Key Point Review Questions Study 2

Question 1

1) What are the TWO (2) main systems of civil law?

Answer 1

Common Law: Used in provinces and territories other than Quebec.
Civil Code of Quebec: Used only in Quebec.

Question 2

2) How did common law evolve?

Answer 2

Common law originated and developed over many centuries in England. It developed as unwritten law based on the rule of precedent.

Question 3

3) What is statute law, and how is it created?

Answer 3

Statute law is set down in a government act and passed by the legislature.
It was created from legal principles and criteria developed in case law.

Question 4

4) How are insurance laws drafted?

Answer 4

Insurance laws are not drafted by courts but rather are introduced in government forums. Legislative bodies write the laws, which must then be enforced by courts.

Question 5

5) What is contra proferentem?

Answer 5

In Latin, it means: “against the offerer”.
It’s a legal term that provides that any ambiguity in a contract must favour the policyholder, as the insurers wrote the contract had the opportunity to make it clear.

Question 6

6) What is relief from forfeiture?

Answer 6

A decision by a court, on the ground of equity, to excuse the insured in whole or in part from perfect compliance with a particular policy condition.
Usually in circumstances when the insured feels the policy condition is unjust or unreasonable.

Question 7

7) How did the Civil Code of Quebec develop?

Answer 7

It’s predecessor, the Civil Code of Lower Canada, was based in part on France’s Napoleonic Code, which influenced the civil law in many parts of Europe and was itself based in part on the Code of Justinian, the sixth century Byzantine emperor.

Question 8

8) How do the Statutory Conditions affect insurance policies?

Answer 8

The Insurance Act sets out Statutory Conditions that apply to all fire insurance contracts.

Question 9

9) What is a material fact?

Answer 9

A fact that would affect a contract of insurance enough to influence an insurer’s decision whether to accept or reject the risk or the premium to be set.

Question 10

10) What is required of the insured under Statutory Condition 1?

Answer 10

The law imposes a duty on the insured to disclose any information that will affect the terms under which the policy may be offered.
Statutory Condition 1 is Misrepresentation. If the insured misrepresents their risk, the insurer may elect to void the policy entirely and cancel it ab initio.

Question 11

11) What does it mean to cancel a policy ab initio?

Answer 11

A Latin term, meaning: “to go back to the beginning” When a policy is rejected or made ab initio, the premium is refunded entirely, and the contract is treated as though it never existed.

Question 12

12) Describe the three conditions on which the insurer may void a contract for misrepresentation?

Answer 12

If information was fraudulently presented
Or material facts were omitted at the time of application
And, if that information is material to the acceptance of the risk or the rate that would have been charged.

Question 13

13) Why is it important to have a signed, written application?

Answer 13

Without a signed written application, the insured can allege a miscommunication regarding a misrepresentation.

Question 14

14) Who will receive payment from an insurance policy under Statutory Condition 2?

Answer 14

Property of Others stipulates that the insurer is not liable to pay for losses to any person other than the insured unless his or her interest is stated in the contract.

Question 15

15) What is insurable interest, and why is it important for Statutory Condition 2?

Answer 15

An insurable interest exists where a person or company stands to benefit from the continued existence of insured property or be prejudiced by its loss.

Question 16

16) What is privity of contract, and why is it important to Statutory Condition 3?

Answer 16

It is the relationship that exists between two parties or more by virtue of their having entered into a contract.

Question 17

17) What differentiates Statutory Condition 4 from Statutory Condition 1?

Answer 17

Statutory Condition 1 concerns material facts falsely described or misrepresented or fraudulently omitted before the contract takes effect.
Statutory Condition 4 applies after the policy takes effect. It concerns changes in material fact, within the control and knowledge of the insured, occurring during the policy term.

Question 18

18) What documentation is required from the insured under Statutory Condition 5 to cancel the insurance?

Answer 18

The insured may cancel the policy immediately, on request. The condition does not require it, but prudent insurers ask for written instruction.

Question 19

19) If an insurer cancels a policy, how is the insurer’s share of the policy premium calculated?

Answer 19

When the insurer cancels the policy, the condition requires that the return of premium be calculated pro rata.

Question 20

20) What is the minimum retained premium?

Answer 20

A premium specified on an individual policy that is the minimum amount retained by the insurer in the event that the policy is cancelled by the insured before the end of the term.

Question 21

21) What is proof of loss, and when should an insured provide it?

Answer 21

It is a formal statement of facts about a loss, attested to by the claimant, in a form specified by the insurer. It should be provided in writing as soon as possible to the insurer.

Question 22

22) According to Statutory Condition 7, what does it mean for a claim if any part of the claim is deemed fraudulent?

Answer 22

If the insured fraudulently presents a claim, or any portion of it, the claim is invalidated entirely.

Question 23

23) Who may report a notice of loss under Statutory Condition 8?

Answer 23

Notice of loss is generally provided by the insured or the insured’s representative. If the insured is unable or refuses to notify the insurer of a loss, any person to whom insurance money is payable may report the loss or give proof of loss.

Question 24

24) What is required of the insured under Statutory Condition 9?

Answer 24

The insured is required to protect the property from further damage and prevent damage to other property. This is referred to as mitigation.

Question 25

25) What is mitigation, and why is it important to the context of Statutory Condition 9?

Answer 25

Mitigation is the protection of undamaged property against damage and the protection of damaged property from further damage to keep the insured loss to a minimum.
It helps to ensure that the insured’s loss will be fortuitous – a basic principle of insurance.

Question 26

26) What is required of the insured under Statutory Condition 10?

Answer 26

When a claim is reported, the insurer has the immediate right to enter the building to survey the damage in order to evaluate its severity and cause.

Question 27

27) What is the process when an insured and insurer cannot agree on the amount of loss under Statutory Condition 11?

Answer 27

Disputes must be resolved through an appraisal process, where the insurer and insured each appoint an appraiser and the two appraisers appoint an umpire who will help achieve a resolution if the two appraisers fail to agree. The costs are shared equally between the insurer and insured.

Question 28

28) Under Statutory Condition 12, what is the procedure for claim settlement?

Answer 28

One the insured has completed the proof of loss, the insurer is required to respond to it and make payment within 60 days.

Question 29

29) What is the procedure for replacement under Statutory Condition 13?

Answer 29

The decision to repair or replace damaged property lies exclusively with the insurer.
Within 30 days of receiving the proof of loss, the insurer will notify the insured in writing of its intent to repair or replace the damaged property.

Question 30

30) What is the process for an insured under Statutory Condition 14 to take legal action against the insurer?

Answer 30

The Insurance Acts require that an insured who intends to pursue a grievance against an insurer in court begin within a specified time.
Most provinces now specify a limitation period of two years from the date the insured knew about the loss.

Question 31

31) What is required of the insurer under Statutory Condition 15?

Answer 31

Each insurer must have an identified chief agent or head office in the province.
To send notice to the insured, the insurer must either personally deliver it or send it by registered mail to the last known post office address.

Question 32

32) What is the main difference between Quebec and the common law provinces in the development of policy wordings?

Answer 32

The Civil code does not require any of its articles to be included in fire insurance policies.

Question 33

33) What is subrogation?

Answer 33

Legal process by which an insurance company, after the payment of a loss, is assigned the rights of the insured to recover the amount of the loss from those who are legally liable for it.

Question 34

34) What is force majeure?

Answer 34

Something unexpected or beyond the insured’s ability to anticipate or control.

Question 35

35) What is the purpose of plain-language policies?

Answer 35

Policies written in everyday language so that they are easily understood. Technical terms with their technical meanings are used only where required by law or when substitutions would be misleading.

Question 36

36) What is a warranty, and what challenges do warranties pose for insurers?

Answer 36

Warranties restrict coverage specifically regarding the use, condition, or maintenance of the insured property.

In order for a warranty to be enforceable, it must be material to the underwriting of the risk and be acknowledged by the insured (usually by the insured’s signature on the warranty document.)

Question 37

37) What is the purpose of the Declaration Page?

Answer 37

The declaration page specifies the amount of insurance on a particular item or classification of property.

Question 38

38) How should the insurer offer to renew the insurance contract with the insured?

Answer 38

The renewal is offered by sending a written notification informing the insured of the renewal terms. The insurer should provide reasonable notice of a pending renewal.

Question 39

39) What is a proximate cause?

Answer 39

A cause that, in a natural and continuous sequence unbroken by any new and independent cause, produces an event and without which the event would not have happened.

Question 40

40) What is concurrent causation, and how does it affect coverage under an insurance policy?

Answer 40

A doctrine that holds that if a loss to property is attributable to more than one cause, any one of which is covered by the insurance policy, the loss is payable under the policy.

Question 41

41) Under the Basis of Payment clause, what is the insured entitled to receive?

Answer 41

The Basis of Payment clause entitles the insured only to the least of the following:

• The actual cash value of the property at the time the loss occurred
• The interest of the insured in the property
• The limits specified in the policy

Question 42

42) What is the difference between actual cash value and replacement cost?

Answer 42

Replacement cost value is the current market price to replace the item, not the depreciated value.
Actual cash value is the cost to repair or replace less depreciation.

Question 43

43) What is the purpose of PIPEDA?

Answer 43

Personal Information Protection and Electronic Documents Act set out the requirements for how information may be collected, used or disclosed.

Question 44

44) How is personal information defined under PIPEDA?

Answer 44

It simply means information about an identifiable individual.

Question 45

45) What questions must insurers answer for their insureds about their personal information?

Answer 45

Insurers must answer:
-What personal information is collected?
-Why is it collected?
-How is it collected?
-What is it used for?
Where is it kept?
How is it secured?
Who has access to it?
To whom is it disclosed?
When is it disposed of?

Question 46

46) What is the procedure if an insured wants to complain about how their private information was used?

Answer 46

In the event of a complaint under the Privacy Act, the designated Privacy Officer will investigate and generally must respond in writing within 30 days.

Question 47

47) What privacy laws other than PIPEDA exist in Canada, and what are their purposes?

Answer 47

Freedom of Information and Protection of Privacy Act (FOIPPA)
-Regulates public bodies such as provincial government departments, municipalities, universities, school boards and Crown corporations.
Personal Information Protection Act (PIPA)
-Governs private sector organizations in the course of commercial business activities
Access to Information and Protection of Privacy Act
-Relates to information held by public bodies and Department of Justice
Act Respecting Access to Documents Held by Public Bodies and the Protection of Personal Information
-Includes information held by public bodies, including municipalities and other government agencies, schools and health and social services institutions and files held by the Public Curator.

Question 48

48) What is the role of IBC?

Answer 48

IBC’s mandate is to advocate for insurers and consumers on property and casualty insurance issues that affect all Canadians.

Question 49

49) What is the purpose of IBC’s Intercompany Arbitration Agreement?

Answer 49

It allows insurers to resolve disputes over insured losses of less than $50,000 without litigation.

Question 50

50) When would IBC’s Agreement of Guiding Principles be used?

Answer 50

The guiding principles provide a defined priority of payment and formulas for the apportionment of indemnity. They are relied on while additional information is collected but are not binding on insurers if the matter must be resolved through litigation.