It\nis an understatement to say that insurance is part of our lives. Life\ninsurance, disability insurance, home insurance, automobile insurance and\nthird-party insurance\u2014they are all part of a major economic activity that gives\npeace of mind to policy holders, who, in return, pay a premium on a monthly,\nannual or other basis. Insurance is therefore a private contract that binds\nboth the insurer and the policy holder. In this article, we will provide an\noverview of the main rules that apply to insurance.<\/p>\n\n\n\n
As\nan uncertain event in the future, a risk is the rationale for insurance. Death,\ndisability, water damage, theft and accidents are all examples of risks that an\ninsurer can agree to cover. Insurance is therefore an aleatory contract: Neither\nparty knows in advance whether the insured risk will occur or not. Most of the\ntime, it does not occur, and the insurer will pocket the premium without having\nto pay anything in return. However, sometimes the risk can materialize just\nonce in a lifetime and be worth many times the premium paid during the coverage\nperiod. The insurer must therefore carefully assess the risk during the formation\nof the contract and when setting the premium that the policy holder will pay.\nTo do so, the insurer must be able to rely on the policy holder\u2019s declarations:\nIt is inconceivable that the insurer would be required to investigate all the\ninformation and details related to a given risk. That would be an odd way to\nestablish a contractual relationship.<\/p>\n\n\n\n
Since\nthe insurer must be able to rely on the policy holder\u2019s disclosures, the law\nrequires the policy holder to disclose, \u201call the facts known to him which are\nlikely to materially influence an insurer in the setting of the premium, the\nappraisal of the risk or the decision to cover it[1]<\/a>\u201d.\nIn practice, the insurer often tells the policy holder what they want to know\nby asking questions about the matter in an interview or questionnaire. However,\nthe policy holder\u2019s legal duty does not stop there: He or she must go beyond\nthe questions asked because the contract is said to be made in the \u201cutmost good\nfaith\u201d. Policy holders must use their judgment and act as a normally prudent,\ndiligent policy holder who is concerned about the well-being of others. They\nshould put themselves in the insurer\u2019s shoes for a few moments and ask\nthemselves: \u201cIf I were the insurer, would I like to know such and such?\u201d The\noutdated feature of a building, involvement in an activity with significant\nrisks and behavioural antecedents are examples of facts that will interest the\ninsurer when entering into a contract. When in doubt, the policy holder should\ndisclose as much information as possible; otherwise, an omission could be held\nagainst him or her later and have significant consequences.<\/p>\n\n\n\n In\nthe case of damage insurance (e.g., home insurance), the policy holder has a\nduty to disclose if there is an increase in risk, not only at the time of\nentering into the contract but also at any time thereafter. For example, a\npolicy holder who will now use part of their home for their professional\nactivities must inform their insurer about it. The same goes for someone who\ndecides to use an artisanal smokehouse adjoining his or her residence and thereby\nincreases the risk of fire.<\/p>\n\n\n\n In\npractice, failure to disclose is often not discovered until many years after\nentering into a contract. The luckiest policy holders will notice this before an\nevent occurs, for example during a visit from an inspector appointed by the\ninsurer or a meeting with an insurance agent or broker. When the insured risk\nmaterializes, the insurer must in principle pay the insurance benefit agreed\nupon in the contract. However, if they notice that certain circumstances\nunknown to them were present when the risk materialized, the insurer could\nrefuse to pay the full amount, arguing that if they had known, they would have\nrequired higher premiums. This is referred to as a proportional reduction of\nthe insurance benefit in relation to the premium collected. Thus, if the\ninsurer establishes that, in the circumstances, the premium paid would have\nbeen double, then they can pay only half of the agreed benefit.<\/p>\n\n\n\n If\nthe insurer shows that they would never have insured the risk if the fact that\nwas unknown to them had been disclosed, or if they prove that the policy holder\nwas in bad faith, then the insurer can claim that the insurance contract is invalid,\nwhich means a total lack of coverage. The insurer must then offer to reimburse\nall the premiums collected during the term of the contract, but for the policy\nholder, this is often just a consolation prize. <\/p>\n\n\n\n In\nthe case of personal insurance (e.g., life insurance, disability insurance), with\nsome exceptions and provided that the contract has been in force for at least\ntwo years, the contract can only be invalid when the policy holder commits\nfraud, which implies an intention to deceive the insurer and claim insurance\nbenefits. It is also all or nothing: Proportional reduction is not a potential\noption for personal insurance.<\/p>\n\n\n\n In\ninsurance law, many disputes are related to the policy holder\u2019s duty to\ndisclose. However, the following other aspects deserve attention.<\/p>\n\n\n\n When\nthe insured risk materializes, the policy holder must report it to his or her\ninsurer without delay. This is a fundamental duty, and failure to fulfill it\ncould result in the partial or total loss of the policy holder\u2019s entitlement to\nthe indemnity payment if the insurer is adversely affected. This will be the\ncase when it prevents the insurer from investigating or intervening to prevent\nfurther damages.<\/p>\n\n\n\n Why\nis the insurer so determined to investigate? An investigation could reveal\nbreaches of the duty to disclose or that a policy exclusion applies, and the\ninsurer will therefore not have to pay. Furthermore, the insurer is never\nresponsible for a fault of the policy holder. Third parties may also be liable\nfor the event, and the insurer could take action against them. <\/p>\n\n\n\n The\npolicy holder has the duty to cooperate with this investigation, again in a\nmanner worthy of the utmost good faith. The policy holder must therefore\n\u201cinform the insurer as soon as possible of all the circumstances surrounding\nthe loss, including its probable cause, the nature and extent of the damage,\nthe location of the insured property, the rights of third persons, and any\nconcurrent insurance; he shall also provide the insurer with vouchers and\nattest under oath to the truth of the information[2]<\/a>\u201d.\nAny misrepresentation could result in the policy holder losing his or her full\nor partial entitlement to the insurance benefit.<\/p>\n\n\n\n The\ninsurer, unless it can establish a valid reason for a denial, must pay the\nagreed amount to the policy holder within sixty days of receipt of the\ninsurance claim or, if they made a request, of relevant information and\nsupporting documents. <\/p>\n\n\n\n If\nthe insurer denies a claim, the policy holder should contact<\/a> a lawyer right away to\nlearn about his or her legal options. Similarly, if specific incidents occur\nduring the contract, it is not a bad idea to consult a lawyer and gain a\nclearer picture before the risk materializes. \n [1]<\/sup><\/a> Article 2408 of the\nCivil Code of Qu\u00e9bec<\/a><\/p>\n\n\n\n [2]<\/sup><\/a> Article 2471 of\nthe Civil Code of Qu\u00e9bec<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" It is an understatement to say that insurance is part of our lives. Life insurance, disability insurance, home insurance, automobile insurance and third-party insurance\u2014they are all part of a major economic activity that gives peace of mind to policy holders, who, in return, pay a premium on a monthly, annual or other basis. Insurance is […]<\/p>\n","protected":false},"author":1,"featured_media":922,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[33],"tags":[],"class_list":["post-926","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cat-insurance-law"],"acf":[],"yoast_head":"\nConsequences\nof the Failure to Disclose<\/h2>\n\n\n\n
Rights and\nDuties Following an Event<\/h2>\n\n\n\n
Disputes<\/h2>\n\n\n\n
<\/p>\n\n\n\n
\n\n\n\n