Ch 10

Question 1

Oral Application

Answer 1

One in which applicant gives the information orally to the agent/broker who writes it down and submits it to an insurer.

Question 2

Coverage

Answer 2

Term used for insurance protection

Question 3

Binder

Answer 3

• Memorandum of an agreement to insure, issued to record the transaction pending the writing of a policy.
• A policy will be issued as soon as all necessary information is at hand.
• It will be effective as of the date of issue of the binder.
• Since a loss may occur at any time, it is important to write the binder clearly to avoid misunderstanding and possible disputes. It is usually issued by the insurer.

Question 4

Cover note

Answer 4

• Document issued by agents or brokers which tells the insured that the insurance described therein has been effected.
• Since there are sometimes delays in issuing formal policies, a cover note gives the insured a description of what insurance has been put into effect.
• A cover note is similar to a binder which, however, usually refers to a document given by an insurer to an agent or broker and confirms that the coverage is in effect.

Question 5

What are the provisions of the contract, or content of binders:

Answer 5

Name and address of insured
Address at which the risk is located if relevant
Time and date of commencement of coverage
Time and date of expiry of coverage
Description of property insured
Amount of insurance bound (broken down into items or classes of property, where applicable)
Name of insurer bound
Exact type and form of contract under which the risk is bound, with some words such as “and subject to all terms and conditions of the said insurer’s usual policy in that behalf’ - Provincial legislation may specify what information must be included here.
Any special terms, such as deductibles.

Question 6

Deductibles

Answer 6

Amount of a loss which the insured must pay. It is deducted from the total amount of loss to determine the amount the insurer must pay. Deductibles can come in any amounts but do not apply to all policies.

Question 7

Statutory Conditions

Answer 7

• Common law provinces are conditions legislated into being by provincial legislatures.
• They must form part of every insurance policy covering certain classes of risks.
• These conditions are deemed to apply even if they are not actually mentioned in the policy or document.

Question 8

General Conditions

Answer 8

-Quebec are statutory in nature in that provincial legislation sets out the subject matter that must be covered by these conditions, although it does not specify the exact words that must be used.

Question 9

Policy

Answer 9

The instrument evidencing a contract. It states the exact terms and provisions of that contract, in other words, the agreement made between the insured and the insurer.

Question 10

Parts of a Policy:

Answer 10

Declarations (introduction or preamble)
Insuring agreements
Statutory conditions/Quebec general conditions
Policy conditions
Signatures clause.

Question 11

Declarations:

Answer 11

(This part of the policy usually consists of a separate page and does the following:

1. Identifies the parties to the contract - insurer and the insured.
2. states the commencement and expiry dates of the policy
3. States premium
4. Shows the amount insured
5. Shows any other interests in the policy, ex. Mortgages
6. Includes a description of the subject matter of the insurance in many policies - in some policies this might be found under the insuring agreements instead.

Question 12

Insuring Agreements:

Answer 12

(This part of the policy details the coverage.)

1. Subject matter of the insurance and describes the property covered.
2. Perils insured.
3. Exclusions
4. Circumstances under which the insured may receive the proceeds of the insurance.

Question 13

The onus is on…

Answer 13

Insurer to avoid ambiguity in policy: It is a general principle of law that the party who prepares a document (in this case, the policy) has the opportunity of phrasing it however he or she chooses.
This doctrine is known as “contra proferentem” (against the offeror). Means that if there is any disagreement as to the meaning or interpretation of the policy, a court would interpret it in such a way as is most advantageous to the insured.

Question 14

Warranty

Answer 14

A promise by the insured as part of the contract that a specified state of affairs will continue to exist for the duration of the policy.

Question 15

Representation

Answer 15

Statement of existing fact at the time it was made.

Question 16

Transfer and consent

Answer 16

The insurer formally consents to change by issuing an endorsement to be in effect. The document used to effect change is called “transfer and consent”.

Question 17

Short Rate/ Short Date

Answer 17

• Is a cancellation that is applicable when the policy holder cancels before a policy reaches its natural expiration.
• The insurer pays a return premium that is less than the proportionate or pro rate part that is still unearned.
• Difference between actual unearned portion of the premium and amount refunded is used to defer administration expenses insured in the early cancellation.
• Insurers have tables for calculating these premiums either manually or by computer.

Question 18

Pro rata Cancellation:

Answer 18

Cancellation of a policy when the return premium paid is the full proportionate part due for the unexpired term.

Question 19

Lapsed or expired policy

Answer 19

One whose term has been completed and it has not been renewed.

Question 20

Manuscript policy

Answer 20

One that is specifically designed for a particular risk. It doesn’t contain standard preprinted wordings, it’s an individual manuscript. However must incorporate all elements of a normal policy.

Question 21

Subscription policy

Answer 21

• Some risks are so hazardous or so monumental in size that no one insurer would want to cover them. Such risks are written as subscription policies.
• One insurer known as the lead company issues the policy, often but not always a manuscript policy, but one or more other insurers subscribe to it or participate in covering that risk.
• Coverage may be evenly divided or could be in varying amounts or % of the total.

Question 22

Endorsement

Answer 22

Means any writing on the back of a policy which varies the terms of the contract. In actual practice today, an endorsement is usually an attachment to the policy.