Registered Insurance Brokers of Ontario (RIBO) Practice Exam

In the event of an insured party going bankrupt, is the insurer liable to pay the trustee for a loss that occurs shortly after?

1. No, the insurer is not liable

2. Yes, but only after a review

3. Yes, the insurer is fully liable under statutory conditions

4. Only if the bankruptcy was voluntary

The correct answer is: Yes, the insurer is fully liable under statutory conditions

The correct choice is based on the principles of contracts and insurance law. When an insured party goes bankrupt, any loss that occurs while the insurance policy is active typically falls under the terms of that policy, including statutory conditions. Insurers are generally responsible for honoring claims as stipulated in the insurance contract, which includes covering losses that occur before the bankruptcy is declared. In many jurisdictions, statutory conditions provide protections that ensure that the insurance policy remains valid for losses incurred prior to the bankruptcy. This means that as long as the loss is covered under the policy and the premium payments were up to date before the bankruptcy, the insurer holds liability to compensate the trustee for the losses, protecting the rights of creditors and ensuring that the policy's benefits are duly applied. Considering the other options, some may imply circumstances or conditions under which liability might not apply or might require discretionary review, which does not align with the statutory obligations typically present in these cases. In particular, factors such as the nature of the bankruptcy (voluntary versus involuntary) do not generally alter the insurer's obligation to cover losses sustained while the policy is in effect.