Ch. 16 - Insurance Flashcards
Insurance Policy
contract of indemnity (i.e. a legal bet) used to shift and spread risk. Governed by contract law principles. Generally fall into either liability or property insurance. Includes a deductible, coverage period, limitation period
Insured
the party covered by the insurance policy
Liability insurance
protects the insured against claims made by third parties, such as a claim against a professional for errors and ommisions
Property Insurance
protects the insured against loss or damage to property as a result of certain causes, such as fire or theft. a claim by third party against the insured is not a prerequisite for recovering under a policy.
Deductible
(aka self-retention) the portion of the claim or the costs of defending a claim that the insured must pay
Coverage period
the length of time during which coverage is in place
Perils covered
the events that trigger the obligations of the insurer to either indemnify, defend, or both. e.g. flooding, fire
All-risks policy
covers all risks falling within the coverage description except as specifically excluded.
limitation period
a contractual or statutory requirement that a notice of claim must be made or a legal action commenced within a certain time period
Self-insurance
insurance of oneself or one’s interests by maintaining a fund to absorb the full cost of potential losses rather than by producing an insurance policy. Few engineers and architects can afford this.
duty to defend
the obligation to pay for legal fees and other costs of defending a claim. may exist even though the insurer may not eventually be required to indemnify the policyholder. can be of more value where a claim is not likely to succeed.
duty to indemnify
duty to pay claims. Generally goes together with duty to defend
Subrogation
an inherent right of the insurer, where the insurer is entitled to assume the legal position of the insured to recover from some other party the amount it has paid out on a claim. Cannot be obtained against an insured.
Waiver of Subrogation clause
sometimes included in a contract that eliminates the insurer’s right to subrogation. Unauthorized waiver of the insurer’s subrogation rights may allow the insurer to escape its indemnity obligation
insurable interest
means that the insured party benefits from the existence of or would be prejudiced by the loss of the insured property. person or corporation must have in order to be entitled to recover insurance proceeds following a loss.
Claims-made policy
covers claims that are made during the policy period and doesnt depend on when the work was done. Most professional liability policies.
Occurrence policies
cover claims in which the insured event, such as a house burning down or damage occurring to a building, occurred during the policy period.
Duty to notify
Insured must notify insurance company of potential claims as soon as the insured becomes aware of it. Notification by the insured is required when they may be sued/held liable as failure to notify may result in refusal of coverage.
The insurance gap
professionals must be aware what type of policy they have when changing coverage. e.g. a new company forms from an old company that a professional used to work for and now does not cover the work done under its previous name. During retirement, prudent to keep claims-made coverage
Material non-disclosure or misrepresentation
refers to a breach of the duty of the insured to provide all relevant info to the insurer when purchasing an insurance policy. Has led courts to impose duty of utmost good faith on the insured
Duty of utmost good fiath
means the insured must disclose to the insurer any and all facts that could influence either its decision to provide coverage or the amount of the premium to be charged. Even if the non-disclosure is unrelated to the loss, coverage may still be denied. e.g. employee of company filing for insurance had negligence claim last year but still needs to be disclosed.
Duty to Cooperate
deals with the conduct of the insured after a claim has been made. Virtually all insurance policies require the insured have a duty to cooperate wit the insurer in the defence of a claim. failure to cooperate can result in denial of coverage
Cooperation forms
1) supplying documents to the insurer
2) testifying at discovery and trial
3) providing pre-trial assistance to defence counsel
4) refraining a release of liability to other parties
5) agreeing to a settlement on favorable terms of lost time and expense
insured and insurer conflicts of interest
1) denial of coverage by insurer
2) claims alleging conduct that fall outside the scope of coverage, like fraud
3) desire by the insured to defend, despite a reasonable offer to settle
4) claims that exceed the limits of coverage
5) offers to settle that require compromise of a counterclaim, such as a claim by a professional for fees
What should be done by the insured if potential conflicts of interest arise between insurer?
retain separate counsel to look after their own interest.
Popular types of insurance policies
1) builders’ risk policies
2) commercial general liability (CGL) policies
3) wrap-up policies
4) errors and omissions policies
Builders’ risk policies
property insurance policies that are designed to cover all damage to the insured property except as specifically excluded i.e. all-risk basis. Cover projects under construction; once completed, coverage ceases. Usually cover accidents and exclude losses due to faulty design, materials, and workmanship BUT portions of the claim may be covered due to resultant damage. Also excludes fraud by employees and loss of revenue caused by delay
Resultant damage
refers to damage to property other than the property containing the faulty workmanship, material, or design.
Commercial General Policies
liability insurance policies (usually purchased by contractors) that cover claims by others (third parties) for bodily injury and property damage. typically exclude coverage for damage to the insured’s own property and for poor quality work product.
Wrap-up Policies
liability insurance policy that covers all direct participants (consultants, owner, contractor, subcontractors) in a construction project. usually arranged by owner of general contractor. Typically run from the end of the project until a specified time afterward i.e. the end of the warranty period.
Error & omissions insurance
liability insurance policy for professionals that covers claims made by third parties for loss or damage caused by the negligence of the insured. almost always written on a claims-made basis. excludes losses arising from late drawings, design work done as part of a joint venture, mould, water ingress.
