Chapter 3: The Role of Government in the Insurance Industry

Question 1

Define fiduciary

Answer 1

one who handles other people’s money

Question 2

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

Answer 2

Subrogation = Put oneself “into another’s shoes”

This right allows the insurer to place itself “in the insured’s shoes” in respect of their right to recover the amount of the loss from the responsible party

Question 3

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

Answer 3

only the insurer can change terms and conditions of an insurance contract. Must be written and “signed by a person authorized for that purpose” before it is binding

Question 4

Your clients received their policy 1 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 4

it shall be as binding on the insurer as if the premium had been paid

Question 5

3 coverages required to be provided on all policies of fire insurance

Answer 5

1. fire
2. lightening
3. explosion of natural gas

Question 6

What is “friendly fire” and provide example

Answer 6

fire that is contained in its proper receptacle. it is where it is supposed to be.

example: steaks burnt while cooking, wood being burned in a fireplace

Question 7

What is “hostile fire” and provide example

Answer 7

fire which escapes from its receptacle

example: loss to carpeting caused by a spark which escaped from a fireplace

Question 8

Of the 2 types of fire, which one is insured by a fire policy?

Answer 8

only hostile fire

Question 9

Fiduciary responsibility of insurers

Answer 9

return unearned premium

premium is fully earned upon policy expiry

Question 10

Fiduciary responsibility of brokers

Answer 10

return unearned commissions

Question 11

Policy period

Answer 11

policy starts 12:01AM standard time at the address of the named insured

Question 12

Removal clause

Answer 12

covers property for up to 7 days if moved to a location not stated on the policy to prevent further loss (necessary removal)

Question 13

Perils not covered

Answer 13

1. application of heat
2. lightning damage to electrical devices
3. electrical currents
4. contamination by radioactive material
5. riot, war

Question 14

3 forms of misrepresentations

Answer 14

1. false description of property to the prejudice of the insurer (if the insured incorrectly describes the property making it appear better than it is)
2. misrepresentation of a “material fact” (make a true representation)
3. fraudulent omission of a “material fact” (applicant deliberately withholds vital information to secure coverage or to get a lower premium)

Question 15

Material fact is…

Answer 15

something that would change the insurer’s decision if known (ie. decide not to cover or to increase premium)

Question 16

Statutory Condition: Property of others

Answer 16

no coverage unless you’re named on the policy

Question 17

Statutory Condition: Change of interest

Answer 17

if insured no longer has insurable interest in the property, coverage is not automatically extended to new owner EXCEPT WHEN: authorized transfer under the Bankruptcy Act, succession, order of law, or death

Question 18

Statutory Condition: Material Change

Answer 18

insured is not entitled to payment if loss directly results from unreported change

Question 19

Statutory Condition: Termination

Answer 19

responsibilities of both parties when terminating a policy

Question 20

When contract is terminated by insurer…

Answer 20

insurer must give written notice by either:

1. registered mail: 15 days’ notice starting the day after the notice is received by the post office of the insured
2. hand delivered: 5 days notice

Question 21

When contract is terminated by insured…

Answer 21

insured must give notice to insurer (no advance notice required)

premium refund: on a short-rate basis to recover cost of document processing

short rate basis = pro-rate minus administration fee

Question 22

Statutory Condition: Requirement After Loss

Answer 22

sets out responsibilities of insured after loss

notice of loss: ASAP in writing
proof of loss: as soon as practicable
statutory declaration: proof of loss signed under oath that all info is correct and loss wasn’t caused intentionally by insured

Question 23

Statutory Condition: Fraud

Answer 23

void the entire claim if found

Question 24

Statutory Condition: Who May Give Notice and Proof

Answer 24

aside from the insured

1. Notice: by an agent of the insured (agent = anyone authorized)
2. Proof of Loss: only by people with insurable interest

Question 25

Statutory Condition: Salvage

Answer 25

insured must reasonably protect property from further loss

Question 26

Statutory Condition: Entry, Control, Abandonment

Answer 26

rights after loss

1. Entry: can enter immediately after loss to investigate
2. Control: insurer cannot take control of the property after loss
3. Abandonment: cannot give property to insurer in expectation of a cash payment

Question 27

Statutory Condition: Appraisal

Answer 27

procedures when claim payment is disputed by insured

Question 28

Statutory Condition: When Loss is Payable

Answer 28

insurer pays within 60 days of receiving Proof of Loss

Question 29

Statutory Condition: Replacement

Answer 29

when insurer decides to repair or replace instead of paying cash

1. Written Notice to insured: within 30 days after receiving Proof of Loss
2. Repair or Replacement: must start within 45 days of Proof of Loss

Question 30

Statutory Condition: Action

Answer 30

legal action must be taken within 1 year of date of loss (ie. if insurer denies claim)

Question 31

Statutory Condition: Notice

Answer 31

insured: in writing to the local head office of the insurer
insurer: in writing to the last known address of the insured

Question 32

Consists of a misstatement and/or fraudulent omission of a a material fact….

Answer 32

Misrepresentation

Question 33

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

Answer 33

Fraud

Question 34

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

Answer 34

Material Change

Question 35

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 35

Notice

Question 36

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

Answer 36

Property of Others

Question 37

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 of law or by death…

Answer 37

Change of Interest

Question 38

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

Answer 38

Salvage

Question 39

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

Answer 39

Salvage

Question 40

Must be commenced within 1 year after the loss occurs…

Answer 40

Action

Question 41

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 41

Appraisal

Question 42

Identifies the documents needed when a claim is filed…

Answer 42

Requirements After Loss

Question 43

Consists of a misstatement and/or fraudulent omission of a material fact…

Answer 43

Misrepresentation

Question 44

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

Answer 44

Replacement

Question 45

Requires that the insured be provided with 15 days notice by registered mail or 5 days notice when personally delivered…

Answer 45

Termination

Question 46

Entitles any party of interest, or agent of insured to file a claim on behalf of the insured…

Answer 46

Who May Give Notice and Proof