2.2 - Legislation and Property Policies Flashcards
Material fact
a fact that would affect a contract of insurance enough to influence an insurer’s decision regarding whether to accept or reject the risk or the premium to be set. Material facts must be disclosed by the applicant if asked about
Statutory Conditions (Fire Insurance)
- Misrepresentation
- Property of Others
- Change of interest
- Material Change
- Termination
- Requirements After loss
- Fraud
- Who May Give Notice and Proof
- Salvage
- Entry, Control, Abandonment
- Appraisal
- When Loss Payable
- Replacement
- Action
- Notice
- Misrepresentation
-the insured has the superior position because only them has the knowledge of all material facts related to the risk
-the law imposes a duty on the insured to disclose any information that will affect the terms under which the policy may be offered
-if withheld, the applicant interferes with the option of the insurer to rate the policy differently or decline the risk entirely, which places insurer at a disadvantage
-questions asked on the application must be answered, and the absence of a particular question does not mean it is not material
-relies on the principal of uberrimae fidei (Utmost good faith) - disclose facts that a reasonable person ought to know are material
-often not discovered until after a loss occurs, insurer can void the policy in its entirety and claim denied on the basis the policy does not exist
-onus is on the insurer to prove there has been a misrepresentation and that it is material to the risk
-with virtual documents, insured may not sign application and could deny misrepresentation, Brokers and UW always make clear notes, follow-up written correspondence
ab initio
A Latin term meaning “to go back to the beginning.” When a policy is rejected or made void ab initio, premium is refunded entirely, and the contract is treated as though it never existed
- Property of Others
-insurer is not liable to pay for losses to any person other than the insured unless their interest is stated in the contract
-not specifically stated in the statutory conditions, but insurance contracts also require the presence of insurable interest - where a person or company stands to benefit from the continued existence of insured property or be prejudiced by its loss
- Change of Interest
-the insured cannot assign their rights and obligations under the insurance contract to another party without the insurer’s consent
-EXCEPTIONS:
>an authorized assignment under the Bankruptcy and Insolvency Act
>a change of title by:
-Succession;
-the operation of law; or
-the death of the named insured
-in the above circumstances the policy protects the new interests automatically, from the time of the change, regardless of whether the insurer has been informed
-even in such cases, there is a reasonable obligation for the successor, such as the executor of receiver in bankruptcy, to notify the insurer of the change in interest within a reasonable amount of time
-often these changes may also be accompanied by other changes, such as occupancy, which the insurer should be made aware of
Privity of Contract
Relationship that exists between two parties or more by virtue of their having entered into a contract
- Material Change
-different from Stat condition # 1 because this condition applies after the policy takes effect
-it concerns changes in material fact, within the control and knowledge of the insured, occurring during the policy term
-insured obligated to promptly notify the insurer of changes so the insurer may consider the new circumstances and either accept the terms, amend the premium to reflect the change in risk, or cancel the contract
-if insured fails to notify insurer, they are in breach of the policy
-when change in risk is discovered following a loss, the burden of proof rests on the insurer to prove that the undisclosed circumstances are material to the underwriting of the risk and also that there is a connection between the cause of loss and the material change
-insurer can void the policy ab initio as to the part of the policy affected by the unreported material change, but insurers generally may deny the claim, and then may cancel the policy
-Mortgagees and other loss payees listed a equally obligated to notify the insurer of any material change that comes to their knowledge
- Termination
-the insured may cancel the policy immediately, usually by signing and adding effective date to a form called a cancellation receipt, cancellation voucher, lost policy voucher, or release of interest
-insurer is obliged (not by stat cond., but elsewhere in the Insurance Act) to notify interested parties of the cancellation to ensure they can verify coverage elsewhere
-cancellation cannot usually be backdated - hindsight knowing no loss
-when cancelled by insured, premiums paid but unearned are refunded, less a surcharge to offset the admin costs to the insurer to process the cancellation - short rate cancellation
-when cancelled by the insurer, this Stat Cond. requires the insurer to do so in writing.
-5 days notice required when personally delivered, 15 days’ notice is required when notice is delivered by registered mail
-15 days’ begins the day following receipt of the letter at the post office to which it is addressed. If letter unclaimed, cancellation still takes effect, insurer should keep unopened letter as proof
-requires to be sent to last known address of the insured, and to notify the lienholders
-when insurer cancels, stat cond. requires that pro rata, or proportional, refund of premium for the unexpired portion of the term accompany the notice of cancellation
-exception if premium is adjusted after the policy expires, refund is to be made as soon as practicable
Short Rate Cancellation
The cancellation by the insured of a policy before its natural expiration; the insurer pays a return premium that is less than the proportionate part that remains unearned
Minimum retained premium
a premium specified on an individual policy that is the minimum amount retained by the insurer in the event that the policy is cancelled midterm by the insured
- Requirements after Loss
-insured required to provide notice of a loss to the insurer in writing as soon as reasonablypossible
-requires disclosure by the insured called a proof of loss - stat dec outlines the circumstances of the loss and the amounts claimed. the “who, what, when, where, why and how” of the loss
-Proof of loss includes:
>how and when the loss occurred;
>an inventory of the damaged and, if required, the undamaged property;
>where the property was at the time of loss; and
>a declaration that the loss was not caused by a willful act of the insured.
-also requires information about:
>other insurance covering the same property;
>the interest of the insured and others; and
>notification of any changes in title, use, or occupation
Proof of loss
a formal statement of facts about a loss, attested to by the claimant, in a form specified by the insurer. A proof of loss may need to be notarized. An insurer must respond to a proof of loss after a specified time period with a formal disposition of the claim (approved or denied)
- Fraud
-if the insured fraudulently presents a claim, or any portion of it, the claim is invalidated entirely
-includes inflating the severity of the loss
-insured’s credibility is called into question
-while this is intended to act as a deterrent, the burden of proof still rests upon the insurer to prove fraud has occurred
-if multiple policyholders, such as spouses, an insurer can only deny indemnity to the person making the false statement. However, signing the Proof of loss with false statements on it will constitute fraud, even if the party did not fill out the information
-an innocent coinsured is only entitled to coverage if that party is not aware of the fraud
- Who may give Notice and Proof
-notice of loss is generally provided by the insured or the insured’s representative (usually agent or Broker)
-if the insured is unable or refuses to notify the insurer of a loss, any person to whom insurance money is payable may report the loss or give proof of loss
