Principles and Practice of Insurance Exam Midterm PDF

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Principles and Practice of Insurance Exam Midterm...

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INSR 101 – INSURANCE PRINCIPLES AND PRACTICES September 2018

FINAL EXAM (Chapters 7 – 11)

Section I Multiple Choice (2 marks each) 1) A person has applied for fire insurance on his house, but fails to mention that during the winter he leaves his house unoccupied when he vacations in Florida for two months. What is this an example of? Negligence Non-disclosure Breach of warranty Discharge of contract 2) In the common law provinces, which of the following is an element found in all legal Contracts? Indemnity Insurable interest Genuine intention utmost good faith 3) If a contract under common law is discharged because neither party is able to fulfil its obligations due to unforeseen circumstances, the contract is discharged by breach mistake frustration agreement 4) In terms of a contract, an offer may lapse because the offer is not accepted within the time specified in the offer accepted after the passing of a reasonable time if a time limit is not specified accepted before either of the parties dies or becomes mentally incapacitated revoked by the offeror at any time before acceptance, but the revocation only has to be communicated after it is effective 5) A breach of contract occurs when a) three of the parties fail to perform all or part of their obligations b) one of the parties fails to perform all or part of his/her obligations c) one of the parties carries out his/her obligations under the contract d) none of the above

6) Persons who stand in such a legal relationship to property that they may be financially

INSR 101 – INSURANCE PRINCIPLES AND PRACTICES September 2018

FINAL EXAM (Chapters 7 – 11)

prejudiced by its loss and may financially benefit from its continued existence are said to have right of subrogation in the property insurable interest in the property legal capacity in the property legal liability in the property 7) The actual cash value of a dining room table that has been destroyed in a fire, can best be described as the original cost of the table plus an inflation index factor replacement cost of the table value of a similar table of the same material, age, condition and style wholesale price of a similar table made from different material 8) Indemnification can best be described as the main purpose of the insurance business provision of agreed compensation returning the insured to his or her pre-loss financial position payment of losses out of pooled premiums 9) A valued insurance contract implies that, because of the higher premium, the contract is a valued one implies that the amount to be paid in the event of a loss is determined when the policy is written is a life insurance policy under which an agreed amount will be paid on the death of the insured is a replacement cost contract 10) Which of the following terms identifies a type of misrepresentation characterized by “silence when there exists an obligation to speak”? adhesion non-disclosure innocent deceit principle of avoidance

l l) A warranty is

INSR 101 – INSURANCE PRINCIPLES AND PRACTICES September 2018

FINAL EXAM (Chapters 7 – 11)

a promise by the insurer to pay for any losses caused by insured perils an agreement provided by the reinsurer to replace the damaged property that was a result of a direct loss given to the insured as evidence to fix or replace a potential hazard found in and around the insured’s property promise by the insured as part of the contract that a specified state of affairs will continue to exist for the duration of the policy 12) A certificate of insurance is a copy of part of the policy copy of the policy modified form of the policy replacement of the original policy when the insured requests a copy 13) A cover note is a note confirming the discussion between the agent and the insured document issued by agents or brokers which tells the insured that the insurance described therein has been effected a memorandum of an agreement to insured, issued by the insurer all of the above 14) A written application is always preferable because it avoids misunderstandings is mandatory in most types of insurance prevents misrepresentati on states clearly the object of the insurance 15) The doctrine that puts the onus on insurers to make their policies clear is known as forfeiture contra proferentem estoppel burden of proof 16) Estoppel is a doctrine that prevents a person from denying a previous statement a person from making a new statement an insured from denying any fact in a signed application the repetition of previous statements

INSR 101 – INSURANCE PRINCIPLES AND PRACTICES September 2018

FINAL EXAM (Chapters 7 – 11)

17) The legal decision, Scott v. Shepherd (1771), set an important precedent dealing with the proximate cause of loss. In its decision, the court found the defendant liable for injury because of malicious intent found that the last person to throw the firecracker was liable found that the first event in an unbroken chain of events was the proximate cause of loss established that the proximate cause of loss is always the last event in a sequence of events 18) The time after which a cause of action ceases is known as the expiry period inception date prescription date ultimate deadline 19) Subrogation arises on all contracts of insurance rights arise after a claim for indemnity has been paid by an insurer is the right of an insurer to take action against the insured in the case of fraud is an insurer’s right to collect paid loss amounts liom other insurers who insured the same loss 20) What is a proof of loss? condition of the policy requiring the insured to give notice to the insurer of such loss document completed and signed by insureds making claim against their own insurer a form of agreement signed by the insurer stating the investigation will not prejudice its position a clause stating that in the event of a loss, payment shall be made to an interested party other than the insured 21) Which of the following is a function of a telephone adjuster? visit accident scenes process a large volume of claims represent solely the interests of the insured conduct face-to-face interviews with claimants

INSR 101 – INSURANCE PRINCIPLES AND PRACTICES September 2018

FINAL EXAM (Chapters 7 – 11)

22) In the context of insurance, what is a release defined as? statutory declaration with respect to a particular loss or claim special document required when dealing with a late reported claim document completed and signed by an insured waiving their right to insurance coverage on behalf of a third party document in which one party waives all further claims against the party responsible for the damage in return for a sum of money paid 23) Who typically pays the public adjuster? a) lawyer b) insurer c) insured d) government 24) Which of the following is the definition of salvage? what is left of property afler a loss, which still has some value a right that arises after a claim for indemnity has been paid by an insurer the right of an insurer to take action against the insured in the case of fraud an insurer’s right to collect paid loss amounts from other insurers who insured the same loss 25) Loss reserves are a) not required by law, but responsible insurers monitor them closely b) funds set aside to cover all of an insurer’s outstanding premium returns c) based on the insurer’s estimate of the amount it expects to pay for all reported losses plus those not yet reported d) an amount of reserves established using a formula or loss ratio, rather than specifically identified case reserves 26) Which of the following explains the reinsurance term priority? the insured ’s retention the reinsurer’s retention amount of any loss that the insurer will pay amount of any loss that the reinsurer will pay

INSR 101 – INSURANCE PRINCIPLES AND PRACTICES September 2018

FINAL EXAM (Chapters 7 – 11)

27) When an insurance company passes a part of its liability to a reinsurer, the amount reinsured is called cession retention reinsurance retrocession 28) An insurer insures a particular risk for $1,000,000 but only wishes to keep $250,000 (25%) for its own account. It offers $750,000 (75%) to a reinsurance company. This is an example of catastrophe reinsurance excess of loss reinsurance facultative reinsurance quote share reinsurance 29) Which of the following associations has a goal to elevate the status of independent insurance intermediairies through professional development? Insurance Brokers Association of Canada Surety Association of Canada Canadian Independent Adjusters’ Association Canadian Insurance Claims Manager’s Association 30) The organization that works towards achieving better computer communication between brokers and insurers is the Centre for study of insurance operations Facility Association Insurance Brokers Association of Canada Insurers Advisory Organization

INSR 101 – INSURANCE PRINCIPLES AND PRACTICES September 2018

FINAL EXAM (Chapters 7 – 11)

Section II – Narrative Questions – The marks designated for each question are shown in () following each question.

31) Briefly explain the difference between a void and a voidable contract. Identify four (4) reasons for voiding a contract. (10) Void contract is treated as if it never existed Void contract cannot hold legal rights Voidable contract can be accepted or rejected by the aggrieved party 4 REASONS FOR VOIDING A CONTRACT INCLUDE: Misrepresentation A mistake was made Undue Influence Duress 32) Provide (1) one example of an individual who might have an insurable interest in a property in addition to the owner. (1). The mortgagee and bank that provided the mortgage to buy the property. They have a fairly large insurable interest in the property. 33) Identify two (2) situations where the insurer’s consent is NOT required to assign an insurance policy (4). Chapter 10 – P. 16. 34) Distinguish between waiver and non-waiver (4). A waiver is a signed document or a clause which waives the rights of an individual. A non-waiver is a document whereby an individual does not assign it rights. 35) Contrast a “first party loss” with a “third party loss” (4) Ch 11. P 3. First party is the insured who is involved in an accident or incurred the loss to the insurable interest (property, vehicle, etc) Third party loss is the loss of a party other than the insured.

INSR 101 – INSURANCE PRINCIPLES AND PRACTICES September 2018

FINAL EXAM (Chapters 7 – 11)

***Must know for CIP Exam*** 36) Briefly describe the purpose of the Surety Association of Canada (SAC). (5) The SAC is the voice of the surety industry They provide proper wording for surety bonds and policies The membership includes: Brokers Other companies associated with the Surety Association Contractors (Construction) The SAC provides PR and educational resources to the industry (38) Identify two (2) types of reinsurance. (2) Ch 12 – PP 7-8 Facultative Reinsurance Treaty Reinsurance

INSR 101 – INSURANCE PRINCIPLES AND PRACTICES September 2018

FINAL EXAM (Chapters 7 – 11)

Section III – Application Question – The marks designated for each question are shown in the (following) each question. 39) An insurance company sends a letter by first class mail to an insured. The letter reads in part “Helpful Insurance Brokers (your broker) tells us you have not paid the premium for your Homeowner’s policy and therefore this letter is to inform you that the policy has been terminated”. Is this a valid termination notice? Explain. (5). No. Termination by the Insurer must be accompanied by the Pro-Rata portion of the premium delivered by mail within 15 days of cancellation on a cheque if via mail or 5 days if hand delivered. The policy does not detail the amounts which were not paid. Termination by the insurer must be provided in a detailed letter. This is insufficient cancellation notice or information as it relates to the cancellation therefore it would not be legally binding on the Insured / Client....