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Canada (158,171)
MCS 3040 (220)
Chapter 28

Law Chapter 28.doc

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University of Guelph
Marketing and Consumer Studies
MCS 3040
Joseph Radocchia

Law Chapter 28: Insurance Intro - Insurance is the primary means of transferring the risk of various kinds of losses - Permits business to shift risk, through an insurance policy ( the insurer promises to compensate the person (known as the insured) should be contemplated loss actual occur - Insurer provides protection in exchange for payment, known as the insurance premium - Insurance can be costly and not always available - Important to remember: insurance does not prevent a loss from occurring, nor does it prevent the potential adverse publicity associated with a loss - Insurance policy = contract parties agree to what kind of loss I covered, in what amount, under what circumstances and at what cost - Insurance legislation serves a number of significant purposes: o Mandating the terms tht must be found in insurance contracts o Regulating the insurance industry generally by setting out licensing requirements for insurance companies, insurance brokers, and insurance adjusters o Putting in place a system for monitoring insurance companies, particularly with respect to their finacial operation - Main goal of insurance legislation: protect public from unscrupulous, financially unstable and problematic insurance companies - Provides working rules that create stability within the industry o Life/disability insurance: provides payments on the death or disability of insured o Property insurance (fire insurance): provides payment when property of the insured is damaged or destroyed through accidents. It can also cover the costs of machine breakdown o Liability insurance (casualty insurance): provides payment in circumstances where the insured is held legally responsible for causing loss or damage to another, known as the third party - With the exception of life insurance contracts, insurance policies can be written so that the insured pays a deductable o Means insured is responsible for the first part of the loss and the insurer has liability for the balance o Deductibles generally reduce premiums The Insurance Contract Duty to Disclose - Key consequence: insured has a duty to disclose to the insurer all information relevant to the risk; if she fails that duty the insurer may choose not to honour the policy - Can deny coverage for nondisclosure even if the loss has nothing to do with the matter that was left undisclosed - Law places this duty for the reason: o Insurer has to be in a position to full assess the risk against which the insured wants protection - Duty exists at the time of applying for the insurance and throughout the duration of the contract - Insurer must be notified about any change material to the risk Insurable Interest - Special nature of the insurance contract also means that its validity is contingent on the insured having an insurable interest in the thing insured - The test for whether the insured has an insurable interest is whether he benefits from its existence and would be prejudiced from its destruction - Rationale behind this is that allowing people to insure property they have no real interest in may for example lead them to intentionally destroy the property in order to make an insurance claim Indemnity - Insurance contracts are contracts of indemnity (exception life insurance) o The obligation on the insurer to make good the loss - This means the insured is not supposed to profit from the happening of the insured against event but at most will come out even - Some policies such as fire insurance require the insured to have coverage for a specified minimum portion of the value of the property in order to full recover from the insurer in the event of a fire - This requirement is in the form of a co insurance clause o Intended to discourage the insured from insuring the property for less than its value on the gamble that any loss is likely to be less than total o If this clause is in place, the insured carries less insurance then the amount specified in the clause, the insurer will pay only a specified portion of the loss, and the insured must absorb the remainder Subrogation - Insurer has what is called a right of subrogation o The right of the insurer to recover the amount paid on a claim from a third part that caused the loss - This right permits the insurer to step into the shoes of the insured and sue the wrongdoer The Policy - Insurance contracts are technical - Content is settled to some extent by legislation which requires standard form policies for some types of insurance - Changes in standard policy terms take the form of riders and endor
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