Chapter 1 - Section 2

Question 1

The conduct of the general insurance industry in Canada is closely supervised and regulated by federal and provincial statutes. State what these laws try to ensure.

Answer 1

• Insurance companies will be financially competent to discharge their obligations
• Forms of contracts are drafted fairly
• Business is being conducted to the general benefit of the public

Question 2

List the three main areas of responsibility of the Provincial Superintendent of Insurance.

Answer 2

• Supervise the terms and conditions of insurance contracts
• License insurers, agents, brokers, and adjusters
• Monitoring solvency of provincially licensed insurers

Question 3

What does PACICC stand for?

Answer 3

Property and Casualty Insurance Compensation Corporation

Question 4

State the purpose of the Property and Casualty Insurance Compensation Corporation (PACICC).

Answer 4

When a bankruptcy occurs and claims cannot be paid, the Corporation will pay all valid claims. All participating insurance companies are then charged an assessment to cover the total amount of the claims. The amount of each insurer’s contribution is based on total direct premiums written by it.

Question 5

What are the amounts that can be claimed under PACICC?

Answer 5

• A maximum of $250,000 for all claims arising from a single occurrence
• A refund of up to 70% of unearned premiums, subject to a maximum of $700 per policy

Question 6

Identify three basic coverages that Insurance Acts state must be in every policy of fire insurance

Answer 6

• Fire
• Lightning
• Explosion of Natural, Coal or Manufactured Gas

Question 7

Define “fire”

Answer 7

Involves the presence of a visible flame of glow, actual ignition or burning is required

Question 8

By use of an example, distinguish the difference between a “friendly fire” and a “hostile fire”

Answer 8

A friendly fire is one that is contained to its proper receptacle
Ex: A fire in a fire place
A hostile fire is one that passes outside the limits assigned to it
Ex: Fire loss to carpeting caused by a spark thrown from a fireplace

Question 9

List three other types of losses that are regarded as “fire” losses

Answer 9

• Damage caused by water and other extinguishing agents
• Physical damage to buildings caused by firefighters
• Damage resulting from other actions to prevent the spread of fire

Question 10

Would lightning damage cause to a building be covered?

Answer 10

Yes

Question 11

Would concussion type losses be considered an explosion?

Answer 11

They are considered an explosion but concussion type explosions are not covered

Question 12

Exclusions are common to all insurance policies and are generally of two types. Identify them.

Answer 12

• Property excluded

- Losses excluded

Question 13

Identify two reasons why exclusions are inserted to remove coverage for property or losses

Answer 13

• For which other more specialized coverage forms are available
• Which are uninsurable

Question 14

The fourteen standard exclusions that are legislated to be in fire insurance policies are best remembered by the abbreviation ALEC RIC RIC WHAM, what are they?

Answer 14

Application of heat
Lightning damage to electrical devices or appliances
Electrical currents
Contamination by radioactive material
Riot
Insurrection
Civil Commotion
Rebellion, Revolution
Invasion
Civil war
War
Hostilities whether war be declared or not
Act of foreign enemy
Military Power

Question 15

As you know, insurers may improve on the coverages provided under the basic legislated policy. List three coverages that insurers do provide even though they are not required to do so by the Insurance Acts

Answer 15

Lightning damage to electrical devices or appliances
Riot
Civil Commotion

Question 16

In addition to contracts of fire insurance policies, state two other types of policies that are subject to “statutory conditions”

Answer 16

Accident and Sickness Policies

Automobile Policies

Question 17

There are fifteen Statutory Conditions applicable to contracts of insurance. List them

Answer 17

Misrepresentation
Property of Others
Change of Interest
Material Change
Termination
Requirements After Loss
Fraud
Who May Give Notice and Proof
Salvage 
Entry, Control, Abandonment
Appraisal
When Loss is Payable
Replacement
Action
Notice

Question 18

Misrepresentation occurs at the time of application. Identify three forms of misrepresentation:

Answer 18

• A false description of the property to the prejudice of the insurer
• Misrepresentation of a material fact
• Fraudulent omission of a material fact

Question 19

Explain by use of example, the effect of misrepresentation on a Contract of Insurance

Answer 19

If the insured’s state that their premises are heated by electric heat when they’re heated by a wood furnace, the insurer will have solid grounds to void the policy in the event of a fire which is traced to the defective operation of the heating unit. However, there will be no grounds to void the policy on the same basis when the loss is caused by a fire due to faulty electrical wiring

Question 20

Define “material fact”

Answer 20

A fact which is determined by the insurer as crucial in determining:
Whether a policy will be issued
Amount of premium to be charged
Conditions, if any, to be applied if a policy is issued

Question 21

List two examples of what might be considered a material fact

Answer 21

• Details concerning previous claims

- Details regarding previous cancellations or refusals of insurance

Question 22

A Change of Interest is generally not allowed in fire insurance contracts. State four situations where a change of interest would be allowed

Answer 22

• An authorized assignment under the Bankruptcy Act
• A change of title by succession
• A change of title by operation of law
• A change of title by death

Question 23

A Material Change is any change with the control and knowledge of the insured which

Answer 23

• Arises after a policy has been issued

- Serves to increase the chance of loss

Question 24

When a material change is reported to the insurer, it may:

Answer 24

• Return the unearned premium and cancel the policy

- Retain the risk and advise the insureds in writing of the additional premium required

Question 25

Explain by use of example, the effect an unreported material change may have on a loss

Answer 25

If a loss arises out of an unreported material change, there is no coverage provided by the policy. However, if the insured was not aware of such a change in risk to the insurer, the policy must respond to pay the loss
Ex: Conversion of the insured’s private garage into an auto body or upholstery shop or the use of the insured’s dwelling for business purposes

Question 26

If an insurer wishes to cancel the policy, they may do so at any time giving the insured written notice giving:

Answer 26

• 15 days notice of termination by registered mail

- 5 days written notice of termination personally delivered

Question 27

Any excess of premium, or unearned premium, must accompany the notice and will be calculated on what basis?

Answer 27

Pro rata basis
Divide the amount of premium paid by the number of days in the policy period. For amount to be refunded, multiply that number by number of days remaining in the policy period

Question 28

If the insured requests cancellation, any refund of premium will be calculated on what basis?

Answer 28

Short rate basis

The same as the pro rata basis, only can deduct administrative costs

Question 29

If an insured loss should occur, the insured is required to give notice to the insurer:

Answer 29

Forthwith and in writing

Question 30

Define “fraud”

Answer 30

The deliberate act to deceive with a view to securing some profit

Question 31

Fraud occurs at the time of a loss. What portion of a claim would an insurer be allowed to deny if they were able to prove that the insured committed fraud?

Answer 31

When able to prove fraud, the insurer is entitled to deny the entire claim, and not just that part which was fraudulent

Question 32

State two parties who nay give notice and proof of loss if the insured is unable or refuses to give notice and proof?

Answer 32

Agents (relative, friend, lawyer)

Mortgagee (or other party of interest)

Question 33

The Insurance Act provides for an “appraisal” in three instances when there is a dispute as to the value of:

Answer 33

• The property insured
• The property saved
• The amount of the loss

Question 34

After completion of the loss, unless the contract provides for a shorter period, how long does the insurer have to pay the loss?

Answer 34

Within 60 days of completion of the proof of loss

Question 35

The insurer, instead of making payment, may repair, rebuild or replace the property giving the insured written notice. If the insurer elects to repair, how many days written notice must be given to the insured?

Answer 35

Within 30 days of the receipt of the proof of loss

Question 36

If the insurer does decide to repair, rebuild or replace, this must commence within what time period following receipt of the proofs of loss?

Answer 36

Within 45 days

Question 37

When policies insure against a wide range of perils, insurers generally incorporate “Additional Conditions”. List the 5:

Answer 37

• Notice to Authorities
• Sue and Labour
• No Benefit to Bailee
• Pair and Set
• Parts

Question 38

Explain the requirement placed upon the insured when there has been loss due to certain criminal acts

Answer 38

The insured must give immediate notice to police or other authorities having jurisdiction. This gives the authorities greater chance of recovering items and can help reduce the amount of claim paid.

Question 39

When there is a loss or damage to only one item of a pair or set, the loss is not a total loss. Give an example of a loss to demonstrate your understanding of this condition.

Answer 39

An example would be if one of two matching lamps suffered a loss/damage, only one is affected and the other still has value. There is only loss to one item so this is not a total loss.

Question 40

List the six other legislated requirements contained in all contracts of fire insurance

Answer 40

• Contents of Insurance Policies Legislated
• Removal Coverage Legislated
• Limitation of Liability Clauses - Usage Legislated
• Right of Subrogation Legislated
• Waiver of Term or Condition
• Effect of Delivery of Policy

Question 41

List the six details that are to appear on every policy of insurance

Answer 41

• Parties to the Contract
• Policy Period
• Loss Payable or Payee, If Any
• Type(s) of Insurance Coverage(s) and Amounts for Which Insurer may be Liable
• Rate and Premium Charged
• Subject Matter of Insurance

Question 42

Identify three conditions applicable to the “Removal Clause”

Answer 42

• The law requires insurers to respond only when “insured property is necessarily removed from the location(s) specified to prevent loss, destruction or damage, or further loss, damage or destruction”
• The amount of insurance available for any loss to the property while at the unnamed location will be reduced by the amount paid for the loss at the named location
• The insurer is obligated to provide coverage at the unnamed location for the least of 7 (seven) days or the unexpired term of the policy

Question 43

What is the requirement when a contract of insurance contains any clause which allows the insurer to pay an amount which is less than that purchase by the insured?

Answer 43

It shall have printed of stamped upon its face sheet in red ink the words, “This policy contains a clause(s) that may limit the amount payable”.
Unless these words are printed or stamped on the Declarations page, any such clause shall not be binding upon the insured

Question 44

Identify two types of “Limitation Clauses”

Answer 44

• Deductible Clause

- Co-Insurance Clause

Question 45

Your client has a building valued at $300,000 and insured for $120,000. Assuming a loss of $60,000 and an 80% co-insurance Clause, calculate the loss payment

Answer 45

DID/SHOULD x LOSS = SETTLEMENT
($300,000 x 80% = $240,000)

$120,000/$240,000 x $60,000 = SETTLEMENT
0.5 x $60,000 = $30,000

Question 46

Your client has a building valued at $300,000 and insured for $120,000. Assuming a total loss and an 80% co-insurance Clause, calculate the loss payment

Answer 46

DID/SHOULD x LOSS = SETTLEMENT
($300,000 x 80% = $240,000)

$120,000/$240,000 x $120,000 = SETTLEMENT
0.5 x $120,000 = $60,000

Question 47

By use of an example, explain the concept of “subrogation”

Answer 47

Subrogation means “to put into another’s shoes”. The Insurance Acts allow the insurer to place itself “in the insured’s shoes” in respect of their right to recover the amount of their loss from the responsible party. The action commenced against the responsible party is taken in the insured’s name

Example: When the wrongful acts of others result in damage/loss to property, the law provides that the person suffering the loss shall be entitled to recover from the responsible party. To assist insured’s, insurers agree to allow the owners of the property to claim the amount under their own insurance policy.

Question 48

Who can make changes to an insurance policy?

Answer 48

It is Insurance Company underwriters who usually have the authority to make changes. It is their responsibility to accept or reject risks on behalf on the insurer.