Chapter 9 - Indemnity LO8

Question 1

What is contingency insurance

Answer 1

Insurers agree to pay specified sum when particular event happens (non-indemnity) e.g life insurance

Question 2

Can a person with limited interest in a subject matter recover more than the actual loss

Answer 2

Yes, e.g a bailee of goods - if they do they hold insurance money in excess of their own actual loss for others who have an interest in the property

Question 3

Property insurance - Indemnity

Answer 3

determined by value at the date of loss and place rather than its cost

Only financial value of subject matter

Question 4

Indemnity for buildings

Answer 4

Cost of repair, reconstruction cost at time of loss, deductions for betterment

Question 5

Betterment

Answer 5

1. Building is repaired e.g new roof , = increase value of property - insurer not liable under basic indemnity policy
2. Quality of building improved by carrying out repairs e.g sprinklers added - insurer is not liable under basic indemnity policy

Question 6

Machinery and Equipment - indemnity

Answer 6

• Cost of repair less wear and tear
• If repair not possible, the cost of replacement less wear and tear

Replacement: 2nd hand market looked at, if not possible then insurer obliged to buy new one

Question 7

Manufacturers stock Indemnity

Answer 7

Raw materials, finished stock
Indemnity based on cost at time and place of loss, replace the goods or return to condition before they were destroyed

Replacement includes delivery cost to site

Raw materials + labour costs

Question 8

Wholesale and retail stock - indemnity

Answer 8

Cost at the time of loss of replacing the stock including transport and handling costs

Question 9

If stock is obsolete (wholesale / retail)

Answer 9

Market price is likely to be appropriate basis of indemnity

Question 10

Live stock indemnity

Answer 10

LIVE STOCK: Normal market price on basis of indemnity - no potential profit from sale

Question 11

Farming stock indemnity

Answer 11

Replacement cost = selling price of the day

Question 12

Pecuniary insurance

Answer 12

Covers various types of financial losses: BI, credit

Question 13

Trends clause

Answer 13

Assessing how much should be awarded for loss of revenue

Question 14

Liability indemenity

Answer 14

Amount of any court awarded or negotiated out of court settlement plus costs and expenses in relation to claim

Question 15

Marine insurance indemnity

Answer 15

Unvalued policy: indemnity = insurable value = value of subject matter @ inception -> recoverable event of total loss

Partial loss: ship = cost of repairs, if not fixed the the value of depreciation

Question 16

Which type of insurance may indemnity be more than limit?

Answer 16

Liability insurance due to extra incurred costs from making the claim

Question 17

What is Average clause

Answer 17

When sum insured is less than full value

Average cannot be applied to household contents unless there is expressed clause

Question 18

Average formula

Answer 18

(SI @ time of loss x amount of loss) / value @ time of loss = insurer liab

Question 19

Cover on reinstatement basis

Answer 19

Insurers pay sum = to cost of rebuilding or replacing property to condition = or same

No deductions made for wear and tear

Insured has will not benefit from reinstatement unless they rebuild property in question

Question 20

What is reason for reinstatement clause

Answer 20

Restrict the cover to simple indemnity (allowing wear and tear deductions) unless rebuilding has commenced

Question 21

what can reinstatements be applied to

Answer 21

Buildings and to plant, machinery and other contents

Question 22

New for old cover

Answer 22

Associated with household goods and personal possession, and personal ‘all risk’ policies

Question 23

Agreed value cover

Answer 23

Value is pre agreed if total loss e.g antiques

Question 24

What is Elcock principle (partial loss)

Answer 24

Agreed value disregarded, settlement based on cost of repairs like unvalued = FOR MARINE POLICIES

Question 25

Statutory reinstatement - Fires prevention (metropolis) act 1774

Answer 25

Claims / reinstatement must be paid as much as they can if damage from fire by:
- Fraud or arson by the insured
- upon request of any person interested in the buildings

Question 26

Abandonment

Answer 26

Marine insurance: Once insured been paid for total loss insurer can claim any remains of subject matter

Question 27

Salvage

Answer 27

The insurer to take over subject matter

Question 28

Constructive total loss

Answer 28

When subject matter is damaged or insured is deprived of possession of their ship or goods but subject matter not destroyed

• Unlikely insured can recover the ship or goods
• damage to ship, repair cost would exceed value of ship
• damage to goods, cost of repair exceed value at arrival

Question 29

What notice should there be in Constructive total loss

Answer 29

Insured must serve notice of abandonment on the insurers if they wish to be paid for the loss

Question 30

Notice of abandonment (marine)

Answer 30

• Within reasonable time
• written form advisable
• Without notice of abandonment insured can claim for partial loss but lose right for to claim for total loss