Registered Insurance Brokers of Ontario (RIBO) Practice Exam

If a claim occurs due to a loss under an insurance binder before a policy is issued, what will the insurer do?

1. Refuse to pay the claim

2. Pay the claim according to the coverage bound

3. Provide a reduced claim amount

4. Reissue the policy immediately

The correct answer is: Pay the claim according to the coverage bound

The insurer will pay the claim according to the coverage bound because an insurance binder is a temporary contract that provides provisional coverage until the formal policy is issued. This binder creates an obligation for the insurer to cover claims that occur during its validity. It indicates the terms of coverage that were agreed upon, and if a loss occurs while the binder is in effect, the insurer is liable to honor that coverage and pay claims as if the policy were issued. This situation highlights the principle that the insurance binder acts as a commitment to provide coverage up until the formal policy documentation is finalized. Other options would not align with the expectations and legal implications associated with insurance binders. For instance, refusing to pay the claim or providing a reduced claim amount would disregard the intent and obligation created by the binder. Similarly, reissuing a policy immediately would be unnecessary if the coverage is already established through the binder.