C-12 Property Ch 5

Front 1

ch 5 the purchase of 2 policies

Back 1

where the rate for fire and additional perils were separate some insureds would buy 2 policies.

a reduce in insureds total premium because rates for additional perils were lower than for fire.

Front 2

ch 5 what is "Other Insurance" clause

Back 2

the insurer would add on Other Insurance clause to their policies to pro rate an additional perils loss between multiple policies in the proportion that would apply to a fire loss under rateable contribution.

this is created due to unfairness to first insurer.

if there is other insurance against the peril of fire insuring the subject matter of any item of this policy, the insurer in the event of loss insured by an additional peril, shall not be liable for more than the proportion of a loss

Front 3

ch 5 Agreement of Guiding Principles.

Back 3

almost all insurers in canada subscribe to IBC Agreement of Guiding Principles. this agreement guides insurance practice concerning multiple insurance policies where practice departs from statutory specifications

example: part of the agreement concerns rateable contribution where the policies involved have different deductibles. the method the Agreement suggests for determining each insurers rateable contribution is more effective to the insurers and gives a larger settlement to the insured than the method suggested by common law statutes.

Front 4

ch 5 rateable contributions are only calculated for...

Back 4

policies covering the same interest.

Front 5

ch 5 Earthquake Insurance and difficulties

Back 5

movement of earths crust

the movement of interlocking plates that compose most of the earths crust

Insuring against earthquake presents the insurer with difficulties:

1. they are unpredictable

2. narrows the spread of risk

3. risk acceptance must be controlled to protect against catastrophic loss and there is greater catastrophe than fire does.

the area of damage is an unknown.

Front 6

ch 5 Underwriting and Rating Considerations for Earthquake Insurance are....

Back 6

Considerations for earthquake coverage include:

1. geographical location (reflecting probability of loss)

2. building design and construction

3. soil conditions

4. occupancy (a lesser concern)

Rating: based on geographical locations, along with building design and construction.

ex. surcharges may be applied to buildings built on loosely compacted soil, like filled ground

For purposes of earth quake rating, Canada is divided into zones based on the degree of earth quake hazard in different areas

Earthquake hazard is severe in west coast of Canada. low across the prairie provinces and most of Ontario. more serious in quebec and around montreal.

Front 7

ch 5 how is construction a rating feature for earth quakes?

Back 7

frame buildings of 3 storeys or fewer are normally rated most favourably

the flexibility of a wood-frame structure helps to absorb an earth quake shock

wood-frame is more favourable

Front 8

ch 5 why is it that insurers do not include earthquake additional peril with the others???

Back 8

earthquakes may cause catastrophic losses. some areas are more susceptible to them than others.

A separate wording defines the peril. it is attached to fire policies.

Front 9

ch 5 earthquake: when does it apply

Back 9

each loss caused by earthquake shall constitute a signle claim, if more than 1 earthquake shock occurring within 186 hours during the term of the policy is deemed as a single earthquake.

Front 10

ch 5 Earthquake Exclusions

Back 10

explosion, tidal waves, high water, waterborne

the insureds neglect to save and preserve property during and after an earthquake

wind, rain, hail, or snow unless entering the building through openings in roofs or walls caused by the earthquake.

Front 11

ch 5 what is a tsunami and exclusion

Back 11

the exclusion for tidal wave is significant: a tidal wave OR tsunami is usually caused by an earthquake with its epicentre in the ocean.

Front 12

ch 5 what is the greatest hazard of an earthquake?

Back 12

the ensuing fire, due among other causes to rupture of gas lines. in common law provinces the insurance acts do not permit an exclusion of fire following earthquake. Fire portion IS covered.

Front 13

ch 5 Other Earth Movement

Back 13

landslide OR

mudslide is a movement of earth or of earth and rock usually down a mountain or hill

and land subsidence is a sudden falling in of the ground often caused by extraction of minerals or water from the earth

Front 14

ch 5 Coverage for Other Earth Movement

Back 14

coverage is available for losses of Earth Movement but to a limit. they are to be written as an extension to an ALL RISKS wording than added to a Fire Policy.

Front 15

ch 5 multi-peril contracts are what??

Back 15

insurers combine policy forms, covering various classes of insurance (they are licensed) in packages.

multi-peril does not have a specific meaning. it is use to denote a policy or form that includes casualty coverages like theft or transportation risks. it can describe a single form with a mixture of perils.

Front 16

ch 5 Multi-peril contracts: notice to authorities

Back 16

where the loss is due to malicious acts, burglary, robbery or is suspected to be so due, the insured shall give immediate notice to the police

Front 17

ch 5 Multi-peril contracts: no benefit to bailee

Back 17

this insurance should not inure directly or indirectly to the benefit of any carrier or other bailee.

Front 18

ch 5 what is theft?

Back 18

the taking of property without the owner's consent and with the intention of temporarily or permanently depriving the owner of its use. its a criminal offense.

theft is very very broad. this is important when drafting policy wordings

Front 19

ch 5 Theft Exclusions

Back 19

conversion

mysterious disappearance

theft from vehicle

break-in

theft by trick

it has been found most practical to use the word THEFT and then use suitable exclusions to prescribe the intended boundaries of the coverage.

Front 20

ch 5 Theft: Conversion

Back 20

giving someone property to take care of it and then they take it.

theft of property by a person to whom it has ben untrusted for safekeeping, for work to be done to it.

converting the property to their own use is called Conversion.

Front 21

ch 5 Theft: Mysterious Disappearance

Back 21

it may appear in policy wordings as part of an exclusion but it is unlikely to be included as a peril. it is likely to be applied where an object cannot be located and its absence cannot be accounted for.

Unexplained Disappearance- is a somewhat clearer alternative.

Loss Disclosed (or discovered) on taking inventory, applies to insurance of stock of business risks. it implies that stock was either stolen or accidentally destroyed or disposed of where by an employee or an opportunistic thief.

it would be hard for the insurer to deny a claim if the insured peril is theft and mysterious disappearance is covered.

Front 22

ch 5 Theft From Vehicle

Back 22

if the policy covers property likely to be away from insured premises, it should also address theft of articles from unattended vehicles.

visible proof forced entry

must be reported to the police

on occasion, theft from an unattended automobile may be covered but only if it occurs between certain daylight hours

Front 23

ch 5 Break-In

Back 23

evidence of forced entry

claims for alleged theft by break-in to the insured's premises or some other temporary storage location raise questions like those regarding theft from unattended vehicles.

thieves may damage premises while stealing or attempting to steal.

Front 24

ch 5 Theft By Trick

Back 24

A form of fraud

difficult to prove

sometimes insureds are defrauded by persons who show interest in buying something the insured has offered for sale or even ask to buy a particular item.

the deal is agreed to, the property changes hands but payment is made by a cheque that is not honoured or other illegal trick.

without actually suffering loss of the property

Front 25

ch 5 Theft and Fire Premium Calculation

Back 25

premium determination for insurance against theft at first seems very different from the method used for fire insurance, the basic concerns are the same.

1. potential extent or size of loss

2. the susceptibility of insured property to loss

3. the dollar values of likely claims

4. the general loss incidence within the territory where the property is located and the level of protection afforded the property.

most thefts are partial losses.

Front 26

ch 5 Theft and Fire Premium Calculation, risk of total loss

Back 26

the difference is in the details with fire insurance premium calculation

fire always presents a significant risk of total loss, so the amount of insurance should equal or approach the full value at risk.

theft rarely presents losses of the same magnitude.

the relationship between the volume of goods and their value will depend on the nature of the property

neither the insured or insurer would anticipate theft of the entire stock in one incident.

Front 27

ch 5 what is flat rate and Graded rates?

Back 27

the rating of theft insurance needs to be flexible enough to handle differing amounts of insurance. a fire rate is applied as a Flat Rate to the entire amount of insurance, a theft rate is developed on a First-Loss Basis, on the insureds estimate of the worst likely loss.

the amount of insurance is split into layers. progressive lower rates are applied to successive layers of insurance that allows the insured to carry a higher limit

these progressively lower rates are called Graded Rates

Front 28

ch 5 what is graded rating?

Back 28

the first layer applies to the first several 1000 dollars of insurance.

it represents the likely size of loss for the type of goods and the type of business involved. it carries the highest rate, generating premium enough for the average loss for the class. the 2nd layer applies to the next several 1000 dollars. the 3rd to the next several 1000 beyond that and so on.

each successively higher layer tends to be larger than the layer below it.

the rate for each higher layer drops from the rate for the layer below it, reflecting the theoretical reduction in potential loss at the higher levels.

Front 29

ch 5 Theft as a Major Peril

Back 29

loss by theft may be the most severe risk of loss for types of property.

for example, a jewelry store will have small items of high value that may be disposed of easily. fire may cause serious loss, but the insured will be most concerned with precautions against theft, if this peril IS covered.

Front 30

ch 5 Property In Transit

Back 30

property in transit is usually covered by special forms

only after being loaded...

when the transit exposure is minor, the insurance on property at the insured's premises is extended to cover it.

the description of property insured must clearly state the intent of both insured and insurer regarding property not kept on insured premises.

it should also be clear whether property is to be covered only after being loaded on vehicles or while stored temporarily as well. ex freight depots.

property may be shipped or received from great distances, the geographical scope of coverage should be clear

Front 31

ch 5 Property in Transit: Limit of Liability

Back 31

the insurer's limit of liability for property in transit must be stated. there may be a dollar maximum for any one vehicle to limit the exposure to cumulative loss

alternatively, the insurer may be content to extend the overall policy limit.

Front 32

ch 5 several factors affect the premium for Property In Transit

Back 32

1. the insurers limit of liability for property in transit

2. the perils applying to such property. loss to property in transit may arise from fire or standard additional perils

3. the probable frequency of loss, if high, the insurer may incur considerable expense in handling numerous claims.

No universal formula for calculating this premium. it requires judgement based on loss history of insured.

a grade rating system may be used, similar to that for theft rating.

Front 33

ch 5 From Named Perils to All Risks

Back 33

A named perils form responds only to loss caused by perils identified in the wording. the term does not have any specific legal meaning. a policy covering fire and the additional perils is named perils contract but its not referred to as.

Front 34

ch 5 what is the problem with named perils?

Back 34

the concern is that it must anticipate all the causes of loss which the contract will respond. eventually it becomes difficult or impossible to describe all the nuances (subtly differences) of the perils that can be identified.

an insured under a named perils form must show that property damaged or destroyed was insured property and that the cause of loss was a listed peril.

Front 35

ch 5 how to solve the problem with named perils? all risks form...

Back 35

a solution is to approach the description of insured causes of loss from opposite point of view. to state what loss will NOT be covered.

a policy constructed in a way is called an All Risks Form.

the concept behind it is to provide broader coverage for the policyholder in ways that are impossible with a named perils contract.

Front 36

ch 5 All Risks

Back 36

is a broad term. it does not mean that all loss is covered if it is not excluded. an insured need not identify the peril that caused a loss under an all risks policy but otherwise what the insured must show to be indemnified is the same as under a named perils policy:

1. the cause of loss must be fortuitous and has to be accidental

2. it must not be caused or contributed by any connivance (willingness to secretly allowed by) by the insured.

3. it must be extraneous to the article involved.

Front 37

ch 5 under an all risks policy, as under a named perils policy, the insured must provide satisfactory evidence that...

Back 37

1. the property damaged falls within the subject matter of the insurance.

2. it was at the time of loss, at a location described in the policy

3. the loss occurred during the policy period

Front 38

ch 5 how is all risks policy easier for insured?

Back 38

an all risks policy does make it easier for the insured to establish that an insured loss has occurred, leaving the insurer to show that an exclusion if it wishes to deny the claim.

Front 39

ch 5 the importance of fortuitous

Back 39

it is important that a loss be fortuitous..

the cause of loss must have been something that was neither inevitable nor inherent in the nature of the object.

the loss must have been a chance event to be insured under an all risks policy.

the insurer must show that 1 or more of the policy exclusions allow it to deny coverage otherwise, the insurer must pay the claim

Front 40

ch 5 wilful acts, are they covered???

Back 40

wilful acts that unintentionally result in loss or damage may still be covered by the all risks policy unless it can be proved that the insured was aware of the consequences of the acts.

Front 41

ch 5 All Risks Policies Exclusions

Back 41

an insurer relies heavily on exclusions to shape the coverage of an all risks policy

1. Property excluded.

when a subject matter is specifically described, but is not intended to be insured and it need to be identified and excluded.

2. Locations excluded.

when the area scope of coverage is broad, there may be locations which the insurer is unwilling to provide coverage and needs to be excluded.

3. Events excluded.

events with losses that meet requirements of the risk but are not intended to be covered, need to be excluded.

4. Direct Loss

Exclusions may be needed to emphasize that the policy covers only direct loss or to precisely define the policy's limited coverage of indirect loss.

Front 42

ch 5 why is it good to review exclusions in named peril policies to help with All Risks Policy???

Back 42

A review of the exclusions in named peril policies is a good first step to decide what exclusions will be need in an All Risks wording.

Front 43

ch 5 what if there are new exclusions for all risk policy?

Back 43

there are no firm guidelines.

other all risks forms will be helpful but the insurer should anticipate causes of loss it is not prepared to cover

Front 44

ch 5 common exclusions specific to all risks policies deal with what???

Back 44

1. Sporting equipment damaged while in use for its intended purpose like golf clubs or skis

2. chipping, scratching or brittle articles or fragile

3. faulty workmanship or the use of faulty materials

4. earthquake, snowslide, landslide or flood

5. extreme temperatures, rust, corrosion, wet or dry rot, mould

6. damage caused by birds, rodents, insects or vermin

Front 45

ch 5 inevitable rule.

Back 45

for an insured to be indemnified for a loss, the event caused the loss must NOT be inevitable or intrinsic to the object.

wear and tear deterioration or defect

an intentional or criminal act by the insured

Front 46

ch 5 direct loss excluding these events..

Back 46

to emphasize that the policy is intended to cover ONLY direct loss, it is not unusual for all risks policies to exclude events regarded as indirect losses like these ones:

1. delay

2. loss of market

3. loss of use

4. loss of occupancy

Front 47

ch 5 Susceptible Property to loss what which ones?

Back 47

some types of property are susceptible to loss because of their nature, high value, or their being easily converted to cash:

1. documents, coins, stamps

2. bicycles, personal computers, software

3. money, bullion, platinum, securities, stamps, tickets, tokens

4. jewellery, watches, gems, furs

Front 48

ch 5 in regards to All Risks Policy, Sub-limits are used for what??

Back 48

rather than exclude outright, insurers often place sub-limits on all such items within the classes described. sometimes, where the main concerns are theft, disappearance or accidental damage, the sub-limits do not apply to certain named perils. they usually include

fire

lightning

explosion

smoke

falling object

impact by aircraft or land vehicles

riot or vandalism or malicious acts

windstorm or hail

such perils must be SET OUT in the policy

the objective is to provide full coverage where property loss is NOT attributable in some degree to the fragility of the property

Front 49

ch 5 Additional Conditions for Multi-Peril Contracts... what is it???

Back 49

the Additional Conditions were 1st developed to cover important points that had been omitted in some inland marine-based forms that weren't subject to the fire insurance provisions of Insurance Act.

these forms were not attached to a Basic Fire Policy and were not bound by the Statutory Conditions.

Front 50

ch 5 Additional Conditions for Multi-Peril Contract: Evolution

Back 50

the additional conditions they dealt with fewer issues, were added to these inland marine-based forms in place of Statutory Conditions.

some insurers continue to add some or all of these conditions to their multi-peril policies

Front 51

ch 5 Additional Conditions for Multi-Peril Contract: Notice of Authorities

Back 51

where a loss is due to malicious acts, robbery, theft or attempted theft, the insured shall give immediate notice to the police or other authorities

Front 52

ch 5 Additional Conditions for Multi-Peril Contract: Concerns Only Theft

Back 52

Notice of Authorities only deals with theft losses so it did not originate in the fire provisions of Insurance Acts.

requiring the insured to report theft helps deter attempts to defraud the insurer

Front 53

ch 5 Additional Conditions for Multi-Peril Contract: the redundancy of Burglary or Theft...

Back 53

an insured with a policy that includes these conditions might not appreciate that theft includes all kinds of theft. the redundant mention of burglary or theft may have been deliberate to prevent any misunderstanding with the insured.

Front 54

ch 5 Additional Conditions for Multi-Peril Contract: No Benefit To Bailee

Back 54

this condition came from the American inland marine market in early part of 20th century.

it was needed to counter unscrupulous truckers who would stipulate in their bills of lading that insurance arranged by a shipper on goods being transported would inure (take or have effect) to the benefit of the trucker/carrier. by doing this, the truckers hoped to avoid having to obtain their own insurance.

trucker would receive insurance money if loss occurred.

this is old school

Front 55

ch 5 Additional Conditions for Multi-Peril Contract: Pair and Set

what is constructive total loss?

Back 55

this condition arose out of American Inland marine market too (like no benefit to bailee).

loss of part is not a loss of whole.

that market featured policies that would today be considered property insurance. at the tie, this clause came into use, broad coverages were not written by fire and casualty insurers.

the objective of the clause is clear: loss of part of a pair or set will not be considered total loss of the pair or set.

insured had succeeded in claiming the opposite: that a pair or set insured as 1 item was no longer a pair or set after a loss.

such a claim might have led an insured to claim for the value of the original pair or set and have the insurer take possession of the remaining article - a situation known as Constructive Total Loss.

Front 56

ch 5 Additional Conditions for Multi-Peril Contract: Pair and Set wording states:

Back 56

the wording of the condition recognizes that the loss of part of a pair or set may significantly reduce the value of the remaining article. it does not attempt to apportion an equal value.

ex. a jewellery set. an earring is stolen and the insurer will pay for value of 1 earring.

Front 57

ch 5 Additional Conditions for Multi-Peril Contract: Parts

Back 57

Parts

example is piece of equipment in pressing. they will not pay for entire machine.

this condition came from the inland marine market.

loss to only part of something cannot be treated as a constructive total loss.

allows the cost of installation to be included in the claim.

the insurer is not precluded from treating loss of 1 or more parts as a total loss, if the cost of obtaining and installing the damaged or missing parts is not economically viable.

Front 58

ch 5 Additional Conditions for Multi-Peril Contract: Sue and Labour

Back 58

this clause also originated in the inland marine market which had taken it from ocean marine contracts.

if property is lost, the insured has a duty to take all reasonable steps to recover it.

example: if goods in transit are missing, the insured cannot simply sit back and claim from the insurer. he must take reasonable steps to trace the missing shipment.

any expenses related to the recovery attempt are shared by the Insured AND insurer according to their RESPECTIVE INTEREST.

the insurer will pay the proportion of such expense that the amount of insurance bears to the value of the property.

if the property is not insured to its full value, the insured will bear his portion of the recovery expense.

Any payment made by the insurer under this clause is an addition to the amount of the actual loss payment.

the term sue and labour come from marine insurance contracts, sue meaning to follow.

Front 59

ch 5 Additional Conditions for Multi-Peril Contract: Basis of Settlement