically returned to the insured upon cancellation, subject to any short-rate penalties.

Reviewed in our October 2026 California fact-check.