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Practice Exam for CAIB 1
Insurers are in the business of assuming the financial risks of others which involves entering into a formal contract. A contract is enforceable at law only when all legal elements have been observed. Insurance contracts differ from other formal agreements and are subject to what three additional elements? - ANSWER - Insurable Interest Utmost Good Faith Indemnity Explain the meaning and disadvantage of the following approaches: Avoidance of Risk & Control of Risk - ANSWER - Avoidance: Avoidance means that all chance of financial loss has been eliminated or a decision not to do something. The disadvantage is its not very effective as often the elimination of one exposure creates another in its place. Control: taking measures to reduce the frequency and severity of losses. The disadvantage is that not all losses can be controlled, because equipment will not work 100% of the time Identify the three elements that are unique to contracts of insurance: - ANSWER - Insurable Interest, Utmost Good Faith, and Indemnity
The Insurance Act restricts payment for an insured loss to those amounts required to indemnify the Insured. Indicate the amount the Insured is legally entitled to receive and the measure used to determine this value. - ANSWER - Entitled to receive payment for the actual amount of the loss, no more and no less. The measure is the value of the object of insurance as it was immediately before the loss. Policies insuring against the peril of fire must contain Fire Statutory Conditions. Indicate the Statutory Condition and the applicable rules: During the policy term the insured installed a wood burning stove as a secondary heating device. The application indicates that a gas furnace is used to heat the premises. - ANSWER - Material Change. The insured must notify the insurer promptly of any change that serves to increase the chance of loss. After receiving notification of the Material Change the insurer has the option to cancel the policy and return the unearned portion of the premium to the insured; or continue to insure the risk and advise the insured in writing of the additional premium payable. All Homeowners policies describe the Basis of Claim Payment for loss or damage to dwelling building, detached private structures and personal property. Indicate the basis of settlement and conditions: Water used to extinguish a small fire at the Insured's home destroyed all electronic media and records kept by the Insured. - ANSWER - Cost to reproduce lost or damage media from duplicates or from originals of the previous generation of the media. The payment for lost records is the cost of
Cash Value; payment for loss or damage to personal property is made on the same basis as under Homeowners Forms. Identify two (2) other coverages included under C - Personal Property, which are not found in a Homeowners policy - ANSWER - Improvements or betterments made by or acquired at the expense of the tenant; $ for damage (excluding fire damage) to the portion of the building occupied by the tenant resulting from theft or attempted theft; Damage caused to the interior of the building by vandalism or malicious acts. Individuals who own one or more units in a multiple unit building have an insurable interest in the building structure, common elements and personal property. Identify and briefly explain three coverages that are unique to the Condominium Unit Owners Policy: - ANSWER - Unit Improvements and Betterments: insures the value of improvements and betterments by the insured, including any building, structure or swimming pool, and materials and supplies on the premises for use in such improvements or betterments. Loss Assessment: allows the Insured to claim the amount of an assessment paid due to a loss to collectively owned property if covered under the Insured's policy.
Unit Additional Protection: covers the Insured's unit, excluding damage to improvements and betterments, when the Condominium Corporation has no insurance, or it is inadequate Insureds often find the limit of insurance for certain personal property items provided by homeowners and other habitational forms inadequate and opt to insure individual articles under a Personal Articles Endorsement. The broad coverage combined with the high value of the articles insured necessitates strict underwriting considerations. Explain three (3) underwriting requirements applicable to this coverage option. - ANSWER - 1. Each article must be separately described and a specific amount set for each.
- Current valuation of individual jewellery items or furs is usually required when the value exceeds a certain amount. A bill of sale or recent appraisal is usually sufficient to meet this underwriting requirement.
- May require an appraisal from an independent qualified appraiser. An updated appraisal may be required from time to time. Discuss the difference between Common Law and Statute Law: - ANSWER - In Common Law legal principles or standards are determined by judicial decisions known as precedents. Statute Law is derived from Bills introduced into parliament and provincial legislative assemblies to deal with specific needs and when passed become law and take priority over any existing common law precedents dealing with the same matter.
i. Goods or products made or sold by the insured in the coverage territory; ii. The activities of an insured person whose home is in the territory described but is away for a short time on business relating to their operation; iii. Personal and advertising injury offences that take place through the internet or similar electronic means of communication. The definition of "Persons Insured" is extended to include employees of the Named Insured. Explain the meaning of "employee", and the types of employees insured. - ANSWER - A person "while acting within the scope of their (his) duties" and includes residence employees, farm employees and volunteers. Under the provisions of the Deferred Loss Settlement Clause how does the insurer proceed in the event of a loss to an insured farm outbuilding? - ANSWER - The Insurer will pay at the time of the loss an initial amount of no more than 50% of the amount insured; the remaining 50% is payable, plus interest, if: i. The building is repaired or replaced with a building designed for the same purpose; ii. Repair or replacement is completed within nine months of the date of the loss or damage; iii. The building is repaired or replaced within 200 feet of the building which was destroyed.
Identify the coverages provided under a farm insurance policy. - ANSWER - Dwelling Building and Personal Property, Major Outbuildings and Contents, Machinery and Equipment, General Liability Identify the legal principle upon which the entitlement is based and how the analysis is conducted: - ANSWER - The Principle of Indemnity. The analysis is based on lowest value after calculating: ACV, interest of the insured in the property, the limit of insurance provided Automobile insurance is compulsory in all provinces, which imposes a legal duty on every person who operates a vehicle on public roadways to purchase the minimum coverages required by law. How automobile insurance is distributed varies by province. Identify where in Canada compulsory automobile insurance is provided by private insurers under a Standard Policy Form No. 1 - Owner's Form. - ANSWER - The Standard Policy Form No. 1 - Owner's Form is issued by private insurers in Alberta, the Atlantic Provinces, Yukon, and the Northwest Territories. The S.P.F. No. 1 - Owner's Form includes Uninsured Motorist Coverage under either Accident Benefits or Section D. Indicate the amount of coverage provided under the policy in the event of injury or death caused by an uninsured or unidentified automobile. - ANSWER - The amount of coverage is the compulsory minimum limit for bodily injury
controlling errors and omissions. - ANSWER - Those which serve to prevent losses from occurring; and those which will assist in the defence against an error and omissions claim if and when it does occur. Explain what the best defence against an errors and omissions claim is and, in the event of an E & O claim against a broker, how it influences the outcome of such a claim. - ANSWER - Documentation. The main evidence that supports the broker's credibility. Without documentation the broker's credibility is difficult to establish. While renewing your client's automobile insurance she excitedly shares news about the upcoming month-long trip to Australia. You take this opportunity to offer travel insurance, but your client feels that their provincial medical plan provides all the coverage they need in the event of an accident which, of course, is not going to happen. Identify the four costs not covered under a provincial plan. - ANSWER - Ambulance charges, family visitation, repatriation, or return of vehicle. Explain the extent to which the provincial plan would respond to pay expenses if a medical emergency incurred outside Canada. - ANSWER - The prescribed fee in their plan, regardless of the fees charged where the injury or illness occurred, or any other costs incurred. Being aware of the limitations of the provincial medical plan your client considers the purchase of travel insurance. During the consultation the
following subjects are discussed: The only other person travelling with your client is her spouse. You explain how the policy defines "spouse". - ANSWER - Spouse of the Insured Applicant residing in Canada, provided there is no legal separation in effect, or an individual of the opposite sex who has been residing with the Insured Applicant for a period of at least one year. You have learned that your client has recently visited her doctor because of recurrence of abdominal pain. You explain to your client that the policy contains a "Supervised Condition Exclusion", or as stated in some policies as "Pre-Existing Condition Exclusion" - ANSWER - Supervised or pre-existing condition exclusion means that there is no coverage under policy for any medical condition that is not, and has not been, under control for at least three months prior to the client's departure date. Loss assessment coverage is designed to pay for those special assessments against unit owners when coverage is provided under the Corporation's policy is inadequate. Provide two (2) examples of inadequate coverage which might occur under the Condominium Corporation's policy. - ANSWER - under insurance, application of co- insurance policy, breach of policy condition, cause of loss is not an insured peril or is specifically excluded Normally, the insurer will not subrogate against any person using the automobile with the insured's consent. However, there are certain
against the Insurer within one year after the loss or damage occurred - two years in Manitoba, the Yukon, and Saskatchewan. All Homeowners policies describe the Basis of Claim Payment for loss or damage to dwelling building, detached private structures and personal property. Indicate the basis of settlement and conditions: During a break and enter at the Insured's premises thieves stole one gold and two silver medals won by the Insured at Olympic Games several decades ago. - ANSWER - Actual Cash Value of the lost property
