Ch. 16 - Insurance

Question 1

Insurance Policy

Answer 1

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

Question 2

Insured

Answer 2

the party covered by the insurance policy

Question 3

Liability insurance

Answer 3

protects the insured against claims made by third parties, such as a claim against a professional for errors and ommisions

Question 4

Property Insurance

Answer 4

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.

Question 5

Deductible

Answer 5

(aka self-retention) the portion of the claim or the costs of defending a claim that the insured must pay

Question 6

Coverage period

Answer 6

the length of time during which coverage is in place

Question 7

Perils covered

Answer 7

the events that trigger the obligations of the insurer to either indemnify, defend, or both. e.g. flooding, fire

Question 8

All-risks policy

Answer 8

covers all risks falling within the coverage description except as specifically excluded.

Question 9

limitation period

Answer 9

a contractual or statutory requirement that a notice of claim must be made or a legal action commenced within a certain time period

Question 10

Self-insurance

Answer 10

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.

Question 11

duty to defend

Answer 11

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.

Question 12

duty to indemnify

Answer 12

duty to pay claims. Generally goes together with duty to defend

Question 13

Subrogation

Answer 13

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.

Question 14

Waiver of Subrogation clause

Answer 14

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

Question 15

insurable interest

Answer 15

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.

Question 16

Claims-made policy

Answer 16

covers claims that are made during the policy period and doesnt depend on when the work was done. Most professional liability policies.

Question 17

Occurrence policies

Answer 17

cover claims in which the insured event, such as a house burning down or damage occurring to a building, occurred during the policy period.

Question 18

Duty to notify

Answer 18

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.

Question 19

The insurance gap

Answer 19

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

Question 20

Material non-disclosure or misrepresentation

Answer 20

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

Question 21

Duty of utmost good fiath

Answer 21

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.

Question 22

Duty to Cooperate

Answer 22

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

Question 23

Cooperation forms

Answer 23

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

Question 24

insured and insurer conflicts of interest

Answer 24

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

Question 25

What should be done by the insured if potential conflicts of interest arise between insurer?

Answer 25

retain separate counsel to look after their own interest.

Question 26

Popular types of insurance policies

Answer 26

1) builders’ risk policies
2) commercial general liability (CGL) policies
3) wrap-up policies
4) errors and omissions policies

Question 27

Builders’ risk policies

Answer 27

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

Question 28

Resultant damage

Answer 28

refers to damage to property other than the property containing the faulty workmanship, material, or design.

Question 29

Commercial General Policies

Answer 29

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.

Question 30

Wrap-up Policies

Answer 30

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.

Question 31

Error & omissions insurance

Answer 31

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.