C12 Study 1 Introduction to Property Insurance NOTES
Key Terms
property insurance: First-party insurance that ● When buyers obtain insurance, they are called insureds or
policyholders
indemnifies the owner or user of property for its loss, ● Companies that sell insurance, referred to as insurance
or the loss of its income-producing ability, when the companies or insurers
● Consideration paid by insureds or policyholders is known
loss or damage is caused by a covered peril, such as as premium ( pooling of premium collected from all their
insureds that allows insurers to pay for losses suffered by a
fire or explosion. few of those insureds)
● Insurance is intangible (it is a promise, that is to say, the
Insurable interest: An interest that the insured must insured promises to pay a premium in exchange for the
insurer’s promise to assume the insured’s risk of loss)
have in the subject matter of the insurance purchased ● The compensation offered by the policy of insurance is the
so that if the event insured against occurs, the insured indemnity
● The objective of the contract is to return the insured, as nearly
will suffer an economic loss. as possible, to the financial position they were in immediately
prior to the loss
Indemnity: A contract, expressed or implied, to repay ● Some clauses, for example, Guaranteed Replacement Cost
clause, may enhance the insured financially
in the event of a loss. The insured neither gains nor ● Insurance accounts for 38.5% of insurer’s direct written
loses. [insured shall not receive more than the premiums through the first three quarters of 2022
actual loss suffered ● Provides a source of revenue and helps to spread risk
among a large pool of policyholders which allows insurance
The object of the contract is to return the insured, as companies to pay claims in the event of losses, such as natural
disasters, fires, and theft
nearly as possible, to the financial position he or she ● Plays a vital role in the larger economy by providing
enjoyed immediately prior to a loss – no more, no financial protection for individuals and businesses against
less. The loss must be fortuitous (a chance event) as the impact of unexpected losses which helps to reduce the
financial burden on individuals and businesses,
far as the insured is concerned] allowing them to recover from losses more quickly and get back
to normal operations
The availability of property insurance encourages
Contract: An agreement or promise between two or ●
investment in property and can boost economic
more parties that is intended to be legally enforceable growth
and is constituted by the acceptance by one party of ● Insurance Contract: An agreement between legally
capable parties for a consideration demonstrating
an offer made by another party, to do or to abstain intent to do something that is legal
from doing a specific act. The offer and acceptance ● There are THREE unique elements to an insurance
contract: Insurable Interest, Indemnity, Utmost
may either be expressed or be inferred through the Good Faith
conduct of the parties. ● The insurance policy formalizes the agreement between the
Insurer and the Insured and contains terms, clauses,
stipulations, and requirements that form the key elements of
contract (Quebec): An agreement of wills by which the agreement
one or several persons obligate themselves to one or
The terms of the policy state what the insurer promises to do
several other persons to perform a prestation (that is, and what coverage it will provide under what circumstances
a duty, a payment, or a service). and what the insured promises to do and what coverage he/she
will receive under what circumstances
uberrimae fidei: Of the utmost good faith. The basis The insurer issues the policy, collects the premium, and pays
of all insurance and reinsurance contracts. Both out claims that are covered under the terms and conditions of
the policy
parties to the contract are bound to exercise good
,faith and do so by a full disclosure of all information To trigger coverage, an Insured must demonstrate that the loss
material to the proposed contract. or damage occurred during the policy term (usually policies are
issued for a one-year term)
peril:The event that caused a loss covered by the The insurance policy is the document that makes tangible the
policy; for example, fire, windstorm. intent of both parties to the contract is the policy is the
evidence that the contract exists
● Types of Insurance (the two basic types)
Deductible: An agreed specified amount that the Personal Insurance Commercial Insurance
insured must pay on a claim before the insurance -dwelling building -Building
-detached private structures -Stock
company will cover the rest of the claim. This amount -personal property -Equipment
is agreed upon by both the insurer and the insured. -homeowners, tenants, -Contents
condo unit owner
[A deductible clause or a coinsurance, average, or similar clause, or a
Specialty Note:
clause, conditional or unconditional, that limits recovery by the insured Insurance/Coverages
to a specified percentage of the value of property insured at the time of -Crop The two types are NOT
loss – all such clauses limit the amount payable in the event of loss -Aviation observed in either the Civil
-Cargo Code of Quebec or the
The Insurance Acts require that a policy with such a clause be marked -Marine Insurance Acts
to that effect -Builder’s Risk (Course of
Insurers do distinguish
Construction)
the two types of
Provincial requirements for showing the statement, “This policy contains -Earthquake
property insurance in
a clause that may limit the amount payable” or the French equivalent -Equipment Breakdown
practice
stamped or printed across the policy face in red or bold black] -Flood
fire insurance: Coverage for losses from fire, ● Personal Lines (habitational) policies include homeowners'
lightning, and limited explosion and also the resultant policies that cover damage to or destruction of the insured’s
damage caused by smoke and water. Usually dwelling, detached private structures (outbuildings), and
personal property (contents), tenants and condominium unit
supplemented by extended coverage insurance. owners
● Commercial insurance policies cover property used for
Exclusion: Risks, perils, or properties defined in the commercial purposes, such as buildings, stock, and equipment
● Other categories of property used for commercial purposes
policy as not covered. may also be covered under a commercial property policy
● Specialty Insurance (ABCFEEM)
Flashpoint: The lowest temperature at which a liquid
gives off sufficient vapours to form an ignitable AVIATION (A) BUILDINGS (B)
Provide insurance for
mixture with the air. Provide insurance coverage physical loss or damage to
on the actual airplanes property while it is in the
themselves and the course of construction. The
statutory conditions: Special prescribed and buildings, equipment and coverage applies to material,
fixtures, and equipment
standardized conditions that the provincial and material relating to airport
used in the construction or
operations
territorial insurance acts require to be included in renovation of a building or
structure. The coverage
insurance policies. applies when the physical
loss or damage occurs as a
result of an insured cause of
[Apply to ALL fire insurance contracts (except Quebec)
loss (a peril)
Insurance Acts states that no variation or omission of or addition to
any Statutory Condition is binding on the Insured
,Statutory Conditions bind the Insurer and the Insured, establishing CROPS (C) FLOOD (F)
certain rights and obligations for both Provide insurance for loss or
damage to crops that are Includes coverage for loss or
Form part of the contract regardless of how the policy is bound or
being grown. Coverage damage arising from the
whether or not the insured has received a copy of the policy
includes loss or damage to peril of flood, which is
Special prescribed and standardized conditions that the provincial and crop loss or losses caused by typically excluded from
territorial insurance acts require to be included in insurance policies – if weather, insects, hail, conventional property
an insurer fails to include a printed copy of the Statutory Conditions, it disease, drought, or frost policies
may incur a penalty, and the Statutory Conditions will still apply]
EARTHQUAKE (E) EQUIPMENT
extended coverage insurance: An endorsement that BREAKDOWN (E)
enlarges the coverage afforded by the primary policy. Includes coverage for loss or Includes coverage for
Coverages such as windstorm, hail, smoke, and riot damage arising from the accidental physical damage
peril of earthquake, which is to items such as boilers,
are extended coverages on a fire policy. typically excluded from pressure vessels, pressurized
conventional property equipment, production, and
policies. Depending on non-production machinery
mortgage clause: A clause in an insurance policy
where an insured is located, and equipment which are
that stipulates the rights and obligations of the insurer earthquake may be difficult typically excluded from
and the mortgagee. or expensive to purchase conventional property
policies. For personal lines,
this coverage is available for
first-party insurance: Protects the named insured the cost to repair or replace
and others with an insurable interest in or mortgage appliances, air conditioning,
furnaces, and hot water
on the property or who entrust their property to the tanks that accidentally break
insured—against loss or damage to the insured down
property.
MARINE INSURANCE
[First parties also include other parties with insurable interests such as (M)
mortgagees, owners of property in the care of the insured for which the
insured is liable]
Marine insurance, including
marine cargo insurance and
third-party insurance: Liability insurance is inland marine insurance,
covers loss of or damage to
purchased by the insured (the first party) from an property in transit at sea or
insurer (the second party) to compensate or indemnify on inland waterways and on
another (the third party) for damage or loss for which land
the insured is lawfully liable. Examples:
Property being shipped by or
direct loss (or damage): Damage to property by to an in insured
direct action of a peril insured against, as Tools and equipment
distinguished from contingent or indirect damage.
Stock
plain-language policy: Policies written in everyday Contractors’ equipment
located away from the
language so that they are easily understood. insured’s premises
Technical terms with their technical meanings are
, used only where required by law or when ● Elements of Property Insurance Policy
substitutions would be misleading. EVERY POLICY SHALL CONTAIN:
● The Name of the Insurer
Warranty: Statement or stipulation or promise in an ● The Name of the Insured
insurance contract, the breach of which may nullify ● The Name of the person(s) to whom the insurance money is
the contract. payable
● The amount, or method of determining the amount, of
premium for the insurance
Fortuity: loss must be accidental, and something not ● The subject matter of insurance (what is being insured)
bound to happen in the ordinary course of events ● The indemnity for which the insurer may become liable
(limits)
● The event on the happening of which liability is to accrue
proximate cause: A cause that, in a natural and (perils)
continuous sequence unbroken by any new and ● The effective date of insurance
● The expiry date or method by which it is to be fixed
independent cause, produces an event and without
which the event would not have happened.
[The Proximate cause of a loss may determine coverage] BASIC FIRE POLICY
● Fire
● Lightning
concurrent causation: A doctrine that holds that if a ● Explosion - of natural, coal or manufactured gas
loss to property is attributable to more than one
Lightning is covered under the basic Fire Policy, BUT, damage to or
cause, any one of which is covered by the insurance destruction of electrical devices or appliances caused by lightning or
policy, the loss is payable under the policy. other electrical current, unless fire originates outside the object, is NOT
covered. If fire does occur, only the resultant loss or damage caused by
[Damage or loss caused by more than one cause – when both perils fire is covered.
occur simultaneously, one covered, one not, and cannot be separated, Damage from explosions from natural, coal, or manufactured gas is
the question of coverage for the loss must be decided in favour of the covered, however, other kinds of explosion are not.
insured. If the insured will not cover for a certain peril, even when it
occurs concurrently with other covered perils, it must make the policy Exclusions
very clear so the parties will know what is not insured]
● Risks, perils, or properties defined in the policy as NOT
covered
Basis of Payment: The Principle of Indemnity applies ● Some exclusions apply to all aspects of the policy
● Exclusions remove certain losses from the policy’s coverage
– The basis of payment clause entitles the insured ● Exclusions may relate to specific types of property and may be
ONLY to the LEAST of: temporary or permanent
● Exclusions may exclude only a part of the coverage or render
● the Actual Cash Value of the property at the the entire policy inoperative
time of the loss ● Exclusions NEVER expand policy coverage but always restrict
● The interest of the insured in the property coverage; however, a limited exclusion may allow coverage in
certain circumstances
● The limits specified in the policy
[Some policies may enhance coverage from actual cash value to
replacement cost. This kind of enhancement must be specified in the
contract and any claim for replacement cost must comply with the terms
required in the contract]
Key Terms
property insurance: First-party insurance that ● When buyers obtain insurance, they are called insureds or
policyholders
indemnifies the owner or user of property for its loss, ● Companies that sell insurance, referred to as insurance
or the loss of its income-producing ability, when the companies or insurers
● Consideration paid by insureds or policyholders is known
loss or damage is caused by a covered peril, such as as premium ( pooling of premium collected from all their
insureds that allows insurers to pay for losses suffered by a
fire or explosion. few of those insureds)
● Insurance is intangible (it is a promise, that is to say, the
Insurable interest: An interest that the insured must insured promises to pay a premium in exchange for the
insurer’s promise to assume the insured’s risk of loss)
have in the subject matter of the insurance purchased ● The compensation offered by the policy of insurance is the
so that if the event insured against occurs, the insured indemnity
● The objective of the contract is to return the insured, as nearly
will suffer an economic loss. as possible, to the financial position they were in immediately
prior to the loss
Indemnity: A contract, expressed or implied, to repay ● Some clauses, for example, Guaranteed Replacement Cost
clause, may enhance the insured financially
in the event of a loss. The insured neither gains nor ● Insurance accounts for 38.5% of insurer’s direct written
loses. [insured shall not receive more than the premiums through the first three quarters of 2022
actual loss suffered ● Provides a source of revenue and helps to spread risk
among a large pool of policyholders which allows insurance
The object of the contract is to return the insured, as companies to pay claims in the event of losses, such as natural
disasters, fires, and theft
nearly as possible, to the financial position he or she ● Plays a vital role in the larger economy by providing
enjoyed immediately prior to a loss – no more, no financial protection for individuals and businesses against
less. The loss must be fortuitous (a chance event) as the impact of unexpected losses which helps to reduce the
financial burden on individuals and businesses,
far as the insured is concerned] allowing them to recover from losses more quickly and get back
to normal operations
The availability of property insurance encourages
Contract: An agreement or promise between two or ●
investment in property and can boost economic
more parties that is intended to be legally enforceable growth
and is constituted by the acceptance by one party of ● Insurance Contract: An agreement between legally
capable parties for a consideration demonstrating
an offer made by another party, to do or to abstain intent to do something that is legal
from doing a specific act. The offer and acceptance ● There are THREE unique elements to an insurance
contract: Insurable Interest, Indemnity, Utmost
may either be expressed or be inferred through the Good Faith
conduct of the parties. ● The insurance policy formalizes the agreement between the
Insurer and the Insured and contains terms, clauses,
stipulations, and requirements that form the key elements of
contract (Quebec): An agreement of wills by which the agreement
one or several persons obligate themselves to one or
The terms of the policy state what the insurer promises to do
several other persons to perform a prestation (that is, and what coverage it will provide under what circumstances
a duty, a payment, or a service). and what the insured promises to do and what coverage he/she
will receive under what circumstances
uberrimae fidei: Of the utmost good faith. The basis The insurer issues the policy, collects the premium, and pays
of all insurance and reinsurance contracts. Both out claims that are covered under the terms and conditions of
the policy
parties to the contract are bound to exercise good
,faith and do so by a full disclosure of all information To trigger coverage, an Insured must demonstrate that the loss
material to the proposed contract. or damage occurred during the policy term (usually policies are
issued for a one-year term)
peril:The event that caused a loss covered by the The insurance policy is the document that makes tangible the
policy; for example, fire, windstorm. intent of both parties to the contract is the policy is the
evidence that the contract exists
● Types of Insurance (the two basic types)
Deductible: An agreed specified amount that the Personal Insurance Commercial Insurance
insured must pay on a claim before the insurance -dwelling building -Building
-detached private structures -Stock
company will cover the rest of the claim. This amount -personal property -Equipment
is agreed upon by both the insurer and the insured. -homeowners, tenants, -Contents
condo unit owner
[A deductible clause or a coinsurance, average, or similar clause, or a
Specialty Note:
clause, conditional or unconditional, that limits recovery by the insured Insurance/Coverages
to a specified percentage of the value of property insured at the time of -Crop The two types are NOT
loss – all such clauses limit the amount payable in the event of loss -Aviation observed in either the Civil
-Cargo Code of Quebec or the
The Insurance Acts require that a policy with such a clause be marked -Marine Insurance Acts
to that effect -Builder’s Risk (Course of
Insurers do distinguish
Construction)
the two types of
Provincial requirements for showing the statement, “This policy contains -Earthquake
property insurance in
a clause that may limit the amount payable” or the French equivalent -Equipment Breakdown
practice
stamped or printed across the policy face in red or bold black] -Flood
fire insurance: Coverage for losses from fire, ● Personal Lines (habitational) policies include homeowners'
lightning, and limited explosion and also the resultant policies that cover damage to or destruction of the insured’s
damage caused by smoke and water. Usually dwelling, detached private structures (outbuildings), and
personal property (contents), tenants and condominium unit
supplemented by extended coverage insurance. owners
● Commercial insurance policies cover property used for
Exclusion: Risks, perils, or properties defined in the commercial purposes, such as buildings, stock, and equipment
● Other categories of property used for commercial purposes
policy as not covered. may also be covered under a commercial property policy
● Specialty Insurance (ABCFEEM)
Flashpoint: The lowest temperature at which a liquid
gives off sufficient vapours to form an ignitable AVIATION (A) BUILDINGS (B)
Provide insurance for
mixture with the air. Provide insurance coverage physical loss or damage to
on the actual airplanes property while it is in the
themselves and the course of construction. The
statutory conditions: Special prescribed and buildings, equipment and coverage applies to material,
fixtures, and equipment
standardized conditions that the provincial and material relating to airport
used in the construction or
operations
territorial insurance acts require to be included in renovation of a building or
structure. The coverage
insurance policies. applies when the physical
loss or damage occurs as a
result of an insured cause of
[Apply to ALL fire insurance contracts (except Quebec)
loss (a peril)
Insurance Acts states that no variation or omission of or addition to
any Statutory Condition is binding on the Insured
,Statutory Conditions bind the Insurer and the Insured, establishing CROPS (C) FLOOD (F)
certain rights and obligations for both Provide insurance for loss or
damage to crops that are Includes coverage for loss or
Form part of the contract regardless of how the policy is bound or
being grown. Coverage damage arising from the
whether or not the insured has received a copy of the policy
includes loss or damage to peril of flood, which is
Special prescribed and standardized conditions that the provincial and crop loss or losses caused by typically excluded from
territorial insurance acts require to be included in insurance policies – if weather, insects, hail, conventional property
an insurer fails to include a printed copy of the Statutory Conditions, it disease, drought, or frost policies
may incur a penalty, and the Statutory Conditions will still apply]
EARTHQUAKE (E) EQUIPMENT
extended coverage insurance: An endorsement that BREAKDOWN (E)
enlarges the coverage afforded by the primary policy. Includes coverage for loss or Includes coverage for
Coverages such as windstorm, hail, smoke, and riot damage arising from the accidental physical damage
peril of earthquake, which is to items such as boilers,
are extended coverages on a fire policy. typically excluded from pressure vessels, pressurized
conventional property equipment, production, and
policies. Depending on non-production machinery
mortgage clause: A clause in an insurance policy
where an insured is located, and equipment which are
that stipulates the rights and obligations of the insurer earthquake may be difficult typically excluded from
and the mortgagee. or expensive to purchase conventional property
policies. For personal lines,
this coverage is available for
first-party insurance: Protects the named insured the cost to repair or replace
and others with an insurable interest in or mortgage appliances, air conditioning,
furnaces, and hot water
on the property or who entrust their property to the tanks that accidentally break
insured—against loss or damage to the insured down
property.
MARINE INSURANCE
[First parties also include other parties with insurable interests such as (M)
mortgagees, owners of property in the care of the insured for which the
insured is liable]
Marine insurance, including
marine cargo insurance and
third-party insurance: Liability insurance is inland marine insurance,
covers loss of or damage to
purchased by the insured (the first party) from an property in transit at sea or
insurer (the second party) to compensate or indemnify on inland waterways and on
another (the third party) for damage or loss for which land
the insured is lawfully liable. Examples:
Property being shipped by or
direct loss (or damage): Damage to property by to an in insured
direct action of a peril insured against, as Tools and equipment
distinguished from contingent or indirect damage.
Stock
plain-language policy: Policies written in everyday Contractors’ equipment
located away from the
language so that they are easily understood. insured’s premises
Technical terms with their technical meanings are
, used only where required by law or when ● Elements of Property Insurance Policy
substitutions would be misleading. EVERY POLICY SHALL CONTAIN:
● The Name of the Insurer
Warranty: Statement or stipulation or promise in an ● The Name of the Insured
insurance contract, the breach of which may nullify ● The Name of the person(s) to whom the insurance money is
the contract. payable
● The amount, or method of determining the amount, of
premium for the insurance
Fortuity: loss must be accidental, and something not ● The subject matter of insurance (what is being insured)
bound to happen in the ordinary course of events ● The indemnity for which the insurer may become liable
(limits)
● The event on the happening of which liability is to accrue
proximate cause: A cause that, in a natural and (perils)
continuous sequence unbroken by any new and ● The effective date of insurance
● The expiry date or method by which it is to be fixed
independent cause, produces an event and without
which the event would not have happened.
[The Proximate cause of a loss may determine coverage] BASIC FIRE POLICY
● Fire
● Lightning
concurrent causation: A doctrine that holds that if a ● Explosion - of natural, coal or manufactured gas
loss to property is attributable to more than one
Lightning is covered under the basic Fire Policy, BUT, damage to or
cause, any one of which is covered by the insurance destruction of electrical devices or appliances caused by lightning or
policy, the loss is payable under the policy. other electrical current, unless fire originates outside the object, is NOT
covered. If fire does occur, only the resultant loss or damage caused by
[Damage or loss caused by more than one cause – when both perils fire is covered.
occur simultaneously, one covered, one not, and cannot be separated, Damage from explosions from natural, coal, or manufactured gas is
the question of coverage for the loss must be decided in favour of the covered, however, other kinds of explosion are not.
insured. If the insured will not cover for a certain peril, even when it
occurs concurrently with other covered perils, it must make the policy Exclusions
very clear so the parties will know what is not insured]
● Risks, perils, or properties defined in the policy as NOT
covered
Basis of Payment: The Principle of Indemnity applies ● Some exclusions apply to all aspects of the policy
● Exclusions remove certain losses from the policy’s coverage
– The basis of payment clause entitles the insured ● Exclusions may relate to specific types of property and may be
ONLY to the LEAST of: temporary or permanent
● Exclusions may exclude only a part of the coverage or render
● the Actual Cash Value of the property at the the entire policy inoperative
time of the loss ● Exclusions NEVER expand policy coverage but always restrict
● The interest of the insured in the property coverage; however, a limited exclusion may allow coverage in
certain circumstances
● The limits specified in the policy
[Some policies may enhance coverage from actual cash value to
replacement cost. This kind of enhancement must be specified in the
contract and any claim for replacement cost must comply with the terms
required in the contract]
