Flashcards in Study two Deck (42):
- legal decision that serves as a basis to resolve subsequent disputes in similar cases
- precedent- based legal system aka common law system (used all provinces except quebec)
What are the 5 essential elements of a contract?
- must be an agreement with parties (not just an invitation)
2) capacity to contract
- must be legally able to enter into contract (age and mental capacity)
- one party must give consideration for the act/promise of another party
4) genuine intention
- must be intent among the parties to create a legally enforceable agreement (r of r)
5) legality of object
- purpose for which the contact is formed must be legal (illegal contracts will be voided)
What is a void contract?
- one that, in law, was never made - never existed
- is void "ab initio" (from the beginning)
What does voidable entail?
- if a contract is based on misrepresentation, error, undue influence, or duress at the option of the injured party
- may choose to proceed or declare contract void
What is the right of recission?
- once a policy is in force, insurers of life and permanent A+S insurance, must provide consumers with a 10 day period once the policy is in force, to reconsider the purchase.
- aka free look provision
What is the recission of a contract entail?
- contract would be cancelled or avoided by wronged party
- recission remedy gives injured party the right to treat the contract as no longer in effect and to claim damages for the breach
What are the 4 elements essential when establishing a contract in Quebec?
1) consent - combo of agreement and genuine intention
2) capacity to contract
3) cause of contract
4) object of contract
(nullity = void, null = voidable)
Define utmost good faith.
- demanding a HIGH standard of honesty and trust from both parties
- caveat emptor (buyer beware) does not apply to insurance
- insured is under obligation to disclose all material info when applying for insurance
What are the underlying principles of insurance contracts?
2) insurable interest
Define material fact.
- important enough that it would influence a prudent underwriters decision to accept or reject a risk, or would alter the premium charged.
What does the provincial life insurance legislation state about policy incontestibility?
- contract may be voidable by the injured party within 2 years of the policy being in effect
- after the 2 years a policy is not voidable unless fraud is a factor
- developed to reassure policyholders that relatively innocent misstatements would not jeopardize coverage
Define fraudulent misrepresentation.
- a false statement made intentionally and deliberately in order to induce another party to enter into a contract that it would not have entered into knowing the truth
Is misstatement of age sufficient to void coverage?
- no, it is an "exception"
- levels of insurance provided and the premium will be adjusted to match correct age of insured
- if error is discovered after death, it will be adjusted to the amount of coverage that the premium paid would have purchased had the insureds correct age been used
- relates to monetary value; financial value
What is insurable interest?
- must have a financial relationship in the person to be insured
- individual will benefit from continuing life of the other person and will suffer a pecuniary loss if person dies
- needs to exist ONLY when the application for life insurance is made
- this is to eliminate or control moral hazard
What is the need for insurable interest in life and health insurance?
1) policyowners own life
2) policy owners child/grandchild
3) anyone upon whom the policy owner depends for suppoer or education
4) life of an employee of the policy owner
5) any person in whose continuing life and health the policy owner has a financial interest - creditor
Define moral hazard.
- the likelihood that an individual will act dishonestly, fraudulently, carelessly, or recklessly due to the existence of an insurance policy.
What does the law of agency entail?
- applies when an agent is authorized to do something on behalf of a principal (the person agent acts for)
- agent represents the interests of the principal and owes them a duty of care.
Define duty of care.
- courts have described the standard as a reasonable degree of care and competence
the legal duty one owes to another such as:
- what agents say they will do
- what they do
- to what extent the client relies on recommendations/statements made by agent
- the duty of care shifts between consumer and insurer depending on whom the agent is performing functions for
What is a broker?
- can represent more than 1 company
- advocates for the insured
What is a captive agent?
- represents 1 insurer, but with permission may represent other insurers specific product needs
What is implied authority?
- agent can choose which method to perform task
ex) how to deliver policies
- an implied term has not actually been set out but in this case it would be a reasonable method to perform the task
What is actual authority?
- agents authority from insurer is outlined in expressed terms
i) writing in an agency agreement
ii) oral instructions from insurer
- in these 2 ways the actual authority is set out and will outline what responsibilities the agent has to the insurer
What is apparent/ostensible authority?
- if a reasonably well informed consumer is justified in assuming that an agent has authority to act on behalf of an insurance company the law provides that the insurer will be bound by the acts of the agent.
What is vicarious liability?
- the law of agency supports that a principal is liable for wrongful acts committed by the agent acting within the scope of authority outlined
What does "know your client rule" entail?
- to make inquiries of a clients financial circumstances, investment sophistication, and risk tolerance before recommending an investment
- clients interests should come first
- liability can ensue with negligent statements
What are the differences between life and non-life insurance?
- policy term
- cancel policy/void policy
- requirement for insurable interest
- statutory conditions
- breadth of coverage
- payment of commissions
Discuss the differences within assignment.
- most nonlife policies do not allow the insured to assign the policy to another
- the assignment of the claim payment is freely assignable by the insured, assuming there are no other endorsements on policy indicating other interests had to be satisfied first
- life policies there is a right to assign the policy
- all that changes is the beneficiary, the risk does not change
- the claim payment cannot be assigned when death of life insured has triggered the policy
- assignment needs to take place before the death of the life insured
Discuss the differences within premiums.
- nonlife policies, it is impossible to predict which specifioc risks will suffer losses
- premiums are adjusted to reflect increased hazards
- life policies do not change even if the insurability of the insured has changed (declining health), or due to age
Discuss the differences within pricing.
- life insurance pricing is less complex and more accurate because death rate within the population have been consistent over decades that life insurers are able to make accurate predictions.
- nonlife is much more complex with many variables to account for
- more likely to suffer severe losses in a particular year
- is the payment of losses, damages, expenses in order to restore an individual to the same financial position enjoyed immeadiately prior to a loss.
Discuss the differences within claims.
- nonlife are contracts of indemnity
- insurer must calculate what it owes according to the amount of damage sustained up to limit of policy
- life policies are benefit driven meaning that they pay the defined amount that was purchased without regards to the principles of indemnity
Discuss the differences with insurable interest.
- nonlife policies requires insurable interest exists both when the policy is issued AND when loss occurs
- life policy only when the policy is issued
Discuss the differences within statutory conditions.
- certain nonlife must include statutory conditions in the policy wording
- life must include certain conditions, but the wording is not mandatory
Discuss the differences within breadth of coverage.
- nonlife are very complex and include many forms of combinations.
ex) all risk policies provide broader coverage but is restricted with exclusions, limitations, and conditions
- life provides much broader coverage
- one single exclusion which is the 2 year suicide clause
(must wait 2 years after suicide to receive benefits)
Discuss the differences of payment of commission.
- nonlife have a fixed % paid out at inception and when policy is renewed
- life policies vary for product and company
What is the policyowner?
- individual whom it is issued to, and who pays thepremium
What is the life insured?
- the person whose life is the subject of the insurance policy
What is beneficiary?
- the individual or business to which the benefits become payable upon the death of the life insured.
What are the risk measuring tools used?
1) laws of probability
- used by actuaries to predict future events
- allows actuaries to express the concept of risk numerically to achieve this end
2) law of large numbers
- the more times a specific event is observed, the more likely it is that the observed results will reliably reflect the true probability that the event will occur
3) risk classification
- members share specific characteristics
- allows insurer to measure risk, calculate probability and predict losses more reliably
4) mortality tables
- probable number of deaths per thousands of individuals by age
5) morbidity data
- aka continuation tables
- measure the incidence of sickness or accidents causing disability in a population
What factors are risk classifications based on?
- medical history