Chapter 3 - The Role of Government in the Insurance Industry

Question 1

Explain the role of the Property and Casualty Insurance Compensation Corporation when an insurer becomes insolvent.

Answer 1

When a bankruptcy occurs & claims cannot be paid, the Corporation pays all valid claims.
- 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 2

Insurance is fiduciary in nature. Define “fiduciary.”

Answer 2

Fiduciary is one who handles other people’s money

Question 3

What are the fiduciary obligations of insurers?

Answer 3

Premiums paid to insurers are not fully earned until expiry of the policy.
Unearned premiums are held in trust to be refunded to the insured in the event that the policy is cancelled prior to its expiry.

Question 4

What are the fiduciary obligations of brokers?

Answer 4

Commission is not fully earned until expiry of the policy.
Unearned commissions are held in trust and refunded to the insureds in the event that the policy is cancelled prior to its expiry.

Question 5

Briefly summarize the provisions of the “Removal clause contained in policies of fire insurance.

Answer 5

f the property is not located at the insureds premises at the time of loss, there is no coverage.
Exception: Coverage is extended for 7 days when property is moved to another location to reduce/prevent further damage or losses.

Question 6

State the meaning of “subrogation” and indicate how this right is exercised by the insurer.

Answer 6

“to put oneself into another’s shoes”, any action commenced against the responsible party is taken in the insured’s name

Question 7

How can a term or condition of the insurance contract be waived by an insurance broker? Explain.

Answer 7

Interim changes can only be made under signature of a person authorized for that purpose by the insurer

Question 8

Your clients received their policy one month ago. It has not yet been paid for. Yesterday, they had a fire loss. What affect does the delivery of the policy have on the obligations of the insurer?

Answer 8

The claim shall be as binding on the insurer as if the premium has already been paid.

Question 9

identify three coverages required to be provided on all policies of fire insurance.

Answer 9

1. Fire.
2. Lightning.
3. Explosion of natural gas, coal or manufactured gas.

Question 10

Explain & provide an example of Friendly Fire

Answer 10

A fire that is contained in its proper receptacle, where it is supposed to be.
Example: A fire contained and burning in a wood stove.

Question 11

Explain & provide an example of Hostile Fire

Answer 11

A fire that has escaped from its proper receptacle.
Example: Loss of a carpet due to a spark that escaped from a fireplace.

Question 12

Of Friendly Fire & Hostile Fire, which is insured by a fire policy?

Answer 12

only Hostile Fire is covered in a fire policy

Question 13

Deliberate attempt to deceive with a view to securing some profit.

Answer 13

Fraud

Question 14

Insurer is not entitled to rights of ownership or control; nor can insured abandon insured property to it.

Answer 14

Entry, Control, Abandonment

Question 15

Written notice to the insurer can be delivered at or sent by registered mail to the chief agency or head office of the insurer in the province.

Answer 15

Notice

Question 16

Any change which serves to increase the chance of loss arising after the policy is issued.

Answer 16

Material Change

Question 17

Required to be made within 60 days after completion of proof of loss, unless the contract provides for a shorter period.

Answer 17

When Loss Payable

Question 18

Not insured unless interest of insured is stated in the contract.

Answer 18

Property of Others

Question 19

Policy is automatically continued to protect insureds after an authorized assignment under the Bankruptcy Act or insureds who have possession of insured property as a result of a change of title due to succession, operation or by death.

Answer 19

Change on Interest

Question 20

Requires that the insured take all reasonable steps to protect insured property from further damage.

Answer 20

Salvage

Question 21

Must be commenced within one year (two years in Manitoba and Saskatchewan) after the loss occurs.

Answer 21

Action

Question 22

Option available to either the insurer or insured when there is a disagreement as to the value of property insured, saved or amount of loss.

Answer 22

Appraisal

Question 23

Identifies the documents needed when a claim is filed.

Answer 23

Requirements after loss

Question 24

Consists of a misstatement and/or fraudulent omission of a material fact (material fact include previous claims, previous cancellations, existing property protection systems).

Answer 24

Misrepresentation

Question 25

Requires that notice of the insurer’s intentions be provided to the insured within 30 days after receipt of the proof of loss.

Answer 25

Replacement

Question 26

Requires that the insured be provide with 15 days notice by registered mail or five days notice when personally delivered.

Answer 26

Termination

Question 27

Entitles any part of interest, or agent of insured (lawyer, friends and relatives) to file a claim on behalf of the insured.

Answer 27

Who may give notice and proof

Question 28

Insurance is fiduciary in nature. Define “fiduciary.”

Answer 28

The federal gov’t monitors federally licensed insurers on an ongoing basis to ensure that they are financially stable.

Question 29

Role of provincial government.

Answer 29

1. Supervising the terms & conditions of insurance contracts
2. Licensing of insurers
3. Monitoring financial stability of provincially licensed insurers

Question 30

Contents of all insurance policies.

Answer 30

1. Parties to the Contract
2. Policy Period
3. Loss Payable or Payee, If Any
   4 Type(s) of Insurance Coverage(s) & Amounts for for Which Insurer May be Liable
4. Rate & Premium Charged
5. Subject Matter of Insurance
   - Item(s) insured
   - The location(s) of the insured item(s)

Question 31

Conditions applying to the Removal Clause.

Answer 31

a)The insurer must extend policy coverages to a location(s) not insured by the policy when “insured property is necessarily removed from the location(s) specified to prevent loss, destruction or damage or further loss.
b) The amount of insurance available for any loss to property while at the unnamed location will be reduced by the amount paid for the loss at the named location.
c) the obligation on the insurer to extend insurance coverages to property at an unnamed location is for a limited time only. The insurer’s obligation ends after seven (7) days or upon expiry of the policy, whichever is sooner.

Question 32

Standard exclusions contained in policies insuring peril of fire.

Answer 32

1. Application of heat.
2. Lightning damage to electrical devices or appliances.
3. Electrical Currents (other) - This exclusion would not apply to loss or damage if cause by a resultant fire
4. Contaminations by radioactive material.

Question 33

Statutory Conditions

Answer 33

1. Imposed by provincial legislation. The insurer is prohibited from making any change(s) to them even though the insured may agree to such change(s).
2. They outline the rights & responsibilities of all parties to the contract. This ensures that both parties are treated fairly in the insurance process.