Introduction to Property Insurance and the Insurance Contract
The foundation
Property insurance transfers the financial consequences of damage to or loss of property from the insured to the insurer. Candidates must be fluent in the elements of a valid contract - offer, acceptance, consideration, legal capacity, and lawful purpose - and in the doctrines that distinguish insurance from ordinary contracts: utmost good faith, indemnity, insurable interest, subrogation, and proximate cause.
A property policy is a contract of adhesion: the insurer drafts, the insured accepts or rejects. Ambiguities are generally construed against the drafter (contra proferentem), but clear wording is enforced as written. The declarations identify parties, property, limits, and term; the insuring agreement states the promise; conditions set out duties of both parties; exclusions remove specified perils or property; definitions control meaning throughout.
Traps to watch
- Confusing misrepresentation (false statement that induced the contract) with concealment (silence about a material fact) and breach of warranty (failure of a stated condition).
- Assuming waiver or estoppel applies when the insurer merely investigates a claim; the reservation-of-rights letter is the classic exam point.
- Forgetting that a policy may be void versus voidable - void means no contract ever existed.
Rule of thumb
When a fact question arises, ask three things in order: was the fact material to the insurer's decision, did the insured know it, and did the insurer rely on it? If all three are yes, expect a remedy in the insurer's favour.
Worked example
An applicant states a building has a working sprinkler system when it does not. The insurer issues a policy at a preferred rate and later suffers a total fire loss. Because the misstatement was material and relied upon, the insurer may seek to rescind; the insured cannot rely on the agent's failure to verify, since the duty of disclosure rests with the applicant.