Chapter 1 Flashcards
Personal Risk
Loss of a person’s health or life
Property Risk
Financial Loss of Owned Property
Liability Risk
Financial responsibility of injury or damages to another
How to Deal With Risk
C - A - R - T
Control = Taking measures to reduce frequency and severity of losses Avoid = Refrain from buying, building, travelling, living, etc. Retain = Self insuring, deductible (partial) Transfer = Insurance
Define Insurance
The undertaking by one person to indemnify another person against a loss or liability for loss in respect of a certain risk or peril to which the object of insurance may be exposed or to pay a sum of money or other thing of value on the happening of a certain event.
Speculative risk
a chance of loss or a chance of profit
i.e., gambling
Pure risk
A chance of loss, but no chance of profit
i.e., what insurance covers
Elements of a contract
agreement capacity to contract consideration genuine intention legality of object
Agreement
Offer & Acceptance
- offer must be clear
- acceptance must be unconditional
- can be oral agreements
- nothing can be changed
Insureds have a right to reject a policy when….
a policy has been issued differently than what has been applied for, has the right to return the policy for flat cancellation within 2 weeks of written notice that the policy has been changed
Legality of Object
Contract intended for the purpose which is contrary to law is not enforceable
Insurance will not pay for…
items illegally acquired, or for fraudulent losses
Capacity
Parties must be legally capable of entering into a contract
Exceptions to legally capable individuals entering a contract
Minors -except for necessities of life Mentally incompetent Affected by drugs or alcohol Trade names - Becky's cupcakes vs Becky wagner DBA Becky's cupcakes -look for INC LTD or DBA or O/A
Elements of INSURANCE contracts
- Insurable Interest
- Utmost good faith - Uberrima Fides
- Indemnity
Insurable Interest
Anyone who would suffer a financial loss
Owners of property & business partners, mortgagees, and bailees
Anyone who would be legally responsible
Utmost Good Faith
Uberrima Fides
Insured - standard of honesty greater than good faith
Insurer - Settle claims fairly, and be able to make payment
Indemnity
To put the insured into the same financial position they enjoyed just prior to the loss. No profit, no loss
Void Contract
A contract that is treated as it if never existed
does not have any legal effect
Voidable Contract
A contract that can be rejected at the option of the aggrieved party
The Brokerage/Agency agreement outlines binding authority granted:
- Allows the broker to commit an insurer to a risk without first confirming with the insurer
- anything outside of binding authority may be written, but must first be accepted by the insurer
- provides the brokerage with the authority to bind the insurer for certain classes of risks and limits
- after change in market or large loss, binding authority can be changed by the insurer
Binding Risks
Common for brokers to bind risks on behalf of the insurer - oral or written
The binder:
Subject to the same terms and conditions as a policy
must contain all details included in the policy
Oral binding should be followed up with written confirmation to avoid dispute
cover notes and binders are documents that provide evidence of insurance
Direct Damage
when damage is caused to insured property by the insured peril
Indirect damage
Consequential losses arising from a direct damage loss
Determining Indemnity
Difficult to determine with rules such as pair & set or parts
factors used - the policy will pay the least of:
- ACV of the damaged property
- limit of insurance
Analysis of Indemnity
Step 1
Determine the Cash Value at the Time of Loss
- The cost of the item less depreciation
- Considering condition of the property, resale value, normal life expectancy
Analysis of Indemnity
Step 2
Determine the interest of the insured
- payment is made only for property that is owned by the named insured, or other interested parties listed on the contract (such as lienholders and mortgagees)
Analysis of Indemnity
Step 3
Verify the Limit of Insurance
- Check the insurance limit
Replacement Cost
Provides for repair or replacement of the lost or damaged property with new property of similar kind and quality
No depreciation
Valued Policies
Unique property which cannot be replaced or for which determining value is difficult
Value is agreed to at the time of coverage is arranged
apprasials
Federal Government Role
OSFI - Office of the Superintendent of Financial Institutions monitors and approves of insurers and their financial stability (solvency)
Provincial Government Role
Superintendent of Insurance administers Insurance Act
- Supervise terms/conditions of insurance contracts
- licensing of insurers
- monitor provincially licensed insurer’s financial stability
Monitoring Financial Solvency
Insurers must be able to make good of their financial obligations
Property and Casualty Insurance Compensation {PACICC}
Pays: Claims of an insolvent insurer up tp $250,000 per occurrence
Refunds up to 70% of unearned premiums max of 700$
Peril of Fire
Provincial Insurance acts legislate the basic coverage provided by fire. Includes:
- Fire - actual ignition needed (friendly fire vs hostile fire)
- Lightning
- Explosion of Natural/Coal/Manufactured Gas
Exclusions of Peril of Fire
- the application of heat
- lightning damage to electrical devices
- electrical currents other than lightning
- contamination by radioactive material
Statutory Conditions
- Rules of the Contract
- Must be included in every policy that provides coverage for fire
- No variations allowed (cannot do less than the minimum)
- 15 statutory conditions
Misrepresentation
occurs when:
a false description of the property to the detriment of the insurer
misrepresentation of a material fact
fraudulent omission of a material fact
insurer will have the right to void the contract if able to show misrepresentation
Property of Others
The insurer is only liable for property owned by the insured:
- Interests of others that are stated in the contract are covered (mortgagees)
Change of Interest
Authorized assignment under the Bankruptcy Act
Change of title by succession, operation of law, death of the named insured
Privity of Contract
an insured must obtain consent from the insurer to assign the contract to another party
Material Change
Insured must promptly notify of material change after the policy is issued that is within their knowledge and control
if change is not reported the insurer is entitled deny a loss if the material change contributed to the loss
With material change underwriting may…
- return the unearned premium and cancel the policy or
- retain the risk and advise the insured in writing of nay additional premium due within 15 days of receipt
Insured may cancel…
any time upon request
short-rate cancellation , refund sent by insurer as soon as practicable
Insurer may cancel…
in writing 15 days notice by registered mail or 5 days hand delivered
pro-rata cancellation applies refund must accompany the notice
Requirements after loss
Prompt written notice
proof of loss completed as soon as practicable (who what when where and why of loss)
all other insurable interests and insurance applicable
inventory of damaged and undamaged property
certain records such as books of account, receipts and invoices
Fraud
This condition denies recovery to an insured whos statutory declaration is fraudulent or false
voids entire claim, voids the claim not policy, onus on insurer to prove
Who may give notice and proof of loss
named insured and if they refuse then authorized representative of the insured or anyone whom insurance proceeds are available
Salvage
- Insured must take all reasonable steps to protect property from further loss
- The insurer will contribute pro-rata towards reasonable expenses for the protection of property
Entry, control, and abandonment
insured must allow insurer access to damaged property
insurer cannot control or possess the insured property
insured cannot abandon property to insurer without consent
Appraisal / In Case of Disagreement
Proof of loss must be delivered to insurer
The insurer must have declined to make payment for the amounts stated in the proof of loss
Written demand must be made
When loss is payable
Within 60 days of receiving completed proof of loss from the insured
Time period may be negotiated at the time of policy issuance
Replacement
If insurer elects to repair, rebuild, or replace damaged property they must notify the insured of intent in writing within 30 days of receiving proof of loss AND
begin repair within 45 days from date proof of loss received
Action
Every action or proceeding against the Insurer for the
recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.”
Notice
To insured - personally delivered or sent tot the last known postal address
to insurer - to chief agency or head office of the insurer in that province
Notice to authorities
if damage is caused by criminal act the insured must contact authorities
sue and labour
the insurer agrees to participate in the costs of recovery and protection of property
no benefit to bailee
this protects the insurers subrogation rights
Pair & Set
The insurer is only liable for a fair portion of the loss
Parts
Similar to pair & set but involving parts. the insurer is liable for the costs to install
Other legislated requirements
Contents of insurance policies Removal of coverages Limitation of liability clauses Right of subrogation Waiver of condition or term Effect of policy delivery
Contents of Insurance Policies
- Parties to the contract
- Policy period
- Loss payables
- Types of coverages and limits
- Rate and premium charged
- Subject matter of insurance
- Perils included
- Basis of indemnity
Removal of coverages
- waives requirements for property to be on premises
- extends for 7 days or to policy expiry
- does not increase the amount of insurance
- limits are apportioned to all locations remaining
- coverage extension for property removed from the premises after an insured loss to protect from further damage
Limitation of liability clause
any policy with a clause limiting recovery by the insured must be marked a such:
- requirements are set out for each province
- includes clauses such as coinsurance and deductibles etc
Deductible clause
the insureds share of the loss
keeps insurance affordable
the higher the deductible the lower the premium
should pick a deductible that reflects the amount they can realistically afford in the event of a loss
is considered to be a partial retention of the loss amount
Coinsurance clause
- most losses are partial losses
- rates assume insurance to value
- insureds must insure to a specified amount or percentage of total value
- need to be reminded of inflation
Coinsurance formula
Did / Should x amount of loss = recovery
should is the actual value of the property x coinsurance clause
Right of Subrogation
right to recover the amount of loss from the responsible party
after insurer pays a claim, they will “put themselves into insured’s shoes”
allows insurer same rights of recovery as insured
actions taken against responsible parties are done in the insured’s name
Waiver of terms/conditions
No term or condition of a contract of insurance shall be considered to be waived by the insurer unless such waiver is provided in writing and signed by a person authorized for that purpose by the insurer
Effect of Delivery of Policy
Insurance acts state a policy is binding on the insurer even if the insured has not paid
claims will be paid as if the insured paid the premium
Private Insurance
Proprietary
Non-proprietary
Government Insurers
Automobile insurance
Medical plans, EI, workers compensation
Independent Agency / Brokerage system
Brokerage owns the business Not employees of the insurer Responsible for their own expenses paid commission duty owed to client
Direct writing
Insurer owns the business
Producers are employees of insurer
paid salary or commission
Insurance Bureau of Canada (IBC)
Voluntary Insurer membership
Collects and distributes statistics, assists insurers
Insurer’s Advisory Organization (IAO)
Risk inspection and advisory rating
Insurance Crime Prevention Bureau (ICPB)
Fire Underwriters Investigation Bureau – fire crimes
Canadian Auto Theft Bureau – theft rings
Casualty Claim Index – bodily injury claims over 4 weeks
