CH5 - Broadening Contract Part 2

Question 1

What is the purpose of Other Insurance clause?

Answer 1

To combat the insured benefiting from two different policies - one with lower rates for one peril and the other covering more perils than just fire. This clause pro rates additional perils losses between multiple policies (rateable contribution).

Question 2

What is the purpose of IBC’s Agreement of Guiding Principles?

Answer 2

This agreement guides insurance practice concerning multiple policies where

• practice departs from statutory specifications
• where the law is unclear
• where gaps exist in the law
• or in unusual or disputed circumstances

Question 3

What are the difficulties presented to insurers regarding earthquake insurance?

Answer 3

• earthquakes are unpredictable
• the spread of risk is narrow; coverage is sought in susceptible areas
• earthquakes present a great potential for catastrophe

Question 4

What are underwriting considerations for earthquake coverage?

Answer 4

• geographical location (reflecting probability of loss)
• building design and construction
• soil conditions
• occupancy (lesser concern)

Question 5

What are favourably rated construction features for earthquake insurance?

Answer 5

Frame buildings of three storeys or less as the flexibility of a wood frame helps absorb the shock. Steel frame buildings with reinforced concrete walls, floors, an roof are also favourably rated. Brick, concrete block, or hollow tile construction are susceptible collapse.

Question 6

How can earthquake coverage be endorsed onto the policy and what are the features of this endorsement?

Answer 6

By adding the Earthquake Damage Assumption Endorsement. One deductible applies to all shocks within a 168 hour period as this is considered a single event. The deductible is expressed as a percentage of the value insured. A tidal way/tsunami is excluded. Covered is limited for landslide, mudslide, or land subsidence.

Question 7

What is land subsidence?

Answer 7

Land subsidence is falling in of the ground, often caused by extraction of minerals or water from the earth.

Question 8

What is theft?

Answer 8

The taking of property without the owner’s consent and with the intention of temporarily or permanently depriving the owner of its use.

Question 9

What are different types of theft?

Answer 9

• burglary
• robbery
• hold-up
• larceny
• conversion

Question 10

What are common exclusions for theft?

Answer 10

• conversion as this is entrusting property to someone else
• mysterious disappearance as an object cannot be located and its absence cannot be accounted for
• theft from vehicle (if covered, would have to be reported to police and need physical evidence that vehicle was broken into, occurring during daylight hours)
• break-ins could be restricted to losses that show visible evidence on the premises
• theft by trick because it cannot be proved or disproved (bounced cheque)

Question 11

What is the difference between mysterious disappearance and unexplained disappearance?

Answer 11

Mysterious disappearance usually applies to where an object cannot be located and its absence is unaccounted for. Unexplained disappearance usually applies to stock - loss is disclosed or discovered on taking inventory.

Question 12

What are the principle concerns for theft?

Answer 12

• potential extent or size of loss
• susceptibility to loss
• dollar values of likely claims
• general loss incidence within the territory in which the property is located and the level of protection

Question 13

What is the premium determination for theft coverage?

Answer 13

Theft rates are developed on a first-loss basis - the insured’s estimate of the worst likely loss. Amount of insurance is split into layers; progressively lower rates are applied as the insurance increases due to the diminished risk (not likely to be a total loss for theft).

Question 14

What is graded rating?

Answer 14

First layer applies to first several thousand dollars of insurance, which carries the highest rate. Second layer applies to next several thousand, and so on and so forth.

Question 15

What are factors affecting the premium for property in transit?

Answer 15

• the insurer’s limit of liability
• the perils applying to the property in transit
• the probable frequency of loss

Question 16

What must the insured show in order to be indemnified?

Answer 16

• the loss was fortuitous
• the loss was not caused or contributed to by any connivance of the insured
• loss must be extraneous to the article involved
• property damaged or destroyed falls within subject matter of insurance
• the property was, at time of loss, at a location described in the policy
• the loss occurred during the policy period

Question 17

Exclusions in an all risks policy deal with what aspects of the contract?

Answer 17

• property excluded
• locations excluded
• events excluded
• direct loss vs indirect loss

Question 18

What are common exclusions in an all risks policy?

Answer 18

• sporting equipment damaged due to its use
• chipping, scratching, abrasion, breakage of fragile or brittle articles
• faulty workmanship
• earthquake, snowslide, landslide, earth movement
• rust, corrosion, rot, mould, pollution
• damage caused by birds, rodents, insects, or vermin
• wear and tear, mechanical breakdown
• intentional or criminal act

Question 19

What events or circumstances would be considered indirect or consequential losses?

Answer 19

• delay
• loss of market
• loss of use
• loss of occupancy

Question 20

Some types of property are susceptible to loss because of their nature, high value, or being easily converted to cash. What can insurers do to limit their liability?

Answer 20

Insurers usually place sub-limits on such items as bicycles, coins, jewelry, watches, furs. The sub-limits could pertain to certain perils only such as theft - limiting the amount that would be paid out for a theft loss, but not applying the same limit to a fire loss.

Question 21

What is the Notice to Authorities condition?

Answer 21

This condition deals with theft losses and requires that the insured report theft and related losses to the policy, to help deter fraud attempts.

Question 22

What is the Pair and Set condition?

Answer 22

This condition states that loss of part of a pair will not be deemed a total loss of the pair and set, and that the value may be reduced due to this loss but does not apportion an equal value to the articles in the set.

Question 23

What is the Parts condition?

Answer 23

This condition deals with parts of property, such as machinery. It recognizes that the cost of a part alone would not constitute an indemnity and allows the cost of installation to be included in the claim.

Question 24

What is the Sue and Labour condition?

Answer 24

The insured must take all reasonable steps to recover lost property. The reasonable expenses related to the recovery would be shared by the insured and insurer.

Question 25

Why is subrogation so important to an insurer?

Answer 25

It gives the insurer the right to act on the insured’s behalf after paying for a loss. It gives the insurer the right to recover the loss from the responsible third party who caused the loss. The insured cannot release the party from liability after the loss has occurred.