Otl Flashcards
(135 cards)
1
Q
Who typically performs risk-management functions in a large organization?
A
A full-time Risk Manager.
2
Q
In a smaller organization, who usually shares responsibility for risk management?
A
Line managers share the risk-management tasks.
3
Q
How does an agent or broker obtain authority to act on an insurer’s behalf?
A
Via a written contract between the insurer and the intermediary.
4
Q
Who owns the client list when an insurer markets through the independent brokerage system?
A
The Broker (the independent agency retains its own client list).
5
Q
What four areas does the Insurance Act regulate for intermediaries?
A
(1) Qualification, (2) Licensing, (3) Operating requirements, (4) Renewal of licence.
6
Q
What is “step licensing”?
A
A progressive licensing system requiring supervision by senior licensees at each level before advancing.
7
Q
When an intermediary is “tracking expiry dates,” what are they doing?
A
Using a prospecting method—calling clients as renewals approach to retain or gain business.
8
Q
What is the process of meeting clients’ needs with appropriate coverages called?
A
Selling (matching products to client needs).
9
Q
Which ongoing activity is defined as matching?
A
Matching (in communication) is assuming similar body positions or postures in-person; in telephone, it’s matching tone/rate/vocabulary.
10
Q
What is an Express contract in insurance?
A
A contract whose terms are specifically stated (written or verbal) and agreed to by both insurer and intermediary.
11
Q
What is an Implied contract?
A
An arrangement where no express statement is made but the relationship is understood by actions of both parties.
12
Q
What term describes an agreement with specifically stated arrangements between insurer and intermediary?
A
Express contract.
13
Q
What term describes obligations of the agent or broker (e.g., write acceptable business)?
A
Duties listed in the principal/agent agreement (e.g., “Writing business acceptable to the insurer”).
14
Q
What is Binding authority?
A
The insurer’s delegated power that allows an agent/broker to bind coverage without prior approval.
15
Q
What is a Broker?
A
A licensed intermediary who represents the insured and can place business with multiple insurers.
16
Q
What is an Agent?
A
Someone who represents one insurer (as an employee or independent businessperson) in placing insurance.
17
Q
Independent brokerage vs. Exclusive agency vs. Direct writing: key distinction?
A
• Independent brokerage: Commissions paid to independent brokers representing multiple insurers.
• Exclusive agency: Commissioned intermediaries representing one insurer but not employed by that insurer.
• Direct writing: Insurer employs salaried sales force; no intermediate.
18
Q
What is the General Agent’s authority?
A
To manage all of the insurer’s business in a territory, appoint agents, and handle claims.
19
Q
What is Insurable Interest?
A
The legal or financial relationship that would cause financial hardship if a loss occurs (e.g., homeowners in their own house).
20
Q
What is the principle of Indemnity?
A
To place the insured in the same financial position after a loss—no more, no less.
21
Q
What is Subrogation?
A
After paying a loss, the insurer steps into the insured’s shoes to recover from a responsible third party.
22
Q
What is Contribution?
A
When more than one policy covers the same loss, insurers share the loss proportionately.
23
Q
What is Coinsurance (in a commercial property context)?
A
A penalty clause requiring the insured to carry a certain percentage (e.g., 80%) of property value—otherwise they share in the loss.
24
Q
What is Utmost Good Faith (uberrimae fidei)?
A
Both insurer and insured must operate with the highest standard of honesty, fully disclosing all material facts.
25
What is Murray’s Law of Large Numbers?
As the sample size of loss data grows, uncertainty in loss prediction decreases.
26
Define Proximate Cause.
The immediate and effective cause that leads directly to a loss, without intervention of another cause.
27
What is Occurrence vs. Accident basis?
• Accident basis: Covers sudden, unintended, unexpected events.
• Occurrence basis: Covers events that happen over a period (e.g., an ongoing leak).
28
What is the Anti-Concurrent Causation Clause?
An exclusion that denies coverage if two or more perils (e.g., a windstorm plus flood) occur at the same time, triggering a single loss.
29
What five elements make a contract valid?
(1) Agreement (offer & acceptance), (2) Consideration, (3) Genuine intention, (4) Capacity to contract, (5) Legality of purpose.
30
What is a Material Fact?
Any information that would change the insurer’s decision to underwrite or the terms—must be disclosed.
31
What is Misrepresentation?
A false statement about a material fact (including omissions), which can void a policy or deny a claim.
32
When does a loss become a claim?
A “loss” occurs at the moment of damage/injury; it becomes an insurable “claim” only if it falls within policy terms.
33
What is Assignment under the Bankruptcy Act?
A policy assignment that happens without insurer’s consent—when a bankrupt person transfers assets to trustees.
34
Can you subrogate against a province with a reciprocal SABS agreement?
No—certain provinces (e.g., Quebec under Ontario/Quebec agreement) bar subrogation for accident benefits.
35
Define Statutory Conditions (in fire/auto).
Mandatory clauses prescribed by provincial/territorial acts that must appear in every fire or automobile policy (even if not printed, they apply).
36
Define Pro Rata Cancellation.
If an insurer cancels, they must return unused premium based on time unexpired (no penalty retained).
37
Define Short-Rate Cancellation.
If the insured cancels mid-term, the insurer deducts a penalty and returns the earned premium on a “short-rate” schedule.
38
What is a Binder?
A temporary, oral or written agreement providing coverage until the full policy is issued—treated legally as the policy but limited in time.
39
Are Statutory Conditions included on binders?
No—they need not be printed on the binder itself, but they still apply to the coverage.
40
What is the Change of Interest statutory condition?
Certain changes (e.g., transfer upon death) receive automatic insurer consent; policy continues in force with new insured.
41
What is “Sue and Labour”?
The insured’s duty, after a loss, to take all reasonable steps to protect or recover insured property—expenses covered by insurer.
42
What is “No Benefit to Bailee”?
A homeowner clause stating no one (e.g., a dry cleaner) with property in their care (bailee) can collect under the homeowner’s coverage—only the named insured can.
43
What is the “Basis of Settlement” condition in homeowners?
Insurer will pay no more than the insured’s financial interest in property—reinforces insurable interest requirement.
44
What is Pro Rata Distribution Clause (in property)?
When a policy covers multiple structures, insurance proceeds are split proportionately among those structures by their values.
45
Who is the Applicant?
The person or firm requesting insurance; completes and signs the application.
46
Why do insurers prefer written applications over oral?
To have documented proof of questions asked, information provided, and date/time—reduces disputes.
47
What must an underwriter determine, besides accept/reject?
The proper premium to charge (rate × exposure) or whether to attach conditions.
48
What are an underwriter’s three ultimate decisions?
Accept the risk as is; Reject the risk; Accept with conditions (e.g., higher premium, higher deductible).
49
What is the Insurer’s Retention?
The maximum amount of risk the insurer keeps on its own books before transferring via reinsurance.
50
What is Acquisition Cost to an insurer?
The cost of putting new policies on the books—commissions, premium tax, underwriting overhead.
51
What are Frequency and Severity in ratemaking?
• Frequency: How often losses occur.
• Severity: How large (costly) losses are likely to be.
52
What is Pure Premium?
Portion of total premium needed to pay expected losses (loss cost) – excludes expense loadings.
53
What is the Law of Large Numbers’ impact on underwriting?
As the sample of past losses grows, rate predictions become more reliable—underlies actuarial rate-making.
54
Define Exposure.
Hazard of loss due to conditions around a risk (e.g., neighboring property’s hazard, proximity to water).
55
What is Moral Hazard?
Increase in risk because of insured’s attitude/behavior (e.g., carelessness), as opposed to physical hazard.
56
What is Insurable Interest?
The financial stake in property or person that would cause financial hardship if a loss occurred (e.g., homeowners in their dwelling; bailors/bail ees).
57
What is a Claim?
A demand made by the insured against the insurer for indemnity or restitution for bodily injury or property damage that occurred under the policy.
58
Definitions: Loss vs. Claim vs. Occurrence
• Loss: The event or damage itself.
• Claim: The insured’s formal request for payment under the policy.
• Occurrence: The event giving rise to the loss—especially in liability or occurrence-based coverage.
59
Who bears the burden of proving an insured peril caused a loss?
The Insured (to establish coverage).
60
If a claim is clearly not covered, what should the insurer do first?
Promptly notify both the insured and broker that the claim is not covered.
61
What is prejudice to the insurer?
Any act or omission by the insured that puts the insurer at a disadvantage (e.g., failing to report fraud, concealing evidence).
62
Who investigates, negotiates, and settles claims for the insurer?
A Staff Adjuster (salaried employee) or Independent Adjuster (contracted and licensed in that province).
63
Who administers disciplinary action for a Staff Adjuster?
The Insurer who employs them.
64
Who administers disciplinary action for an Independent Adjuster?
The Provincial/Territorial Insurance Regulator (since they are licensed by the regulator).
65
What is Liability coverage’s proximate cause requirement?
The loss must arise from a covered occurrence (e.g., a tort by negligence), but proximate cause is often the “immediate and effective cause” in liability.
66
What are examples of Direct vs. Indirect (Consequential) Loss?
• Direct: Physical damage to the insured property itself (e.g., fire burning down a building).
• Indirect: Financial consequences that flow from the direct loss (e.g., lost rent, extra living expenses, business interruption).
67
What is “Duty to Notify Police”?
If a homeowner suspects malicious damage, burglary, theft, or attempted theft, they must immediately report to police.
68
What is a “Friendly Fire” vs. “Hostile Fire”?
• Friendly Fire: Fire intentionally set in its intended place (e.g., a fireplace)—not covered under fire insurance.
• Hostile Fire: Fire that escapes its intended boundary (e.g., house fire)—covered.
69
Which homeowners policy is “all-risk” (i.e., covers what is not excluded rather than named perils)?
Comprehensive Homeowners Policy.
70
Which homeowners policy is “named perils only” for both building & contents?
Basic Homeowners Policy.
71
Which homeowners policy is “all-risk for building, named perils for contents”?
Broad Form Homeowners Policy.
72
List common perils excluded from a Basic Homeowners Policy.
Earthquake, flood, sewer backup, ground water seepage, power failure, neglect, wear & tear, intentional acts, building code violations, war.
73
What additional coverage does a Tenants Policy provide that a Basic Homeowners Policy does not?
Tenants include “Additional Living Expenses” (ALE) if the rented unit becomes uninhabitable. They do not cover the dwelling building itself.
74
Under a Mobile Home Policy, which perils are insured?
Named perils for building and contents, excluding damage while the home is being moved.
75
In a Condominium Unit-Owner policy, what does Loss Assessment coverage do?
Pays the unit-owner’s share of a special assessment levied by the condo corporation when the master policy limit is insufficient (e.g., $2M limit but a $2.5M judgment).
76
Under a Condominium policy with an 80% coinsurance clause and building replacement cost of $7.5M but insured only for $5M, how is a $$1M fire loss settled?
Must carry 80% of $7.5M = $6M. Insured has only $5M, so penalty factor = $5M / $6M. Payment = ( $5M / $6M ) × $1M = $833,333; insured bears $166,667.
77
Define “Vacant” vs. “Empty” in homeowners forms.
• Vacant: No occupant and no intention of returning—most policies exclude.
• Empty: May be furnished but temporarily unoccupied—often still covered.
78
What is “Debris Removal” coverage under a homeowners policy?
Pays reasonable cost to remove debris after an insured loss; can extend the limit by a small percentage (e.g., +5%).
79
Define “Vacant” vs. “Empty” in homeowners forms.
• Vacant: No occupant and no intention of returning—most policies exclude.
• Empty: May be furnished but temporarily unoccupied—often still covered.
80
What is “Arson Conviction Reward” coverage?
An extension that pays up to a small additional amount for information leading to conviction of an arsonist—paid irrespective of deductible.
81
How are Theft losses treated under a Basic Homeowner Policy?
Theft of personal property from the principal dwelling is covered; theft from secondary locations or by tenants is excluded.
82
What is the “Anti-Concurrent Causation” exclusion in water damage?
Denies coverage if more than one water-related peril (e.g., sewer backup + surface water) applies concurrently.
83
What is “No Benefit to Bailee” in a Comprehensive Homeowners Policy?
Neither a bailee (e.g., dry cleaner holding your clothing) nor any other party in lawful custody can claim benefit under your homeowner’s coverage; only the named insured can recover.
84
What is “Basis of Settlement” in homeowners?
Limits payment to no more than the insured’s financial interest—reinforces that you cannot profit beyond your actual interest in property.
85
How does the service line endorsement work?
Pays to repair underground service lines (water, sewer, fuel) and also pays to restore landscaping or driveway disrupted by that repair.
86
What is covered under Personal Articles Endorsement vs. standard Personal Property?
• Standard: Insures general household contents on an all-risk basis subject to special limits for jewelry, furs, film, silverware, cameras, musical instruments, etc.
• Personal Articles: Scheduled, valued coverage (often agreed value) for specific items—replaces them if lost.
87
What is the “Additional Living Expense” (ALE) limit in a Tenants Policy?
Typically a percentage (e.g., 20%) of the Tenants Policy’s contents limit.
88
What is “Coverage-G – Voluntary Payment for Damage to Property”?
Pays for unintentional direct damage caused by insured to property of others, even if not legally liable to pay.
89
Which section of condo unit-owner policy covers “Loss Assessment”?
An extension in Section I—Property coverages that pays the unit owner’s share of a shortfall in the master policy.
90
How is “Loss Due to Temperature Change” defined under a Tenants Policy?
Pays for loss or damage to tenants’ property caused by a sudden temperature change following an insured peril (e.g., furnace breakdown).
91
In Mobile Home coverage, how are “Tie-Downs” used?
Heavy straps securing the unit to a foundation; their presence reduces windstorm risk and often is mandatory for coverage.
92
What coverage does a Mobile Home form exclude?
Named perils exclude damage while the home is moving (in transit).
93
How is refrigerator/freezer spoilage covered?
Comprehensive forms cover spoilage if on premises and caused by accidental power interruption or freezer breakdown (often subject to sublimit).
94
What is a “Friendly Fire” vs. “Hostile Fire”?
• Friendly Fire: Intended fire in its proper place (e.g., fireplace)—not covered.
• Hostile Fire: Fire that escapes or is unintended—covered by fire insurance.
95
What is “Full Average” (for boats)?
Also called a “full value clause”—if boat not insured to its full value, the insured bears a portion of loss.
96
Under a Basic Homeowners Policy, what is a “Flood” historically?
Fire industries once defined “flood” as a body of seawater (coastal)—now extended definitions include overland water, tsunamis, dam breaks.
97
What water-damage perils typically require an endorsement?
Ground water seepage, overland water/flood, sewer backup, tidal wave, dam break, ski dam “flood.” All excluded unless endorsed.
98
What is “Septic Water” vs. “Ground Water” vs. “Overland Water”?
• Ground water: water beneath earth’s surface (exclusion unless endorsement).
• Overland water: surface water rising and entering premises (exclusion).
• Septic water: not a standard term—legal insurers treat as ground water infiltration.
99
What is “Marring & Scratching” exclusion under Extended Coverage?
Damage that does not break or destroy property but merely scuffs—excluded.
100
What is a “Detached Private Structure” in Homeowners?
A private structure (garage, shed) on premises with no physical connection (only fences, utility lines, etc.) to the dwelling—covered under Coverage B.
101
What is an “Attached Structure”?
A building physically connected to the dwelling (e.g., garage attached by roof) and is insured under Coverage A (with the house).
102
What does a Commercial Property Form cover?
Named perils or broad (“all-risk with exclusions”) coverage for buildings, contents, equipment, stock—used for larger risks than “small-business package.”
103
Define “Farm Policy” occupancy.
A hybrid policy covering both personal-lines exposures (dwelling) and commercial-lines exposures (farm buildings, equipment, livestock, crops).
104
What is covered under a “Livestock Endorsement”?
Accidental death or necessary destruction (full, limited, or enhanced mortality) of farm animals, plus coverage for heat prostration or power interruption in barns.
105
What is “Business Interruption Insurance” (Income Replacement)?
Reimburses lost income when business operations cease due to a covered loss—calculated on net income plus continuing expenses.
106
What is “Extra Expense Insurance”?
Pays incremental costs of operating from a temporary location or expediting repairs—distinct from replacing lost net income.
107
What is “Consequential Loss” for a farm?
Indirect losses such as spoilage, loss of production, or additional expense arising from a covered physical damage loss.
108
What is “Equipment Breakdown Insurance” (EBI)?
Covers mechanical/electrical breakdown (pressure, movement, electricity) for boilers, motors, computers, air conditioning, etc., and resulting BI or extra expense.
109
What is the “Builders’ Risk (Course of Construction) Insurance”?
Covers buildings under construction; often called an “installation floater” once materials/equipment are being installed.
110
What is a “Contractors Equipment Floater”?
Covers portable equipment and tools (like an excavator) that a contractor owns and uses on multiple job sites.
111
What is “Office Equipment Floater”?
Covers office contents (furniture, computers, books, professional papers) in transit or at additional locations—commonly for small businesses.
112
What is a “Commercial Crime Policy (Comprehensive 3-D)”?
Bundles fidelity coverage (employee dishonesty), disappearance, and destruction of property—plus burglary, robbery, and forgery exposures.
113
What are the “three Ds” in a 3-D Policy?
Dishonesty, Disappearance, and Destruction (covers theft, employee dishonest acts, certain types of vandalism).
114
What are “Robbery,” “Burglary,” and “Theft” definitions in crime insurance?
• Robbery: Taking property from a person by force or threat.
• Burglary: Breaking into premises to commit theft or felony.
• Theft (Larceny): Wrongful conversion of property without force.
115
What items do “Valuable Papers & Records” Floaters cover?
Books of account, abstracts, manuscripts, deeds, drawings, maps, plans, records—provides cost to research, reproduce if lost.
116
Under “Glass Insurance,” what are the three main exclusions?
Fire, War, and Nuclear damage (glass breakage for these perils is covered under other property policies, not glass floater).
117
What is a “Fiduciary Bond” (Executor’s Bond)?
A surety bond that an executor posts to guarantee they will faithfully fulfill duties – protects beneficiaries against mismanagement.
118
What are the three parties in a Surety Bond?
Principal (who must perform), Surety (who guarantees), and Obligee (who receives guarantee).
119
What is Defined by the Ontario Highway Traffic Act?
A driver’s legal liability for injury or damage to third parties—auto liability must respond to negligence-based torts under this Act.
120
What is Direct Compensation—Property Damage (DCPD) in Ontario?
Section 6 of OAP 1—allows an insured to claim damage to their own vehicle (and contents/loss of use) from their own insurer when they are not at fault.
121
When do passengers of public transit qualify for Accident Benefits?
Only if the transit vehicle collides with another automobile or object (otherwise they look to the transit authority’s plan).
122
Under SABS, define “Criminal Offence.”
Operating a vehicle over legal BAC limit, failing to provide breath test—not any crime unrelated to vehicle operation.
123
What is a “Non-Owed Automobile” (NOA) Policy?
Covers an employer for liability when an employee uses a non-owned vehicle on company business—pays defense costs and damage to rented vehicles.
124
What is OPCF 16 (Suspension of Coverage) endorsement?
Allows an insured to suspend collision/theft liability on a vehicle not being used (e.g., seasonal vehicle) and receive refund for that portion.
125
What is OPCF 19A (Agreed Value) endorsement?
Sets a fixed, “agreed” value for a vehicle—common for classic or antique cars—so that total loss pays that agreed amount.
126
Difference between OPCF 23A vs. 23B?
• 23A: No extra premium; pays lienholder for damage or cancellation only if insured defaults.
• 23B: Larger premium; pays lienholder even if insured’s policy is cancelled for breach.
127
What is Equipment under Section 7 (Loss or Damage Coverage) in auto?
Anything permanently attached to the vehicle (e.g., car jack, spare tire). Personal items (e.g., hockey gear) are not “equipment.”
128
Under OAP 1: When does an insurer cancel a policy, what cancellation applies?
Pro Rata cancellation—refund unused premium based on exact days unexpired.
129
Under OAP 1: If insurer non-renews, how many days’ notice to insured and broker?
30 days’ written to insured; 45 days’ written to broker/agent.
130
Under OAP 1: Who may give notice/proof of loss if the insured cannot?
A person to whom any part of the insurance money is payable (e.g., lienholder or personal rep).
131
Priority of Payment minimum limits in Ontario auto?
$190,000 for bodily injury; $10,000 for property damage.
132
What does the Family Protection Endorsement (OPCF 44) do?
Adds additional limits for the insured/family when suing an at-fault driver who is uninsured or underinsured (excess over at-fault’s limits).
133
Under OAP 1: What covers damage to dentures/prescription glasses?
“Other Expenses” coverage (not the Prescription benefit).
134
What is a “Friendly Fire” in fire coverage?
Fire burning in its intended place (e.g., fireplace)—not covered under fire insurance.
135
Key Exclusions in Habitational Forms
• Earth Movement (earthquake, landslide, volcanic eruption): Excluded unless you buy an Earthquake Endorsement.
• Flood/Overland Water (tidal waves, dam breaks, rising rivers, seiche): Excluded—purchase a Flood Endorsement or separate flood policy.
• Ground Water (seepage): Excluded—purchase a Sewer Backup or Water Seepage Endorsement.
• Sewer Backup: Excluded—requires Sewer Backup Endorsement (covers backup through drains if surface/ground water is not present outside).
• Power Failure (including power surges/outages): Excluded—buy Refrigerator/Freezer Spoilage or Equipment Breakdown Endorsement.
• Friendly Fire: Excluded from fire coverage.
• Wear & Tear / Gradual Deterioration / Rust: Excluded by nearly all property forms.
• Pollution (unless a Farm or Commercial form includes a first-party pollution endorsement).
• War/Nuclear damage: Excluded from glass, property, auto, etc.
