Section A

Question 1

List and Describe the Types of insurers

Answer 1

09 - Baer and Rendall

1. Individual Underwriters - rare in North America
   o Example is Lloyd’s of London
   o Does not act as an insurer, nor does it have liability on policies issued by UW
   o Similar to a stock exchange (provides a market place and regulates trade practices), except only open to members, not the public
2. Joint Stock Companies
   o For-profit organization, composed of stockholders and is controlled by its officers and a board of directors
3. Mutual Insurance Carriers
   o Corporate enterprises whose voting control rests with policyholders not stockholders
   o Some profit is distributed to members as dividends, the rest is retained in reserves
4. Reciprocal or Inter-Insurance Exchanges
   o An organization of individuals who have joined together for the exchange of insurance
   o Does not issue policies itself, but no participant can take out insurance unless offering insurance in return
   o Members are individually liable, NOT jointly liable

Question 2

What are the reason(s) insurance is exempt from anti-combines legislation?

Answer 2

09 - Baer and Rendall

• Uncontrolled price competition is not in public’s long term interest
o Insurers would collect less in premiums than necessary to meet future liabilities
o Increases insolvency risk – Bankruptcy could have catastrophic effects
o Special rules are necessary to guarantee their continued solvency
• Industry encouraged to charge adequate premiums, usually through the authorization of rating bureaus

Question 3

What are the 5 objectives of IBC?

Answer 3

09 - Baer and Rendall

1. Discuss General Insurance
2. Collect & Analyze statistical info
3. Study Legislation
4. Research and pilot programs
5. Promote better public understanding of insurance

Question 4

Where are the 5 main areas that Canadian insurance has focused on?

Answer 4

09 - Baer and Rendall

1. Solvency – Guarantee the financial solvency of insurers
2. Canadianization – Promote Canadian ownership of insurers and Canadian investments
3. Government Revenue – Promote revenue collection
4. Regulating the Contract – Promote market integrity and improve the insurance contract
5. Control over Insurance Intermediaries – Promote honesty and competence of insurance intermediaries

Question 5

How has Canadian legislation prmoted solvency?

Answer 5

09 - Baer and Rendall

1. Controlling the creation of domestic insurers, licensing foreign insurers
2. Limiting the types of investments insurers could make
3. Requiring periodic filing of financial information
4. Creation of rating bureaus and administrative boards to encourage adequate rates
5. Giving government authority to ensure compliance

Question 6

Why does Canada have such strict solvency regulation?

Answer 6

09 - Baer and Rendall

1. Loss of public confidence following bankruptcies in the 1860s/1870s
2. Aggressive short-term price competition not in the public interest
3. Fiduciary nature of insurance - involves the management of large pools of prepaid premiums

Question 7

Why is the Canadianization of insurance important?

Answer 7

09 - Baer and Rendall

• 1865-77 federal legislation required foreign companies to maintain sufficient assets in Canada to meet Canadian liabilities
o Protects policyholders
o Prevented the expatriation of large amounts of investment capital
• Resulted in the withdrawal of almost half of foreign companies and the expansion of Canadian companies

Question 8

What are the Forms/Levels of insurance legislation?

Answer 8

09 - Baer and Rendall

1. Legislation
2. Regulation by lieutenant governor in council
3. Guidelines or directives from Superintendent

Question 9

Why are guidelines favored over other forms of insurance regulation?

Answer 9

09 - Baer and Rendall

1. Seen as more flexible
2. Less obtrusive – to the extent that they are voluntary
3. Less open to judicial interpretation – public is given no rights
4. Can be adopted without being vetted by other gov’t departments - quicker to implement

Question 10

What is the role of the Canadian Council of Insurance Regulation (CCIR)?

Answer 10

09 - Baer and Rendall

• Promotes uniformity in provincial regulation - e.g., drafting legislation
• Encourages uniform practices in the industry - industry-wide rules, common teaching for the licensing of agents
• Has a close working relationship with the industry
• Greater public input than in the case of the Privy Council

Question 11

Differences between social and private insurance

Answer 11

09 - Baer and Rendall

1. Social insurance tends to be universal in application; private insurance is risk selecting
2. Social insurance has less need to protect the public from gaming
3. Social insurance does not require extensive solvency rules – state is the carrier
4. Different supervision of intermediaries in social insurance, as they are civil servants

Question 12

Similarities between social and private insurance

Answer 12

09 - Baer and Rendall

1. Rules to protect the insurance fund and prevent overcompensation
2. Problem defining covered events and determining covered losses
3. Difficulty establishing a fair and efficient claims settlement process and loss valuation

Question 13

What are the possible solutions for handling multiple recovery situations?

Answer 13

09 - Baer and Rendall

1. Election – Victim can choose his compensation source
   o Recourse against the tortfeasor or compensation from collateral source
2. Cumulation – Insured takes and retains all damages and all collateral benefits
   o Permits double recovery
3. Reimbursement – Tortfeasor must pay all damages and any excess, after making the insured whole, is returned to the collateral source
4. Relieving the Tortfeasor – Tortfeasor’s liability is reduced by the amount of collateral benefit received by the injured
   o Wrongdoer pays what insurance does not

Question 14

What is the goal of subrogation?

Answer 14

09 - Baer and Rendall

• The current emphasis for subrogation is on compensation victims rather than admonishment (reprimand/warning);
• Because of insurance, subrogation does not put the ultimate burden on the wrongdoer
• Should ONLY be indemnified - not be able to recover from multiple sources and “gaining” from loss event

Question 15

What case pertains to the classification of insurance for the purpose of regulating the contract

Answer 15

09 - Baer and Rendall

Regal Films Corporation LTD v. Glens Falls Insurance Company

Question 16

Which case pertains to the distinction of Indemnity vs. Non-Indemnity insurance?

Answer 16

09 - Baer and Rendall

Glynn v. Scottish Union & National Insurance Company Ltd.

Question 17

What are the requirements for duty of care to exist? What case does this pertain to?

Answer 17

09 - Baer and Rendall

• Will owe a duty of care if:
1. Reliance
2. Reliance is Reasonable
3. Knowledge of the Reliance
• Case Fletcher v. MPI

Question 18

Describe Fletcher v. Manitoba Public Insurance. What was the verdict?

Answer 18

09 - Baer and Rendall

Duty of Care

• Background of the case
o Insureds suffered severe injuries in an automobile accident, at-fault driver had inadequate coverage
o The victim thought they had purchased the maximum available coverage, but did not have underinsured motorist coverage (The renewal notice had the words “not applic” typed in for UMC which the victim believed meant it did not apply to him since he already had maximum coverage)

• Is there a Duty of Care owed to inform of all available coverages, their purpose, and cost?
o Will owe a duty of care if:
1. Reliance – Plaintiff relied on information provided
2. Reliance is Reasonable – Contractual right to rely on the offeror
3. Knowledge of the Reliance – MPI ought to have known of the reliance
o MPI owed a duty of care but did not fulfill it

• Verdict: Plaintiffs were awarded, in negligence and in contract, for the damages in the amount of the shortfall.

Question 19

Describe the Broadhurst & Ball v. American Home Assurance Co. Case. What was the verdict? Why?

Answer 19

09 - Baer and Rendall

Duty to Defend

• Background of the case
o Defendant was sued for conspiracy, breach of fiduciary duty, and negligence
o Policies of both the primary (American Home) and excess professional liability insurers (Guardian) agree to provide defence against covered suits and pay associated expenses
o Excess insurer contends that the insureds were aware of the claims when they obtained insurance and thus no coverage is provided

• Three issues to be determined:
1. Coverage Issue – Should the judge have waited until after trial to decide if coverage of the claims existed?
o Allegation claims were known beforehand dismissed for lack of evidence
o Resolution of coverage issue not improper as remote possibility anything in the trial would affect coverage
2. Obligation to Defend Issue – Does the excess insurer have a concurrent obligation to defend when a primary insurer also has that obligation
o No discussion
3. Allocation of Defense Costs Issue – If an obligation to defend exists, should the excess insurer have to pay a proportion of defense costs
o Primary insurer to cover defense costs until the policy limit has been exhausted
o Potential judgment above primary limit puts excess carrier at risk (should not excuse itself)
o Equitable distribution of costs not justified on a contractual basis but by the principles of equity and good conscience

• Verdict: The cost of defense should be shared equally between insurers since both have a duty to defend and can create the best defense together. Appeal dismissed; cross-appeal allowed.

Question 20

Describe the Standard of Absolute Liability. What case does this pertain to?

Answer 20

09 - Baer and Rendall

• Standard of Absolute Liability - If an insurer can settle a claim against an insured within policy limits and rejects it, the insurer is liable to reimburse its insured for claim above the limit
• Case: Dillon v. Guardian Insurance Co.

Question 21

Describe the case of Dillon v. Guardian Insurance Co.

Answer 21

09 - Baer and Rendall

Standard of Absolute Liability

• Background of the case
o Dillon injured a child in a car accident and was sued for 100K but had policy limits of 50K
o Insurer fails to agree to a settlement within policy limits and is sued for the excess loss

• Standard of Absolute Liability – If an insurer can settle a claim against an insured within policy limits and rejects it, the insurer is liable to reimburse its insured for claim above the limit
o Avoids problem of determining if settlement was reasonable
o Eliminates the danger of an insurer, when faced with a decision near policy limits, gambling with the insured’s money to further its own interests
o Since insurer may reap the benefits of not settling, it should also suffer the detriments

• Verdict: Insurer did not use reasonable care in refusing to settle and is guilty of bad faith

Question 22

Describe the Glynn v Scottish Union & National Insurance Company Case. What were the issues? What precedence was set?

Answer 22

09 - Baer and Rendall

Indemnity & Non-Indemnity Insurance

• Background
o Insureds were injured in a car accident as a result of negligence by another driver
o Insureds won a settlement from the other party AND from his own insurer for medical expenses
o The insurer appealed, Glynn double-recovered his losses
o The insurer believes that the contract was one of indemnity and that the insured should not benefit from the accident

• Each contract needs to be evaluated on a case-by-case basis to determine whether it is a contract of indemnity
o Indemnity Contract – Based upon the happening of an event that results in the insurer’s liability and loss to the insured, measured by the extent of the assured’s pecuniary loss
o Contracts which are not contracts of Indemnity – The amount recoverable, a fixed or calculable sum, is payable upon the happenings of some contingent event, irrespective of whether the assured in fact sustains a pecuniary loss
o The principle of subrogation applies only to contracts of indemnity - The assured, in case of a loss, shall be fully indemnified but shall never be more than fully indemnified

• Judge ruled that this was indemnity contract and subrogation was allowed

Question 23

Describe Regal Films Corporation LTD v. Glens Falls Insurance Company. What was the verdict? Why?

Answer 23

09 - Baer and Rendall

Classification of Insurance for the Purpose of Regulating the Contract

• Background of the case
o The insurer issued a policy titled “Inland Marine Policy” protecting against fire, lightning, windstorm, tornado, theft, robbery, burglary, hail, explosion, etc.
o Plaintiff filed a fire claim
o Insurer resisted b/c the plaintiff had not provided proof within 60 days as per the policy

• Part IV of The Insurance Act on Fire Insurance states only that proof shall be delivered as soon as “practicable”
o Prohibits any “variation or omission of or addition to any statutory condition”

• Insurer argued the policy does not come under Part IV of the Act because it is headed “Inland Marine Policy”

• Contract fails to suggest that the loss by fire insured against is “incident to marine adventure”
o Verdict: Plaintiff received all payments for their loss and costs

Question 24

Describe the difference between Valued Policies and Non-Indemnity Policies

Answer 24

09 - Baer and Rendall

• Valued policies involve payment of an agreed value if an insured proves occurrence of a loss - Contracts of indemnity
• Nonindemnity insurance provides a fixed sum or calculable amount based on the happening of some contigent event, regardless of whether the insured suffers a pecuniary loss

Question 25

Why do government agents have less duty to advise than private companies?

Answer 25

09 - Baer and Rendall

1. Employees are not specialists in risk advice
2. Employees do not have to be licensed agents
3. Private company agents provide information AND advice while the government or public agents provide just information
   [Fletcher v. MPI]

Question 26

List and describe the general objectives of rates?

Answer 26

41 - KPMG Regulatory Oversight

1. Rates are adequate
   • Rates are sufficient to provide for all future claims and expenses
   • Contributes to maintaining insurer solvency and protecting consumers
2. Rates are Not Excessive
   • Helps to ensure that insurance remains available and affordable
3. Rates are Not Unfairly Discriminatory
   • Discrimination is neutral in insurance pricing meaning the ability to differentiate risks - Unfair discrimination is prohibited
   • Contributes to protecting consumers and the fair treatment of customers

Question 27

List the 7 Rate Regulatory Approaches

Answer 27

41 - KPMG Regulatory Oversight

1. Government-Mandated Rates
2. Prior Approval
3. File and Use
4. Use and File
5. Flex Rating (Band Rating)
6. File Only
7. Open Competition (No-File)

Question 28

Describe the form of rate regulation: Government-Mandated

Answer 28

41 - KPMG Regulatory Oversight

• Rates set by a Crown corporation, by a rating board, or rating bureau (US)
• Rates could be used exclusively by government insurers or set for private insurers
• May dictate other aspects of the insurance rate setting process

Question 29

Describe the form of rate regulation: Prior Approval

Answer 29

41 - KPMG Regulatory Oversight

• Strict form of rate regulation when regulatory authority must approve rates beofre they can be used
• May contain a deemer provision - rates deemed approved if not dissaproved with specified time period

Question 30

Describe the form of rate regulation: File and Use

Answer 30

41 - KPMG Regulatory Oversight

• Insurers file rates with the regulatory authority and after some defined period of time, rates are “deemed” approved
• Eliminates some of the delay with Prior Approval

Question 31

Describe the form of rate regulation: Use and File

Answer 31

41 - KPMG Regulatory Oversight

• Insurers file rates with the regulatory authority but may begin using the new rates immediately
• Regulators have the right to disapprove rates, potentially retroactively

Question 32

Describe the form of rate regulation: Flex Rating

Answer 32

41 - KPMG Regulatory Oversight

• Rate changes within a specified range do no require prior approval (may be file and use, use and file, or file only)
• Allows quick rate adjustments in response to changing conditions or loss experience

Question 33

Describe the form of rate regulation: File Only

Answer 33

41 - KPMG Regulatory Oversight

• Insurers must file rates and justification, but rates are not subject to review or approval

Question 34

Describe the form of rate regulation: Open Competition

Answer 34

41 - KPMG Regulatory Oversight

• Insurers develop and use rates without having to file or receive approval
• Prices are driven by market forces
• Regulator retains the authority to monitor competition and intervene

Question 35

Provide four ways in which Use and File could be beneficial over Prior Approval

Answer 35

41 - KPMG Regulatory Oversight

• Decreases volatility in insurance premiums
• Less regulatory costs, thereby decreasing insurance premiums
• Lack of regulatory lag reduces the magnitude and frequency of price swings, resulting in less uncertainty
• Have smaller residual markets than prior approval
• Will likely lead to a larger number of insurers, providing more choice to consumers
• More refined classification or rating algorithm or innovation
• Regulators have more time to spend on solvency and market conduct

Question 36

Describe the form of regulation for automobile insurance for each province in Canada

Answer 36

41 - KPMG Regulatory Oversight

• Alberta
o Government-Mandated maximum premiums for basic PPA coverage
o File and Use for the optional PPA coverages, Commercial, and Miscellaneous

• BC
o Government-Mandated - ICBC provides basic minimum coverage
o Open Competetion - ICBC and private insurers compete for optional and excess coverage

• Manitoba
o Government-Mandated - MPI provides basic compulsory coverage
o Open Competetion - private insurers compete for optional and excess coverage

• New Brunswick
o Insurance act supports File and Use whereas the Insurance Board supports Prior Approval (some form of active regulation exists)

• Newfoundland and Labrador
o File and Use - if taking a rate decrease
o Piror Approval - if seeking an increase on any risks (even if overall decrease)

• Nova Scotia
o Prior Approval

• Ontario
o Prior Approal - PPA
o File and Use - Commercial and Miscellaneous auto

• PEI
o File and Use

• Queobec
o Government-Mandated - SAAQ offers bodily injury coverage
o File and Use - Private insurers compete for property damage and personal injury

• Saskatchewan
o Government-Mandated - SAF for basic minimum coverage (liability, personal injury, collison, and comprehensive)
o Open Competition - Private insurers compete with SAF for optional and excess coverage

• Yukon, Nunavut, & NWT
o Open Competition

Question 37

What are the Provincial regulatory responsibilities?

Answer 37

43 - KPMG PACICC

1. Licensing of insurance companies
2. Form regulation – Terms and conditions of insurance contracts and their interpretation
3. Licensing of agents, brokers, and claims adjusters
4. Market conduct, sales practices and information disclosures
5. Claim settlement practices
6. Compulsory insurance coverage and residual markets
7. Rate regulation
8. Solvency of provincially incorporated insurers

Question 38

What has led to the success of the Canadian regulatory environment?

Answer 38

43 - KPMG PACICC

• Regulation is a collaborative process to between
o Superintendents of financial institutions (federal and provincial)
o CIA and CICA
o Representatives from the industry (such as IBC)
• Change from one organization is often complemented by actions in another

Question 39

Due to insurance company failures in the 1980s, several regulatory initiatives were put forward in Canada. What are they?

Answer 39

43 - KPMG PACICC

1. Capital surplus requirements
2. Adequacy of security provided by reinsurance
3. Quality and collectability of assets
4. Adequacy of claims reserves

Question 40

What were the 1990s changes to ICA?

Answer 40

43 - KPMG PACICC

1. Strengthened surplus test provisions by providing minimums based on premium and claims [Bill C-28]
2. Addressed excessive use of reinsurance and unregistered reinsurers [Bill C-28]
3. Actuarial certifications on the adequacy of claim and unearned premium reserves
4. Creation of PACICC [NOTE not a change to ICA]
5. Creation of the Appointed Actuary and associated duties [Bill C-28]
   o Report on value of actuarial and other policy liabilities
   o Report on the financial condition and expected future financial condition
   o Report on matters that may have a material adverse effect on the financial position of the company and require rectification

Question 41

In the 2000s there were changes to Canadian insurance regulation. What were they?

Answer 41

43 - KPMG PACICC

1. Discounted policy liabilities
2. Implemented of the MCT
3. External review of AA reports
4. Accounting changes on the recognition of assets on the balance sheet

Question 42

What is the purpose of the CIA?

Answer 42

43 - KPMG PACICC

1. Advance and develop actuarial science
2. Promote the application of actuarial science to human affairs
3. Establish, promote and maintain high standard of competence and conduct within the actuarial profession

Question 43

What are the key responsibilities of the CIA?

Answer 43

43 - KPMG PACICC

1. Accredit actuaries in Canada
2. Promote the advancement of actuarial science through research
3. Promote continuing professional development activities and ensure that actuarial services provided by its members meet extremely high professional standards

Question 44

What were the Crawford report recommendations?

Answer 44

43 - KPMG PACICC

1. Adopt a new statement of purpose which gives precedence to service in the public interest over self-interest of the member
2. Increase its support of research and development for P&C insurance, develop SOPs in this area, and increase contribution to basic and continuing education for its students and members in these topics
3. Improve and expand its contribution to the development and direction of public policy issues through
   o More effective monitoring of emerging issues
   o More vigorous participation in public policy debates in a timely manner
   o Strengthened contact with government regulators and policy makers

Question 45

What are the objectives of the Actuarial Standards Board (ASB)?

Answer 45

43 - KPMG PACICC

1. Provide continuous review of ASOPs
2. Direct and manage ASOPs in all areas of actuarial practice
3. Adopt ASOPs in all areas of actuarial practice, within its sole discretion and pursuant to such procedures as it deems appropriate
4. Ensure adequate communication of SOP to everyone that needs to know

Question 46

The Provision for Adverse Deviations SOP was approved in 1993. What was the purpose of this provision?

Answer 46

43 - KPMG PACICC

• Standard was supposed to allow actuaries to explicitly determine the provision for adverse deviations

Question 47

There were 3 changes in the SOP related to margins for adverse deviations (MfAD). What are they?

Answer 47

43 - KPMG PACICC

(1) High margin for claims development increased from 15% to 20%
• Intent of increase was to make clearer to P&C actuaries that in times of greater uncertainty it is acceptable to select a higher margin such as 20%
• Based on actuarial judgment (limited to max of 20%)
(2) Low margin for interest rate was decreased from 50 basis points to 25 basis points
(3) Recognition of using stochastic methods to determine MfAD

Question 48

What is the purpose of the DCAT?

Answer 48

43 - KPMG PACICC

• Purpose is to identify:

1. Plausible threats to satisfactory financial condition
2. Actions which lessen the likelihood of those threat
3. Actions which would mitigate a threat if it materialized

Question 49

The DCAT SOP addressed several issues in the CIA standards. The issues addressed are:

Answer 49

43 - KPMG PACICC

o Requirements for the determination of satisfactory financial condition
o Length of the forecast period
o Base scenario
o Plausible adverse scenarios
o Integrated scenarios
o Ripple effects
o Reporting
o Opinion

Question 50

Why was insurance born at the state level?

Answer 50

46 - Mayhall

o In the mid-1850s there was very little infrastructure or resources at the federal government level
o State governments were more developed and better equipped to undertake regulation

Question 51

Why were multi-state insurer’s pro-federal regulations?

Answer 51

46 - Mayhall

Multi-state insurers were hampered by the inconsistency of the dissimilar rules and requirements, as well as localism, of state regulators

Question 52

Discuss the ruling in Paul v. Virginia

Answer 52

46 - Mayhall

• Supreme Court held that insurance was not commerce and that state insurance regulation did not violate the 14th amendment
o Insurance is subject to individual state regulation
o No basis for federal regulation of insurance

Question 53

Why was the NAIC formed?

Answer 53

46 - Mayhall

The National Association of Insurance Commissioners formed in 1871 to coordinate states activities and pool resources

Question 54

Discuss the case: United States v. South-Eastern Underwriters Association (1944). What was the response?

Answer 54

46 - Mayhall

• SEUA overturned the earlier case of Paul v. Virginia (1869)
• Supreme Court found that insurance WAS commerce and subject to federal regulation
• Some thought this signaled the demise of state-based insurance regulation
• Led to the swift passage of teh McCarran-Ferguson Act

Question 55

How did insurance avoid the sweeping federalization of financial services regulation in the United States during the 1930s?

Answer 55

46 - Mayhall

• The insurance industry avoided federal regulation because of the relatively healthy state of insurance and little evidence of fault on the part of state-based insurance regulators

Question 56

Discuss the McCarran-Ferguson Act and why it was enacted

Answer 56

46 - Mayhall

• Addressed the immidate antitrust issues arising from SEUA
• Act provides that the regulation of insurance by the state is in public interest, except when pre-empted by federal law that specifically relates to insurance
• Cemented the states primacy in insurance regulation
• Identifies three federal laws that are applicable to insurance:
o The Sherman Act, the Clayton Act, and the Federal Trade Commission Act
o These are intended to prevent anticompetitive practices and unfair competition, and otherwise regulate trade to protect consumers

Question 57

Discuss the Gramm-Leach-Bliley Financial Modernization Act, 1999

Answer 57

46 - Mayhall

• Removed many restrictions of affiliations among banks, securities firms, and insurance companies
• Set out certain minimum standards for state insurance regulation or else face pre-emption by federal law

Question 58

Discuss the Patient Protection and Affordable Care Act (PPACA), 2010

Answer 58

46 - Mayhall

• A comprehensive reform of the health insurance market
• Creates requirements for health benefit plans to be marketed through federally-mandated state-created insurance exchanges
o Mandates coverage requirements
o Requires insurers to maintain specific medical-loss ratios

Question 59

Discuss Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), 2010

Answer 59

46 - Mayhall

• Establishes the Federal Insurance Office (FIO)
o Studies and collects industry and state regulatory information
o Drafts proposed federal regulation framework
• Establishes the Financial Stability Oversight Council (FSOC)
o Monitors the financial service markets to identify potential risks to financial stability
o Authorized to require state insurance regulators to apply new or heightened financial standards on insurers
• Requires single-state regulation and uniform eligibility criteria of surplus lines insurance
• Mandates requirements for reinsurance credits

Question 60

What are the reasons for regulation in the insurance industry? How do these relate to the considerations in licensing an insurer?

Answer 60

48 - McDonald

1. To prevent insolvencies
   • Nature and sufficiency of financial resources
   • Soundness of business plans for future development
2. To prevent undesirable business practices
   • Business record and experience
   • Character, competence, and experience of company operators
3. To consider the economic impact
   • Best interests of the finacial system in Canada
   • Treatment of Canadian insurers in foreign insurers’ principle jurisdiction

Question 61

Describe the British North American Act (BNA) of 1867

Answer 61

48 - McDonald

• Created a new federal government for the Dominion of Canada
• Distributed all powers between the federal and provincial Parliament
• Federal legislative powers includes:
o Regulation of trade and commerce; Taxation; Banking; Bankruptcy and insolvency; Naturalization and aliens; Criminal law; Residual power
• Provincial legislative powers includes:
o Incorporation of companies with provincial objects; Property and civil rights in the province; All matters merely local or private in nature

Question 62

Describe the Privy Council.

Answer 62

48 - McDonald

• Until 1949 when the Supreme Court was created, the Judicial Committee of the Privy Council was the highest court in Canada
• Insurance was NOT specifically mentioned in the BNA Act, it was a small local industry
o Lack of clear direction resulted in a number of constitutional cases
o Dealt with whether legislation was ultra vires of the federal government

Question 63

Define: Ultra Vires & Intra Vires

Answer 63

48 - McDonald

• Ultra Vires is beyond the powers of the government
• Intra Vires is within the powers of the particular government

Question 64

Federal parliament has exclusive legislative authority over:

Answer 64

48 - McDonald

o Regulation of trade and commerce
o Taxation
o Banking
o Bankruptcy and insolvency
o Naturalization and aliens
o Criminal law
o Residual power to make laws for the peace, order, and good government of Canada in relation to all matters not exclusively assigned to the provincial legislatures

Question 65

The Provincial legislature has exclusive legislative authority over:

Answer 65

48 - McDonald

o Incorporation of companies with provincial objects
o Property and civil rights in the province
o All matters merely local or private in nature

Question 66

Citizens Insurance Co. v. Parsons

1. What Act was contested? What was its purpose?
2. What were the arguments of the insurance company?
3. Explain how the JCPC ruled on each argument

Answer 66

48 - McDonald

1. In 1876 Ontario enacted the Fire Insurance Policy Act which required certain considerations to be included in fire insurance policies in Ontario.
2. Insurer argued Fire Act was ultra vires because it related to regulation of trade and commerce and deprived the status and capacity of federal company;
3. Privy Council upheld the act
   o Trade and commerce was interpreted as meaning BETWEEN provinces and did not extend to the regulation of business WITHIN a single province
   o All companies treated equally under the act and did not affect their status or constitution.

Question 67

Describe the Insurance Reference Case.

Answer 67

48 - McDonald

• 1916 – The Attorney-General for Canada v. The Attorney-General for Alberta
• Contested the federal Insurance Act (1910) which required that all insurers operating in more than one province obtain a federal license
• Regulation of trade and commerce does not extend to licensing
o Provincially incorporated insurer could operate in other provinces, without being federally regulated, with permission from those provinces
o Federally incorporated insurer does not require the provinces permission
o However, federal government can require licensing of foreign insurers

Question 68

Describe the 1974 case: Canadian Indemnity Company v. Attorney General of British Columbia

Answer 68

48 - McDonald

• BC established compulsory auto insurance plan in 1974, eliminating private insurers
o Refused to renew licenses of auto insurers carrying on business in the province
• Arguments
o Matter is federal jurisdiction relating to the regulation of trade and commerce
o Interfered with the status and capacity of federally registered insurers
• The Supreme Court found the legislation to be within the power of the BC Legislature

Question 69

What are the Federal Regulation of Insurance Duties?

Answer 69

48 - McDonald

• Federal power regarding the incorporation of companies with more than provincial objects but cannot interfere with provinces’ exclusive jurisdiction over insurance business
• Concern is financial soundness/solvency of foreign and federally incorporated insurers:
1. Conditions for a company to enter the insurance business
2. Financial reporting
3. Control over investments, calculation of asset values, and policy reserves
4. Protecting policyholder interests in areas other than control of insurance

Question 70

What are the Provincial Regulation of Insurance Duties?

Answer 70

48 - McDonald

• Supervise the financial soundness of provincially incorporated insurers
• Regulatory duties relating to the insurance contract
o Policy contents, insurable interest, contract taking effect, premium payment, duty to disclose, incontestability, reinstatement, designation of beneficiaries, insured dealing with the contract
• Regulatory duties relating to insurance transactions
o Licensing agents, unfair practices, and claims procedures

Question 71

What are the insurance contract matters regulated by the province?

Answer 71

48 - McDonald

1. Contents of policy
2. Insurable Interest
3. Contract Taking Effect
4. Payment of Premiums
5. Duty to Disclose
6. Incontestability
7. Reinstatement
8. Designation of Beneficiaries
9. Insured Dealing with the Contract

Question 72

What are the insurance transaction matters regulated by the province?

Answer 72

48 - McDonald

1. Licensing of agents
2. Unfair practices
3. Claims procedures

Question 73

The Minister of Finance considers several factors when licensing insurers; list these considerations.
How do these relate to the reasons for insurance regulation?

Answer 73

48 - McDonald

• To prevent insolvencies, consider the…

1. Nature and sufficiency of financial resources
2. Soundness of business plans for future development

• To prevent undesirable business practices, consider the…

3. Business record and experience
4. Character, competence, and experience of company operators

• To consider the economic impact, consider the…

5. Best interests of the finacial system in Canada
6. Treatment of Canadian insurers in foreign insurers’ principle jurisdiction

Question 74

What impact did the ICA have on federally regulated insurers?

Answer 74

48 - McDonald

• Increased powers for federally regulated insurers:

1. Broadened the lending and investment powers
2. Increased powers to diversify
3. Increased flexibility to issue shares or borrow

Question 75

The ICA also instructs on how Foreign companies operate in Canada. Briefly describe the requirements of Foreign Companies.

Answer 75

48 - McDonald

• Foreign companies require approval of Superintendent and Minister for insuring risks in Canada
• Must be capable of making a contribution to the financial system in Canada
• Canadian insurers must be treated as favourably in the foreign insurers’ principle jurisdiction
• Must appoint a natural person who is ordinarily a resident of Canada to be its Chief Agent, who receive notices from the Office
• Must appoint an auditor and an actuary for its Canadian business
• Must have assets of a prescribed value vested in trust, in a trust approved by the super (No longer required to deposit securities with the Receiver General)
• Must maintain adequate capital (adequate margin of assets in Canada over liability in Canada) and have appropriate forms of liquidity

Question 76

The ICA outlines criteria for provincial companies. Briefly describe the criteria. Is it similar to the requirements for Foreign companies?

Answer 76

48 - McDonald

• Superintendent must approve every new provincially incorporated company that wishes to operate throughout Canada
• Provincial companies are treated similar to foreign companies (must appoint an actuary and auditor, maintain certain records, etc.)
• No required to deposit securities
• Must establish a conduct review committee to review related party transactions

Question 77

How did the NAIC respond to the McCarran-Fergusson Act?

Answer 77

51 - Noonan

• Established a state-level statutory framework
• Provided for rate-filing provisions
• Prohibited “excessive, inadequate or unfairly discriminatory” rates

Question 78

What are the 3 central themes of US insurance regulation?

Answer 78

51 - Noonan

o Regular financial reporting
o Safeguarding insurers’ solvency
o Ensuring fairness to consumers

Question 79

Identify four enchroachments by the federal government into state insurance regulation

Answer 79

51 - Noonan

o 1973 – The Federal HMO Act creates of health maintenance organizations
o 1974 – The Employee Retirement Income Security Act (ERISA) established standards for employee-benefit plans with exemptions from state regulation
o 1979 – Minimum loss ratios for both individual and group Medicare supplement policies
o 1990 – Omnibus Budget Reconciliation Act delegated the NAIC to standardize Medicare supplement coverage
o Medicare+Choice program (later Medicare Advantage) joint federal/state effort in health insurance
o 1999 – Gramm-Leach-Bliley Act removed many restrictions of affiliations among financial services and set out minimum standards for state insurance regulation

Question 80

What are two uses of credit scores

Answer 80

07 - AAA Credit Scores

• Determine whether an insured qualifies to be underwritten
• Segment risks into different rate groups - as risk classification factor or tier to which a risk is assigned
• Assignment to a residual market

Question 81

What are the arguments for the use of credit scoring?

Answer 81

07 - AAA Credit Scores

• Strong correlation between credit scores and the expected costs associated with the risk - Appropriate for risk differentiaton
• Credit Scores allow better segmentation of risks into homogeneous groups (used to determine the relative rate between classes) - Removal will not lower premiums, only redistribute it
• If the actuary regularly analyzes overall aggregate rate levels and differentials, rates will be changed if more recent data suggesets it
o The potential price and differential shifts, along with motivations to be competitive, provide incentive for regular review

Question 82

What are the concerns against using credit scoring? Provide counter-arguments for these concerns

Answer 82

07 - AAA Credit Scores

1. Current economic crisis includes the severe tightening of credit markets - raises questions about the use of credit rating in insurance
2. Impact on Aggregate Premium
   • Concern that if the current economic crisis causes insurance scores to worsen, it will lead to unwarranted price increases
   o Credit score is used to determine the relative rate relationship between classes, not to determine the overall premium need
3. Impact on Individual Premiums
   • Concern that a dramatic shift in credit score could disrupt the relative rates among risks
   o As trends develop, insurers adjust classification plans to reflect it
   o The potential price and differential shifts, along with motivations to be competitive, provide incentive for regular review

Question 83

What are the guidelines for the use of credit information in the context of quoting, UW and rating?

Answer 83

39 - IBC Code of Conduct

1. Comply with Provincial Laws
2. Ensure Credit Information is Current and Accurate
3. Gather Prior Consent to Collect & Use Credit Information
4. Keeping Customers’ Credit Info Confidential & Private
5. Use of Credit as a Sole Variable
6. Legitimate Uses of Credit Info – Pricing, U/W or Financing – Modelling
7. Handling of Consumer Disputes
8. Taking Adverse Action as a Result of Credit Information
9. Refusal of Consent
10. Extraordinary Life Circumstances

Question 84

When the insurer is gathering consent to collect and use credit information, the insurer must ensure the following

Answer 84

39 - IBC Code of Conduct

a. Consent must be informed
i. Must not feel obliged
ii. Must understand the nature and scope of the request
iii. Consent must be specific and not presumed
b. No one can give consent for another
c. Consent retention - insurer must maintain proof of consent
d. Duration of consent - valid for as long as the policyholder has a continuous business relationship with the insurer

Question 85

What does IBC say about “Keeping Customers’ Credit Info Confidential & Private”?

Answer 85

39 - IBC Code of Conduct

a. The only people who should have access to the information are those who require it
b. Comply fully with consumer and privacy protection laws (e.g. PIPEDA)

Question 86

What does IBC say about “Use of Credit as a Sole Variable”?

Answer 86

39 - IBC Code of Conduct

• Can’t refuse to quote or base renewal rates, or deny, cancel or non-renew a policy based solely on credit information without consideration of non-credit variables

Question 87

What must insurers verify from credit model suppliers before using credit information?

Answer 87

39 - IBC Code of Conduct

• Insurers must verify from suppliers of credit info that the following are not used as a negative factor in any credit scoring models:

i. Inquiries by consumer for own credit info, inquiries relating to insurance
ii. Income, gender, address, ethnic group, religion, marital status, nationality

Question 88

How should insurers handle consumer disputes regarding a customer’s credit information?

Answer 88

39 - IBC Code of Conduct

Handle complaints about the insurer’s use of credit in accordance with federal and provincial law

Question 89

What does the IBC say about “Taking Adverse Action as a Result of Credit Information”?

Answer 89

39 - IBC Code of Conduct

a. Insurers must treat fairly consumers without credit information
i. Can’t deny coverage, cancel, or non-renew a policy solely on credit basis
ii. Must base underwriting and rating on relevant information which is available
b. Insurer must disclose to the consumer adverse action taken only as a result of credit information

Question 90

What does IBC say about “Refusal of Consent”?

Answer 90

39 - IBC Code of Conduct

a. Insurer can’t refuse to quote, provide coverage, cancel, or non-renew
b. Must offer a competitive rate, but won’t qualify for credit discounts

Question 91

What does the IBC say about “Extraordinary Life Circumstances”?

Answer 91

39 - IBC Code of Conduct

• If a customer believes that their credit information resulted in adverse action by their insurer and that their credit has been adversely impacted by an extraordinary life event, the customer can provide a written request detailing, with evidence, the event to the insurer

Question 92

What does section 2600 of the CIA CSOP say about Ratemaking in Canada?

Answer 92

12 - CIA CSOP: 2600

• Applies to the derivation of indicated rates for an insurance contract of P&C insurance (not to the recommendation or selection of rates to be charged)
• Actuary should select appropriate methods, techniques and assumptions depending on the circumstances, recognizing that a variety of methods may be appropriate
• Revenue at the indicated rate should equal the corresponding claim and expense costs, plus a provision for profit, over a specified time period, considering the best estimate present vale of cash flows of such

Question 93

What is a Quasi-Insurer?

Answer 93

12 - CIA CSOP: 2600

• Entities that assume insurance risks that a P&C insurer may assume, without having the legal form of an insurer
o E.g. crown corporations, providers of extended warranties, self-funding mechanisms

Question 94

CIA CSOP lists several considerations regarding ratemaking. What are they?

Answer 94

12 - CIA CSOP: 2600

1. Data - availability and relevance
2. Credibility
3. Changes in Circumstances
   o UW practice; distribution system; claims handling and settlement practices; reinsurance arrangements; data processing and accounting ststems; distribution of type of business written; provisions of the insurance contract; premium rates; rating variables; legislated coverage or benefits; social, economic, and legal environments
4. Development
5. Trend
6. Unusual Events - e.g. catastrophes or large losses
7. Provision for Expense Costs - residual market assessments, statutory assessments, policyholder dividends, reinsurance costs
8. Provision for Profit
9. Time Value of Money

Question 95

If an external user report is required and the actuary can report without reservation, the actuary’s report should include the standard reporting language consisting of the following scope paragraph:

Answer 95

12 - CIA CSOP: 2600

• I have derived the indicated rate(s) in accordance with accepted actuarial practice in Canada, on behalf of [entity commissioning work], for the following insurance category(ies): [name of insurance category(ies)], to be effective Month XX, 20XX for new business and Month XX, 20XX for renewal business.
• If an external user report is required and the actuary cannot report without reservation the actuary should modify the standard reporting language accordingly.

Question 96

What are the types of processes for approval and authorization of rates and risk classification systems stipulated by FSCO?

Answer 96

33 - FSCO Private Auto

• Prior Approval for PPA insurance
o Subject to either simplified filing guidelines (imposes certain conditions) or major filing requirements
• File and Use for “Other than PPA”
o Subject to either major filing requirements (if initial filing, or if the insurer satisfies the criteria established by the Superintendent, or where FSCO considers it appropriate) or minor filing requirements (all other cases)

Question 97

In FSCO major filings, in selecting a target ROE, what is the minimum that must be shown? What is required if proposed rates differ from indicated rates?

Answer 97

33 - FSCO Private Auto

• At a minimum, show the payout pattern on losses and expense
• If rates differ, show the ROE and UW margin underlying the proposed rates

Question 98

According to FSCO Major Filing Guidelines, what must support is required for a coverage with no proposed change?

Answer 98

33 - FSCO Private Auto

Actuarial support is require for ALL coverage, even if no change is proposed

Question 99

In a FSCO major filing, what certificates are required, when are they required, and what does each certify?

Answer 99

33 - FSCO Private Auto

• Certificate of the Officer
o Required for each filing
o Certifies that the proposed rates will not impair the solvency of the insurer

• Certificate of the Actuary
o Required for a rate level change or rates in a category of insurance not previously written
o Certifies the reliability and sufficiency of data, acceptability of procedures (i.e. in accordance with accepted actuarial practice), and reasonableness of the classification system

Question 100

What are the two reasons for a discount rate to a group membership?

Answer 100

33 - FSCO Private Auto

• Lower loss cost based on favourable experience, risk management programs, or characteristics
• Lower expense due to lower acquisitino or administrative costs

Question 101

According to FSCO Filing Guidelines, how would one reflect the profit/loss resulting from the insurer’s use of the Facility Association?

Answer 101

33 - FSCO Private Auto

• Direct premiums and loss should exclude the experience of Facility Association Residual Market risks
• No expense provision should be included for such business unless there is a known subsidy in its operaton

Question 102

What are the conditions for the use of outside data according to FSCO Auto Filing Guidelines?

Answer 102

33 - FSCO Private Auto

• The source of the data must be identified
• The applicability of the data must be explained

Question 103

FSCO Auto Filing Guidelines appy to what types of insurane

Answer 103

33 - FSCO Private Auto

Auto insurance using OAP 1 or 2, other than fleets and does not include facility

Question 104

In estimating expected investment income attributed to policyholder supplied funds and equity, according to FSCO, should consider what rate(s)?

Answer 104

33 - FSCO Private Auto

Consider both the new money rates and the insurer’s historical return

Question 105

According to FSCO Major Filing Guidelines, when is capping permitted? When is it not?

Answer 105

33 - FSCO Private Auto

o Circumstances where capping increases premium is possible

i. Mergers and acquisitions
ii. Extensive risk classification system changes

o Capping not permitted on

i. Base rate change only
ii. Broker portfolio transfer/acquisition
iii. Premium decreases

Question 106

What should the insurer do when filing a line of business that is not PPA, but relies on PPA rates?

Answer 106

33 - FSCO Private Auto

Can submit the needed information with the PPA filing

Question 107

What does the Ontario Superintendent say regarding affiliated insurers filings and what is the intent of these provisions?

Answer 107

33 - FSCO Private Auto

o The Superintendent may require affiliated insurers to file concurrently
o The intent is to include all criteria and processes used to segment business

Question 108

According to FSCO Auto Filing Guidelines, insurers are required to include the following elements with filings

Answer 108

33 - FSCO Private Auto

• Optional Accident Benefits as set out in SABS
• A retiree’s discount is mandatory on ONLY the PPA insurance category
• Must offer a discount for the graduated licensing program

Question 109

What changes did FSCO make regarding Medical, Rehab and Attendant Care benefits?

Answer 109

34 - FSCO Reforms

• Reduced standard medical and rehabilitation benefits for non-catastrophic injuries to 50K
o Optional coverage buy-up of 100K (previous policy coverage) or 1.1M
• Reduced standard attendant care benefits for non-catastrophic injuries to 36K
o Optional coverage buy-up of 72K (previous policy coverage) or 1.072M
• Standard medical, rehabilitation, and attendant care benefits remain at 1M for catastrophic injuries
o Optional buy-up for an additional 1M of coverage

Question 110

What changes did FSCO make regarding the Caregiver benefit?

Answer 110

34 - FSCO Reforms

• Standard only for catastrophic injuries
• Optional buy-up for all injuries (prior policy coverage was all injuries)
o Caregiver benefit = $250 per week for the first dependent plus $50 for each additional

Question 111

What changes did FSCO make regarding Housekeeping & Home Maintenance Expenses?

Answer 111

34 - FSCO Reforms

• Standard only for catastrophic injuries
• Optional buy-up for all injuries (prior policy coverage was all injuries)
o Housekeeping = $100 per week

Question 112

What changes did FSCO make regarding the Income Replacement benefit?

Answer 112

34 - FSCO Reforms

• Income replacement reduced from 80% to 70% of gross income, max $400 per week
o Weekly limit can be increased to $600, $800, or $1,000 per week

Question 113

What changes did FSCO make regarding the Dependent Care benefit?

Answer 113

34 - FSCO Reforms

• No change to standard coverage
• Optional increase their benefit up to $75 per week for the first dependent and $25 per for each additional dependent to a maximum $150 per week.

Question 114

What changes did FSCO make regarding Death and Funeral benefits?

Answer 114

34 - FSCO Reforms

• Standard is $25k lump sum to eligible spouse, $10k to each dependent, and max of $6,000 for funeral benefits (same as prior coverage)
• Optional buy-up: $50k lump sum to eligible spouse, $20k to each dependent, and a max of $8,000 for funeral benefits

Question 115

What changes did FSCO make regarding the Indexation benefit?

Answer 115

34 - FSCO Reforms

• No change to standard coverage
• Optional increase to annual adjustment according to CPI for Canada

Question 116

How does an accident occurring on or after September 1, 2010 affect premium based on the FSCO reforms?

Answer 116

34 - FSCO Reforms

• Accidents where you are 25% or less at-fault no longer affect premium (accidents occuring after Sept 1, 2010)

Question 117

How has the reform affected the following:

1. Credit Scoring
2. Deductible paid on Fatal Accidents
3. Dispute on Write-off Value
4. Minor Injury Awards
5. Benefit Statements
6. Rented Autos

Answer 117

34 - FSCO Reforms

1. Prohibiting the use of credit scores for insurer quotes
2. The deductible that was applied to court awards for fatal accidents has been eliminated.
3. Appraisal process available if auto is written off and you don’t agree with the settlement value
4. For minor injuries, medical/rehabilitation accident benefits are limited to $3,500
5. Insurers must be more transparent and send out benefit statements with paid and outstanding balances for medical, rehabilitation, and attendant care benefits
6. Coverage has been extended to rented autos with gross vehicle weight rating greater than 4,500 kg, if for personal use and rented up to 7 days

Question 118

How have the FSCO reforms affected deductibles?

Answer 118

34 - FSCO Reforms

• Option to reduce Tort deductible (compensation for pain and suffering) to 20K from 30K
• Option to reduce Family Law Act claims deductible to 10K from 15K
• DCPD deductible options of 500, 300, or no deductible

Question 119

Describe FSCO Regulation 664 regarding premium paid in installments.

Answer 119

• Insurer not required to allow insured to pay premium in installments unless all of the following conditions are met:
o Insurer insures over 10,000 PPAs in Ontario during previous year
o Not a commercial or public vehicle
o Contract does not insure 5 or more vehicles under common ownership (Fleet)
o Premium payable exceeds $300
o Insured has not had more than 1 auto policy terminated by insurer for non-payment during past 3 years.
• Insurer may require initial payment of 2 monthly installments or pre-authorized payments
• Max interest rate on installments varies with term [3% of total premium (?12 month), 1.5% (6-12 months), and 0.5% (

Question 120

Describe FSCO Regulation 664 regarding “Refusal to Issue Contracts”.

Answer 120

35 - FSCO Regulation 664

• Can’t refuse because person is or was insured by Facility Association or another insurer wouldn’t insure them
• Can’t consider physical or mental disability, health or life expectancy, occupation, income, employment history, credit history/info, residence history, net worth, existence of any other health insurance or sick leave plan, not-at-fault claims
• The above list ALSO CAN’T be used in RISK CLASSIFICATION

Question 121

What does FSCO Regulation 664 say regarding Statutory Accident Benefits (SABS) settlements?

Answer 121

35 - FSCO Regulation 664

• If insurer extends a settlement to the insured, the disclosure notice must include:

i. The insurer’s offer
ii. Description of benefits available under Statutory Accident Benefits Schedule
iii. Statement that the insured may rescind the settlement within 2 business days of signing
iv. Consequences of the settlement - tax implications & insured’s right to litigate, mediate, and appeal
v. Statement advising the insured to seek independent legal, medical, and financial advice
vi. Statement for signature by the insured acknowledging the disclosure notice

Question 122

FSCO Regulation 664 says that the insurer can have an “Expedited Rate Approval” if:

Answer 122

35 - FSCO Regulation 664

• Purposed rates must relate only to PPA
• Average cumulative rate change is less than or equal to 0.
• % difference for each territory for each coverage can’t be more than 5% higher or lower
• No changes can be proposed to algorithm, differentials, discounts or surcharges, change to definition, or different rating rules

Question 123

FSCO Regulation 664 lists several risk classification elements that are prohibited. List and Describe these elements.

Answer 123

35 - FSCO Regulation 664

• Insurer shall not consider occupation (excluding commercial vehicles or vehicle used in business)
• Level of income (employment history, credit information/history/rating, bankruptcy history, net worth)
• Residence history and whether person owns a home
• The existence other health insurance or sick leave plan
• Any not-at-fault claims
• Shall not use past claims which an insured was 25% or less at-fault
• Whether the person has made premium payments that were late or dishonoured in respect of contracts of automobile insurance that was not terminated by this reason

Question 124

What is a Group Marketing Plan? What are the requirements under FSCO Regulation 664?

Answer 124

35 - FSCO Regulation 664

• An arrangement made in writing between an insurer and a sponsor to market automobile insurance to members of an organized group

• Organized group – consists of no fewer than 100 members, and has a group marketing plan
o A trade union
o A professional or occupational association
o An alumni association
o A nonprofit entity, at least two years old, not primarily buying/selling goods/services
o A group of employees of the same employer
o A group of members of a credit union (subject to certain conditions)
• A group cannot require members to purchase insurance under the plan or penalize them for not

Question 125

In KPMG et al, the author asserts that “fault” and “no-fault” portray a simplistic version of reality. Why is “no-fault” misleading?

Answer 125

42 - KPMG et al

• In “no-fault” systems, fault plays a role in…
o Setting premiums
o Criterion for criminal penalties
o Compensation may be reduced for certain at-fault behaviours (e.g. DUI)

Question 126

In KPMG et al, the author asserts that “fault” and “no-fault” portray a simplistic version of reality. Why is “Fault Insurance” misleading

Answer 126

42 - KPMG et al

• “Fault” insurance protects negligent drivers from paying damages, eliminating most of the consequences of causing an accident
o An injured at-fault driver can receive compensation from other sources
• No degree of fault, protected regardless of their degree of fault - recklass vs random chance situations treated the same

Question 127

How is tort liability determined?

Answer 127

42 - KPMG et al

• Both liability and amount of loss must be determined. Fault may be apportioned between drivers which affects compensation.

Question 128

What is the basic philosophy of liability insurance?

Answer 128

42 - KPMG et al

• Tort philosophy is based on the belief people should compensate those they have wronged
o Tort law requires the wrongdoer, tortfeasor, to pay for damages caused so as to restore the injured person to their pre-injury condition

Question 129

What are the drawbacks of liability insurance?

Answer 129

42 - KPMG et al

• Denies coverage to those who have committed minor errors
• Punishes innocent dependents of at-fault driver by denying coverage
• Weakens the link between wrongdoing and punishment
o Tort process does not distinguish wrongdoers by their degree of willfulness in their wrongful actions, but only according to the level of the damages they caused
o 2 Exceptions to weakened link: (i) Wrongdoer was in breach of contract, insurer may try to subrogate; and (ii) At-fault accidents raise insurance premiums
• Adversarial process
o Delays compensation for past damages until fault and amount of damages as assessed
o Future damages are paid up front which may prove inadequate
o Significant legal costs for lawyers, experts, etc.
• Tends to overcompensate minor losses (because of pain and suffering additions) and undercompensate major ones (because of policy caps)
• Highly individualized compensation - valuations vary considerably from one similar case to another
• Tendency to stretch the concept of fault, seeking someone with deep pockets

Question 130

What are the types of combined systems?

Answer 130

42 - KPMG et al

• “Choice” Plans
o Policyholders choose to purchase primarily liability or injury based policies
o Issues include (i) Non-policyholders injured did not have the opportunity to make choice; and (ii) Handling an accident between a “tort” and a “no-fault” vehicle
• Most states/provinces have a system where the bulk of compensation is provided based on liability, with limited add-on injury benefits (e.g. BC)
• Threshold System (e.g. ON)
o Compensate victims on an injury basis without regard to fault, allow those whose losses exceed a specified threshold to file claims and take legal action
o Reserves the liability process for more serious injuries

Question 131

What is the rationale for a combined system?

Answer 131

42 - KPMG et al

• It offers a compromise - Injury insurance is more palatable with liability access
• More affordable as transaction costs are reduced
• Produces savings as non-economic damages are limited or eliminated for minor injuries - More money is available for more severe injuries

Question 132

List the types of thresholds for a combined system and give three considerations in setting thresholds

Answer 132

42 - KPMG et al

• Descriptive – Describing in words what kind of injuries exceed the threshold
o Most effective
• Monetary – Economic loss portion of injuries must exceed a specified dollar limit
o Encourages claim inflation so that thresholds can be breached
• Combination

• Types of threshold conditions must be clearly defined
• Threshold is often only applicable to non-economic general damages like pain and suffering
• Often a deductible is used to discourage exaggeration

Question 133

Why did the government require drivers to carry liability insurance?

Answer 133

42 - KPMG et al

• Liability insurance is not for those who cause the injury (Tortfeasor), but for those who the Tortfeasor has injured. Growing concern that the only way to provide care to injured people was through liability insurance so it became a requirement.
• Can be a social concern

Question 134

The tort process does not distinguish between different wrongdoers according to the degree of willfulness in their actions, but only according to level of damages caused. What are the two exceptions to this rule?

Answer 134

42 - KPMG et al

1. Wrongdoer was in breach of insurance contract, the insurer may try to subrogate from the insured.
2. At-fault accidents do raise your insurance premiums (this is not a requirement of tort law; purely a choice by insurers)

Question 135

Briefly describe Injury Insurance

Answer 135

42 - KPMG et al

• Based on belief that injured people should be assisted and compensated without regard to fault
• Seeks to restore injured persons to their pre-injury condition

Question 136

What are the benefits of Injury Insurance?

Answer 136

42 - KPMG et al

o Wrongdoers can be punished with higher premiums
o The liability system denies compensation to one who has committed only a minor error
o The liability system denies compensation to the innocent dependents of an at-fault driver
o Less adversarial - Determining fault is less important and more straightforward
o Lower process and transaction costs
o More certain outcomes
o Fewer delays in compensation
o Compensation for future losses are not paid until need is actually occurs

Question 137

What are the criticisms of Injury Insurance?

Answer 137

42 - KPMG et al

o Does away with the principle of retribution
o Higher-income victims receive more benefits (for wage replacement)
o May tend to overcompensate minor losses and undercompensate major ones
o May undercompensate those with higher income because of caps - but they have the ability to purchase supplementary coverage
o Less individualized compensation - rigid plan may be more expedient, but a flexible plan could be fairer

Question 138

List the other product variables identified in KPMG et al. that affect the nature of benefits provided by the insurance system?

Answer 138

42 - KPMG et al

1. Payer Priority & Collateral Benefits
2. Net vs. Gross Wage Losses
3. Structured Settlements
4. Level of Injury Benefits
5. Wellness Model - Injury and liability insurance tend to not focus on rehabilitation
6. Vehicle Based Insurance - Bodily injury coverage is provided primarily to the vehicle. Non-owners of the vehicle cannot choose their benefit level, argues for some level of injury benefits for these individuals.
7. Thresholds under Combined (CLII) Products - Decision must be made as to which damages will remain subject to the tort process
8. Cost and Sustainability of the Product - Must balance costs with benefits; should not be expected to have “excessive” future cost trends
9. Solicitor and Client Costs - reduce the net benefits that would otherwise be payable to the injured party
10. Indemnity vs. Entitlement - If not appropriately designed, “no-fault” benefits may be paid on the basis of entitlement rather than indemnity, creating an economic incentive to malinger
11. Interface with the Social Safety Net - Trade off between individual and societal fairness - funded by pool of insured or funded by taxation
12. Public vs. Private Delivery Mechanism - Insurance can be provided by a government monopoly, private insurers, or in combination. In a monopolistic market, pricing cross-subsidies can be designed into the system and persist

Question 139

What is an issue with a government monopoly providing insurance?

Answer 139

42 - KPMG et al

• In a competitive market, pricing cross subsidies cannot survive very long
• In a monopolistic market, such cross-subsidies can be designed into the system and persist

Question 140

How is payer priority handled under injury and liability insurance? What are the disadvantages of insurance being second payer?

Answer 140

42 - KPMG et al

• Under liability insurance, innocent injured victims are not prohibited from obtaining compensation for the same losses from auto insurance and other “collateral” sources - Permits “double dipping”

• Under injury insurance, the insurer can specify whether it is the “first payer” or “second payer”
o As 1st payer, pays regardless of whether insured has other coverage - Can obtain compensation from multiple sources though collateral sources tend to ensure that auto insurance is the only source of compensation
o As 2nd payer, compensation is only provided if the injured person has no other collateral sources or if losses exceed what those sources provide - No double dipping

• Disadvantages of insurance being 2nd payer
o Claimants may feel entitlement still exists
o Limits the insurer’s ability to manage medical care
o Difficult to obtain complete data for studying costs

Question 141

Discuss the fairness of wage loss replacement on a net vs. gross basis. How is wage loss handled in injury vs. liability insurance systems?

Answer 141

42 - KPMG et al

• Net wage is fairer – equal to take home pay
• Injury-based systems typically provide wage-loss benefits on 80-90% of net income
o Reflects expenses associated with holding a job
• Most liability systems, wage loss is compensated on 100% of gross income
o Compensating 100% of gross covers for future taxes on the wage loss portion

Question 142

Discuss a wellness model and how injury and liability insurance fail to achieve this.

Answer 142

42 - KPMG et al

• Desirable to have injured returned to their pre-injured condition as quickly as possible
• Liability system tends to discourage rehabilitation because of delayed resolution - Inclination to focus on the loss
• Injury system focuses on indemnification rather than on rehabilitation

Question 143

What are the advantages of having structured settlements?

Answer 143

42 - KPMG et al

• The investment income is not taxable in hands of recipient, unlike a lump sum payment would be
• Prevents squandering of large lump sums and injured becoming a societal burden

Question 144

What is the difference regarding the level of injury benefits between a tort system (at fault) and a pure (no fault) compensation system?

Answer 144

42 - KPMG et al

• Liability systems
o Produce the greatest gap in compensation between at-fault and innocent victims
• Threshold systems
o Restricted right to sue balanced by more generous injury benefits
o Less need to provide compensation for non-economic loss as tort procedure exists
o Still a compensation gap between at-fault and innocent victims
• Pure injury systems
o Even more generous injury benefits as there is no right to sue (could provide for non-economic losses)
o May eliminate the compensation gap

Question 145

What are the three essential types of protection offered by Motor Vehicle insurance (a.k.a. “Social Requirements”)?

Answer 145

42 - KPMG et al

(1) Security - coverage against certain losses
(2) Restitution - compensatino, repairs, rehabilitation, etc
(3) Prevention - mitigation of losses to control costs and protect policyholders

Question 146

List and briefly describe the six basic design requirements of auto insurance

Answer 146

42 - KPMG et al

1. Equitable & Fair Benefits – equitable in size and allocation
   • Provided only for legitimate losses
   • Priority for the seriously injured
   • Victims and wrongdoers are treated fairly
2. Affordable & Sustainable Coverage – ensure premiums are affordable and system remains stable
3. Adequate Benefits – benefits adequate to meet needs of injured people
4. Personal Responsibility – ensure personal responsibility of driving behavior
5. Promotion of Wellness – system promotes the well-being of injured people
6. Customer Service Orientation – products and services are customer oriented

Question 147

According to KPMG et al. what are the roles of insurance. How do they differ between government insurance and private insurance?

Answer 147

42 - KPMG et al

o Insurance has 3 roles in the private sector:
1. Reduce risk by spreading out loss consequences
2. Provide protection for individuals from the consequences of specific losses
3. Making profits for private entrepreneurs who act as insurers
o Only the first two roles apply to Government insurance or public insurance

Question 148

What is purpose of OSFI Corporate Governance?

Answer 148

53 - OSFI Corporate Governance

Communicate OSFI’s expectations with respect to corporate governance of FRFIs

Question 149

Define Corporate Governance

Answer 149

53 - OSFI Corporate Governance

• Set of relationships between a company’s management, its board, its shareholders, and other stakeholders
o Provides structure for setting company objectives
o Determines means of attaining objectives and monitoring performance
• Providing proper incentives for the board and management to pursue objectives that are in the interest of the company and its shareholder

Question 150

What are the oversight functions as described in OSFI Corporate Governance?

Answer 150

53 - OSFI Corporate Governance

• Provide enterprise-wide oversight of operatonal management
• The oversight functions include financial, risk management, compliance, internal audit, and actuarial (for this guideline)

Question 151

What is the distinction in the responsibilities between the Board and Senior Management?

Answer 151

53 - OSFI Corporate Governance

o Board responsible for stewardship, direction-setting, and general oversight of management and operations
o Senior Management accountable for implementing the Board’s decisions, directing and overseeing operations of FRFI

Question 152

What is the role of the board of directors?

Answer 152

53 - OSFI Corporate Governance

o Short-term and long-term objectives, strategy, and plans including risk appetite
o Significant strategic initiatives or transactions
o Internal control framework
o Appointment, performance review and compensation of Senior Management
o Succession plans for Board, CEO, and Senior Management
o Mandate, resources, and budgets for oversight functions

• Review and discuss FRFI’s …
o Significant operational and business policies
o Business and financial performance relative to the Board-approved strategy
o Compensation policy for all human resources
o Internal controls, including implementation and effectiveness
o Organizational structure
o Compliance with applicable laws, regulations, and guidelines

• Senior management performs these functions, but the Board performs high-level guidance
o Board should understand the decisions and plans undertaken by Senior Management
o Board should establish processes to asses that Senior Management’s activities are in-line with Board-approved strategy and risk appetite
o Board should ensure regulators are informed of substantive issues affecting the FRFI

Question 153

A effective Board of Directors should demonstrate what?

Answer 153

53 - OSFI Corporate Governance

• Judgment
o Make sound and well-informed decisions, considering strategy and risk appetite
• Initiative
o Be proactive and timely in exercising responsibilities, ready to probe, challenge, and guide Senior Management
• Responsiveness
o Be responsive to issues or deficiencies identified by Senior Management, oversight functions, regulators or itself, and should oversee rectification
• Operational Excellence
o Have practices and processes that permit open discussion, debate, and advance consideration of important matters based on relevant and timely information

Question 154

What is OSFI’s Risk Governance regarding Risk Appetite Framework?

Answer 154

53 - OSFI Corporate Governance

• Should be approved by the Board
• Enterprise-wide and tailored to activities and operations
• Understood throughout organization and part of culture
• Should set basic goals, benchmarks, and limits to risk FRFI is willing to accept
• Should consider all material risks to FRFI
• Should be forward-looking and consistent with the FRFI’s business model, philosophy, etc.
• Helps ensure the FRFI stays within the risk boundaries set by the Board

Question 155

What should a FRFI set up for the oversight of risk management?

Answer 155

53 - OSFI Corporate Governance

Depending on the nature, size, complexity and risk profile of the FRFI, the Board should establish a dedicated Board Risk Committee to oversee risk management on an enterprise-wide basis

Question 156

Why should the CRO’s compensation not depend on performance?

Answer 156

53 - OSFI Corporate Governance

You do not want the CRO’s opinion to be biased such as taking on more risk to increase profits and thus increase their compensation. Their opinion must remain objective

Question 157

OSFI conducts supervisory work and monitors performance to:

Answer 157

53 - OSFI Corporate Governance

o Assess safety and soundness
o The quality of control and governance process; and
o Regulatory compliance

Question 158

Through Corporate Governance, OSFI is better able to….

Answer 158

53 - OSFI Corporate Governance

o Help protect depositors and policyholders
o Allows OSFI to use the work of the company’s internal processes and functions thus reducing the amount of supervisory resources needed for OSFI to meet its mandate

Question 159

Why are financial institutions subject to more regulation?

Answer 159

53 - OSFI Corporate Governance

o Economy depends significantly on how well its financial services sector functions
o FRFIs may have high ratios of debt-to-equity - more vulnerable to unexpected adverse events
o Liquidity problems likely if customers or counterparties lose confidence in soundness
o Accept funds from the public and often deal in long-term commitments
o Assets and liabilities can be volatile and difficult to price accurately - issue and trade complex financial instruments
o Potential large mismatches between assets and liabilities - investment risk

Question 160

What are the key features of the Risk Appetite Statement?

Answer 160

53 - OSFI Corporate Governance

• Linked to the firm’s short- and long-term strategic, capital, and financial plans, as well as compensation plans
• Includes qualitative and quantitative measures
• Be-forward looking - Consider normal and stressed scenarios ad aim to be within the FRFI’s risk capacity

Question 161

What is the purpose of the principles in OSFI’s new capital framework?

Answer 161

55 - OSFI Framework

o Encourage the use of improved risk-based business decisions
o Better reflect each insurer’s risk profile and risk management practices

Question 162

In OSFI Framework, identify and discuss two approaches for determining regulatory capital requirements

Answer 162

55 - OSFI Framework

i. Standard approach
• Used by all companies to determine minimum capital requirement
• Used by companies without approval to use internal models to determine supervisory and company target capital amounts
ii. Internal Models Approach
• Used by companies with approval to determine supervisory and company target capital amounts
• Subject to OSFI-defined floors

Question 163

What are the two key functions of regulatory capital?

Answer 163

55 - OSFI Framework

• Allows institutions to absorb losses during operations
• Protects policyholders and creditors from loss in the event of liquidation

Question 164

What are the key principles of OSFI’s new capital framework?

Answer 164

55 - OSFI Framework

1. Encourage Good Risk Management
2. Encourage Capital Planning and Avoid Pro-Cyclicality
   o Encourage appropriate capital planning and the creation of capital buffers during times of profitable growth, used to carry an insurer through adverse circumstances

• On Risk Measurement
3. Consider All Risks (insurance, market, credit, liquidity, operational)
o Should reflect risk mitigants (reinsurance, diversification)
4. Use a Consistent Basis for Risk Measurement (assets, liabilities and the capital Requirements)
5. Be Practical, Yet Technically Sound
o Standard approach should apply to every risk
o Framework should have 2 basic components: Standard Approach and Internal Models Approach
6. Reflect Existing Risks on Going Concern Basis and Consider Winding-up and Restructuring
7. Use Measures that are Comparable Across Risks and Products (e.g. VaR or CTE)
8. Use a Total Asset Requirement (TAR) Approach

• On Capital Adequacy
9. Ensure that Capital is Prudent
o Capital requirements should be transparent and should consider unexpected losses
10. Consider International Principles and Best Practices
o Capital requirements should be risk-based

• On Risk Monitoring
11. Allow Comparison of Similar Risks Across Financial Institutions
12. Be Transparent, Validated and Based on Credible Data
13. Use Reliable Processes with Assumptions Sustainable in Times of Stress
14. Be Part of Intervention Levels for Supervisory Action
o Capital ratio level for intervention should be sufficiently high to allow supervisory action at an early stage

Question 165

What are the issues of the case presented in BC Credit? Summarize the case and the verdict.

Answer 165

24 - BC Credit

• Obtaining the required consent from policyholders regarding the use of their credit scores

• Background of the case
o Policyholder’s house was buglarized and then found out that Economical had sought his credit information prior to renewal

• In 2011, a delegate for the Information and Privacy Commissioner (IPC) ruled
o Economical’s use of credit score was for a purpose a reasonable person would consider appropriate AND Economical can require consent to collect credit score for the purpose of assessing future risk of loss
o There was “no deemed consent” in this case nor did Economical give the policyholder adequate notice of its purpose for collecting his credit score

• IPC delegate ordered:
i. Economical to provide all home insurance policyholders and applicants with notice that their credit score may be obtained for assessing future risk of loss
ii. Economical to “review the consent forms it has obtained for home insurance policyholders” since the privacy law came into force (Jan 1, 2004)
• Economical challendged these orders (but not the ruling)

• The B.C Supreme Court ruled in favour of Economical, setting aside orders from the provinces IPC
o Issues “did not include notice to or consent given by” policyholders other than Hughes
o The effect of the orders was that Economical would be required to determine whether the CSIO standard forms provided adequate notice
o A settlement in a separate case provided that all new applicants for insurance would be given notices explaining how Economical collects and uses personal information

Question 166

What was the outcome of The Trilogy of 1978

Answer 166

29 - Davidson

Court decides to stabilize and make consistent awards for non-pecuniary or general damages

Question 167

What are the reasons for capping awards for non-pecuniary damages?

Answer 167

29 - Davidson

1. Claim of such by severely injured person can be limitless
2. Not compensatory, but given to make life more endurable
3. Plaintiff will be fully compensated for future loss of income and future care costs
4. Exorbitant awards can produce unaffordable increases in insurance and social costs

Question 168

Assumptions of non-pecuniary damages

Answer 168

29 - Davidson

o Pecuniary losses would be fully compensated
o If left unregulated, would produce extravagant awards

Question 169

Following the trilogy, what were some decisions of the court regarding the cap for non-pecuniary damages?

Answer 169

29 - Davidson

• Cap should be indexed for inflation
• Court can substitute an amount for a jury award

Question 170

What was the argument in Lee v. Dawson, and what was the court’s response?

Answer 170

29 - Davidson

• Arguments
o Cap discriminates against seriously injured victims of negligence who do not receive full compensation compared to other injured victims or victims of other torts where cap does not apply
• Court’s Response
o General damages not intended to provide full compensation
o Should not depend on the seriousness of the injury as intended to substitute for amenities to make life more bearable

Question 171

Cases for which the cap to non-pecuniary does not apply.

Answer 171

29 - Davidson

Sexual assault; Defamation; Negligence causing catastrophic personal injury

Question 172

Identify and briefly describe 4 cases which dicuss an insurers duty to defend

Answer 172

45 - Landmark Legal

• Broadhurst and Ball [#9 Baer and Rendall] - Excess and primary insurers to share in defence costs equally
• Sansalone v. Wawanesa Mutual Insurance Co. - For Duty to Defend to exist, policy coverage must be possible
• Nicols v. American Home Assurance Co. - Duty to defend does not apply to allegations clearly beyond the scope of coverage
• Alie v. Bertrand - insurers who issue excess or umbrella policies that follow the form of the underlying policy are seen as having a duty to defend

Question 173

Which case pertains to a limits agreement between insured and tortfeasor?

Answer 173

45 - Landmark Legal

Somersall v. Scottish & York

Question 174

Which cases discuss the amount of punitive damage awards?

Answer 174

45 - Landmark Legal

• Trilogy - Cap on nonpecuniary damages
• Whiten v. Pilot Insurance Co. - Proportionality of awards

Question 175

Describe Whiten v Pilot Insurance Co. What was the verdict?

Answer 175

45 - Landmark Legal

• Whiten family’s house burns down. The insurer paid rent and living expenses for a couple of months before cutting off payments without notice, alleging the family had deliberately set fire to the house. No evidence of arson and this allegation was wholly discredited at trial
o Jury awards punitive damages of $1,000,000
• Ontario Court of Appeals to reduce the jury’s punitive damages award down to $100,000
• Supreme Court restores the punitive damages award on appeal
i. The jury’s award of punitive damages, though high, were within the rational limits since the insurer’s conduct was exceptionally reprehensible designed to force the insured to make an unfair settlement
ii. The insurer was under a distinct and separate obligation, in addition to the contractual obligation to pay the claim, to deal with the policyholder in good faith

Question 176

What are the requirements for punitive damage awards?

Answer 176

45 - Landmark Legal

o Generally given only where the misconduct would otherwise be unpunished or where other penalties are or are likely to be inadequate
o An actionable wrong by the defendant
o Reprehensible conduct that departs from ordinary standards of decent behaviour

Question 177

What is the key consideration in the amount of punitive damages

Answer 177

45 - Landmark Legal

Proportionality

Question 178

What is the purpose of Punitive Damages?

Answer 178

45 - Landmark Legal

i. Retribution – punish the wrongdoer
ii. Deterrence – deter the defendant and others from similar misconduct
iii. Denunciation – public condemnation of what has happened

Question 179

What are the 6 Considerations for Proportionality in punitive damage awards?

Answer 179

45 - Landmark Legal

1. Blameworthiness of the Defendant’s Conduct
   • Planned? Covered up? Deliberate? Persistence? Awareness of wrongdoing?
2. Degree of Vulnerability of the Plaintiff
   • Argues against awards in commercial situations
3. Harm or Potential Harm Directed Specifically at the Plaintiff
4. Need for Deterrence
   • Defendant’s net worth relevant only when they argue financial hardship or when lesser award would not achieve deterrence
5. Other Penalties Imposed - Both civil and criminal
6. Advantage Wrongfully Gained by the Defendant
   • Important punitive damages aren’t a way to escape consequences of conduct

Question 180

Discuss Somersall v. Scottish and York. What are the issues? What was the outcome?

Answer 180

45 - Landmark Legal

Limits Agreement between insured and underinsured tort feasor

• Basics of the Case
o The Somersall family (respondents) are seriously injured in an automobile collision, brought action against the other driver (tortfeasor), an underinsured motorist
o Insured enters into a limits agreement with tortfeasor, without notice to the insurer (appellant). The other driver would admit to liability and the respondents would not sue him in excess of his liability coverage
o Respondents sought to recover the remainder of their damages from the appellant - Tortfeasor bound by the limits agreement
• Verdict
o Motion judge ruled that a limits agreement precluded the respondents from advancing a claim against the insurer
o Ontario Court of Appeals reversed this decision, Supreme Court dismissed the insurer’s appeal
i. The limits agreement did not affect the amount the respondents were legally entitled to recover from the tortfeasor at the time of the accident
ii. Insurer’s right of subrogation did not arise until the insured had been fully indemnified

Question 181

Discuss Sansalone v. Wawanesa Mutual Insurance Company: What are the issues of this case? What was the outcome?

Answer 181

45 - Landmark Legal

Duty to Defend - Sexual Acts

• Background of the case
o L.C. sued Sansalone (insured with Wawanesa), Scalera (insured with Lloyd’s) and 3 other bus drivers and their employer, BC Transit, for damages alleged to result from sexual acts with her
• Issue: Was there a duty to defend?
o Insurers deny duty to defend because sexual conduct involved came under exclusion for “bodily injury… caused intentionally” (Wawanesa) and “… caused by intentional or criminal act” (Lloyd’s)
• Verdict
o When the injury is the natural and probable consequence of an intentional act, the intention to commit the act is the intention to cause the injury
o For duty to defend to exist, policy coverage must be possible
o Dissenting opinion: rejects argument that coverage of liability for injury that is unintended but that results from an intentional or criminal act is excluded and rejects the argument that duty to defend exists only where claims may be within coverage

Question 182

Describe the Nichols v. American Home Assurance Co. case. What was the verdict and reasons behind it?

Answer 182

45 - Landmark Legal

Duty to Defend

• Insured solicitor sues insurer for reimbursed settlement costs in a case where he is unsuccessfully sued for fraud (policy did not cover fraudulent acts)
• Ontario Court of Appeal ruling - Duty to defend is separate from the duty to indemnify
• Supreme Court reverses: The duty to defend, while broader than the duty to indemnify, does not apply to allegations clearly beyond the scope of coverage
o Duty to defend is dependent upon the duty to indemnify
• Problems that may arise from broad duty to defend
o Insurer would be obliged to defend regardless of how far outside the scope of the policy the claims may be - unfair to the pool of insureds
o To require insured to retain his own lawyer, bear the defence costs, and be reimbursed, the insurer would have no control over expense costs

Question 183

Discuss Amos v. ICBC. What was the verdict and what was the reasoning behind it?

Answer 183

45 - Landmark Legal

• Insured was shot when a gang surrounds his car while driving in California.
• Supreme Court reveres lower court and concludes injuries “arise out of” ownership, use, or operation of the vehicle
o Liability may arise from a tortious act other than negligent use of a vehicle
• Decision results from the application of two tests
1. Purpose Test – Did accident result from ordinary use of vehicle? Yes
2. Causal Test – Is there a causal relationship between vehicle use and the injuries? Yes

Question 184

Discuss why the verdict in Amos v. ICBC is not binding in Ontario

Answer 184

45 - Landmark Legal

• Supreme Court reveres lower court and concludes injuries “arise out of” ownership, use, or operation of the vehicle
• Ontario wording uses “caused by” rather than “arises out of”, thus BC decision not binding in ON

Question 185

Discuss KP Pacific Holdings Ltd v. Guardian Insurance Co. What was the outcome?

Answer 185

45 - Landmark Legal

• Insurer contends Part 5 of the BC Insurance Act dealing with Fire Polcies applies to multi-peril policies - claim filed more than a year after the occurrence of loss is denied
• Insured contends Part 2 of the act applies to multi-peril policies - allowing claims filed within one year of the proof of loss
• Supreme court reverses trial judge
o No indication legislature intended multi-peril policies to be included with fire
• Implications for multi-peril policies outside BC
o Minimal in regard to the application of the limitation period
o Significant in regard to other provisions of the fire part of insurance acts, e.g., policy cancellations and limitations on exclusions

Question 186

What are the implications of the case “KP Pacific Holdings v. Guardian Insurance Co” on multi-peril policies?

Answer 186

45 - Landmark Legal

o Minimal in regard to the application of the limitation period
o Significant in regard to other provisions of the fire part of insurance acts, e.g., policy cancellations and limitations on exclusions

Question 187

Discuss Alie v. Bertrand & Frere Construction Company Limited

Answer 187

45 - Landmark Legal

• Defective concrete requires replacement in basement of houses
• Court concludes that all primary and excess insurers that provided coverage (from 1986 to 1992) have duties to defend and indemnify
o Umbrella/excess policies that follow the form of the underlying policy and let the excess insurer participate in defense are seen as having a duty to defend and pay defense costs

Question 188

What is the Tobacco Damages and Health Care Costs Recovery Act?

Answer 188

45 - Landmark Legal

• Authorizes BC government to sue a manufacturer for recovery of health care costs
o Present value of existing and reasonably expected future expenditures
• Two requirements for recovery
o Manufacturer’s breach of duty
o Government expenditures in treating the disease

Question 189

What were the issues of British Columbia v. Imperial Tobacco Canada Ltd? What was the verdict?

Answer 189

45 - Landmark Legal

• Issues. The act is constitutionally invalid because of…
1. Extra-territoriality
o Not invalid. Strong relationship between the territory, subject matter, and persons subject to the act
2. Judicial independence?
o Not Invalid. Judicial system retains its adjudicative role and ability to exercise it without interference - independent despite unconventional rules, shifting the onus of proof
3. Offending the rule of law
o Not invalid. Constitution does not require legislation be general in character, devoid of advantages for the government, nor ensuring of a fair trail (will still receive a fair trial)

• Verdict: Court of Appeal finds the act constitutionally valid

Question 190

Discuss the Resurface Corp v. Hanke case. What were the issues? What was the verdict? Why?

Answer 190

45 - Landmark Legal

• Badly burned victim alleges manufacturer’s negligence for making gasoline and water tanks similar and placing them close together
• The trial judge dismissed the action, but the Court of Appeal ordered a new trial
o Dismissal as Hanke had not proved negligence of the manufacturer, notably due to Hanke’s own admission and application of the “but for” test
• Court of Appeal order a new trial finding the trial judge erred regarding foreseeability and causation
• Issues
1.Issue of foreseeability
o Trial judge does not need to accept all evidence but enough evidence to support his findings, concluded Hanke was not confused
o Court of Appeal can interfere only if trial judge has made a palpable and overriding error
2.Issue of Causation
o Supreme Court finds comparative blameworthiness unnecessary since operator error, not design error, was the cause
o But For test is the basic one and the material contribution test was unjustified
• But For Test – Plaintiff must show that the injury would not have occurred but for the negligent act or omission of each defendant
• Material contribution test - use if impossible to prove negligence using the “but for” test because of factors outside the plaintiff’s control; Must be clear that the defendant breached duty, exposing claimant to unreasonable risk, and the plaintiff suffered a loss
• Supreme court restored trial judgement

Question 191

Discuss Morrow v. Zhang. Background? Trial judgement? Appeal?

Answer 191

45 - Landmark Legal

• AB passed reforms for auto insurance in repsonse to an “insurance crisis”
o Minor Injury Regulation (MIR) imposed a $4,000 cap on non-pecuniary damages for minor injuries
• Case challenged the validity of cap
• Trial judge found that the cap WAS discriminatory against those suffering from minor injuries - categorized as less worthy of punitive damages
• Appeal judged reversed trial judge with two reasons
1. While legislation makes a distinction based on disability it is not discriminatory
2. When the legislative scheme is viewed in its entirety it does not infringe on the Charter

Question 192

What were the issues and conclusion in the PIPEDA Report Findings case?

Answer 192

45 - Landmark Legal

• Ontario couple with property insurance had their premiums go up considerably because the insurer used their credit information to assess underwriting risk, insured alledged credit information was used without their consent
• Privacy Commissioner of Canada finds that the use of credit score to assess underwriting risk is appropriate under PIPEDA
• Concerns
o Credit had been collected for one purpose and used for another
o Consent given was not meaningful consent as required by PIPEDA
o Notice sent by insurer to policyholders was inadequate (Said “may” use credit score)
o Website information insufficient
• Conclusions
o Consent must be meaningful, i.e., transparent in regards to collection and use

Question 193

Does credit score violate PIPEDA?

Answer 193

45 - Landmark Legal

The use of credit score to assess underwriting risk is appropriate under PIPEDA

Question 194

List the Issues for Aviva Canada v. Pastore.

Answer 194

45 - Landmark Legal

1. The Standard of Review
2. Is a Class 4 (marked impairment) in only one function sufficient for a catastrophic impairment?
3. Was it necessary to remove from consideration all physical sources of pain in conducting assessment?

Question 195

Discuss Aviva Canada v. Pastore. Background? What was the Arbitrator decision? Director’s delegate? Divisional Court? Court of Appeal?

Answer 195

45 - Landmark Legal

• Background of the Case
o Claimant sustained personal injuries in a motor vehicle accident
o Designated Assessment Center (DAC) determined she was catastrophically injured based a Class 4 impairement in one of the four functional areas
• Arbitrator accepted the assessment of Class 4 impairment in just on functional area
• Director’s delegate dismissed the appeal - not his role to determine
• Divisional Court set aside arbitrator’s decision
o Delegate erred in not taking a contextual reading of SABS and guidelines
o Delegate acted outside mandate in not separating physical pain from and mental disorders
• Court of Appeal restored original decision, issues were
1. Standard of Review - Decision should be reasonable (logical, transparent, and intelligble)
2. Is a Class 4 impairment in only one function sufficient for catastrophic impairment?
o Held delegate’s interpretation was reasonable and divisional court did not have reasoning from “Kuznierz”
3. Was it necessary to remove from consideration all physical sources of pain?
o Held that SABS require multi-disciplinary be used when difficult to determine - cumulative approach could be taken

Question 196

Discuss Kusnierz v. Economical Mutual Insurance Co.

Answer 196

45 - Landmark Legal

• Trial judge found
1. SABS were against combining physical and psychiatric impairment
2. Not permissible to assign percentage values to mental and behavioural disorders
• Ontario Court of Appeal unanimously disagreed with trial judge’s conclusion and reasons for it
1. Found Guides supported the combination of physical and psychiatric injuries allowing quantification of mental and behavioural injuries where necessary - combining promoted fairness and objectives of statutory scheme
2. Although Guides warns against assigning percentage values to non-neurological psychiatric impairments, combination still possible
• Conclusion: Appellant’s impairment meets the definition of catastrophic

Question 197

Why will residual exposure occur even if asbestos is banned?

Answer 197

06 - AAA Mass Torts

1. Previously manufactured asbestos-containing products that have not been replaced or discarded
2. Dust or other waste in environment from previous use or incomplete disposal of those products
3. Erosion of naturally occurring deposits in asbestos containing rocks

Question 198

Why defense costs for asbestos may increase in the future

Answer 198

06 - AAA Mass Torts

1. Multiple defendant cases typical, and defense is no longer handled on a joint basis
2. Peripheral defendants incurring significant discovery costs as they work to understand their exposure
3. Many defendants have abandoned settlement strategies
4. Coverage disputes between defendants and their insurers as well as between insurers and their reinsurers may increase

Question 199

Concerns of seriously injured asbestos claimants

Answer 199

06 - AAA Mass Torts

• Due to short life expectancy, need for quick resolution of their claims which is often difficult
• High transaction costs diminish the funds available to meet this group’s greater needs
• As defendants become bankrupt, compensation may not be available to those who develop serious illnesses in future years
• Nonmalignancy claims may exhaust funds available for more serious asbestos-related diseases

Question 200

Concerns of non-seriously injured asbestos claimants

Answer 200

06 - AAA Mass Torts

• If they do not proceed with a lawsuit today…
o a statute of limitations issue may prevent them from being eligible for more serious conditions that may develop later
o concern that compensation will be depleted by claims happening now
• Group faces future health uncertainty and continuing expenses for ongoing medical monitoring

Question 201

Concerns of major asbestos defendants

Answer 201

06 - AAA Mass Torts

• Allege they cannot get a fair trial in state court
• Concerned that consolidation of seriously injured and non-seriously injured claimants may result in disproportionately high awards to the non-seriously injured
• Concerned that it is paying awards that should be funded, at least partly, by other parties
• Concerned that uninjured plaintiffs are being compensated
• Concerned that the current system is prohibitively expensive
• Want to achieve finality, putting the consequences of past business practices behind them

Question 202

Concerns of peripheral asbestos defendants

Answer 202

06 - AAA Mass Torts

• Some believe that the asbestos in their product was encapsulated
• Concerned that it will take on a share of liability that should be borne by bankrupt companies
• Unfair to hold them accountable for the same knowledge of health risks as major defendants
• Concerned about the “geographical convenience” of where claims are filed
• Contend courts often fail to require objective evidence to evaluate the credibility of claims
• Concerned they are held responsible for liability that should be borne by non-U.S. companies
• Defense expenses are considerably higher for peripheral defendants relative to plaintiff awards
o Naming a peripheral defendant in a suit is very low cost, nearly impossible to be dismissed without incurring significant costs
o Often pay to settle lawsuits, even when they do not believe they are liable, because the risk of being subjected to an adverse judgment
• Want to achieve finality, putting the consequences of past business decisions behind them

Question 203

Concerns of insurers/reinsurers of asbestos defendants

Answer 203

06 - AAA Mass Torts

• Concerned about the interpretation of its contracts and the possible liabilities that may be imputed to them which they never intended to insure.
• Concern regarding settlements with claimants who currently have no clearly identifiable injury
• Concerned with claimants who may not be able to establish product identification
• Want predictability of financial results and finality to quantifying their expected liabilities

Question 204

What is a federal reform targetting asbestos litigation? What are the concerns?

Answer 204

06 - AAA Mass Torts

• FAIR Act proposed to establish no-fault trust fund from which claimants meeting asbestos exposure and medical criteria are compensated
• Funded with $140 billion from corporate defendants, insurers, and existing bankruptcy trusts
• Concerns
o How many claims of various disease types will be filed?
o Will medical criteria appropriately identify victims?
o Are proposed awards appropriate?
o Is funding adequate?
o Will the allocation of funding to contributors be fair?
o Should the federal government contribute?
o Will it be operated efficiently?
o Will it withstand constitutional challenges?

Question 205

State reform initiatives for asbestos litigation

Answer 205

06 - AAA Mass Torts

• Inactive dockets - preserve the right of those who do not currently meet the specific medical criteria to pursue litigation in the future
• Medical criteria statutes – claimants must satisfy certain medical criteria to bring a claim
• Restrictions of Case Consolidation and Venue Rules
• Other state reforms include: limiting successor liability, innocent sellers, and caps on punitive damages

Question 206

List the changes in the litigation environment since 2001 in regards to asbestos claims

Answer 206

06 - AAA Mass Torts

1. Some jurisdictions restrict nonmalignancy claims or the extent of multiple-claimant lawsuits
2. Venue reform and joint and several liability reform in some states
3. Challenges the validity of some chest X-rays used to justify nonmalignancy claims
4. The number of new nonmalignancy claims decreased significantly

Question 207

What is the rule of Joint & Several Liability?

Answer 207

08 - ATRA Tort Reform

• Theory of recovery that permits plaintiff to recover damages from multiple defendants collectively, or from each defendant individually
• Increases efficiency - if parties were to pay on a proportional basis, may result in more trials

Question 208

American Tort Reform Association (ATRA) suggested changes to the Joint & Several Liability rule:

Answer 208

08 - ATRA Tort Reform

o Repeal in favour of rule of proportionate liability
o Bar application of joint and several liability for general (non-economic) damages
o Bar recovery from defendants who are less than a certain percentage at fault (ex. 25%)

Question 209

What is the Collateral Source Rule

Answer 209

08 - ATRA Tort Reform

• Common law rule that says evidence may not be admitted at trial to show that plaintiffs’ losses have been compensated by other sources
• This allows frequent double-dipping

Question 210

What are Punitive Damages? Is there an emerging trend?

Answer 210

08 - ATRA Tort Reform

• Awarded not to compensate plaintiff, but to punish the defendant for intentional or malicious actions and to deter future similar conduct
• Trends
o Frequency and size of payments has increased greatly
o Difficulty predicting whether punitive damages will be awarded

Question 211

ATRA is recommending 4 reforms to Punitive Damages. List the recommended reforms.

Answer 211

08 - ATRA Tort Reform

1. Establish liability trigger based on actual malice
2. Require clear and convincing evidence
3. Requiring proportionality in awards
4. Enact federal legislation to address problem of multiple punitive damages awards

Question 212

What are Non-Economic Damages? What is an issue with them

Answer 212

08 - ATRA Tort Reform

• Damages for pain & suffering, emotional distress, loss of consortium or companionship, and other intangible injuries
• Awards are often erratic and excessive - due to difficulties assigning a dollar value, emotional environment, and the lack of guidance given to juries

Question 213

What does ATRA believe to be the single greatest contributor to the inequities and inefficiencies of the tort liability system?

Answer 213

08 - ATRA Tort Reform

ATRA believes that the broad and basically unguided discretion given to juries in awarding damages for noneconomic loss is the SINGLE greatest contributor to the inequities and inefficiencies of the tort liability system

Question 214

What is prejudement interest? List 3 Pros and Cons

Answer 214

08 - ATRA Tort Reform

• Interest paid on the delay from the time when the incident occurred to when the plaintiff received settlement
• Pros
o Compensate plaintiffs fully
o Encourages early settlements 
o Reduces delay in payments
• Cons
o Hold defendant responsible for delay even if not responsible
o Produce overcompensation
o Impede settlement

Question 215

What does the American Tort Reform Assocation recommend to reform prejudgment interest

Answer 215

08 - ATRA Tort Reform

Interest rate indexed to treasury bills at the time claim was filed

Question 216

What are Class Action Suits. What has been the emerging trend in Class Action Suits?

Answer 216

08 - ATRA Tort Reform

• Tool that aggregates cases with similar facts or complaints into a single action
• Problems - seen now as a means of defendant extortion and are often ineffective
o Meritless cases with millions of plaintiffs granted class status without notifying defendant
o Awards are paid mainly to the attorneys

Question 217

What is Appeal Bond Reform?

Answer 217

08 - ATRA Tort Reform

• When appealing a verdict, have to post an appeal bond sometimes equal to 105% of verdict
• Appeal of huge verdict (millions of dollars) can force bankruptcy
• Appeal bond waiver limits the size of appeal bond when company is not liquidating its assets or attempting to flee from justice

Question 218

What is a trend in Jury Service? What does ATRA suggest for reform?

Answer 218

08 - ATRA Tort Reform

• Difficult for working people to serve on juries, results in the exclusion of people who understand complexity of the issue
• ATRA suggested reforms
1. Eliminating occupational exceptions
2. Ensuring only those who experience true hardship are excused
3. Providing jurors flexibility in scheduling their service and limit time at court per day
4. Protecting employees from any adverse action in the workplace due to jury duty
5. Establishing trial fund to pay jurors who serve long civil trials

Question 219

Compare the Canadian tort litigation environment to Australia’s.

Answer 219

37 - Harris Tort Reform Tension

• Australia had extensive tort law reform in 2003
o Changes involved 3 main areas: establishing liability, clarifying damages and undertaking procedural reforms

• Canadian provinces have not actively looked into tort reform
o Industry sees reform as long overdue and necessary to produce stable and predictable markets

Question 220

Compare the Canadian tort litigation environment to the United States’

Answer 220

37 - Harris Tort Reform Tension

• Trial lawyers see less problems in Canada than the US - oppose changes that prevent full compensation
• Unlike the USA, Canada already has caps on non-economic damages, and punitive damages are much less in Canada then the US

Question 221

What are the current issues with Canada’s Tort system?

Answer 221

37 - Harris Tort Reform Tension

Reforms sought in:
• Joint-and-several liability
• Collateral source rule - allows potential double recovery
• Use of net income to determine damages - currently damages for loss of income are based on gross income
• Vicarious liability - imposes criminal liability on employees and organizations for negligent conduct
• Antiquated statutory language
• Requirement of structured settlements in cases of future care or future income loss
• Elimination of prejudgment interest on general damages
• Prejudgment interest on pecuniary losses from date claimant notifies defendant
• Eliminate class action lawsuits
• Sanctions on frivolous lawsuits

Question 222

Why is reform needed for Joint-and-Several Liability? What reforms are suggested by Harris?

Answer 222

37 - Harris Tort Reform Tension

• Companies often settle to avoid paying full amount, even if they believe they are not at fault
• Oppose applicability for non-economic damages
• Proposed reforms include establishing funds and proportional liability

Question 223

What are 2 issues with vicarious liability?

Answer 223

37 - Harris Tort Reform Tension

1. Leasing car company shouldn’t be responsible for accident
2. Some suggest standards for determining vicarious liability are not set high enough

Question 224

What compensation issues does the RAND study examine?

Answer 224

63 - Rand Asbestos

o Payments coming from trusts and from tort defendants are not explicitly coordinated
o Dual recovery for the same injury is possible

Question 225

What are 4 ways in which trusts and tort cases can be linked?

Answer 225

63 - Rand Asbestos

1. Information Sharing - seldom required to file trust claims before trial; potential double recovery
2. Setoffs - only 4 of the 6 states allow setoffs for all trust payments that occur during the tort case
3. Indirect Trust Claims
   o In joint-and-several liability states: a defendant that pays a full tort will usually be able to recover from a trust
   o In several liability states: defendant would not cover the liability of other parties and thus would not typically be able to bring a claim against a trust
4. Limitation on Trust Payments
   o Some trusts prohibit payments when another party has satisfied the trust’s liability
   o Some trusts require the direct claimant to indemnify the trust for future indirect claims

Question 226

Handling trust claims differently can lead to differences in total compensation to plaintiffs. What are the differences?

Answer 226

63 - Rand Asbestos

• Plaintiffs
o In states with joint-and-several liability, the total compensation to plaintiffs shouldn’t change
o In several liability states, the payments could be more, less, or the same as what they would have been before trusts were established.
• Defendants
o When trusts replace once-solvent defendants in joint-and-several-liability states, payments by solvent defendants will likely increase
o In several-liability states, payments by solvent defendants can increase or remain unchanged, depending on fault assigned to bankrupt firms.