Chapter 9- Measuring The Loss

Question 1

What are most types of general insurances i.e. property pecuniary and liability insurances including motor, Marine and aviation

Answer 1

Indemnity insurances

Question 2

What are non-indemnity (or contingency) insurances

Answer 2

Where insurers agree to pay specified sum when a particular defined event occurs i.e. like life insurance

Question 3

What’s sort of Policies are accident and sickness insurances

Answer 3

Non-indemnity insurances

Question 4

What does the concept of indemnity imply

Answer 4

That the object of insurance it with exact financial compensation and they shouldn’t make a profit on their loss

Question 5

What happens if insured is tempted to bring his loss deliberately in order to improve their financial position

Answer 5

It introduces an extra element of moral hazard

Question 6

How can a claimant be able to recover a sum greater than the actual loss

Answer 6

Is there a person with a limited interest in the subject matter such as a Bailee of goods. However they hold the insurance money in excess of their own actual loss for others who have interest in the property

Question 7

How can a claim under the policy indemnity also be described as

Answer 7

A claim for a Unliquidated damages

Question 8

What are unliquidated damages

Answer 8

Where the exact amount of a compensation is not known in advance but should be fixed afterwards on the basis of a loss actually suffered

Question 9

What is the general rule or property insurance indemnity

Answer 9

The loss of any property is determined not by its cost but its value at the date of loss and at the place of a loss

Question 10

What happens under property insurance indemnity policy is if the value has increased during the policy

Answer 10

The insured is therefore entitled to an indemnity on the basis of increased value subject of course to the adequacy of the sum insured

Question 11

What happens on the property insurance if the value has decreased during the period of insurance

Answer 11

Be sure to recover only the reduced value at the time of the loss not the original value

Question 12

What happens under a claim for property insurance

Answer 12

The policyholder can we cover only the amount of the value of the property itself they can’t claim for loss of prospective profits or other consequential losses unless this is specifically insured

Question 13

What happens if a property is destroyed by fire can insured recover under their fire policy for loss of trade and the cost of hiring of a premises

Answer 13

No they can only recover the amount of the value of the property itself

Question 14

Do property policies cover the amount of sentimental value

Answer 14

No they only cover the actual financial value

Question 15

Where a building is damaged what is a normal basis of indemnity

Answer 15

Will be the cost of repair/reconstruction at the time of a loss with a deduction for betterment

Question 16

What two forms can betterment take

Answer 16

Where are building is repaired the structure can often be renewed so When the work is complete the building is likely to be in better condition than it was before the loss

If the quality of the building is improved in the course of carrying out repairs i.e. an extra story may be added or a sprinkler system installed

Question 17

What is the indemnity for machinery and equipment

Answer 17

The cost of repair let an allowance for wear and tear

The cost of replacement less wear and tear

Question 18

What happens for machinery and equipment where there is no ready secondhand market for such property

Answer 18

The insured may be obliged to purchase new equipment and a deduction for betterment would normally be appropriate

Question 19

What does manufacturers stock genuinely consist of

Answer 19

Raw materials, work in progress and finished stock

Question 20

What is the measure of indemnity for manufactures stock

Answer 20

It will be what it will cost them at the time and place of a loss to replace the goods or return them to the condition they were in before they were destroyed

Question 21

Under manufacturers stock how would you be indemnified in the case of raw materials

Answer 21

This will be the replacement cost including delivery to site. In a case of other stock it will be some raw materials costs plus labour and other costs which will be incurred in reproducing the goods before they were lost

Question 22

How is indemnity based on wholesale and retail stock

Answer 22

The cost at the time of the loss of replacing the stock (i.e. manufacturers or wholesale price) including transport and handling cost to the insured premises

Question 23

What happens if the replacement cost is higher than the market price for the wholesale and retail stock goods

Answer 23

The market price is likely to be the appropriate basis of indemnity

Question 24

With livestock and produce what is a normal basis of indemnity

Answer 24

It is a local market price

Question 25

Under farming stock is the replacement cost the same as the selling price

Answer 25

Yes

Question 26

What are pecuniary insurances

Answer 26

They cover various types of financial losses and can be contrasted with property insurances

Question 27

What do pecuniary insurances normally include

Answer 27

B I insurances which cover loss of profit as a result of physical damage

Question 28

What is the easiest class of insurance to establish the measure of indemnity

Answer 28

Liability insurance

Question 29

How is the measure of indemnity calculated under liability insurance

Answer 29

It will be the amount of any court award settlement plus costs and expenses arising in connection with the claim plus any other expenses which have been incurred with the agreement of the insurers

Question 30

What is the exception to the indemnity rule where an insured can’t recover more than the amount of the loss

Answer 30

Liability insurance. Where Costa and expenses incurred in connection With liability claims may be payable over and above the limit of liability Motor insurance is where only the market value of the vehicle will be paid in the event of a loss

Question 31

What is an average clause

Answer 31

Provides that where the sum insured is less than full value the insured will be considered their own insurer for the uninsured part of the risk and a claim payment for any loss we scaled-down proportionately

Question 32

What is the formula to work out the average clause

Answer 32

Some insured at the time of the loss x the amount of loss Divided by the value at risk at time of loss

Question 33

Does average operate as an implied term

Answer 33

In the case of marine insurance the answer is yes

Question 34

What is a franchise

Answer 34

Well there is no liability for any loss which is less than a franchise figure. However once a franchise has been exceeded the loss is payable in full

Question 35

What happens if there is a loss of £950 and the policy is subject to a £1000 franchise

Answer 35

Insurance pay nothing

Question 36

What happens if there is a loss of £1045 and the policy is subject to a £1000 franchise

Answer 36

Insurance pay £1045

Question 37

Why aren’t franchises very common

Answer 37

They introduce an element of moral hazard

Question 38

What happens under reinstatement value under a loss?

Answer 38

In event of a loss the insurers will pay a sum equivalent to the cost of rebuilding or replacing the property to a condition equivalent but not better than its condition when new

Question 39

Under reinstatement is there any deduction for wear and tear

Answer 39

No as insurance pays the full cost of rebuilding ‘as new’

Question 40

What is the general effect of the usual reinstatement clause

Answer 40

To restrict cover to simple indemnity unless the rebuilding work is commenced without unreasonable delay and is subsequently completed

Question 41

What can reinstatement cover be applied to

Answer 41

Buildings, plant, machinery and other contents

Question 42

What things are new for old cover usually associated with

Answer 42

Household goods and personal possessions

Question 43

What is new for old cover

Answer 43

Insurers agree to pay the full replacement cost ‘as new’ with no deduction for wear, tear or depreciation

Question 44

What happens under valued policies

Answer 44

The parties agree that in the event of a loss of a particular sum, fixed at the outset of insurance, will be paid, regardless of the actual value of the property at the time

Question 45

What sort of things are usually under an agreed value basis

Answer 45

Works of art and veteran or classic cars

Question 46

Can an insured receive more than a full indemnity for a valued policy

Answer 46

Yes as insurers agree the value regardless of the actual value of time the loss even if the value of a property is declined

Question 47

Why would insurers use the Elcock principle for valued policies

Answer 47

The insured is entitled to proportion of the agreed value which is equivalent to a degree of depreciation

Question 48

If there is no clause in the policy what has the insured got a legal right to insist on how the claim is paid

Answer 48

The right to a money payment

Question 49

What is the most common payment method for a claim

Answer 49

A money payment because it is likely to be the most convenient and satisfactory method

Question 50

In liability insurance how are the claims paid

Answer 50

Usually cash payments and usually transfer to the third-party rather than insured

Question 51

Id an insured receives a cash payment for a claim is there a general obligation on the part of insured to spend the money restoring the property

Answer 51

No but a failure by the insured to restore the property may affect the amount of the claim settlement If it’s on a new for old or reinstatement basis

Question 52

What is reinstatement in simple terms

Answer 52

It’s where the insurers choose to settle the claim by at to be rebuilding the property that has been damaged is there a money to the insured

Question 53

What happens on the reinstatement is there a storage building or machinery is defective or in any way inferior to the old property

Answer 53

Insurers may have to pay compensation to the policyholder for breach of contract

Question 54

Under the statutory reinstatement - the fire prevention act how does it require insurance companies to lay out the insurance money towards building or reinstatement buildings which have been destroyed or damaged by fire

Answer 54

If I suspect fraud or arson by the insured Upon the request of any persons interested in the building

Question 55

How may the fire prevention act to be invoked against insurers by any person of an insured

Answer 55

If they have a legal or critical interest of the insured building such as a mortgagee or person who is contracted to buy. Do you object is to protect such persons when sharing the insurance money is properly used to restore the building in which they have an interest in

Question 56

What does the fire prevention act apply to

Answer 56

Fire insurance of buildings only England and Wales Policies written by insurance companies but not to policies issued on behalf of Lloyds underwriters

Question 57

What is the most commonly used method of repair

Answer 57

Motor insurance

Question 58

Why do motor insurances have approved repairers

Answer 58

It helps them manage costs and insures that the quality of the work is maintained

Question 59

What is the most common situation where insurers choose to settle claims by replacement

Answer 59

Glass claims

Question 60

What is the action of giving up the subject matter to the insurer is referred to as

Answer 60

Abandonment

Question 61

What is the right of the insurer to take over the subject matter known as

Answer 61

Salvage

Question 62

What is a constructive total loss under marine insurance

Answer 62

When the subject matter is damaged or insured is deprived of the possession of a ships or goods but it is not destroyed

Question 63

What are the three examples of a constructive total loss

Answer 63

Well insured can’t recover the ship or goods In the case of a damage to the ship the cost of repairing would exceed the value In the case of damage to goods but the cost of repairing the damage and forwarding to go to their destination would exceed their arrival value

Question 64

What happens if there is an actual total loss under a marine policy

Answer 64

Abandonment is automatic

Question 65

Under a constructive total loss what must the insured do to be paid for a total loss

Answer 65

Must serve notice of abandonment

Question 66

What two ways can insured not receive full indemnity

Answer 66

Under insurance/average | Policy XS

Question 67

Can A motor policy be terminated by virtue of its own insured or liability limit been exhausted by series of partial losses

Answer 67

No

Question 68

What sort of policies are terminated once the claim has been paid in full

Answer 68

Life insurance, property insurance where a payment on the basis of a total loss normally ends insurers liability. Under property insurance a fresh contract must be affected and restored property and must be supported by fresh consideration

Question 69

What happens if there is a total loss and destruction of the subject matter

Answer 69

Some insurers always cancel when there is a total loss and the right to cancel is reinforced by an express clause. Over insurers may allow the old Paul policy to remain in force and permit the insured to substitute new property

Question 70

What happened to a policy following a total loss

Answer 70

The insured will be required to affect a new insurance contract in respect of the replacement policy and pay a further premium for it