Insurance Claims
Making a Claim
The insurance policy will set out the procedure for making a claim. Generally, notice must be given of the claim at an early date. There may be a requirement that notice be given within a relatively short time. If the time is unreasonably short, it may be deemed unfair under the Unfair Contract Terms Regulations.
It is important that insurances policies are examined quickly after the occurrence of an insured event. The claims should be notified promptly to the insurer. Full details of the loss must usually be given. This may involve a declaration proving that particular loss has incurred. There may be a particular report form, which the insurer requires.
Insurance usually covers loss arising directly from an insured risk. So-called “consequential loss”, which arises indirectly from the insured risk, is generally not covered unless specifically covered. The loss must have occurred by reason of the insured risk. If there are a number of causes, the effective cause is considered.
Liability policies generally require that the insured makes no admission of liability. The insurer is usually given conduct of legal proceedings. An admission of liability would be binding and eliminate the insurer’s options in relation to settlement and conduct.
Management of Claim
The insurer takes over the running and management of any claim, where there is a question of liability to a third-party liability. This may occur, for example, in the case of motor insurance and professional negligence. The insurer is primarily entitled to run, manage and settle the claim. The insured will be obliged to co-operate.
The insurer may deny that it is liable to indemnify the insured, under the terms of the policy. If the insured is in fact obliged to indemnify the insured, then it would be a breach of the insurance contract to refuse a valid claim. Almost invariably, insurance policies contain arbitration clauses by which disputes as to the insurer’s liability is determined by an arbitrator.
The insurer may seek to deny liability on the basis that the insured has misrepresented material facts or circumstances, in the proposal form or has failed to disclose material matters. The insurer may be able to avoid policy by reason of breach of duty of disclosure or other warranty. Sometimes the insured may waive the breach and impliedly not rely on it. A false or fraudulent claim may render the policy void.
Extent of Indemnity I
Insurance policies involve an agreement to hold the insured person harmless against a specified loss or expense, arising from an insured risk. The entitlement to claim will depend on the risk having arisen. Insurance policies against legal liability (e.g. accidents, professional negligence) are contracts of indemnity. This means that the insured is to be made good or reimbursed, Euro for Euro, for legal liabilities which they incur in consequence of the risk.
Generally, a maximum sum is specified the policy. The insured will not recover more than the maximum amount stated. Excess clauses usually provide that the insured is to bear the first part of the loss. This may be a percentage or a fixed amount.
Where goods are lost, the loss is the market value of the asset at the time of loss, i.e. the second-hand value. Some policies in relation to goods agree to pay the replacement, value rather than market value. This would attract a relatively higher premium.
In the case of land and buildings, the insurance generally covers the cost of reinstatement; the replacement cost. In the case of damage or destruction to a building, the amount covered, will usually be the cost of rebuilding or replacing the building. In some situations, the insurer may be bound to reinstate damaged or destroyed property rather than pay insurance proceeds. It will depend on the wording of the policy.
Extent of Indemnity II
Under a valued policy, the insurer agrees to pay a specific sum, if there is a loss. Where the loss is less than total, there will be a proportionate reduction in the compensation.
Complications may arise, where the market value of the completed building is less that the cost of the building. Strictly speaking, the insurer may be entitled to pay no more than the value of the loss. This may be significant where market values have fallen below rebuilding costs, as has happened in the current economic depression. If a person occupies a property as his residence, there may be a presumption that the insurance is to cover the cost of rebuilding.
In the case of partial loss, the presumption is that the insurance will cover the cost of repair, less any amount by which the insurer is better off after repair. Where the loss exceeds the value (e.g. the cost of repair exceeds the second-hand value of the car) and there is a genuine intention to reinstate (e.g. where premises are used in the business and important to it), this may be the measure of the indemnity. There may be an entitlement to the cost of reinstatement, less, perhaps, a sum for betterment.
A person is not entitled to full cover, or in some policies, may not be covered at all, unless he insures for the full value of the buildings There is often an obligation on an insured to insure the full value or reinstatement cost of the asset. Commercial insurance policies usually contain “average” clauses. The effect of these clauses, is that if where there is a partial loss, the amount payable, is the proportion of the full loss, which the insured sum bears to the value of the property. Not all policies contain this clause.
Subrogation
The principle of subrogation applies to most indemnity contracts, including insurance policies. It does not apply to life or accident insurance policies. A right of subrogation arises only where the insured has the right to take legal action in consequence of the matters compensated for, under the insurance policy.
The principle of subrogation is that the insured should not make a profit from its claim. It is accountable to the insurer in respect of any monies received for which it has already been compensated. The insurer is effectively entitled to take action against third parties who are liable to pay compensation to the insured. If the insurer recovers more than the amount paid for the claim, it must pay the excess to the insured.
The insurer takes the legal action in the name of the insured. Where the insurer takes the action, the insured must be indemnified in relation to the costs and the claim. The insurer is entitled to bring and control the action. It must act in good faith and indemnify the insured in respect of costs.
The insured must not prejudice the insurer. He must not exercise rights in a way that damage the insured’s right of subrogation. He may not, for example, compromise the claim.
Contribution
Where there is multiple insurance, the principle of contribution may apply. It applies as between the insurers. Where one insurer pays, it is entitled to claim a contribution from the other the insurer.
An insurance contracts may provide that where there is more than one insurance policy available in respect of the loss, that the insurer is not obliged to pay or contribute more than its rateable proportion of loss or damage. The policies must have covered the same risk. The policy may require the insured to notify the insurer if there is double cover.
Various Claims Issues
The Civil Liability Act provides that where a person or company insured under a liability insurance policy dies, becomes bankrupt or is wound up, that the money shall only be applied in discharging claims against the insured in respect of which those monies are payable, and is not to be an asset of the insured or used for debts other than those for the payment of claim.
Where a judgement has been obtained against an insured, the person entitled may proceed against the insurer for payment. The insurance proceeds do not become part of the assets of the insured available to his creditors in insolvency. The right applies only, once it is established that monies are payable.
Under the Road Traffic Act, a person injured has a right of action against the insurer of the vehicle. This does not depend on establishing the liability of the vehicle owner.
Claims due to employees in winding up of a company which is being wound up have priority over other claims.
Repudiation
Where there is a basis of liability clause, the insurer may be able to repudiate contract irrespective of how material the term is. Codes of conduct limit the extent to which insurers can impose clauses of this nature.
An insurance policy may contain a clause requiring the insurer to undertake obligations such as take reasonable precautions to prevent accident or damage. These clauses are generally interpreted against the insurer so that that are limited to the insurer being obliged to avoid recklessness.
The insurer may cancel the contract where there is fraud, misrepresentation or nondisclosure or a breach of contract. There is an exception under the Road Traffic Act and in certain liability policires where the policies are esentically for the protection of thirpd prdtes who may be damaged by the insureds actions or ommissions.