Chapter 2

Question 1

Punitive damages, fines and
penalties are insured by the policy.

Answer 1

False, these damages often involve malice, oppression, fraud. They are rarley awarded in canada

Question 2

Product liability exposures are
insured on a limited world-wide
basis.

Answer 2

True, The products liability coverage provided by the policy is often referred to as limited world-wide coverage because there are certain limitations or conditions that must be met before the policy will respond to pay the claim

Question 2

The insurer’s obligation to defend the insured in any action ends when the coverage limits are exhausted.

Answer 2

True

Question 3

Injuries intentionally caused to
others are excluded by the policy.

Answer 3

True

Question 4

The tort liability of others assumed in advance of any claim for bodily injury or property damage is insured by the policy.

Answer 4

True, tort liability means a liability that would be imposed by law in the absence of any contract or agreement

Question 5

Employees covered by a Workers’ Compensation plan are also entitled to sue their employers for injuries they receive while in the course of their employment.

Answer 5

False, The reason for the exclusion is that most employees are already insured under the workers’ compensation plan in their province.

Question 6

Liability arising out of the use of attached equipment on any licensed automobile while at the site of use or operation must be insured under a commercial automobile liability policy.

Answer 6

False, the insurer recognizes that the liability arising out of the use of attached equipment at a work site is more of a business than an automobile exposure

Question 7

When work is being performed on real or personal property, the care, custody or control exclusion limits coverage to only that particular part of the property which is being worked upon.

Answer 7

False, the logic is that excluding payment for such losses is that if the property actually being worked on is damaged because of inadequacies in the insured’s work, the policy should not be required to respond. Coverage is excluded for that particular area, because the subcontractors have the care, custody and control

Question 8

The only defence available to the insured in countering an allegation of slander or libel is the truth.

Answer 8

True, this burden of proof makes it hazardous to make defamatory statements in the vague hope of later being able to establish their truth

Question 9

Medical Payments are made only if it is shown that the insured was responsible for the injuries caused.

Answer 9

False, this is no fault coverage. Better this way as chance of permanent disability to injured is avoided if immediate med attention is recieved, reduced potential for claims alleging negligence, legal confrontation w the victim over such expenses is avoided

Question 10

Tenants’ Legal Liability coverages are intended to insure all losses to the premises which the insured has assumed in contract.

Answer 10

False, this coverage is limited to the payment of only those losses for which the tenant is liable in tort

Question 11

The insured’s liability for damage caused by smoke or fumes from a hostile fire originating from their premises is covered by the policy.

Answer 11

True, the definition of pollutant includes smoke and fumes from a hostile fire originating from the insured’s premises or work site.

Question 12

Smoke damage caused to the stock of a neighbouring business by the regular operation of an incinerator located at the rear of the insured’s premises is insured by the policy.

Answer 12

False

Question 13

Coverage would be provided for bodily injury arising out of the venting of toxic fumes from the insured’s premises onto the premises of another.

Answer 13

False, has to be arising on the insured premises

Question 14

Except for post judgment interest, Supplementary Payments are not limited as to amount

Answer 14

True, these payments are not limited as to any specific amount an are provided in addition to other coverage limits provided by the policy

Question 15

The insured acquired a controlling interest in another business six months ago. A separate liability insurance policy was not purchased and the insurer under the present policy is not aware of such acquisition. Yesterday, a customer at that location was injured when boxes stocked at the rear of the store fell on her. Would the insured’s liability policy respond to provide coverage? Support your answer by direct reference to the policy.

Answer 15

No Coverage is provided by the existing policy for a period of 90 days only, or until expiry of the policy, whichever is sooner.

Question 16

Claims are payable in the currency of the country in which the claim occurred.

Answer 16

False

Question 17

Generally, when the insurer terminates the policy, the insured must be provided with at least 30 days advance notice of such termination.

Answer 17

True

Question 18

When more than one Named Insured appears on the policy, the insurer must deal with all insureds separately on any matters affecting the policy.

Answer 18

False

Question 19

The insured is required to forward copies of any demands, notices, summonses or legal papers received. Failure to do so can result in denial of coverage.

Answer 19

True

Question 20

As the premium charged may be based on actual sales or receipts for work performed, the insurer maintains the right to audit the insured’s books.

Answer 20

True

Question 21

The premium indicated on the policy is the total premium payable by the insured during the policy period.

Answer 21

False, premium stated on the policy is regarded as the deposit premium. If actual work or sales change the premium will be adjusted at end of the policy period

Question 22

When more than one insured is named on the policy, a breach of a policy condition by one insured will not necessarily affect the coverages of the other insureds.

Answer 22

True, it is essentially like each named insured has a seperate policy

Question 23

The policy can be transferred to
others at any time without the
permission of the insurer.

Answer 23

False

Question 24

The insured’s product is defined by liability policies as being more than just the consumable portion of the item itself. Identify the elements considered to constitute the insured’s product.

Answer 24

(i) any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by insureds or their agents.

(ii) containers (other than vehicles), materials, parts of equipment furnished in connection with such goods or products.

(iii) warranties or representations made at any time with respect to fitness, quality, durability, or performance of any of the above insured items.

Question 25

Discuss the meaning of work within the context of the Commercial General Liability Policy.

Answer 25

The insured’s “work” includes:

(i) work actually done by the insured

(ii) work performed on behalf of the insured by subcontractors

(iii) materials, parts or equipment furnished in connection with such work or operations

(iv) any warranties or representations regarding the fitness, quality, durability or performance of work and materials used.

Question 26

What factors would you discuss with a client who wants to know, “How much liability insurance is enough?”

Answer 26

(i) the extent of previous awards for similar types of businesses

(ii) inflation

(iii) existence of insurance

(iv) territory of operations

(v) ability of the business to absorb certain losses

Question 27

Insurers are concerned about the long tail effect of occurrence basis liability policies. Explain what is meant by the term long tail.

Answer 27

When claiming for bodily injury under an occurrence basis policy, a claim can be brought forward at any time. As a result, insurers frequently find themselves paying claims on policies issued years ago. It is this going back to previous policies to pay claims which has created what liability insurers refer to as a “long tail.”

Question 28

What types of claims have the longest tail?

Answer 28

Latent bodily injury claims arising out of a business’s products are mostly responsible for the “long tail.”

Question 29

Discuss the three theories which can be used by the courts to determine when an occurrence took place.

Answer 29

(i) Exposure Theory - assumes injury occurred when person was in physical contact with the harmful substance

(ii) Exposure in Residence Theory -assumption is made that the disease or other bodily injury continues after exposure to the hazardous substance has ceased

(iii) Manifestation Theory - injury is assumed to have occurred only when recognized or diagnosed.

Question 30

Discuss the two ways in which the claims made policy has helped to reduce the claims costs associated with latent bodily injury claims.

Answer 30

• insurer pays only for those claims which are made during the policy period
• a retroactive date stated in the policy helps to ensure that the insurer is not paying for injury which occurred before the inception date of the policy.

Question 31

Discuss the purpose of the following:
– Retroactive date.
– Extended Reporting Period Endorsement.

Answer 31

Retroactive Date: purpose is to ensure that the insurer does not pay for injury or damage occurring prior to the inception date of the policy.

Extended Reporting Period Endorsement: provides coverage for claims made against the insured after the policy period has expired, provided they arose from occurrences which took place on or after the retroactive date stated in the policy and within the policy period.

Question 32

What endorsement should be purchased when a client changes insurers on a claims made policy?

Answer 32

The Extended Reporting Period Endorsement should be purchased when a client changes insurers on a claims made policy. The extended reporting period endorsement provides coverage for claims made against the insured after the policy period has expired, provided they arose from occurrences which took place on or after the retroactive date stated in the policy and within the policy period.

Question 33

Professionals are considered at law to possess specialized knowledge and skills. Discuss the arguments that might be advanced by a plaintiff in an action alleging breach of contract against a dentist.

Answer 33

The plaintiff may allege that the professional failed to perform at the required level. There are three recognized levels of performance:
complete or satisfactory performance;
- the level of performance meets accepted standards.

substantial performance;
-falls short of complete performance only in minor respects.

material breach.
-occurs when the professional’s performance is grossly inadequate or defective in some major respect.

When performance falls into the categories of “substantial performance” or “material breach,” the plaintiff may have a right of action against the professional

Question 34

Under what conditions might an insured purchase an Umbrella Policy?

Answer 34

Conditions under which an insured might purchase an umbrella policy, are when primary policies have:

(i) inadequate limits and requests for increased limits are denied by insurer;

(ii) inadequate coverage.

Question 35

Umbrella Policies have a drop down feature which is unique to them. Discuss how this works and any deductibles that may apply.

Answer 35

Unless it contains the same coverage exclusion as the primary policy, the Umbrella Liability Policy will “drop down” to pay claims not covered under the primary policy. When coverage is provided for losses excluded under the primary policy, the insured must pay a deductible or Self Insured Retention (S.I.R.)

Question 36

Easement

Answer 36

a right of persons to use land belonging to others

Question 37

False Imprisonment

Answer 37

Holding someone without lawful justification in a place against their will

Question 38

False Arrest

Answer 38

Includes false imprisonment but also includes the additional feature of detaining the victims with the intention that they will be turned over to the police for prosecution

Question 39

Malicious Prosecution

Answer 39

occurs when:

(i) the complainant was arrested and later released; and

(ii) evidence provided revealed that the person making the complaint did not have an honest belief that a crime had been committed, but was guided by other improper motives such as a desire to harass or humiliate the victim.

Question 40

Defamation

Answer 40

Consists of a statement that causes unjustified injury to the reputation of another person and which results in the loss to that person of the esteem, confidence, respect and goodwill of a considerable part of the community

Question 41

Slander

Answer 41

Refers to spoken defamation

Question 42

Libel

Answer 42

Refers to written defamation

Question 43

Aggregate Limit

Answer 43

The most the policy will pay during the policy period for all claims for which insurance is provided

Question 44

What are the three recognized levels of performance

Answer 44

The plaintiff may allege that the professional failed to perform at the required level. There are three recognized levels of performance:
complete or satisfactory performance;
- the level of performance meets accepted standards.

substantial performance;
-falls short of complete performance only in minor respects.

material breach.
-occurs when the professional’s performance is grossly inadequate or
defective in some major respect.

When performance falls into the categories of “substantial performance” or “material breach,” the plaintiff may have a right of action against the professional