Study 1: What is insurance Fraud?

Question 1

Define Insurance Fraud (1) and list the three basic elements required to qualify an event as insurance fraud (3)

Answer 1

Any act or omission with a view to illegally obtaining an insurance benefit.
3 Basic Elements are:
-Acts or Omissions - false statements or suppression of truth
-The illegal benefit - Insurance protection or payment of claim
-“With a view to” - Indicates that there must be fraudulent intent on the part of the insured (Mens Rea - Guilty mind or intention to commit a crime)

Question 2

What are the two Key Elements of Fraud? (2)

Answer 2

• Dishonesty - Denotes obtaining something illegally or by deceit
• Deprivation - Denotes taking something away so benefits flow not to rightful recipient but to criminal instead.

*These two must be present to prove insurance fraud. The elements were first identified in R. V Olan Hudson and Hartnett

Question 3

What are other specific fraudulent activities mentioned by the criminal code? (10)

Answer 3

• Arson
• Bribery
• Criminal breach of trust
• Fabricating Evidence
• Forgery, or making false docs
• Fraudulent concealment
• Fraudulently destroying docs
• Impersonation
• Making false statements by affidavit
• Misappropriating money

Question 4

What are the two categories of Policy Conditions? (2)

Answer 4

1) Those developed by the insurers that are an integral part of the policy contract wordings.
2) Legislated Conditions (Statutory Conditions) that are:
- Expressly designed for certain types of policies
- Generally applicable to policies other than those
dealt with specifically

Question 5

Define Fire Insurance (1)

Answer 5

Coverage for losses from fire and lighting and also the resultant damage caused by smoke and water.

Question 6

Policy Conditions - What are some of the most significant points (conditions) we should focus on when it comes to protection against fraud? (7)

Answer 6

• Misrepresentation
• Material change
• Termination
• Requirements after loss
• Fraud
• Entry, Control and Abandonment
• Notice to police

Question 7

Define Misrepresentation (2)

Answer 7

• Involves providing incorrect or excluding important info about material facts by an applicant or insured with or without the intent to mislead.
• To void a policy the misrepresentation must be material. It must affect how an insurer would have judged the risk (Would insured have cancelled policy had they known about it?)

*Two conditions In Quebec - Representation of risk and Misrepresentation or concealment

Question 8

Define Material Change (3)

Answer 8

• Insured must promptly report any material change in the risk while policy is still in force.
• Material change refers to changes that would influence an insurers decision whether or not to stay on a risk.
• In common law, contract may be void, but in Quebec they don’t use void, they say null.

*Cases relying on material change (Morton V. Canadian Northern Shield Insurance)

Question 9

Define Termination (2)

Answer 9

• To effectively cancel a policy, the precise terms of cancellation must be applied.
• Important to know difference between voided and cancelled policy. Only part of premium is returned when cancelling a policy, but whole premium is returned when voided policy.

*reasons for termination can be that risk is to risky now

Question 10

Define Requirement of loss (1) and what info is required from insured to properly document a claim? (9)

Answer 10

Insurer has right to ask for detailed info as outlined by legislation following an insured loss.

The insured may be asked to provide the following to properly document a claim:

• How loss occurred
• An inventory of destroyed and damaged goods properly showing quantities, costs, ACV
• That loss did not occur through any wilful act of insured
• Details of other insurance on property
• Names of all other parties who have interest in property
• Location of property at time of loss
• Detailed inventory of undamaged goods
• Docs to show inventory or value of goods
• Details of any changes in title, use, location, or exposures of property

Question 11

Define Fraud (3)

Answer 11

• In common law provinces any fraud may jeapordize insureds entire claim.
• Insurer can deny claim if insured deliberately makes a false statement in a proof of loss (Ex: Alleging you own property that belongs to someone else or grossly exaggerating the value of property loss)
• In Quebec, Claims made for property affected by false representation can be denied. (Any deceitful representation entails the loss of the right of the person to be indemnified)

Question 12

Define Entry, Control, and Abandonment (1) & Notice to police (1)

Answer 12

Entry, Control and Abandonment - Insurer has right to enter damaged premises following a loss to examine it. The insured may not abandon the property to insurer unless otherwise stated, and they must take reasonable steps to protect property from further damage.

Notice to Police - In Quebec, the insured is required to promptly give notice to police of any loss caused by a criminal act.

Question 13

What General Legal Concepts do insurance professionals need to know? (5)

Answer 13

• Waiver and Estoppel
• Non Waiver Agreement and reservation or rights letter
• Duty of care
• Bad faith and good faith
• Rights of individuals

Question 14

Define Waiver & Estoppel (2) and give examples. (2)

Answer 14

• Waiver is the intentional and voluntary relinquishment of a known right. A waiver under a policy is required to be clearly expressed and in writing.
• An estoppel is a bar created when someone, by his action, or lack of it it, indicates that he will not exercise a right he has.
• Ex of waiver: In any settlement between insured and insurer, the insured might by means of a waiver, relinquish there right to pursue insurer after a loss
• Ex of Estoppel: Insured tells adjuster he has no license, adjuster says don’t worry we will cover it. Later the adjuster realizes insured breached contract by not having license and tries avoiding paying the claim. In this sense, it is to late, as adjuster had already said he would pay the claim and created an estoppel.

Question 15

What is a Non Waiver Agreement? (3)

Answer 15

• Agreement signed by policyholder after a loss, agreeing that the investigation and determination of the amount of damage by the insurance company shall not be construed as an admission of liability.
• It is used when insured is in violation of a policy condition and there is a question as to whether or not the insurer is liable for a loss, but the insurer wishes to investigate the loss.
• Permits the adjuster to maintain contact with insured without fear of creating estoppel.

Question 16

What does a typical non waiver agreement contain? (5)

Answer 16

After identifying the parties, date of loss, location and type of claim, the Non waiver agreement states the following:

It is understood and agreed that the insurer may..

• investigate circumstances surrounding claim
• carry on negotiations
• make settlements
• defend any actions which might be brought against either party
• Each party to a policy will not plead or contend with the insurer…
• –by conducting said investigations or defenses
• –by making said settlements
• –by payments of the said judgements
• –create any estoppel or waive any of its legal rights to refuse payment

Question 17

What is a reservation of rights letter? (2)

Answer 17

• Insurers notification to the insured that coverage for a claim may not apply.
• Used when insured does not sign a waiver, so in most cases.

Question 18

Duty of Care: Define Fiduciary Duty (1)

Answer 18

Being Responsible for providing the principal with the info that materially affects the principals interests. All info that is relevant to the affairs entrusted to the agent.

Question 19

Contrast between bad faith, good faith, and utmost good faith. (3)

Answer 19

• Bad Faith - to deceive or mislead another, conscious wrong doing, and constructive fraud.
• Good faith - Most ordinary contracts are good faith contracts
• Utmost good faith - Phrase in a legal document calling for highest standard of integrity on the part of the insured and insurer. Insurance contracts are agreements made in the utmost good faith. Ordinary contracts only require good faith.

Question 20

What major areas does utmost good faith affect related to the performance of an insurance contract? (2) Give examples

Answer 20

• Disclosure by an insured when applying for insurance
• Handling of claims

Ex: In Carter V. Boehm, duty of insured to disclose info to insured. In CE Heath V. Grey, was duty of insurer to disclose to insured. Insurers are also subject to same standard as insured when it relates to utmost good faith

Question 21

How may insurers expose themselves to bad faith claims? (6)

Answer 21

• Fail to properly investigate the event
• Intentionally offer drastically lower settlement than what would be considered reasonable
• Fail to settle in reasonable period of time
• Unreasonably deny the claim
• Bring Unfounded allegations against insured in self interested and callous manner
• Ignore plaintiffs evidence that adequately responds to issues in dispute

Question 22

Compare and Contrast Punitive Damages and Aggravated Damages. (3)

Answer 22

• Punitive Damages are in excess of those required to compensate the plaintiff for the wrong done, which are imposed in order to punish the defendant because of of their actions
• Aggravated damages are designed to compensate plaintiff for suffering intangible damages such as humiliation, and distress as a result of defendants actions.
• Differ in that aggravated damages compensate plaintiffs where as punitive damages focus on punishing defendants.
• Look at case examples page 16

Question 23

What are some strategies for preventing bad faith lawsuits? (5)

Answer 23

• Treat insureds fairly and with dignity
• Conduct thorough investigation before taking any action
• Consider any alternative measures to handle claim
• Investigate in professional manner until case is closed
• Reassess positions as new evidence becomes available

Question 24

Describe the rights of individuals related to insurance claims and investigations. (2)

Answer 24

• Insurance professionals should be aware of the charter of rights and freedom.
• Modern issues related to good faith have considers the charter and the invasion of a persons right to privacy. Such privacy issues might arise from investigation of a claim, and with regards to confidentially of info collected.

Question 25

Define Public Policy. (3)

Answer 25

• An Act that supports, encourages, or permits conduct that offends the foundations upon which are society exists.
• An Act may not be a tort or crime, but it may be against public policy.
• Can affect how insurance claims are carried out, and can affect whether a policy will be considered valid.

Question 26

Compare and contrast burden of proof (2)and standard of proof(3)

Answer 26

• Burden of proof - Standard by which a claim must be proven to prevail. Typically borne by one party or another.
• In Criminal Trail, Burden of proving a charge against accused always remains with the crown. In Civil case, the burden of proof is usually on the person bringing the action.
• Standard of Proof - Test to establish whether a party has succeeded in proving a fact in issue.
• In Civil matter, standard of proof is based on balance of probabilities, in criminal matter, it must be beyond a reasonable doubt.
• Proof must be more persuasive when fraudulent behaviour has been alleged.

*FH V. Mcdougall - Standard of proof example pg 18

Question 27

Define Evidence(1) and two categories of evidence (2)

Answer 27

Evidence is anything presented at trial which attempts to prove the case.

Two main categories of evidence are:

• Direct Evidence - proves the fact in issue without need to infer or make presumptions. (Ex: Witness saw arsonist set fire)
• Circumstantial evidence - Is based on making inferences from connected facts. (Ex: No possible signs of break in, and insured has only key to house, can infer he is faking claim)

Question 28

What the different types of evidence? (6)

Answer 28

• Sworn Statements - most common form of evidence
• Expert Evidence - on scientific, technical or professional matters given by qualified persons
• Testimony given under oath
• Documents such as written contracts, deeds, etc.
• Experiments - sometimes conducted by experts
• Real Evidence - Physical objects can be bought before court such as photos, videotapes, articles, etc.

Question 29

Define Spoliation (1) and what determines whether sanctions are imposed (1)

Answer 29

• Destruction of evidence before it comes to trail. A duty exists to use reasonable care to preserve evidence.
• What sanctions may be imposed when evidence is destroyed depends on whether party who did not have access to the evidence would be prejudiced by its loss, whether evidence is relevant or whether it was destroyed intentionally to suppress the truth.

Question 30

What items of evidence and generally granted privileged status? (4)

Answer 30

• Communication between solicitor and client is privileged whether litigation is anticipated or not.
• Settlement negotiations
• Evidence collected in anticipation of litigation
• Reports produced by Investigative Services Division or Insurance Crime Prevention Bureau.