Question 1

What type of insurance would provide payment in circumstances where the insured is held legally responsible for causing the loss or damage to a third party?

Accepted Answer

Liability insurance provides coverage for situations where the insured is held legally responsible for causing the loss or damage to a third party. Business interruption insurance provides coverage for loss of income due to a business interruption, property insurance provides coverage for damage to the insured's property, and life and disability insurance provides coverage for loss of income or life due to death or disability.

Question 2

Which of the following is a distinguishing characteristic of a duty to disclose?

Accepted Answer

A duty to disclose is an insured's ongoing obligation to inform the insurer of any material changes to the risk during the policy period. This duty is considered by law to be continuous, and failure to disclose material information can result in a denial of coverage or cancellation of the policy. A duty to disclose does not automatically adjust policy coverage and may not always require prompt, oral communication of changes.

Question 3

Upon which of the following qualifications being met on an ongoing basis is insurance protection dependent?

Accepted Answer

Insurance protection is dependent upon the ongoing payment of insurance premiums. The other options may factor into the underwriting process or claims handling, but they do not determine the ongoing existence of insurance coverage.

Question 4

Why is an insured entitled to collect only the amount of the actual loss incurred from its insurance coverage?

Accepted Answer

Contracts of indemnity are designed to compensate an insured for their actual loss, meaning the amount necessary to restore them to their pre-loss condition. This prevents an insured from profiting from the occurrence of an insured-against event.

Question 5

When an insurer compensates an insured,it has the right to sue a wrongdoer to recover that compensation.What is the legal term for this right?

Accepted Answer

The legal term for an insurer's right to sue a wrongdoer to recover compensation paid to an insured is subrogation. This allows the insurer to recover its costs from the responsible party, which can help keep premiums lower for other policyholders. A third-party rider or endorsement refers to additional coverage added to a policy for a specific person or situation. Forfeiture refers to the loss of a right or property as a penalty for wrongdoing.

Question 6

Which of the following has the main goal of protecting the public from unscrupulous,financially unstable,and otherwise problematic insurance companies?

Accepted Answer

Insurance industry legislation is specifically designed to regulate insurance companies, ensuring they operate fairly, are financially stable, and do not engage in unethical practices, thereby protecting the public.

Question 7

What is the name given to the rule that prevents an insured from collecting on insurance when the loss has resulted from the insured's willful misconduct?

Accepted Answer

The forfeiture rule states that an insured cannot collect on insurance when the loss has resulted from their willful misconduct.

Question 8

What is the primary value of insurance to business enterprise?

Accepted Answer

The primary value of insurance to business enterprises is to shift risks away from the business to an insurer. This helps businesses to protect themselves against unexpected losses and financial burdens. Insurance policies allow businesses to transfer the risks of property damage, liability claims, and other events to insurance companies, which are better able to manage and finance these risks.

Question 9

Which of the following is provided for by statute with respect to life insurance?

Accepted Answer

Statutes allow anyone to insure the life of a person who gives written consent to the contract. The other options are not provided for by statute with respect to life insurance.

Question 10

Which of the following is a known result of the recent disasters,such as the Quebec train derailment and explosion,the flooding in Alberta,and climate change?

Accepted Answer

Recent disasters have led to insurers reassessing risks, resulting in higher premiums and changes in coverage to account for increased claims and potential future risks.

Question 11

An insured has noted on its insurance application that its restaurant has a wood fireplace,but it has omitted to comment that occasionally escaped sparks can cause a fire risk.Why would the insured be considered as having complied with its duty to disclose?

Accepted Answer

The insurer is expected to be worldly wise, meaning they should have a general understanding of the risks associated with certain features like a wood fireplace in a restaurant, including the potential for sparks to escape and cause a fire.

Question 12

In what case did the Supreme Court of Canada hold that an insurer could not deny coverage on the basis of the insured's alleged breach of the duty to disclose because the risk issue was rectified by the insured before the loss occurred?

Accepted Answer

In Marche v. Halifax Insurance Co. [2005] 1 S.C.R. 47, the Supreme Court of Canada held that an insurer could not deny coverage on the basis of the insured's alleged breach of the duty to disclose because the risk issue was rectified by the insured before the loss occurred.

Question 13

Which of the following is a key consequence of the classification of an insurance contract as an instrument of utmost good faith?

Accepted Answer

An insurance contract classified as an instrument of utmost good faith requires the insured to fully disclose all relevant information to the insurer.

Question 14

What is the purpose of a deductible in the context of an insurance policy?

Accepted Answer

A deductible in an insurance policy serves to share the risk of loss between the insurer and the insured. This means that the insured must cover a certain amount of the loss (the deductible) before the insurance coverage applies, encouraging the insured to act in a risk-averse manner since they bear some of the financial risk.

Question 15

Jasmine is discussing an alteration to her current business insurance coverage.Which of the following will her insurer most likely recommend to Jasmine for this purpose?

Accepted Answer

An endorsement is a modification to an existing insurance contract, so it is the most likely recommendation for Jasmine's alteration to her current coverage. Adding an endorsement to her current policy can provide additional coverage without the need for a whole new policy. A rider and additional policy refer to separate insurance policies, so they may not be the best option for Jasmine in this situation. A new policy would also be unnecessary if the desired changes can be added through an endorsement to the current policy.

Question 16

What type of insurance would provide coverage for the costs of a machine breakdown?

Accepted Answer

Property insurance typically covers the costs associated with damage to or breakdown of machinery and equipment.

Question 17

Allowing people to insure property that they have no real interest in may lead to the intentional destruction of the property.To which rule does this rationale apply?

Accepted Answer

This rationale applies to the insurable interest rule, which requires the policyholder to have a financial stake or interest in the property being insured. Allowing individuals to insure property that they don't have a real interest in increases the risk of intentional damage or destruction to the property, as they have no financial loss to suffer in the event of a claim.

Question 18

Jeremy leased a car from AstroCar Leases pursuant to a three-year lease with a buyout option at the end of the three-year period.While he is the primary driver,he permits his girlfriend to drive the car on occasion.Who has an insurable interest in the car?

Accepted Answer

Both Jeremy and Astro have an insurable interest in the car. Jeremy has an insurable interest because he is the primary driver and responsible for the car during the lease period. Astro has an insurable interest as the owner of the car until the buyout option is exercised.

Question 19

Under which level of government jurisdiction do insurance policies fall?

Accepted Answer

Insurance is regulated by provincial governments in Canada. Each province has its own insurance regulatory body responsible for overseeing the insurance industry and ensuring that insurance companies operate in compliance with provincial laws and regulations.

Question 20

Which of the following is an accurate statement regarding the insured's duty to disclose?

Accepted Answer

The insured's duty to disclose applies to all matters that are material to the risk being insured, meaning any information that could influence the insurer's decision to provide coverage or the terms of that coverage.

Quiz 28: Insurance