Measuring the Loss- The Principle Of Indemnity Flashcards
indemnity vs non indemnity insurance
Indemnity insurances are those where the insurers agree to pay only when the insured suffers a loss of a particular type, and only for the amount of the loss.
Non-indemnity (or contingency) insurances are policies in which insurers agree to pay a specified sum when a particular defined event occurs. The insured does not have to prove that they have suffered a loss, only that the event in question has happened
Basis of indemnity property insurance
-value at the date of loss and at the place of loss.
-Buildings-cost of repair or reconstruction at the time of the loss with, in many cases, a deduction for ‘betterment.
-Machinery- the cost of repair less an allowance for wear and tear, if applicable; or
the cost of replacement, less wear and tear, if repair is not possible
-Stock ( raw material)-replacement cost including delivery to site.
-Stock ( finished)-raw material costs plus labour and other costs which will be incurred in reproducing the half-made or fully completed goods which were lost.
-Livestock/crops- local market price
Basis of indemnity - Liability
amount of any court award or negotiated ‘out of court’ settlement plus costs and expenses arising in connection with the claim (such as lawyers’ fees, court fees, and payment for medical reports or the services of expert witnesses), plus any other expenses which have been incurred with the agreement of the insurers.
Trends clause (BI)
The trends clause’s purpose is to allow, in assessing the amount to be awarded, to take account of exceptional events that may have depressed or increased revenue in the earlier comparator, and also to take account of anticipated exceptional events in the indemnity period.
Variations less than indemnity
- other policy sublimity
- underinsurance and average clause ( always implied under marine,)
- excess/deductible
- franchise-similar to an excess in that there is no liability for any loss which is less than the franchise figure. However, once the franchise has been exceeded, the loss is payable infull.
Instances insured get more than indemnity
- cover on reinstatement
- new for old cover- sum insured needs to reflect the total replacement cost of all items ‘as new’.
- Agreed value basis - art, classic cars etc
- partial loss under agreed value
methods of providing indemnity
1.Payment of money- convenient and satisfactory method for both parties.
2. reinstatement -insurers choose to settle the claim by actually rebuilding the property that has been damaged instead of paying money to the insured
(Common where they suspect fraud)
3. Repair - common in motor . having a network of approved repairers can help them to manage costs, and ensure that the quality of the work is maintained
4. Replacement - eg replacing broken glass
Salvage and abandonment
The action of giving up the subject matter to the insurer is referred to as abandonment, and the right of the insurer to take over the subject matter is known as salvage.
Constructive total loss
In marine insurance (but not recognised in non-marine insurance) a constructive total loss is where the subject matter is not destroyed but the insured is deprived of the possession of their ship or goods and it is unlikely that they can recover the ship or goods; or the cost of recovering the ship or goods would exceed their value when recovered.
Constructive total loss and abandonment
the insured must serve a notice of abandonment on the insurers if they wish to be paid for a total loss
If the assured fails to give notice of abandonment, the assured can claim for partial loss but loses the right to claim for a total loss
What happens to cover when insurers pay a claim (property and motor)
The cover reduces by the amount of any claim payment. So, unless the sum insured is restored by the insured paying an extra premium (known as a reinstatement premium), the policy will lapse once all the cover is used up e.g fire policy
However, in practice, it is not collected in cases where the loss is trivial in relation to the total sum insured and the extra premium involved is insignificant.
In some cases (such as stock declaration policies), restoration of the sum insured is automatic and the insured is obliged by the terms of the contract to pay the extra premium
A motor policy, cannot terminate by virtue of its sum insured or liability limit being exhausted by a series of claims for personal injury. A motor policy may limit liability
Can cover be used up under marine insurance?
In marine insurance, s.77 of the Marine Insurance Act 1906 provides that the insurer is liable for successive losses, even though the total amount of such losses may exceed the sum insured
Termination of the policy by claim payment
Life-contract ends
Property -the subject matter may be restored after a total loss. A fresh insurance contract must be effected on the restored property and must be supported by fresh consideration
