Chapter 9 – The Insurance Contract Summary Notes Download
Chapter 9 - Quiz view
Chapter 9 - Quiz view
Terms | Definitions |
|---|---|
 Insurance contracts must have THREE (3) requirements. What are they? | they must have indemnity, utmost good faith and insurable interest |
| Why is having an insurable interest so important when applying for insurance? | when you stand in such a legal relationship that you will be financially prejudiced by its loss or damaged and financially benefited by its continued existence. |
| Give examples of insurable interests in property and in liability. | Property - owners, tenants Liability - contractor, insuring your capability to pay incase your or your employees injures a passerby or damages adjoining building. |
| In whose lives does an insured have an insurable interest? | found in the personal relationship between the party who contracts for the insurance and the party whose life or health is insured. |
| What is the principle of indemnity? | to place someone back in the same financial position that they were in immediately prior to the loss. |
| How do you determine the actual cash value of a property? | it is the value of an equivalent piece of property of the same age and condition and subject to the same wear and tear |
| Which types of insurance appear to offend the principle of indemnity? | valued contracts and replacement cost contracts appear to offend the principle of indemnity, it is argued that they are priced differently and that insureds are precharged for the difference. |
| Why do the above-mentioned types of insurance appear to offend the principle of indemnity, and what are the supporting arguments for these types of policies? | valued contracts - If there were severe fluctuations in value during the policy term this argument would fail since the actual cash value of an item could be quite different at the time of a loss from the insured value. replacement cost contracts - there is no depreciation deducted. they appear to offend the principle of indemnity, it is argued that they are priced differently and that insureds are precharged for the difference. |
| What does utmost good faith mean? | The law imposes a duty to disclose any information that is basic to the acceptance of the risk or the terms of the policy. |
| What is the connection between utmost good faith and misrepresentation as they relate to insured property? | Failing to disclose material facts is a type of misrepresentation and is known as non-disclosure or concealment. Many court cases have been initiated to determine if misrepresentation actually |
| What is a material fact? | is a fact which would influence a prudent underwriter in setting the premium or determining whether to accept or reject the risk. |
| Give an example of a non-disclosure that relates to insurance. | Green applies for and obtains a homeowners policy on his dwelling which he describes as a single-family brick dwelling. He neglects to mention that he runs a part-time welding business in his attached garage. A fire occurs when a spark from his welder ignites stored lumber and seriously damages the building. |
| On whom is the onus of disclosure heaviest? Why? | Although, it can be seen that the onus is heavy on the insured to deal with utmost good faith, the insurer also must act in good faith. Losses may occur years after a contract was made; insurers must be financially solvent to meet them when they occur. |
| Can an insurer be guilty of not acting with utmost good faith? Explain. | In recent years a number of legal cases have arisen wherein insureds have claimed that settlement negotiations were not conducted in good faith by their insurers. |
| What responsibilities do brokers have with respect to passing on information that relates to the risks of their clients? | without binding authority, the broker can have a right of action by the insured for failing to pass on information, contract could be void by insurer with binding authority, the broker could violate its contract with the insurer for failing to pass on information |
| What is binding authority? | Binding authority is the authority given to a broker/agent by an insurer to bind certain insurance coverages without first submitting an application to the insurer for approval. |
| An insured gives vital information indicating a change in risk to a broker to pass on to the insurer, but the broker does not act on it. How might this later affect a claim arising directly out of the increased risk? | The contract may be void by the insurer as it could be a sign of omission on the part of the insured. |
| in the above-mentioned situation, will it make any difference whether or not the broker has binding authority? Explain. | Yes, the omission of facts by the broker with binding authority does not prejudice the insureds right to recover under the policy. |
| What are an insurer's responsibilities with respect to utmost good faith? | Losses may occur years after a contract was made; insurers must be financially solvent to meet them when they occur. All claims must be dealt with fairly and expeditiously. |
More terms and definations
Terms | Definitions |
|---|---|
| What is an Insurance policy? | Evidence of a contract between an insured and an insurer. |
| List six individuals who could have an insurable interest in property? | Owners, lessees, tennants, custodians, lien holders, mortagees. |
| Define indemnify. | To place someone back in the same financial position that they were in immediately prior to the loss. |
| What are Actual Cash Value Contracts? | The value can be defined as an equivalent piece of property of the same age and condition and subject to the same wear and tear as the property that was lost or destroyed. |
| What is Replacement Cost Contracts? | The damaged or destroyed property will be valued on the basis of the cost to repair or replace (whichever costs less) it with property of like kind and quality without any deduction for depreciation. |
| What are Valued Contracts? | In the event of a total loss, pays a predetermined amount agreed upon by the insurer and the insured at the time the contract was made. |
| What are some example of items that could be included in a Valued Contract? | Jewellery, paintings, antiques, stamp and coin collections. |
| Explain Policies of Compensation. | Policies of compensation specifies that a stated amount is payable on the occurrence of the event insured against. The amount is not directly dependent on the monetary value of the insureds loss(although insurable interest is still required). |
| What policy does indemnity NOT apply to? | Policies of compensation |
| What are some examples of Policies of Compensation? | Life Insurance, accident benefits, sickeness benefits. |
| Define utmost good faith. | With respect to insurance contracts, one party (the insured) is in a superior position of knowledge; only an applicant or or insured has knowledge of all material facts relating to the risk. The law imposes a duty to disclose any information that is basic to the acceptance of risk or the terms of the policy. |
| What does the latin name "uberrima fides" mean? | Utmost good faith. |
| What is a Material Fact? | Material fact is a fact which would influence a prudent underwriter in setting the premium or determining wether to accept or reject the risk. |
| What is misrepresentation? | Failing to disclose a material fact is a type of misrepresentation. |
| Define Non-disclosure. | May be defined as silence where there exists an obligatio to speak. An applicant for insurance is presumed to be a prudent and reasonalbe person who knows the material facts of risk. |
| What legislation sets out the utmost good faith requirements? | The Provincial Insurance Acts in the common law provinces detail the circumstances where misrepresentation and non disclosures will affect the validity of contracts. |
| Define binding authority. | Binding authority is the authority given to a broker/agent by an insurer to bind certain insurance coverages without first submitting an application to the insurer for approval. |
| Is an insurance contract voidable if the insured misreprented themselves? | Yes. |
| What legislation in Quebec covers misrepresentation? | Civil Code of Quebec |
| When must an insured update the insurer with respect to their policy? | when new material facts arise during the term of the contract, the insured is required to disclose these to the insurer promptly. |