In an advertisement, a company claims it has funds in its possession that are not available for payment of losses. What is the company guilty of?

• A. Misrepresentation
• B. Defamation
• C. Fraud
• D. Churning

Answer: (A)

Misrepresentation in insurance advertising is about making a false statement of a material fact to influence a purchaser’s decision. Claiming the company has funds that are not actually available to pay losses misleads consumers about the insurer’s financial condition, which is exactly the kind of misleading impression advertising must not create. It isn’t defamation, which harms a person’s reputation, and it isn’t churning, which involves improper cycling of policies for commissions. Fraud involves intent to deceive; exams often treat false statements about solvency in ads as misrepresentation, unless there’s evidence of deliberate deceit. So the statement fits misrepresentation.