Study 2: Underwriting the Risk: An Overview

Question 1

Contract of Adhesion

Answer 1

A type of contract that is effectively non-negotiable because one party drafts the policy wording or offers a standardized contract wording.

Question 2

Contra Proferentem

Answer 2

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

Question 3

Replacement Cost Clause

Answer 3

Providing a substitute of the damaged or lost property with something similar, including having the same use but not necessarily identical to the property being replaced, without extra cost to the insured.

Question 4

Actual Cash Value (ACV)

Answer 4

The fair market value of property, taking into account factors that might augment or reduce the value of the property in question. ACV is usually calculated in one of three ways:
1. The cost to repair or replace less depreciation
2. Fair market value
3. Consideration of all relevant evidence of the value of the damaged property

Question 5

5 Elements of a Contract

Answer 5

1. Agreement (offer and acceptance)
2. Capacities of the parties to contract
3. Consideration
4. Genuine Intention (meeting of the minds)
5. Legality of the object

Question 6

Elements of Contracts in Quebec

Answer 6

1. Consent
2. Capacity to contract
3. Cause of contract
4. Object of contract

Question 7

Consideration

Answer 7

The value received to bind a contract

Question 8

3 Unique Elements to Insurance Contracts

Answer 8

1. Insurable Interest
2. Indemnity
3. Utmost Good Faith

Question 9

Insurable Interest

Answer 9

An interest that the insured must have in the subject matter of the insurance purchased such that if the event insured against occurs, the insured will suffer an economic loss

Question 10

Indemnity

Answer 10

A contract, expressed or implied, to repay in the event of a loss. The insured neither gains nor loses

Question 11

Utmost Good Faith

Answer 11

A legal principle calling for the highest standards of integrity on the part of the insured and the insurer

Question 12

Sections of Insurance Policies

Answer 12

1. Coverage Summary
2. Insuring Agreements
3. Statutory Conditions
4. Policy Conditions
5. Signature Clause

Question 13

Coverage Summary

Answer 13

Sometimes referred to as the declarations
Includes:
- The parties to the contract
- The commencement date, term, and expiry date
- The premium and rate
- The amounts insured

Question 14

Insuring Agreements

Answer 14

States the following:
- The subject matter of the insurance
- The perils insured against
- The exclusions
- The circumstances under which the insured may receive the proceed of insurance

Question 15

Statutory Conditions/Quebec General Conditions

Answer 15

Applicable to automobile, accident & sickness, and fire insurance policies

Question 16

Policy Conditions

Answer 16

Provisions that state the rights and duties of the insured or insurer

Question 17

Signature Clause

Answer 17

Found immediately following the insuring agreements or the conditions. A policy either signed under hand or under seal. Subscription policies must be signed by a member of company participating in the risk.

Question 18

Subscription Policy

Answer 18

A single policy covering a risk that is divided among a number of insurers. The policy is issued by the “lead” company and signed by all participating companies.

Question 19

Components of the Underwriter’s Toolkit

Answer 19

1. The environment
   - Understand the political, social, and economic environment
2. The legal system
   - The 3 sources of law in Canada - common law, statute law, and the Civil Code of Quebec
3. The business
   - Understand the industry in which a risk competes
4. The product
   - Understand the legal aspects of the insurance contract and be familiar with the many types of policies that may express a contract of insurance
5. The risk
   - Understand as much as possible about the applicant and about the perils and hazards the risk faces