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Insurance & Liens — California C-20 Practice Questions

28 questions · 12% of the Law & Business exam

Worked questions

1. A liability policy expires when a project finishes, but property damage is discovered months later. What should the contractor examine?

  • AOnly the customer's current property policy
  • BOnly the original bid's profit percentage
  • CWhether the license bond pays every repair
  • Applicable occurrence, completed-operations coverage, dates, and exclusions

Why D is correct

Coverage for later-discovered damage depends on the policy trigger, occurrence facts, completed-operations provisions, effective dates, exclusions, and notice requirements. The contractor should preserve facts and notify appropriate carriers promptly.

4. Before paying a progress invoice, what release control is appropriate?

  • AIgnore subcontractor and supplier exposure
  • BUse an invented one-sentence waiver
  • Match the release to its payment period
  • DDemand release of work not yet performed

Why C is correct

California prescribes waiver and release forms and distinguishes progress from final payment and conditional from unconditional effect. Matching the form prevents accidental over-release or unprotected payment.

5. Who may potentially benefit from a statutory contractor license bond?

  • AOnly equipment manufacturers
  • BEvery claimant for every business loss
  • Statutorily defined persons and losses
  • DOnly the contractor’s shareholders

Why C is correct

The license bond is a statutory consumer and compliance protection with defined claimants, conduct, limits, and aggregate exposure. It is not unlimited business insurance.

6. A homeowner assumes the contractor's CSLB license bond will pay every defective-work claim and complete the project. Does the bond provide that blanket protection?

  • No; the bond covers defined claims only
  • BYes, it pays every loss without limit
  • CYes, it is workers’ compensation
  • DNo, because licensed contractors need no bond

Why A is correct

The best answer is: No; the bond covers defined claims only. Bonds and insurance have different obligees, conditions, limits, and claim processes. The contractor must understand each required or contractual risk-transfer instrument separately. The new fact pattern changes the setting, not the governing rule or management control. The other choices either skip a required step, apply a different rule, or fail to address the stated risk.

7. A subcontractor emails a certificate showing general liability limits, but the listed policy excludes the subcontracted operation. What should the prime verify?

  • AIt replaces the subcontract
  • Verify the policy, limits, and exclusions
  • CThe certificate rewrites every policy exclusion
  • DIt guarantees every claim will be paid

Why B is correct

The best answer is: Verify the policy, limits, and exclusions. Risk transfer depends on the actual policy and required endorsements, not the certificate alone. Contractual requirements should be reviewed before work and monitored for cancellation or expiration. The new fact pattern changes the setting, not the governing rule or management control. The other choices either skip a required step, apply a different rule, or fail to address the stated risk.

8. A subcontractor signs an unconditional progress release while the payment is still an unconfirmed electronic transfer. Which release approach better protects it?

  • ATo waive unrelated future projects
  • BAfter all funds have irrevocably cleared
  • Before confirmed receipt of payment
  • DWhen no payment is expected

Why C is correct

The best answer is: Before confirmed receipt of payment. A conditional statutory form ties release effectiveness to actual payment. An unconditional release can extinguish stated rights even when collection problems later arise, so form and payment status must match. The new fact pattern changes the setting, not the governing rule or management control. The other choices either skip a required step, apply a different rule, or fail to address the stated risk.

9. Before issuing the next progress check, the prime wants releases covering the exact work and payment period already funded. Which control is appropriate?

  • AIgnore subcontractor and supplier exposure
  • Match the release to its payment period
  • CDemand release of work not yet performed
  • DUse an invented one-sentence waiver

Why B is correct

The best answer is: Match the release to its payment period. California prescribes waiver and release forms and distinguishes progress from final payment and conditional from unconditional effect. Matching the form prevents accidental over-release or unprotected payment. The new fact pattern changes the setting, not the governing rule or management control. The other choices either skip a required step, apply a different rule, or fail to address the stated risk.

10. Labor and material claimants on public work generally cannot lien public property. What principal risk is a public-works payment bond intended to address?

  • AThe contractor’s income tax
  • BDesign errors by the architect only
  • Nonpayment of qualifying claims
  • DEvery delay penalty

Why C is correct

The best answer is: Nonpayment of qualifying claims. Because public property is generally not subject to ordinary mechanics liens, payment bonds provide a statutory payment remedy to eligible project participants. The new fact pattern changes the setting, not the governing rule or management control. The other choices either skip a required step, apply a different rule, or fail to address the stated risk.

18 more in the bank

Answers and explanations for these are in the app.

  • Does a contractor license bond replace liability insurance or guarantee completion of every project?
  • May a claimant knowingly include unrelated disputed work from another project in a mechanics lien?
  • Payroll and employee classifications change substantially during the policy year. What insurance control is appropriate?
  • What is the general function of a stop-payment notice?
  • What license risk follows if a required contractor bond is cancelled and not replaced?
  • What risk does a public-works payment bond principally address?
  • When is a conditional waiver and release generally safer than an unconditional release?
  • Why is a claimant’s preliminary notice process important on a private project?
  • Why should preliminary-notice dates and recipients be tracked at project start?
  • A claimant adds debt from an unrelated project to increase leverage in a mechanics-lien claim. Is that amount proper?
  • A material supplier begins deliveries without tracking the participants or deadline needed for its preliminary notice. Which future rights may be endangered?
  • A project owner asks whether every type of loss by any person is payable from the license bond. How should the bond's reach be described?
  • A qualifying unpaid construction claimant wants funds held rather than released from the construction financing. Which remedy serves that function?
  • A required contractor bond terminates with no replacement on file. What can happen to license status?
  • A subcontractor waits until the first unpaid invoice to identify notice recipients and dates. Why should this information have been tracked at mobilization?
  • Before a subcontractor begins an excluded high-risk operation, what should the prime do about the known insurance gap?
  • Midyear payroll and employee job classifications differ substantially from the estimates used to price workers' compensation coverage. What insurance control is appropriate?
  • Property damage from completed work is discovered months after the project and after one policy period ended. Which coverage features and dates require review?

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