PAPERS
TOPIC:
BURGLARY INSURANCE
INTRODUCTION
Burglary Insurance, like any other
insurance contracts is evidenced by a
Policy Document, which expressly represents the terms and condition of
the Agreement between the Insured (Policy holder) and the Insurer
(Underwriter).
The provisions of the document could be classified
as follows:
i.
The Recital cum Operative Clause
ii.
The Exceptions, Exemptions and/or Exclusions
iii.
The Conditions.
iv.
The Specification of the subject - matter of insurance
v.
The Schedule
vi.
The Memoranda, Endorsements and/or Warranties.
i.
The
Recital Cum Operative Clause
The recital cum operative clause
briefly describes the identity of the parties
to the Contract and unequivocally
narrates both the scope of the insurance
cover as well as the condition
precedent to the admission and discharge
of liability arising therefrom. The
representation include reference to
the proposal and acceptance procedures and
formality, premium payment
as consideration and condition precedent to
enforceability of the contract,
definition and qualifications of the insured
risk/peril - Theft/Burglary - and
finally, the indemnity options: Cash payment
and reinstatement vide repair
or replacement. The provisions of this clause are
similar in each and every
contract of property insurance except the
representation of the ‘definition
and qualification of the insured risk/peril’.
Therefore, a typical burglary/theft
insurance contract in particular has the
insured risk/peril clearly expressed
as follows:
“loss or damage to the subject - matter of insurance due
to theft accompanied by, consequent upon, involving
and/or occasioned by
actual forcible and violent entry
into and/or exit from the premises containing the insured
property or any attempt thereat
AND/OR
Damage to the premises containing the insured property
falling to be borne by the Insured and which shall be due
to any such theft or attempt thereat”
The wording, meaning and
interpretation of the Operative Clause could be
aptly described as the ‘soul of
the Burglary Insurance Contract’, therefore,
verification of the compliance of
the circumstances of the occurrence
of any loss/claim with the definition should
be considered strictly whilst
determination of liability in consonance with the
dictate is non-negotiable
and indispensable. The object of the provision is to
modify the legal definition
and scope of the term ‘theft/burglary’ as provided
under the Theft Act of 1968,
which replaced the Larceny Acts of 1861 and 1916
and either replaced or re-defined
certain common law offences.
ii.
Exceptions
The Policy Exceptions, Exemptions
and/or Exclusions under the Burglary/Theft
Insurance of a business premises
relate to the following:
a.
Excepted Causation and/or consequences like war, ionisation
radiation/radioactive
contamination and nuclear weapon materials.
b.
Exempted Peril such as risks covered by fire insurance, glass
insurance, fidelity
guarantee insurance, money insurance and consequential
insurance.
c.
Excluded property including money, livestock, documents, cheques,
medals, etc.
iii.
The Express
Conditions
The Policy Conditions are expressed
either to reinforce or modify the implied
conditions
of Utmost Good Faith,
Indemnity, Proximate Cause and Insurable
Interest. In this category
are the Mis-description,
Alteration and Fraud Conditions
which support Utmost Good Faith
(Uberrima
Fides). Also, Contribution,
Subrogation & Average Conditions modify the
principle of Insurance indemnity.
Reasonable Precaution & Book Keeping condition
is meant
to keep track of the
Proximate cause vis-a-vis compliance with the
definition/qualification
of the insured peril - theft/burglary accompanied by
forcible entry and/or exit.
The change
of interest, misstatement and alteration,
avoidance condition is
meant to support the doctrine
of Insurable Interest. We
also have the Claim and
Arbitration Conditions which specify the
claim procedure
viz. Notification,
documentation, investigation and resolution of disputes
arising therefrom.
iv.
The
Specification
This relates to the precise
description of the subject(s)-matter of insurance,
the risk location and the
insured value.
v.
The
Schedule.
It is a list
containing the following information:
a.
Name of the Insurer.
b.
Name and address of the Insured.
c.
The Insured’s Business - Profession or Occupation.
d.
The Period of Insurance
e.
The Premium
f.
The Renewal Date and Premium.
g.
Agency/Broker.
By the express provisions of the
Operative Clause of the Policy Document,
the Insurer undertakes
to indemnify the
Insured in respect of any loss or |
damage of the subject-matter of insurance
falling within the purview of
cover (i.e. subject to the terms and conditions)
of the insurance contract.
With particular reference to Theft/Burglary
Insurance, the promise of
indemnity relates
to an undertaking by the Insurer to
pay the Insured the
amount of any destruction of or damage
to the property
insured within the
purview of cover of the insurance contract. Alternatively,
the
undertaking
affords the Underwriter the choice of direct replacement, repair
or reinstatement
of
the property in lieu of cash payment where desirable. The
option is the
prerogative of the Insurer
in the circumstance while it is the
duty of the
Insured to represent her loss(es) to the Insurer for
indemnity
consideration.
The act of representation of the loss(es) by the Insured to the
Insurer
is what is technically referred to as ‘The Claim’. In this context
therefore,
the possibility of claim
arising under an insurance contract is
contemplated,
foreseen, anticipated and in fact, declared
and agreed at the
inception of the
contract by both the Insurer and the Insured, as parties to the
contract.
The occurrence of the claim must however be fortuitous and neither
designed
nor desired
in all intent and purpose. In essence, claim is an event of
chance
holding equal probability of
occurrence or otherwise within the ambit of
an
insurance contract. To this effect, response to
claim is perceived as an acid
test and yardstick of the proficiency of the Underwriter as the
Promisor
of
indemnity while satisfactory claim settlement procedure is a barometer
with
which
the Insured, as a Promisee assesses the quality of the services
rendered
by the Underwriter as well
as the worth of the Premium Paid as
consideration for
the insurance contract.
I. CHECKLIST & PROCEDURE FOR CHECKING THEFT CLAIM.
In the context of theft insurance
contract, the checklist and procedure
for checking claims are
expressly outlined
within the provisions of a
suitably worded Operative Clause of the Policy as
represented below:
“Now therefore this Policy witnesseth that
if at any time
during the
period of Insurance the Property insured or any
part thereof
belonging to the Insured or held by the Insured
in trust or on
commission and whilst contained within the
premises which
expression shall unless otherwise specifically
provided
include the offices communicating therewith but
shall not include any
garden or out-building or other apputen-
ances occupied by the Insured) shall be lost by Theft, but
only
if accompanied
by actual forcible and violent breaking into or
out of a
building, or any attempt thereat, or if there shall arise
any Damage to
the Property Insured or to the Premises falling
to be borne by
the Insured and which shall be due to any such
Theft or
attempt thereat
Then
subject to such evidence being afforded by the Insured
as shall
satisfy the Company that the property in respect of
which a claim
is made has been lost or damaged by Theft as
aforesaid and
subject to the terms, provisions, exceptions,
conditions and
endorsements of this Policy (hereinafter colle-
ctively
referred to as the Terms of this Policy) the Company
will indemnify
the Insured in respect thereof by payment,
reinstatement,
replacement, or repair at the option of the
Company to an
amount not exceeding in respect of each or
any of the
several items specified in the Schedule the sum or
sums set
opposite thereto respectively or in the aggregate the
Total Sum
Insured"
The salient provisions of the
Clause which jointly constitute the
checklist and
procedure for checking claims
are itemized here-below
for further discussions:
1.
The Insured
2.
Payment Of Premium
3.
Period Of Insurance
4.
Insured Property
5.
Insured Peril
6.
Sum(s) Insured
7.
Policy Terms and Conditions.
8.
Viable Indemnity Option.
1 The Insured
The contract, as far as theft
insurance is concerned is between the Insurer
and the Insured. Therefore, the
Insurer’s promise, duty and obligation of
indemnity is strictly to the Insured.
Consequently, only the Insured has
the right to advise a claim to the
Underwriter under the insurance contract.
Even where the claim relates to loss
or damage to property belonging to
Third Party but whilst held in trust or on
commission under the care,
control and custody of the Insured; it is the duty of
the Insured to advise
and produce documentary evidences to substantiate the
claim. Notwithstanding
any endorsement to the effect that certain interests are
noted as payees or
beneficiaries of the indemnity, such interests are simply
contingent upon
determination of indemnity offer to the Insured.
2.
Payment Of
Premium.
Sub-sections (1) and (2) of section
50 under Part VIII of the Insurance Act 2003
unequivocally warrants thus:
“(1) The receipt
of an insurance premium shall be a condition
precedent
to a valid contract of insurance and there shall
be no cover
in respect of an insurable risk, unless the
premium is
paid in advance.
(2) An insurance premium collected
by an insurance broker
in respect of an insurance
business transacted through
the broker shall be deemed to
be premium paid to the
insurer involved in the
transaction”
The statutory provision is commonly
referred to as ‘No Premium, No
Cover Clause’ which expressly establishes that
premium payment is a
condition precedent to liability. Therefore, it is the duty
of the Claims
Technician, upon receipt of a claim notice to confirm the Policy
premium payment position. The rule is that where the premium for
the risk has
not been paid as at the time of occurrence of loss, no
liability attaches to the
Insurer. It is not uncommon however that the
rule is waived by the Underwriter
based on the phraseology that ‘the fear
of the Broker and/or the Insured is the
beginning of patronage.’
3.
Period Of
Insurance
Theft Insurance Contracts are
underwritten on annual basis. That is,
the contract is in force for a duration
of one year period only (twelve
calendar months) within which the risk of loss
could occur and be
considered for indemnity payment vis-à-vis the terms and
conditions
of the Policy. In this perspective, the date of occurrence of loss
is
quite relevant and material to the determination of policy liability.
At times,
the subject(s)-matter of insurance is/are added in the course
of an existing
period of insurance up to the expiration of the tenure of
the contract by way of
an Endorsement. Where such an additional
property is the subject-matter of
claim, it would be prudent of the claim
technician, upon receipt of the loss
notification to compare the date of
loss to the date the Additional Endorsement
becomes effective, to be
sure that the loss does not predate the insurance
contract regarding the
property. Similar duty of care is essential where
hitherto insured
property has been advised to be outright deleted or amended
somehow
(description, value, quantity etc.).
The period of insurance becomes
peculiar and commands special attention
of the claims technician further where
the effective date of commencement
of the insurance contract is either post or
ante dated. In the former circumstance,
the Underwriter must ensure that the
cover has become effective prior to or as
at the date of loss while in the
latter case, the date of notification of the
commencement of cover (i.e.
both the date of the letter of advice and the date
of receipt of the letter by
the Insurer) should be strictly examined and related
to the date of loss to
avoid entertaining a loss which had occurred prior to the
receipt of the
insurance advice.
4.
Insured
Property.
The insured property constitutes
the subject-matter of insurance expressly
represented in the Policy
Specification. The identity of the subject-matter
of insurance could either be
specifically represented (e.g. 250KVA Perkins
Generator) or belong to a general
description - for example, ‘stock-in-trade
of every description’; office
furniture, fixtures, fittings and equipment:
stock of raw materials,
work-in-progress and finished products;
production/manufacturing
plant,
machinery and equipment etc. Immediately
the identity of the
items of
claim is
known by the claim technician, it must
be compared with
the subject-matter of
insurance to confirm whether or not
the ill-fated item
was insured as at the
time of
occurrence of loss. Where the
subjects-matter
of insurance is of
specific description,
there is no trouble in
taking decision
whether the item of
claim was insured or not. On
the other
hand, in the case
of subject-matter of
insurance having general description,
certain factors
might have to be
considered to arrive at the conclusion whether
the item
of claim falls into the
category of the general description or not. These
factors include relevance
of
the item of claim to the occupation of the
building and the Insured’s business,
quantity and
use of the item, unit
value of the item etc.
5.
The Insured
Peril.
Under the Theft/Burglary Insurance,
the insured peril is qualified as ‘theft
accompanied by
actual forcible and
violent breaking into or out of the premises’.
This could however be
modified
either by endorsement to include the risk
of larceny or outright extension
of
cover for the risk of armed hold-up.
According to the Encyclopaedia, Larceny
means,
“unlawful taking and carrying
away of personal property with the intent
to deprive the
owner of it. ‘Taking’
includes obtaining possession by trick or
by intimidation or under
mistake by
the owner when the taker knows that the
owner is acting under mistake, or by
finding when the finder believes that the
owner can be found.”
6.
Sum(s)
Insured
The sum insured is an expression of
the limit which the Insurer can be called
upon to pay
and the amount upon which
the premium is calculated under the
insurance contract. With
particular
reference to claim, it connotes the maximum
liability of the Underwriter for
indemnity payment to the Insured. Same way as
discussed in respect of the
insured property,
the sum insured too could be
expressed distinctly regarding a
subject-matter of insurance or
collectively
to represent an omnibus policy item.
Example of the former is ‘250KVA Perkins
Generator at N3Million while the latter
could be represented as follows:
“On stock of raw
materials, work-in-progress
and finished
products - N50Million”
Whichever way the sum insured is
expressed, the object is to confirm at the
time of
claim whether it adequately
represents the value at risk on the
subject-matter of
insurance or not.
Indemnity does not necessarily bear any
relation to the sum insured
anyway as it
is based upon the Insured’s pecuniary
interest in as much of the subject-matter
of the insurance as has been lost.
7.
Policy Terms
& Conditions.
Under this heading are the
followings:
i.
Name of the Insured
ii.
Locational address of the subject-matter of insurance.
iii.
Insured’s Occupation and/or business
iv.
Extension and Privileges
v.
Exceptions:
a.
Exempted Peril
b.
Excepted Causation/consequence
c.
Excluded Property.
vi.
Conditions
vii.
Endorsements/Warranties/Clauses/Memoranda attaching to and forming
part of the
Policy.
Attempt to verify each and every
one of the above vis-à-vis the circumstances of
the claim
entails thorough
verification of the loss(es) which is a distinct course
title to be examined
later.
8.
Visible
Indemnity Option.
The essence of the claim
verification as outlined above is to determine policy
liability or
otherwise
while the ultimate goal is to offer indemnity as promised
within the purview of
cover of the insurance contract. Primarily, the Underwriter’s
promise of
indemnity is by way of
payment of money to the Insured to the
extent of the loss
so determined. At the option of the
Underwriter, indemnity
could be provided in
the following alternative form:
1.
Repair of the damage
2.
Replacement of the property lost.
Either option constitutes
reinstatement of the insured property after the loss.
The Underwriter
however
hardly elects reinstatement option because of the
intricacies involved.
II INVESTIGATION OF INSURED
PROPERTIES.
The Insured property is otherwise
known as the subject-matter of insurance
and upon occurrence
of loss involving
it, the under-listed particulars are
desirable to be investigated:
a.
The Insured’s relationship with the property
b.
The scene of loss
c.
The value of the insured property
d.
Quantity available, use and function.
e.
Quality of the insured property
f.
Its physical condition
g.
Nature of the property.
h.
Salvage Value
i.
Possibility of repair/replacement.
j.
Maintenance Practice, Requirements and Certification.
a.
Insured’s
Relationship with the Property.
Knowledge of the Insured’s
relationship with the property is indispensable to
the determination of
insurable interest. Is the Insured the owner or a bailee?
The established
relationship is
subsequently compared with the interest
covered within the
provisions of the policy for confirmation
of policy liability.
The comparison will reveal whether the loss is held covered as a matter of
the
Insured’s right
or privilege under the contract and by implication, informs
the limit of
liability due.
For example, indemnity in respect of employees’
personal effects
is a privilege granted to the Insured
under the ‘All Other
Contents Clause’ of a
suitably worded Burglary Insurance Policy relating to
business
premises subject
to a limit.
b.
The Scene Of
Loss.
The address of the scene of loss is
material to the determination of policy
liability. Burglary/Theft Insurance
generally is underwritten on locations-specific
basis. That is, the property
must be situated at the exact locational
address
identified in the
Policy as at the time of occurrence of loss for policy liability to
attach. To
this effect,
the identity of the risk location - number, street/road name
and
town - needs be verified with utmost accuracy.
For instance, policy
liability does not attach to the Insured’s warehouse at No.12 where only the
trading premises
situated at No. 2 of the same street is represented to have
been insured.
c.The Value Of The Insured
Property.
As hitherto opined, the sum insured
is just an expression of the Underwriter’s
maximum liability for the loss/damage
to the insured property. The measure of
indemnity affordable is determined by
the extent of misfortune actually
suffered. Whether the misfortune
relates to partial or total loss - actual or
constructive - the insurable value
(i.e. cost of
replacement) as at the time of
loss is required to ascertain
whether there was under-insurance of the value at
risk or
not. Where the loss is
in respect of reparable damage, the costs and
expenses incidental to the repair
exercise are to
be valued.
The valuation exercise could be
undertaken directly by the claim technician vide
the market survey of prices
where the
loss is enormous or the ill-fated property
is a specialised item in
one way or the other, services of professionals like
Engineers may be sought for
expert opinion. The value of the ill-fated property
might also serve as an
indicator whether
it was really the insured property.
d.
Quantity
Available, Use & Function.
By omission or commission, the
Insured might deliberately or inadvertently
fail to represent the entire
quantity of similar
property at the same location
for insurance. Where the
insured property is distinctly identified in the
Specification with
definite sum
insured, the quantity of the remainder after
the event of loss vis-à-vis the
quantity insured becomes relevant
to the
determination of policy liability. A
Video Rental Premises had listed ‘2No. 14”
Sharp Coloured Television Sets’
among
the inventory of the insured items on
the Specification and claimed that the two
were carted away by bandits in
the course of robbery incident at the insured location. But the Claim Technician,
in the course of his investigation in the
premises found a unit of similar
equipment. On enquiry, the Policy holder
claimed that he had three prior to the
occurrence
of loss. The policy liability
would be limited to one unit among the
stolen ones while the salvage related to
the second unit
insured.
Enquiries in respect of the use and
function of the ill-fated subject-matter of
insurance are also of paramount
importance
vis-à-vis the Insured’s
business/occupation. Where investigation
reveals that an equipment which
is the subject-matter
of claim is foreign to
the Insured’s business/occupation
identified in the policy, such an equipment
belongs to another
profession
or trade of the Insured which was not disclosed
and consequently uninsured
within the terms and conditions
of the contract. For
example, loss of a sewing
machine being claimed in the aftermath of a theft
occurrence at a plastic
chair manufacturing concern under the policy item
represented as ‘plant,
equipment and machinery’
e. Quality Of The Insured
Property.
It becomes imperative to determine
the manufacturer’s identity, model,
type, capacity, year of make and other
identification particulars of the
insured property at the time of claim
regarding plant, machinery,
equipment, furniture,
fixtures and fittings. Besides
being a pointer to
the value at risk at the time of loss, it also serves as a
lead to the cost
of reinstatement.
f.
Physical
Condition Of The Insured Property.
Information obtained on the date of
purchase, and frequency of use of
the insured property would assist in
determining its physical condition
prior to the occurrence of loss and by
extension, where the reinstatement
entails replacement of old for new, obsolete
equipment for modern
technology etc., adequate provision
for the resultant
betterment could be
made in arriving at indemnity payable.
g. Nature Of The Insured
Property.
Nature of the insured property need
be examined with a view to arrive
at a reasonable conclusion on the
reinstatement options, value and the
salvage. A damaged part of a production
machine might imply total loss
of the entire machine and where the Insured’s production process is
specialised
e.g. refinery, the scrap might
command no
salvage value.
h. Salvage Value
Value of the salvage could be
negotiated with the Insured and the
agreed value deducted from the Net
Adjusted
Amount to arrive at
equitable indemnity payable. Otherwise, the Underwriter
could take
possession of the salvage and dispose it at her own discretion.
Whichever way, Salvage Value is a
recovery due to the Underwriter
on her outlay
on the policy liability.
i. Possibility Of
Repair/Replacement
Certain insured properties are
hardly repaired whenever they suffer
loss even though they are repairable. Where
repair is possible
and viable, the market for the component parts must be
identified -
locally or abroad.
j. Maintenance Practice,
Requirements & Certification
A prudent Claim Technician should
investigate the Insured’s
maintenance culture regarding the ill-fated insured
property.
Maintenance records and certification relating thereto (where
applicable) should be examined in addition to direct interviews
of the Insured’s
officials in connection therewith. Information
obtained could serve as lead to
the proximate cause of and/or the
magnitude of the loss. The finding might also
be useful if the item
was in the possession of the Insured and/or functional
prior to the
burglary incident.
III.
THOROUGH VERIFICATION OF LOSSES
This unavoidable entails visit to
the scene of loss for assessment
of the magnitude of the loss and salvage,
direct interviews with
the Insured or her representatives privy to the
circumstances of
the loss, inspecting and obtaining necessary documents to
substantiate the claim and requesting for eye-witnesses’ accounts
of the
circumstances of the loss to corroborate the Insured’s
narration. Furthermore,
the claim substantiating records -
either submitted by the Insured at the
inception of the claim or
obtained by the Claim Technician in the course of
enquiries -
required further investigation to determine the authenticity of
the
document on one hand and verify the veracity of the
representations on the other
hand.
To this effect, visit to the Police
Station on the Police Report
and the addresses of vendors as represented on
Invoices
and Receipts e.t.c becomes imperative. These contacts and
the resultant
enquiries may be undertaken openly or discreetly.
The investigation is open
where the investigator discloses
his identity and mission to the respondent
whereas discreet
investigation relates to silent, underground enquiries wherein
neither the identity of the investigator nor the purpose of the
interviews is
made known to the respondent. For a thorough
investigation, it is occasionally
warranted that experts/professional
in related fields are engaged by the Claim
Technician to confirm
the extent of damage and the viable reinstatement option
based
on scientific proof. Such expert opinion could be obtained by
engaging the
services of Computer Technicians/Engineers,
Mechanical/Electrical Engineers,
Electronic Technicians, Building
Technologists etc. Their opinions may also be
valuable on the
disposal of salvage.
The object of the enquiries is to
determine the policy liability
for the loss and the extent of indemnity payable.
Therefore,
a prerequisite of the Claim Technician is sound knowledge of
the
terms and the conditions of the insurance contract - both
implied and express
provisions - to serve as a guide towards
|successful execution of his/her
assignment.
Implied Conditions Of Insurance
Contracts
These are the cardinal principles
of insurance contracts viz.:
1.
Insurable Interest
2.
Proximate Cause
3.
Utmost Good Faith
4.
Indemnity (with its corollaries of Contribution and Subrogation)
a. Insurable Interest
Insurable Interest is the legal
right to insure. This means that
the Insured must be in a legally recognised
relationship to the
subject-matter of insurance whereby he will suffer in a
pecuniary sense by the happening of the insured event/risk.
In this
circumstance, the Claim Technician in his enquiries
must not only establish
that the item of claim is a subject-
matter of insurance in the Policy
Specification but of equal
paramount importance is the relationship between the
property
and the Insured as well as confirming that the relationship is
recognised at law (i.e. Legal Relationship). Finally, the legal
relationship
must be such that the Insured benefits from the
safety of the property or
prejudiced by loss of or damage to the
property.
b. Proximate Cause
The proximate cause of the loss
needs be investigated to
determine whether or not it falls within the range of
exemptions, exclusions or exceptions expressed as either
Policy Conditions or
endorsed thereon as Warranties/
Memoranda etc. The Claim Technician must
establish
that the loss was caused as a result of a peril covered
by the policy.
There must be a direct relationship of cause
and effect, of which the cause must
be proximate in efficiency,
though not necessarily in point of time.
“ Proximate cause
means the active, efficient cause
that sets in
motion a train of events which brings
about a result,
without the intervention of any
force started and
working actively from a new
and independent
source.”
c. Utmost Good Faith
Insurance Contracts are contracts
of utmost good faith (uberrima
fides). The failure of one party to exercise the
utmost good faith
enables the aggrieved party to repudiate the contract.
Although the
obligation is binding on both parties alike, obviously it usually
arises out of the conduct of the Insured. In this perspective, the
Claim
Technician must endeavour to obtain detailed particulars of
the occurrence of loss and compare them with or relate them to the
facts of the risk underwriting
as represented in the policy to determine
whether or not there is a breach of
the duty of disclosure. Verification
of the Insured’s representations and
presentations regarding the claim
too bothers on establishing the fulfilment of
the principle of the utmost
good faith by the Insured. Albeit being universally
acknowledged
implied condition of each and every insurance contract,
Underwriters
usually reiterate the position as Policy Conditions.
d. Indemnity (with the
corollaries of Subrogation &Contribution)
Burglary/Theft Insurance is a
contract of indemnity and to this extent,
the implied aspect of the principle
of indemnity relates to the object of
the contract; To place the Insured, as
nearly as possible, in the same
financial position after a loss as that
occupied/enjoyed immediately
before the happening of the burglary/theft
incident. Specifically however,
its determination, measure of the limits and
method of settlement and
recovery (where applicable and feasible) are clearly
spelt out in the
policy that evidences respective contracts. In essence, while
the
principle of indemnity is an implied condition of insurance contract
generally, the workability and the application constitute unique
expression
provisions vis-a-vis individual contract. Thus, the Claim
Technician must be
conversant with the dual aspects and have the
peculiarities of the contract
involved in the claim being investigated at
the back of his mind in the course
of his enquiries
The principle of subrogation is an
integral part of the principle of
indemnity and a prime corollary of the
indemnity doctrine. It is the
right of the Insurer who has granted an indemnity
to receive, after
payment of a loss, the advantage of the right of the Insured,
arising previously or in the future, including rights in contract or
in tort,
which may diminish the Insured’s loss. This right is
implied in all contracts of
indemnity. It needs not, therefore
be expressed in such contracts, although in
practice it almost
always is. The principle of indemnity prevents the Insured
who
holds a policy of indemnity from recovering from his Insurer a
sum greater
than the actual financial loss he has sustained.
If therefore, upon the happening
of a loss the Insured has an
alternative right or remedy (which arise in
contract, at common
law or under statute), he can recover from both sources, but
he can not retain more than an indemnity. If he is indemnified
by his Insurer,
then the Insurer becomes entitled to, or is
subrogated to, the alternative
rights and remedies. That is,
he stands in the place of the Insured and is
entitled to avail
himself of those rights and remedies, but only up to the
amount
of the Insurer’s payment to the Insured. In the same way, if the
Insured
himself receives compensation for his loss from another
party after he has been
indemnified by his Insurer to the extent
that the latter is entitled thereto.
This possibility of recovery
should be borne in mind by the Claim Technician and
simultaneously pursued or open a channel for its pursuance in
the course of his
enquiries. A good example in the circumstance
is the right of the Insurer to
subrogate to the right of the Insured
who is the stock owner to recover
indemnity outlay from the
warehouse man in whose care, control and custody was
the
ill-fated consignment at the time of loss.
On the other hand, the principle of
Contribution, which
like the principle of Subrogation, has been described as a
corollary of indemnity. It is concerned solely with the
apportionment of
liability as between Insurers in the event
of double insurance (Mind you, it is
different from Coinsurance
Contribution). Contribution is the right of an
Insurer who has
paid under a policy, to call upon other Insurers equally or
otherwise liable for the same loss to contribute to the payment.
‘Contribution
exists where the thing is done by the same person
against the same loss, or if
he recovers the whole loss from
one which he could have recovered from the
other, then to
make the parties contribute rateably. But, that only applies
where there is the same person insuring the same interest with
more than one
office.
In this circumstance, it behoves
the Claim Technician to
channel his enquiries toward unravelling any other
insurance
contract(s) that could be relevant to indemnity payment on the
loss
incident.
Express Policy Conditions.
These Conditions are always
contained in printed form as a
standard format of the policy of a particular
class of
insurance. On the other hand, there are other type-written
terms of the
contract referred to interchangeably as Clauses,
Memoranda, Endorsements and
Warranties attaching to and
forming part of the policy. They reflect specific
do’s and
don’ts that are peculiar to the assessment of individual
contract
between the Insurer and the Insured. The nature
and wording of the policy
provisions depend to a large
extent on the individual contract concerned. By and
large,
the Claim Technician should be conversant with these
provisions to serve
as compass guiding the direction of his
enquiries.
Besides the usual standard Policy
Conditions applicable to
property insurance contracts generally (as hitherto
outlined
in the sub-item titled ‘The Express Conditions’ under the
Introduction), other special provisions peculiar to the Burglary
Insurance and
termed Warranties, Clauses and/or Endorsements
include the followings:
1.
Documentary Evidence Warranty
2.
Protection Warranty
3.
Security Light Warranty
4.
Night-watchman Warranty
5.
Single Article Limit/Limitation Of Liability Clause.
6.
Air-conditioner Warranty.
7.
Pair Or Set Clause.
8.
Stock Declaration Clause
9.
First Loss Conditions.
10.
Excess Clause.
IV. INSURED’S BOOKS AND INVENTORY
INSPECTION.
The need for the Insured’s books to
be verified cannot be
over-emphasized in a view to confirm the authenticity of
the
claim regarding magnitude of the loss. There is no general
rule regarding
the type of books to be kept by the Insured
or inspected by the Claim
Technician. The Insured is simply
expected to maintain records of transaction
through which
the facts of the quantum of loss could be verified since the
books
maintained differ from trade to trade and one
profession to the other.
Maintenance of adequate business
records is often a term of the insurance
contract under
the title of Warranty/Endorsement known as ‘Documentary
Evidence
Warranty’. Under this provision, it is not enough
that the Insured should
maintain adequate records to establish
the loss, safe-keeping of such records is
of paramount
importance too. With regards to Burglary Insurance on
business
premises in particular, the following records are
deemed material to be kept and
inspected:
i.
Daily Sales and Purchase Books
ii.
Sales & Purchase Invoices/Receipts
iii.
Stock Movement Cards
iv.
Delivery & Goods Received Notes
v.
Immediate Past Stock Taking Records prior to and
subsequent to the
occurrence of loss
vi.
Asset Register of Office Furniture, Fixtures and
Fittings as well as
Plant, Machinery and Equipment.
V. INSURANCE CLAIM HANDLING
PRACTICES
Oxford Advanced Learner’s
Dictionary defines practice
as a way of doing things - common, habitual or
expected;
a thing done regularly, a habit or custom. Relating this
definition to
the topic, it is right to state that there are
some practices in claim handling
that we need to know.
We focus attention on fair claim handling practices and
unfair claim handling practices. If an Insurer should
have good name or bad
name, it depends on the way
she handles her claims. The foundational principle
of
utmost good faith is the keyword that must be adhered
to in insurance
practice.
Reputable Insurers are prompt,
cautious and fair in
handling claims. Having this philosophy entrenched in
their
trade policy, this policy has been recognised as a
valuable sales tool.
Insurance claim handling practices
can be divided into two major groups namely,
Fair and
Unfair Claim Handling Practices.
FAIR CLAIM
HANDLING PRACTICES
Fair means anything that is just
and reasonable. In handling
claimants,
Insurers should be seen as just and
reasonable.
Fair Claim Handling Practices can be stated as follows:
?
Prompt claim handling
at every stage of claim processing.
?
Making efforts to
ensure that every offer is agreed to without f
orcing a claimant to go to
arbitration or court.
?
Take time to explain
pertinent policy conditions when a part or
all of a claim is declined.
?
Prompt claim payment
- no delay after discharge form is signed.
?
Courtesy in dealing
with claimants, exhibiting good human
relations without sacrificing firmness
where appropriate.
?
Rendering necessary
assistance to genuine claimants in getting
their claims settled without playing
on their ignorance.
?
Only limiting demands
for claim processing documents to those
that are necessary to support the claim
in question.
?
Employing competent
and honest staff in handling claims -
ensuring thorough and complete
investigation and establishment
of standard procedures.
?
No under payment of
claim amount.
?
Avoid influence on
Loss Adjusters.
?
Payment of reasonable
bill on expenses and payment of Loss
Adjuster’s fee with minimum delay.
?
Management should
encourage fair claim handling by way of
making it the company’s trade policy and
make violation
punitive.
Clearly entrenched in the Insurance
Act 2003 is a provision of
the law supporting Fair Claim Handling. Hitherto,
Insurers could
invoke breach of a warranty to repudiate a claim whether or not
it is material to the claim in question. This is because breach
of warranty goes
to the root of insurance contract and makes a
claim voidable. Many claimants
prior to 1997 (when the rule
was first modified by the Insurance Decree 1997)
had been
penalized on the basis of this obnoxious term. However, the
Insurance
Act 2003 section 55(1)(2) correct the position thus:
Section 55(1)
“In a contract of insurance, a
breach of term whether called
a warranty or condition shall not give rise or
afford a defence
to the Insurer against the Insured unless the term is material
or relevant to the risk or loss insured against.”
Section 55(2)
“Notwithstanding any provision in
any written law or enactment
to the contrary while there is breach of term of a
contract of
insurance, the Insurer shall not be entitled to repudiate whole
or
part of the contract or a claim brought on the ground of the
breach unless:
a.
the breach amounts to fraud
b.
it is a breach of a fundamental term whether or not it
is called a
warranty.
Any Insurer that wants to grow and
be patronised by the insuring
public and other insurance practitioners must be
fair in handling claims.
UNFAIR CLAIM SETTLEMENT
PRACTICES.
?
Absence of proper or
correct interpretation of the insurance
policy or facts relating to the
Insured’s claim.
?
Delay in processing
claims promptly.
?
Insisting on
irrelevant claim substantiating documents for
claim processing.
?
Piece meal demand of
claims substantiating documents.
?
Failure to deny or
affirm liability after a loss has been proved.
?
Under-payment of
claim amount
?
Influencing Loss
Adjusters to be biased in their judgement by
any of the parties against the
other.
?
Delay in settling
claim promptly.
?
Absence of standard
procedure manned by competent hands.
?
Claim avoidance
attitude when liquidity is low
?
Unfriendliness or
lack of sympathy towards the misfortune
This is the text of speech presented at the ILAN
Conference 2004. ©
Copyright 2004 by Adebiyi
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