Study 1: Claims and the Law

Question 1

What is an adjuster?

Answer 1

One who investigates insurance claims, makes recommendations regarding the payments of benefits from insurance policies, and negotiates payments and settlements.

May be called loss adjuster, claims adjuster, claims representative, or some other term unique to particular company or region. Term used may be affected by:

• Usage in corporate environment
• Local usage
• Legislation
• Specific licensing regulations

Question 2

Who is not considered an adjuster?

Answer 2

Legislation excludes certain persons, who although involved in handling claims, are not meant to be covered by the licensing requirement. These can include:

• Barrister or solicitor acting in usual course of their occupation
• Trustee or agent of property insured
• Salaried employee of a licensed insurer while acting on behalf of such insurer in the adjustment of losses

Question 3

What are the different classes of adjusters? (3)

Answer 3

Some loss adjusters operate as salaried employees of an insurance company, while others operate as independent adjusters, typically for independent adjusting firms that pursue contracts with licensed insurers. In either case, the adjuster represents the insurance company.

A public adjuster, by contrast, is an adjuster who represents an insured on a fee basis in the claim settlement process.

Question 4

Which loss adjusters need to be licensed?

Answer 4

Independent and public adjuster must be licensed. Most loss adjusters employed by companies do not need to be licensed, except in Quebec, NB, NL, and PEI. This requirement is meant to instill trust and confidence in consumers by ensuring the appropriate level of knowledge and expertise for loss adjusters.

Question 5

Definition of claims handler and claims examiner

Answer 5

Claims handler - A claims person involved in any aspect of the claims-adjusting process. May work for brokers, agents, or insurers. Can perform any duty in the adjusting process, including taking the initial report of loss, adjusting the loss, etc.

Claims examiner - an employee of an insurance company who directs the investigations of staff adjusters, and independent adjusters, reviews their reports, and approves claim settlements.

*These terms will be used more often because of the variation of titles across the industry.

Question 6

What are the two systems in Canada used for Civil law? (2)

Answer 6

Common law system- Legal precedent forms the basis for dealing with court cases in the common law provinces and territories. Judges use facts from previous similar cases to get a decision for their current case.

Civil Code of Quebec - courts rely on the formal written code to interpret the law. Although judges may look to previous decisions for guidance, the law does not mandate that the reasoning be followed

Question 7

What is joint and several liability?

Answer 7

When several people are involved in committing a wrongful act, they are jointly and severally liable. In other words, the injured party could recover from any one of the liable parties, even if one of the liable parties are held only 2% at fault.

Question 8

Contract law

Answer 8

Knowledge of contract law is useful to loss adjusters when they must analyze policy wordings or assess hold harmless agreements, lease agreements, releases, and other contracts to determine whether the policy will respond.

Question 9

What is privity of contract? Can people not insured under the policy bring an action to the insurer?

Answer 9

Relationship that exists between two parties or more by virtue of their having entered into a contract.

As a rule, underwriters will not permit an insured to assign an insurance policy to someone else, unless by death, bankruptcy or operation of law.

When a person who is not insured under the policy has a direct financial interest in damaged property, the privity of contract rule typically prevails, however certain provinces have enacted legislation that gives those who will benefit from a policy the right to pursue an insurer directly. (ex: TP suing insurer of plaintiff directly)

Question 10

What are the essential elements of a contract under common law? (5)

Answer 10

• *GLACC**
• Genuine intent
• Legality of object
• Agreement
• Consideration
• Capacity to contract

Question 11

Agreement (4)

Answer 11

• There must be an agreement between the contracting parties. To form a contract one party must make a definite offer to another party, and then the other party must accept it as offered.
• An invitation to transact is not an offer (Ex: application for insurance)
• If new terms are introduced in the offer, it becomes a counter offer.
• Both offer and acceptance must be clearly communicated orally, in writing, or in some other recognized manner. A lack of action or silence is not considered consent.

Question 12

Capacity to Contract

Answer 12

Each party must be legally able to enter into contracts. (No minors, vulnerable people, etc)

Question 13

Consideration

Answer 13

One party must give consideration in exchange for the act or promise of another party (Ex: a fee in exchange for services such as premium for protection from insurer)

Question 14

Genuine Intention

Answer 14

There must be intent between the parties to create a legally enforceable agreement and fulfill the contract.

Question 15

Legality of object

Answer 15

• The purpose for which the contract is formed must be legal. A contract cannot be established for a purpose that violates a civil statute, criminal law, or public policy.
• For insurance claims, loss must be fortuitous, which occurs by chance and is accidental, claim not valid if loss caused by intentional acts

Question 16

What are the essential elements of a contract under the civil code of Quebec? (4)

Answer 16

• CCCO
• Consents - Contract is formed when and where the acceptance is received by the offeror. One party makes the offer, the other party decides whether to accepts it.
• Capacity to contract - Person purchasing the policy must be legally able to enter into a contract. Protects minors and vulnerable people
• Cause of contracts - Reason that each party enters into a contract (Ex: Under insurance contract, insureds motive is peace of mind or financial security, insures motive is to charge a premium and make profit)
• Object of contracts - obligation each party must fulfill under contract (Ex: insurer is obligated to indemnify insured in event of an accident, insured is obligated to pay premium.)

Question 17

What are the two types of nullity?

Answer 17

-Relative nullity and absolute, which mirror the concepts of a voidable contract (contract that can be affirmed or rejected) and a void contract (An illegal contact, contract that was never made or never existed)
.
-If a contract is relatively null, its voidable.
-If a contract is absolutely null, it is void.

Question 18

What are the additional legal requirements that apply to insurance contracts? (3)

Answer 18

• Principle of indemnity
• Insurable interest
• Utmost good faith

Question 19

Principle of Indemnity

Answer 19

• Claim payments restore policy holders to the same financial position they were in immediately prior to a loss.
• To but people back in the same financial position as they were in before, in other words, the insured should not benefit from any loss. Insured is limited to collecting only what was lost

Question 20

Insurable interest - what is it and what parties may have insurable interest on a property?

Answer 20

-An interest that the insured must have in the subject matter of the insurance purchased so that if the event insured against occurs, the insured will suffer a pecuniary loss.

• Some parties that may have insurable interest on the property include:
• • owner of property
• • Mortgagee as a lender who accepts interest of land aas security for a loan
• • Lessee who takes possession of leased property
• • Bailee who accepts custody of property for some purpose but does not own property
• • Cosignee who has purchased goods that are in transit to them

Question 21

Under a fire insurance policy, what are the three conditions that must be fulfilled to qualify insurable interest?

Answer 21

1) There must be a physical object capable of being destroyed by an insured peril
2) The physical object must be the subject matter of the insurance
3) The insured must have a relationship to the property recognised by the law, in which a benefit results when the property is held safe and a detriment results by its loss.

Question 22

What happens when there is a shared interest on the property? Who is in possession of the property in real estate transactions?

Answer 22

• Loss adjusters must examine the applicable contracts to determine insurable interest.
• In real estate sales transactions, there is usually a time lag between the date an offer is accepted and the closing date. During this period, both the vendor and purchaser may have an interest in the property. Typically, the vendor is responsible for the property until the deal closes.

Question 23

Utmost good faith - What is the definition of it and what happens when a insurer acts in bad faith?

Answer 23

• Legal principle calling for highest standards of integrity on the part of the insured and the insurer.
• If insurer acts in bad faith by offering low settlements and being unfair to the insured, they are usually punished by the courts. The courts punish them by awarding punitive damages to policy holders.

Question 24

What are punitive damages and what do they accomplish?

Answer 24

-Punitive damages are damages in excess of those required to compensate the plaintiff for the wrong done, which are imposed in order to punish the defendant.

• Punitive damages are intended to accomplish the following:
• -Punish those who act in bad faith
• -Deter any similar behaviour in the future
• -Publicly condemn the behaviour

Question 25

What is a representation? why is it important? (4)

Answer 25

• A representation is a statement that an applicant makes to an insurer about the risk to be insured. It can affect an underwriters decision on whether or not to accept or decline a risk
• Misrepresenting a material fact would allow an insurer to void the contract.
• An applicant for insurance must tell the truth when answering questions on the application and must also disclose all known material facts
• If a material change occurs to the insured property during term of policy, the insured must promptly advice the insurer of the change. Failure to do so can result in breach of policy.

Question 26

Innocent misrepresentation vs fraudulent misrepresentation - when can the insurer void the policy?

Answer 26

• If insured innocently believed a representation was true but in fact it was false, the insurer can void the policy, but not after a loss occurs. The reasoning is that an innocent insured has relied on the policy
• If insured was negligent and careless about the truth, than the insurer can void the policy even after the loss

Question 27

What is a warranty? (including promissory and affirmative warranty)

Answer 27

-A warranty is a promise made by an insured to maintain certain conditions of the risk during the term of the policy. It is a secondary or collateral promise of the contract, but is deemed to be material to the risk. If the insured breaches a warranty, the insurer has grounds to void the policy

-A promissory warranty promises not only that a fact is
presently true but that it will continue to be true during the policy period (Ex: sprinkler system will be maintained)

-An affirmative warranty states that a fact is true when the insurance policy is purchased (Ex: Insured has never had a loss)

Question 28

Remedies for breach of contract: What may an injured party do when there has been a breach of contract? And what are the remedies an insurer can offer? (6)

Answer 28

If a breach of contract occurs, the injured party may:

• Sue for damages that resulted from the breach
• Compel performance of the terms of the contract or ask to be released from further contractual obligations
• Ask for an injunction to restrain the other party

Insurers faced with an insured in breach of policy obligations would ask to be released from the contract. The insurer may choose from one of the following remedies:

• Repudiate the policy contract and treat it as void
• Treat policy contract as valid notwithstanding the breach
• Treat policy contract as valid despite the breach but cancel it as prescribed in the policy

Question 29

Relief from imperfect compliance - What is it? and provide one example

Answer 29

A further safeguard for policy holders is the principal of relief from forfeiture for imperfect compliance with contractual obligations. Under some circumstances, when contract stipulates performance must occur within certain time, the courts may grant relief to policy holder who failed to perform the obligation in time.

(Ex: Person gets in accident but is not able to inform insurer in time because they have been injured)

Question 30

What is the principle of equity? termination of obligations?

Answer 30

Principle of equity - The principle that cases be considered in the spirit of fairness and justness, as well as the strictly formulated rules of precedent

Termination of obligations - The principle that the insurers obligations under a policy terminate at a stated point in time. Policy holders are entitled to sue insurance companies if they are denied policy benefits if the insurer still owed them an obligation to perform their duties

Question 31

Waiver and Estoppel (definition and example)

Answer 31

• Waiver is the intentional relinquishment of a known right with consent or implied consent. In common law provinces, insurance legislation requires that any waiver of a policy condition be stated in writing by the insurer to be valid
• Estoppel is a common law doctrine that prevents a party from taking a certain course of action and then sometime later revoking it after someone else has relied on such information to his or her detriment (Ex: If A owns a pen and stands by and watches B sell the pen to C, as if the pen belonged to B, then A cannot later reclaim the pen, arguing that it was his)

Question 32

What is a proof of loss form and when is it required?

Answer 32

• A POL is a formal statement of facts about a loss
• A blank POL must be provided to a policyholder within 60 days of a notice of loss (notification received by the insurance company from insured that a loss has occurred)
• Providing a form to an insured is not a requirement in Quebec

Question 33

Under IBC’s industry claims agreements, what is the criteria for certain claims to forgo the requirement for a formal sworn proof of loss? (4)

Answer 33

• The amount of the loss is under a specified threshold
• There is no suspicion of fraud surrounding the claim
• There is no possibility of subrogation
• There is no threat of litigation by the insured

Question 34

What is loss mitigation?

Answer 34

• The person presenting a claim must do what is possible to reduce the loss, that is, take all reasonable steps to protect damaged items from further damage after a loss.
• The defendant cannot recover for that part of the loss that could have been prevented had reasonable steps been taken to minimize the loss

Question 35

What is subrogation? How much can an insurer recover from a liable party?

Answer 35

• 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
• The amount recoverable from a liable person is equal to the costs of reinstating the property to its condition immediately prior to a loss, less depreciation - its ACV
• An insurance company will probably not recover its full payout on a loss if it has paid replacement cost