Study 3 Critical Thinking Flashcards
What determines the scope of coverage under a property insurance policy?
The scope of coverage under a property insurance policy is determined by the interplay of all its elements. These include the peril defined, fortuity, risk, named perils and all-risk policies, and exclusions.
Why is the concept of fortuity important in property insurance policies?
Insurable perils are accidental events. The property insurance policy is not intended to be a maintenance policy. Intentional acts (for example, arson by the owner) and expected events (for example, wear and tear on the property) are excluded.
How does named-perils coverage differ from all-risks coverage?
Named-perils coverage insures against direct physical loss or damage caused by only the listed perils. The onus is on the insured to prove the loss or damage was caused by an insured peril and that no exclusion of coverage applies. Named perils tend to vary between personal and commercial property forms. l All-risks coverage insures against direct physical loss or damage caused by any peril, provided that the peril is not excluded—and that the insured satisfies the other conditions of the policy. The insured has to prove that loss or damage to insured property at an insured location occurred during the policy term and that the loss was fortuitous. But the onus is on the insurer to prove that an exclusion applies; otherwise, the physical damage is insured. Since all-risks forms limit coverage by exclusion, they insure against more perils than forms that extend coverage only to the perils named in the forms. All-risks coverage is thus broader than named-perils coverage.
What are specified perils? How do they differ from named perils?
Named-perils coverage insures against direct physical loss or damage caused by only the listed perils. The onus is on the insured to prove the loss or damage was caused by an insured peril and that no exclusion of coverage applies. Named perils tend to vary between personal and commercial property forms.
specified perils:
A set of perils
identified, or
specified, in an all-risks form as applying to property that would otherwise be covered for all risks
In the IBC all-risks habitational forms, some of the exclusions that limit coverage are qualified by exceptions to those exclusions in the form of specified perils, which are listed later in the policy. Thus, the exclusion applies to all losses except a loss that is caused by one of the Specified Perils.
Under what circumstances can loss or damage caused by fire be excluded under a fire insurance policy?
Fire includes any uncontrolled or unintended ignition, howsoever caused. By provincial statute, a fire insurance policy may only exclude fire if it results from:
l property undergoing a heat process (but resulting damage to other property is
covered);
l riot, civil commotion, war, invasion, act of foreign enemy, hostilities (whether
war be declared or not), civil war, rebellion, revolution, insurrection, or military
power—a collection of perils often called war risks; or
(We will see later in this study that the IBC property forms do insure against riot.)
l radioactive contamination.
What does the term riot mean?
- an act or threat of violence by one or more persons who are part of an assembly of three or more persons
- that might give rise to damage to property or injury to persons.
Under what named peril(s) in a property policy would coverage be provided for hurricanes and tornadoes?
Both hurricanes and tornadoes fall within the Windstorm or Hail peril and are thus covered whether the property is insured against named perils or all risks
What coverage is typically available for loss or damage caused by earth
movement?
All such perils are excluded whether the coverage is for named perils or all risks. But loss or damage due to fire that results from earth movement is covered.
Coverage for loss or damage due to earthquake, landslide, snowslide, volcanic eruption, and other earth movements may be added by endorsement; the IBC form is IBC 1149 Earthquake Endorsement, which also excludes loss or damage directly caused by tidal waves; damage inside the building caused by windstorm, hail or coincidental rain or snow; and earthquakes that occur before the endorsement takes effect or after it expires.
In what ways does the term flood tend to be misused?
A pipe in the dwelling bursts, causing water to accumulate in the basement. The homeowner might consider that a flood, but the insurer would not. Still, as we discussed regarding the Water Damage peril, loss due to that accumulation of water would be covered.
A toilet overflows, causing water to accumulate in the basement. The
homeowner might consider that a flood, but the insurer would not. Loss
due to that accumulation of water would be covered.
What are the two main categories of hazard?
A hazard can be physical or moral
A physical hazard concerns the property to be insured (for example, its construction type, whether it is protected by a fire department or a burglar alarm, or whether it is located in a high-crime area)
A moral hazard is an attitude of the owner of the property to be insured—a possible willingness to try to profit from the property policy by bringing loss on him- or herself or being less diligent in trying to avoid it.
What are some of the more common kinds of fire hazard?
- Cooking hazards
- Unattended portable heaters
- Clothes-dryer lint
- Overloaded electrical circuits
What are sub-limits, and why might they be included in a property policy?
A limitation in an insurance policy on the amount of coverage available to cover a specific type of loss
Since the insurer has no way of knowing what personal property the insured has, the property policy does limit the insurer’s exposure with maximum limits—sublimits—on certain types of property. Sub-limits apply, however, only to very specific types of property (for example, furs, jewellery, coin collections, or sports
cards collections) and do not address other exposures.
