Chapter 10 – Statutory Conditions
Introduction
· Statutory conditions are definitions, rules and regulations which govern every auto insurance policy
· Their intent is to protect the rights of the insured and the insurer by stating clearly what is expected of each in given circumstances
· The insurance act of Ontario
· Statutory conditions may not be changed in any way that would provide less than the min legislated requirements of coverage
Material change in risk
· The insured is required to notify the insurer about changes which are material to the contract and w/in the insured’s knowledge
· Material change – those which would influence a reasonable and prudent insurer to decide whether to stay on risk and/or change the terms of the risk
· There is no requirement to notify of changes of title by succession, death, or bankruptcy however to be absolutely certain that coverage continues the insurer should be notified asap
· Normally changes such as those above require the insurer’s consent and where there is a change of interest there would be a new policy issued
Incorrect classification, premium overpayment
· If the risk is incorrectly classified and there was an overpayment, the insurer must refund it w/ interest
· Interest – the bank rate at the end of the first day of the last month of the quarter preceding the quarter in which the incorrect classification was first made rounded to the next highest whole number
· If the insurer undercharged and the error is caught w/in 60 days of issue, the insured is required to pay the additional premium w/out interest
Monthly payments
· An insured may pay the premium in equal monthly payments w/out penalty but w/ interest payable at a rate governed by the regulations
Authority to drive and prohibited use
· Subject to absolute liability and certain AB, an insurer may deny coverage under the policy if the insured drives the vehicle:
o While not authorized to drive – must have the physical qualifications and legal permission to drive
o In any race or speed test
o For any illicit or prohibited trade or transportation – the test is a determination of the legality of the activity carried on
· There is no coverage if the insured allows others to operate the auto as specified above
Requirements where loss or damage to persons or property
· The insured must give in writing all available particulars of both the accident and any claim made on account of the accident
· The insured must verify that the claim arose from the operation of the auto and the person operating the auto is a person insured
· The insured must forward all writs, claims, and correspondence to the insurer immediately
· The insured must not assume or admit liability
· The insured must not interfere with claims proceedings
· When requested by the insurer the insured must aid in securing info and evidence and the attendance of witnesses and shall co-operate in the defense of any action w/out cost to the insured
Requirements where loss or damage to automobile
· The insured is required to give notice in writing to the insurer w/ full particulars of the loss
· At the expense of the insurer, protect the auto from further loss/damage
· Deliver to the insurer w/in 90 days after the accident a statuary declaration (proof of loss)
· Damage that can be attributed to the failure to protect the property is not covered
· No repairs beyond those necessary for protection shall be made and no physical evidence removed:
o W/out the written consent of the insurer
o Until the insurer has had reasonable time to make the examination
· The insured shall submit to examination under oath if requested and to present all documents pertaining to the loss
· The insurer shall not be liable for more than the ACV (replacement cost - depreciation) of the auto at the time of loss. If any part of the auto is obsolete and out of stock, the insurer shall be limited to the value of that part at the time of loss not exceeding the maker’s latest list price
· The insurer’s max liability is the least of:
o ACV
o Cost to repair, rebuild, or replace w/ like kind and quality
· The insurer may choose to repair, rebuild, or replace the auto subject to the following:
o Written notice of its intention is given to insured w/in 7 days of receipt of proof of loss
o Repairs, etc. are of like kind and quality
o Repairs, etc. are made w/in a reasonable time
o The contract becomes one of performance rather than one of payment
· The insured may not abandon the auto to the insurer w/out the insurer’s consent when a total loss
· Salvage belongs to the insurer if the insurer pays the ACV of the auto or exercises its option to replace the auto
Time limit
· The notice requirement by statutory conditions 5 & 6 shall be given to the insurer w/in 7 days or asap
Inspection of automobile
· The insured shall permit the insurer to inspect the auto and its equipment at all reasonable times
· This means both before (in order to deter fraud) and after a loss
Time and manner of payment of insurance money
· The insurer shall pay the insurance money:
o W/in 60 days after receipt of proof of loss
o W/in 15 days after an appraisers determination of the matters in disagreement
Reasons for refusal
· The insurer shall give prompt written notice w/ reasons if claim is denied
· Disagreements can be resolved by appraisal under section 128 of the Act. Each will hire an appraiser. Both appraisers then given to independent third appraiser who decides which is correct
When action may be brought
· The insured must comply w/ statutory condition 5 & 6 b4 any action may be taken
Limitation of actions
· Loss/damage to the insured auto actions must commence w/in 1 yr from date of loss
· Loss/damage to persons or other property must commence w/in 2 yrs after the cause of action arose. The date the cause of action arises is not the same as the date of the loss
Who may give notice and proofs of claim
· Notice or proof may be given by:
o The agent of the insured – not the insurance agent but the legal representative; could be a parent, child, lawyer
o A person whom any part of the insurance money is payable – could be third parties or lessors
Termination
· The insured may cancel at any time:
o No special conditions apply
o Refund premium on short rate basis subject to minimum retained premium
o Refund payment to be made asap
· The insurer may terminate policy by following strict conditions:
o Reasons for termination must be valid w/in the terms of the auto insurance act and the insurance act
o Policy enforced more than 60 days insurer may only terminate:
§ Non payment
§ The insured given false particulars of the described auto
§ The insured knowingly misrepresented or failed to disclose info required on an application
§ For material change of risk
o Give 15 days written notice by registered mail (30 days if policy is being cancelled for non payment)
OR
o Give 5 days written notice personally delivered (10 days for non payment cancellation)
o Refund premium on a pro rata basis subject to minimum retained premium
o Refund payment must accompany notice of cancellation unless premium is subject to adjustment then it must follow asap
· Notice begins to run on the day after the day of mailing
Notice
· Any written notice to the insurer may be delivered at or sent by registered mail to the chief agency or head office of the insurer in the province
· Written notice to the insured may be personally delivered or by registered mail to the insured’s latest post office address
Statutory accident benefits protected
· An insured is entitled to some but not all AB if he contravenes certain statutory conditions
Sample Review Questions - Automobile Insurance (Part 1)
1. The functions of the Statutory Conditions are to protect the rights of the insured and the insurer by stating clearly what is expected of each in given circumstances.
2. Statutory Conditions get their authority from the Insurance Act.
3. Statutory Conditions apply to all automobile policies (Owner’s, Non-owned, Garage, etc.) and to endorsements except where noted.
4. Changes considered material to an auto policy are those which would influence a reasonable and prudent insurer to decide whether to stay on risk and/or the terms on which the risk is retained. This could include:
- any change in insurable interest
- any mortgage, lien or encumbrance affecting the auto
- any other insurance of the same interest
5. When an insurer has overcharged the insured, the insurer must refund it with interest.
6. If the insurer has undercharged, it can only go back to the insured for additional premium if the error is caught w/in 60 days of issue of the policy; no interest is payable by the insured.
7. The prohibited uses of the vehicle by the insured are:
- while he is not authorized to drive – no driver’s license or driver’s license under suspension
- in any race or speed test
- for any illicit or prohibited trade or transportation
- allows other to operate the auto as specified above
8. There is no difference b/w the prohibited use by the insured and prohibited sued by others as mentions above in Q7.
9. By law, a person authorized to drive implies that he has the physical qualifications and the legal permission to drive.
10. Where there is a accident with loss or damage to persons or property, the insured must:
- give written notice of the incident or claim
- verify:
1. the claim arose from the operation of the auto
2. the person operating the auto is a person insured
- forward immediately to insurer all writs, claims, correspondence
- do not assume or admit liability
- do not interfere with claims proceedings
- co-operate with insurer
11. It is important for the insured to forward all writs, claims, and correspondence to the insurer b/c the insurer must be kept informed of what is happening w/ respect to the third parties.
12. An insured should not assume liability or settle a claim on his own b/c if so he does so at his own cost. These actions may negate a defense being set up by the insurer.
13. The insurer pays for the cost of investigating and securing info w/ respect to an auto accident.
14. The insured should not have his vehicle repaired before the insurer has inspected it b/c then it would not allow the insurer to determine the extent of the damage.
15. It is the insured’s responsibility to protect the vehicle from further damage after the accident. The insurer will pay for the expenses incurred.
16. Proof of loss requirements:
- delivered to the insurer w/in 90 days after the date of loss
- stating the place, time, cause and amount of the loss/damage, the interest of the insured and of all others therein, the encumbrances thereon, all other insurance, etc.
17. The value of an auto is determined by ACV for the purposes of a loss settlement.
18. ACV is determined by replacement cost – depreciation.
19. The insurer has the option of deciding whether a damaged auto will be repaired or replaced.
20. If an insurer deiced to repair or replace the auto, it must notify the insured of its intention w/in 7 days of receiving the Proof of Loss. If not, the insured is entitled to insist on cash settlement. It must replace or repair the damaged property w/in a reasonable time. The contract becomes on of performance rather than of payment.
21. There shall be no abandonment of the auto to the insurer w/out the insurer’s consent.
22. When an insurer replaces or pays for a damaged vehicle, the insurer is entitled to the salvage.
23. The insured has 7 days to give notice of loss to the insurer or if unable b/c of incapacity asap.
24. Notice or proof of claim may be given by:
- the agent of the insured – parent, child, lawyer
- a person to whom any part of the insurance money is payable
25. The insurer has 60 days to pay a claim after receiving proof of loss if no appraisal is required. 15 days after the insurer receives the appraiser’s determination.
26. If an insurer denies a claim it must give prompt notice in writing with the reasons.
27. An insurer cancels an auto policy pro rata subject to minimum retained premium.
28. An insured cancels an auto policy short rate.
29. Any written notice to the insurer may be delivered at or sent by registered mail to the chief agency or head office of the insurer in the Province.
30. If notice is not given properly, the insurer could still be on risk.
31. The insured that brings an action against an insurer is required to meet the requirement about reporting the details of the loss and the damage as specified in Statutory Conditions 5 & 6.
32. An insured is entitled to some but not all AB if he contravenes certain statutory conditions.
33. The Statutory Conditions are:
- material change in risk
- incorrect classification, premium overpayment
- monthly payments
- authority to driver and prohibited use
- requirements where loss or damage to persons or property
- requirements where loss or damage to auto
- time limit
- inspection of auto
- time and manner of payment of insurance money
- who may give notice and proof of claim
- termination
- notice
- statutory AB protected
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