Chapter 1 - The Influence of Legislation

Question 1

Explain legislation.

Answer 1

• all businesses are governed by legislation
• some laws apply to specific business activites
• others to all business activity

Question 2

How do provincial laws pertain to legislation?

Answer 2

• the laws of each province govern insurance onctracts within the boundaries of that province
• an insurer’s business may be subject to the laws of more than one province
• an insurance professional must be aware of the variations in the acts and regulations applicable throughout canada
• the most important laws for property insuracnce are the insurance acts of the common law provinces and territories and parts of Book 5 of civil code of quebec

Question 3

Explain how the insurance act operates.

Answer 3

• govern insurers and contracts for all classes of insurance, but parts of them address specific classes in some detail
• for example: aircraft, auto, liability, marine, and fire insurance
• words and formats of prov insurance acts are similar but not uniform

Question 4

Explain what the act stipulates in regards to fire insurance.

Answer 4

• fire insurance applies to insurance against loss of or damage to property arising from the peril of fire in any contract made in the province except for insurance in several listed classes such as:
• aircraft
• auto
• sprinkler leakage
• theft

Question 5

Briefly explain coverage regarding property insurance.

Answer 5

• generally includes loss or damage from other perils in addition to fire
• the parts of the insurance acts that concern fire insurance also apply to property insurance contracts

Question 6

How does the province of Quebec operate their legislation?

Answer 6

• an act r-especting insurance deals with the technical aspects of forming and operating insurance companies
• legislation governing the terms of insurance contracts is found in the civil code of quebec
• Book 5, articles 1371-2643 is concerned with Obligations
• Articles 1371-1376 deal with obligations in general, our interest is in obligations arising out of contract
• Articles 1371-2388 deal with all classes of contract, including rights and obligations of parties to a contract
• Chapter XV of title 2 in Book 5 concerns insurance and comprises of articles 2389-2628
• Chapter XV contains general and specific provisions for insurance of persons, damage insurance, prop and liab insurance, and marine insurance
• Article 2389-2414 and 2463-2497 apply to prop insurance

Question 7

When is a contract construed according to the law of the province?

Answer 7

If it is:

1) signed, countersigned, issued, delivered in the province
2) commited to the post office
3) to any carrier, messenger or agent
4) to be delivered, or handed over to the insured/insured’s assign/agent in the province

note: where the subject matter of an insurance contract is property in the province or an insurable interest of a resident of the province, the contract is deemed to have been made in the province.

Question 8

Explain copy of proposal for insured under the provincal insurance acts.

Answer 8

• the insurer must furnish the insured a true copy of the insureds app or proposal for insurance on request

Question 9

Explain consistency with insurance act.

Answer 9

• no insurer may make a contract inconsistent with the insurance act.

Question 10

Explain imperfect compliance by insurer.

Answer 10

• an act/omission of the insurer in contravention of any provisions of the act does not render the contract invalid as against the insured

Question 11

What are the policy contents?

Answer 11

Every policy shall contain:

1) name of insurer
2) name of insured
3) name of the person(s) to whom the insurance money is payable
4) amt, method of determining amt of premium for insurance
5) subject matter of insurance
6) indemnity for which the insurer may become liable
7) event on the happening of which liability is to accrue
8) effective date of insurance
9) expiry date or method by which it is to be fixed

Question 12

Explain the process for which a disagreement between insurer and insured occurs. (provisions for appraisal)

Answer 12

• each party will appoint an appraiser and the 2 appraisers will appoint an umpire
• the appraisers will determine the matters in disagreement
• if they fail to agree, they will submit their differences to the umpire
• each party to the appraisal will pay its appointed apprasier and bear equally the expence of the appraisal and umpire

Question 13

When will a judge decide to appoint an appraiser.

Answer 13

Where:

1) a party fails to appoint an apprasier within 7 clear days of being served written notice to do so
2) the appraisers fail to agree on an umpire within 15 days of their appointment
3) an appraiser or umpire refuses to act or is incapable of acting or dies

note: use of appraisal may arise under Stat Condition #11

Question 14

Explain relief of forfeiture.

Answer 14

• where the insured has failed to do or omit what is required by stat condition concerning a loss, but the court finds it inequitable that the insurance should be forfeited or avoided as a result, the court may relieve against that result on terms it considers just

Question 15

Describe waiver of contract terms.

Answer 15

WRITTEN WAIVER
- no contract term shall be deemed to be waived by the insurer in whole or in part unless the waive is stated in writing and signed by a person authorized for that purpose bt the insurer

NON-WAIVER
- neither the insurer nor the insured will be deemed to have waived any term of a contract by any act relating to the appraisal of the amount of loss, the delivery and completion of proofs, or the investigation or adjustment of any claim under the contract

Question 16

Explain how non-payment of premium works.

Answer 16

CONTRACT STILL BINDING

• where the policy has veen delivered, the contract is binding on the insurer even if premium has not been paid and policy has been delievered by an officer/agent of insurer without authority
• insurer may sue for unpaid premium and deduct if from amt for which insurer is liable under contract

WHEN CHEQUE IS NOT HONORED
- the insurer may terminate contract forthwith by giving 15 days notice by reg mail or 5 days face-to-face as required by Stat Condition #5

Question 17

Describe the provisions regarding proof of loss forms.

Answer 17

• an insurer in any event, not more than 60 days after receiving notice of loss, must furnish the insured/person to whom insurance money is payable with forms to make the required proof of loss
• an insurer that neglects/refuses to do so is guilty of an offence and the 60-day prohibition against an action for recovery by insured does not apply
• in furnishing the forms, the insurer admits neither liability nor that a valid contract is in force

Question 18

Explain when action may be brought under contract provision.

Answer 18

NO ACTION BEFORE 60 DAYS

• no action may be brought for recovery of money payable under a contract of ins for 60 days after proof of loss or happening of event
• the insurer loses this protection if it neglects /refuses to provide a proof of loss form

Question 19

Describe insurance as a collateral security for a mortgage provision.

Answer 19

NO COMMISSION FOR MORTGAGEE

• neither a mortgagee or any of its officers/employees is entitled to a commission for arranging insurance under which loss would be payable to the mortgagee as the mortgagee
• and no insurer/agent/broker may pay such a commission
• any insurer/other person that contravenes this section is guilty of an offence

Question 20

What does a basic fire policy insure against?

Answer 20

1) fire ( actual ignition - visible flames)
2) lightning
- loss/damage to insured property
- does not cover destruction/loss to electril devices or appliances caused by lightning unless fire originates outside the article itself (and then only for loss/damage that occurs from fire)
3) explosion of natural, coal, manufactured gas
- covers insured property against loss/damage in a building not forming part of a gas works whether fire ensures or not
- coverage does not apply if explosion is a result of riot, civil commotion, or any other excluded causes for fire peril

Question 21

What are the exclusions under fire peril?

Answer 21

1) goods undergoing any process involving the application of heat
2) riot, civil commotion, war, invasion, act of foreign enemy, hostiles, civil war, rebellion, revolution, insurrection, or military power
- precise meanings of many of these terms have been determined by courts
3) Radioactive contamination
- does not cover insured property for loss/damage caused by radioactive cont. directly or indirectly resulting from fire, lightning, or explosion
4) Damage to electrical appliances/devices caused by lightning
- unless fire originates outside the article itself, and then only for loss/damage that occurs from fire

Question 22

What does the removal of insured property provision include?

Answer 22

• insurance acts extend coverage to insured property necessarily removed to prevent loss or damage or further loss/damage (by fire)
• the amt of insurance that exceeds the insurer’s liability for a loss automatically covers the property removed and any property remaining at the original location
• the extension applies for 7 days/unexpired term of contract, whichever is less
• this extension needs to be considered in conjunction with Stat Cond #9, Salvage
• the insured is obliged to take all reasonable steps ro minimize loss
• the insurer is obliged to contribute to the insured’s expenses and also to continue to insure poroperty that is removed
• insured must notify the insurer of the new location and the amts of insurance required at each of the unspecified locations if property moved wthere will remain longer than 7 days
• this will allow the insurer to adjust policy and determine appropriate rates of premium at new location
• the total amt of insurance on property, whether is is saved or detroyed by fire, is unchanged
• to accomplish this, the remaining amt of insurance i limited to the difference between the amt stated in the policy and the amt of loss actually suffered at described location
• the remaining amt is split to provide a seperate amt of each location at which insured property is situated

Question 23

Define distribution.

Answer 23

• the splitting of a single amt of insurance to apply to property at more than on location

Question 24

What is the Distribition Provision?

Answer 24

PAYMENT REDUCES INSURANCE

The distribution provision is based on 2 conditions:

1) The contract must be one in which the insurer agrees to pay a claim in certain described circumstances, and the amt of insurance is reduced accordingly.
- thus, the amt of insurance is only the difference between the original amt of insurance and the amt of loss already suffered when exposed property is removed

2) If the amt of loss is equal to or greater than amt of insurance for insured property, the full amt of insurance is payable.

Question 25

Define underinsured.

Answer 25

• if the value of insured property is greater than the amount of insurance

Question 26

How does underinsurance work?

Answer 26

NO PAYMENT BEYOND AMT OF INSURANCE

• the insured will receive no payment under the policy for any loss more than the amt of insurance
• the insured is not penalized for this in the event of a partial loss
• there will be no benefit under the automatic 7 day extension for removal of insured property because the loss will exhause the amt of insurance

LOSS BELOW AMT OF INSURANCE

• the insured will receive the amt of the loss
• but remaining insurance will be a smaller proportion of the value of undamaged property than the original amount’s proportion of the total value when the policy was issued

Question 27

What are the benefits of written applications?

Answer 27

• makes applicant’s wishes clear to insurer
• reduce misunderstandings
• any confusion about what applicant wants, or any difference between that and what insurer is willing to provide is likely to become obvious before the policy is issued
• onus is on the insurer to properly check written apps
• the insured has 2 weeks from receipt of the notification to reject the policy
• if insured does not advise insurer they are rejecting within 2 weeks, they will have to terminate policy
• if insured rejects policy it will become ab initio

Question 28

Explain Protection of Loss Payees.

Answer 28

• where a loss under a contract, with the consent of insurer, been made payable to a mortgagee, the insurer shall not cancel or alter policy to prejudice of that person without notice
• adding a payee creates an obligation for insurer to the payee
• notice of termination/alternation should be sent to payee

Question 29

What is the Limitation of Liability Clause?

Answer 29

• a ded clause or coinsurance, average, similar clause or a clause, conditional/unconditional, that limits recovery by insured to a specified % of value or prop insured at time of loss must be marked on the policy

Question 30

What is a rateable contribition?

Answer 30

• when more than one policy covers same interest at time of loss, each insurer is liable for its rateable proportion of loss unless insurers agree otherwise in writing
• all policies must cover same interest, though they may cover other interests too
• where 2 policies cover same interest, but only one specifically identifies prop that suffers loss/damage, that policy must respond first

Question 31

How are deductibles administrered in rateable policies?

Answer 31

1) where on contract contains a ded, the insurers share of a loss will first be determined WITHOUT regard to deductible clause
- then the ded will be applied only to determine amt of insureds recovery under contract

2) where more than 1 contract contains ded, the insurers shares of a loss will first be determined WITHOUT regard to ded clauses
- then the highest ded will be pro rated among the insurers that have ded’s
- pro rated amts will be applied to determine amt of insured recovery under contracts

Question 32

Explain the use of Statutory Conditions.

Answer 32

• must be identified and printed in every fire insurance policy
• stat conditions only govern fire insurance
• a change that adversely affects insured may be disputed later and courts may apply stat cond as they appear in relevant ins acts
• therefore, insurer should required insured to state in writing that he/she understands significance of change/omission
• stat cond bind insurer and insured, establishing certain rights and obligations for both
• some conditions apply after a loss

Question 33

What are the statutory conditions?

Answer 33

1) MISREPRESENTATION
i) falsely described prop to the detriment of insurer
ii) misreped any circumstance material to insurer’s assessment of risk
iii) fraudulently omitted to mention such a circumstance

The misrep, misdescription, omission must have resulted in:

i) issuing of policy that would not have been issued had insurer been aware of truth
ii) charging of an inadequate premium for risk
- contract will not be void unless insurer can prove the fact misreped/omitted was material to insurers acceptance of or premium charged for risk
- insurer must show that insured intended to defraud
- takes place BEFORE contract takes effect

2) PROPERTY OF OTHERS
- insurer is only liable for prop owned by insured
- policy will insure interests in prop of persons other than insured if they are stated in contract

3) CHANGE OF INTEREST
- privity of contract allows insured to assign his rights and obligatins under contract only with insurers consent
- the exceptions to this doctrine are as follows:
1) an authorized assignment under bankruptcy act
2) operation of law
3) death of named insured
- policy will protect new interests automatically

4) MATERIAL CHANGE
- similar to #1 but applies AFTER the policy takes place
- concerns changes in material fact, within the control and knowledge of insured, occurring during policy term
- to maintain ins, insured must promptly notify insurer of any material change in risk
- although, insured should discuss changes before making them, or insurer may decline to insure changed risk

5) TERMINATION
- insured may cancel at any time
- prudent insurers ask for written instruction (LPV, cancellation voucher, cancellation request)
- insurer calculates earned premium on a short-rate basis
- insurer keeps pro-rata premium and a surcharge that penalizes insured for terminating contract early
- helps with cost to insurer of issuing/cancelling policy

• when insurer cancels, they must notify insured in writing
• 5 days notice when personally delivered, and 15 days noticed by registered mail
• notice period begins the day following receipt of the letter at the post office
• reg mail is preferred as the post office documents transaction in writing and records progress of notice while being delivered
• if insurer addressed notice to last postal address supplied by insured and notice is not received, the cancellation will take effect at the end of the 15 days notice
• if notice is returned, insurer must prove it complied with stat requirements, by producing the undelivered notice in court, with postal office notations
• if insurer cancels, it may only keep its pro-rata

6) REQUIREMENTS AFTER LOSS
- obligations the insured acquires in the event of loss
- must provide insurer with:
a) prompt written notice
b) proof of loss as soon as practible
c) an inventory, if required, of undamaged prop
d) certain records, if required, including books of account, warehouse receipts, invoices
- a waiver of inventory clause allowes insurer to waive its rights under this condition to an inventory of undamaged goods

7) FRAUD
- denies recovery to an insured whose statutory declaration is in any respect fraudulent or wilfully false
- meaning they made it knowing it was false or without believing it to be true, or if insured made it recklessly without regard for its being true or false
- it does not terminate policy nor does it prevent insured from recovering other losses under the policy (but entire claim may be denied if it is proven fraudulent)
- onus is on insurer to prove that fraud occurred (its not considered fraudulent unless insurer can show insured intended to deceive them)

8) WHO MAY GIVE NOTICE AND PROOF
- allows persons other than named insured to give notice or proof of loss under certain circumstances
- if insured is unavailable, their representatives may give notice and proof on their behalf

9) SALVAGE
- if a loss damages prop so severely that restoring it would cost more than it had been worth, an insurer might indemnify insured as if for a total loss
a) obliges insured to protect damaged prop from further damage
b) obliges insured to protect undamaged prop from being damaged
c) obliges insurer to pay pro rata the insureds expenses in complying with the condition

10) ENTRY, CONTROL, ABANDONMENT
- after a loss, insured must allow insurer access to damaged prop for investigation and adjustment purposes
- insured may not abandon prop to insurer without insurers consent
- insurer does not acquire the right to act as if it has control or possession of prop

11) APPRAISAL
- differences concerning the settlement of a loss be resolved by appraisal
- doesnt address questions of liability
- if parties disagree whether a loss is covered, they must resort to the courts

12) WHEN LOSS PAYABLE
- insurer must pay/deny claim within 60 days of completion of the proof of loss
- 60 day period allows it to complete investigation and arrange funds to pay claim
- change in time period is possible upon agreement of both parties, but must be when policy is issued or before a loss and should be written in policy and signed by all parties

13) REPLACEMENT
- another option for insurer when settling claim
- insurer may elect to settle claim by repairing, rebuilding, or replacing damaged/destroyed prop stead of paying $
- must notify insured in writing of its intent within 30 days of receiving POL
- insurer may be estopped from exercising this option if it has already agreed, orally/in writing, to settle in cash
- once insured has been given notice, insurer cannot rescind it (cash no longer possible)
- insurer has 45 days to begin repairing, rebuilding, replacing from receipt of POL
- policy changes from contract of indemnity to contract to repair, rebuild, replace

14) ACTION
- in ontario and, policy insuring only against fire, insured has 1 year to pursue grievance against insurer in court
- if policy is all risks, this stat cond is overruled by limitations act of ont, which imposes a 2 year period
- most provinces have limitation period of 1 year, except for manitoba and yukon has 2 year period
- in saskatchewan, stat cond 14 has been replaced by limitations act of sask, which imposes a 2 year period
- in BC, limitation for first party prop claims is 2 years

15) NOTICE
- described how insured and insurer may give any type of official notice to each other
- from insurer must be sent by reg mail or delivered personally to last known postal address
- onus is on insured to advise insurer of any change of address

Question 34

What are the steps in calculating rateable contribution/other insurance?

Answer 34

1) add individual policy limits together to get total amt of ins
2) determine what % the ind policy limit is of total amt of insurance (divide ind policy limit by total amt of ins)
3) multiply % for insurer in question by the amt of loss