Baer.Intro

Question 1

Identify the 5 objectives of IBC (Insurance Bureau of Canada).

Answer 1

1. STUDY legislation
2. COLLECT/analyze data
3. ENGAGE in research
4. DISCUSS general insurance
5. PROMOTE public understanding

Question 2

Identify 6 areas of Canadian legislations (federal/provincial) that promotes financial soundness of insurance companies.

Answer 2

1. CREATION: oversee creation of (domestic) & licensing (foreign) of insurers
2. INVESTMENTS: restrictions on types of investments that are permitted (to
   reduce risk)
3. RATING: authorization of rating bureaus for info-sharing
4. COMPLIANCE: give Govt depts authority to enforce compliance with
   legislation
5. ADEQUACY: create boards to oversee and ensure adequacy of rates
6. FILE F/S: require regular filing of Financial Statements

(Hint = CIRCA-F)

Question 3

What has been the 5 focus areas of Canadian Insurance regulation since Confederation

Answer 3

1. Marketing integrity & improvement of insurance contract
2. Encourage Canadian ownership
3. Collection of taxes
4. Honesty & competence of intermediaries (Ex: agents)
5. Keep insurer’s solvent to protect policyholders

(Hint = MOTHS)

Question 4

Identify 2 ADVANTAGES and 2 DISADVANTAGES of foreign participation in the Canadian insurance industry

Answer 4

Advantages:
1. COMPETITION: produces (lower prices, higher availability) for Canadians
2. INNOVATION: good for consumers

Disadvantages:
1. Foreign parent failure is the main cause of Canadian insolvency
2. Take market share from domestic insurers

Question 5

What conditions (3) eventually led to public control regarding solvency

Answer 5

1. Insurer bankruptcies in the 1860s/70s
2. The recognition short-term price competition is bad
3. Insurance involves a significant savings component (prepaid premiums) & policy holders must be protected

Question 6

Briefly explain the difference between guidelines & legislation for insurance regulation

Answer 6

Guidelines are more flexible than legislation

Legislation must go through senate, house of commons, and get royal approval

Question 7

Who oversees the Canadian
a) Solvency regulation
b) Rate regulation
(Federal or Provincial)

Answer 7

a) both - cooperative federalism has been achieved in practice
b) provincial

Question 8

How does federal legislation protect Canadian insureds of foreign insurance companies (2)

Answer 8

1. Foreign insurers must maintain sufficient assets IN CANADA (for recovery from insolvency)
2. If foreign insurer goes insolvency then a Canadian insurer can assume control over assets (helps stop expatriation of capital)

Question 9

What is a ‘contract of indemnity’

Answer 9

Contract where amount recoverable is measured by insured’s pecuniary loss

Question 10

Briefly explain the important intent of doctrine of subrogation

Answer 10

Prevent over-compensation of insured

Question 11

What is the ‘principle of indemnity’

Answer 11

After covered loss, return insured to former financial position (before loss), and neither penalize nor reward

Question 12

Briefly discuss whether a life insurance contract is considered an indemnity policy.

Answer 12

No, because the amount recoverable is not measured by the loss.
The amount payable is fixed and written into the contract.

Question 13

Identify 2 conditions that an insurer must establish to be entitled to recover under an indemnity insurance contract.

Answer 13

1. Event must be covered
2. Requires proof of AMOUNT of loss

Question 14

Briefly describe how a ‘valued policy’ differs from a typical insurance policy.

Answer 14

Proof of amount of loss not required because compensation is pre-determined by contract

Question 15

Identify the 2 necessary conditions for reimbursement under ‘valued' insurance policy.

valued' insurance policy : ex: life insurance

Answer 15

1. Event must be covered
2. Requires PROOF of loss, but not amount of loss

Question 16

Glynn vs Scottish : Facts,Issue and rulings - T/A

Answer 16

Facts:
Glynn injured in auto accident
- was reimbursed by other driver’s insurer (including medical)
- Glynn sued to DOUBLE-RECOVER medical from own insurer under Section B

Issue: Does Glynn’s insurer have right to subrogation?

RULING:

• Trial 1: insured: Glynn gets double-recovery
• Appeal : insurer
  Section B of policy is contract of indemnity, Glynn’s insurer needs to be able to subrogate. Since the insurer cannot subrogate in this case, he does not need to pay. (also, contract of indemnity means no possibility of double-recovery).

Question 17

Fletcher v MPIC: Facts, Issues (2) ,Ruling (3-T/A/SC)

Answer 17

Facts:
Fletcher was in serious accident, person responsible was underinsured. Fletcher has requested max coverage but MPIC employee didn't provide UMC. Customer relied on MPIC.

Issues:
1. Is Government Insurer responsible for informing customers of available covgs?
2. Issue 2: What is the extent of liab should it fail to do so?

Ruling:
Ruling T/A/SC: Insured / Insurer / Insured ( duty of care)

Criteria establishing duty of care:
1. Does reliance exist?
2. Is reliance expected?
3. Is reliance reasonable?

Question 18

Dillon v Guardian Ins Co: Facts, Issues ,Ruling

Answer 18

Facts:
- Policyholder Dillon has a policy limit of $50K, got sued for $100K, then proposed to settle for $46K.
- Guardian rejected a settlement that was LESS THAN the policy limit
- subsequent jury award GREATER THAN policy limit
- insured sued insurer for excess amount of award above policy limit

**Issues: **

• Should a primary insurer be held liable for failing to settle a claim within policy imits. Hence exposing the insured to a judgment exceeding those limits.

Ruling: In favor of insured - ABSOLUTE LIABILITY STANDARD established.
- Insurer absolutely liable for amount exceeding policy limit since they could have settled but didn't
- Arguments for absolute liability:
1. Avoids determining whether 1st offer was reasonable.
2. Prevent gambling - Lowers probability of insurer gambling with insured’s money.

Question 19

What are the 3 different possible standards for liability

Answer 19

1. Absolute liability
2. Liability for not acting reasonably
3. Liability for bad faith (builds on lack of reasonableness)

Question 20

Define the standard of absolute liability

Answer 20

IF settlement possible BUT rejected by insurer THEN insurer is liable for all costs (even in excess of policy limit)