Chapter 9- Measuring The Loss Flashcards
What are most types of general insurances i.e. property pecuniary and liability insurances including motor, Marine and aviation
Indemnity insurances
What are non-indemnity (or contingency) insurances
Where insurers agree to pay specified sum when a particular defined event occurs i.e. like life insurance
What’s sort of Policies are accident and sickness insurances
Non-indemnity insurances
What does the concept of indemnity imply
That the object of insurance it with exact financial compensation and they shouldn’t make a profit on their loss
What happens if insured is tempted to bring his loss deliberately in order to improve their financial position
It introduces an extra element of moral hazard
How can a claimant be able to recover a sum greater than the actual loss
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
How can a claim under the policy indemnity also be described as
A claim for a Unliquidated damages
What are unliquidated damages
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
What is the general rule or property insurance indemnity
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
What happens under property insurance indemnity policy is if the value has increased during the policy
The insured is therefore entitled to an indemnity on the basis of increased value subject of course to the adequacy of the sum insured
What happens on the property insurance if the value has decreased during the period of insurance
Be sure to recover only the reduced value at the time of the loss not the original value
What happens under a claim for property insurance
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
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
No they can only recover the amount of the value of the property itself
Do property policies cover the amount of sentimental value
No they only cover the actual financial value
Where a building is damaged what is a normal basis of indemnity
Will be the cost of repair/reconstruction at the time of a loss with a deduction for betterment
What two forms can betterment take
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
What is the indemnity for machinery and equipment
The cost of repair let an allowance for wear and tear
The cost of replacement less wear and tear
What happens for machinery and equipment where there is no ready secondhand market for such property
The insured may be obliged to purchase new equipment and a deduction for betterment would normally be appropriate
What does manufacturers stock genuinely consist of
Raw materials, work in progress and finished stock
What is the measure of indemnity for manufactures stock
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
Under manufacturers stock how would you be indemnified in the case of raw materials
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
How is indemnity based on wholesale and retail stock
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
What happens if the replacement cost is higher than the market price for the wholesale and retail stock goods
The market price is likely to be the appropriate basis of indemnity
With livestock and produce what is a normal basis of indemnity
It is a local market price
Under farming stock is the replacement cost the same as the selling price
Yes
What are pecuniary insurances
They cover various types of financial losses and can be contrasted with property insurances
What do pecuniary insurances normally include
B I insurances which cover loss of profit as a result of physical damage
What is the easiest class of insurance to establish the measure of indemnity
Liability insurance
How is the measure of indemnity calculated under liability insurance
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
What is the exception to the indemnity rule where an insured can’t recover more than the amount of the loss
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
What is an average clause
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
What is the formula to work out the average clause
Some insured at the time of the loss x the amount of loss
Divided by the value at risk at time of loss
Does average operate as an implied term
In the case of marine insurance the answer is yes
What is a franchise
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
What happens if there is a loss of £950 and the policy is subject to a £1000 franchise
Insurance pay nothing
What happens if there is a loss of £1045 and the policy is subject to a £1000 franchise
Insurance pay £1045
Why aren’t franchises very common
They introduce an element of moral hazard
What happens under reinstatement value under a loss?
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
Under reinstatement is there any deduction for wear and tear
No as insurance pays the full cost of rebuilding ‘as new’
What is the general effect of the usual reinstatement clause
To restrict cover to simple indemnity unless the rebuilding work is commenced without unreasonable delay and is subsequently completed
What can reinstatement cover be applied to
Buildings, plant, machinery and other contents
What things are new for old cover usually associated with
Household goods and personal possessions
What is new for old cover
Insurers agree to pay the full replacement cost ‘as new’ with no deduction for wear, tear or depreciation
What happens under valued policies
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
What sort of things are usually under an agreed value basis
Works of art and veteran or classic cars
Can an insured receive more than a full indemnity for a valued policy
Yes as insurers agree the value regardless of the actual value of time the loss even if the value of a property is declined
Why would insurers use the Elcock principle for valued policies
The insured is entitled to proportion of the agreed value which is equivalent to a degree of depreciation
If there is no clause in the policy what has the insured got a legal right to insist on how the claim is paid
The right to a money payment
What is the most common payment method for a claim
A money payment because it is likely to be the most convenient and satisfactory method
In liability insurance how are the claims paid
Usually cash payments and usually transfer to the third-party rather than insured
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
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
What is reinstatement in simple terms
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
What happens on the reinstatement is there a storage building or machinery is defective or in any way inferior to the old property
Insurers may have to pay compensation to the policyholder for breach of contract
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
If I suspect fraud or arson by the insured
Upon the request of any persons interested in the building
How may the fire prevention act to be invoked against insurers by any person of an insured
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
What does the fire prevention act apply to
Fire insurance of buildings only
England and Wales
Policies written by insurance companies but not to policies issued on behalf of Lloyds underwriters
What is the most commonly used method of repair
Motor insurance
Why do motor insurances have approved repairers
It helps them manage costs and insures that the quality of the work is maintained
What is the most common situation where insurers choose to settle claims by replacement
Glass claims
What is the action of giving up the subject matter to the insurer is referred to as
Abandonment
What is the right of the insurer to take over the subject matter known as
Salvage
What is a constructive total loss under marine insurance
When the subject matter is damaged or insured is deprived of the possession of a ships or goods but it is not destroyed
What are the three examples of a constructive total loss
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
What happens if there is an actual total loss under a marine policy
Abandonment is automatic
Under a constructive total loss what must the insured do to be paid for a total loss
Must serve notice of abandonment
What two ways can insured not receive full indemnity
Under insurance/average
Policy XS
Can A motor policy be terminated by virtue of its own insured or liability limit been exhausted by series of partial losses
No
What sort of policies are terminated once the claim has been paid in full
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
What happens if there is a total loss and destruction of the subject matter
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
What happened to a policy following a total loss
The insured will be required to affect a new insurance contract in respect of the replacement policy and pay a further premium for it
