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Types of insurance carriers
- 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
- Subscribers: act as brokers on behalf of public and place risks with UW members.
- Associates (lawyers, adjusters, actuaries): service UW members
- Joint stock companies:
- for profit, made of stockholders but managed by officers and board
- Mutual insurance carriers:
- 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
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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
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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).
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Superintendent
- given limited power to:
- control premium rates
- unfair and deceptive acts and practices in some provinces
- approve auto policies in all provinces
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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
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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
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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
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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
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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
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Levels of insurance regulation
- Legislation
- Regulations of the Lieutenant Governor in Council
- Guidelines or Directives by the Superintendent
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Guidelines vs legislation or formal regulation
Guidelines: - 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
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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
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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.
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Indemnity vs non-indemnity insurance
- Indemnity: amount recoverable is measured by insured’s pecuniary loss, subject to insured proving:
- Covered event occurred
- Insured sustained a loss from event
- Non-indemnity: payable whenever specified event happens, whether or not insured sustained pecuniary loss
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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:
- Pay regardless of whether suffered a loss (accidental death policy)
- Reflects difficulty of proving pecuniary loss
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Glynn v. Scottish Union
Indemnity vs. Non-indemnity insurance - Facts:
- insured injured in car accident from negligence of TP
- Compensated by TP insurer, and then sue own insurer for same expenses
- Decision: insured action dismissed on appeal (Trial: insured succeeded)
- 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
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Regal Films v. Glens Falls Insurance Co
Classification of contract - Facts: fire claim resisted as proof of loss not furnished within 60 days (stipulated in policy headed “inland marine”)
- Decision: Appeal dismissed. insurer has to pay (Trial: insured succeeded)
- 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
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Approaches to subrogation / prevent double recovery
- Election: can choose compensation source (tortfeasor or collateral sources)
- Cumulation: can collect from more than one source
- Reimbursement: tortfeasor must pay in full and excess is returned to collateral source
- Relieving tortfeasor: reduce tortfeasor’s liability by amount of collateral benefit
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Fletcher v. MPIC
- Gov insurer's scope of duty
- 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.
- 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
- Decision - insured succeeded (Trial - insured succeeded; Appeal - reverses; Supreme - reverses again -> breach)
- Rationale - entitled to rely on MPIC. had UMC been offered, he would have purchased it
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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
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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
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Broadhurst & Ball v. American Home / Guardian
Claim process: duty to defend and split of defense costs - 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
- 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
- Decision: Appeal dismissed. insured succeeded (Trial: pro-insured)
- Both insurers have duty
- Defense costs split equally
- 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
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Dillon v. Guardian
Claim process: absolute liability - 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
- Decision: insurer must pay xs
- 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
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Liability standards (3)
- Absolute liability
- Liability for failing to act reasonably
- Liability for bad faith (similar to b)
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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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