Study 2 - Legislation and General Principles

Question 1

What are the key points of Common Law

Answer 1

• Used in provinces and territories other than Quebec
• Precedent
• Case Law- Statute Law
• Contra Proferentem
• Relief from forfeiture

Question 2

Define precedent.

Answer 2

A legal decision that serves as a basis to resolve subsequent disputes in similar cases.

Question 3

Define case law.

Answer 3

The body of previously decided cases that courts review for guidance on cases currently in dispute.

Question 4

Define statute law.

Answer 4

A law set down in a government act and passed by legislature.

Question 5

Define contra proferentem.

Answer 5

A legal term that provides that any ambiguity in a contract must be interpreted against the person who drew the contract because she had the opportunity to make it clear.

Question 6

Define relief from forfeiture.

Answer 6

A decision by a court, on grounds of equity, to excuse the insured in whole or in part from perfect compliance with a particular policy condition.

Question 7

What are the key points of the Civil Code of Quebec.

Answer 7

Used exclusively in Quebec.
Expectations for behavious outlines in the Civil Code and Quebec’s Charter of Human Rights and Freedoms are the basis for courts to formulate their opinions.

Question 8

Define Statutory Conditions.

Answer 8

Special prescribed and standardized conditions that the provincial Insurance Acts require to be included in fire, automobile, and accident and sickness policies. The Statutory Conditions must be identified and printed in every fire policy; however, conditions will still govern the policy even in their absence.

Question 9

What are the Statutory Conditions?

Answer 9

Condition 1: Misrepresentation
Condition 2: Property of Others
Condition 3: Change of Interest
Condition 4: Material Change
Condition 5: Termination
Condition 6: Requirements After Loss
Condition 7: Fraud
Condition 8: Who May Give Notice and Proof
Condition 9: Salvage
Condition 10: Entry, Control Abandonment
Condition 11: Appraisal
Condition 12: When Loss Payable
Condition 13: Replacement
Condition 14: Action
Condition 15: Notice

Question 10

Define proximate cause.

Answer 10

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 11

Define concurrent causation.

Answer 11

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 12

What does PIPEDA stand for?

Answer 12

Personal Information Protection and Electronic Documents Act.

Question 13

What is the purpose of PIPEDA?

Answer 13

Sets out the privacy requirements for collection, use, and disclosure of information.

Question 14

Which question must insurers be able to answer for their insureds regarding personal information?

Answer 14

• 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 or uses it?
• To whom is it disclosed?
• When is it disposed of?

Question 15

What are some other common privacy policies?

Answer 15

Freedom of Information and Protection of Privacy Act (FOIPPA)
Personal Information Protection Act (PIPA)
Access to Information and Protection of Privacy Act
Act Respecting Access to Documents Held by Public Bodies and the Protection of Personal Information.

Question 16

What is the Insurance Bureau of Canada (IBC)

Answer 16

National industry association representing Canada’s private home, auto and business insurers. Formed in 1964. Most Canadian property and casualty insurers are members of IBC.

Question 17

What does the Intercompany Arbitration Agreement allow insurers to do?

Answer 17

Resolve disputes over insured losses of less thatn $50,000 without litigation.

Question 18

Explain Statutory Condition 1.

Answer 18

Statutory Condition 1 - Misrepresentation

The principle of uberrimae fidei, or utmost good faith, requires the insured to act with a high standard of honesty, and disclose those facts that a reasonable person ought to know are material. The law imposes a duty on the insured to disclose any information that will affect the terms under which the policy may be offered. If it has been determined that 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, the insurer may elect to void the policy entirely. Concerning material facts omitted before the contract takes effect.

Question 19

Explain Statutory Condition 2.

Answer 19

Statutory Condition 2 - Property of Others

Stipulates that the insurer is not liable to pay for losses to any person other than the named insured unless his or her interest is stated in the contract. For example, two roommates who are not related.

Question 20

Explain Statutory Condition 3.

Answer 20

Statutory Condition 3 - Change of Interest

Under the common law doctrine of privity of contract (the relationship that exists between two or more parties in a contract), the insured cannot assign her rights and obligations under the contract to another party without the insurer’s consent. The exceptions to this are:

• an authorized assignment under the Bankruptcy and Insolvency Act
• a change of title by succession, the operation of law, or death of the named insured.

Question 21

Explain Statutory Condition 4.

Answer 21

Statutory Condition 4 - Material Change

Concerns change in material fact, after the policy takes effect. The insured is obligated to prompty notify the insurer of any changes in occupancy use, or any other factors that may affect the premium or underwriting of the risk. The burder of proof rest on the insurer to prove that undisclosed circumstances are material to the underwriting or the risk which could have affected the loss.

Question 22

Explain Statutory Condition 5.

Answer 22

Statutory Condition 5 - Termination

A policy may be terminated by either the insurer or insured. The insured may cancel the policy immediately upon request, usually written instruction is preferred. The insurer is obligated to notify interested parties (lien-holders, mortgagees) of the cancellation. Cancellation is not usually backdated. When the policy is cancelled at the insured’s request, premiums paid but unearned are refunded to the insured less a surcharge to offset the administrative costs - short-rate cancellation.

Question 23

Explain Statutory Condition 6.

Answer 23

Statutory Condition 6 - Requirements After Loss

Requires the insured to provide written notice of a loss to the insurer in writing as soon as possible. This Statutory Condition also requires a disclosure by the insured called a proof of loss, which outlines the circumstances of the loss and the amounts claimed.

Question 24

Explain Statutory Condition 7.

Answer 24

Statutory Condition 7 - Fraud

If the insured fraudulently presents a claim, or any portion of it, the claim is invalidated entirely. The burden of proof still rests upon the insurer to prove fraud has occurred. If there are multiple policyholders, such as spouses, an insurer can only deny indemnity to the person making the false statement. An innocent coinsured is only entitled to coverage if that party is not aware of the fraud.

Question 25

Explain Statutory Condition 8.

Answer 25

Statutory Condition 8 - Who May Give Notice and Proof

If the insured in unable or refuses to notify the insurer or a loss, any person to whom insurance money is payable may report the loss or give proof of loss.

Question 26

Explain Statutory Condition 9.

Answer 26

Statutory Condition 9 - Salvage

Following loss or damage, the insured is required to protect the property from further damage and prevent damage to other property, This is referred to as mitigation, and helps ensure that the insured’s loss will be fortuitous. In some cases, the cost to repair an item may exceed the cost to replace it. When the insurer compensates the policyholder for the damage, the insurer is entitled to the salvage. If the insurer were not entitled to the salvage, then the insured would both receive a claim settlement, and retain the salvage, thus profiting by the loss. By collecting and selling salvage, insurers are able to offset some of the losses paid.

Question 27

Explain Statutory Condition 10.

Answer 27

Statutory Condition 10 - Entry, Control, Abandonment

When a claim is reported, the insurer has the immediate right to enter the building to survey the damage in order to evaluate it’s severity and cause. As a condition of the policy, the insured must allow such access prior to the undertaking of repairs. Although the insurer is entitled to quantify the damage, it does not have the right to take control of the property. Likewise, the insured cannot abandon it to the insurer without the insurer’s consent.

Question 28

Explain Statutory Condition 11.

Answer 28

Statutory Condition 11 - Appraisal

Disputes regarding losses 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 the insured. Appraisal can only be used to resolve matters involving the extent of damage or the value of the claim.

Question 29

Explain Statutory Condition 12.

Answer 29

Statutory Condition 12 - When Loss Payable

Once the insured has completed the proof of loss, the insurer is required to respond to it and make payment within 60 days. This period is granted to allow the insurer to investigate the circumstances, coverage, and amount of the claim.

Question 30

Explain Statutory Condition 13.

Answer 30

Statutory Condition 13 - Replacement

The decision to repair or replace damaged property lies exclusively with the insurer. Repairs must commence within 45 days of the insurer’s proof of loss. If the insurer elects to proceeds with repair and the extent of the damage is greater than what was anticipated, the insurer must still complete the repairs even if the additional costs are above the insurance limit.

Question 31

Explain Statutory Condition 14.

Answer 31

Statutory Condition 14 - Action

The Insurance Acts require that an insured who intends to pursue a grievance against an insurer in court begin within a specified time. The period was set at one year when the Insurance Acts considered only fire insurance and not property insurance more generally. Some provinces have now changed their insurance acts to specify a limitation period of two years from the date the insured knew or ought to have known that loss or damage to the insured property had occured.

Question 32

Explain Statutory Condition 15.

Answer 32

Statutory Condition 15 - Notice

The insurance acts require that each insurer have an identified chief agent or head office in the province. Statutory Condition 15 requires that, to send notice to the insurer, the insured deliver it or send it by registered mail to that chief agent or head office. To send notice to the insured, the insurer must personally deliver it or send it by registered mail to the last known post office address. Policy renewals do not require sending by registered mail, they must however be sent to the last address known to the insurer.

Question 33

Define ab initio.

Answer 33

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

Question 34

Define proof of loss.

Answer 34

A formal statement of facts about a loss, attested to by the claimant, in a form specified by the insurer. A proof of loss may need to be notarized. An insurer must respond to a proof of loss after a specified time period with a formal disposition of the claim (approved or denied).

Contains:

• how an when the loss occured
• an inventory of the damaged and, if required the undamaged property
• where the property was at the time of loss
• a declaration that the loss was not cause by a willful act of the insured

Question 35

What are identified articles?

Answer 35

If a policyholder carries specific insurance on a particular item or object, the policy that is specific to that item shall respond as first-loss insurance. Only after all coverage is used under a primary policy can any other policy respond to the loss.

Question 36

What are named and unnamed locations.

Answer 36

Property policies contain the location of the property specifically on the Declaration Page. This ensure that, following a loss, the subject of the insurance can be compared against the damages claimed. There are a couple of circumstances where the policy will respond even though the location of the loss is not identified in the policy declarations. These circumstances include newly acquired locations or property temporarily removed.

Question 37

Define warranty.

Answer 37

Statement or stipulation or promise in an insurance contract, the breach of which may nullify the contract. The stipulations restrict coverage specifically regarding the use, condition or maintenance of the insured property. For example, alarm warranty, jewellery in a vault warranty, backwater valve warranty, woodstove warranty.

Question 38

Explain automatic reinstatement.

Answer 38

If a loss occurs, then even though an amount may be paid by the insurer during the policy term, the policy limits are restored to the full amount shown on the declaration page. Also, payment of any claim, even for policy limits, does not affect the insured’s entitlement to receive a refund of premium if the policy is cancelled before the end of the term.

Question 39

Explain renewal of contract.

Answer 39

When the term of insurance is nearing its end, the insured may offer renewal of the contract. The renewal is offered by sending a written notification (or receipt) informing the insured of renewal terms. The insured should be given reasonable notice of a pending renewal so that she may review the information the insurer has identified regarding the risk itself and the applicable terms being offered.

Question 40

What is the Basis of Payment clause?

Answer 40

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

Some policies may enhance coverage from actual cash value to replacement cost.

Question 41

What are the key points of the Freedom of Information and Protection of Privacy Act (FOIPPA)

Answer 41

• Applies to all provinces except Quebec and the Territories, although each province has its own Act.
• Regulates public bodies such as provincial government departments, municipalities, universities, school boards, and Crown coprorations
• Professional regulatory bodies such as the Law Society and the College of Physicians and Surgeons also fall under FOIPPA

Question 42

What are the key points of the Personal Information Protection Act (PIPA)

Answer 42

• Governs private sector organizations in the course of commercial business activities.
• Contains specific provisions regarding the collection and use of electronic data.

Question 43

What are the key points of the Access to Information and Protection of Privacy Act

Answer 43

• Applies to Yukon, the Northwest Territories, and Nunavut

- Relates to information held by public bodies and the Department of Justice.

Question 44

What are the key points of the Act Respecting Access to Documents Held by Public Bodies and the Protection of Personal Information

Answer 44

• Specific to Quebec
• Included information help by public bodies, including municipalities, and other government agencies, schools, and health and social services institutions and in files held by the public curator.

Question 45

What are some of IBC’s key areas of activity?

Answer 45

• Supporting member companies in development of standardized policy forms and policy wordings
• Creating various agreements to facilitate dispute resolution.
• Providing investigative services to combat organized insurance fraud.
• Providing education to consumers on various insurance topics, including key insurance principles and risk management strategies.
• Initiating key research on topics of emerging interest, such as the impact of severe weather or natural disasters
• Providing reliable information to media on key insurance issues
• Maintaining key statistics and publishing “State of Industry” reports for the benefit of member companies.
• Working with regulatory bodies on issues involving products and pricing.

Question 46

What is IBC’s Agreement of Guiding Principles?

Answer 46

It provides a defined priority of payment and formulas for the apportionment of indemnity.