Key Point Review Questions Study 1

Question 1

In what sense is insurance intangible? How is the intent of the parties made tangible?

Answer 1

Insurance is intangible; it is based on an exchange of promises.
The terms of the policy state what the insurer promises to do and what coverage it will provide and what the insured promises to do and what coverage they will receive. In short, the insurance policy is the document that makes tangible the intent of both parties to the contract.

Question 2

What is the principle of indemnity?

Answer 2

The principle of indemnity is that the insured shall not receive more than the actual loss suffered.

Question 3

What is a fortuitous event?

Answer 3

For a loss to be covered it must be fortuitous (a chance event).

Question 4

How is insurance a contract?

Answer 4

Insurance is an agreement or promise between two parties, that is intended to be legally enforceable.

Question 5

What are the FIVE (5) elements that make up a contract under the common law in Canada?

Answer 5

1. An Agreement
2. Between legally capable parties
3. For a consideration
4. Demonstrating intent
5. To do something that is legal.

Question 6

How is a contract defined under the Civil Code of Quebec?

Answer 6

An agreement of wills by which one or several persons obligate themselves to one or several other persons to perform a prestation (that is, a duty, a payment of money, or a service).

Question 7

How do insurance contracts differ from other types of contracts?

Answer 7

Insurance policies differ from other types of contracts as they include the additional principles of:

• Indemnity
• Insurable interest
• uberrimae fidei, or utmost good faith

Question 8

What does uberrimae fidei stand for?

Answer 8

Utmost good faith

Question 9

Why is utmost good faith essential for a binding insurance contract?

Answer 9

It is the basis of all insurance contracts. It calls for the highest standards of integrity from the insured and the insurer. Both parties are bound to exercise good faith and do so by a full disclosure of all information material to the proposed contract.

Question 10

What is the purpose of the insurance contract?

Answer 10

The insurance policy formalizes the agreement between the insured and insurer.

Question 11

What role does the insurer play in insurance?

Answer 11

The insurer sells the policy, issues the policy, collects the premium, and pays out claims that are covered under the terms and conditions of the policy.

Question 12

What is a habitational insurance policy?

Answer 12

Habitational insurance policies include: Homeowners policies that cover damage to or destruction to the insured’s dwelling, detached private structures, and personal property.
Other habitational insurance policies cover tenants (renters) and condominium unit holders.

Question 13

What is a commercial insurance policy?

Answer 13

Commercial policies cover such properties as buildings, stock, and equipment. Other categories of property may also be covered under a commercial property policy.

Question 14

What is covered under an aviation policy?

Answer 14

Aviation policies provide coverage on the actual airplane itself.

Question 15

What is covered under a boiler insurance policy?

Answer 15

Boiler insurance covers accidental physical damage to items such as boilers, pressure vessels, pressurized equipment, mechanical equipment, production and non-production machinery and electronic equipment that are excluded under a conventional property policy.

Question 16

What is covered under a builders risk insurance policy?

Answer 16

Builders risk insurance policies cover physical loss or damage to property while it is in the course of construction. The coverage applies to materials, fixtures, and equipment used in the construction or renovation of a building or structure. The coverage applies when the physical loss or damage occurs as a result of an insured peril.

Question 17

List the key elements of a property insurance policy.

Answer 17

The name of the insurer
The name of the insured
The name of the persons to whom the insurance money is payable
The amount, or method of determining the amount, or premium for the insurance
The subject matter of insurance
The indemnity for which the insurer may become liable
The event on the happening of which liability is to accrue
The effective date of the insurance
The expiry date or method by which it is to be fixed.

Question 18

What is the purpose of the deductible?

Answer 18

A deductible is the insured’s portion of a covered loss.
Small, frequent losses are expensive for insurers to handle and process. To avoid expenses of handling and processing small losses, and to reduce premiums for insureds, a deductible is applied to each loss.

Question 19

What perils are insured against under the Basic Fire Policy?

Answer 19

Fire, Lightning and explosion.

The policy is usually supplemented by extended coverage insurance, including coverage for damage by smoke and water.

Question 20

What is an exclusion?

Answer 20

Exclusions remove certain losses form the policy’s coverage.

Question 21

What are the two (2) groups of exclusions under the basic fire policy?

Answer 21

Group 1 - Exclusions for Legislative Considerations:
Electrical devices 
Application of heat 
War risks 
Nuclear Incident 
Group 2 – Exclusions for underwriting and rating considerations
Excluded property
Alterations and additions
Vacancy, un-occupancy or disuse 
Volatile substances
By-Laws

Question 22

What is the flashpoint of liquid?

Answer 22

The lowest temperature at which a liquid gives off sufficient vapours to form an ignitable mixture with the air; such a mixture will ignite on contact with a flame or spark.

Question 23

What is excluded under the Volatile Substances Exclusion of the Basic Fire Policy?

Answer 23

Excludes loss or damage that occurs when the insured knows there is more than a gallon of gasoline, benzene, naphtha, or other substance of an equal or lower flashpoint in the insured building or in the building where insured property is kept.

Question 24

What is excluded under the By-Laws exclusion of the Basic Fire Policy?

Answer 24

There is no coverage for increased costs of repair or replacement arising from the enforcement or application of a by-law, regulation, ordinance, or law that regulates the zoning or the demolition, repair, or construction of buildings.

Question 25

What is the purpose of the Statutory Conditions that apply to all fire insurance contracts?

Answer 25

The Statutory Conditions bind the insured and insurer, establishing certain rights and obligations for both parties.

Question 26

What are the TWO (2) extensions of coverage under the Basic Fire Policy?

Answer 26

Removal of insured property

Debris removal

Question 27

What are some of the more common perils under the Extended Coverage Endorsement to the Basic Fire Policy?

Answer 27

• Explosion (beyond the coverage in the Basic Fire Policy)
• Impact by aircraft, spacecraft, or land vehicle
• Riot, vandalism or malicious acts
• Smoke
• Leakage from fire protective equipment
• Windstorm or hail

Question 28

How do additional perils affect the insured’s coverage under the Basic Fire Policy?

Answer 28

Additional perils do not add to the amount of insurance or the property insured. They simply expand the scope of coverage under the policy by insuring against more perils.

Question 29

How do the Statutory Conditions apply to the Civil Code of Quebec?

Answer 29

The Civil Code of Quebec does not require that its articles be inserted in fire insurance contracts issued in Quebec.

Question 30

What is covered under a multi-peril policy?

Answer 30

A Multi-peril policy typically combines fire and casualty insurance in a single contract. Such as a Homeowners policy.

Question 31

How is each property insurance policy unique?

Answer 31

No two policies have identical provisions or wordings for the interest and property insured, amounts of insurance, premiums, effective and expiry dates, and other terms of coverage.

Question 32

Who is covered under a property insurance policy?

Answer 32

The named insured may be one or more people or it may be a business.

Question 33

Why is it important that the property policy contains the correct address of the insured?

Answer 33

In some property policies, the mailing address will differ from the location of the property being insured. Since the insurer may have to send the insured correspondence.

Question 34

Where is the named insured listed on the on the property policy?

Answer 34

The named insured is listed on the Declarations Page or Coverage Summary of the policy.

Question 35

Who is covered under a commercial insurance policy?

Answer 35

The owners of the business. Depending on the wording the coverage can extend to property belonging to officers and employees of the business that is being insured.

Question 36

Who is covered under a habitational policy?

Answer 36

• The named insured
• The insured’s spouse
• The relatives of either the named insured or the named insured’s spouse
• Any person under the age of 21 in the name insured’s care

Question 37

How can a habitational policy over students’ belongings while they are away at university?

Answer 37

The definition of insured will include a student who is temporarily living away from home to attend school. This extension protects the students’ interest, but the student must be dependent on the named insured.

Question 38

What is a mortgagor?

Answer 38

The mortgagor is a borrower, they retain possession and use of the property.

Question 39

What is a mortgagee?

Answer 39

A mortgagee is a lender, who acquires an interest in a property and has the right to sell it if the borrower defaults on the debt.

Question 40

What are the benefits of the mortgage clauses?

Answer 40

The main benefit of the Mortgage clause is that the policy will cover the mortgagee even if the named insured has breached a condition of a policy and is, therefore, unable to recover for a loss.
The clause creates a separate contract between the insurer and the mortgagee, and this separate contract remains governed by the perils, exclusions, amounts and limitations applying to the policy itself

Question 41

Why is it important that the insurance policy describes the subject matter of insurance?

Answer 41

The property that is the subject matter of insurance must be described so that there is no uncertainty as to what is eligible for coverage.
It is the property for which the insured will be indemnified if it is damaged or destroyed.

Question 42

What is first-party insurance?

Answer 42

Property insurance is first-party insurance. It protects the insured (first party) against the risk of financial harm resulting from loss or damage to the insured property.

Question 43

What is third-party insurance?

Answer 43

Liability insurance is third-party insurance. It protects the insured against the risk that another person or organization not party to the insurance contract (third party) will suffer loss or injury for which the applicant is legally liable.

Question 44

What is covered by personal lines insurance?

Answer 44

Insurance for individuals and families, such as private passenger auto insurance and homeowners policies.

Question 45

What is covered under commercial lines policies?

Answer 45

Insurance for business, such as property or liability insurance.