Claims Terminologies( 2)

 (by Tarran Dookie)

motor-terminologiesMOTOR CLAIMS TERMINOLOGIES

Own damage: Met in motor insurance this refers to damage to the insured’s own vehicle. This is to be distinguished from third party damage which is damage to someone else’s vehicle. Comprehensive/third party, fire and theft, third party: These are terms used to describe the level of cover under a motor policy. A third party policy only covers the insured’s liability for death or bodily injury to a third party or damage to third party property; it does not cover damage to the insured’s own vehicle. The phrase ‘full third party’ used by some motor insurers is rather meaningless as the phrase is not indicative of any wider cover than third party cover. A comprehensive policy covers damage to the insured’s vehicle as well as third party cover. Damage to the vehicle is covered against: accidental collision or overturning or collision or overturning caused by mechanical breakdown or wear and tear; fire and theft; malicious act; whilst in transit by road, waterway, lift or sea;( flood, hurricane and earthquake as well as riot and strike can be included for a small extra premium). Third party, fire and theft provides fire and theft cover for the insured’s vehicle as well as third party cover.

Contribution to betterment: This is usually practised in motor and property insurances whereby the insured is asked to contribute in the event that the item being replaced, repaired or paid for represents an improvement in terms of value. For instance if an item is insured for $5,000 and the replacement cost is $6,000 and the insurer is paying the cost of replacement the insured would be asked to contribute $1,000.

Market value: The fair price for which something can be sold in its current condition.

Write-off: Usually associated with motor vehicle insurance. The vehicle is declared a write-off when it is so badly damaged that it would not be either safe or economical to repair. Where the repair costs may exceed or come close to the sum insured or market value the insurer would deem this to be a ‘constructive total loss’ and the vehicle would be declared a write-off.

LIABILITY CLAIMS TERMINOLOGIES (includes public liability & employer’s liability/workmen’s compensation)

Contributory negligence: This refers to a situation where the person making a claim contributed to his loss by his own negligence. An example would be where a judge concludes that not wearing a seat belt contributed the the claimant’s injury.

Salary/wages: This is important in calculating benefits payable in respect of a workmen’s compensation claim. Earnings must include any benefit capable of being estimated in money but does not include travelling allowances or employer’s contribution to pensions. Gross, and not net, wages and earnings must be used.

PPD: Used in workmen’s compensation insurance this is an abbreviation for ‘Permanent Partial Disablement’ and refers to where the injury is permanent in nature but does not prevent the worker from engaging in work of any kind. An example would be loss of a finger or limb. This must be contrasted with Permanent Total Disablement where the worker is permanently unable to work (e.g. paralysis). PPD assessment is usually expressed in percentage terms (e.g. 40% PPD), the percentage being related to the permanent disablement. The insurer would  pay 40% of what would have been paid if there was permanent total disablement.

Medically boarded: This refers to a situation where an employee is deemed incapable of working as a result of ill-health or injury. The employee may be entitled to certain benefits when this happens (and may be stated in the employment contract or in an agreement between the employer and the representative union). Once medically boarded, compensation under the Workmen’s Compensation Act in the form of wages ceases. However, there may still be a liability for Permanent Partial Disablement or Permanent Total Disablement under the Act and at common law.

Limit of indemnity: This is the most that an insurer would pay for all claims arising out of one event or incident. The term is mainly used in liability insurance instead of the term ‘sum insured’ that is used in property insurance and other types of insurance.

Aggregate limit if indemnity: Mainly found in liability policies and refers to the maximum amount an insurer will pay under a policy in respect of all accumulated claims arising within a specified period of insurance.

Damages: This is a legal term and refers to the compensation awarded by the court for loss suffered. Damages are classified as general when they are assessed by the court for losses which cannot be positively proved or ascertained. These would include damages awarded for (a) pain and suffering; (b) loss of enjoyment of life or of amenity; (c) loss of earnings, both actual and prospective. Special damages are awarded for losses which can be positively proved or ascertained such as medical bills.

‘Damages’ must be distinguished from ‘damage’. Damages refer to compensation awarded by the courts, whereas damage is the loss or injury suffered. As comical as it may sound, damages are awarded for the damage you suffer.

Defendant: The person against whom a legal action is brought (i.e. the person being sued).

Plaintiff: The person who sues or brings a legal action against another.

Third party: The two parties to an insurance contract are the insured and the insurer. They arethe first and second parties to the contract. A third party is not a party to the contract but a party who seeks to be compensated for some injury or loss caused by the insured.

Claims made basis versus losses occurring basis policies: A liability policy written on a ‘claims made’ basis makes the insurer liable for claims made during the period of insurance even if the event giving rise to the claim happened prior to the period of insurance. Insurers limit this retroactive period to a specified number of years. Most professional indemnity and directors and officers liability policies are written on a claims made basis.

A liability policy written on a ‘losses occurring basis’ makes the insurer liable for losses or claims arising from an event that occurs during the period of insurance. The actual claim may be made years after the event occurred. The majority of liability policies (including public and products liability and workmen’s compensation policies) are written on a losses occurring basis.

PROPERTY CLAIMS TERMINOLOGIES

Replacement/reinstatement: Most property policies (including household insurance) are issued on a replacement or reinstatement basis. This means that there is no deduction for depreciation or wear and tear in settling a claim. However, to properly benefit from this the sum insured on the policy must be adequate to actually provide for replacement or reinstatement of the lost or damaged items.

Average: A clause in property policies whereby, in the event of underinsurance, the claim paid out by the insurer is restricted to the same proportion of the loss as the sum insured under the policy bears to the total value of the insured item. For example, if the rebuilding cost of a house is $500,000 but it was insured for $300,000, there is underinsurance as the building is only insured for 60% of its true replacement value. If there is a loss amounting to $200,000 the insurer will pay 60% of this or $120,000. Some policies have a 75% or 85% average clause which allows some level of underinsurance as the insured is not penalised if the sum insured is above the stated percentage of the replacement value.

Salvage: Salvage is the property saved or remaining after a loss or event. For instance, one talks about the salvage in reference to a vessel that has been retrieved after being sunk. The residual value of a damaged item is referred to as the salvage value. Sometimes an item may be so badly damaged that there is no salvage value. An item may be deemed a total loss and may have been insured for say, $15,000. If the salvage value is determined to be $3,000 the insurer will pay $12,000 (i.e. $15,000-$3,000). Salvage value is often featured in motor insurance as well as in property insurance.

First loss: Insurance where the sum insured is accepted to be less than the value of the property but the insurer undertakes to pay claims up to the sum insured, with or without the application of average. Since the sum insured is less than the full value of the insured property the policyholder has to bear any loss in excess of the sum insured. It is appropriate in circumstances where the policyholder considers that a loss in excess of the sum insured is extremely unlikely. First loss sum insured is often used in commercial burglary insurance.

Constructive total loss: Where the property insured is completely destroyed or so badly damaged that it ceases to be a thing of the kind insured, or where the insured is irretrievably deprived of it.

Agreed value: In this type of insurance an agreed value is set at the beginning of each period of cover. It is based on the fair value given then for the item either on the open market or by a valuator. The value doesn’t change for the period of cover and in the event of a claim the agreed value forms the basis of the settlement. Agreed values are often met in insurances covering works of art and marine hull insurance but increasing use of it is made in motor insurance.

Hours clause: a clause which specifies the period during which losses from an occurrence can be aggregated for the purpose of one claim. A common period for catastrophes is 72 hours. This is useful in treating with earthquake claims (where aftershocks continue after the predominant earthquake shock) as all the losses during the period are aggregated and only  one excess or deductible is applied.

Agreed value: In this type of insurance an agreed value is set at the beginning of each period of cover. It is based on the fair value given then for the item either on the open market or by a valuator. The value doesn’t change for the period of cover and in the event of a claim the agreed value forms the basis of the settlement. Agreed values are often met in insurances covering works of art and marine hull insurance but increasing use of it is made in  motor insurance.

Hours clause: a clause which specifies the period during which losses from an occurrence can be aggregated for the purpose of one claim. A common period for catastrophes is 72 hours. This is useful in treating with earthquake claims (where aftershocks continue after the predominant earthquake shock) as all the losses during the period are aggregated and only one excess or deductible is applied.