Flashcards in Study 1: Claims and the Law Deck (35)
What is an adjuster?
One who investigates insurance claims, makes recommendations regarding the payments of benefits from insurance policies, and negotiates payments and settlements.
May be called loss adjuster, claims adjuster, claims representative, or some other term unique to particular company or region. Term used may be affected by:
-Usage in corporate environment
-Specific licensing regulations
Who is not considered an adjuster?
Legislation excludes certain persons, who although involved in handling claims, are not meant to be covered by the licensing requirement. These can include:
-Barrister or solicitor acting in usual course of their occupation
-Trustee or agent of property insured
-Salaried employee of a licensed insurer while acting on behalf of such insurer in the adjustment of losses
What are the different classes of adjusters? (3)
Some loss adjusters operate as salaried employees of an insurance company, while others operate as independent adjusters, typically for independent adjusting firms that pursue contracts with licensed insurers. In either case, the adjuster represents the insurance company.
A public adjuster, by contrast, is an adjuster who represents an insured on a fee basis in the claim settlement process.
Which loss adjusters need to be licensed?
Independent and public adjuster must be licensed. Most loss adjusters employed by companies do not need to be licensed, except in Quebec, NB, NL, and PEI. This requirement is meant to instill trust and confidence in consumers by ensuring the appropriate level of knowledge and expertise for loss adjusters.
Definition of claims handler and claims examiner
Claims handler - A claims person involved in any aspect of the claims-adjusting process. May work for brokers, agents, or insurers. Can perform any duty in the adjusting process, including taking the initial report of loss, adjusting the loss, etc.
Claims examiner - an employee of an insurance company who directs the investigations of staff adjusters, and independent adjusters, reviews their reports, and approves claim settlements.
*These terms will be used more often because of the variation of titles across the industry.
What are the two systems in Canada used for Civil law? (2)
Common law system- Legal precedent forms the basis for dealing with court cases in the common law provinces and territories. Judges use facts from previous similar cases to get a decision for their current case.
Civil Code of Quebec - courts rely on the formal written code to interpret the law. Although judges may look to previous decisions for guidance, the law does not mandate that the reasoning be followed
What is joint and several liability?
When several people are involved in committing a wrongful act, they are jointly and severally liable. In other words, the injured party could recover from any one of the liable parties, even if one of the liable parties are held only 2% at fault.
Knowledge of contract law is useful to loss adjusters when they must analyze policy wordings or assess hold harmless agreements, lease agreements, releases, and other contracts to determine whether the policy will respond.
What is privity of contract? Can people not insured under the policy bring an action to the insurer?
Relationship that exists between two parties or more by virtue of their having entered into a contract.
As a rule, underwriters will not permit an insured to assign an insurance policy to someone else, unless by death, bankruptcy or operation of law.
When a person who is not insured under the policy has a direct financial interest in damaged property, the privity of contract rule typically prevails, however certain provinces have enacted legislation that gives those who will benefit from a policy the right to pursue an insurer directly. (ex: TP suing insurer of plaintiff directly)
What are the essential elements of a contract under common law? (5)
-Legality of object
-Capacity to contract
-There must be an agreement between the contracting parties. To form a contract one party must make a definite offer to another party, and then the other party must accept it as offered.
-An invitation to transact is not an offer (Ex: application for insurance)
-If new terms are introduced in the offer, it becomes a counter offer.
-Both offer and acceptance must be clearly communicated orally, in writing, or in some other recognized manner. A lack of action or silence is not considered consent.
Capacity to Contract
Each party must be legally able to enter into contracts. (No minors, vulnerable people, etc)
One party must give consideration in exchange for the act or promise of another party (Ex: a fee in exchange for services such as premium for protection from insurer)
There must be intent between the parties to create a legally enforceable agreement and fulfill the contract.
Legality of object
-The purpose for which the contract is formed must be legal. A contract cannot be established for a purpose that violates a civil statute, criminal law, or public policy.
-For insurance claims, loss must be fortuitous, which occurs by chance and is accidental, claim not valid if loss caused by intentional acts
What are the essential elements of a contract under the civil code of Quebec? (4)
-Consents - Contract is formed when and where the acceptance is received by the offeror. One party makes the offer, the other party decides whether to accepts it.
-Capacity to contract - Person purchasing the policy must be legally able to enter into a contract. Protects minors and vulnerable people
-Cause of contracts - Reason that each party enters into a contract (Ex: Under insurance contract, insureds motive is peace of mind or financial security, insures motive is to charge a premium and make profit)
-Object of contracts - obligation each party must fulfill under contract (Ex: insurer is obligated to indemnify insured in event of an accident, insured is obligated to pay premium.)
What are the two types of nullity?
-Relative nullity and absolute, which mirror the concepts of a voidable contract (contract that can be affirmed or rejected) and a void contract (An illegal contact, contract that was never made or never existed)
-If a contract is relatively null, its voidable.
-If a contract is absolutely null, it is void.
What are the additional legal requirements that apply to insurance contracts? (3)
-Principle of indemnity
-Utmost good faith
Principle of Indemnity
-Claim payments restore policy holders to the same financial position they were in immediately prior to a loss.
-To but people back in the same financial position as they were in before, in other words, the insured should not benefit from any loss. Insured is limited to collecting only what was lost
Insurable interest - what is it and what parties may have insurable interest on a property?
-An interest that the insured must have in the subject matter of the insurance purchased so that if the event insured against occurs, the insured will suffer a pecuniary loss.
-Some parties that may have insurable interest on the property include:
-- owner of property
-- Mortgagee as a lender who accepts interest of land aas security for a loan
-- Lessee who takes possession of leased property
-- Bailee who accepts custody of property for some purpose but does not own property
-- Cosignee who has purchased goods that are in transit to them
Under a fire insurance policy, what are the three conditions that must be fulfilled to qualify insurable interest?
1) There must be a physical object capable of being destroyed by an insured peril
2) The physical object must be the subject matter of the insurance
3) The insured must have a relationship to the property recognised by the law, in which a benefit results when the property is held safe and a detriment results by its loss.
What happens when there is a shared interest on the property? Who is in possession of the property in real estate transactions?
-Loss adjusters must examine the applicable contracts to determine insurable interest.
-In real estate sales transactions, there is usually a time lag between the date an offer is accepted and the closing date. During this period, both the vendor and purchaser may have an interest in the property. Typically, the vendor is responsible for the property until the deal closes.
Utmost good faith - What is the definition of it and what happens when a insurer acts in bad faith?
-Legal principle calling for highest standards of integrity on the part of the insured and the insurer.
-If insurer acts in bad faith by offering low settlements and being unfair to the insured, they are usually punished by the courts. The courts punish them by awarding punitive damages to policy holders.
What are punitive damages and what do they accomplish?
-Punitive damages are damages in excess of those required to compensate the plaintiff for the wrong done, which are imposed in order to punish the defendant.
-Punitive damages are intended to accomplish the following:
--Punish those who act in bad faith
--Deter any similar behaviour in the future
--Publicly condemn the behaviour
What is a representation? why is it important? (4)
-A representation is a statement that an applicant makes to an insurer about the risk to be insured. It can affect an underwriters decision on whether or not to accept or decline a risk
-Misrepresenting a material fact would allow an insurer to void the contract.
-An applicant for insurance must tell the truth when answering questions on the application and must also disclose all known material facts
-If a material change occurs to the insured property during term of policy, the insured must promptly advice the insurer of the change. Failure to do so can result in breach of policy.
Innocent misrepresentation vs fraudulent misrepresentation - when can the insurer void the policy?
-If insured innocently believed a representation was true but in fact it was false, the insurer can void the policy, but not after a loss occurs. The reasoning is that an innocent insured has relied on the policy
-If insured was negligent and careless about the truth, than the insurer can void the policy even after the loss
What is a warranty? (including promissory and affirmative warranty)
-A warranty is a promise made by an insured to maintain certain conditions of the risk during the term of the policy. It is a secondary or collateral promise of the contract, but is deemed to be material to the risk. If the insured breaches a warranty, the insurer has grounds to void the policy
-A promissory warranty promises not only that a fact is
presently true but that it will continue to be true during the policy period (Ex: sprinkler system will be maintained)
-An affirmative warranty states that a fact is true when the insurance policy is purchased (Ex: Insured has never had a loss)
Remedies for breach of contract: What may an injured party do when there has been a breach of contract? And what are the remedies an insurer can offer? (6)
If a breach of contract occurs, the injured party may:
-Sue for damages that resulted from the breach
-Compel performance of the terms of the contract or ask to be released from further contractual obligations
-Ask for an injunction to restrain the other party
Insurers faced with an insured in breach of policy obligations would ask to be released from the contract. The insurer may choose from one of the following remedies:
-Repudiate the policy contract and treat it as void
-Treat policy contract as valid notwithstanding the breach
-Treat policy contract as valid despite the breach but cancel it as prescribed in the policy
Relief from imperfect compliance - What is it? and provide one example
A further safeguard for policy holders is the principal of relief from forfeiture for imperfect compliance with contractual obligations. Under some circumstances, when contract stipulates performance must occur within certain time, the courts may grant relief to policy holder who failed to perform the obligation in time.
(Ex: Person gets in accident but is not able to inform insurer in time because they have been injured)