Insurance contracts have three additional requirements to become legally binding contracts;
- Insurable interest – you must have a financial interest in the property. Examples include:
Property – owners, lessees, tenants, custodians
Liability – if you can be held legally liable of injury or damage caused to others.
Life and Health – of immediate family or persons you are financially dependent on.
- Indemnity – to place someone back on the same financial position they were immediately prior to the loss. Insured’s may not collect more or less than the extent of their financial loss and the amount is subject to policy conditions such as, deductibles and limits. Actual Cash Value is the value of an equivalent item of the same age and condition. Certain insurance contract contradict this principle:
Contracts of compensation – have a stated amount payable e.g. life insurance.
Valued Contracts – the value is determined at the time of insurance e.g. jewellery, art.
Replacement cost contracts – the value will be based on the cost to repair or replace whichever is less, there is no deduction for depreciation. These contracts are priced differently than ACV.
- Utmost Good Faith – means the onus to disclose material facts is heaviest on the insured. A material fact is one that affects the acceptance or cost of insurance. Failing to disclose a material fact is misrepresentation or non-disclosure (concealment).
Non disclosure is defined as silence when there is an obligation to speak. The insurer must prove the non-disclosure in court. A contract can be voidable if obtained by a misrepresentation.
Provincial legislation (or the Civil Code in Quebec) sets out the good faith requirements. Insurance contracts are required by law to carry certain statutory conditions that define the extent of utmost good faith required from an insured.
All material facts must be disclosed upon application for insurance. New material facts must be reported promptly to an insurer.
When the broker does not have binding authority, insurer may regard any omission as failure to disclose and void the contract with the insured. If the insured informed the broker and the broker failed to pass the information along, the insured may initiate legal action against the broker.
When a broker does have binding authority, if the broker knew the information then it is considered that the insurer knew the information and the insured may still collect under the contract. The insurer may then take action against the broker for violating the broker agreement.
Insurers utmost good faith includes remaining solvent and dealing with claims fairly and promptly.
