Act of God:
Many people have often asked whether or not their policies cover “Acts of God”. It’s a normal question but one which can only be answered “Yes and No”. Many losses that are normally covered happen to be acts of God. There are others that are not insurable, or which, like Earthquake, come at a high price or higher than standard deductible. The extent to which “Acts of God” are insured is determined by the actual policy wording.
This one has had people confused for years, primarily because this word appears in both property insurance and group benefits insurance contracts. In property insurance it could better be called an “under insurance penalty”. Essentially, this means that if you insure the building for only 50% of its “Replacement Cost” then you might only get 50% of your claim paid. You, the insurance buyer, become a partner with the insurance company on a (in this case) 50/50 basis. For a more detailed explanation, email us. In group benefits insurance, by the way, a coinsurance clause simply identifies that percentage of the dental or drug invoice that will be paid by the insurer. The employee pays the balance.
Most of us consider an overflowing sink as messy enough to warrant calling it a flood. However, in the world of property insurance that is only “water damage”. A “Flood”, in insurance terminology, is what takes place when rivers and lakes overflow, or when there is so much rain that the water collected was the result of a natural phenomenon. Floods generally affect many of us at the same time, hence the higher deductibles.
Most people understand that liability refers to one’s responsibility to someone else, yet we are often asked “Who is liable?”. Generally this follows a short story of facts. In the common law world, liability is determined by the extent to which the accused party did, or did not, conduct him/herself in what is referred to as a “prudent” manner. This means that the individual facts of the case must be reviewed and a determination made whether or not the offending party acted in a way that would be acceptable. This can be decided by a judge or jury; more often it is a matter of negotiation and settlement before anyone goes to the expense of a long court proceeding. While there are precedents that guide the courts in their decisions, each case is determined on its own merit and must be decided by judges, juries or arbitrators as to right and wrong.
Misrepresentation and Non Disclosure:
These two words can be confusing in that they are sometimes difficult to define clearly. Insurance contracts must be negotiated in “good faith” and, in order to ensure that both sides are open and honest with one another, insurance contracts can be voided by the insurer if it turns out that important (“material”) information was not made known at the time of application. It is not the insurer’s obligation to simply ask the questions….it is also the applicant’s duty to fully inform the insurer as to the risk(s) for which the insurance is sought; if the insurer hasn’t asked all the questions, the applicant is still obligated to tell all.
Proving A Loss:
This is always an interesting topic of conversation in that everyone has a different opinion as to what level of information should be provided to prove the nature and the substance of a loss. In the case of a loss, it is necessary to demonstrate that an “insured event” happened, that it happened “suddenly and unexpectedly” and that the loss suffered resulted in physical damage or monetary loss. Proving the quantum of the loss requires evidence of ownership, original cost, cost of repair, and any other “reasonable” information that will satisfy the insurance company that the loss is insured and not fraudulent. The onus is on the Insured who, if unhappy with the insurer’s handling of the claim, has the right to sue the insurer 60 days after the filing of the Proof of Loss form.
This word describes that segment of the insurance industry from which insurance companies buy their own financial protection. No insurer likes to be on the hook for the entire policy amount, and thus will sell off a part of the risk to a reinsurer. Naturally, the reinsurance company gets a portion of the premium. Reinsurance comes in 4 basic types and for more information contact your insurance professional or e-mail us.
Many commercial property owners think that a loss of rental income claim is simply the replacement of the tenant’s monthly rent payment. In actual fact, many landlords bill their tenants a year-end adjustment if operating costs exceeded expectations. While this may not apply to residential sites, commercial site owners should always insure not just the base rent but all cost recoveries that would be collectible, such as property tax.
Often we hear real estate pros talking about “replacement” cost. In insurance the term does not have the same meaning. When you buy “Replacement Cost” coverage, it refers to the total estimated cost of rebuilding the structure in its entirety. Depending on market value fluctuations, the insurable “Replacement Cost” will often exceed what the property can be sold for. That’s quite normal actually, as the role of the insurance is to rebuild the entire building at today’s construction cost. Many existing buildings cost more to rebuild than they are worth on the market. And, if there’s a shortage of certain building materials…..the cost of reconstruction goes up and the insurance value needs to be increased. It can go down too, especially during times of deflation. Whether or not a total loss is possible (considering the excellent construction techniques used today) is not the issue. Insurance companies and mortgage lenders require that full “Replacement Cost” insurance be carried. Condominium legislation also requires it. If you are in doubt about the sufficiency of the insurance amount, numerous firms specialize in providing such reports and they are very inexpensive.
Anyone who has every tried to cancel an insurance contract, prior to expiry, has probably heard this term. Very simply, the insurer does not have to give back the exact amount of the “unused” premium, but rather is allowed to take an early cancelation penalty off the annual premium and then return the balance on the basis of the number of unused policy days remaining. This penalty often results in the loss of about 15% of the annual premium…….right off the top.
Stated Amount Clause:
This one is regularly required by most mortgage lenders. It is a clause that removes the “Co-Insurance” clause which is explained above. Thus the amount of an insurance claim cannot be reduced in the event of under-insurance. However, should a major loss occur, the total amount of insurance might well be insufficient and thus a proper assessment of coverage needed should never be neglected. This important clause often requires the insured application to complete a Statement of Values Form, about which important comments follow.
Statement Of Values Form:
The addition of the Stated Amount Clause (eliminating the insurer’s right to reduce any loss with an underinsurance percentage) is often only available if the applicant signs a Statement of Values Form. Read this one carefully, especially the clause right over the signature. The person signing is making the statement that the values insured are indeed representative of the true cost of replacement. Any misstatement enables the insurer trigger the statutory misrepresentation clause … managers and agents wishing to protect their errors and omissions liability exposure are best to leave the signing of this form to the business owner. E-mail us for more information on this one …it’s a nasty form.
Every province has an Insurance Act which contains a number of specially written clauses which are required to be part of any property insurance contract issued to a client. These clauses are intended to protect both the policy holder and the insurer from certain circumstances. Each clause has a very specific purpose and no insurer is allowed to amend these clauses to the detriment of the policyholder.