Fundamentals of Insurance Chapter 3 Questions and Answers 100% Correct

Fundamentals of Insurance Chapter 3 Questions and Answers 100% Correct What is the role of the federal Government when insurers receive federal licensing? Licensing provided only to companies that can meet strict financial standards. Established by the office of the Superintendent of Financial Institutions (OSFI). Insurers are monitored on an ongoing basis. What is the role of the provincial Government? The superintendent of Insurance in each province are responsible for administrating the Insurance Act. Responsibilities include supervising terms and conditions of contracts, licensing of insurers and monitoring financial stability of insurers. What is the role of the Property and Casualty Insurance Compensation Corporation (PACICC)? When bankruptcy occurs, PACICC pays all valid claims. Insurer's are then charged an assessment to cover the total amount of claims. What are the amounts available to consumers from the PACCIC? A max of $250,000 for all claims arising from a single occurrence and a refund of up to 70% of unearned premiums, a max of $700 per policy. What is the definition of Fiduciary? One who handles other people's money. Who is Fiduciary? Insurers and brokers. What is the fiduciary responsibility of insurers? Premiums paid to insurers are not fully earned until policy expires. Unearned premiums are considered to be held in trust in event of cancellation prior to policy expiration. What is the fiduciary responsibility of insurance brokers? Commissions not fully earned until policy expires. Unearned commissions are considered to be held in trust in event of cancellation prior to policy expiration. What are the 6 contents of all insurance policies? 1. Parities to Contract 2. Policy Period 3. Loss Payable or Payee 4. Type(s) of Insurance Coverage(s) and Amounts Insurer may be liable 5. Rate and Premium 6. Subject Matter Explain Parties to Contract. Name of insurer and insured are required to be shown. Insured first to contract, Insurer second. No third party. Explain Policy Period. Both commencement date and expiry are required to be stated on policy. Explain Loss Payable or Payee. Law requires policy to identify all parties to whom insurance monies are payable in event of loss. Explain Type(s) of Insurance Coverage(s) and Amounts Insurer may be Liable Policy must identify specific coverage(s) and amounts to each item. Explain Rate and Premium Law requires cost of insurance be indicated on policy. Insurer must identify amount of premium, method or rate used to determine amount. Explain Subject Matter A description of subject matter must be provided. What are the conditions of applying to Removal Clause? Before insurer pays for a loss, must be shown that property was at (unnamed on policy)location, because it was in danger of a peril. Explain the Removal Clause Policies restrict coverage on insured property to the location identified on the policy. If property is not there at time of loss, there is no coverage. The exception is in certain circumstances, in the event of peril of fire, coverage can extend to property when moved to a location not stated on the policy. What is the rule regarding the insurer's use of Limitation of Liability clauses? Most property policies contain clauses which limit the amount of payment for a loss to an amount which is less than purchased by insured. Policy must have "This policy contains a clause(s) that may limit the amount payable." stamped or printed on face page of policy. What does Subrogation mean? Subrogation means to put oneself in another's shoes. How is the right, Subrogation, exercised by the insurer? The Insurance Act allows insurers to place itself in the insureds shoes in respect of their right to recover amount of loss from the responsible party. Any action commenced against responsible party is taken in insureds name. Who is entitled to amend the terms or conditions of insurance contracts? Whoever the insurer wants it to be, but normally an officer of the insurance company. What effect does a claim have when the insurance policy has been delivered but not paid for? The policy is still as binding on the insurer as if the premium has been paid for. What are the basic coverage's legislated for policies insuring peril of fire? 1. Fire 2. Lightning 3. Explosion of Natural Gas, Coal or Manufactured Gas Name the 2 types of fire. 1. Friendly fire 2. Hostile Explain Friendly Fire Fire that is contained in a proper receptacle. Explain Hostile Fire Fire that escapes from it's receptacle or originates from outside of any receptacle. What are the 4 Standard Exclusions contained in policies insuring peril of fire? 1. Application of Heat 2. Lightning Damage to Electrical Devices or Appliances. 3. Electrical Currents 4. Contamination by Radioactive Material Explain Application of Heat. (Standard Exclusion) When heat is being directly applied to property. Explain Lightning Damage to Electrical Devices or Appliances. (Standard Exclusion) Loss or damage to electrical devices or appliances such as TVs, Kitchen ranges, Refrigerators, caused directly from lightning is excluded. Explain Electrical Currents. (Standard Exclusion) No coverage for losses to electrical devices and appliances cause by artificially generated sources of electricity. This exclusion would not apply to loss/damage caused by a resultant fire. Explain Contamination by Radioactive Material. (Standard Exclusion) When any of the perils insured by policy causes radioactive materials to escape, any resultant damage caused by contamination is not insured. Name the 15 Statutory Conditions. 1. Misrepresentation 2. Property of Others 3. Change of Interest 4. Material Change 5. Termination 6. Requirements after Loss 7. Fraud 8. Who May Give Notice and Proof 9. Salvage 10. Entry, Control and Abandonment 11. Appraisal 12. When Loss is Payable 13. Replacement 14. Action 15. Notice Explain Misrepresentation. (Stat. Condition) If a person applying for insurance, falsely describes the property to insurer, or misrepresents or fraudulently omits any circumstance that made known to insurer. The contract will be void. Explain Property of Others. (Stat. Condition) The insurer will not be obligated to pay for loss or damage to property of others. Explain Change of Interest. (Stat. Condition) This condition permits certain exceptions. An authorized assignment under the Bankruptcy Act, A change of the title by operation of law. Explain Material Change. (Stat. Condition) Any change within the control and knowledge of the insured which arises after the policy has been issued and serves to increase the chance of loss. Example: Private garage turned into autobody shop. Explain Termination (Stat Condition) Most contracts will terminate upon expiry, can also be terminated by either insured or insurer during policy period. When can the contract be terminated? (Stat. Condition) Insurer gives 15 days notice to terminate contract to insured by registered mail or 5 days written notice if personally delivered. The insured may terminate at any time by request. Explain Requirements after Loss. (Stat. Condition) This condition places a requirement upon the insured to provide proper documentation for all claims made under policy. Explain Who May Give Notice and Proof. (Stat.Condition) If insurer finds insureds reason for not being able to provide notice and proof of loss acceptable, an agent of insured shall be permitted to fulfill these functions on behalf. acceptable reasons would be hospitalization of insured or prolonged absence from country. Qualifying agents for insured could include their lawyer, friends and relatives. Explain Salvage. (Stat. Condition) To avoid the economic waste that can occur when there is loss to property which might have been saved through a reasonable effort on the part of insured. Explain Fraud. (Stat. Condition) By terms of this condition, the insurer is not responsible for payment of fraudulent insurance claims. When insurer is able to prove fraud, is entitled to deny entire claim. Explain Entry, Control and Abandonment. (Stat. Condition) After loss or damage to insured property, the insurer has immediate right of access and entry by accredited agents, to enable them to examine property and make estimate of loss or damage. Explain Appraisal. (Stat. Condition) Allows either party to ask that disputes involving valuation be settled by appraisal, details provided in Insurance Act. Explain When Loss is Payable. (Stat. Condition) Loss is payable within 60 days after completion of the proof of loss, Unless contract provides for a shorter period. Explain Replacement. (Stat. Condition) Instead of making payment, insurer may repair, rebuild or replace property damaged or lost, giving written notice to do so within 30 days after receipt of proof of loss. In event of repair, rebuild or replace, insurer will do so within 45 days after receipt of proof of loss. Explain Action. (Stat. Condition) Every action against insurer for recovery of any claim under this contract is barred unless commenced within 1 year next after loss or damage occurs, unless legislation provides otherwise. Explain Notice. (Stat. Condition) Establishes the rules regarding all written communications between the insurer and insured during the policy period. How can a term or condition of the insurance contract be waived by and insurance broker? Interim changes to the policy can only be made under the signature of a person authorized for that purpose, assigned by the insurer. All changes to the policy must be in writing if they are to be binding on the insurer. Define Insolvent. When an insurer is incapable of fulfilling their financial obligations. Name 3 forms of Misrepresentation. 1. False Description of Property to Prejudice of Insurer 2. Misrepresentation 3. Fraudulent Omission of a Material Fact Explain False Description of Property to Prejudice of Insurer. (Misrep. Stat. Condition) When a decision to provide insurance was based on inadequate information, insurer may unwittingly be placing itself in a disadvantageous position. Explain Misrepresentation of a Material Fact. (Misrep. Stat. Condition) A material fact is a fact which, if the insurer knew about, would cause to decline risk or charge a higher premium to accept it. Explain Fraudulent Omission of a Material Fact. (Misrep. Stat. Condition) Sometimes insureds deliberately fail to disclose certain information to insurer to obtain insurance coverage or secure lower rates.