C11 Principles & Practice of Insurance

C12 Insurance on Property Study 1The Influence of LegislationIntroductionProvincial LegislationThe laws of each province govern insurance contracts within the boundaries of that provinceInsurance Act in common law provincesBook 5 of the Civil Code of Quebec2Common Law Provinces and TerritoriesInsurance ActGoverns insurers and contracts for all classes of insuranceFire Insurance applies to insurance against loss of or damage to property arising for the peril of fire in any contract made in the provinceParts of the Insurance Act that concern fire insurance also apply to property insurance contracts3Provisions Governing All Insurance ContractsProperty is in the province or an insurable interest of a resident of the provinceConstrued according to the law in the Province if:Signed, countersigned, issued or delivered in the provinceCommitted to the post officeOr to any carrier, agent or messengerTo be delivered or handed over to the insured or insureds agent in the province Money payable at the office of the insurers chief officer or agent in the province4Provisions Governing All Insurance ContractsUpon request, the insurer must furnish the insured with the original applicationNo insurer can write a policy that is conflicting with the Insurance Act of that provinceIE: Fire only, no explosionImperfect Compliance by InsurerAn act or omission of the insurer in breach of any provision of the Insurance Act, does not render the contract invalid5Provisions Governing All Insurance ContractsEvery policy must contain:Name of insurerName of insuredName of any person to whom insurance money is payableThe amount, or method of determining a premiumThe subject matter of insuranceIndemnity for which the insurer may become liableEvent on the happening of which liability is to increaseEffective dateExpiry date

6Provisions Governing All Insurance ContractsProvisions for AppraisalEach party appoint an appraiser and the two appraisers appoint an umpireThe appraisers determine the matter of disagreement and if they fail to agree, submit their difference to the umpireAgreement of any two parties, determines the matterEach party pays for their own appraiser and the expense of the umpire are divided equally7Provisions Governing All Insurance ContractsA judge may appoint an appraiser or an umpire if:A party fails to appoint an appraiser within seven daysThe appraisers fail to agree upon an umpire within 15 daysAn appraiser or umpire fail to act or become incapable of acting or dies

8Provisions Governing All Insurance ContractsWaiver of Contract TermsNo contract terms can be waived unless the waiver is stated in writing and signed by someone of authority to do soNon-waiver: Neither party have deemed to waive any terms of the contract by: An act relating to appraisalDelivery and completion of proofsInvestigation or adjustment of the claim9Provisions Governing All Insurance ContractsNon-payment of PremiumShould a loss occur, the insurer can sue for the unpaid premium or deduct it from the loss settlementNSF Cheque: The insurer must terminate policy as per Statutory Condition #5 (Discussed later)Proof of Loss FormsThe insurer must furnish forms:Immediately upon requestAnd in any event not more than 60 days after the notice of loss10Provisions Governing All Insurance ContractsWhen Action May Be Brought Under ContractNo action before 60 days after proof of loss or the happening of the lossShould an insurer not provide a proof of loss form as previously noted, the insurer loses this protection

Insurance as Collateral Security for a MortgageNo commission or other benefit for mortgagee to arrange insurance11Provisions Governing Fire InsuranceFire = actual ignition or visible flameLoss against fire excludes:Goods undergoing the application of heatRiot, civil commotion, war, invasion, act of foreign enemy, hostilities, civil war, rebellion, revolution, insurrection, or military powerLightning excluding destruction of or loss to electrical devices or appliances or other electrical currents unless fire originates. Then only for loss that occurs from fire12Provisions Governing Fire InsuranceExplosion caused by natural, coal or manufactured gas not forming part of a gas works. Excludes explosions caused by riot, civil commotion or other listed fire perilsRadioactive contamination directly or indirectly resulting from fire, lightning or explosion

A licence to transact fire insurance policies also allows insurer to insure the same property against loss from other named perils.13Provisions Governing Fire InsuranceRemoval of Insured PropertyInsurance Act extend coverage to insured property removed to prevent further loss for seven days or until the policy expires, whichever is lessInsured is responsible to minimize lossAmount of insurance remains unchangedRemaining amount is limited to the difference between the stated amount of insurance less the actual loss suffered14Provisions Governing Fire InsuranceDistribution is the splitting of a single amount of insurance to apply to property in more than one locationTwo conditions:The insurer agrees to pay a claim and the amount of insurance is reduced accordinglyIf the amount of loss is equal to or greater than the amount of insurance, the full amount is payable15Provisions Governing Fire InsuranceIf the value of insured property is greater than the amount of insured, the insured is underinsuredNo payment beyond the amount of insuranceWhen the property is spread amongst multiple locations, the insurance must be split proportionately

16Provisions Governing Fire InsuranceWritten ApplicationsWritten applications reduce misunderstandingOnus upon insurer to properly review applicationAn issued policy is deemed to reflect the application unless differences are notedCustom applications make it easier for insured to see what options are offered by an insurer and for the insurer to easily see variation in coveragesIf insurer issues policy of different terms than requested, the insured has two weeks to accept or reject

17Provisions Governing Fire InsuranceWritten ApplicationsRejection of the policy renders it void from the beginning

18Provisions Governing Fire InsuranceProtection for Loss PayeesThe insurer can not cancel or alter the policy without notifying any person to whom insurance money is payableFailure to provide notice could result in the insurer becoming liable up to the amount of insuranceInsurer must give notice of cancellation to a payee in the same manner as required for the insured under Stat #5 and Stat #15

19Provisions for Fire Insurance ContractsLimitation of Liability ClauseA contract with any clause that limits recovery (coinsurance, deductible, etc.) must have printed on it, This policy contains a clause that may limit the amount payable. This may be in black or red, depending on the province20Provisions for Fire Insurance ContractsRateable ContributionUsed when more than one policy covers the same interest at the time of lossEach insurer pays a rateable portion of the loss based on the amounts of insurance on each policy and what portion that amount is of the total of all insurance limitsIf two policies cover the same interest but one of them specifically insures the property, that policy will pay first, up to its limit, and the second policy will only pay any excess amount required over the first policys limitsWhere there are deductibles, the insurers share of the loss is determined before the deductible is applied21Provisions for Fire Insurance ContractsRateable Contribution ExampleInsurer A - $20,000 LimitInsurer B $35,0000 LimitLoss - $3,500

Formula:Individual Insurer Limit (x) Amount of the lossCombined limits of all insurers 22Provisions for Fire Insurance ContractsRateable Contribution ExampleInsurer A: $20,000 / $20,000 + $35,000 (x) $3,500 = $1,272.72Insurer B: $35,000 / $20,000 + $35,000 (x) $3,500 = $2,227.2723Statutory ConditionsApply to ALL Fire insurance policiesMust be printed in every policyVariations not binding on insuredBinding on both parties24Statutory ConditionsMisrepresentationThis condition states that the insured cannot omit or misrepresent a material fact while making application for insurance. If a material fact is misrepresented, the contract will be void as to the property that is affected by the misrepresentation. Note that this condition pertains only to the application. Changes in the risk that occur after the policy is issued and misrepresentations made during a claim are covered in conditions four and seven, respectively.25Statutory ConditionsProperty of OthersCondition does not define the word "owned" Insurer is only liable for property owned by the insured Policy will insure interests in property of persons other than insured if those interests are stated in the contract26Statutory ConditionsChange of InterestThis deals with the types of change of interest that may be allowed under the policy Allowable changes, keeping the coverage in effect are: Under Bankruptcy Act; Succession; Operation of Law Death of the insured 27Statutory ConditionsMaterial ChangeThe insured must tell the insurance company of anything material that changes during the policy term.

28Statutory ConditionsTerminationThis condition states the methods that the insurance company or the insured may cancel the contract. The insured may cancel anytime with simple notice. The insurance company will then refund any unused premium by the "short rate" method. (Short rate = pro rata plus surcharge). The insurance company can cancel the policy by written notice by registered letter or hand delivered refunding unused premium by the pro rata method. (pro rata = in proportion). Termination is effective 15 days if by registered mail and period starts to count the day after the letter arrives at the receiving post office. If the letter is hand delivered, the period is five days from the date it is delivered.29Statutory ConditionsRequirements After LossThis lays out all insureds requirements after a loss. This includes: Notice in writing giving an inventory of damaged goods Describing how the loss occurred and that it wasn't on purpose Give the names of any other insurance Naming any other interest (liens, partners) in the property Give details of any material changes Describe where the property was at the time of the damage If required give a complete inventory of undamaged goods If requested provide books of account and other pertinent property. 30Statutory ConditionsFraudDenies recovery to an insured whose statutory declaration is fraud or wilfully false.A false statement is not fraud if it was believed to be true.If fraud is proven regarding only part of a given claim, the entire claim may be denied. When there is more than one named insured a fraudulent claim by one may be denied but the legitimate claim submitted by others would be paid. Onus is on insurer to prove fraud.31Statutory ConditionsWho May Give Notice and ProofThe insured; An agent of the insured (if the insured is incapacitated); or If the insured refuses, anyone who is entitled to payment under the policy. 32Statutory ConditionsSalvageThe insured must take steps to protect undamaged property. The cost of protecting the damage will be proportionately borne by the insurance company but the insured is responsible to ensure that these steps are taken immediately after a loss.33Statutory ConditionsEntry, Control, AbandonmentThis condition covers three areas of responsibility after a loss. The insurance company has the right to enter the property immediately after a loss to survey the damage and again after the property has been secured to appraise the damage. The insurance company never has the right to control or take possession of the property as ownership still rests with the insured. The insured does not have the right to abandon the property to the insurance company and so is still responsible for its safekeeping.34Statutory ConditionsAppraisalThis allows for arbitration if the insurance company and the insured can't agree on the amount of the loss. The details of how this arbitration process works is in the Act.35Statutory ConditionsWhen Loss PayableLoss is payable 60 after receipt of proof of loss. This may be shortened by the insurer but not made longer.36Statutory ConditionsReplacementThe insurance company has the right to choose the method of compensating the insured after a loss (rebuild, replace or repair). The time requirement for resolving losses, other than by cash, is stated in this condition. Within 30 days of the notice of loss, the insurer must give notice of their chosen method of compensation. If repair, replacement or rebuilding is chosen, the work must start no later than 45 days after the notice of loss.37Statutory ConditionsActionAny suit or action against the insurer prescribes (runs out) in 1 year from the date of loss. 38Statutory ConditionsNoticeThis is the method that notice may be delivered by the insured or the insurer. 39