Study 3 - Perils and Hazards: Summary

Question 1

Peril

Answer 1

Event that may cause injury, loss, or destruction; natural or human-made; peril may or may not be insurable

Question 2

Fortuitous event

Answer 2

Insured perils are accidental events; not intended for maintenance, intentional acts, or expected events

Question 3

Risk

Answer 3

Underwriting term = subject matter of insurance

Question 4

Scope of property insurance in terms of perils and exclusions

Answer 4

• Property insurance may be named perils or “all risks” (limited by exclusions)
• Exclusions remove certain losses from the policy’s coverage, either by type of property or type of peril
• Named perils differ between types of coverage

Question 5

Named perils in IBC habitational forms (13 perils)

Answer 5

• Fire: excludes heat process and war risks
• Lightning: excludes solar storms, and loss to electrical devices or appliances
• Explosion: fire coverage extends to explosion of natural, coal or manufactured gas
• Smoke: faulty operation of heating or cooking unit, excludes fireplaces
• Falling object: any object (such as trees) that strikes exterior of building
• Impact by aircraft or land vehicle: not collisions with animals
• Riot: relies on legal definition; commercial policies include labour conflicts
• Vandalism or malicious act: excludes during construction, vacancy, or by insured
• Water damage: Watermain, plumbing, water tanks, hot tubs, water enters via other damage. Flood, sewer backup, continuous leak are excluded
• Glass breakage: Excluded from tenants, condo owner, residential basic, and seasonal residence form. Can be added for additional premium in some cases. Construction and vacancy excluded.
• Transportation: personal property being transported in vehicle
• Theft, including damage caused by attempted theft: Exclusions limit scope of coverage. Not included in residential basic and seasonal forms.
• Electricity: sudden and accidental damage from artificially generated electrical current

“Fred, like everyone, should fucking ignore Roger’s very weird glasses. That’s the end.”

Question 6

Non standard perils that are commonly insured against under all-risks property insurance

Answer 6

• Wildfire: uncontrolled fire in forested area, covered under fire
• Hurricane and tornado: covered under windstorm or hail peril
• Collapse: Roof or structural collapse due to snow load or design. Covered under all-risks form as not specifically excluded
• Accidental breakage of property: covered under all risks, except for fragile or brittle articles, or property being worked

Question 7

Common exclusions under all-risks property insurance (7 exclusions)

Answer 7

• Earth movement: Earthquake, landslide, snowslide/avalanche, sinkhole etc. Can be added by endorsement. Fire caused by earth movement is covered.
• Sewer backup: may be added by limited endorsement
• Sump pump failure: may be added by limited endorsement
• Ice damming: water enters through roof due to accumulation of snow or ice
• Water seepage: continuous or repeated seepage or leakage (not sudden or accidental)
• Mold and wood rot: rust or corrosion, wet or dry rot, and fungi, spores or mold
• Flood: excluded from coverage

Question 8

Flood (used correctly and incorrectly, excluded and covered)

Answer 8

Correctly (excluded):

• River overflows (fluvial flooding)
• Rainstorms causing sewer backup (pluvial flooding)
• Hurricane
• Tsunami

Incorrectly (excluded):

• Sewer backup
• Sump pump

Incorrectly (but covered):

• Burst pipes
• Toilet overflows
• Dishwasher hose

Question 9

Hazard

Answer 9

Attribute of property or its physical surroundings that can lead to a peril or make it more severe

Question 10

Physical hazard

Answer 10

Concerns the physical condition of the property to be insured and how that may increase the chance of loss

Question 11

Moral hazard

Answer 11

The attitude of owner of the property to be insured

Question 12

Fire hazard

Answer 12

• Cooking, wiring, heating, smoking, fireplaces, candles, clothes dryer
• Fire is most expensive peril. Not most frequent, but most severe damage
• Public fire protection = local fire department (element of COPE - construction, occupancy, protection, and exposure)
• Private fire protection = smoke alarms, fire extinguishers, and sprinklers

Question 13

Lightning hazard

Answer 13

• Tallest structure most likely to be struck

- Install lightning rods and grounding wires

Question 14

Water perils and damage hazard

Answer 14

• Very expensive - less severe damage, but more frequent than fire
• Water devices present in all dwellings; water also abundant outside the dwelling

Question 15

Flood hazard

Answer 15

• Prime real estate has been on coast or flood plain
• Aging and overwhelmed municipal infrastructure common
• Governments now restrict building on flood plains and waterfronts

Question 16

Sewer backup hazard

Answer 16

• New challenge as basements now hold valuable electronics, equipment, furnishings
• Greater exposure at lower elevations, areas with older sewer systems
• Install sewer backflow valves and move valuables out of basements

Question 17

Sump pump hazard

Answer 17

• Basements close to or below the water table risk damage if pump fails
• Install redundant pumps, a power backup, and a high-water monitoring device

Question 18

Ice damming hazard

Answer 18

• Large numbers of icicles suggest eavestroughs are plugged with snow and ice
• Poorly maintained roofs cause heat escape and melting; plugged eaves lead to water accumulation

Question 19

Wind or hail hazard

Answer 19

• Happen all over Canada, but especially in Alberta (“hail alley”)
• Certain types of roof covering are more susceptible to wind damage, especially with age

Question 20

Roof collapse hazard

Answer 20

• Greater risk during years of greater-than-average snowfall
• Building codes must accommodate the snow load
• Flat and low-peaked roofs greater exposure; snow should be professionally removed in extreme cases

Question 21

Earthquake hazard

Answer 21

• More common on coastal BC; severe earthquakes uncommon

- Risk factors: local geology, construction method, age and height of structure

Question 22

Key condition hazards (9 hazards)

Answer 22

• Fuel oil: fuel oil heating poses risks
• Concentration of values: limit exposure with sublimits on types of property
• Collections: real value is debatable, may have theft exposure
• Hoarding hazard: accumulations of property pose fire risk
• Vacancy hazard: homeowner is assumed to be in residence to deal with problems
• Age hazard: buildings need to be maintained, systems replaced (roofs, water tanks, wiring etc.)
• Theft hazard: exposure increases with vacancy, neighbourhood, luxury property
• Neighbourhood hazard: proximity of dwellings, fire and police presence, proximity to hazards (rivers, railroads, factories)
• Unusual hazards: fuel (gas cans), ham radio antennae, auto maintenance, collector vehicles, hobbies

Question 23

Distinction between named-perils and all-risks coverage

Answer 23

Named perils:

• Insures against direct physical loss or damage caused by only the listed perils
• Onus on insured to prove 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

All risks:

• Insures against direct physical loss or damaged caused by any peril, provided that the peril is not excluded and that the insured satisfies the other conditions of the policy
• Onus on insured to prove that loss or damage to insured property at an insured location occurred during the policy term and that the loss was fortuitous
• Onus on the insurer to prove that an exclusion applies, otherwise the physical damage is insured