CAIB 1 Chapter 1 Slides PDF

 The Forgetting Curve Hermann Ebbinghaus (1850-1909), a German psychologist founded the experimental psychology of memory and from this the forgetting curve (the loss of learned information) came to light. What do you think The Forgetting Curve is going to be about? S...

 The Forgetting Curve Hermann Ebbinghaus (1850-1909), a German psychologist founded the experimental psychology of memory and from this the forgetting curve (the loss of learned information) came to light. What do you think The Forgetting Curve is going to be about? Source material: https://www.csustan.edu/sites/default/files/groups/Writing%20Program/forgettin g_curve.pdf The Forgetting Curve The Forgetting Curve  What can I do? We will have activities throughout the course to give you the opportunity to review, please participate! You are responsible for your own learning: at home you must study the textbook, bring questions to class, and continue to review throughout the week! For those of you who are scheduling your exams, keep in mind the Forgetting Curve - the more time between when you finish the prep course and when you take the exam gives you more opportunity to forget! Unless you continue to study and review, of course!  Course Expectations Students have two minutes to write out their expectations for this course in the chat window.  The Past Mistakes and Successes Students take two minutes to write down what sort of studying they have done in the past and what has not worked in the chat window.  Chapter 1: Intro to General Insurance Section 1: Insurance - A Means of Managing Risk Section 2: The Role of Government in the Insurance Industry Section 3: Distribution of Insurance  Section 1: Insurance: A Means of Managing Risk Risk Categories ○ Personal Risk People = asset Financial loss accompanies loss of health/life ○ Property Risk Owner of property may lose that property ○ Liability Risk Negligent actions lead to bodily injury/property damage (to others,) law says they’ll be (financially) responsible  How To Deal with Risk 1) Avoidance of Risk Not a good solution when dealing with risk ○ One exposure is usually replaced with another ○ Ex. business owners = responsible to landlord of building for loss/damage caused by (their) negligence Avoiding to do something may also mean not doing anything at all ○ Do nothing = no chance of loss ○ Ex. parties do not rent or own business premises Defin of Avoidance: all chance of financial loss = gone. Ex. People renting instead of buying own business premises avoids chance for financial loss from ownership of property  How To Deal With Risk Cont’d 2) Controlling of Risk Defn: Risk Control: ○ Taking measures to reduce frequency/severity of loss Ex. When installing intrusion detection equipment/fire detection alarms in building (reduces exposure) Loss Control Measures: ○ Not total loss (when eliminating financial loss) BECAUSE Equipment won’t work all the time Some losses (wind/hail/lightening) can’t be controlled  How To Deal With Risk Cont’d 3) Retention of Risk Large corporations (Canadian Pacific/Canadian National Railways/Provincial/federal governments) often take on their losses’ financial responsibility ○ Costs of retention = less costly than other options Usually people/businesses can’t completely finance own losses ○ Retention = not practical Most parties keep part of risk (from policy deductibles) Others might purchase insurance for types of loss while keeping others for self ○ Ex. Parties buy coverage losses to all property (excluding glass breakage)  How To Deal With Risk Cont’d 4) Transfer of Risk Parties unable to cope with financial consequences of potential loss try to transfer all/portion of risk. For a premium, insurance companies agree to take financial responsibility of people and thus for their losses. Insurance allows parties (if can contribute to a fund) the function of spreading losses of few to the many ○ Transfer risk (via insurance) = most popular/practical way QUEBEC: insurance = governed by Civil Code.  How To Deal With Risk Cont’d 4) Transfer of Risk Two Types of Risk a) Speculative Risk ○ Chance of financial loss/gain ○ Always possibility that venture fails Ex. if venture means investment into business Ex. Betting at blackjack table = always chance of financial loss ○ Society’s interest isn’t served if people might profit from failure Insurers won’t insure on speculative risks  How To Deal With Risk Cont’d 4) Transfer of Risk Two types of risk b) Pure Risk ○ Chance of financial loss BUT NO GAIN No opportunity for person to profit from loss, risk is pure Only pure risk = insurable ○ Brokers call object of insurance “the risk” (but then technical meaning of risk is lost)  5 Elements For Contract To Be Enforceable (By Law) 1) Agreement Prove that a proper agreement is reached Process: ○ Offer is made ○ Unequivocal/unconditional acceptance (of terms) of offer While in negotiations: agreement hasn’t been agreed to yet Offer/acceptance may or may not be in writing  5 Elements For Contract To Be Enforceable (By Law) 1) Agreement: An Insurance Perspective Oral offer on insurance contract ○ Applicant doesn’t have to accept ○ Applicant not obligated to accept policy which is different from what was requested ○ Applicants must know: if they do not (promptly) return the policy to insurer, it is possible that courts might rule that they have accepted the policy Written offer: policy provided must be according to written application unless insurer indicates the differences (in writing) ○ Common law: Applicants can reject policies up to 2 weeks after receiving written notice (from insurer) ○ Policy is deemed accepted if not returned to insurer in 2 weeks  5 Elements For Contract To Be Enforceable (By Law) 2) Consideration: An Insurance Perspective DEFN: Consideration ○ Exchanging something of value: Jane gives something of value to Janice. Consideration is given by Janice in the form of: Return promise Act performed Agreement not to act Consideration from insured ○ Premium payment (promise to pay later) Consideration from insurer ○ Promise to indemnify insured (for certain losses)  5 Elements For Contract To Be Enforceable (By Law) 3) Legality of Object A contract that is contrary to public policy isn’t enforceable (by law) ○ Ex. Deliberate killing/maiming, importing drugs Contract bought on illegally acquired property ○ Enforceable if property loss Paying fraudulent claims ○ Contrary to public good ○ Courts rule against insureds trying to enforce these type of contracts  5 Elements For Contract To Be Enforceable (By Law) 4) Legal Capacity of the Parties to Contract Law enforces contracts of parties recognized as having a legal capacity to contract/is competent ○ Incompetents: parties unable to contract ○ Protects against exploitation Incompetents include minors: ○ Common Law: Competent when 21 (or somethings 18/19) years old Exception: Right to contract for life’s necessities (food, clothing, lodging) Other contracts the law cannot enforce Ex. business sells $500 stereo to 12 year old (All Sales Final basis) ○ Must refund money if returned in a reasonable period  5 Elements For Contract To Be Enforceable (By Law) 4) Legal Capacity to Contract: Insurance Perspective Parties (below majority age) owning/renting property requiring insurance Insurance contract: ○ Students leasing/renting apartments ○ Students owning their own autos/homes Insurers CAN PROVIDE policies ○ Law: right to void contract because of status as minor is forfeited after (reasonable) a time  5 Elements For Contract To Be Enforceable (By Law) 4) Legal Capacity to Contract Mental Incompetents ○ Insane/senile/mental defects do not have legal capacity to contract Stupidity/mental weakness not accepted ○ Brokers = not qualified to assess client’s mental capabilities For policy to be issued to a mentally incompetent person is determined by insurer and representative of insured  5 Elements For Contract To Be Enforceable (By Law) 4) Legal Capacity to Contract Under Influence of Alcohol/Drug Incompetence: ○ Unable to understand contract entered into ○ Unable to understand consequences ○ Were deliberately drugged/made drunk Dealing with people under influence of alcohol/drugs ○ Law makes it difficult to void contracts they negotiate ○ Consensus: Need strict requirements otherwise people would try to avoid legitimate contracts by saying they were under the influence of drugs/alcohol  5 Elements For Contract To Be Enforceable (By Law) 4) Legal Capacity to Contract Trade Names Businesses under trade name ○ No legal status/not entitled to contract ○ Law sees sole proprietorship/partnership/corporations as having same right to contract as natural persons ○ Corporation’s right (to contract) is in charter Must ensure all applicants are legally able to contract ○ Ex: John and Julie Jones t/a The Jones’s Place (t/a = trading as) (dba = doing business as) Prairie Stonescapes or Prairie Stonescapes Incorporated Lind’s Lentils Ltd, or Linda’s Lentils Limited  5 Elements For Contract To Be Enforceable (By Law) 5) Genuine Intention Enforceable contract: parties have intended to enter contract Genuine Intention is proven by showing agreement wasn’t affected: ○ Fraud: one party uses false suggestions/trickery/cunning ○ Duress: Force/imprisonment to force parties against their free will ○ Concealment: Misrepresentation past/present facts, do not disclose pertinent facts ○ Mistake: Legal docs signed by mistake/error ○ Partly adversely affected: must show was erroneous conviction of law/fact that leads to contract  Three Big Things Students have three minutes to write down three of the biggest or most important concepts we have gone over so far in class, in the chat window. Remember the Forgetting Curve!  Elements Unique to Insurance Contracts 1) Insurable Interest Insurable interest in subject matter of insurance contract when are able to show they would suffer financially by loss: ○ a) Owners (of property) (includes business partners) ○ b) Mortgagee (financial institution/person providing loan for purchase of property) ○ c) Bailees that property is entrusted - repair/service/safekeeping (dry cleaners, television/appliance repair shops, garages) ○ d) Any held legally responsible to 3rd party for bodily injury/property damage When no insurable interest: contract isn’t enforceable Intent of law: prevent those from benefiting from loss they have no financial stake in  Elements Unique to Insurance Contracts Cont’d 2) Utmost Good Faith Before: accepted in non-insurance contracts = no duty owed to consumer/buyer of a product/service ○ Caveat emptor: let the buyer beware Today: Sale of Goods Acts require sellers tell truth about products ○ Buyers exercise care in selection ○ When buyer not satisfied with goods/services: still no obligation upon seller to make good the buyer’s claim Law requires: insurance contracts keep high standard of honesty than other contracts ○ Complete honesty of parties = critical ○ When this is breached by one party, other party may challenge enforceability of contract  Elements Unique to Insurance Contracts Cont’d 2) Utmost Good Faith The Insured Decision to issue contract = based on info in application Insurer must rely on truthfulness of insured’s statements regarding info about risk/details of previous claims/cancellations/refusals of insurance Serious Loss: often no way to decide amount/value of property lost ○ Onus is on insureds to exercise utmost good faith in insurer dealings Confusing/unclear terms/how contract is structured = insureds are at disadvantage ○ Contract from insurer = clear/unambiguous language Extend of good faith by insurer = shown at time of claim Claims = expected to be handled quickly/fairly ○ Unnecessary delays = lack of good faith of insurer  Elements Unique to Insurance Contracts Cont’d 2) Utmost Good Faith The Role of the Broker Brokers (not party to insurance contract) are intermediaries in insurance-buying process Broker: agent of the insured Broker’s duties ○ Careful/prompt attention to instructions, give advice (expert) ○ Competitive product pricing By law brokers are agent of insurer for these duties: ○ Collect premiums, passing over relevant info (from client) ○ Legal obligation: give insurer all info known to them that may influence insurer’s decision to provide insurance for clients Failing this, broker violates common law requirements (re: duties of agency)  Elements Unique to Insurance Contracts Cont’d 3) Indemnity Law restricts payment (under insurance contracts) to amounts required to indemnify losses Principle of indemnity ensures parties receive actual amount of loss ○ (no more, no less) Insureds must know: ○ There’s a time when true measure of indemnity is determined  3 Additional Elements For Contract To Be Enforceable (By Law) 3) Indemnity: measured by property’s value immediately before loss Status of Contract When Conditions Aren’t Met ○ Contract must have all elements/conditions ○ If doesn’t have all elements/is violated, contract becomes: VOID: Contract unable to support its purpose Deemed: never to have existed VOIDABLE: Contract is void to wrongdoer BUT NOT to wronged party unless he decides otherwise Ex. Contract between minor-adult, generally voidable only if minor decides so  3 Additional Elements For Contract To Be Enforceable (By Law) 3) Indemnity: Insurance Binders are Contracts of Insurance Brokers bind insurer on a risk (common): ○ Broker commits insurer to contract of insurance Insurance binders: Oral or Written ○ Oral: (BUT should confirm writing ASAP to avoid disagreement of coverages/insurance amounts in case of a loss before policy is issued ○ Written: (on “cover note” or “binder,”) forms foundation of contract until insurer prepares/distributes formal docs Insurance Binder = same rules/conditions of insurance contracts Binders must contain all policy details  3 Additional Elements For Contract To Be Enforceable (By Law) 3) Indemnity: Building a Risk - Source of Broker’s Authority Insurer’s Agency Agreement ○ Gives brokerage authority to void insurer for some risks/limits ○ Ex: Binding authority (Agency Agreement) may be dwelling and contents $500,000, Commercial building $1,000,000 Contents (Industrial plans- refer to insurer) ○ If broker exceeds binding authority limits and loss occurs, broker might receive errors/omissions claim Brokerage (not insurer) is responsible for loss  3 Additional Elements For Contract To Be Enforceable (By Law) 3) Indemnity: Building a Risk - Source of Broker’s Authority If a change in market conditions OR large loss occurs: Insurers might want to change binding authority Extent of binding authority usually in insurer’s rate manual (not Agency Agreement)  Definitions DEFN Peril: The cause of loss Some policies cover on “all risks” basis, others itemize perils insured DEFN Direct Loss: When insured’s object is attacked by insured peril DEFN Indirect Loss: Losses as consequence of direct losses ○ Ex. Food loss in freezer when electrical motor malfunctions ○ Ex. Rental income loss (apartment) after fire that totally destroys building  Types of Losses Insured Property Insurance Policies Purpose: indemnify insurers for losses that insurance object is exposed to – Responds to losses (accidental/future) – Not to respond to deliberate/past losses Insures Direct Damage ONLY – (from insured peril)  Measuring Amount of Loss Property Insurance Policies: ○ Description of methods to determine indemnity amount paid Typical Indemnity Agreement: ○ Insurer agrees: Will indemnify insured against direct loss from amount not exceeding the least OF: a) Actual Cash Value of property (at time of loss/destruction/damage) b) Insured’s interest of property c) Insurance limit provided (property lost/destroyed/damaged) ○ Amount paid by policy ○ Settlement insured is offered is based on lowest value after calculating insured loss under each of the above (a, b, c)  Analysis of Indemnity Agreement STEP 1: a) Determine ACV of property (time of loss/destruction/damage) DEFN Actual Cash Value: ○ No definition in policy ○ Basic form: New/replacement cost of property at time of loss LESS depreciation Determine new value (lost/damaged property) ○ Price quotations usually from 2-3 suppliers ○ Losses of property recently bought: Establish replacement cost via bill of sale  Analysis of Indemnity Agreement STEP 1: a) Determine ACV of property (time of loss/destruction/damage) When owning property (for period of time) insurer assumes some value is used up and settlement is based on ACV basis, depreciation of values influenced by: ○ Condition of objects at time of loss Physical condition The bigger the deterioration, the bigger the depreciation applied ○ Resale Value Property’s market/resale value aids to establish real value (may appreciate instead of depreciate) ○ Normal life expectancy Objects with longer life expectancy have lower depreciation rates (vs. objects with shorter life expectancies)  Analysis of Indemnity Agreement STEP 1: a) Determine ACV of property (time of loss/destruction/damage) Determining ACV The intrinsic value of lost/damaged property Settlement: value of property as existed, LESS other value claimed ○ Ex. Does not consider sentimental value of lost/damaged property  Analysis of Indemnity Agreement STEP 1: a) Determine ACV of property (time of loss/destruction/damage) Amending Indemnity Agreement (Replacement Cost/Valued Policies) Insureds may not be able to withstand financial hardship of large amounts of depreciation is applied to a loss Some policies reduce large depreciation: Replacement Cost Policies ○ Repair/replacement of lost/damaged property with like kind/quality without depreciation deduction  Analysis of Indemnity Agreement STEP 1: a) Determine ACV of property (time of loss/destruction/damage) Policies that reduce large depreciation burdens: Valued Policies ○ Property that is generally unable to be replaced Old jewellery, antiques, memorabilia, original artworks ○ Insured/insurer agree upon policy issuance on cash value of property ○ Some brokers say these policies violate principle of indemnity BUT courts rule otherwise Arklie v. Haskell et al: court ruled that indemnity means to restore victim of a loss (all/part) by payment/repair/replacement  Analysis of Indemnity Agreement STEP 2: b) Determination of interest of insured in property Payment (under contract) only for property insured owns/has financial interest in ○ Adjuster determines insurable interest and assigns value If property is owned by multiple people ○ Loss amount insureds are entitled to = limited to financial interest: If insured own 50% of value of object, entitled to 50% of settlement  Analysis of Indemnity Agreement STEP 3: c) Verification of limit of insurance (that policy provides) Adjuster confirms amount of insurance provided by policy for lost/damaged property When loss to building/equipment, policy might ID insurance limits for each  Analysis of Indemnity Agreement STEP 3: c) Verification of limit of insurance (that policy provides) Settlement Offer Adjuster makes offer on LEAST of: ○ a) Actual Cash Value of property (at time of loss/destruction/damage) ○ b) Insured’s interest of property ○ c) Insurance limit (for respect of property lost/destroyed/damaged) When settled this way, indemnity has been “upheld” Law requires: indemnity given to insured (sum of money/other thing of value) ○ Insurer may pay in money/other form (Ex. agreement to repair/replace lost/damaged property) Insurer has right to settle on basis of repair/replacement vs. money  Definitions DEFN Fiduciary: – Someone occupying a position of special trust/confidence in handling/supervising of affairs/funds of another DEFN Unearned Premiums: – Held in trust to refund insureds if policy is cancelled before expiration  Section 2: Gov’ts Role in Insurance Industry Regulation of Insurers The general insurance industry is supervised/regulated by federal/provincial statutes (in Canada) Intent of federal/provincial statutes: Ensure insurance companies = financially competent to discharge obligations Insurer’s obligation: ensure part of premium paid (by insured) is available (to pay claims) Insurance Acts: insurer may operate ONLY on premium earned for period coverage is provided ○ (Ex. 1/12th of premium paid by insured earned in ANY one month and remainder of premium = unearned) Contract forms are fair Necessary for business to conduct business  Role of Federal Government Federal licensing: ○ Only companies meeting financial standards from Office of Superintendent of Financial Institutions When license is granted: ○ Insurers = continuously monitored Ensuring solvency/financial stability  Role of Provincial Gov’t Superintendent of Insurance administers Insurance Act: Main Responsibilities Supervising insurance contract terms/conditions Licensing insurers, agents, brokers, adjusters ○ All insurers have to be licensed in each province that business is done in (even when have a federal license) ○ Some provinces: changes to Insurance Acts = separate Insurance Councils to license agents, brokers, adjusters Monitor solvency of provincially licensed insurers ○ Most provincial Superintendents supervise financial stability of ONLY insurance companies operating under provincial charters  Monitoring Financial Strength/Stability Process Means to audit ongoing financial strength/stability of provincial/federal licensed insurers Before granting license ○ Superintendent must be certain of company’s financial strength/stability License is granted: ○ Financial strength of insurer = monitored (ongoing) Annual reports required: ○ Company’s assets, liabilities, receipts, expenditures, loss statistics  Monitoring Financial Strength/Stability Process Superintendent’s Ongoing Audits ○ If audits show that insurer isn’t keeping up required asset amounts to pay potential future losses, operations may be suspended until problem is solved ○ In more serious situations, the superintendent might take possession/control of insurer’s assets  Insolvency - Insurance Industry Solution Before 1992 ○ Insurers had to make large deposits to federal gov’t before their federal license was granted ○ Deposits acted as a reserve (protected consumers if insurer became insolvent) ○ The Insurance Companies Act, 1992: Eliminated deposit requirements Federal gov’t returned money deposited  Insolvency - Insurance Industry Solution Property and Casualty Insurance Compensation Corporation (PACICC) ○ Administrative body ○ If there is a bankruptcy and claims can’t be paid, corporation then pays all (valid) claims ○ (Participating) insurance companies = charged assessment to cover total claims amount ○ Each insurer’s contribution Based on total direct premiums (written by PACICC) ○ Amounts claimed under PACICC MAX $250,000 for all claims (one occurrence) Refund (up to 70%) of unearned premiums ($700 max per policy)  License Authority Must have license in order to transact business BEFORE business starts No class of insurance is written that is not permitted by provincial license  Regulation of Insurance Contracts Insurer’s licensing/operation In provincial control: different between provinces, how insurers are licensed, and types of policies sold Uniformity First policies (Canadian insurers) were to insure against Fire ○ No uniformity between provinces ○ Ex. Fire policy in Newfoundland = more restrictive than BC ○ Confusion of consumers The Insurance Act in each province: ○ 1) Basic Coverages Legislated ○ 2) Standard Exclusions Legislated ○ 3) Fire Statutory Conditions Legislated ○ 4) Other Legislated Requirements  Your Assignment Basic Coverages Legislated The slides for “Basic Coverages Legislated” have been moved to the CAIB 1 Chapter 1 Insurance Graphic Organizer (IGO) which can be accessed through your student portal. You can submit your IGO activity to your facilitator or ask questions in class. For an explanation of the slide information and an answer to the activity, please check out the “IGO Answers” videos in your student portal. Please ask questions if you need to!  Standard Exclusions Legislated Two types of exclusions ○ Property Excluded ○ Losses Excluded Purpose of exclusions: ○ Exclusions remove coverage that specialized coverages cover (Ex. automobiles, aircraft, money) ○ Excludes situations that are uninsurable Paying losses might bankrupt insurers War, rebellion, revolution  Losses Excluded Under Fire Policies 1) Loss/Damage due to direct heat application ○ DIRECT heat application must be with proper care ○ Ex. Ironing clothes (fire damage if iron is too hot) 2) Loss/Damage to electrical devices/appliances due to lightning ○ Ex. TVs, kitchen ranges, refrigerators, food freezers ○ Exclusion applies to lightning damage ○ Exclusion does not apply to fire due to lightning  Losses Excluded Under Fire Policies 3) Other Electrical Currents ○ Sudden power surges/reductions may damage electrical wiring ○ Exclusion: losses from artificially generated electricity sources ○ Exclusion does not apply to loss/damage due to resulting fire 4) Contamination via Radioactive Material ○ If radioactive materials to escape, damage (contamination) isn’t insured  Losses Not Covered ○ Riot ○ Insurrection ○ Civil Commotion ○ Rebellion, Revolution ○ Invasion ○ Civil War ○ War ○ Hostilities (war declared or not) ○ Act of foreign enemy ○ Military power Insurance Policy Coverages and Exclusions Insurers CANNOT “improve” coverages (Most) policies cover ( Insurance Acts doesn’t require it) ○ Lightning damage: electrical devices/appliances ○ Riot ○ Civil commotion Some Exclusions Removed for Add’l Premium ○ Most brokers negotiate exclusion removal affecting clients’ needs ○ Not ALL exclusions can be removed  Fire Statutory Conditions Legislated Insurance Acts ensure: ○ Rules (governing rights/responsibilities of ALL parties contracting fire insurance) is a part of every contract ○ Rules MUST BE printed on EVERY policy (Statutory Conditions) ○ Applies to Accident/Sickness policies Automobile policies ○ Rules bind all parties of contract (all common law provinces) NO variations/additions to Statutory Condition  Definitions DEFN MISREPRESENTATION: ○ Description of insured property that puts insurer at a disadvantage ○ Ex. Building constructed (primarily) of wood products that is described to be of masonry construction (Wood is inferior to masonry construction) DEFN MATERIAL FACT: ○ A crucial fact used to determine: i) If policy will be issued ii) Premium amount charged iii) Conditions if policy is issued (if at all)  15 Statutory Conditions Applied To Contracts 1) Misrepresentation Applicant falsely describes property/misrepresents/fraudulently omits info to prejudice of insurer, contract is void to misrepresented object Law requires applicant give insurer a proper description of property a) False description of property ○ Law assumes insureds know construction details of property ○ “Honest mistake” doesn’t count.  15 Statutory Conditions Applied To Contracts 1) Misrepresentation b) Misrepresentation of a material fact ○ Examples of Material Facts Details for previous claims Details on previous cancellations/insurance refusals Details on existing property protection systems Law: all representations of material facts must be TRUE c) (Fraudulent) Omission of Material Fact ○ Insured fraudulently/knowingly/deliberately/intent to deceive/omit, deliberately withhold ○ Insureds may deliberately not disclose info to insurer: To get insurance coverage To get lower insurance rates  15 Statutory Conditions Applied To Contracts 1) Misrepresentation: Effect of Misrepresentation on Contract of Insurance (Usually) allegations (misrepresentation) when claim is made ○ Onus: on insurer (prove misrepresentation) ○ Insurer’s right: may void policy if: Able to show misrepresentation is DIRECTLY linked to loss ○ Ex. Insured says premises is heated (electric heat) when actually is heated by wood furnace Insurer may void policy if: fire is traceable to defective heating unit NOT VOID if: Loss caused by fire due to faulty electrical wiring  15 Statutory Conditions Applied To Contracts 2) Property of Others Insurer isn’t liable for loss/damage to property owned by anyone OTHER THAN insured UNLESS interest is outlined in contract. ○ Unless otherwise stated ○ Payment covers insured’s insurable interest in property when stated in contract  15 Statutory Conditions Applied To Contracts 3) Change of Interest Insurer: Liable for loss/damage after (authorized) assignment under Bankruptcy Act/change of title ○ (succession/operation of law/death) Parties to contract may benefit Statutory Condition exempts when property is transferred to another, rights of policy are included BUT LIMITED to transfers by: ○ (Authorized) assignment under Bankruptcy Act Bankruptcy: courts appoint trustee/receiver to dispose assets. $ from assets pay insured’s creditors Trustee/receiver don’t have to buy separate insurance policy if policy is still valid ○ Change of title (succession) Inheritance: insurer must continue coverage under existing policy  15 Statutory Conditions Applied To Contracts 3) Change of Interest Only parties to contract benefit but Statutory Condition has exceptions: When insured property = transferred to another ○ Rights of policy are included BUT LIMITED to transfers made by: Authorized assignment under Bankruptcy Act Change of title (succession) Change of title (operation of law) Insured certified as mentally unfit, courts may deem rights of ownership/control of property transferred to another If policy is in force, must respond to claims of new owner Change of title (death) New persons have same rights as previous insured  15 Statutory Conditions Applied To Contracts 3) Change of Interest Right To Claim Under Another’s Existing Contract 1. Authorized assignment under Bankruptcy Act, Change of title by succession, operation of law, or death Ex. Parties buying insured’s home/business/other (property) have to buy own insurance ○ If desired insurance is the same, insurer must consent to a transfer DEFN Material Change: Any change (in control/knowledge of insured) which: – 1. Occurs after policy is issued – 2. Increases chance of loss  15 Statutory Conditions Applied To Contracts 4) Material Change ANY change affecting risk/in control/knowledge of Insured avoids part of contract affected UNLESS: ○ Insurer/local agents are immediately notified of change (written) ○ Insurer (when notified) can return unearned part of paid premium AND cancel contract OR notifies insured (written) if wants contract to continue has to pay within 15 days (of notice) the add’l premium ○ Payment default: contract isn’t in force, insurer returns unearned portion of paid premium Courts: material change = both substantial and continuing  15 Statutory Conditions Applied To Contracts 4) Material Change Must inform insurer of ANY changes that increase risk ○ Ex. Converting private garage to auto body/upholstery shop/use dwelling for a business Reporting material change to insurer: ○ Return of unearned premium AND policy cancellation ○ Retain risk, advise insureds (writing) of add’l premium to be paid add’l premium must be paid within 15 days of receiving notice OR insurer can cancel policy and return unearned part of initial premium  15 Statutory Conditions Applied To Contracts 4) Material Change What if material changes are not reported to insurer? ○ No coverage if loss from unreported material change ○ If insured isn’t aware of change, policy MUST respond  Important Terms So Far Students take two minutes to write down one important term that has been discussed so far in the course, in the chat window. Remember the Forgetting Curve!  15 Statutory Conditions Applied To Contracts 5) Termination 1) Contract is terminated when: ○ a) Insurer gives 15 days termination notice (registered mail) OR 5 days written notice (personally given) ○ b) Insured on request (any time) 2) Insurer terminates contract when: ○ i) Insurer refund excess paid premium by insured (pro rata) for expired time Pro rata NEVER less than min retained premium (specified) ○ ii) Refund accompanies notice UNLESS premium needs adjustment/amount needs determination THEN refund is made (as soon as practicable)  15 Statutory Conditions Applied To Contracts 5) Termination 3) Insured terminates contract: ○ Insurer refunds excess premium (as practicable) insured has paid over short rate premium (for expired time) ○ Short rate premium NEVER less than MIN retained premium (specified) 4) Refund: via money, postal, express company money order/cheque (payable at par)  15 Statutory Conditions Applied To Contracts 5) Termination 5) Limit: 15 days (clause a.1) starts day after receiving registered letter at post office addressed ○ Every contract must have termination basis (Insurance Acts rules) 3 classes of insurance that Insurance Acts have control over: Fire Automobile Accident/Sickness ○ Most contracts terminate at expiry (unless continuous), OR by insurer OR by insured a) Termination by Insurer Ensures insureds have chance to replace coverage when insurer terminates during policy period ○  15 Statutory Conditions Applied To Contracts 5) Termination a) Termination by Insurer Insured entitled to: 15 days notice (registered mail) 5 days written notice (personally delivered) ○ When urgent, insurer may reduces notice period ○ Ex. Introducing material change/misrepresentation of material fact that is discovered upon inspection of premises may lead to insurer terminating contract ASAP Insurer doesn’t have to reveal cancellation reason Other insurers want to know cancellation reason/problems Previous insurer usually willing to discuss termination with other insurer  15 Statutory Conditions Applied To Contracts 5) Termination a) Termination by Insurer Procedure for refunds: when determined by INSURER i) Refund amount calculated PRO RATA BASIS: ○ Calculation: Premium paid (DIVIDED) days in policy period (MULTIPLIED BY) amount by days remaining in policy period ○ Exception: When MIN retained premium, refund amount may be less than pro rata basis. Ex. Retained premium is $250, insurer must return $845 (not $900) ii) Refund accompanies termination notice to insured ○ Refund amount MUST be with termination notice ○ If refund can’t be decided without (add’l) info, refund made “as soon as practicable” after info is provided  15 Statutory Conditions Applied To Contracts 5) Termination Procedure for refunds. When determined by INSURER ○ Brokerages usually refund to former insured Brokerage statement = credited by insurer for refund Doesn’t follow provisions of this Condition BUT courts have said: If insurer/agent establishes remitting refunds separately (but appropriate time frame) refunds don’t have to accompany termination  15 Statutory Conditions Applied To Contracts 5) Termination b) Termination by Insured Insured can terminate policy at any time (upon request) with no reason ○ Doesn’t have to be in writing ○ BUT Insurers insist on giving written notice before cancellation ○ Consent of loss payee(s) is required before insurer continues with cancellation (when applicable)  15 Statutory Conditions Applied To Contracts 5) Termination b) Termination by Insured Short Rate Basis ○ Insured terminates policy ○ Insurer may deduct admin costs because of cancellation ○ Cost of staff/computer time to change insurer’s policy files ○ Not all short rate tables (calculates short rate refund) are the same ○ EXCEPTION: Some policies = MIN retained premium (provision) Refund amount may be less than amount calculated (short rate) ○ Insureds pay large penalty if terminate policy before expiry: Be cautious when recommending cancellations  15 Statutory Conditions Applied To Contracts 5) Termination Termination of Insurance Contracts - General Conditions i) Refind given via money, postal, express company money order, cheque at par Refund MUST be in the form of money (insureds pay premiums in money, refunds should also be in money) ii) Insurer terminates policy: 15 days written notice is required and starts the day after receipt of registered letter at post office letter is addressed to Registered mail goes to post office, recorded in register, person picks up letter and signs for it If mail isn’t claimed in 15 days, notice is deemed as “given” and contract is terminated Statutory Conditions must be followed exactly otherwise no termination  15 Statutory Conditions Applied To Contracts 6) Requirements After Loss Insured must give proper documentation of ALL claims under policy 1) Covered loss/damage to insured property Insured shall: ○ a) FORTHWITH (immediately) give notice (written) to insurer Many insurers use telephone adjusting to reduce claims costs ○ b) Deliver proof of loss to insured “as soon as practicable” (statutory declaration verification) Insurer MUST give insured proof of loss FORM: formal verification (under oath) of details/amounts claimed No specified timeframe that form needs be delivered to insurer: “as soon as practicable”  15 Statutory Conditions Applied To Contracts 6) Requirements After Loss b) Deliver to insured proof of loss “as soon as practicable” Cont’d Filing (Proof of Loss): ○ Insured = charged under oath: i) Give (complete) inventory of destroyed/damaged property (quantities, costs, actual cash value, details of loss amount) ○ Insured must: itemize/valuate property claimed ii) State when/how loss occurred (fire, explosion from ignition, how insured believes fire/explosion originated)  15 Statutory Conditions Applied To Contracts 6) Requirements After Loss Filing a Proof of Loss: Onus on insured: bring claim within coverages in policy: ○ Reveal all info known relating to time/cause of loss ○ iii) State that loss didn’t occur due to wilful act/ neglect/procurement/means/connivance of insured Covers accidental losses: insureds must state they weren’t responsible (in/directly) for loss ○ iv) Show amount of other insurances/names of other insurers  15 Statutory Conditions Applied To Contracts 6) Requirements After Loss Filing a Proof of Loss: Insureds advise insurer of other policies bought to ensure each insurer shares in loss payment (prevents double coverage collection) ○ v) Shows interest/particulars of (all) liens, encumbrances/other charges on property of insured/all others Parties with financial interest in insured’s property have (by law) interest(s) protected: Parties must be ID’d, each receiving amount equivalent to extent of their interest in insured property ○ vi) Show changes in title/use/occupation/ location/possession/exposures of property (since contract issuance)  15 Statutory Conditions Applied To Contracts 6) Requirements After Loss Filing a Proof of Loss: Helps verify claimed property hasn’t had (significant) changes since start of policy ○ If new info is very different from application info, coverage may be affected Info when filing proof of loss (with insurer): Change in title: if property title has changed (sale) Change in property use: when use increases exposure beyond policy Occupancy Change: May result in loss potential increase. Ex. Building was grocery discount store but now is a restaurant/nightclub (material change) Change in location: Lost/damaged property at location not on policy Change in possession: (legal terms) persons occupy/own property have POSSESSION of property. Change in exposures: New processes may increase risk. ○ Constructing new building (adjacent) to insured’s property.  15 Statutory Conditions Applied To Contracts 6) Requirements After Loss Filing a Proof of Loss: vii) Show location of property at time of loss ○ TERRITORIAL LIMITS: Insurance policies may restrict location to insured’s premises OR extend to anywhere in the world If property isn’t at location on property, no coverage  15 Statutory Conditions Applied To Contracts 6) Requirements After Loss c) Inventory of undamaged property (qualities, cost, actual cash value) Most policies need insured a MIN percentage of INSURANCE TO VALUE ○ Ex. Property value ($100,000), min 80% insurance value ($80,000) If not followed, then penalized d) Produce books: account, warehouse receipts, stock limits, furnish invoices, other vouchers (verified by statutory declaration), PLUS copy of written part of ANY OTHER contract (if required/practicable) Insurer’s right: substantiate claim (documented evidence) ○ (accounting records, receipts, lists, invoices, vouchers) Insurer can’t enforce requirement if impracticable/unreasonable ○ Unreasonable: Expect complete list all merchandise from supplier for two years if supplier is out of business  15 Statutory Conditions Applied To Contracts 7) Fraud: DEFN FRAUD: Deliberately trying to deceive to secure profit Wilfully provide false statement on application particulars Purpose: ○ Protect insurer from paying fraudulent insurance claims Honest mistake (proof of loss) is not fraud. ○ Must prove insured is deliberately deceiving to profit from situation If fraud is proven ○ Entire claim can be denied (not just part that is fraudulent)  15 Statutory Conditions Applied To Contracts 8) Who may give notice/proof: DEFN: Loss notice/proof of loss can be made by agent of insured named in contract IF ○ Insurance is absent/unable to give notice/make proof ○ If accepted or if insured refuses to do so by person to whom part of insurance money is payable to  15 Statutory Conditions Applied To Contracts 8) Who may give notice/proof: If insured can’t provide notice/proof of loss/are absent: ○ Insurer entitled to reason and if acceptable, agents of insured may fulfill functions for insurer (extended hospitalization, prolonged absence from country) Agents: lawyers, friends, relatives Insureds deliberately causing loss ○ Filing of proof of loss = FRAUD ○ If away, criminal charges can arise Usually refuse to make claim BUT mortgagee/other party of interest = entitled to collect instances/authorized to file loss notice/proof of loss  15 Statutory Conditions Applied To Contracts 9) Salvage 1) Insured must take all (reasonable) steps to prevent (further) damage to damaged property AND prevent damage to other property (ex. removal) ○ Purpose: Avoid economic waste because loss may have been prevented through reasonable effort ○ Law requires: insureds take (all) reasonable steps to reduce/prevent loss/damage (ex. removal) If no effort to salvage, coverage may be denied ○ Insureds aren’t expected to put their/other lives in peril. 2) Insurer contributes (pro rata) to reasonable/proper expenses ○ Required (sub-paragraph (1)) ○ Reasonable costs to prevent loss is contributed to by insurer (pro rata)  15 Statutory Conditions Applied To Contracts 10) Entry/Control/Abandonment After loss/damage Insurer has (immediate) right to access/enter (accredited agents) property to survey/examine property/estimate loss/damage, AND (after secured) right to access/enter for appraisement/estimate of loss/damage ○ Insurer can’t control/possession of insured property ○ Without insurer’s consent = no abandonment to it of insured property Insurer cannot determine loss amount if reps can’t gain access to loss site Law says insurer will have: ○ a) Right of access/entry (immediate) ○ b) Continued right of access/entry after insured has secured property Insurer doesn’t have ownership/control over un/damaged property until loss settlement = complete ○ Insureds can’t abandon property UNLESS insurer consents to control  15 Statutory Conditions Applied To Contracts 11) Disagreement of value of: insured property/property saved/loss amount: Solved via appraisal (under Insurance Act) ○ Before recovery under contract (regardless of right to recover) ○ Independently of other questions No right to appraisal ○ Until demand is made (written ○ AND after loss proof is=delivered Insured/insurer can ask for a third opinion (appraisal) ○ Appraisal application must be in writing  15 Statutory Conditions Applied To Contracts 11) Disagreement of value of: insured property/property saved/loss amount cont’d Putting the Appraisal Process to Work (rules in Insurance Acts of provinces) Step 1: Insured must file proof of loss with insurer ○ Claim a (specified) amount for insured property Step 2: If no settlement (basis of proof of loss), insured can submit (written) appraisal application to seek a 2nd opinion on property value Step 3: Insurer/insured each selects an appraisal to represent their interest, then appraisals choose an umpire (agreed upon) Step 4: Appraisers can’t determine property value, decision given to umpire. ○ Findings of any two (two appraisers/umpire) determines property value) Step 5: Each party must pay appraiser appointed ○ Each party pays equally: expense of appraisal/umpire ○ Appraisal process is not connected to determining coverage only to establish value of insured property  15 Statutory Conditions Applied To Contracts 11) Disagreement of value of: insured property/property saved/loss amount cont’d Putting the Appraisal Process to Work (rules in Insurance Acts of provinces) Insured/insurer may request courts to intervene/appoint appraiser/umpire: ○ a) Party cannot appoint appraiser in 7 days after served with notice ○ b) Appraisers can’t agree on an umpire (15 days after appointment) ○ c) Appraiser OR umpire refuses to/cannot act/dies Ensures insurer doesn’t delay settling  15 Statutory Conditions Applied To Contracts 12) When Loss is Payable: Within 60 days completing proof of loss (Unless contract needs shorter period) Most policies: insurer settles all insured losses (60 days after proof of loss (Most) Brokers have current file (all client’s claims) checked regularly ○ Ensures progress Proof of loss must be filed with insurer before settlement Once settled: claim must be paid in 60 days (unless indicated otherwise) When claims are unsettled ○ Possible problem: insured may fail to file proof of loss with insurer  15 Statutory Conditions Applied To Contracts 13) Replacement 1) Insurer can choose to repair/rebuild/replace damaged/lost property/give(written) notice of intention (30 days of receiving proof(s)) instead of paying ○ Insurer can ALWAYS settle on repair/replacement basis vs. paying money ○ Must decide in (reasonable) timeframe after proof of loss is filed If choose repair/rebuild/replace damaged property, insurer must tell insured (written) within 30 days after receiving proof of loss ○ If insurer misses deadline, insured assume claim is a cash settlement 2) Insurer starts repair/rebuild/replace property within 45 days (after proof of loss), continues (due diligence) until complete ○ Protects from delays in property  15 Statutory Conditions Applied To Contracts 14) Action: Purpose: time limit for insureds to take legal action ○ Action/proceeding must start within one year after loss/damage ○ STATUTE BARRED: Insured brings action against insurer AFTER deadline *2 years in Manitoba, Yukon, Saskatchewan - SK Limited Act Every action/proceeding against insurer (claim recovery) under contract = barred UNLESS started within 1 year Insurance Acts usually prohibit legal action until 60 days after proof of loss is filed ○ OR shorter periods if contract specifies  15 Statutory Conditions Applied To Contracts 15) Notice ANY written notice to insurer: delivered/sent by mail to chief agency/head office of insurer in province ○ Given personally to insured OR registered mail addressed to insured at last known address ○ DEFN REGISTERED: Registered in/outside of Canada  15 Statutory Conditions Applied To Contracts 15) Notice Notice by Insured to Insurer ○ Insureds can deal with brokers (policy changes) by can decide to work directly with insurer ○ All letters MUST be sent registered mail/delivered to chief agency/head office in province ○ Notices sent by insureds: Notice of policy termination Appraisal request Legal action against insurer notice  15 Statutory Conditions Applied To Contracts 15) Notice Notice by Insurer to Insured ○ Proper Notice: Personally delivered OR by registered mail, addressed to him, at latest post office address given to insurer If insureds move during policy period and don’t inform insurer of new address = insured’s fault ○ Situations: Termination of Policy Notice Option to Exercise Replacement Notice Settlement of Claim cheque when payment isn’t given through brokerage Apply Statutory Conditions To All Coverages Purpose of Statutory Conditions: ○ Contracts fire insurance ○ Fire insurance conditions can be applied to other insured perils Law doesn’t require conditions be applied to other perils ○ Apply as POLICY CONDITIONS only Insurers can impose own conditions ○ Statutory Conditions require insureds do/not do something  Additional Conditions Addresses what isn’t addressed by Statutory Conditions (fire) ○ Clarify policy intent, impose responsibilities/restrictions on insured 1) Notice to Authorities ○ Loss from malicious acts/theft/burglary/robbery/attempt thereat/suspected Insured immediately notifies police/authorities with jurisdiction ○ Cause of loss: Criminal acts: insured must immediately notify policy/other This gives better chance to recover stolen items/reduce claim amount  Additional Conditions 2) Sue and Labour Insured’s duty: if property is lost: must take steps to recovery property ○ Insurer contributes (pro rata) to reasonable/proper expenses INSUREDS: take (reasonable) steps to recover property INSURERS: contributes pro rata to reasonable/proper expenses 3) No Benefit to Bailee Warranted by insured: insurance won’t insure in/directly to benefit of carrier/other bailee Insurance won’t protect (insurable interest) of carrier/bailee with custody of insured property ○ Insurer may recover payments from parties (carrier/bailee) when are responsible for loss  Additional Conditions 4) Pair and Set Loss/damage to article(s) un/scheduled, part of a set: ○ Measure of loss/damage = reasonable/fair part of total value of set ○ Loss/damage doesn’t mean total loss of set (item not lost still has value) ○ Ex: jewellery (earrings/rings), matching lamps, household furnishings 5) Parts Loss/damage to part of insured property un/scheduled, several parts ○ Insurer ISN’T liable for more than insured value of PART (incl. installation cost) and will pay to replace lost/damaged PART only Ex. damaged carpeting in dwelling doesn’t entitle replacement in living/dining room areas if no damage there Applies regardless if is a perfect match or not  Other Legal Requirements 1) Contents of Insurance Policies Legislated: 6 items on every policy a) Parties to the Contract Contract without names of parties (ID) cannot be enforced Required: Names of insurer/ed b) Policy Period Dates insurance policy starts/expires Policy starts at 12:01am standard time at address of Named Insured (on policy) (under Insurance acts) and expires SAME TIME after term  Other Legislated Requirements 1) Contents of Insurance Policies Legislated: 6 items on every policy c) Loss Payable or Payee (If any) Law: policy provides enough space to ID all payable parties Failure to include payee in settlement, might lead to insurer paying twice If Loss Payable/Payee is on application THEN Standard Mortgage Clause (IBC 3000) To Protect Interests of Mortgages is attached to policy Purpose: protect insurable interest of mortgages of property Protects interests of mortgagees more than insured. Ex. Insured is denied coverage from breach of policy condition, insurer agrees: To give payment to mortgagee AND NOT alter policy to prejudice of mortgagee OR termine without giving same notice as required by Statutory Conditions  Other Legislated Requirements 1) Contents of Insurance Policies Legislated: 6 items on every policy d) Type(s) of Insurance Coverage(s)/Amount(s) Insurer is Liable Policy must ID coverages and amounts for EACH insurance item e) Rate/Premium Charged Insurer must ID: ○ Premium charged ○ Method/rate used to determine amount PRACTICE: some insurers ID only amount (total) premium policy needs ○ Doesn’t support legislation ○ Legislation isn’t enforced (much) f) Subject Matter of Insurance Insurance subject matter description must be in policy and ID: ○ 1. Insured items ○ 2. Location(s) of items insured “Declarations pages,” “Coverage Summary,” all info on one page  Other Legislated Requirements 2) Removal Coverage Legislated If ANY property is removed from locations on policy to prevent further loss THEN that part of insurance exceeding amount of Insurer’s liability for ANY loss already incurred WILL INSURE ○ (7 days only OR for unexpired policy term if less than 7 days) ○ Property removed/any property in locations in proportions that value of property in each location bears to property value Policies mostly restrict coverage on property to locations on policy ○ The Insurance Acts: every fire policy extends/covers property WHEN MOVED to location not on policy Why? If property is removed thus reducing loss, public interest is served  Other Legislated Requirements 2) Removal Coverage Legislated: Removal Clause Conditions: a) Law: Insurers respond ONLY if “insured property is NECESSARILY removed...to prevent loss/further loss” Before insurer pays property loss at unnamed location ○ MUST SHOW: Property moved because was in danger. EX. Property saved during fire on premises is insured at unnamed location ○ Insurer doesn’t cover property stored a different location because no room at named locations b) Amount for any property loss (at unnamed location) is reduced by amount paid for loss at named location ○ Ex. Insurance amount at named location ($100,000) Property loss amount at named location ($85,000) Amount remaining to pay losses (unnamed location) ($15,000)  Other Legislated Requirements 2) Removal Coverage Legislated: Removal Clause Conditions: c) Insurer must cover unnamed locations for MIN 7 days/or unexpired policy term (if less than 7 days) If need coverage beyond 7 days, insurer must be advised to make sure coverage is continued at unnamed location Law applies only to fire IN PRACTICE, insurers agree to follow rule for all other insured perils  Other Legislated Requirements 3) Limitation of Liability Clauses - Usage Legislated Most property insurance policies limit loss payment to amount LESS than what insured has bought ○ Policy clauses provide incomplete indemnity Insurance Acts require: insurance contracts with clauses allowing insurer to pay amount LESS than what was purchased, will have printed/stamped face sheet (red ink): ○ “This policy contains a clause that may limit amount payable” Unless printed/stamped on Declarations page, clause WILL NOT be binding (to insured) DEFN Deductible: ○ Amount insured absorbs for each loss covered before receiving payment from insurer  Other Legislated Requirements 3) Limitation of Liability Clauses - Usage Legislated: Limiting Clauses: a) Deductible Clause: No one (standard) deductible clause Each policy must clearly outline of how deductibles are applied in a loss OCCURRENCE BASIS DEDUCTIBLE (most common) ○ ONE deductible to total for loss/damage (single occurrence) Separate item deductible clause ○ Applies deductible to each property class lost/damaged by peril ○ Ex. Loss concerning insured’s dwelling building/personal property, deductible is applied twice (once to each property class) Function of Deductible Clauses ○ Protect from economic hardship if a large financial loss (not maintain small losses) because is costly to administer claims ○ If insurers paid all losses (minor/major), premiums would be high  Other Legislated Requirements 3) Limitation of Liability Clauses - Usage Legislated: Limiting Clauses: a) Deductible Clause Cont’d Function of Deductible Clauses ○ By insureds accepting partial responsibility of loss, rates/premiums are reduced ○ Discounts applicable when deductible increases above standard ○ Insureds should choose deductibles they can afford: Consider financial impact if more than one loss in policy period  Other Legislated Requirements 3) Limitation of Liability Clauses - Usage Legislated: Limiting Clauses: b) Co-Insurance Clause Insurer needs insured to buy MIN insurance equivalent to (predetermined) percentage of value (80-90%) when insuring commercial/farming property If insurance is less than 80-90%, insured shares in future losses: ○ Formula to determine loss that insured pays is in co-insurance clause The Co-Insurance Clause Explained ○ People under-insure to reduce premiums OR carelessly estimate values ○ Ex. Farm client tells broker to buy $250,000 on farm buildings with actual cash value of $500,000. THIS IS INADEQUATE, insureds expect partial losses are paid according to how much is bought  Other Legislated Requirements 3) Limitation of Liability Clauses - Usage Legislated: Limiting Clauses: b) Co-Insurance Clause i) Total Losses ○ Isn’t for total loss: If amount purchased is LESS than property value, insured = entitled to amount bought ii) Partial Loss ○ Co-insurance clause applies ○ If MIN insurance is not purchased, payment amount after loss is less than what is bought  Other Legislated Requirements 3) Limitation of Liability Clauses - Usage Legislated: Limiting Clauses: b) Co-Insurance Clause Co-Insurance Penalty: Difference of amount purchased vs. paid for loss ○ Not logical pay 100% loss if amount is less than total property value ○ Unfair for insureds buying required amounts Partial Loss Formula Determining Penalty Amount ○ Did/Should x Loss = Settlement ○ DID: insurance purchased ○ SHOULD: Co-insurance % required x value of insured property EXAMPLE: p. 1-32 If total loss to property (single occurrence), insured should insure 100% of all values (co-insurance percentage can be 80-90%, or 100%)  Other Legislated Requirements 4) Right of Subrogation Legislated DEFN subrogation: ○ To put “into another’s shoes.” Insurance Acts allows right to recover amount of loss from those responsible Law: parties suffering loss (wrongful acts of others) can recover from those responsible) BUT legal action may take months/years. ○ Meanwhile, wronged parties don’t have use of owned property Insurers agree: ○ Let property owners claim loss amount under own insurance policy ○ Only insured may start legal action against responsible parties Insurer has insured’s right to recover  Other Legislated Requirements 5) Waiver of Term or Condition Insurance Acts: No contract’s term/condition is waived by insurer unless ○ waiver is in writing/signed by person authorized (by insurer) Broker can’t change term/condition in contract ○ Changes done only by someone authorized by insurer ○ Changes to policy must be written Insurance company underwriters = authority to change term/condition(s) ○ THUS accepting/rejecting risks (on insurer’s behalf)  Other Legislated Requirements 6) Effect of Delivery of Policy Insurance Acts says when policies are delivered (not paid for) will bind insurer as if premium is paid ○ (all claims will be paid no matter if premium paid yet or not) Contract terms: insured’s premise to pay premium keeps policy going Typical Insuring Agreement: ○ “In consideration of insured having paid/agreed to pay insurer premium stipulated…” ○ After policy is delivered (to insured), premium not paid, broker asks insurer to terminate policy (due to non-payment of premium) Insured must get same notice (Statutory Condition 5 Termination)  Section 3: Distribution of Insurance Two Major Types of Insurers 1) Private Insurers (Proprietary or Non-proprietary) Most insurance businesses in Canada = private insurers Proprietary Insurers (make a profit) ○ Incorporated or UNincorporated ○ Most insurance written by incorporated proprietary insurers Joint stock companies owned by shareholders Stock traded on stock market (usually) ○ Unincorporated Lloyds of London Underwriters = personally responsible for insurance losses they have underwritten  Two Major Types of Insurers Two Major Types of Insurers 1) Private Insurers (Proprietary or Non-proprietary) ○ Non-Proprietary Insurers ○ Ex. Mutuals, reciprocal exchanges, miscellaneous co-operative ○ Three characteristics of Non-Proprietary Insurers Exist for other than profit Owned/controlled by policyholders (work together to get insurance at as low a price as possible) No stock/share capital ○ Mutual insurance companies (common) Every insured pays annual premium (pooled together) and losses are paid by pool. If insufficient funds, each member pays add’l amount/assessment If profitable: insurer may pay policyholders dividend  Two Major Types of Insurers Two Major Types of Insurers 2) Government Insurers Some provinces: ○ (Saskatchewan/Manitoba) parties may insure personal/business property with government insurer ○ Municipal/provincial gov’ts are involved when insuring farm crops Saskat, Manitoba, BC, Quebec = compulsory auto insurance plans  Two Types of Distribution Systems Two common distribution systems that insurers use (in Canada) 1) Independent Agency/Brokerage System ○ 7,000+ independent agency/brokerages in Canada (33,000 people) 80%+ of ALL property/casualty insurance sold like this Independent agency/brokerage system deliver competitive products/pricing/ongoing policyholder service ○ Insurers distributing products enter into Agency Agreement with owners ○ Owners have right to have many insurers ○ Multiple products allow consumers to make informed coverage decisions ○ Gives businesses competitive products (owners pay business expenses) Agency/Brokerage is paid on ALL business that is written, earnings determined via getting new clients/retaining/servicing current clients Commissions pay salaries, rent, postage, operational expenses Same commission for both new/renewal (usually)  Features of Agency/Brokerage System Two common distribution systems that insurers use (in Canada) 1) Independent Agency/Brokerage System ○ Owning the business produced If insurer’s relationship = dissolved, files are firm’s property BUT can switch business to other insurers Files have value and factor into firm’s selling price Chance to own all business produced by files = incentive ○ More responsibility for client services Reps authorized to quote premiums/issue policies for some business Some firms get authority to deal with small property claims  Features of Agency/Brokerage System Two common distribution systems that insurers use (in Canada) 2) Direct Writing System Independent agency system: outgrowth of direct writing system Features: Producers = employees of insurer ○ Producers can ONLY sell products provided by employer ○ Agents can become proficient in products sold, BUT don’t usually give a range of products necessary to meet all of client’s insurance needs Features: Remuneration: salary OR commission OR salary/bonus ○ Commissions: when paid = higher in first year than after ○ Reduction keeps agents motivated to develop new business Insurer owns all written business Admin (insurer): providing admin duty relief may increase business (sales)  Features of Agency/Brokerage System Two common distribution systems that insurers use (in Canada) 2) Direct Writing System ○ Direct Writers Co-operators General Insurance Company Federated Insurance Company of Canada Prudential of American General Insurance Co. (Canada) State Farm Features of Agency/Brokerage System  Important Insurer Associations/Organizers Brokers rely on National/provincial brokers’ associations: represent broker/their interests/keep them current - issues/concerns Industry associations/organizations - for other services 1) Insurance Bureau of Canada (IBC): Voluntary Org. 100 company groups, Writes (approx) 85% of general insurance Collects insurance stats, gives actuarial analysis (to members) drafts policy forms, manages inter-company agreements (claims/settlements), monitors legislation/works with gov’t (develop insurance legislation) Major Function: Consumer Info ○ Provides FACTS (annual state of insurance industry in Canada) report, films, videos, audiovisual materials, promote loss prevention, operates consumer phone-in service (in offices across Canada)  Important Insurer Associations/Organizers 2) Insurer’s Advisory Organization (1989) Inc. (IAO) Provides risk inspection/advisory rating to insurers Leading loss control firms ○ Each year inspects 1,000’s commercial/industrial/institutional buildings for fire safety/security standards Has a loss control school ○ (insurance/fire department personnel)  Important Insurer Associations/Organizers 3) Insurance Crime Prevention Bureau (ICPB) - Not for profit Helps authorities to detect/investigate/prosecute insurance crimes Branches for investigation of suspected insurance crimes a) Fire Underwriters’ Investigation Bureau (FUIB): Fire/other property loss crimes Adjusters must submit all reports for losses $3,000+ (copies) b) Canadian Automobile Theft Bureau (all provinces w/ private auto insurers) Focus: operation of criminal rings (theft of motor vehicles) Investigates suspicious thefts/auto fires (individual), ID stolen vehicles If vehicle isn’t recovered in 48 hours, AND all salvage sales of current/four preceding model years MUST be reported to Bureau Operates Casualty Claim Index Bureau: records names of those presenting claims for bodily injury under auto policy if period of claim 4+ weeks  One-Minute Review Students have two minutes to write a One-Minute Review (1-3 sentences) of the most important thing you learned about today, in the chat window. 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