Baer and Rendall - Cases

  1. Types of insurance carriers
    1. Individual UWs (Lloyd’s):
      • Similar to stock exchange, except only open to members (not public).
      • UW members (Names) can accept risks on their own account
      • Non-UW members: enjoy all but insuring privileges
        1. Subscribers: act as brokers on behalf of public and place risks with UW members.
        2. Associates (lawyers, adjusters, actuaries): service UW members
    2. Joint stock companies:
      • for profit, made of stockholders but managed by officers and board
    3. Mutual insurance carriers:
      • owned by p.h.'s
    4. Reciprocals or inter-insurance exchanges:
      • org of individuals who have joined together for exchange of insurance.
      • No one can take out insurance unless offering
      • Members are individually liable
  2. Nature of competition
    Uncontrolled ST price competition not in public’s LT interest:
    • results in insurers collecting less premium than necessary, leading to bankruptcy.
    • justifies exemption from anti combines legislation
  3. Rating bureaus
    • Authorized and regulated by prov gov to cooperate to determine adequate premium.
    • Most provinces designated IBC for this purpose.
    • Although many insurers follow Bureaus’ rating advice, not legally compelled to do so.
    • Bureaus also mandated to fix terms or conditions of contracts (so no competition on policy terms).
  4. Superintendent
    • given limited power to:
      • control premium rates
      • unfair and deceptive acts and practices in some provinces
    • approve auto policies in all provinces
  5. Objectives of IBC
    • Provide forum for discussion of general insurance
    • Collect and study actuarial and statistical info
    • Study legislation and legislative proposals
    • Research and pilot programs in an effort to provide high level of service to public
    • Promote better public understanding of insurance business
  6. Areas of focus for Canadian insurance regulation
    • Solvency regulation of insurers
    • Canadian ownership and investment in Canada
    • Creation of tax revenue
    • Promote market integrity / improve contract form
    • Promote intermediary honesty and competence
  7. Reasons for solvency regulation
    • Large # of bankruptcies of insurers that shook public confidence and led to concerns on not being able to meet obligations
    • Mgt of large pools of prepaid premium (fiduciary nature of business)
    • Aggressive ST price competition not in public interest
  8. Methods to promote solvency
    • Control creation of domestic insurers and licensing of foreign insurers
    • Restrict types of investments insurers can make
    • Provide for periodic filing of info
    • Give gov bodies authority to ensure compliance
    • Creation of rating bureaus to improve actuarial soundness of UW decisions
  9. Oversight responsibilities - Fed vs. Prov regulators
    • Federal: solvency - make sure insurers meet conditions for engaging in insurance business, protect p.h. interest
    • Provincial:
      • market conduct
      • approve premium rates
      • review sales practices and claims settlement practices
      • licensing of agents/brokers
  10. Levels of insurance regulation
    1. Legislation
    2. Regulations of the Lieutenant Governor in Council
    3. Guidelines or Directives by the Superintendent
  11. Guidelines vs legislation or formal regulation
    • Mask fundamental disagreement; appearance of a solution while tolerating inconsistent behaviour
    • More flexible
    • Less obtrusive if voluntary; insurers are usually willing to comply to avoid formal law
    • Less likely to be misinterpreted by courts; not seen as giving rights to public, therefore less likely to be subject to litigation;
    • Can be easily amended
  12. Social vs private - Differences / similarities
    • Social vs private - differences:
      • Social is universal while private is risk selecting
      • Private legislation focuses on protecting the public from gaming, unnecessary for social
      • State is carrier for social, so no need for elaborate rules to guarantee carrier’s solvency
      • All intermediaries are civil servants in social insurance, so different kind of administrative or judicial supervision applies
    • Social vs private - similarities
      • Protect integrity of the insurance fund and prevent double recovery
      • Problem to define covered events
      • Difficulty in establishing fair and efficient claims process and loss valuation system
  13. Principle of indemnity
    • relief of financial impact of an event by shifting risk to insurer and pays premium for it
    • shall not overcompensate / profit
    • unless specified otherwise in contract, contract of insurance is considered contract of indemnity
    • subrogation principle applies for contract of indemnity, e.g. insurer pays and subrogates against insured on TP payments
    • life insurance policy is not indemnity policy as loss of life is not translatable into pecuniary loss.
  14. Indemnity vs non-indemnity insurance
    • Indemnity: amount recoverable is measured by insured’s pecuniary loss, subject to insured proving:
      1. Covered event occurred
      2. Insured sustained a loss from event
    • Non-indemnity: payable whenever specified event happens, whether or not insured sustained pecuniary loss
  15. Valued policy
    • Contract of indemnity
    • Insurer and insured agree to specific value
    • Insured only need to prove fact of loss not amount
    • Dif from policy paying fixed sum on happening of an event:
      1. Pay regardless of whether suffered a loss (accidental death policy)
      2. Reflects difficulty of proving pecuniary loss
  16. Glynn v. Scottish Union
    Indemnity vs. Non-indemnity insurance
    1. Facts:
      • insured injured in car accident from negligence of TP
      • Compensated by TP insurer, and then sue own insurer for same expenses
    2. Decision: insured action dismissed on appeal (Trial: insured succeeded)
    3. Rationale:
      • involved payment of actual expenses (pecuniary loss) hence contract of indemnity (does not permit double recovery) and principle of subrogation applies
      • contracts of indemnity is determined by nature of the contract not its categorization
  17. Regal Films v. Glens Falls Insurance Co
    Classification of contract
    1. Facts: fire claim resisted as proof of loss not furnished within 60 days (stipulated in policy headed “inland marine”)
    2. Decision: Appeal dismissed. insurer has to pay (Trial: insured succeeded)
    3. Rationale:
      • although titled "inland marine", primary risk is fire and falls under fire section of Insurance Act ("no time limit / proof as soon as practicable")
      • to classify a contract, what matters is not the name but the content
  18. Approaches to subrogation / prevent double recovery
    1. Election: can choose compensation source (tortfeasor or collateral sources)
    2. Cumulation: can collect from more than one source
    3. Reimbursement: tortfeasor must pay in full and excess is returned to collateral source
    4. Relieving tortfeasor: reduce tortfeasor’s liability by amount of collateral benefit
  19. Fletcher v. MPIC
    • Gov insurer's scope of duty
      1. Facts:
        • insured new to MB and requested max coverage from MPIC, but found out after accident that he wasn’t covered for UM
        • When he received flyers with 'NOT APPLIC' next to UMC he thought it didn't apply to him because he already had it.
      2. Issues:
        • Does gov have duty to advise UMC? yes. duty not as thorough as broker, but need to inform range of coverages available
        • If has such duty, did it fulfil it? no, insufficient communication
        • If not, is it liable? yes
      3. Decision - insured succeeded (Trial - insured succeeded; Appeal - reverses; Supreme - reverses again -> breach)
      4. Rationale - entitled to rely on MPIC. had UMC been offered, he would have purchased it
  20. How to determine duty of care
    • reliance: yes only natural if rely on info provided to determine amount of risk they want to take
    • reasonableness of reliance: yes as customers not likely to be insurance experts
    • knowledge of reliance: yes MPIC knew
  21. Duty of care civil servants vs. private agent
    • private agents:
      • inform coverages available and advise on coverages that suit their need (individualized)
      • specialists in risk assessment and insurance advice
    • public insurers:
      • inform coverages available only (less scope for individual attention) but still need to provide adequate and complete info
      • not specialists
  22. Broadhurst & Ball v. American Home / Guardian
    Claim process: duty to defend and split of defense costs
    1. Facts:
      • Insured sued for conspiracy, breach of fiduciary duty and negligence.
      • Primary insurer agreed to defend, but excess refused to defend alleging insured knew at time of application
    2. Issues:
      • Coverage: no evidence of prior knowledge. covered
      • Duty to defend: whether excess has duty to defened when primary already does - yes
      • If concurrent duty, how to split defense costs
    3. Decision: Appeal dismissed. insured succeeded (Trial: pro-insured)
      • Both insurers have duty
      • Defense costs split equally
    4. Rationale:
      • potential judgement puts excess insurer at risk -> if not involved, obstacle to settlement
      • equal split justified not on contratual basis but by principles of equity and good conscience
  23. Dillon v. Guardian
    Claim process: absolute liability
    1. Facts:
      • insurer knew would exceed policy limit and failed to settle within limit when given opportunity to do so
      • final judgement exceeded limit and refused to pay xs
      • insured sues insurer
    2. Decision: insurer must pay xs
    3. Rationale: absolute liab: insurers should use reasonable care to settle within limits when given opportunity to do so. knew that might exceed limit and refused to settle -> breached duty of care to insured and needs to pay
  24. Liability standards (3)
    1. Absolute liability
    2. Liability for failing to act reasonably
    3. Liability for bad faith (similar to b)
  25. Benefits for absolute liability
    • Avoids problem of determining whether settlement offer was reasonable
    • Avoids possibility insurer will gamble with insured's money if offer near policy limits
    • As interests of insurer and insured conflict, insurer should have both benefits and detriments of its decision
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Baer and Rendall - Cases
Baer and Rendall - Cases on Canadian Law of Insurance