chapter 2 Flashcards
What are the two types of policies that determine how claims are triggered?
Claims-made policies (triggered when a claim is made).
Occurrence-based policies (triggered when the loss occurs).
In an occurrence-based policy, what triggers the coverage?
Coverage is triggered when a physical loss or damage occurs during the policy period, even if the claim is made later.
In a claims-made policy, what triggers coverage?
Coverage is triggered when a claim is made against the insured during the policy period, regardless of when the event occurred.
What is a notifiable circumstance in a claims-made policy?
A circumstance that could reasonably lead to a future claim, which the policyholder must report to the insurer during the policy period.
What is a condition precedent in relation to claims notification?
It is a policy condition requiring the insured to notify the insurer promptly. Failure to do so may allow the insurer to decline the claim.
What is the deeming provision in a claims-made policy?
It allows a claim that arises from a notified circumstance to be treated as if it was made during the policy period, even if the claim is made later.
In the Kajima case, what did the court decide about the scope of the initial notification?
The court ruled that the initial notification only covered the specific defects notified and not new, unrelated problems discovered later.
What test did the court apply in determining whether a circumstance might give rise to a claim in the BT fire case?
The court applied an objective test, asking whether a reasonable person in the insured’s position would see the circumstance as likely to give rise to a claim.
Why is prompt notification important for insurers?
it allows insurers to:
Minimize loss.
Defend the claim effectively.
Meet court deadlines.
Preserve subrogation rights.
What happens if notification is late but not a condition precedent in the policy?
The insurer may only claim damages if they can prove they were prejudiced by the delay, but proving prejudice is difficult.
What is the difference between real and imaginary risks in the context of claims notification?
A real risk is a circumstance that objectively creates a genuine possibility of a claim, while an imaginary risk is speculative and unlikely to result in a claim.
In the Court of Appeal case on flawed tax planning advice, what standard did the court use to assess the notification?
The court used a “reasonably clear” standard, meaning the notification must be clear enough to indicate potential circumstances that could lead to a claim.
What is the significance of checking the policy period when handling a claim?
The claims handler must verify whether the date of loss or date of claim falls within the policy period, depending on whether the policy is occurrence-based or claims-made.
What is the trigger for coverage in a first-party insurance policy?
The trigger is the physical loss or damage that occurs during the policy period.
What happens if a policyholder discovers an issue after the policy has expired but notified the insurer of a circumstance during the policy period?
If the policy contains a deeming provision, the claim can still be covered as if it was made during the original policy period.
How does an extension in a commercial policy affect which entities are covered?
Extensions can be added to a policy to include associated or subsidiary companies that weren’t initially listed as the insured.
What happens if a claim is made about defects discovered after a notified circumstance, but the defects are unrelated?
The insurer is not liable for claims arising from defects or damage that are unrelated to the originally notified circumstance.
Why do claims-made policies often require run-off cover after a professional retires?
To cover claims that arise from the professional’s work before retirement but are made after the policy has expired.
In the BT fire case, what was the key factor in determining if the notification was valid?
The court considered whether there was a real risk of indemnity, which would have been recognized by a reasonable person with the insured’s knowledge.
Why might insurers reject late notifications in claims-made policies?
Late notification may prevent insurers from minimizing losses, properly defending the claim, or meeting legal deadlines, which is why prompt notification is often a condition precedent.
What happens if a policyholder answers “yes” to the question of whether they are aware of any circumstances that may give rise to a claim on a renewal proposal form?
The new policy may exclude any claims related to those circumstances, but the original policy may still cover it if the notification was made before it expired.
What must be proven by an insurer to reject a claim due to late notification when it’s not a condition precedent?
The insurer must prove that they were prejudiced by the delay, which is often difficult to establish.
In professional indemnity policies, what defines a circumstance that must be notified?
A circumstance is defined as a fact, event, or state of affairs that may lead to a claim, based on the objective view of the insured.
What is the importance of checking the definitions section in a policy?
The definitions section can clarify the scope of cover by defining key terms like “claim” and “circumstance,” which impacts whether a loss is covered.
