Chapter One - Legal and Corporate Environment of Claims
Identify and outline the framework if the legal systems of Canada in relation to claims handling.
What are the two civil law systems operating in Canada that concern the private rights of individuals?
Why is knowledge of contract law useful to adjusters?
Civil Law
· Civil law concerns the private rights of individuals (common law and civil code of Quebec)
· Legal precedents form the basis for deciding court cases in the common law provinces (well documented, well reasoned judgments)
· Principle of equity searches for fairness in all cases along with applying the law of precedent
· Provincial differences in the law exist (Quebec they rely on the written civil code of Quebec, rather than the legal precedent) statutes and regulations may also affect loss adjustment
· Civil law and its application to the business of insurance is concerned mainly with the law of contract and tort
Contract Law
· Is helpful when analyzing policy coverage’s, lease agreements, releases and other contracts
· When the fundamental elements of contract law are not contained within an agreement, a legally enforceable contract does not exist
Identify the elements of a valid contract and how this might affect claims.
What are the 5 essential elements of any contract under the common law?
What are the 4 essential elements of any contract under the Civil Code of Quebec?
Common Law and Contracts
· Contracts can be oral or written but must contain 5 elements:
1. Agreement – one party must make a definite (communicated) offer to another party, and that party must accept (counter offers may be made – a counter offer invalidates the original offer)
2. Capacity to contract – each party must have the legal right to make a contract
3. Consideration - the premium the insured agrees upon to exchange for the promise of indemnity in the event of a covered loss
4. Genuine Intention – intent to create a legally enforceable agreement – both parties must have the genuine intent to enter into the agreement
5. Legality of Object – policy cannot be established for a purpose that violates a civil statute, to ensure someone against the effects of a fortuitous loss is legal
A breach in any one of these conditions – the insurer has the right to void the contract.
Contract Law in Quebec
· Four basic elements for a contract in Quebec include:
1. Exchange of Consents – offer and acceptance is the exchange of consents, cannot be made under duress
2. Legal capacity to contract – contract must be made by persons legally able to do so, and the contract must be in the name of the legally capable party
3. Cause of a Contract – the reason why each party enters into the contract (profit)
4. Object of the Contract – obligation each party must fulfil under the contract (indemnification and premium)
· If the object of thecontract or cause of the contract is prohibited by law or contrary to public order the contract is null
Relative Nullity – contract is voidable
Absolute Nullity – contract is void
Explain the concept of privity of contract.
What does privity of contract mean?
Privity of Contract
· common law and civil code limit the right to enforce contractual obligations to the parties making the contract (ensures that this is a private relationship between the insured and insurance company)
· in Quebec the injured third party however will have the right to bring legal action against the insured party and insurance company
·
Discuss the additional legal requirements of insurance policies; principle of indemnity, insurable interest, and utmost good faith.
What are the three additional requirements that apply only to insurance contracts?
What is insurable interest?
Under what circumstances is a loss adjuster likely to be held personally liable for his or her conduct?
Underlying Principles of Insurance Contracts
· unique requirements for insurance contracts include:
1. principle of indemnity – payments made reflect the actual extent of the damage, insured should not benefit from this loss, but returned to the same financial position
2. insurable interest – established when the insured has a financial interest in preserving the property, they must have a financial relationship in the property insured (insured, lessee, bailee), these people will suffer a loss if the property is damaged (3 conditions to be met include: 1) physical object capable of being destroyed, 2) object must be the subject matter of the insurance, 3) insured must have a relationship to the property)
3. utmost good faith – obligation not to do something without reasonable justification, to deal in good faith, to counter the reasonable expectations of the other party in the exchange process
Consequences of bad faith
· this is when the insurer does not live up to its duty of utmost good faith and becomes liable for punitive damages
· consequences are to act as a deterrent to reprehensible conduct
· if loss adjusters act outside the scope of their authority they could be held personally liable
Discuss the aspects of disclosure, representations, material change, and warranties when a policyholder applies for insurance coverage.
What must a loss adjuster establish to show that a representation made by the insured was a material fact?
How is material change described in the provincial insurance statutes?
What is a warranty in relation to an insurance policy?
Formation of the Insurance Contact
Disclosure – An applicant must tell the truth when answering questions on the application and must disclose all know material facts.
Representation
· representations are statements that an applicant makes to the insurer about the risk to be insured – governed by utmost good faith
· insurer is legally entitled to rely on the of the accuracy of the representations of the applicant – a misrepresentation would allow the insurer to void the contract
· to establish whether a representation concerned a material fact the adjuster must obtain a statement from an underwriter that they would have declined of negotiated different terms if they had known the representation to be false
· insurer could not void the policy if the insurer had believed the representation to be true
· insured must be truthful and disclose material facts
Material Change
· if a material change occurs the insured must promptly notify the insurer of the change
· the insured has a limited amount of time to change the policy conditions or cancel the policy
· failure to notify the insurer of a change voids coverage of the property affected by the change
· Any change material to the risk and within the control and knowledge of the insured avoids the contract as to the part affected thereby, unless the change is promptly notified in writing to the insurer of its local agent, and the insurer when notified may return the unearned portion, if any, of the premium paid and cancel the contract, or may notify the insured in writing that if the insured desires the contract to continue in force the insured must within fifteen days of receipt of the notice, pay to the insurer an additional premium and in default of such payment the contract is no longer in force.
Warranties
· if a warranty is breached the insurer could void the policy because the warranty is deemed to be material
Warranty – is a promise by an insured to maintain certain conditions of the risk during the term of the policy
Promissory warranty – states that a fact is presently true and the insured promises to continue the practice during the policy period
Affirmative warranty – states that a fact is true when the insurance policy is purchased
Outline the remedies to a breach of contract.
What are the three typical remedies available to insurers when an insured is in breach of policy obligations?
Remedies for Breach of Contract
· 3 options in a breach of contract for the injured party
1. sue for damages that resulted from the breach and also for reimbursement of the part of the contract that was performed
2. compel performance of the terms of the contract or ask to be released from further contractual obligations
3. ask for an injunction to restrain the other party
· 3 options for the insurer as well
1. Repudiate the policy contract and treat it as void
2. Treat the policy contract as valid notwithstanding the breach
3. Treat the policy contract as valid despite the breach but cancel it as prescribed in the policy.
Termination of Obligations
· as a contractual term first party policies bar any action against the insurer within stated limits – essentially terminates the insurer’s obligations under the policy at that time
· provincial statutory conditions generally allow the insured one year from the date of loss to start an action (Manitoba fire loss = 2 years, Quebec = 3 years)
Relief from Forfeiture
· courts may grant relief to the party who has failed to perform an obligation within the specified amount of time
· courts will consider whether the insurance company was prejudiced by the condition that was not respected
· The principle of equity refers to the spirit of fairness and justness, in contrast with strictly formulated rules of precedent.
Policy Assignment
· insured may not assign their insurance policy to another person (selling of a business) a new policy must be issued
· resulting claim payment becomes freely assignable by the insured (insured signs claim payment in a fire loss to the contractor that completed the work)
What criteria are outlined in the IBC claims agreements that support a signatory insurers decision to forego the requirement for a formal sworn completed proof of loss?
When intending to present a claim, what must an insured do to mitigate damages?
Proof of Loss Form Requirement
· must be provided to insured’s within 60 days of the loss – if an insured refuses to give notice an agent or whomever the insurance money is payable can file the notice
· providing proof of loss does not guarantee coverage – and if the notice is waived the insured must still prove the loss
· most insurance companies will forgo the need for a signed proof of loss when:
1. claim is under a specific threshold
2. no suspicious element to the claim
3. subrogation is not an option
4. litigation is not anticipated on part of the insured
Loss Mitigation
· the insured is required to protect all damaged property from further damage following a loss – reducing the damage
· insured cannot recover for part of a loss that could have been prevented from protecting the property
Explain how subrogation works.
Subrogation
· right of subrogation passes to insurance companies from insured’s when losses are paid – the insured has been indemnified so the right for recovery from the at fault third party passes to the insurer
· loss adjuster must identify the loss exposure – can the insured be sued
· amount recoverable from a liable person is the cost of reinstating the property immediately prior to the loss – less depreciation
· betterment occurred to complete repairs must be removed from the repair bills – as well as any cost to bring the property up to code, betterment rests with the defendant
Describe how insurance companies are organized in relation to claims.
Structure of insurance companies
· administration, marketing and finance form the main elements of the structure of any company, unique to the insurance company is the claims and underwriting
· underwriting invests the capital of an insurers shareholders by accepting/rejecting risks
· claims administers the claims process once a claim is submitted
· loss adjusters execute the policy obligations that arise from the risks assumed by the underwriters
Describe how claims departments are organized to accomplish their goals.
What does the Claims department do?
What are the two main methods used to set up reserves for claims?
Financial Results
· financial performance is measured by losses and expenses for a specified period divided by its operating results
· operating ratio (loss and expense ratios) is a benchmark of underwriting performance
Claims Department
· delivers on the promise made when the policy was sold
· the claims department pays out on losses maintaining a balance between fiscal responsibility and customer service
· claims department informs other departments about relevant risk information
· cancellation of a policy must be laid out correctly to ensure that the cancellation has legal effect
Loss Reserves
· are posted by claims to show the amount to eventually be paid on a claim in order to predict future costs
· management relies on reserves to predict business trends, costs and expense
· loss reserves approximate the impending loss payment for which funds must be set aside (including anticipated costs)
· adjusters modify loss reserves when necessary
Average Cost (volume) reserving – is chosen when a large number of claims in a particular line of business have produced reliable statistics (average cost highly predictable, high number of the same types of claims)
Individual reserving - is chosen when only the loss adjuster can effectively estimate a reserve (liability, injury and property are generally on a case-by-case basis)
Briefly explain government regulation of insurance companies.
What regulatory body oversees federally chartered insurance companies?
What does PACICC do?
Industry Regulatory Requirements
· insurance industry is subject to strict government regulation to ensure they can meet their financial obligations to policy holders and to ensure the best interests of the insured
· OSFI oversees the financial institution – and monitors the financial health, and loss reserves available
· Should an insurer become insolvent the PACICC (property and casualty insurance compensation corporation) would respond to the claims of policy holders under this insolvent company
· Each province and territory has their own insurance act that deals with the licensing of agents, approved policy forms, financial security etc. (acts chart pg 7
Explain how the privacy rights of policyholders and claimants are maintained.
What must a loss adjuster do to obtain the private financial, employment, or medical records of a claimant?
Privacy rights
· PIPEDA (personal information protection and electronic documents act) recognizes the privacy of individuals
· IBC developed guidelines to address the need to protect personal information given in insurance claims
· IBC has developed a consent wording for use in applications of insurance to allow insurers to collect, use, and disclose personal information for the purposes of communicating with clients, assessing applications for insurance and underwriting policies, evaluating claims, detecting and preventing fraud , analyzing business results and acting as required or authorized by law.
· The claimant must authorize release of information when it is required by a loss adjuster to settle a claim with the doctor or employer or any other necessary party
Identify insurance industry agreements used in claims handling and what they accomplish.
Name three IBC claims agreements?
Industry Agreements
· member insurance companies have concluded voluntary industry agreements to resolve certain claims in certain ways, claims agreements include:
1. agreement respecting standardization of claims forms and practices and guidelines for the settlement of claims, to avoid delays and disputes in the settlement of claims (60 day reporting period, pg 30)
2. agreement of guiding principles (property insurance), this is used to resolve claims when the property policies overlap in coverage
3. agreement of guiding principles between primary and excess liability insurers respecting claims, this is used to resolve claims when the property policies overlap in coverage
4. agreement respecting disputed losses between property insurance and boiler and machinery insurance policies
5. owned and non-owned contents agreement – Quebec only
6. insurance industry alternative dispute resolution (ADR) commitment
Describe and compare standards of conduct that apply to loss adjusters.
Through what activities does the CIAA provide leadership for adjusters?
Standards of Conduct for the Loss Adjuster
· Loss adjusters must conduct themselves in a fair and responsible manner, and assess the honesty of the claimant
· Standards of conduct are measured against principles such as honesty, integrity, and justice
· CIAA – Canadian independent adjusters association
· CIAA provides leadership through advocacy, education, and recognized professional standards.
· Opportunites for training, education, and professional development are made available and greater public understanding of the workings of the adjustment business is encouraged
· A higher standard of professionalism is defined through the CIAA code of ethics
·
· Acceptable Practices in relation to insured’s and claimants provide that:
1. insured’s and claimants are entitled to courteous, fair and objective treatment
2. copy of a written statement should be made available to the statement maker
3. adjusters do not give legal advice or deal with a claimant or insured that is represented by legal counsel
4. relevant insurance coverage shall be explained to the insured
5. written consent is required to obtain medical records
· adjusters owe insurers and self-insurers the following:
1. report all facts that are relevant to the claim
2. represent only one interest and report a conflict of interest
3. adjusters may not have any financial interest in the adjustment, nor take any salvage
4. adjusters will not engage in price setting among other adjusters
5. information is to be treated confidentially – only to be disclosed as authorized by the insured or by law
Settlement Authority
· independent adjuster has the authority to negotiate a claims settlement subject to the insurer’s approval
· in some circumstances special arrangements for claims handling contracts are negotiated with independent adjusting firms to settle claims up to a certain limit
· employees are generally granted a settlement authority on certain type of claims
· the adjuster can bind the insurer to agreements they make with the claimant
Identify insurance claims people who must be licensed in order to handle claims.
Licensing Requirements
· all independent adjusters are required to be licensed in the province they work
Explain how the Canadian Inter company Arbitration Agreement operates to resolve claims.
Canadian Inter-Company Arbitration Agreement
· Types of claims covered by this agreement include certain automobile subrogation claims, and claims or controversy including policy coverage and interpretations
· Insurers send in the pertinent parts of the claim and any argument they wish to present, claims are heard by three claims managers with experience in the matters being arbitrated
Supplier Partnerships
· Some insurers make agreements with independent businesses to supply services to insured’s
· Insurance companies want to be protected from shoddy workmanship
Provide an example of how fraud may occur in a claims situation.
Insurance Fraud
· CCAIF – Canadian coalition against insurance fraud – help to raise awareness of insurance fraud
· Insured’s may invent or exaggerate claims
· Suppliers may inflate invoices or create bogus invoices
· Claims investigations are carried out to ensure that information reported is factual
· Accidents and burglaries can be staged
What services would you expect a special investigations unit to handle.
The Investigative Services Division
· the insurance bureau of Canada assists to authorities in the detection and investigation of insurance related crimes through the investigative services division
· all suspicious fire related crime must be reported, claims with a fraud element, false statement in a proof f loss, all disability claims in excess of four weeks
· automobile thefts are reported to the IBC if not recovered within 48 hours
Criminal Acts
· Policies will exclude property that has been illegally acquired, imported, stored or transported
· If an insured lies about a claim the entire claim may become invalid
Special Investigations Unit
· This unit deals with claims where fraud is suspected, or there are details that require special attention
· These units are staffed with investigators who have specialized training in statement taking and preserving evidence
Fortuitous Loss – an accidental occurrence, or something that occurs by chance
Void – void contract is one that will be judged to have never existed and has no effect from the beginning
Voidable – a voidable contract is one in which the injured party may choose to proceed or declare the contract void (based on misrepresentation, error, or duress)
Estoppel – prevents a party for taking a certain course of action and revoking it after someone else has relied on such information to their detriment
· Reservation of rights letter provides notice to the insured that the investigation to determine coverage or quantum is underway
· This letter warns the insured that coverage depends on the outcome of the investigation – this letter protects the insurance against an estoppel
No comments:
Post a Comment