chapter 5 Flashcards
The formula for calculating each
insurer’s proportion of the loss is:
independent liability/
total of independent liabilities × loss
What is the difference between indemnity and non-indemnity insurance?
Indemnity insurance aims to restore the insured to their financial position before the loss, whereas non-indemnity insurance pays a fixed sum regardless of the actual loss (e.g., life insurance).
What is subrogation, and why is it important in insurance?
Subrogation allows the insurer to step into the shoes of the insured after a claim is paid and recover costs from a third party responsible for the loss.
How does contribution work in insurance claims?
Contribution applies when more than one policy covers the same loss. Each insurer pays a proportionate share of the claim based on their policy limits.
What is the “new for old” principle in insurance?
The “new for old” principle means that the insurer replaces damaged or destroyed property with new items without deducting for wear and tear, often found in household policies.
What is the significance of the Leppard v Excess Insurance Co Ltd (1979) case?
This case reinforced the principle of indemnity, ruling that the insured could only recover the actual value of the property at the time of loss, not its replacement value.
How does the principle of contribution differ from subrogation?
Contribution involves sharing the loss between multiple insurers, whereas subrogation allows the insurer to seek reimbursement from a third party after paying a claim.
What are agreed value policies, and how do they differ from indemnity policies?
Agreed value policies set a fixed payout amount for losses (e.g., for classic cars), whereas indemnity policies pay based on the actual financial loss up to policy limits.
What role does average play in underinsurance?
The average clause reduces the payout in proportion to the underinsurance. If the insured undervalues their property, they will receive a lower proportion of the claim.
How is proximate cause linked to indemnity claims?
Proximate cause determines whether the loss was directly caused by an insured peril, which is necessary for the insurer to indemnify the policyholder.
What is the measure of indemnity in property insurance?
The measure of indemnity is the method used to calculate the amount payable in a claim, which could be based on the cost of repair, replacement, or actual cash value.
What is the relevance of Garnat Trading & Shipping (Singapore) Pte Ltd v Baominh Insurance Corp (2011)?
This case reinforced the concept that insurers are entitled to subrogation rights only after the insured is fully indemnified for their loss.
How does the Insurance Act 2015 address warranties in indemnity policies?
The Act prevents insurers from avoiding claims for breach of warranty unless the breach could have increased the risk of the loss that occurred.
What is the significance of ex-gratia payments in claims handling?
Ex-gratia payments are discretionary payments made by insurers, even when there is no legal obligation to do so, often to preserve customer relationships.
What is the purpose of underinsurance provisions in indemnity policies?
Underinsurance provisions penalize the insured for not insuring the full value of their property, often through the application of the average clause.
