Flashcards in Part A1 ACTEX Qs Deck (72):
According to Baer and Rendall, in Dillon v. Guardian Insurance, Guardian Insurance was found responsible for damages in excess of policy limits. Discuss the reason for the judge's decision.
The judge concluded that there was overwhelming probability that Dillon would be found 100% at fault. An insurer should seek to settle if they can within the policy limits, or they must take the risk upon themselves (absolute liability)
According to Baer and Rendall, in Broadhurst & Ball v. American Home Assurance Co., how did the judge rule in respect to how defence costs are shared when there is more than one insurer?
Shared Equally (although it is normal for the primary insure to cover the costs until the policy limit has been exhausted, and then excess insurer take over)
Baer and Rendall: Identify Professor Fleming's approaches to loss sharing between collateral sources and tort recovery
4. Relieving the Tortfeasor
Describe Professor Fleming's 4 possible ways to handle multiple recovery situations.
1. Election: person decides whether to try and get money from wrongdoer or accept from the collateral source
2. Cumulation: permitting the insured to collect from both sources
3. Reimbursement: wrongdoer pays full amount, credit excess to collateral source
4. Relieving the Tortfeasor: wrongdoer only has to pay what insurance doesn't.
Is insurance first or seconder payer in a Reimbursement scenario of multiple recovery?
Is insurance first or seconder payer in a Relieving the Tortfeasor scenario of multiple recovery?
According to Baer and Rendall, in Fletcher v. MPI, they owed a duty of care to its customers if certain criteria were met. Identify 3 criteria.
1. Such customers rely on the info.
2. Their reliance is reasonable
3. MPI knew or ought to have known that they would rely on the information
In Baer and Rendall, Fletcher v. MPI, it was found that MPI's duty is more or less onerous than that of the private agent or broker? Provide two reasons.
1. The institutional setting in which public insurance is sold affords considerably less scope for privacy and individual attention.
2. The employees of MPI do not hold themselves out as specialists in risk assessment and insurance advice.
In Baer and Rendall, Broadhurst & Ball v. American Home Assurance Co., what was American Home's position with regards to the allocation of defence costs?
That they should be shared between it (the primary insurer) and the excess insurer in proportion of their policy limits.
In the case of Fletcher v. MPI, what was the issue raised with regards to government insurers?
The responsibility to inform customers about the type of coverage available.
In Dillon v. Guardian Insurance Co., how was the standard of absolute liability for claim settlement defined?
"that if an insurer can settle a claim against an insured within its limits and does not do so, it is liable to reimburse its insured for whatever claim goes against him"
In Dillon v. Guardian Insurance Co., identify and briefly describe three reasons why the standard of absolute liability was the appropriate standard.
1. It avoids the burdens of a determination whether a settlement offer within the policy limits was reasonable.
2. It eliminates the danger that an insured, faced with a settlement offer at or near the policy limits, will reject it and gamble with the insureds money to further its own interests.
3. It is fair that in a situation where the insurers and insureds interests necessarily conflict, the insurer, which may reap the benefits of its determination not to settle should also suffer the detriments of it's decision.
Baer & Rendall; Broadhurst & Ball v. American Home
Discuss the court's reasoning for making it's decision. (to equally apportion defines costs between the primary and excess insurer)
Since the potential judgment against the insured exceeded the limit of the primary policy, the excess insurer was clearly at risk. The excess insurer has a clear contractual duty to defend the respondents under the terms of it's policy and absolving it of the duty because the pirmary insurer is providing defines would confer a windfall on the excess insurer.
Provide two facts supporting the decision ordered in Fletcher v. MPI.
1. The applicant for insurance testified that 'he had relied upon the expertise of MPI's employees'
2. In the application for insurance and on the insurance certificate, there was no mention that he lacked 'underinsured motorists coverage'
Describe the nature of the insurance arrangements in the case of Broadhurst & Ball v. American Home Assurance.
The respondents purchased professional liability insurance from two insurers: a standard policy from American Home with a limit of $500,000 per occurrence and an excess policy from Guardian with a limit of 9.5M per loss.
Of the 4 possible methods by which a tortiously injured party can recover from an outside source, identify which method violates the principle of indemnity, and why.
Cumulation; by allowing double recover as the injured party profits by receiving more than is necessary to compensate him for this loss.
In Canada, who has exclusive jurisdiction over contract wording?
In Canada, who has exclusive jurisdiction over solvency?
Nobody had 'exclusive' jurisdiction. Both provincial and federal government have a role.
According to McDonald, Privy Council decisions have generally supported or opposed the position of the federal Parliament in constitutional insurance cases?
In 'Life Insurance Laws of Canada', McDonald describes the 1974 constitutional dispute involving Canadian Indemnity Company and the Attorney General of BC. Discuss the nature of this dispute...
The legislature of BC passed a compulsory insurance scheme that eliminated private insurers. The insurance companies affected by the law sued, arguing that the legislation acted beyond it's powers.
In 'Life Insurance Laws of Canada', McDonald describes the 1974 constitutional dispute involving Canadian Indemnity Company and the Attorney General of BC. Describe the two specific arguments raised in this dispute.
1. The matter was properly within the exclusive federal jurisdiction relating to the regulation of trade and commerce.
2. the legislation interfered with the status and capacity of a federally incorporated company.
In 'Life Insurance Laws of Canada', McDonald describes the 1974 constitutional dispute involving Canadian Indemnity Company and the Attorney General of BC, how did the court rule?
The Supreme Court found that the legislature had acted within its powers.
McDonald, in 'Life Insurance Laws of Canada' describes The Insurance Reference Case. Describe the facts of the case:
The federal Insurance Act of 1910 required that insurers operating in more than once province obtain a federal license.
McDonald, in 'Life Insurance Laws of Canada' describes The Insurance Reference Case. How did the Judicial Committee of the Privy Council rule on this case?
Ruled that Parliament did not have the authority to regulate such companies by a licensing system.
McDonald, in 'Life Insurance Laws of Canada' describes The Insurance Reference Case. What two actions did feral Parliament take as a direct consequence of the decision?
1. It passes a new Insurance Act in 1917
2. It amended the Criminal Code making it an indictable offence for person to solicit or accept an insurance risk except when acting on behalf of a company licensed under the federal Insurance Act.
According to McDonald, if a provincially incorporated company conducts business in a province other than where it was incorporated, who will supervise the company's affairs? (Federal, Province of business, Province of incorporation)
Province where company was incorporated.
State the purpose of the Fire Insurance Policy Act.
McDonald: (Citizens Insurance Co. v. Parsons)
It required certain statutory considerations to be included in fire insurance policies insuring property in Ontario.
Citizens Insurance Co. v. Parsons involved a company questioning the constitutional validity of the Fire Insurance Policy Act. What were two arguments of the insurance company?
1. The Act was ultra vires because the subject matter related to the regulation of trade and commerce which was exclusively within federal jurisdiction.
2. A province cannot legislate so as to deprive a federally incorporated company or a British company of it status and capacity.
Citizens Insurance Co. v. Parsons involved a company questioning the constitutional validity of the Fire Insurance Policy Act. Explain how the Judicial Committee of the Privy Council ruled on each of the company's arguments.
Ultra Vires Argument: ruled the act was intra vires as the federal government did not have the power to regulate companies operating in a single province.
Deprivation Argument: The act treated all companies equally and did not affect their status and constitution.
Over which matter had the federal Parliament been given exclusive legislative authority by section 91 of the BNA Act?
Bankruptcy and insolvency
Identify two areas generally under federal jurisdiction and two areas under provincial jurisdiction.
Federal - conditions for entering the insurance business, reports that must be submitted regularly, investment control, calculation of asset values and policy reserves, protection of policyholder interests
Provincial - financial soundness of provincially incorporated insurance companies, regulates contract matters and insurance transaction matters.
Give and example of Insurance transaction Matters (McDonald)
According to McDonald, the federal ICA that came into effect on June 1, 1992, broadened or narrowed the investment powers of federally regulated insurance companies?
According to McDonald, the federal ICA that came into effect on June 1, 1992, created similar corporate record keeping requirements for foreign and domestic companies. T/F
Contrast the manner in which the superintendent ensures that adequate asses are held in Canada for foreign insurance companies under the current ICA (1992) versus the former act.
The super must be satisfied that the company has assets of a prescribed value vested in trust approved by the super. Formaly, foreign companies were required to deposit securities with the Receiver General
Briefly describe four matters that the OSFI will consider before issuing a license to a newly incorporated insurance company.
1. Nature and sufficiency of financial resources
2. Soundness of business plans
3. Character, competence, and experience of those operating the company
4. Business record and experience of the applicants
5. Effect of incorporation on the CDN financial system
6. (if foreign) evidence that CDN insurers will be treated equally favourable in the principal jurisdiction of the foreign insurer.
Briefly describe four regulatory requirements that foreign company must fulfill to start a branch operation in Canada.
1. The co must be capable of making a contribution to the financial system in Canada
2. Canadian insurers need to be treated as favourably in the jurisdiction in which the foreign co principally operates
3. The co must appoint a natural person who is ordinarily resident in Canada to be its Chief Agent.
4. The co must also appoint an auditor and an actuary for its insurance business in Canada
5. The co must have assets of a prescribed value vests in trust in a company approved by the Superintendent.
Briefly indicate the significance with respect to federal regulation of insurance of the South-Eastern Underwriters (SEU) case.
The court ruled insurance was indeed commerce and thus could be federally regulated. The ruling raised fears that state regulation itself would evaporate overnight. That threat led to swift passage of the McCarran-Ferguson Act, which to this day is the foundation of the states primary authority over insurance.
According to Noonan, 'Protecting the Pledge' regulatory review generally requires that rates shall 1, 2, 3 (list)
1. Shall not be inadequate
2. Shall not be excessive
3. Shall not be unfairly discriminatory between risks of like kind and quality
According to Noonal, what was Congress's justification for the passage of the McCarran-Ferguson Act?
It is in the public interest to continue state regulation of the business of insurance
In the US, even though individual state has the primary authority over insurance, the federal government may encroach into state regulation. List 4 (Noonan)
1. 1973 The Federal HMO Act
2. 1974 The Employee Retirement Income Security Act
3. 1990 The Omnibus Budget Reconciliation Act authorized the NAIC to standardize Medicare supplements by designing at most ten plans
4. 1996 The Health Insurance Portability and Accountability Act applied to workers at small employers
5. Medicare+Choice and Medicare Advantage are joint federal/state efforts in health insurance
6. 1999 The Gramm Leach Bliley Act
Describe the Gramm Leach Bliley Act. (Noonan)
1999 The Gramm Leach Bliley Act reduced the separation of insurance from other financial services, expanded privacy regulations, required states to meet standards of uniformity and reciprocity in licensing or producers
According to Baer & Rendall, Canadian Insurance regulation since Confederation has focused on five main areas. Identify
1. Regulations designed to guarantee the financial solvency of insurers
2. Attempts to promote CDN ownership of insurers and investment by insurers in Canada
3. Creation of Tax revenues
4. Regulations designed to promote marketing integrity and improve the insurance contract
5. Regulations designed to promote the honesty and competence of insurance intermediaries
As in Baer and Rendall, identify 3 differences between private and social insurance.
1. Private ins involves risk selection, whereas social insurance usually accepts all risks
2. Private insurance is concerned with protecting the public against gaming, whereas social insurance is not
3. Solvency is a major issue for private, not for social b/c it's underwritten by the state.
4. Different administration or judicial supervision applies since private employees administer private insurance, whereas civil servants administer social insurance
As in Baer and Rendall, identify 3 similarities between private and social insurance.
1. Both involve concepts and rules that seek to protect the insurance fund and to prevent overcompensation
2.Both involve problems of defining covered events and determining covered losses
3. Both need to establish a fair and efficient claims process and to adopt a system for loss valuation.
According to Baer and Rendall, briefly describe the 3 conditions that led to the insurance industry being singled out for such unusual public control. (regarding regulations designed to guarantee the financial solvency of insurers)
1. In the 1860's and 1870's public confidence had become badly shaken by the bankruptcy of several insurance companies
2. Legislators perceived that aggressive short term price competition was not in the public best interest
3. Manages large pools of prepaid premiums.
According to Baer and Rendall, Describe 3 types of legislation that was introduced to guarantee the financial solvency of insurers
1. controlling the creation of domestic insurers and licensing foreign insurers
2. limiting the types of investments insurers can make
3. providing for the periodic filing of financial info
4. giving a gov department authority to ensure compliance
5. involving the creation or recognition of rating bureaus
6. involving the creation of administrative boards to encourage minimum or adequate rates
According to Baer and Rendall, identify the 3 levels of insurance regulation:
2. Regulations made by the lieutenant governor in council
3. Guidelines or directives issued by the superintendents
According to Baer and Rendall, which level of regulation is favoured by both superintendents of insurance and the industry in recent years. Why?
They are seen as more flexible, less obtrusive and less likely to be misinterpreted by courts. They also can be adopted without being vetted by other government departments or scrutinized by cabinet or its committees
Which insurance doctrine is considered to be unique to Marine insurance?
Abandonment and Constructive Total Loss
What are the IBC's five main objectives?
Baer & Rendall
1. Discuss general insurance
2. Collect and analyze statistical information
3. Study legislation
4. Engage in research
5. Promote better public understanding
Compare and contrast indemnity insurance and the principle of indemnity.
Contracts of indemnity are contracts where the amount recoverable is measured by the extent of the assured's pecuniary loss. The principle of indemnity is the principle that the assured, in case of a loss against which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified.
Identify the four main corporate structures for P&C insurance
Baer and Rendall
1. Individual underwriters
2. Joint stock companies
3. Mutual insurance carriers
4. Reciprocal or inter-insurance exchanges
Describe the facts of the Landmark case Regal Films Corporation v. Glens Falls Insurance Company.
Following a fire a claim was made under the policy which was resisted on the ground that the plaintiff had not furnished proof of loss within the sixty days stipulated by the policy.
Describe the issues of the Landmark case Regal Films Corporation v. Glens Falls Insurance Company.
1. Whether the policy of insurance comes under Part 4 of the Insurance Act, which governs insurance against loss of or damage to property through fire
2. Whether the condition of the policy in respect of the proofs of loss relied upon by defendant is inconsistent with and varies or modifies statutory condition no 15. (does not put any express time limit on the insured within which he must submit proof of loss)
Describe the ruling of the Landmark case Regal Films Corporation v. Glens Falls Insurance Company.
The policy did come under Part 4 of the Insurance Act
The policy conditions were contrary to statutory condition no. 15
(Ruled in favour of Regal Films)
Describe one difference between valued policies and non indemnity insurance
Valued policies involve payment of an agreed value if an insured proves the occurrence of a loss and are contracts of indemnity.
Nonindemnity insurance provides that upon the happening of some contingent event, a sum fixed or calculable becomes payable to the insured, regardless of whether the insured suffers any pecuniary loss.
Describe two reasons the insurance industry was singled out for public oversight of solvency.
Insurer bankruptcies led to concerns that policyholders obligations would not be paid
Short term price competition was not in publics long term interest, because rates that are too low do not guarantee that obligations are paid for
Compare and contrast the oversight responsibilities of the Canadian federal and provincial insurance regulators
Federal regulators are mainly responsible for solvency issues of insurers. They do this by making sure insurers meet conditions for engaging in insurance business, thereby protecting policyholder interest.
Provincial regulators are generally responsible for market conduct, approving premium rates, reviewing sales practices and claims settlement practices and licensing of agents/brokers.
Describe the advantages and disadvantages of foreign participation in the Canadian insurance industry.
-more competition resulting in more availability of insurance
-more competition allows premiums to be competitive, making them more affordable to customers
-multinational companies have more international opportunity to diversify their portfolio. Well diversified company is less likely to be insolvent
-Create tax revenues in Canada
-runs counter to goal of federal government to promote Canadian ownership
-harder to verify financial resources of parent so greater potential for insolvency
-domestic funds and profit are being transferred to foreign countries
Describe two recommendations suggested by the Crawford Report that were relevant to the evolution of the actuarial role.
-CIA to give precedence to service in the public interest over self-interest of the member
-CIA to increase its support of research and development for P&C insurance, develop standards of practice for this area, and increase its contribution to basic and continuing education for its students and members on these topics
-CIA to improve and expand its contribution to the development and direction of public policy issues in Canada
Describe two changes made to the Insurance Companies Act in the 1990s as a result of numerous insurance company failures in the 1980's
-Surplus test provisions were strengthened by providing for minimums based on written premiums and incurred claims and existing margins on reserves
-regulations were issued to address the excessive use of reinsurance and the use of unregistered reinsurance
-actuarial certifications of the adequacy of outstanding claims and unearned premium provisions were required for all P&C insurance companies' annual statements
-Duties of the AA were introduced
Discuss the ruling in the case of Paul v Virginia and discuss its implications for the P&C insurance industry in the US.
Insurance was ruled as not inter-state commerce, and as a result, is subject to individual state regulation, not federal regulation. States have set up their own insurance commission which are members of NAIC to try to bring uniformity to insurance regulation.
Identify and briefly discuss two implications for the P&C insurance industry of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
1. Establishes "Federal Insurance Office", charged with studying and collecting information on the insurance industry and the state insurance regulatory system, and drafting a proposed federal insurance regulatory framework
2. Mandates certain requirement for reinsurance credits
3. Establishes Financial Stability Oversight Council which monitors financial services markets to identify potential risks to US financial stability.
A number of insurance insolvencies in the 1980s sparked an interest in federal regulation in the US. Identify three actions taken by the NAIC that reduced the pressure to introduce federal regulation.
1. Risk based capital requirements
2. Financial regulation accreditation standards
3. An initiative to codify accounting principles.
In 1999, the US Congress passed the Gramm-Leach Bliley Financial Modernization Act. Describe the position of the Act with respect o insurance regulation.
The act concludes that states should regulate the insurance industry.
The act set out certain mimimum standards that state insurance laws and regulations were required to meet or face preemption by federal law.
The act enabled other financial institutions to promote and sell insurance.
The act broke down restrictions against bank/holding company affiliation with insurers
Identify and describe one of two US laws that have been introduced after Gramm-Leach-Bliley that have caused federal encroachment into state regulation.
1. Patient Protection and Affordable Care Act
-reform of health insurance market that creates specific requirements for health benefit plans to be marketed through federally-mandated state-created insurance exchanges
2. Dodd-Frank Wall Street Reform and Consumer Protection Act
An insurance company incorporated in Alberta is seeking to expand operations into Nova Scotia. Discuss the impact of the case known as "The Insurance Reference Case" on this proposed expansion.
An insurance company incorporated in one province could carry on business in another province without being regulated by the Federal Government. A company incorporated by a province with provincial objects was not restricted to carrying on business in only one province but could operate in other provinces with permission from those provinces.
Describe two areas of concern of federal legislation addressing an insurance company's financial soundness.
1. Conditions that must be satisfied for a co to enter into business of insurance
2. Reports relating to the financial condition of the company that must be submitted at regular intervals
3. Control over the investments, calculation of asset values and policy reserves
4. Protecting the interests of policyholders in areas other than those related to the control of insurance
In the case of Citizens Insurance Co v. Parsons, an insurance company challenged the validity of the Fire Insurance Policy Act.
Identify two reasons why the insurance company argued that the Fire Insurance Policy Act was "Ultra vires".
1. Subject matter related to regulation of trade and commerce which is federal jurisdiction;
2. Province cannot legislate so as to deprive a federal incorporated company of its status and capacity
In the case of Citizens Insurance Co v. Parsons, an insurance company challenged the validity of the Fire Insurance Policy Act.
Briefly describe how the Privy Council interpreted 'trade and commerce' when ruling on this case.
Privy Council interpreted trade and commerce as "inter-provincial trade and commerce" rather than regulation of a particular business carried in a single province.