A REVIEW OF VARIOUS CLAIMS CONDITIONS IN GENERAL INSURANCE POLICIES

A REVIEW OF VARIOUS CLAIMS CONDITIONS IN GENERAL INSURANCE POLICIES

CLAIMS NOTIFICATION AND PROCEDURE

On the happening of any loss or damage the Insured shall forthwith give notice thereof to the Insurers and shall within 15 days after the loss or damage, or such further time as the Insurers may in writing allow in that behalf, deliver to the Insurers

  • a claim in writing for the loss and damage containing as particular an account as may be reasonably practicable of all the several articles or items of property damaged or destroyed, and of the amount of the loss or damage thereto respectively, having regard to their value at the time of the loss or damage not including profit of any kind;
  • particulars of all other insurances, if any.

The Insured shall also at all times at his own expense produce, procure and give to the Insurers all such further particulars, plans, specifications, books, vouchers, invoices, duplicates or copies thereof, documents, proofs and information with respect to the claim and the origin and cause of the fire and the circumstances under which the loss or damage occurred, and any matter touching the liability or the amount of the liability of the Insurers as may be reasonably required by or on behalf of the Insurers together with a declaration on oath or in other legal form of the truth of the claim and of any matters connected therewith.

No claim under this Policy shall be payable unless the terms of this Condition have been complied with.

The above wording is from a fire and special perils policy. Immediate notification of loss or damage is required and a detailed claim in writing within 15 days after the loss or damage (or such further time as the Insurers may in writing allow). It is important for the insured to request in writing an extension of time where the details of the losses, including the claim amounts, are not likely to be available in the time stipulated in the policy.

The insured must also give details of any other insurances effected on the same risk. Proofs and particulars must be provided at the expense of the insured.

Similar wordings, suitably adapted, appear on other general insurance policies. Crime insurances such as burglary and money policies would also require the insured to notify the Police immediately and take all practicable steps to discover the guilty person or persons and recover the Property lost.

Late notification of a loss gives an insurer the right to deny a claim and there are quite a number of cases where insurers have actually denied claims on the grounds of unreasonably late notification.

The claims notification and procedure wording in a motor policy reads somewhat differently and is as follows:

In the event of an occurrence which may give rise to a claim under this Policy the Insured shall as soon as possible give notice thereof to the Insurer with full particulars. Every letter, claim, writ, summons and process shall be notified or forwarded to the Insurer immediately on receipt. Notice shall also be given to the Insurer immediately the Insured shall have knowledge of any impending prosecution inquest or fatal inquiry in connection with any such occurrence. In case of theft or other criminal act which may give rise to a claim under this Policy the Insured shall give immediate notice to the Police and co-operate with the Insurer in securing the conviction of the offender.

Similar wordings appear on liability policies and an obligation is placed on the insured to immediately forward to the insurer such things as writs, summons and processes. Insurers need to be aware as early as possible as they may have to defend the matter or may wish to make an out of court settlement with the third party.

SUBROGATION

The Insured, shall, at the expense of the Insurers, do, and concur in doing, and permit to be done, all such acts and things as may be necessary or reasonably required by the Insurers for the purpose of enforcing any rights and remedies, or of obtaining relief or indemnity from other parties to which the Insurers shall be or would become entitled or subrogated, upon its paying for or making good any loss or damage under this Policy, whether such acts and things shall be or become necessary or required before or after his indemnification by the Insurers.

The above subrogation wording is typical of property policies. Where insurers have paid a claim or is liable to make such payment, they are entitled to bring an action against any third party that may be responsible for the loss or damage to the insured’s property.

Motor and liability wordings are worded as follows:

No admission, offer, promise or payment shall be made by or on behalf of the Insured without the written consent of the Insurer which shall be entitled if it so desires to take over and conduct in his name the defence or settlement of any claim or to prosecute in his name for its own benefit any claim for indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings and in the settlement of any claim and the Insured shall give all such information and assistance as the Insurer may require.

An insurer’s position can be prejudiced by any admission, offer, promise or payment made by the insured to a third party. The condition forbids such actions and furthermore gives the insurer full control in defence and settlement of any claim and the insured is required to cooperate to achieve this.

CONTRIBUTION

If at the time of any loss, damage or liability arising under this Policy there shall be any other insurance covering loss or damage or liability or any part thereof the Insurers shall not be liable for more than their rateable proportion thereof.

An insured may have two policies covering the same risk. One policy may cover the risk for say $4,000,000 and the other for $2,000,000. If a loss occurs amounting to $1,200,000 and the insured was allowed to claim the full amount from both insurers, he would actually receive $2,400,000 and thereby profit from his loss. Contribution, being a corollary of indemnity, seeks to prevent an insured from profiting by his loss. A contribution condition appears on most general insurance policies. In this example above, the policy that covers the risk for $4,000,000 would pay two-thirds of the loss (i.e. $800,000), and the policy covering the risk for $2,000,000 would pay one-third (i.e. $400,000), so that the insured receives a total of $1,200,000.

AVERAGE

If the property hereby insured shall, at the breaking out of any fire, be collectively of greater value than the sum insured hereon, then the Insured shall be considered as being their own insurer for the difference, and shall bear a rateable proportion of the loss accordingly. Every item, if more than one, of the Policy shall be separately subject to this condition.

The above wording is from the fire and special perils policy. Similar wordings appear on other property policies. Under-insurance is penalised by the application of the average clause. Where average applies, a loss is settled in the same proportion as the sum insured bears to the value at risk. In other words, the insured is considered as his own insurer for the difference between the sum insured and the value at risk. Therefore, if the sum insured is $1,200,000 but the value at risk is $2,000,000 a loss of $600,000 would be settled for $360,000. The settlement is calculated as follows:

Sum insured loss i.e. 1,200,000 600,000
__________ x ______ x = 360,000

Value at risk 2,000,000

 

Where policies are issued on a reinstatement basis (i.e. cover is arranged on a replacement cost basis with no amount deducted for depreciation or wear and tear), it is normal for the average clause to be so worded that under-insurance is not penalised unless the sum insured is less than a certain percentage (may be 75-85%) of the replacement cost. In the above example if the sum insured was $1,500,000 and there was a 75% condition of average, the full amount would be paid since $1,500,000 is 75% of $2,000,000.

Some policies are issued on a first loss basis (especially true of burglary policies and sometimes property all risks and fire and special perils policies). First-loss policies are sometimes in demand where a proposer feels that any loss he may sustain cannot amount to more than a fraction of the value at risk. Under such policies, when a loss occurs the insurer will pay up to the sum insured without consideration of the total value at risk. The insured must still declare the total value at risk (called the Total Declared Value) and also state the first loss sum insured which would be the maximum liability of the insurer. A first loss policy will be subject to average if the declared value of the property covered is less than the actual value at the time of loss.

ARBITRATION

If any difference shall arise as to the amount to be paid under this Policy (liability being otherwise admitted) such difference shall be referred to an arbitrator to be appointed by the parties in accordance with the statutory provisions in that behalf for the time being in force. Where any difference is by this condition to be referred to arbitration the making of an award shall be a condition precedent to any right of action against the Insurers.

Claim disputes relating to quantum must be referred to arbitration, and an award be obtained before any legal action can be taken by the insured. Some arbitration conditions stipulate that all disputes (not just those related to quantum) must be referred to arbitration.

OPTION OF SETTLING CLAIM BY MEANS OTHER THAN CASH PAYMENT

Insurers have the option of settling a claim by reinstating, replacing or repairing the lost or damaged property in lieu of cash settlement. Property insurers hardly exercise this option since they may be sued for defective workmanship and they would be their own insurers while the property is being reinstated.

However, motor insurers have been known to make use of the option. In some cases they stock parts of popular models of vehicles and some insurers may own or be affiliated to garages.

RIGHTS OF INSURERS REGARDING INVESTIGATION AND SALVAGE

The insurers have the right to investigate the circumstances of a loss and to deal with property that may be the subject of a claim , including selling of salvage.

FRAUDULENT CLAIMS

All benefit under the policy is forfeited if fraud is established. Fraud may take various forms including undue exaggeration of losses, claiming for items that were not lost or damaged, bringing about one’s own loss or colluding with others to do so and falsification of information.