C12 Property - Ch 5 - Broadening the Contract - Pt2
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Why is it unfair to the first insurer when an insured purchases 2 policies?
The first policy would cover fire and additional perils, the second would cover only fire.
This is unfair to the first policy as a loss by additional peril for the full amount of the first policy's limit is possible.
What steps did insurers take to combat this problem?
Insurers added an Other Insurance clause to their policies to pro rate an additional perils loss between multiple policies in the proportion that would apply to a fire loss under rateable contribution.
What is the purpose of the IBC's Agreement of Guiding Principles?
This agreement guides insurance practice concerning multiple insurance policies where practice departs from statutory specifications; where the law is unclear; where gaps exist in the law; or in unusual or disputed circumstances.
ie. rateable contribution where the policies involved have different deductibles
Describe the unique difficulties of insuring against earthquake.
- 1) Unpredictability
- - neither frequency nor severity can be accurately predicted, so there is very little statistical info from which credible rates can be developed
- 2) Spread of risk
- - coverage is primarily sought in areas susceptible to earthquake, thus narrowing the insurer's spread of risk
- 3) Catastrophe
- - the area which may be damaged by an earthquake is unknown
What determines whether an earthquake and a series of aftershocks are considered one event?
All shocks within a 168 hour period are considered a single event. This affects the application of the deductible. One deductible applies to all damages within the 168 hour period.
Define land subsidence
...a sudden falling in of the ground, often caused by the extraction of minerals or water from the earth
Name 5 different kinds of theft.
- All excluded:
- 1) Conversion
- - theft of property by persons to whom it has been entrusted
- 2) Mysterious disappearance
- - object cannot be located and its absence cannot be accounted for
- 3) Theft from vehicle
- - may be covered but only if it occurs between certain daylight hours and is reported to the police
- 4) Break-in
- - akin to theft from vehicle
- 5) Theft by trick
- - transaction with counterfeit, bounced cheque, or other illegal trick
What is the difference between mysterious disappearance and unexplained disappearance?
Mysterious disappearance - where an object cannot be located and its absence cannot be accounted for
Unexplained disappearance - a clearer alternative; loss disclosed (or discovered) upon taking inventory applies to stock in business risks; implies that stock was either stolen or destroyed & disposed of by an employee or opportunistic thief
How is premium determination for theft insurance different from premium determination for fire insurance?
Same in that the principal concerns for both are: potential size of loss; susceptibility to loss; $ of claims; general loss incidence within the territory located
Different is in the details. Theft does not present losses of the same magnitude as fire.
The rating of theft insurance needs to be flexible enough to handle differing amounts of insurance.
Fire rates are normally applied as a flat rate to the entire amount of insurance. A theft rate is developed on a first-loss basis (the insd's estimate of the worst likely loss)
What is graded rating?
Progressively lower (layered) rates are called graded rates.
1st layer applies to the first several thousand dollars of insurance (the likely size of loss for the goods) - it carries the highest rate
2nd layer applies to the next several thousand dollars; the 3rd to the next several thousand, and so on
Each successively higher layer tends to be larger than the layer below it
Reflects the theoretical reduction in potential loss at higher levels
Name 3 factors that affect the premium for insuring property in transit.
1) the insurers limit of liability for property in transit
2) the perils applying to such property. Loss to property in transit may arise from fire or the standard additional perils, or from collision, vehicle upset, or theft
3) the probable frequency of loss; if high, the insurer may incur considerable expense in handling numerous claims
Why do insurers use the term named perils to describe multi-peril contracts that combine a number of perils beyond fire and the additional perils?
The term helped distinguish policies in which every insured peril - regardless of how many - is listed from other policies written on an all risks basis.
Explain the difference between named perils and all risks.
Name peril: responds only to losses caused by perils identified in the workding
All Risks: states what loss will not be covered
Describe the conditions in which wilful acts may still be covered.
Wilful acts that unintentionally result in loss or damage may still be covered by the all risks policy unless it can be proved that the insured was aware of the consequences of the acts or acted recklessly
What 4 aspects of the contract do exclusions in an all risks policy deal with?
- All Risk Exclusions:
- - property excluded
- - locations excluded
- - events excluded
- - direct loss
What events or circumstances would be considered indirect or consequential losses?
- The all risks policy is intended to cover only direct loses. As such, the all risk policy may exclude events or circumstances regarded as indirect or consequential losses, such as:
- - delay
- - loss of market
- - loss of use
- - loss of occupancy
What is the purpose of sub-limits on certain types of property?
- Rather than exclude certain types of property outright, insurers often place sublimits on all such items within the classesdescribed.Sometimes, where the main concerns are theft, disappearance, or accidental damage, the sub-limits do not apply to certain named perils. They usually include:
- - fire, lightning, explosion, smoke, falling object, impact by aircraft or land vehicle, riot, vandalism, or malisious acts, windstorm or hail
Why were the Additional Conditions originally developed?
The additional conditions were first developed to cover important points that had been omitted in some inland marine-based forms that were not subject to the fire insurance provisions of the Insurance Act.
The Notice to Authorities condition concerns only what peril?
Deals with only theft losses.
What is the purpose of the Pair and Set condition?
Loss of part of a pair or set will not be considered total loss of the pair or set.
Why would subrogation rights be important to an insurer?
Sharing the proceeds of subrogation is fair in that the insurer exercises its right of recovery against others on behalf of the insured.
MC: Which type of constructionwouldresult in the most favourable rating for Earthquake insurance?
...Low-rise wood frame
Frame buildings of 3 storeys or fewer are normall rated most favourable,astheflexibilityof a wood-frame structure helps to absorb an earthquake shock.
MC: Earthquake shocks are considered a single event if they occur within a...
...168 hour period
All earthquake shocks within a 168-hour period are considered a single event.
MC: A theft rate is developed on a...
A theft rate is developed on a first-loss basis
MC: Which of the following is NOT generally among the basic concerns when determining premium for insurance against theft?
...construction type and building
- The basic concerns for theft insurance is:
- 1) Potential extent or size of loss
- 2) Dollar values of likely claims
- 3) Susceptibility of insured property to loss
MC: If property is lost, the insured has a duty to take all reasonable steps to recover it. Which additional condition provides that any reasonable and proper expenses related to the recovery attempt are shared by the insured and insurer according to their respective interests?
...Sue and Labour
SA(10): Outline the fundamental differences between a named perils form and an all risks form.
- Named perils Form vs All Risks Form
- - A named perils form responds only to loss caused by perils identified in the wording
- - The concern with a named perils policy is that it must anticipate all the causes of loss to which the contract will respond
- - Eventually, it becomes difficult or impossible to describe all the nuances of the perils that can be identified
- - In a named perils form, the insured must show that the damaged property was insured under the policy
- -- and that the cause of loss was a listed peril
- - The onus then shifts to the insurer to show that the peril does not apply
- -- or that the circumstances are excluded
- - So a named perils policy will inevitably fail to respond to a loss that all the parties would have agreed to insure but that was omitted from the list of perils
- -In an All Perils form, the policy does not list perils that are covered;
- -- instead, it defines the coverage using exclusions
- - That does not mean that all loss is covered if it is not excluded
- - the insured does not need to identify the peril that caused the loss but it does need to show that the property damaged was insured under the policy
- -- it was at a location described in the policy at the time of loss, and that the loss occured during the policy period
- - The onus is then on the insurer to show that the loss is excluded
SA(10): Discuss the additonal condition of subrogation.
- - Subrogation is a legal principle, but it is also dealt with in the common law provinces' Insurance Acts
- - An insurer is entitled to rely on the possibility of subrogation
- -- and so will lose its right if the insured agrees to release an individual or organization from liability for loss or damage to his or her property
- - If subrogation rights are important to the insurer, the insurer may insert into the policy a clause prohibiting such a release
- - The subrogation clause gives the insured permission to release other parties from liability before a loss occurs
- - The insurer is not precluded from inserting a clause in its policies permitting releases prior to loss
- - Under the Insurance Acts of the common law provinces, the subrogation provisions also provide for the proportional sharing of the proceeds of subrogation if
- -- after deducting recovery costs (such as legal fees and other costs to the insurer in pursuing recovery), the amount recovered is less than a full indemnity
- - Legislated requirements aside, sharing the proceeds of subrogation is fair in that the insurer exercises its right of recovery against other on behalf of the insured
- - The insurer is entitled to charge its expenses against the total amount recovered
- - That will almost certainly make the net amount less than a full indemnity
- -- and bring this sharing requirement into play
- - The net amount may be retained by the insurer if the insured's loss has been paid in full
- - But if any part of the loss was borne by the insured, the net proceeds must be shared in the proportions that each party (insd and insr) has borne the amount of the insd's loss
LA(20): You are a broker and one of your clients, Tom Devonshire, has just purchased property insurance to protect his house and contents. The policy includes theft coverage, which in turn features some of the more common theft exclusions.
How would the policy you sold him likely to respond under the following conditions? Explain.
LA(5): Tom's brother-in-law Darryl borrows Tom's weed trimmer to groom his property and has had it in his possession ever since. In time, Darryl's wife divorces him, and he keeps Tom's weed trimmer.
- Loss by theft - CONVERSION:
- - One theft risk unlikely to be intentionally insured under a property policy is the theft of property by persons to whom it has been entrusted - for safekeeping,
- -- for work to be done with it
- -- or on loan for their use
- - This kind of theft involves converting the property to their own use,
- -- generally referred to as conversion
- - But that is a term of convenience and is not likely to appear in a policy wording
- - Tom's policy would likely not cover the loss of his weed trimmer, as it is considered conversion
- -- a common theft exclusion under property policies
LA(4): Jane, one of Tom's daughters, inherits a rare painting from her aunt. The painting goes missing while in storage. The family searches the entire house, as it seems the painting has mysteriously disappeared.
- Loss by theft - MYSTERIOUS DISAPPEARANCE
- - Mysterious disappearance is another broad, imprecise term
- - It may appear in policy wordings as part of an exclusion, but it is unlikely to be included as an insured peril
- - It is likely to be applied where an object cannot be located and its absence cannot be accounted for
- - Unexplained disappearance is a somewhat clearer alternative
- - Tom's daughter's painting would likely not be covered under the policy, as it has mysteriously disappeared
- -- and mysterious disappearance is a common theft exclusion
LA(4): At the local mall during lunch hour, Tom's wife's vehicle is broken into and contents are stolen, including a portable music player, laptop computer, designer shoes, and a bag containing gym gear. Tom's wife calls the police.
- Loss by Theft - THEFT FROM VEHICLE
- - Coverage for theft from unattended vehicles will often require visible physical evidence that the vehicle was broken into
- -- and that any such occurrence be reported to the local police or corresponding authority
- - On occasion, theft from an unattended automobile may be covered but only if it occurs between certain daylight hours,
- -- and is reported to the police
- - It is possible that the policy would cover this loss, as it occurred during the day and Tom's wife reported it to the police
LA(3): When watering the garden, Tom notices some damage to the bottom window of his basement. The damage seems to have been caused by forced entry, as the window screen is ripped and bent, and there are several deep marks around the window moulding. Tom immediately checks his basement, but nothing is missing.
- Loss by Theft - Break In:
- - An insurer may restrict coverage for alleged theft by break-in to those losses that show visible evidence on the premises at the point of such entry (or exit)
- - Thieves may damage premises while stealing or attempting to steal, such building damage is often not part of the standard coverage in a property policy
- - The coverage in a policy that insures a business against loss of stock may be extended to include damage to the premises cuased by theives, regardless of the success of their efforts
- - But Tom's property policy covers his home, not business
- - Tom's property policy might cover the damage caused by the break and enter attempt
- - Whether it would do so would depend on details about his policy left unspecified here.
LA(4): Tom sells his entertainment unit to a third party, who pays Tom with a cheque. When Tom tries to deposit the cheque in his bank account, the cheque does not clear.
- Loss by Theft - THEFT BY TRICK
- - Loss of this kind is subject to possible connivance, where the insured
- -- and the alleged swindler plan the trick so as to receive money from the insurer without actually suffering loss of the property
- - It is very difficult to either prove
- -- or disprove such a suspicion, so an insurer will often exclude such loss
- - Tom's property policy would likely not cover the loss that he suffered from the fraud artist who wrote him a bad cheque
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