C12 Insurance on Property

1. C12 Insurance on Property Study 1 The Influence of Legislation

2. Introduction • Provincial Legislation • The laws of each province govern insurance contracts within the boundaries of that province • Insurance Act in common law provinces • Book 5 of the Civil Code of Quebec

3. Common Law Provinces and Territories • Insurance Act • Governs insurers and contracts for all classes of insurance • Fire Insurance applies to insurance against loss of or damage to property arising for the peril of fire in any contract made in the province • Parts of the Insurance Act that concern fire insurance also apply to property insurance contracts

4. Provisions Governing All Insurance Contracts • Property is in the province or an insurable interest of a resident of the province • Construed according to the law in the Province if: • Signed, countersigned, issued or delivered in the province • Committed to the post office • Or to any carrier, agent or messenger • To be delivered or handed over to the insured or insured’s agent in the province • Money payable at the office of the insurer’s chief officer or agent in the province

5. Provisions Governing All Insurance Contracts • Upon request, the insurer must furnish the insured with the original application • No insurer can write a policy that is conflicting with the Insurance Act of that province • IE: Fire only, no explosion • Imperfect Compliance by Insurer • An act or omission of the insurer in breach of any provision of the Insurance Act, does not render the contract invalid

6. Provisions Governing All Insurance Contracts • Every policy must contain: • Name of insurer • Name of insured • Name of any person to whom insurance money is payable • The amount, or method of determining a premium • The subject matter of insurance • Indemnity for which the insurer may become liable • Event on the happening of which liability is to increase • Effective date • Expiry date

7. Provisions Governing All Insurance Contracts • Provisions for Appraisal • Each party appoint an appraiser and the two appraisers appoint an umpire • The appraisers determine the matter of disagreement and if they fail to agree, submit their difference to the umpire • Agreement of any two parties, determines the matter • Each party pays for their own appraiser and the expense of the umpire are divided equally

8. Provisions Governing All Insurance Contracts • A judge may appoint an appraiser or an umpire if: • A party fails to appoint an appraiser within seven days • The appraisers fail to agree upon an umpire within 15 days • An appraiser or umpire fail to act or become incapable of acting or dies

9. Provisions Governing All Insurance Contracts • Waiver of Contract Terms • No contract terms can be waived unless the waiver is stated in writing and signed by someone of authority to do so • Non-waiver: Neither party have deemed to waive any terms of the contract by: • An act relating to appraisal • Delivery and completion of proofs • Investigation or adjustment of the claim

10. Provisions Governing All Insurance Contracts • Non-payment of Premium • Should a loss occur, the insurer can sue for the unpaid premium or deduct it from the loss settlement • NSF Cheque: The insurer must terminate policy as per Statutory Condition #5 (Discussed later) • Proof of Loss Forms • The insurer must furnish forms: • Immediately upon request • And in any event not more than 60 days after the notice of loss

11. Provisions Governing All Insurance Contracts • When Action May Be Brought Under Contract • No action before 60 days after proof of loss or the happening of the loss • Should an insurer not provide a proof of loss form as previously noted, the insurer loses this protection • Insurance as Collateral Security for a Mortgage • No commission or other benefit for mortgagee to arrange insurance

12. Provisions Governing Fire Insurance • Fire = actual ignition or visible flame • Loss against fire excludes: • Goods undergoing the application of heat • Riot, civil commotion, war, invasion, act of foreign enemy, hostilities, civil war, rebellion, revolution, insurrection, or military power • Lightning excluding destruction of or loss to electrical devices or appliances or other electrical currents unless fire originates. Then only for loss that occurs from fire

13. Provisions Governing Fire Insurance • Explosion caused by natural, coal or manufactured gas not forming part of a gas works. Excludes explosions caused by riot, civil commotion or other listed fire perils • Radioactive contamination directly or indirectly resulting from fire, lightning or explosion • A licence to transact fire insurance policies also allows insurer to insure the same property against loss from other named perils.

14. Provisions Governing Fire Insurance • Removal of Insured Property • Insurance Act extend coverage to insured property removed to prevent further loss for seven days or until the policy expires, whichever is less • Insured is responsible to minimize loss • Amount of insurance remains unchanged • Remaining amount is limited to the difference between the stated amount of insurance less the actual loss suffered

15. Provisions Governing Fire Insurance • Distribution is the splitting of a single amount of insurance to apply to property in more than one location • Two conditions: • The insurer agrees to pay a claim and the amount of insurance is reduced accordingly • If the amount of loss is equal to or greater than the amount of insurance, the full amount is payable

16. Provisions Governing Fire Insurance • If the value of insured property is greater than the amount of insured, the insured is underinsured • No payment beyond the amount of insurance • When the property is spread amongst multiple locations, the insurance must be split proportionately

17. Provisions Governing Fire Insurance • Written Applications • Written applications reduce misunderstanding • Onus upon insurer to properly review application • An issued policy is deemed to reflect the application unless differences are noted • Custom applications make it easier for insured to see what options are offered by an insurer and for the insurer to easily see variation in coverages • If insurer issues policy of different terms than requested, the insured has two weeks to accept or reject

18. Provisions Governing Fire Insurance • Written Applications • Rejection of the policy renders it void from the beginning

19. Provisions Governing Fire Insurance • Protection for Loss Payees • The insurer can not cancel or alter the policy without notifying any person to whom insurance money is payable • Failure to provide notice could result in the insurer becoming liable up to the amount of insurance • Insurer must give notice of cancellation to a payee in the same manner as required for the insured under Stat #5 and Stat #15

20. Provisions for Fire Insurance Contracts • Limitation of Liability Clause • A contract with any clause that limits recovery (coinsurance, deductible, etc.) must have printed on it, “This policy contains a clause that may limit the amount payable”. • This may be in black or red, depending on the province

21. Provisions for Fire Insurance Contracts • Rateable Contribution • Used when more than one policy covers the same interest at the time of loss • Each insurer pays a rateable portion of the loss based on the amounts of insurance on each policy and what portion that amount is of the total of all insurance limits • If two policies cover the same interest but one of them specifically insures the property, that policy will pay first, up to its limit, and the second policy will only pay any excess amount required over the first policy’s limits • Where there are deductibles, the insurer’s share of the loss is determined before the deductible is applied

22. Provisions for Fire Insurance Contracts • Rateable Contribution Example Insurer A - $20,000 Limit Insurer B – $35,0000 Limit Loss - $3,500 Formula: Individual Insurer Limit (x) Amount of the loss Combined limits of all insurers

23. Provisions for Fire Insurance Contracts • Rateable Contribution Example Insurer A: $20,000 / $20,000 + $35,000 (x) $3,500 = $1,272.72 Insurer B: $35,000 / $20,000 + $35,000 (x) $3,500 = $2,227.27

24. Statutory Conditions • Apply to ALL Fire insurance policies • Must be printed in every policy • Variations not binding on insured • Binding on both parties

25. Statutory Conditions • Misrepresentation • This condition states that the insured cannot omit or misrepresent a material fact while making application for insurance. If a material fact is misrepresented, the contract will be void as to the property that is affected by the misrepresentation. • Note that this condition pertains only to the application. Changes in the risk that occur after the policy is issued and misrepresentations made during a claim are covered in conditions four and seven, respectively.

26. Statutory Conditions • Property of Others • Condition does not define the word "owned" • Insurer is only liable for property owned by the insured • Policy will insure interests in property of persons other than insured if those interests are stated in the contract

27. Statutory Conditions • Change of Interest • This deals with the types of change of interest that may be allowed under the policy • Allowable changes, keeping the coverage in effect are: • Under Bankruptcy Act; • Succession; • Operation of Law • Death of the insured

28. Statutory Conditions • Material Change • The insured must tell the insurance company of anything material that changes during the policy term.

29. Statutory Conditions • Termination • This condition states the methods that the insurance company or the insured may cancel the contract. • The insured may cancel anytime with simple notice. The insurance company will then refund any unused premium by the "short rate" method. (Short rate = pro rata plus surcharge). • The insurance company can cancel the policy by written notice by registered letter or hand delivered refunding unused premium by the pro rata method. (pro rata = in proportion). • Termination is effective 15 days if by registered mail and period starts to count the day after the letter arrives at the receiving post office. If the letter is hand delivered, the period is five days from the date it is delivered.

30. Statutory Conditions • Requirements After Loss • This lays out all insured’s requirements after a loss. This includes: • Notice in writing giving an inventory of damaged goods • Describing how the loss occurred and that it wasn't on purpose • Give the names of any other insurance • Naming any other interest (liens, partners) in the property • Give details of any material changes • Describe where the property was at the time of the damage • If required give a complete inventory of undamaged goods • If requested provide books of account and other pertinent property.

31. Statutory Conditions • Fraud • Denies recovery to an insured whose statutory declaration is fraud or wilfully false. • A false statement is not fraud if it was believed to be true. • If fraud is proven regarding only part of a given claim, the entire claim may be denied. • When there is more than one named insured a fraudulent claim by one may be denied but the legitimate claim submitted by others would be paid. • Onus is on insurer to prove fraud.

32. Statutory Conditions • Who May Give Notice and Proof • The insured; • An agent of the insured (if the insured is incapacitated); or • If the insured refuses, anyone who is entitled to payment under the policy.

33. Statutory Conditions • Salvage • The insured must take steps to protect undamaged property. • The cost of protecting the damage will be proportionately borne by the insurance company but the insured is responsible to ensure that these steps are taken immediately after a loss.

34. Statutory Conditions • Entry, Control, Abandonment • This condition covers three areas of responsibility after a loss. • The insurance company has the right to enter the property immediately after a loss to survey the damage and again after the property has been secured to appraise the damage. • The insurance company never has the right to control or take possession of the property as ownership still rests with the insured. • The insured does not have the right to abandon the property to the insurance company and so is still responsible for its safekeeping.

35. Statutory Conditions • Appraisal • This allows for arbitration if the insurance company and the insured can't agree on the amount of the loss. • The details of how this arbitration process works is in the Act.

36. Statutory Conditions • When Loss Payable • Loss is payable 60 after receipt of proof of loss. • This may be shortened by the insurer but not made longer.

37. Statutory Conditions • Replacement • The insurance company has the right to choose the method of compensating the insured after a loss (rebuild, replace or repair). • The time requirement for resolving losses, other than by cash, is stated in this condition. • Within 30 days of the notice of loss, the insurer must give notice of their chosen method of compensation. • If repair, replacement or rebuilding is chosen, the work must start no later than 45 days after the notice of loss.

38. Statutory Conditions • Action • Any suit or action against the insurer prescribes (runs out) in 1 year from the date of loss.

39. Statutory Conditions • Notice • This is the method that notice may be delivered by the insured or the insurer.