C11 Principles and Practice of Insurance - Download

C11 Principles and Practice of Insurance

 

1. C11 - Study 1 What is risk.pdf   View
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2. C11 - Study 2 Principles and Practice .pdf View
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3. C11 - Study 3 Principles and Practice .pdf View
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4. C11 - Study 4 Principles and Practices .pdf View
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5. C11 - Study 5 Insurance Distribution and Intermediaries .pdf View
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6. C11 - Study 6 Law and the Judicial System .pdf View
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7. C11 - Study 7 The Law of Contract – Common Law.pdf View
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8. C11 - Study 8 Contract Law – Civil Code of Quebec.pdf View
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9. C11 - Study 9 The Insurance Contract.pdf  View
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10. C11 - Study 10 Insurance Documents and Processes.pdf View
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11. C11 - Study 11 Adjusters and the Claims Process .pdf View
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  C11 Summary Notes 13 Pages Long.pdf View

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• Risk and insurance.
• History and the functions of insurance
• Ratemaking, underwriting, and rating
• The insurer
• Insurance distribution and insurance intermediaries
• The law and the judicial system
• The law of contract: common law and the Civil Code of Quebec
• The insurance contract
• Insurance documents and processes
• Adjusters and the claims process
• Reinsurance
• Insurance organizations
• The customer

Definitions

Term What is the difference between risk and chance?	Definition Risk implies doubt about the outcome in a given situation, put the outcome is with risk is negative, a loss might occur. Change also implies doubt about the outcome in a given situation but the difference is the outcome is normally a favorable one to us.
Term Define Risk	Definition Risk implies some form of uncertainty about an outcome in a given situation. An event might occur and if it did the outcome might not be favorable to us. The possibility of loss.
Term Explain how uncertainty is related to risk	Definition Uncertainty implies doubt about the future. It is based on a lack of knowledge. The basis of risk is lack of knowledge. If we always knew what was going to happen there would be no risk. We operate in an uncertain or risky environment.
Term Define peril. Name two examples.	Definition A peril is an event that will give rise to a loss. ex. Flood, theft, fire, storm, accident and vandalism are all perils.
Term Define Hazard. Give two examples.	Definition Hazard is a factor which may influence the outcome of a loss. Hazards are not the cause of the loss, but they can increase the likelihood of a peril operating. ex. Wet floors(someone could slip and fall), flammable debris piled near the furnace in the basement will provide ready fuel should a spark escape, poorly maintained heating and air conditioning systems, use of damaged extension cords and overfusing are hazardous conditions and are more likely to result in a fire.
Term Define Hazard. Give two examples.	Definition Hazard is a factor which may influence the outcome of a loss. Hazards are not the cause of the loss, but they can increase the likelihood of a peril operating. ex. Wet floors(someone could slip and fall), flammable debris piled near the furnace in the basement will provide ready fuel should a spark escape, poorly maintained heating and air conditioning systems, use of damaged extension cords and overfusing are hazardous conditions and are more likely to result in a fire.
Term Give examples of personal risks to which individuals are exposed to.	Definition Personal risks are based on the loss of life or loss of income arising from premature death, physical disability, old age or unemployment. ex. If you become injured or ill and could not work for an extended period of time or ever again how would you surive? ex. If you die prematurely as a result of an accident how would your family survive. ex. if you lost your job
Term Give examples of personal risks to which individuals are exposed to.	Definition Personal risks are based on the loss of life or loss of income arising from premature death, physical disability, old age or unemployment. ex. If you become injured or ill and could not work for an extended period of time or ever again how would you surive? ex. If you die prematurely as a result of an accident how would your family survive. ex. if you lost your job
Term Give examples of property risks to which individuals are exposed to.	Definition These risks arise from property we own. ex. clothes, stereo, car
Term Give examples of liability risks to which individuals are exposed to.	Definition These risks arise out of our obligation to other people. ex. If we inadvertently cause injury to others or damage to their property we can be held responsible. ex. if we own or occupy a premise we are responsible to keep them safe. ex. If our children or pets cause damage to someones property we could be held responsible.
Term Give examples of personal risks to which businesses are exposed to.	Definition Personal risks for businesses arise of of being unable to manage the business. ex. Loss of life or injury to a business owner will prevent them from overseeing their business. Also the risk of not being able to fulfill the role as a business shareholder. ex. Loss causing death, disability, or sickness to one of the shareholders can leave them unable to contribute in their role. The other shareholders will be forced to continue without them, and the business will suffer.
Term Give examples of property risks to which businesses are exposed to.	Definition Risk of a peril damaging business property. Ex. Businesses are subject to many perils. Property damaged must be restored or repaired, which could be financially devastating. Risk of not paying bills. Ex. If an incident causes a business interruption and there is no income, bills will not be paid. Things like heat, water, electricity, mortgage and taxes still need to be paid even the business is not operating.
Term Give examples of property risks to which businesses are exposed to.	Definition Risk of a peril damaging business property. Ex. Businesses are subject to many perils. Property damaged must be restored or repaired, which could be financially devastating. Risk of not paying bills. Ex. If an incident causes a business interruption and there is no income, bills will not be paid. Things like heat, water, electricity, mortgage and taxes still need to be paid even the business is not operating.
Term Give examples of liability risks to which businesses are exposed to.	Definition Risk of occupancy of premises. Ex. If a customer experiences personal injury at the business site, it could prove costly if he or she decides to sue. Risk of products manufactured. ex. If products cause personal injury to customers, it could prove costly to the business. Risk of employee injury. ex. Employees could be hurt while operating on the job.
Term Define Speculative Risk	Definition Speculative risk exists where there is either a chance of loss or a chance of profit. There are two possible outcomes:gain or loss. Such risks are not insurable. ex. A wager on a throw of dice or any other form of gambling could have a good or bad outcome. ex. A student does not study has the possibility of failing the exam as well as passing
Term Define pure risk	Definition Pure risk entails the chance of loss but no chance of profit. There are two possible outcomes, we may suffer a loss or there is no change in our existing condition. ex. If we leave our cars unlocked we may return to find them as we left them or we may not.
Term Define Risk management	Definition The minimization (at a minimum cost) of the detrimental effects of risk by identifying the risk, measuring the risk and controlling the risk.
Term Define insurance	Definition Insurance is the undertaking by on person to indemnify another person against loss, or liability for loss with respect to risk, peril to which the object o the insurance may be exposed or to pay a sum of money or other thing of value upon the happening of a certain event.
Term How does insurance provide security?	Definition .by indemnifying loss .insureds do not have to worry about facing financial hardship .insured will only suffer a minor inconvenience and mental aggravation following a loss

C11 Chapter 1 review questions

Terms	Definitions
Define risk.	risk is the uncertainty of the outcome with several possibilities.
Differentiate between risk and chance.	chance is associated with a positive outcome such as winning a bet whereas risk is associated with the possibility of loss.
Explain how uncertainty is related to risk.	uncertainty implies doubt about the future. It is a component of risk.
Define peril and give at least TWO (2) examples of perils.	is an event that will give rise to a loss. examples are flooding and wild fires.
Define hazard and give at least TWO (2) examples of hazards.	is a factor which may increase the likelihood of a peril happening or make an event more serious. e.g. slippery floors, malfunctioning fire alarm.
Give examples of the following types of risks to which individuals are exposed: i. Personal	injury resulting in loss of work income
Give examples of the following types of risks to which individuals are exposed:ii. Property	theft of vehicle or household break-in.
Give examples of the following types of risks to which individuals are exposed iii. Liability	injury to others due to careless driving.
Give examples of the following types of risks to which businesses are exposed:iv. Personal	injury to owner - loss of income
Give examples of the following types of risks to which businesses are exposed:v. Property	damage to equipment of business
Give examples of the following types of risks to which businesses are exposed:vi. Liability	working injury to employees
Define risk management.	Risk management is the minimization of the detrimental effects of risk by identifying the risk, measuring the risk and controlling the risk
What does a risk manager do?	a risk manager looks at the risks involved and tries to control and minimize the negative outcomes.
How might risk be identified?	can be identified by determining which perils could occur and result in a loss.
How is risk measured?	to determine the likelihood of each identified peril occurring.
What are some methods for controlling risk?	to deal with it in the most cost effective manner. 3 ways 1. reduce or eliminate 2. assume or retain it 3. self-insure or transfer through means of insurance
Explain THREE (3) ways of assuming or retaining risk.	1. you can ignore the risk and hope for the best 2. you can self-insure 3. you can transfer risk to insurance
How does purchasing insurance enable an individual or business to control risk?	by paying a small premium, it allows the ind/bus. to cover the cost of a peril in the event that it occurs.
Provide a definition of insurance.	it is the method of sharing the losses of the few individuals in a group who suffer them among the many members of that group who do not.
Explain what it means to be indemnified.	it means to put back in the same financial position as just prior to the loss.
What are reserves?	are funds required by law, to be set aside to pay for losses reported but not yet paid or not yet reported and to cover unearned premiums.
What are unearned premiums?	consist of that portion of the premium that has not get been earned on a given policy.
What is the main objective of insurance?	it is to spread the losses of a small number of individuals over as great a population as possible

C11 - Chapter 2 Review Questions

Terms Definitions How has insurance developed over the centuries? it evolved from paying losses to preventing losses How were early insurance companies involved in fire loss prevention? they owned and operate the first fire brigades. Identify the THREE (3) major categories of insurance and give an example of each. 1. social insurance - e.g. healthcare 2. life and health insurance - e.g. life, sickness insurance 3. property and casualty insurance - e.g. all insurance not covering first 2. automobile, property. What is the difference between general insurance and property/casualty insurance? they are the same. Give examples of different classes of general insurance and explain what each class covers. automobile - liability, accident, disability Property - insures against loss or damage Liability - insurance against claims arising out of injury or death, loss or damage of others What is a multi-peril policy? when crime (theft, burglary, robbery) is added to a policy. What is an all risk policy? insure loss or damage resulting from all risks except those excluded. What does marine insurance provide? It provides both hull (the ship itself) and cargo insurance plus liability. What is a surety bond? is not insurance. A surety bond guarantees that the principal will perform the obligation or undertaking he or she has with a third party. What is the main purpose of insurance? spreading the risk of loss from one person to many Explain the TWO (2) facets of spread of risk. 1. individual - removes burden of loss from one set of shoulders and sharing it  2. insurers - balance of premiums to losses and expenses by having a good spread of risk. How do insurers spread risk? (3) 1. volume 2. diversity of type of risk 3. diversity of location What are the other functions of insurance? Security, credit, capital, unemployment, loss prevention What benefit does insurance provide to insureds, in addition to paying their claims? it provides a peace of mind, feel more certain of the future How does insurance affect the availability of credit? it allows a greater flow of credit. How does insurance provide two-fold protection? It protects the insured's interest in property and the lender's investment. How does insurance stimulate the economy? It invests heavily in bonds and other secure investments. It employs a significant part of the population. Outline some loss prevention activities in which insurers are involved. e.g. fire prevention, safe driving, fraud prevention Why can it be said that insurance is much more than a facility for paying losses? it is a vital component of an advanced technological society. those that have much, have much to lose. The economy would collapse without insurance. If insurance had not evolved along with technology, would we have the highly developed society in which we live today? No. C11 Chapter 3 Review Questions Terms Definitions Define ratemaking. its the process of establishing rates for each class of insurance Define chance. is the number of times the event happens / the number of times the event may possibly happen What THREE (3) factors affect the accuracy of predictions? 1. the size of the sample 2. time over which sample was taken 3. conditions in the past relative to future condtions What is the difference between the probability and the uncertainty of an event occurring? Insurance reduces uncertainty. The smaller the sample size, the higher degree of uncertainty. List the steps required in the ratemaking process, describe what each one entails, and explain why each one is necessary. 1. Classify risks (based on types of objects and hazards of exposure) 2. Stats on past losses 3. Determine pure premium 4. Determine the total premium 5. Determine rate What is the difference between pure premium and total premium? Pure premium is the premium required to meet the losses that occur while a total premium is determined by adding loadings (trends, repair costs, inflation, expenses, overhead and profit) Define underwriting. Underwriting is the selection of risks What is a peril? A peril is an event which may cause a loss to occur. What is the difference between named peril policies and multi-peril policies? named peril polices name the perils insured against whereas mutil-peril policies refer to a combination of fire and casualty. Define negligence. is doing something a reasonable person would not do or not doing something a reasonable person would do. What is a hazard? is a condition that may cause a peril to occur. What is the difference between a physical hazard and a moral hazard? physical hazard - physical features of a risk (e.g. slippery floors) moral hazard - relates to the character of the insured What is the subject of insurance contracts? Risk is the subject of an insurance contract. Discuss the TWO (2) meanings of exposure as they relate to insurance. exposure is the danger of loss arising from what happens to a risk nearby. e.g. neigbour is a fireworks factory. exposure is also the sum total of values insured under a policy. e.g. $2 million factory is the exposure for a insurer. What factors will determine the amount an underwriter may be willing to insure on a given risk? Retention - amount an insurer retains for self Reinsurance - share risk with another insurer. What is an insurer's retention? The amount an insurer retains for self Define reinsurance. Shares risk with another insurer by paying to that insurer a portion of the premium. Who carries out the rating function? Carried by underwriters or rating clerks How are loadings and deductions (or credits) used in rating? Loadings - adds loadings to risk for features considered more hazardous than average for that class Deductions - are allowed for features that make a riskless hazardous than the average risk of that class What is the difference between ratemaking and rating? ratemaking is the process of establishing rates for each class whereas rating is applying established rates to specific items. C11 - Chapter 4 Review Questions Terms Definitions What are captive insurers and how do they operate? very large industrial or commercial organizations may form their own insurance companies Define fronting and give examples. arrangement where an insurer issues a policy at the request of another insurance company with the latter carrying a large part of the risk and the former being paid for the use of its name. What is the main objective of cooperatives? Originally the main objective of cooperatives was the mutual benefit for their members. Who owns a mutual insurance company? It is owned by the policyholders. How does an assessment mutual insurance company operate? members elect a board of directors from among their numbers. A premium note was signed by policyholders. How does a reciprocal insurance exchange operate? Members of an exchange (subscribers) agree to share in the payment of each other's losses to the extent that these losses are covered by insurance policies issued by the exchange. How is capital raised to organize a stock insurance company? the capital invested by the shareholders is put to work in the business of insurance. Define incurred loss and give examples. the losses paid plus the change (positive or negative) in out-standing loss reserves within a given period of time. What expenses does an insurance company have? Insurance companies have many expenses. They include salaries, office expenses, marketing. What are the TWO (2) main sources of an insurer's revenue? The two main sources of revenue for an insurer are an underwriting gain, excess premiums from policyholders and income from investment. What is the responsibility of the board of directors? The board of directors are responsible for selecting the CEO of the company and voting on the representing the will of the shareholders. What is the responsibility of the CEO? The Chief Executive Officer is responsible for managing the operations of the company. This includes creating the general direction of the company. What is the purpose of insurance pools? Insurance companies join together and form pools to take on risk that no individual insurer wishes to take on. i.e. nuclear insurance association of Canada. Why is the organizational structure of all insurers not the same The organizational structure of insurers vary due to the size and scope of their business. What common functions must be carried out by all insurers? Administration, Finance and accounting, Actuarial, branch operations, marketing, underwriting, claims, Who regulates and monitors insurance companies? The office of the superintendent of financial institutions regulates and monitors insurance companies. What is the full name of OSFI and what is its purpose? office of the superintendent of financial institutions is responsible for the constant supervision and enforcement of safeguards so in adequately financed insurance companies are not established. How are foreign insurers regulated? Foreign insurers are regulated the same as Canadian insurers plus additional regulations. What is Lloyd's? Lloyd's is an insurance market. It consists of independent businesses which provide capital to the market and underwriter in syndicates. Describe the functions of the following: (i) Lloyd's brokers Lloyd's brokers place risks in Lloyd's market on behalf of clients. Describe the functions of the following: (ii) Syndicates Syndicates are groups of members who employ professional underwriters to accept risk on their behalf. Each syndicate is run by a managing agent. Describe the functions of the following: (iii) Lloyd's underwriters The risks placed with underwriters originate from clients and other brokers and intermediaries all over the world. Describe the functions of the following: (iv) Managing agents is responsible to employ the underwriting staff and manage the syndicate on the members behalf. A managing agent must be a company specifically established for the purpose of managing a syndicate. C11 - Chapter 5 Review Questions Terms Definitions What is the difference between a broker and an agent? A broker is an independent person who may place business with any number of insurers while an agent represents one company. Define a general agent. A general agent has authority from a company to manage all of the company's business within his or her territory. What is the difference between an independent agent and an exclusive agent? an independent agent sells for many companies whereas an exclusive agent sells for one How do direct writers deliver their product to the consumer? Company employees do the selling and are paid salaries plus commission Define an insurance intermediary. An insurance intermediary is a person authorized by another to act on his or her behalf Provide an example of a mandate under Quebec law. A mandate is a contact by which a person called the mandator (principal) commits a lawful business to the management of another called the mandatary (agent) What is a mandatory? A mandatory is an party (agent) which is managed by the principal party. Who or what determines the relationship between insurers and their agents/brokers? the principal and agent relationship Who licenses insurance agents/brokers? licensing is controlled through the provincial insurance regulator. Define self-regulation. Self-regulation is the regulation of agents/brokers by a council of reps from the industry instead of regulation by the government What are the FOUR (4) main areas of concern with respect to the regulation of insurance intermediaries? -Qualification - Licensing - Operating requirements - Renewal of Licenses Candidates for brokers'/agents' licences are examined in what TWO (2) main areas? - knowledge of the insurance business - government regulations pertaining to insurance intermediaries What is an agency/brokerage agreement? agency/brokerage agreements or contracts set out the terms and conditions under which an agent or broker will bring business to the named insurance company. From whom do agents/brokers obtain their authority with respect to the insurance they sell? brokers/agents obtain their authority from the agreement or contract entered into with their insurers. Distinguish between express and implied contracts. an express contract is one in which the terms have been specifically stated and agreed to by both sides orally or in writing. An implied contract is one in which the parties have acted that it is understood that a principal-agent relationship existed despite no expressed statement by either. Define binding authority. Is the permission to confirm coverage before submitting it to an insurer. Why must a broker have at least two bank accounts? Brokers must have two accounts to distinguish between premiums collected which must be remitted to the insurer and operating funds which are used to run their business. What are the purposes of the insurance trust account and the operating account? The trust account contains funds that are to be remitted to the insurer. They are premiums collected by the brokerage from policyholders. The operating account contains funds that are used to operate the business. How is commission determined? Commission is determined between the intermediary and the insurer in the agency agreement. What is the main function of an insurance intermediary? Intermediaries facilitate the completion of contracts. C11 Chapter 6 Review Terms Definitions Define law. expressed as the will of society governing relationships among members of that society. What are the TWO (2) most basic categories of law? substantive and procedural law Distinguish between substantive law and procedural law. substantive law consists of the rights and duties that each person has in society (e.g. right to property, vote) whereas procedural law is concerned with the methods of protecting and enforcing those rights and duties. (e.g. decides that one party has defaulted on a contract) Into what TWO (2) fields are substantive rules divided? public and private law Where does common law apply? It applies in all Canadian provinces except Quebec. What is another name for civil law? codified law. How did common law originate? It originated in England and was influenced by Canon (church) law and Roman law. What are the main features of common law? It is based on precedent in which case law is used. Define precedent and give examples. A precedent is a legal decision serving as an authoritative rule in future similar cases. Define case law and give examples. case law is when a court looks at prior cases with similar facts and is then bound to follow the decisions made in those cases by courts of equal or higher authority. I.e. divorce settlements, automobile accident settlement. Define judge-made law and give examples. Judge made law occurs when there is no precedent to follow and hence a precedent is set. i.e. setting the first automobile speed limits How did the Civil Code of Quebec originate? It has its origins from the Code Napolean and customs of France. What is the main difference between common law and the Civil Code of Quebec? the main difference is in how laws are applied. Common law uses precedents whereas the Civil Code applies provisions from an article. Define a statute and give examples. a statute is a written law that overrides all common law dealing with the same point. It cannot override a rule within the Civil Code. i.e. statute prohibiting using a cell phone while driving. What effect do statutes have on common law? On the Civil Code of Quebec? statutes overrides all common law dealing with the same point. It cannot override a rule within the Civil code. What determines whether a legal case is tried in a provincial or a federal court? The constitution act 1867 determines the jurisdiction of the case to be tried in federal or provincial court. What are the main components of the provincial court system in common law provinces? Superior courts- federal judges County courts - federal judges Provincial courts - provincial judges What are the main components of the provincial court system in Quebec? Quebec court of appeal - federal judges Superior court - federal judges Court of Quebec - provincial judges What are the main components of the federal court system? Supreme court of Canada - final court of appeal, constitutional matters Federal Court of Canada - handles matters that fall under federal jurisdiction What TWO (2) things make the Supreme Court different from any other court in Canada? consists of 9 justices and permission must be obtained from the Supreme court to hear a case. How many judges sit on the Supreme Court of Canada? 9. Chief Justice of the supreme court and 8 Puisine justices. C11 - Chapter 7 review questions Terms Definitions Provide a simple definition of a contract. is a deliberate engagement between competent parties upon a legal consideration to do or abstain from doing some act. What FIVE (5) elements are essential to a legally binding contract? 1. offer and acceptance (agreement) 2. capacity of parties to contract 3. consideration 4. genuine intention 5. legality of object. How must you make an offer when you want to enter into a contract? the offer must be definite and must be communicated. How must an acceptance of an offer be made? It must be definite and communicated. It must be absolute and correspond to the terms of the offer. What is a counter-offer? If a new term of an offer is introduced, it becomes a counter-offer. Who does not have full capacity to contract? minors or individuals under the age of the majority and other persons of unsound mind or incapacitate through drink or drugs. Why are there special rules of contract with respect to certain classes of people? The rules are in place because they cannot be enforced in courts as it could be seen as taking advantage. Define consideration in the context of contract law. It is evidence of a serious intent to contract in which some monetary value is shown. What is a gratuitous promise? a promise to another when the element of a bargain is completely absent. Does not constitute a contract and is not enforceable at law. What is genuine intention? An intent to create a legally binding contract. How do you determine whether the object of a contract is legal? The object must be deemed legal under common law or statute law. What is the difference between a void contract and a voidable contract? a void contract is treated like it never existed whereas a voidable contract can be affirmed or rejected at the option of the aggrieved party. What FOUR (4) reasons might cause a contract to be set aside? 1. mistake 2. misrepresentation 3. undue influence 4. duress Describe TWO (2) types of mistakes that may occur in contracts. mistakes about the terms - result from typographical mistake, misunderstanding of certain words used, misquote etc. mistakes about the assumptions - mistakes that fundamentally affect the nature of the contract made. e.g. a tornado destroys a building when a contract is signed. How can misrepresentation affect a contract? a misrepresentation is an incorrect statement which may convince a party to enter into a contract. What is a material fact? is a fact that is so basic and import to the contract that withholding this fact could alter the terms of the contract. What is the difference between innocent and fraudulent misrepresentation? innocent misrepresentation is an incorrect statement made innocently whereas a fraudulent is a false statement made deliberately. Give an example of a contract entered into under duress, and comment on its legal status. An example is a party blackmailing another party to sign over their house or face violence. What are the methods of discharging a contract? -performance - agreement - frustration - operation of law - breach If one party commits a breach of contract but the other party has already had some benefit from the contract, what action should be taken? the other party cannot repudiate all liability on the contract if he or she has benefited from the contract. C11 Chapter 8 Review Questions Terms Definitions Define contract. contract is an agreement that one party will perform some service or benefit for the other party who generally, agrees to pay for it, although payment, in and of itself, is not essential for a contract to exist. How does a contract of adhesion differ from a contract of mutual agreement? a contract of adhesion is drawn up by one of the parties and is not negotiable whereas a contract of mutual agreement is. What are the FOUR (4) requisites of a valid contract? 1. consent 2. capacity to contract 3. cause of contract 4. object of contract What are the TWO (2) parts of consent? offer and acceptance. When and how can an offer be revoked? the offer may be revoked at any time before acceptance is received by the offeror. Explain the difference between a determinate person and an indeterminate person. a determinate person is a particular individual whereas an indeterminate person would be a general group such as the public at large. Define counter-offer and give examples. When an offer is made and the person to whom it is made accepts it in theory but wants substantial changes in the conditions, that would in effect be a counteroffer. Give THREE (3) examples of when lesion occurs. Lesion is defined as an economic error on the value of the prestation or a damage to the interests of a party to the contract.  1. lesion occurs when a minor or someone incapable of looking after his or her affairs cannot financially afford the object of the contract Give THREE (3) examples of tainted or imperfect consent. a person whose consent has been tainted or obtained by illegal means may have the contract set aside or voided. Name TWO (2) classes of people who have limited capacity to contract. 1. minors 2. person of diminished mental capacity resulting from illness, accident or age. Define emancipation and explain how it can be obtained. when a minor attains the age of 16, they or their tutors may apply to the court for emancipation. What is the purpose of tutors or curators, and who appoints them? appointed by the court to represent minors/disabled people in the management of their affairs. Give TWO (2) examples of prodigality. a person who is unable to to properly manger his or her affairs.  i.e. an alcoholic who spends his whole paycheque on wine and a lavish lifestyle i.e. a person of old age who has money saved but who is persuaded to give it away without valid reason Explain the difference between a natural person and a legal person. individuals are natural persons whereas a group of individuals such as corporations are legal persons. Explain the cause of contracts. the cause (consideration) of a contract is the prime reason why a person agrees to enter into a contract. Define the object of a contract. each party to the contract must have some obligation to perform. Explain the difference between absolute nullity and relative nullity. relative nullity is a voidable contract whereas absolute nullity is a void contract. What is probably the most important point to keep in mind when drafting a contract? should clearly state all terms in language that all parties understand. If there is confusion, the party who drafted the contract will be interpreted against. Name SIX (6) ways a contract can be terminated. 1. payment 2. expiry of an extinctive term 3. novation - replacement of obligation with new obligation 4. prescription - expiration of any time periods set by law. 5. compensation -  6. confusion C11 - Chapter 9 Review Questions 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. C11 - Chapter 10 review questions Terms Definitions What is the purpose of an insurance application? the purpose is a request for insurance coverage. What is an oral application? one in which the applicant gives the information orally to the agent/broker who writes it down and submits to an insurer. Define coverage. term used for insurance protection When is temporary insurance useful? It is useful when the insurer may agree to insure the risk but simply does not yet have certain information or confirmations to issue the policy. Distinguish between a cover note and a binder. a binder is an agreement to insure that is issued by the insurer and a cover note is a document issued by agents/brokers that tells the insured that the insurance has been effected. What is a deductible? is the amount of a loss which the insured must pay. How is a binder cancelled? a temporary insurance document is issued for a fix period of time. Define an insurance policy. is an instrument evidencing a contract. It states the exact terms and provision of that contract. What are the basic parts of an insurance policy? -Declarations (introduction) -Insuring agreements -Statutory conditions/Quebec general conditions -Policy conditions -Signature clause What is contra proferentem? It means against the offeror. It means that if there is any disagreement as to the meaning or interpretation for a policy, the court would interpret it in such a way as is most advantageous to the insured. What is a warranty? is a promise by the insured as part of the contract that a specified state of affairs will continue to exist for the duration of the policy. What is a representation? is a statement of existing fact at the time it was made. What is pro rata cancellation? is the cancellation of a policy when the return premium paid is the full proportionate part due for the unexpired term. What is short rate or short date cancellation? is applicable when the policyholder cancels before a policy reaches its natural expiration. When is a reinstatement endorsement used? will put a previously cancelled policy back in force upon agreement of the insured and insurer. How does a policy lapse? It is lapsed when the policy is not renewed. What is an expired policy? It is expired when the term has been completed and it has not been renewed. What factors influence the standardization of insurance policies? - legislation - may specify an enitre policy wording or may just set certain guidelines with respect to eh contents of a policy. - general usage - most personal lines and many mercantile risks have similar exposures and lend themselves well to standard policies. - court decisions - have established the meaning of phrases used in certain policies and insurers may be reluctant to change them. What is a manuscript policy? one that is specifically designed for a particular risk. What is the purpose of a certificate of insurance? it is the verification of insurance to a third party. i.e. owner wants confirmation of insurance by contractor. C11 Chapter 11 Review Questions Terms Definitions What are the TWO (2) types of losses insurers face? first party and third party Who is responsible for proving the amount of a loss? The onus of proof is on the insured. Who reports a loss, and to whom do they report it? a loss is reported by an insured or thirty party who reports it to a broker/agent or directly to an insurance company. What is the first thing that an insurer does before taking any action concerning a reported loss? they must confirm coverage by checking the loss details against a hard copy What is the second step an insurer takes concerning a reported loss? it routes the claim What is a proof of loss? a document that is completed and signed by insureds making claims against their own insurer.  It also releases the insurer of further obligations relating to that loss and transfers title to any useful salvage to the insurer. How do insurers determine who investigates a loss? It depends on the type of claim, its complexity and the insurer's standard procedures. What are some subtle ways insureds may perpetrate insurance fraud? - overstating settlement values -claiming items that never existed - claiming for damage that was never intended to be covered by insurance What is an estoppel and how can it arise? it is a doctrine of law which precludes a person from denying the truth of a statement formerly made by him. It arises when a person is forbidden by law to speak against his own act or dded. What is prescription and how is it determined? It is the time after which a claim cannot be made. It is determined by the statute of limitations. What is a statement of claim? it is a written statement by a plaintiff detailing the facts which support the claim against the defendant and the relief sought What is a waiver? it is the voluntary relinquishment of a known right. What is the difference between a non-waiver agreement and a reservation of rights letter? a non-waiver agreement recognizes that there is a possible right (e.g. deny liability) whereas a reservation of rights does not have it. Why is an adjuster's first report so important? It includes an estimate of the damages and the first indication of the potential cost of the claim. What are loss reserves and what is their purpose? it consists of funds set aside to cover all of an insurer's outstanding claims. What is onus of proof and on whom does it rest? Onus of proof is the responsibility of proof. It rests with the insured. Define proximate cause. It is the immediate and effective cause of the loss or damage. What is the difference between an immediate cause and a remote cause? the immediate cause is the last link in the chain of events whereas the remote cause is a cause that is not the proximate cause. e.g. Squib cases - immediate cause was last stall owner throwing firecracker that unintentionally hit the plaintiff in the face, a remote cause is the 2nd stall owner throwing firecracker into last owner's stall. What is the purpose of a release? A release is a document in which one party (who has suffered damages or injuries) releases another party (who allegedly caused the damages or injuries or is responsible for the) from all further claims arising out of the incident in return for a sum of money paid for the damages or injuries suffered. Explain the concept of salvage. Salvage is what is left of property after a loss. It may be undamaged property or partially damaged property that still has some value. Identify and describe FOUR (4) types of adjusters. telephone - salaried employees, large volume, no face to face interview, straightforward losses. staff adjusters - salaried employyes, investigate negotiate and settle claims, have authority to commit insurer to a settlemnt, no licenses in QU & NB Independent - independent bus. ppl, accepts assignments from many insurers, require licenses, less latitude to settle claims Public - indep. bus. ppl, hired by insureds to rep. their int. during a claim, paid by insured, usually a % of the claim recovered. Discuss the concept of subrogation and how it affects the claims process? it is the right of an insurer after settling a claim to assume the rights of the insured to recover this loss from a responsible party. C11 - Chapter 12 Review Questions Terms Definitions What is reinsurance? reinsurance is the insurance for insurance companies Explain the difference between cession and retention. cession is the amount of business ceded to another company. Retention is the amount that the original insurer keeps for its own account. Why do insurers reinsure? - to increase the insurer's capacity to write business - to maintain a proper reserve balance - to reduce the effect of a catastrophic loss - to provide stability in a fluctuating market - to enable a business to cease operations How does reinsurance increase an insurer's capacity to write business? allows it to write a higher level of risk and enables it to accept large amounts that it might not be able to do on its own How can an insurer deal with a sudden large increase in new business that leaves it with insufficient assets to meet reserve requirements? the insurer reinsures a greater portion of new business and thus decreases its reserve requirements by transferring liability to the reinsurer How is reinsurance used to reduce the effect of catastrophic losses? enables an insurer to control losses from a single event How can an insurer limit the amount of its losses in any given year? plan and determine ahead of time how much it is prepared to pay out in losses under the worst possible loss scenario Explain the difference between proportional and non-proportional reinsurance. proportional reinsurance by transferring a % of risk for the same % of the original premium non-proportional reinsurance is the insurer pays all of the loss up to an agreed amount called the priority, the reinsurer then pays the rest. What is a priority? The amount of loss that the insurer will pay. How does a treaty operate? an agreement between the insurer and the reinsurer which provides for automatic reinsurance without the insurer having to submit each and every risk to the reinsurer. What is facultative reinsurance? reinsurance is placed on an individual basis. What is the general purpose shared by many insurance industry organizations? provide services that complement the business of insurance. What are the functions of the Insurance Bureau of Canada (IBC)? -Issues management - Investigative services - Insurance information What are the most common types of fraud encountered in insurance? automobile theft and staged automobile accidents What is the purpose of the Facility Association? provides automobile insurance to high risk drivers What are the goals of the Insurance Brokers' Association of Canada (IBAC)? Its goals are to elevate the status of independent insurance intermediaries through professional development and safeguard the public interest by establishing improved standards of qualification and ethics What are the goals of the Canadian Independent Adjusters' Association? is to provide leadership for Canada's independent adjusters through advocacy, education, and recognized professional standards What are the functions of the Canadian Insurance Claims Managers' Association? promotes a function high standard of ethics in the handling of claims. One of its main functions is to administer the Canadian Inter-Company Arbitration Agreement which exists to arbitrate disputes among the companies who are signatories to the agreement. Why are customers' perceptions of the insurance industry so important? no customer, no insurance industry. Click for more notes