Copyright © 2004 McGraw-Hill Ryerson Limited 1 PART 5 – SPECIAL CONTRACTUAL RELATIONSHIPS  Chapter 25 – Insurance Law Prepared by Douglas H. Peterson, University of Alberta

Copyright © 2004 McGraw-Hill Ryerson Limited 2 INSURANCE LAW Historical Development Forms of Insurance The Nature of the Insurance Contract The Concept of Indemnity for Loss The Parties Associated with Insurance Contracts

Copyright © 2004 McGraw-Hill Ryerson Limited 3 INSURANCE LAW Historical Development Reduction of risk through sharing of burden of loss Early development through guilds Refinement in use of maritime insurance by merchant traders 18th Century recognition as type of contract Further development and widening of scope

Copyright © 2004 McGraw-Hill Ryerson Limited 4 FORMS OF INSURANCE Insurance - based on statistical calculation of likelihood of particular loss Actuarial tables – statistical data on probable life span of individuals Records - stats Protection and investment Some insurance is a form of investment

Copyright © 2004 McGraw-Hill Ryerson Limited 5 FORMS OF INSURANCE Fire Life Sickness and Accident Liability and Negligence Title Special Risks

Copyright © 2004 McGraw-Hill Ryerson Limited 6 FORMS OF INSURANCE Fire Insurance Indemnify a person with an interest for any loss that might occur as a result of fire Anyone with an interest in property may insure Can cover buildings and contents Hostile fires Fire not in its proper place Friendly fire Fire in its proper place Friendly fire usually not insured Arson not covered

Copyright © 2004 McGraw-Hill Ryerson Limited 7 FORMS OF INSURANCE Life Insurance Insurance on life of a person, be it one’s own life, or life of another Aspects unique to life insurance Based on event that will actually occur Payable to someone other than insured Only type of insurance that allows a windfall versus replacement of loss Some legislation covers suicide if policy in place for a certain period of time

Copyright © 2004 McGraw-Hill Ryerson Limited 8 FORMS OF INSURANCE Sickness and Accident Insurance Protects against or reduces loss that a policy holder might incur through sickness or accident Amounts usually amount less than a person’s income Accident covers loss of limbs, eyesight, permanent injuries Usually fixed dollar amounts

Copyright © 2004 McGraw-Hill Ryerson Limited 9 FORMS OF INSURANCE Liability and Negligence Insurance Indemnify persons for liability for losses due to negligence in the performance of their work, profession, or actions or use of premises Covers specific losses Auto insurance, occupiers liability, manufacturers product liability, professional negligence, third-party liability Recently includes matters related to environmental laws Product spills, types of pollution

Copyright © 2004 McGraw-Hill Ryerson Limited 10 FORMS OF INSURANCE Title Insurance Protection to purchasers of property and mortgagees from legal challenges to their interests in real property Limited to certain jurisdictions

Copyright © 2004 McGraw-Hill Ryerson Limited 11 FORMS OF INSURANCE Additional Specific Forms of Insurance Various specialized forms exist Business interruption insurance Covers when a business is out of business for an extended period of time Key personal insurance Covers death of an important person in a business Employee, director, officer, partner, shareholder Pay off estate of deceased Bonding Certain business use to instill confidence in customers Storage, repair, transport

Copyright © 2004 McGraw-Hill Ryerson Limited 12 NATURE OF INSURANCE CONTRACT Contractual relationship Contract and special rules apply Contract of utmost good faith Requires truthful disclosure by applicant No-fault insurance Insurance not based on liability

Copyright © 2004 McGraw-Hill Ryerson Limited 13 NATURE OF INSURANCE CONTRACT Insurance Policy– a contract of insurance Premium – the price paid for insurance coverage Insurer – a company that sells insurance coverage Insured – one who buys insurance coverage Basic Aspects Nature of Risk Covered Amount for which it is insured Duration of protection Amount of the premium

Copyright © 2004 McGraw-Hill Ryerson Limited 14 NATURE OF INSURANCE CONTRACT Terms Beneficiary – person entitled to proceeds Rider – additional provisions attached to a standard policy Endorsement – written evidence of a change in the terms of a policy Insurance Agent – agent/employee of insurance company Insurance Broker – independent business that arranges insurance coverage for its clients

Copyright © 2004 McGraw-Hill Ryerson Limited 15 NATURE OF INSURANCE CONTRACT Insurable Interest – an interest that would result in a loss on the occurrence of the event Insurance law requires one to have an insurable interest Otherwise would lead to trying to destroy the property for gain Forms of insurable interest Ownership or part-ownership in property Security in interest in property One’s own life or the life of another Income, assets Life insurance – only show had insurable interest at the time life insurance was taken out

Copyright © 2004 McGraw-Hill Ryerson Limited 16 NATURE OF INSURANCE CONTRACT Disclosure Proper and truthful disclosure required by applicant Failure to disclose material facts may be grounds for denial of compensation Rule varied by statute Innocent misrepresentation Fraudulent misrepresentation – common law rule holds Must inform insurer of substantial changes

Copyright © 2004 McGraw-Hill Ryerson Limited 17 CONCEPT OF INDEMNITY Distinguishes contract of insurance from a wager Prevents insured from making a profit from a loss Exception – life insurance Three rules Special rights of the insurer to prevent insured from receiving more than actual loss

Copyright © 2004 McGraw-Hill Ryerson Limited 18 CONCEPT OF INDEMNITY Three Rules Salvage Insurer has choice to repair or pay insured full value for property If pays full value then insurer entitled to property Can demand title under this right of salvage Applies to recovered goods

Copyright © 2004 McGraw-Hill Ryerson Limited 19 CONCEPT OF INDEMNITY Subrogation – substitution of parties whereby the party substituted acquires the rights at law of the other party, usually by way of contractual arrangement When insured is injured or suffers some loss due actionable negligence or deliberate act of another The right of the insurer to recover the amount paid on a claim from a third party who caused the loss Prevents double dipping (double payment) – recover from wrongdoer and also from insurer Insurer steps into shoes of insured Can sue wrongdoer

Copyright © 2004 McGraw-Hill Ryerson Limited 20 CONCEPT OF INDEMNITY Right of Contribution Right exists between insurers When more than one insurer Contribution clause – each insurer will only be required to pay a portion of the loss Co-insurance clause – a clause that renders the insured an insurer for a part of the loss if the insured fails to maintain insurance coverage of not less than a specified minimum amount or percentage of the value of a property

Copyright © 2004 McGraw-Hill Ryerson Limited 21 INSURANCE LAW COMPENSATION FOR LOSS — RIGHTS OF INSURER Copyright © 2004 by McGraw-Hill Ryerson Limited. 1. Contribution Amongst Insurers (If More Than One) 2. Right of Salvage (Title to Insured Goods) 3. Right of Action Against Party Causing the Loss (Subrogation) INSUREDINSURER Co-Insurance Agreement for Partial Losses (Contract Term) Above Rights Granted to Insurer Compensation for Loss

Copyright © 2004 McGraw-Hill Ryerson Limited 22 INSURANCE LAW CO-INSURANCE FORMULA Copyright © 2004 by McGraw-Hill Ryerson Limited. INSURER’S LIABILITY = ACTUAL AMOUNT OF INSURANCE CARRIED MINIMUM COVERAGE REQUIRED x LOSS

Copyright © 2004 McGraw-Hill Ryerson Limited 23 SUMMARY Special type of contract Exception is life insurance Designed to indemnify the insured for actual loss Cannot profit from a loss Only recover what one lost Exception: life insurance Contract of utmost good faith Full disclosure of material facts Insurer has three rights Right of salvage, right of subrogation, right of contribution