COMM231 Chapter Notes - Chapter 28: Co-Insurance, Liability Insurance, Insurance Broker

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14 Feb 2016
Department
Course
Chapter 28 – insurance
Key concepts
The most important elements of what you need to remember from this chapter are the
basic principles that govern insurance law and how they are dierent from contract law
in general. You should also gain an understanding of the role insurance can play in a risk
management program. We expect you to read the entire chapter and be very familiar
with the types of policies and the rights and obligations of the insurer and insured. Other
concepts you should know include:
The purpose of an insurance contract
The concepts and de!nition at page 692-696, which are critical to your understanding
of insurance
Particular elements of a policy including the dierence between a rider and an
endorsement
Errors and omissions insurance for professionals
Study notes
Insurance policy – contract of insurance
Insurer – company that sells insurance coverage
Insured – one who buys insurance coverage
Premium – price paid for insurance coverage
Insurance policy is contract
oParties agree to what kind of loss is covered, in what amount, under what
circumstances, at what cost
oRegulated by legislation in each provinces
Insurance legislation purposes:
oMandate the terms must be found in insurance contracts
oRegulate the insurance industry generally by setting out licensing requirements
for insurance companies, insurance brokers and insurance adjusters
oPutting in place a system for monitoring insurance companies, particularly with
respect to their !nancial operation
3 basic kinds of insurance
oLife and disability insurance – provide payments on death or disability of insured
oProperty insurance (also known as !re insurance) – provide payment when
property of insured is damaged or destroyed, also cover costs of machine
breakdown
oLiability insurance (also know as casualty insurance) – provide payment in
circumstances where the insured is held legally responsible for causing loss to
another
Deductible – insured is responsible for the !rst part of the loss, insurer has liability for
the balance
Insurance contract
oInsurance contracts are of a special nature – contracts of utmost good faith
oDuty to disclose - so that insurer can be in a position to fully assess the risk
against which the insured wants protection
Obligation of the insured to provide to the insurer all information that relates to
the risk being insured
If insured fail this duty, insurer can choose not to honour the policy
Insurer can deny coverage for non-disclosure even if the loss has nothing to do
with the matter that was left undisclosed
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Disclose is not all encompassing
Insurer should be worldly wise and show personal judgment
No onus on the insured to inform the insurer of matters ‘not personal to the
applicant’
This is an ongoing duty, not only at time of applying for the insurance
Insurer must be noti!ed about any change material to the risk
oInsurable interest - a !nancial stake in what is being insured
Test for whether the insured has insurable interest in the thing insured
Whether he bene!ts from its existence and would be prejudiced from its
destruction
Prevent people to insure property they have no real interest in and intentionally
destroy the property to make insurance claims
oIndemnity
Insured is not supposed to pro!t from the happening of the insured-against
event, but at most will come out even
Except for life insurance contract
E.g. you insured your plant against risk of !re with 2 dierent insurance
companies. In the event of loss, you cannot collect the loss from both insurance
companies. You only entitle to select the policy under which you will claim
indemnity. The insurer will be entitled to contribution from the other insurer on
a prorated basis
Coinsurance clause
If insured carries less insurance then the amount speci!ed in the clause,
insurer will pay only a speci!ed portion of the loss, and the insured must
absorb the remainder
oSubrogation
When insurer compensates the insured, it has right to sue the 3rd party who
caused the loss and to recover from that party what it has paid out to its
insured
Insurance company also have right to rebuild, repair, sale or replace what is
damaged to minimize its costs
E.g. stolen goods are recovered, insurer can sell the goods to recover its
costs
Forfeiture rule
If insured deliberately causes, he will not be able to collect his insurance
The policy
oLegislation requires standard form of policies for some types of insurance
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