What additional requirements are needed for insurance contracts?
1) insurable interest
i) life and health - legitimate insurable interest in the continuance of the life insured
- someone you are financially reliant upon
ex) husband and wife
ii) property
- when you stand in such a legal relationship to it that you will be financially prejudiced by its loss or damage
- are financially benefited by its continued existence
ex) owners, tenants, lien holders, mortgagees
iii) liability
- in your potential capability to pay damages in the event you are found responsible for having caused injuries to others or damage to their property
2) the principle of indemnity
- the method used to calculate indemnity owed under insurance contracts varies with policy language
i) actual cash value
- as the value of an equilvalent piece of property of the same age and condition, and subject to the same wear and tear as the property that was lost/damaged.
ii) replacement cost contracts
- varies the manner which indemnity is calculated
- common with residential property policies
- means the damaged/destroyed property will be valued on the basis of the cost to repair or replace it with property of like kind and quality without any deduction for depreciation.
iii) value contracts
- varies the manner in which indemnity is calculated
- offer an alternative method of loss calculation
- in the event of a total loss, pays a predetermined amount agreed upon by insurer and insured at the time the contract was made
- would get an appraisal by an accredited appraiser
ex) jewelry, paintings, antiques, coins, stamps
3) utmost good faith
- onus to disclose material facts is heaviest on the insured because only an applicant/insured has the knowledge of all material facts relating to the risk
- the law imposes that an insured act with a high standard of honesty or UGF
- an insured is seen as guilty even if he/she did not know certain facts that he/she should have known, but it is the insurer’s responsibility to ask questions and be knowledgable about the nature of the risks presented by an insured
- if an insurer discovers that a contract has been obtained by misrepresentation, the contract is voidable at the option of the insurer
- fire, auto, and A+S policies are required by law to include certain conditions as an intergral part in each policy (they define the extent of UGF required of an insured.)
What is a policy of compensation?
- indemnity does not apply to this type of contract
- specifies that a stated amount is not directly dependent on the monetary value of insured’s loss (insurable interest is still required)
ex) life insurance contracts
Define non-disclosure.
- may be defined as silence where there exists an obligation to speak
- an applicant for insurance is presumed to be a prudent and reasonable person who knows the material facts of the risk
Define material fact.
- a fact which would influence a prudent underwriter in setting the premium or determining whether to accept or reject the risk.
Define binding authority.
- 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.
Who does the civil code of quebec and provincial insurance act specify as persons who have an insurable interest in life and A&S policies?
1) child or grandchild
2) spouse
3) any person whom he/she is dependant upon for support or education
4) his/her employees
5) any person in the duration of whose life he/she has a pecuniary interest
What insurance contracts contradict the principle of indemnity?
1) policy of compensation - life insurance
2) replacement cost contract - value is based on cost to replace or repair without deduction for depreciation
3) valued cost contract - value is determined at the time of insurance
What are the responsibilities of brokers with no binding authority?
- an insurer may regard any omission/non-disclosure by them as a failure to disclose by the insured and have the option to void the contract
- in an insured informed broker/agent of facts in question, then the insured may have a right of action against that broker/agent arising out of his/her negligence in failing to pass on info
What are the responsibilites of brokers with binding authority?
- their knowledge is considered the knowledge of the insurer
- if an insured tells broker/agent a material fact which is not passed along to the insurer, the insurer is considered to have knowledge of that fact
- the omission of broker/agent to relay the fact will not prejudice the insured’s right to recover under the policy
- the insurer may take legal action against broker/agent because he/she may have violated terms of agreement/contract with insurer
