Class Notes (809,497)
Canada (493,753)
AFM 231 (50)
Sally Gunz (13)
Lecture 13

AFM 231 - Lecture 13 (2013.02.28).doc

3 Pages
Unlock Document

University of Waterloo
Accounting & Financial Management
AFM 231
Sally Gunz

AFM 231 – Business Law Thursday, February 28, 2013 Lecture 13: Insurance Scope:  Insurance contracts are unique and they are governed by statute law.  There are unique concepts to insurance law that are important you understand – these make insurance work.  It is useful for you to learn the different types of insurance contracts a business might routinely enter into (buy) – see Insurance Products section. Basic Concepts  In Class 3 we discussed risk management.  Insurance was relevant in two respects: a. It is part of the way a business will transfer risk to another entity. b. Almost always, some of the risk is retained because the business will elect to have a deductible.  It is almost always possible to get insurance coverage. But sometimes it is simply not worth it; e.g.: a. The cost exceeds any possible future pay out. b. Or the risk is deemed too infinitesimal.  That is why entities sometimes ‘self insure’. Insurance is a regulated industry  The insurance industry in Ontario (and any other province) is regulated by its own act: Insurance Act R.S.O. 1990, CHAPTER I.8  The act licences insurance companies, brokers etc.  Establishes clear rules by which all participants can operate. Why? At its most basic, because if Insurance Co. X is taking my money over perhaps 40 years, it is critical that when it comes time to pay out, that it has the money to do so.  In this respect, not dissimilar to the banking industry which also is regulated by its own Act (although that is federal) Terminology  Policy: the name for the contract  Insurer: the company giving coverage  Insured: the person/party covered  Premium: what you pay (consideration) for the coverage  The loss: is the event that is being insured or covered (eg fire, life, negligence, etc.)  Deductible: the amount of the loss the insured pays (e.g. the first $2000 on a car insurance policy). The contract of “utmost good faith”  (This relates to the ‘duty to disclose’pp. 709-711)  What is the implication of the insurance contract being a contract of utmost good faith?  It means that you must respond honestly and fully to any question asked that relates to the risk.  What happens if you don’t? You may find you are not covered i.e. the insurer may deny paying out on your subsequent claim as per the Lau case.  Why is this duty imposed?  Because you are being asked things often you only know (or it would be very cost-inefficient to expect the insurer to find out).  The essence of the contract is the insurer’s ability to assess risk.  Note: this is an on-going obligation. What does this mean?  If something changes that is relevant to the risk, you must advise the insurer (or your broker) e.g. building is occupied, or you take up smoking and this is a non-smoking policy.  Marche v. Halifax Insurance p. 710-11 (tricky case) Further concepts: Insurable interest  I must benefit in some way from the item/event that is being insured (or be potentially harmed) e.g:  I am insuring against bad weather for a particular event I am running and subsequent losses.  I am insuring against an employee harming a customer in some manner.  With life insurance, the business is insuring e.g. against a director, officer, or shareholder dying.  Why is this a requirement? To discourage deliberate harm plus insurance is not equivalent to gambling (I am insuring against X public figure dying). Concepts: Indemnity  Insurance is a contract of indemnity i.e. the insurer covers the loss but no more.  Why? Because the insured should not profit from the event.  What is a co-insurance clause? See p.p. 711-12. Easiest to understand in terms of the problem it seeks to avoid: see next slide  Ie - Even though my factory is valued at $2 m. I know that it is very unlikely the loss from a fire will be 100 percent of that sum.And it is much cheaper to pay for insurance for only $1 m. If the loss
More Less

Related notes for AFM 231

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.