Legalese: How to stay covered

Insurance is a big part of our world. We purchase it to protect our homes, our vehicles, our health, our lives, our personal property, and anything else that is valuable. For many people, their insurance contracts exist as a safety net: they make their monthly premium payments and never have make a claim. But what if disaster strikes and you need to make a claim? This month I will take a look at insurance contracts in general and some common issues that can arise between insurance companies and their customers.

From the moment you walk into the office of an insurance broker to buy an insurance policy, your obligations begin. The first obligation is called the duty to disclose. The insurance company is at a disadvantage when it comes to knowledge about your personal situation. There is a duty of good faith on the insured (you), whether that is you or your company, to disclose all relevant information about material risks. Failure to live up to this duty to disclose can result in your policy being invalidated down the road, leaving you with no coverage.

For example, if you are purchasing insurance for your home, but you fail to disclose that you regularly do welding work in your garage, that activity could be considered a material risk that you should have disclosed. If a fire breaks out in your garage and the house burns down, the insurance company may decline coverage once it discovers your hobby of welding. Of course, in order to do this, you must know what might constitute a risk in the eyes of the insurance company. Inviting a representative out to your shop for a look around might be a good idea.

In the rental business, this becomes even more important. The elements of risk facing an insurer of a rental business are numerous and varied. It is extremely important that your insurer know as much as possible about your business and the risks being faced.

From a practical perspective, it is always a good idea to keep as much as you can in writing. Rather than simply calling your insurance person and telling them something (for example, that you purchased a new piece of equipment), send them an e-mail and print the e-mail. That way, if there is ever a disagreement about what was said and/or agreed to, you will be able to prove that you disclosed the risk.

Let’s assume you have fulfilled your obligations to disclose material facts and that you are covered by your policy of insurance. What happens when you suffer a loss and need to make a claim? You will need to file a proof of loss with your insurance company outlining exactly what loss you have suffered.

It is very important that this be done as soon as possible. Most insurance policies contain a limitation period for the filing of the proof of loss. So if you delay, you may run out of time and you won’t be covered for your loss.

Being prompt in filing your claim is also important in the event that your claim is eventually denied. If your insurer denies your claim for what you believe to be unjustified reasons, it may become necessary to sue the insurer. There are limitation periods for such a lawsuit. They vary from province to province. If you delay in filing your proof of loss, and the insurance company is slow in responding with a rejection, you may already be out of time to sue your insurer.

It is incredibly important that you fill out your proof of loss with impeccable precision and honesty. Most policies of insurance will allow an insurer to deny coverage of the entire claim, in the event that you misrepresent even the smallest of things listed on the proof of loss. So if your business has 30 Bobcats and your business sustains a total loss by theft, and you claim in the proof of loss that 32 Bobcats were stolen, your insurer may take the position that it can deny your entire claim and pay you nothing.

When claiming for the loss of property, there are three different methods for valuing the lost property. The first is by actual cash value. This is the most common approach. You report the initial cost of the goods and calculate the depreciated value. For example, you may have lost a five-year-old big screen TV. It cost $6,000 when you originally bought it, but its actual cash value at the time of loss may have only been $1,000. This actual value is how much you would be compensated under your policy.

Or, your insurance policy may work on replacement cost. The lost item is simply replaced. An example of this would be cement front stairs to a home. They are in fine shape but have been damaged. The insurance company should give you the cost of replacement stairs, not a depreciated value of the concrete.

Finally, there is a valued policy. This is the least common approach. It is generally seen on rare items, such as fine art. An example would be a valuable painting that is several hundred years old. Obviously it cannot be calculated on an actual cash value. Instead, an appraiser will assess the value for the policy, and that will be the amount the painting is insured for.

The issue of insurance is often not paid enough attention. Spending the appropriate amount of time and energy to ensure that your insurance needs are covered is important, particularly in the rental business.

Deryk Coward articled with D’Arcy & Deacon in 1996 and was called to the Manitoba bar in June of 1997. He is a partner with the firm, practising primarily in the area of general civil litigation, personal injury, insurance, debtor-creditor and labour and employment law. Coward is legal counsel for the Canadian Rental Association.